1. Introduction: Setting the context


The doctrine of “clean hands”[1] has been influencing exercise of judicial discretion in India for long, the common law tradition being the inspiration. So much so that it is arguably an axiomatic proposition in Indian jurisprudence. Originally an equitable principle, though not without exceptions[2], the doctrine has found its feet in India and has been successfully transposed in various as judicial dimensions. For instance, it has been deployed as a filter to screen public interest litigations,[3] besides being a paramount disqualifying criteria for exercise of extraordinary writ jurisdiction[4]. The doctrine has, since, metamorphosed into various other dimensions which are deployed as a ground to refuse judicial redress.


In this context, this article reviews five decisions of the Supreme Court released in this first quarter of the calendar year 2022, to reflect upon the judicial attitude which has unrestrainedly applied the expanded version of this doctrine to deny relief to the claimants. The foremost criteria for choice of these decisions is pedestaled on the fact that in all these cases the State instrumentalities were the defendants. The intent of the analysis is to test the hypothesis that there is a change in the judicial stance insofar balancing of equities versus the constitutional and legal obligations of the State instrumentalities is concerned.


Unarguably, some of the propositions emerging from the decisions examined in this article are not novel. However, the premise of this article is to highlight how the expanded version of the clean hands doctrine is being allowed to give leeway to the State through complete judicial abstinence to scrutinising the propriety of State instrumentalities. Through these case studies, the article argues that the application of the expanded contours of the doctrine implies that the resultant propositions may soon claim a near axiomatic status.


  1. Venus Stampings – Overriding legal stipulations to arrest hoodwinking tactics

The facts and outcome in Venus Stampings (P) Ltd. v. CCE[5] make an interesting case study, even though the decision of the Supreme Court and the impugned order of the Appellate Tribunal were rather brief. In order to appreciate the issue, a brief background on the “valuation” related provisions under the central excise law is relevant. Central excise is a tax on “manufacture” of goods. The tax collection, however, is deferred till the clearance of the goods from the factory. The statute provides for two different valuation methodologies. Originally the levy of Central Excise duty was computed on the basis of actual selling price of such manufactured goods. In the 1980s, an additional valuation methodology was introduced whereby the central excise duty began to be computed on the basis of the maximum retail price (MRP) of certain notified goods. The validity of this new methodology was upheld by the Supreme Court[6] and since then the two valuation methodologies i.e. one on actual selling price (referred as “Section 4 valuation”) and other on MRP basis (referred as “Section 4-A valuation”) have been in parallelly in vogue. The critical aspect is that these methodologies are mutually exclusive and once a particular commodity has been notified for MRP based valuation, the actual selling price as a basis for valuation becomes irrelevant.

In Venus Stamping[7], the issue related to sale of a commodity which was notified for MRP based valuation. However, in reality the commodity was being sold at a price more than MRP; the actual sale price being 830 whereas the declared MRP was only 675. Venus took a view that owing to the Section 4-A notification the Tax Department was obliged to compute the central excise duty only on the MRP without recourse to the actual sale price. This view was contested by the tax authorities who insisted upon ignoring the MRP because the actual sale price was much higher than the MRP. In a short order[8] the Appellate Tribunal concluded that the actual sale price being much higher implied that MRP “has no relevance”. Thus, the Appellate Tribunal ignored the legal stipulations of Section 4-A valuation in the wake of unacceptable factual position adopted by Venus.


The decision of the Supreme Court was shorter than that of the Appellate Tribunal and confirmed the latter’s views with an additional reason. The Supreme Court opined that Section 4-A valuation preceded on the premise of “retail price” and thus where the actual sale price was more than the stipulated MPR, the MRP lost its relevance as the “retail price”. Thus the Supreme Court rejected the taxpayer’s argument “that the mandate of Section 4-A(2) obligates the taxing authority to assess the excise duty only in reference to the market selling price printed on the packing of the product”.


Even though the decisions of both the Appellate Tribunal and the Supreme Court are silent on the aspect of the conduct of the taxpayer, both clearly evidence the displeasure at the hoodwinking tactics employed by the taxpayer to reduce the tax incidence. This is because under law the taxpayer is obliged to predetermine and notify the MRP while also ensuring that the sale price does not exceed MRP. Thus, by selling the goods above the MRP the taxpayer was already committing a legal violation and it was in the teeth of such unacceptable (in fact illegal) conduct that the taxpayer argued that the tax authorities must nonetheless accept the MRP. The judicial approach in this case in declining to adopt a purely technical interpretation of the tax law confirms that it would not shy away from overriding legal stipulations to address untenable conduct, notwithstanding the general non-application of equity or morality in the canons of tax law[9].


  1. Devas – Fraud as a vitiating variable to override to all claims against the State

With the decision in Devas Multimedia (P) Ltd. v. Antrix Corpn. Ltd.[10] there is no better contemporary precedent to support the proposition that fraud vitiates everything because this decision dissects the legal theory and reflects the pragmatic variables which influence judicial choices and determine the real treatment to be meted to legal claims. Even though this case arose in the context of company law, the decision is essentially in the public law realm as it was a challenge to correctness of approach and motive underlying the government’s decision on corporate winding up. If one were to exclude a rather large part of the decision which interprets company law provisions relating to winding up, the factual part of the decision reveals that it was the overwhelming presence of factual elements which really swayed the Supreme Court in deciding what it decided.


In this case the Supreme Court was examining allegations of fraud by the management of Devas, which as a legal entity executed a contract for provision of certain service to a government company. Citing various unacceptable acts of the entity (inter alia being “(i) the offer of a non-existent technology; (ii) misrepresentation about the possession of intellectual property rights over a device; (iii) violation of SATCOM policy; (iv) securing of an experimental licence fraudulently; (v) manipulation of the minutes; and (vi) the trail of money brought in through Foreign Investment Promotion Board (FIPB) approvals”, etc.), the Supreme Court approved the allegations of undue favour being extended to the entity and fraud being perpetrated by it.


The Supreme Court engaged in a rather expanded scope of evaluation by refusing to be cowed down by statutory provisions to hold that the review (to determine whether fraud was committed) could not be confined only to that government entity which transacted with the defrauder. Opining that the “principle that fraud vitiates all solemn acts, will itself be rendered nugatory, if the understanding of fraud is confined only to the realm of contract”, the Supreme Court highlighted that there “are cases where a party may perpetrate a fraud either upon non-contracting parties or upon the Government or even upon the courts”. Thus, the entirety of circumstances (and all stakeholders) were held to be relevant in order to assess the allegations of fraudulent conduct.


The Supreme Court also did not allow the corporate management to hide under the auditor’s confirmation. It inter alia observed that (a) “auditors are not experts either in criminal law or in the technology that formed the subject-matter of the agreement”; (b) “the auditor’s report can neither be taken as gospel truth nor act as estoppel against the company”; and (c) “statement in the auditor’s report, is as per the information given to them or as per the information culled out to the best of their ability”, and therefore, a clean chit by the auditors does not absolve the corporate management. Discussing event after event and action after action of the entity, which established contumacious conduct, the Supreme Court took head-on the contention of the entity that the impugned order of the Company Tribunal permitting winding up was “completely perverse and erroneous”,[11] only to reject it.


Notwithstanding the aforesaid, the real takeaway for our analysis from this decision is the contention of the entity that the winding up initiated by the Government was with an ulterior motive. It was argued before the Supreme Court “that the actual motive behind Antrix seeking the winding up of Devas, is to deprive Devas, of the benefits of an unanimous award passed by the ICC Arbitral Tribunal presided over by a former Chief Justice of India and the two BIT awards and that such attempts on the part of a corporate entity wholly owned by the Government of India would send a wrong message to international investors”. An unimpressed Supreme Court[12] refused to indulge, tersely rejecting this contention with the following observations:

  1. 167. We do not find any merit in the above submission. If as a matter of fact, fraud as projected by Antrix, stands established, the motive behind the victim of fraud, coming up with a petition for winding up, is of no relevance. If the seeds of the commercial relationship between Antrix and Devas were a product of fraud perpetrated by Devas, every part of the plant that grew out of those seeds, such as the agreement, the disputes, arbitral awards, etc., are all infected with the poison of fraud. A product of fraud is in conflict with the public policy of any country including India. The basic notions of morality and justice are always in conflict with fraud and hence the motive behind the action brought by the victim of fraud can never stand as an impediment.
  2. 168. We do not know if the action of Antrix in seeking the winding up of Devas may send a wrong message, to the community of investors. But allowing Devas and its shareholders to reap the benefits of their fraudulent action, may nevertheless send another wrong message, namely, that by adopting fraudulent means and by bringing into India an investment in a sum of INR 579 crores, the investors can hope to get tens of thousands of crores of rupees, even after siphoning off INR 488 crores.


Undoubtedly the most critical part of the Supreme Court’s observations is that “every part of the plant that grew out of those seeds … are all infected with the poison of fraud”, which shall render all rights unenforceable because of “a product of fraud [being] in conflict with the public policy of any country including India”. Also evident from the aforesaid is the Supreme Court’s affirmation that “the motive behind the action brought by the victim of fraud can never stand as an impediment”. This unqualified conclusion of the Supreme Court does not make exception or factor that it was the Government’s “motive” which was under challenge. In other words, the presence of fraud is concerned as a sufficient ground to reject an examination of even the actions of the State instrumentality and its propriety on the touchstone of constitutional and other obligations under the law of the realm.


  1. Adiraj Manpower – Disdain for camouflage

In Adiraj Manpower Services (P) Ltd. v. CCE[13] the Supreme Court was appraising the correctness of the determination made by the Service Tax Appellate Tribunal (CESTAT) which had declined to extend exemption to Adiraj. The claim for exemption arose in the context of a change in regime in the service tax law. Prior to the change Adiraj was discharging service tax liability, considering itself to be a manpower supplier. After the change in law, a new agreement was executed by Adiraj with the existing customer purportedly claiming a revisit to the terms of engagement and transformation of the service provider relationship as one of manufacturing. By doing so, Adiraj claimed, it became entitled to claim exemption under the changed service tax law which exempted manufacturing activities. This claim, however, was not acceded to by the CESTAT.[14]


Dismissing the appeal, the Supreme Court did not just approve of the conclusion of the CESTAT, but it went beyond to record its own factual findings to justify the denial of exemption to Adiraj. Reviewing the contractual stipulations threadbare, the Supreme Court noted with disdain the “fact that the appellant is not a job worker [which] is evident from a conspicuous absence in the agreement of crucial contractual terms which would have been found had it been a true contract for” carrying out manufacturing activity. On its own accord the Supreme Court listed the following five ingredients which were missing in the new agreement i.e. “(i) the nature of the process of work which has to be carried out by the appellant; (ii) provisions for maintaining (a) the quality of work; (b) the nature of the facilities utilised; or (c) the infrastructure deployed to generate the work; (iii) the delivery schedule; (iv) specifications in regard to the work to be performed; and (v) consequences which ensue in the event of a breach of the contractual obligation”. According to the Supreme Court in the absence of these stipulations “it is apparent that the contract is pure and simple a contract for the provision of contract labour”. Not stopping at a mere rejection of the claim, the Supreme Court in Adiraj Manpower[15] proceeded to criticise the actions of Adiraj because it opined that an “attempt has been made [by it] to camouflage the contract as a contract for job work to avail of the exemption from the payment of service tax”.


The stance of the Supreme Court, in not merely refusing the claim for exemption but going ahead to characterise the claim as an outcome of abuse, is a rare occurrence in the sphere of fiscal laws, though not unheard of in the jurisprudential sphere. For illustration, the Supreme Court earlier in McDowell & Co. v. CTO [16] gave a sermon on the moral responsibility of the taxpayers to the effect that “[i]t is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges”and in Commr. of Customs v. Phoenix International Ltd.[17] declared that “intention plays an important role in matters in which there is an allegation of duty evasion”. Even though the Supreme Court itself, time and again, has advised against introduction of such moralistic canons in the sphere of tax laws[18] and, more recently, declared that the Tax Department “has no business to second guess commercial or business expediency of what parties at arms length decide for each other”,[19] still decisions like Adiraj Manpower[20] find a way to disturb the precarious tranquillity where the parties’ conduct becomes a relevant parameter for statutory interpretation in the fiscal realm. This is a strong message flowing from this decision which reveals that judiciary continues to detest colourable devices, whose very presence implies that the judicial ruling would favour the State.


  1. Apex Labs – Consequence-driven interpretation trumps settled principles of statutory interpretation

In Apex Laboratories (P) Ltd. v. CIT[21] the Supreme Court was concerned with the interpretation of Section 37 of the Income Tax Act, 1961. This provision allows deduction of certain expenses incurred by a business entity for the purpose of computing the income tax liability of such entity. The condition for this provision to apply is that the expenditure must be “laid out wholly and exclusively for the purposes of the business” of the entity. The provision, however, debars expenditure incurred “for any purpose which is an offence or which is prohibited by law”. The issue before the Supreme Court was whether expenses incurred by pharmaceutical and allied healthcare industries for distribution of incentives to medical practitioners could be allowed as deduction. Apex argued before the Supreme Court that though there was a prohibition issued by the Medical Council to the medical professionals from accepting such incentives, there was no corresponding prohibition attached to the pharmaceutical companies from giving such incentive and thus the exception to Section 37 was not attracted. The Supreme Court, however, did not approve the contention and rejected the claim for deduction.


What makes the decision in Apex Laboratories[22] relevant in our quest is its emphasis upon a purposive interpretation of the provision to give meaning to the purported legislative intent. The Supreme Court rejected the claim being of the view that the literal reading of the statutory provision, which otherwise is the settled norm in interpretation of fiscal statutes, would result into a “narrow interpretation” of the provision which logically cannot be apprehended as intended by the legislature.[23] The Supreme Court, thereby, refused to “lend its aid to a party that roots its cause of action in an immoral or illegal act”, which in this case was undue influence by the pharmaceutical companies through the incentives to the fiduciary relationship between doctors and their patients. The Supreme Court also observed that “one arm of the law cannot be utilised to defeat the other arm of law – doing so would be opposed to public policy and bring the law into ridicule” besides declaring that it would not sustain the claim for deduction as the “pharmaceutical companies have misused a legislative gap to actively perpetuate the commission of an offence”.


The decision in Apex Laboratories[24] is a quintessential illustration to the effect that the ordinary principles of statutory interpretation can be a give a go by in light of blemished conduct of the party contesting against the State. To exemplify this proposition, one must recall the often-quoted restatement of law by Rowlett, J., which has been consistently followed by Indian courts, that “[i]n a taxing Act one has to look merely at what is already said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used”.[25] Thus, applying this strict interpretation standard,[26] the claim of the pharmaceutical companies was well founded. The Supreme Court, however, in Apex Laboratories[27], got over this principle by observing that the “well-settled principle of interpretation of taxing statutes – that they need to be interpreted strictly – cannot sustain when it results into an absurdity contrary to the intentions of the Parliament” and preferred to adopt that meaning which “gave shape to the intent of the lawmakers” after “discerning the social purpose which the specific provision subserves”.


The penultimate paragraph of the decision in Apex Laboratories[28] clearly contextualises unworthy conduct as the overwhelming disentitling variable when it inter alia observes, “[i]n the present case too, the incentives (or ‘freebies’) given by Apex, to the doctors, had a direct result of exposing the recipients to the odium of sanctions, leading to a ban on their medical practice” and therefore, the fact that “medical practitioners were forbidden from accepting such gifts, or “freebies” was no less a prohibition on the part of the given, or donor i.e. Apex”.


  1. Loop Telecom–Impropriety strips legitimacy of claims for legal entitlements

The decision in Loop Telecom and Trading Ltd. v. Union of India[29] was in a sense another round in a decade old dispute relating to the 2G scam. The genesis of this lis was engrafted by the earlier decision of the Supreme Court in Centre for Public Interest Litigation v. Union of India (CPIL)[30] wherein the government policy on grant of 2G telecom licences and all licences granted in pursuance of the policy were quashed. Pursuant thereto, Loop applied for refund of entry fee paid as a condition for grant of telecom licence to it which since thereafter stood quashed. The propriety of refund claim was the subject-matter of consideration of the Supreme Court in this Loop Telecom[31] decision.


Recalling the observations made in the CPIL case[32], the Supreme Court in Loop Telecom[33] refused to hold the Government alone as accountable and absolve Loop “from taint or wrong doing” as the earlier decision “did not exculpate the private business entities who obtained [the licences] and became the beneficiaries” of the government’s actions. Thus being found “in pari delicto[34] with the Union Government”, the Supreme Court denied any relief to Loop. The Court further categorised this this overriding blot on claim of Loop as an attempt “to take another bite at the cherry by initiating proceedings over various forums, particularly to circumvent the jurisdiction of this Court which is in seisin of the matter”, which was “a dilatory tactic” and even “an attempt at forum shopping”.


In view of the foregoing characterisation of its conduct, the Supreme Court in Loop Telecom[35] refused to extend relief which was other available under the contract law.[36] To this end it was declared by it that the contract law provisions do not operate in derogation of equitable standards and “restitution” as a relief will not be allowed to “those who aim to perpetuate illegality”. In fact the Supreme Court described Loop as a “beneficiary of a manifest arbitrary policy which was adopted by the Union Government” and thus even the legal principle of restitution could not come to its aid.


In parting, the Supreme Court categorically declared that “as a beneficiary and confederate of fraud, the appellant cannot be lent the assistance of this Court for obtaining the refund of the entry fee”. Clearly therefore, the conduct of Loop was considered as disqualifying criteria which stripped it of any entitlement to claim any reliefs, including those founded in statutory provisions.


  1. Conclusion

In a contest between private parties, unworthy conduct has always been a ground for refusal to judicial relief. These case studies illustrate that courts have now steadily started applying this principle even in lis against the State and its instrumentalities. This aspect has serious consequences because, unlike private parties who can define their own rules of conduct, the State and its instrumentalities can never be absolved of their obligations under law irrespective of the conduct of the citizens. Much less, the State can never be heard to argue that it would derive advantage from lack of diligent conduct of the citizens.[37] Nonetheless, if these case studies are considered as crystallisation of the legal proposition, through this clear and unequivocal transposition of equitable principles and judicial exposition in the context of private disputes, the Supreme Court appears to have permitted the State to deny legal entitlements to citizens citing their dubious conduct. One would hope that this shift in trend is an exception reserved for those cases alone which fall within the adage; hard cases make bad law.

† Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics

[1] “Clean hands: A phrase from a maxim of equity — he who comes to equity must come with clean hands i.e. a person who makes a claim in equity must be free from any taint of fraud with respect to that claim.” P. Ramanatha Aiyar’s The Major Law Lexicon, p. 1194, 4th edn., 2010.

[2] For illustration, see Siraj Ahmad Siddiqui v. Prem Nath Kapoor, (1993) 4 SCC 406; MCD v. Nirmal Sachdeva, (2001) 10 SCC 364.

[3] For illustration, see Kalyaneshwari v. Union of India, (2011) 3 SCC 287.

[4] For illustration, see Raj Kumar Soni v. State of U.P., (2007) 10 SCC 635.

[5] Civil Appeal No. 63 of 2022, decided on  4-1-2022. (SC)

[6] Union of India v. Bombay Tyre International Ltd., (1984) 1 SCC 467 : (1983) 14 ELT 1896.

[7] Civil Appeal No. 63 of 2022, decided on  4-1-2022. (SC)

[8] 2017 SCC OnLine CESTAT 2738.

[9] For illustration, see CTT v. National Industrial Corpn. Ltd., (2008) 15 SCC 259 : (2009) 233 ELT 146.

[10] Devas Multimedia (P) Ltd. v. Antrix Corpn. Ltd., 2022 SCC OnLine SC 46.

[11] Devas Multimedia case, 2022 SCC OnLine SC 46, para 167, 168

[12] Devas Multimedia case, 2022 SCC OnLine SC 46.

[13] 2022 SCC OnLine SC 203.

[14] Vide Final Order No. A/86237/2019(Mumbai) dated 15-7-2019 in Service Tax Appeal No. 86153/2015 (CESTAT, Mumbai).

[15] 2022 SCC OnLine SC 203.

[16] (1985) 3 SCC 230.

[17] (2007) 10 SCC 114 : (2007) 216 ELT 503.

[18] For illustration, see CWT v. Arvind Narottam, (1988) 4 SCC 113 : (1988) 173 ITR 479; Union of India v. Azadi Bachao Andolan, (2004) 10 SCC 1 : (2003) 263 ITR 1; Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 : (2012) 341 ITR 1; etc.

[19] Shiv Raj Gupta v. CIT, 2020 SCC OnLine SC 589.

[20] 2022 SCC OnLine SC 203.

[21] 2022 SCC OnLine SC 221.

[22] 2022 SCC OnLine SC 221.

[23] The Supreme Court inter alia observed, “[i]t is but logical that when acceptance of freebies is punishable by the Medical Council of India (MCI) (the range of penalties and sanction extending to ban imposed on the medical practitioner), pharmaceutical companies cannot be granted the tax benefit for providing such freebies, and thereby (actively and with full knowledge) enabling the commission of the act which attracts such opprobrium”.

[24] 2022 SCC OnLine SC 221.

[25] Mangin v. Inland Revenue Commr., 1971 AC 739 : (1971) 2 WLR 39. See also, Bansal Wire Industries Ltd. v. State of U.P., (2011) 6 SCC 545 : (2011) 269 ELT 145 to similar effect.

[26] See generally, Commr. of Customs v. Dilip Kumar & Co., (2018) 9 SCC 1 : (2018) 361 ELT 577(5 Judges) for an exposition of the strict interpretation principle in the context of fiscal laws. See also, Krishi Upaj Mandi Samiti v. CCE, 2022 SCC OnLine SC 224 for the most recent elucidation of the legal position on the subject.

[27] 2022 SCC OnLine SC 221.

[28] 2022 SCC OnLine SC 221.

[29] 2022 SCC OnLine SC 260.

[30] (2012) 3 SCC 1.

[31] 2022 SCC OnLine SC 260.

[32] (2012) 3 SCC 1.

[33] 2022 SCC OnLine SC 260.

[34] The Supreme Court explained this expression in this case to state that “when the party claiming restitution is equally or more responsible for the illegality of a contract, they are considered in pari delicto”.

[35] 2022 SCC OnLine SC 260.

[36] To this end the Supreme Court discussed S. 56 (“agreement to do impossible act”) and S. 65 (“obligation of a person who has received advantage under void agreement or contract that becomes void”) of the Contract Act, 1872.

[37] For illustration, see State of Haryana v. Mukesh Kumar, (2011) 10 SCC 404.

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