Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman*, Navin Sinha and KM Joseph, JJ has, analysing various provisions under the Negotiable Instruments Act, the Court concluded that the proceedings under Section 138 are “quasi-criminal” in nature.

The Court held that

“a Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) of the IBC.”

In a 120-pages long verdict, the Supreme Court tackled the following issues to reach at the aforementioned conclusion:

OBJECT AND INTERPRETATION OF SECTION 14 OF THE IBC

The expression “institution of suits or continuation of pending suits” is to be read as one category, and the disjunctive “or” before the word “proceedings” would make it clear that proceedings against the corporate debtor would be a separate category.

“What throws light on the width of the expression “proceedings” is the expression “any judgment, decree or order” and “any court of law, tribunal, arbitration panel or other authority”. Since criminal proceedings under the Code of Criminal Procedure, 1973 are conducted before the courts mentioned in Section 6, CrPC, it is clear that a Section 138 proceeding being conducted before a Magistrate would certainly be a proceeding in a court of law in respect of a transaction which relates to a debt owed by the corporate debtor.”

A quasi-criminal proceeding which would result in the assets of the corporate debtor being depleted as a result of having to pay compensation which can amount to twice the amount of the cheque that has bounced would directly impact the corporate insolvency resolution process in the same manner as the institution, continuation, or execution of a decree in such suit in a civil court for the amount of debt or other liability.

“Judged from the point of view of this objective, it is impossible to discern any difference between the impact of a suit and a Section 138 proceeding, insofar as the corporate debtor is concerned, on its getting the necessary breathing space to get back on its feet during the corporate insolvency resolution process.”

Hence, the width of the expression “proceedings” cannot be cut down so as to make such proceedings analogous to civil suits.

THE INTERPLAY BETWEEN SECTION 14 AND SECTION 32A OF THE IBC

“A section which has been introduced by an amendment into an Act with its focus on cesser of liability for offences committed by the corporate debtor prior to the commencement of the corporate insolvency resolution process cannot be so construed so as to limit, by a sidewind as it were, the moratorium provision contained in Section 14, with which it is not at all concerned.”

If the expression “prosecution” in the first proviso of Section 32A(1) refers to criminal proceedings properly so-called either through the medium of a First Information Report or complaint filed by an investigating authority or complaint and not to quasi-criminal proceedings that are instituted under Sections 138/141 of the Negotiable Instruments Act against the corporate debtor, the object of Section 14(1) of the IBC gets subserved, as does the object of Section 32A, which does away with criminal prosecutions in all cases against the corporate debtor, thus absolving the corporate debtor from the same after a new management comes in.

NATURE OF PROCEEDINGS UNDER CHAPTER XVII OF THE NEGOTIABLE INSTRUMENTS ACT

“Section 138 contains within it the ingredients of the offence made out. The deeming provision is important in that the legislature is cognizant of the fact that what is otherwise a civil liability is now also deemed to be an offence, since this liability is made punishable by law.”

It is important to note that the transaction spoken of is a commercial transaction between two parties which involves payment of money for a debt or liability. The explanation to Section 138 makes it clear that such debt or other liability means a legally enforceable debt or other liability. Thus, a debt or other liability barred by the law of limitation would be outside the scope of Section 138. This, coupled with fine that may extend to twice the amount of the cheque that is payable as compensation to the aggrieved party to cover both the amount of the cheque and the interest and costs thereupon, would show that it is really a hybrid provision to enforce payment under a bounced cheque if it is otherwise enforceable in civil law.

Further, as the proviso gives an opportunity to the drawer of the cheque, stating that the drawer must fail to make payment of the amount within 15 days of the receipt of a notice, it becomes clear that the real object of the provision is not to penalise the wrongdoer for an offence that is already made out, but to compensate the victim.

Under Section 139, a presumption is raised that the holder of a cheque received the cheque for the discharge, in whole or in part, of any debt or other liability. To rebut this presumption, facts must be adduced which, on a preponderance of probability (not beyond reasonable doubt as in the case of criminal offences), must then be proved.

Section 140 states that it shall not be a defence in a prosecution for an offence under Section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that Section, thus making it clear that strict liability will attach, mens rea being no ingredient of the offence.

Section 141 makes Directors and other persons statutorily liable, provided the ingredients of the section are met. Interestingly, for the purposes of this Section, explanation (a) defines “company” as meaning any body corporate and includes a firm or other association of individuals.

A cursory reading of Section 142 makes clear that the procedure under the CrPC has been departed from. First and foremost, no court is to take cognizance of an offence punishable under Section 138 except on a complaint made in writing by the payee or the holder in due course of the cheque – the victim. Further, the language of Section 142(1) (b) would again show the hybrid nature of these provisions inasmuch as a complaint must be made within one month of the date on which the “cause of action” under clause (c) of the proviso to Section 138 arises.

“The expression “cause of action” is a foreigner to criminal jurisprudence, and would apply only in civil cases to recover money. Chapter XIII of the CrPC, consisting of Sections 177 to 189, is a chapter dealing with the jurisdiction of the criminal courts in inquiries and trials. When the jurisdiction of a criminal court is spoken of by these Sections, the expression “cause of action” is conspicuous by its absence.”

Under Section 143, it is lawful for a Magistrate to pass a sentence of imprisonment for a term not exceeding one year and a fine exceeding INR 5,000/- summarily. Hence,

“… the payment of compensation is at the heart of the provision in that a fine exceeding INR 5000/-, the sky being the limit, can be imposed by way of a summary trial which, after application of Section 357 of the CrPC, results in compensating the victim up to twice the amount of the bounced cheque.”

Under Section 144, the mode of service of summons is done as in civil cases, eschewing the mode contained in Sections 62 to 64 of the CrPC. Likewise, under Section 145, evidence is to be given by the complainant on affidavit, as it is given in civil proceedings, notwithstanding anything contained in the CrPC. Most importantly, by Section 147, offences under this Act are compoundable without any intervention of the court, as is required by Section 320(2) of the CrPC.

CONCLUSION

“The gravamen of a proceeding under Section 138, though couched in language making the act complained of an offence, is really in order to get back through a summary proceeding, the amount contained in the dishonoured cheque together with interest and costs, expeditiously and cheaply.”

The Court, hence, concluded that a quasi-criminal proceeding that is contained in Chapter XVII of the Negotiable Instruments Act would, given the object and context of Section 14 of the IBC, amount to a “proceeding” within the meaning of Section 14(1)(a), the moratorium therefore attaching to such proceeding.

[P. Mohanraj v. Shah Brother Ispat Pvt. Ltd., 2021 SCC OnLine SC 152, decided on 01.03.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For Appellants: Senior Advocate Jayanth Muth Raj

For Respondent: Advocate Jayant Mehta

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman*, Navin Sinha and KM Joseph, JJ has held that an appeal under section 37(1)(c) of the Arbitration and Conciliation Act, 1996 would be maintainable against an order refusing to condone delay in filing an application under section 34 of the Arbitration Act, 1996 to set aside an award.

The Court was hearing an appeal arising out of a certificate issued under Article 133 read with Article 134A of the Constitution of India by the High Court of Delhi thereby giving rise to the question as to whether a learned single Judge’s order refusing to condone the Appellant’s delay in filing an application under section 34 of the Arbitration Act, 1996 is an appealable order under section 37(1)(c) of the said Act.

Interpreting Section 37(1)(c), the Court took note of the fact that the expression “setting aside or refusing to set aside an arbitral award” has to be read with the expression that follows – “under section 34”. Section 34 is not limited to grounds being made out under section 34(2).

As per section 34(1), an application made to set aside an award has to be in accordance with both sub-sections (2) and (3). Such application would not only have to be within the limitation period prescribed by sub-section (3), but would then have to set out grounds under sub-sections (2) and/or (2A) for setting aside such award. What follows from this is that the application itself must be within time, and if not within a period of three months, must be accompanied with an application for condonation of delay, provided it is within a further period of 30 days, this Court having made it clear that section 5 of the Limitation Act, 1963 does not apply and that any delay beyond 120 days cannot be condoned.

“Obviously, therefore, a literal reading of the provision would show that a refusal to set aside an arbitral award as delay has not been condoned under sub-section (3) of section 34 would certainly fall within section 37(1)(c). The aforesaid reasoning is strengthened by the fact that under section 37(2)(a), an appeal lies when a plea referred to in sub-section (2) or (3) of section 16 is accepted.”

The Court, hence, highlighted that the Legislature, when it wished to refer to part of a section, as opposed to the entire section, did so.

“Contrasted with the language of section 37(1)(c), where the expression “under section 34” refers to the entire section and not to section 34(2) only, the fact that an arbitral award can be refused to be set aside for refusal to condone delay under section 34(3) gets further strengthened.”

Further, so far as section 37(1)(a) is concerned, where a party is referred to arbitration under section 8, no appeal lies. This is for the reason that the effect of such order is that the parties must go to arbitration, it being left to the learned Arbitrator to decide preliminary points under section 16 of the Act, which then become the subject matter of appeal under section 37(2)(a) or the subject matter of grounds to set aside under section 34 an arbitral award ultimately made, depending upon whether the preliminary points are accepted or rejected by the arbitrator.

It is also important to note that an order refusing to refer parties to arbitration under section 8 may be made on a prima facie finding that no valid arbitration agreement exists, or on the ground that the original arbitration agreement, or a duly certified copy thereof is not annexed to the application under section 8.

“In either case, i.e. whether the preliminary ground for moving the court under section 8 is not made out either by not annexing the original arbitration agreement, or a duly certified copy, or on merits – the court finding that prima facie no valid agreement exists – an appeal lies under section 37(1)(a).”

Likewise, under section 37(2)(a), where a preliminary ground of the arbitrator not having the jurisdiction to continue with the proceedings is made out, an appeal lies under the said provision, as such determination is final in nature as it brings the arbitral proceedings to an end. However, if the converse is held by the learned arbitrator, then as the proceedings before the arbitrator are then to carry on, and the aforesaid decision on the preliminary ground is amenable to challenge under section 34 after the award is made, no appeal is provided.

The Court, hence, concluded,

“Undoubtedly, a limited right of appeal is given under section 37 of the Arbitration Act, 1996. But it is not the province or duty of this Court to further limit such right by excluding appeals which are in fact provided for, given the language of the provision as interpreted by us hereinabove.”

[Chintels India Ltd. v. Bhayana Builders Pvt. Ltd.,  2021 SCC OnLine SC 80, decided on 11.02.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For Appellant: Advocate Rajshekhar Rao

For Respondent: Senior Advocate Mukul Rohatgi

Case BriefsForeign Courts

Federal Court of Australia: While deciding the instant appeal dealing with interpretational technicalities associated with international arbitration, the Court clarified the principles and distinctions between recognition and enforcement of arbitral awards vis-à-vis the ICSID Convention. The Court also clarified the legal position over the question that whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award.

Facts: The dispute between the parties is related to the investment by the Respondents of EUR139,500,000 into solar power generation projects within the territory of Spain. The respondents were encouraged to do so by a subsidy program put in place by Spain, which was subsequently withdrawn. The Respondents alleged that the withdrawal of the subsidy program was a contravention of the Energy Charter Treaty (ECT). Pursuant to Article 26(3)(a) of the ECT, Spain agreed that it gave its unconditional consent to the submission of the dispute to international arbitration and, by the virtue of Article 26(4)(a) it agreed to an international arbitration under the auspices of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). The arbitrators eventually awarded the Respondents EUR101,000,000 with interest. The respondents applied to the Federal Court at first instance for an order that Spain pay it that amount with interest. Spain filed a notice contesting the jurisdiction of the Federal Court of Australia on the basis that it was immune from suit as a foreign state under S. 9 of the Foreign States Immunities Act 1985.

Issues: The following key issues were involved in the dispute-

  • Whether the ICSID Convention excludes any claim for foreign state immunity in proceedings for the recognition and enforcement of an award.
  • Meaning of recognition and enforcement in Art 54 and execution in Art 55 of ICSID Convention.
  • Whether Spain’s accession to the ICSID Convention constitutes submission to the jurisdiction of the Federal Court.

Contentions: Spain put forth the following arguments-

  • The word ‘execution’ in Article 55 must be understood as including a proceeding to ‘enforce’ an award (the reasons for this are, to an extent, complex and discussion of this issue may be postponed for now).
  • Even if ‘execution’ in Articles 54(3) and  55 does not mean ‘enforcement’, nevertheless, the question of the proper construction of Art 55 can only be definitively resolved by the International Court of Justice. Until then it is arguable Spain’s accession to Articles 54 and 55 cannot represent its clear agreement to submit to jurisdiction of Federal Court.

Relevant statutes: The case revolves around the interpretation of Articles 54 and 55 of the ICSID Convention. Article 54 deals with the recognition and enforcement of the pecuniary obligations imposed by the award. Execution of the award shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought. Article 55 states that –“Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution”.

The other statutory provisions that were highlighted in the case were Sections 3, 9 and 10 of the Foreign States Immunity Act, 1985. The provisions respectively deal with interpretation of an agreement (including international treaties and agreement); immunity of a foreign state from the jurisdiction of the courts of Australia; and, instances wherein a foreign state has to submit to the jurisdiction of the Australian law and courts.

Observations: The Court noted that, “The principal difficulty at the centre of the debate is linguistic or semantic” – (Allsop, CJ.,). With the parties to the dispute seeking lucidity on the aforementioned provisions, the Court examined them and made the following observations, with Perram, J., elucidating the key aspects of the provisions in question-

Regarding Articles 54 and 55

  • It was noted that ‘recognition’, ‘enforcement’ and ‘execution’ are concepts predating and existing outside of the ICSID Convention. Broadly “recognition refers to the formal confirmation by a municipal court that an arbitral award is authentic and has legal consequences under municipal law. Enforcement refers to the process by which a successful party seeks the municipal court’s assistance in ensuring compliance with the award (as recognised) and obtaining the redress to which it is entitled. Execution refers to the formal process by which enforcement is carried out”.
  • Since the issue at hand orbits around ICSID provisions, therefore the concepts must be interpreted accordingly. Perram, J., noted that under Art. 54 the Contracting States are required to recognise an award. It also permits a party having the benefit of an award to apply to a competent court for its recognition. It also permits a party to apply for the enforcement of the award by application to a competent court. “As such the Article explicitly contemplates two distinct applications to the competent court (or other authority). If enforcement in Art 54(2) were synonymous with recognition this distinction would appear to be pointless. The Article therefore recognises the distinction between the two applications and requires applications for both to be made to the ‘competent court’”.
  • The Judge further pointed out that Article 54(1) imposes two obligations on a Contracting State, first, recognition of the award as binding; and, secondly, (implicitly in relation to an award which has been recognised), enforcement of the pecuniary obligations imposed by the award ‘as if’ it were a final judgment of a domestic court. Article 54 does not contemplate the enforcement of awards which have not been recognised.
  •  “Article 55 does not refer to recognition and there can be no warrant for reading it as if it did”. Interpreting the Article along with the preceding provision (Article 54), the Court stated that the combined effect of Article 54 is that a Contracting State is required to recognise an award when a certified copy of the award is furnished to the competent court (or other authority).
  • If ‘execution’ were construed to include ‘recognition’ in Article 55 there could be no circumstance in which the recognition application expressly contemplated by Art 54(2) could ever be made against a Contracting State. This would render the recognition procedure in Art 54(2) perpetually unavailable against a Contracting State and would have the consequence that the obligation to recognise an award in Art 54(1) as binding could never be engaged. “It may be noted that the fact that recognition is wholly distinct from enforcement (including, if necessary, execution) is also reflected in the heading to Section 6: ‘Recognition and Enforcement of the Award’ where Art 54 and Art 55 are contained. For those reasons, Art 55 does not apply to recognition proceedings and is unavailable to modify the meaning of Art 54(1) and (2) in relation to such proceedings”.

Regarding Spain’s submission to Federal Court’s Jurisdiction: Deliberating upon the question that whether Article 54(1) and (2) constitute Spain’s agreement to submit to the jurisdiction of the Federal Court in a recognition proceeding, the Court answered in affirmative. Article 54(2) is in terms Spain’s agreement with Australia that the Respondents may apply to a competent court for recognition and the Federal Court has been designated as a competent court for the purposes of Article 54. Spain has therefore agreed to submit to the jurisdiction of this Court in relation to a recognition proceeding. Article 55 can have no impact on that conclusion because it has no application to recognition proceedings.

Making an interesting observation, the Court pointed out that the ICSID Convention had been done in English, Spanish and French. Article 33 of the Vienna Convention provides that where ‘a treaty has been authenticated in two or more languages, the text is equally authoritative in each language’; where a difference in meaning emerges which cannot otherwise be resolved by ordinary principles of interpretation ‘the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.’ Allsop, C.J., noted that the relationship between recognition and enforcement can be seen by the wording of the ICSID Convention itself. “Whether the French and Spanish languages have a penumbra or range of meaning in the words exécution and ejecutar to encompass a non-execution procedure of enforcement would be a matter of evidence. I am unconvinced that the question of resolution of the meaning of the English, French and Spanish texts can be done in ignorance of the content by way of evidence of two of the three languages”.[Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. [2021] FCAFC 3, decided on 01-02-2021]


Sucheta Sarkar, Editorial Assistant has put this story together.

Case BriefsSupreme Court

Supreme Court: Dealing with the question whether the Parliament was competent to enact the National Highways Act, 1956 and the National Highway Authority of India Act, 1988 for construction of new roads traversing through the open green-fields, the 3-judge bench of AM Khanwilkar*, BR Gavai and Krishna Murari, JJ has held that

“… there is nothing in the Constitution which constricts the power of the Parliament to make a law for declaring any stretch/section within the State not being a road or an existing highway, to be a national highway. Whereas, the provisions in the Constitution unambiguously indicate that the legislative as well as executive power regarding all matters concerning and connected with a highway to be designated as a national highway, vests in the Parliament and the laws to be made by it in that regard.”

The 1956 Act and the 1988 Act were made in reference to Entry 23 of List I of the Seventh Schedule.  The Court noticed that the fact that Entry 13 of List II bestows exclusive power upon the legislature of any State concerning subject “roads”, cannot be the basis to give restricted meaning to Entry 23 in List I, dealing with all matters concerning “national highways”.

“It is well-established position that if the law made by the Parliament is in respect of subject falling under Union List, then the incidental encroachment by the law under the State list, per se, would not render it invalid.  The doctrine of pith and substance is well-established in India. The doctrine is invoked upon ascertaining the true character of the legislation.”

Adverting to Article 248 of the Constitution that bestows legislative powers on the Parliament to make a law with respect to any matter not enumerated in the Concurrent List or the State List, the Court noticed that the expression “highways” as such, is not mentioned either in the State List or the Concurrent list. While making law on the subject falling under the Union List in terms of Entry 97 thereof, it is open to the Parliament to make law on any other matter not enumerated in List II or List III including any tax not mentioned in either of those lists.

It was further stated that the entries in the legislative lists are not sources of legislative powers, but are merely topics or fields in respect of which concerned legislative body is free to make a law. The entries must receive a liberal and expansive construction, reckoning the wide spirit thereof and not in a narrow pedantic sense.

“Entry 23 in List I refers generally to “highways” declared or to be declared by the Parliament as national highways and all matters connected therewith.  This empowers the Parliament to declare any stretch/section across any State as a highway for being designated as a national highway.  There is no indication in the Constitution to limit the exercise of that power of the Parliament only in respect of an existing “highway”.”

The Court further enunciated that whenever and wherever the question of legislative competence is raised, the test is whether the law enacted, examined as a whole, is substantially with respect to the particular topic of legislation falling under the concerned list.

“If the law made by the Parliament or the legislature of any State has a substantial and not merely a remote connection with the Entry under which it is made, there is nothing to preclude the concerned legislature to make law on all matters concerning the topic covered under the Union List or the State List, as the case may be.”

The Court also highlighted Central Government’s obligations under Part IV of the Constitution for securing a social order and promotion of welfare of the people in the concerned region, to provide them adequate means of livelihood, distribute material resources as best to subserve the common good, create new opportunities, so as to empower the people of that area including provisioning new economic opportunities in the area through which the national highway would pass and the country’s economy as a whole.

“The availability of a highway in any part of the State paves way for sustainable development and for overall enhancement of human well-being including to facilitate the habitants thereat to enjoy a decent quality of life, creation of assets (due to natural increase in market value of their properties) and to fulfil their aspirations of good life by provisioning access to newer and present-day opportunities.”

Hence, having said that the Parliament has exclusive legislative competence to make a law in respect of national highways and all matters connected therewith, which includes declaring any stretch/section within the State (not being existing roads/highways) as a national highway, it must follow that the Central Government alone has the executive powers to construct/build a new national highway in any State and to issue directions to the Government of any State for carrying out the purposes of the 1956 Act.

[Project Director, Project Implementation Unit v. P.V. Krishnamoorthy,  2020 SCC OnLine SC 1005, decided on 08.12.2020]


Justice AM Khanwilkar has penned this judgment. Read more about him here.

Counsels heard: Solicitor General of India Tushra Mehta, Senior Counsels S. Nagamuthu, Sanjay Parikh, Nikhil Nayyar, Anita Shenoy, Counsels Kabilan Manoharan advocate, P. Soma Sundaram, T.V.S. Raghavendra Sreyas and  S. Thananjayan

Also read: Prior environmental clearance required before commencement of actual construction of a National Highway, not at the planning stage: SC

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of AM Khanwilkar*, BR Gavai and Krishna Murari, JJ has held that it is not necessary for the Central Government or NHAI to apply for prior environmental/forest clearances or permissions before issuing notification under Section 2(2) declaring the stretch/section to be a national highway or Section 3A of the National Highways Act, 1956 to express intention to acquire land for the purpose of building, maintenance, management or operation of a national highway, as the case may be.

“Environmental/forest clearance is always site specific and, therefore, until the site is identified for construction of national highways manifested vide Section 3A notification, the question of making any application for permission under the environmental/forest laws would not arise.”

Scope of Central Government’s power under Section 2(2) of the National Highways Act, 1956

Explaining the scope of Section 2(2) of the National Highways Act, 1956, the Court said that the power bestowed upon the Central Government under Section 2(2) of the 1956 Act is not constricted or circumscribed by any other inhibition, such as to declare only an existing road or highway within the State as a national highway.  The requirement of a national highway within the country as a whole and State-wise, in particular, is to alleviate evolving socio-economic dynamics, for which such a wide power has been bestowed upon the Central Government. The Central Government is obliged to do so to facilitate it to discharge its obligations under Part IV of the Constitution.

“There is nothing in the Constitution of India or for that matter, the 1956 Act to limit that power of the Central Government only in respect of existing roads/highways within the State. To say so would be counter¬productive and would entail in a piquant situation that the Central   Government cannot effectively discharge its obligations under Part IV of the Constitution unto the remote inaccessible parts of the country until the concerned State Government constructs a road/highway within the State. (…) By its very nomenclature, a national highway is to link the entire country and provide  access to all in every remote corner of the country for interaction and to promote commerce and trade, employment and education including health related services.”

Hence, the Central Government is fully competent to notify “any land” (not necessarily an existing road/highway) for acquisition, to construct a highway to be a national highway.

Prior permission before issuing notification under Section 3A of the 1956 Act

The Court noticed that neither the 1956 Act, the Rules framed thereunder nor the National Highway Authority of India Act, 1988 and the Rules made thereunder specify any express condition requiring Central Government to obtain prior environmental/forest clearance before issuing notification under Section 2(2) declaring the stretch/section to be a national highway or Section 3A of the 1956 Act to express intention to acquire land for the purpose of building, maintenance, management or operation of a national highway, as the case may be.

“It is not necessary for the Central Government or for that matter, NHAI, to apply for prior environmental/forest clearances or permissions, as the case may be, at the stage of planning or taking an in­principle decision to formalize the Project of constructing a new national highway manifested in notification under Section 2(2), including until the stage of issuing notification under Section 3A of the 1956 Act.”

Even the notification issued by the MoEF dated 14.9.2006, does not constrict the power of Central Government to issue notification under Section 2(2) or Section 3A of the 1956 Act.

The prior environmental clearance in terms of 2006 notification issued under Section 3 of the Environment (Protection) Act, 1986 Act read with Rule 5 of the Environment (Protection) Rules, 1986, is required to be taken before commencement of the “actual construction or building work” of the national highway by the executing agency (NHAI). That will happen only after the acquisition proceedings are taken to its logical end until the land finally vests in the NHAI or is entrusted to it by the Central Government for building/management of the national highway. The land would vest in the Central Government under the 1956 Act only after publication of declaration of acquisition under Section 3D. Until then, the question of Central Government vesting it in favour of NHAI under Section 11 of the 1988 Act would not arise. However, until the vesting of the land, the Central Government and its authorised officer can undertake surveys of the notified lands by entering upon it in terms of Section 3B of the Act.

“Pertinently, the activities predicated in Section 3B are of exploration for verifying the feasibility and viability of land for construction of a national highway. These are one-time activities and not in the nature of exploitation of the land for continuous commercial/industrial activities as such. There is remote possibility of irretrievable wide-spread environmental impact due to carrying out activities referred to in Section 3B for assessing the worthiness of the land for using it as a national highway. Thus, the question of applying notification of 2006 at this stage does not arise, much less obligate the Central Government to follow directives thereunder.”

Deemed lapsing

The Court noticed that it is essential to issue a declaration under Section 3D of the 1956 Act within a period of one year from the date of publication of the notification under Section 3A in respect of the notified land, failing which notification under Section 3A ceases to have any effect.  However, time spent for obtaining environmental clearance or permission under the forest laws has not been explicitly excluded from the period of one year to be reckoned under Section 3D(3) of the Act. The extension of time or so to say suspension of time is only in respect of period during which the action of the proceedings to be taken in pursuance of notification under Section 3A(1) is stayed by an order of Court.

Noticing that there is no express provision in the 1956 Act, which excludes the time spent by the Central Government or the executing agency in obtaining prior environmental clearance or permission under forest laws, as the case may be, the Court directed that the dictum in Karnataka Industrial Areas Development Board vs. C. Kenchappa, (2006) 6 SCC 371, shall operate as a stay by an order of the Court for the purposes of Section 3D(3) in respect of all projects under the 1956 Act, in particular for excluding the time spent after issue of Section 3A notification, in obtaining the environmental clearance as well as for permissions under the forest laws.

“Thus, the acquisition process set in motion upon issue of Section 3A notification can go on in parallel until the stage of publication of notification under Section 3D, which can be issued after grant of clearances/permissions by the competent authority under the environment/forest laws and attaining finality thereof.”

[Project Director, Project Implementation Unit v. P.V. Krishnamoorthy, 2020 SCC OnLine SC 1005, decided on 08.12.2020]


*Justice AM Khanwilkar has penned this judgment. Read more about him here.

Counsels heard: Solicitor General of India Tushra Mehta, Senior Counsels S. Nagamuthu, Sanjay Parikh, Nikhil Nayyar, Anita Shenoy, Counsels Kabilan Manoharan advocate, P. Soma Sundaram, T.V.S. Raghavendra Sreyas and  S. Thananjayan

Also read: Centre versus State| Who has the power to make law declaring any land within a State as a national highway? Supreme Court answers

Case BriefsSupreme Court

Supreme Court: On the question as to whether the right of pre-emption can be enforced for an indefinite number of transactions or it is exercisable only the first time, the 3-judge bench of SK Kaul, Aniruddha Bose and Krishna Murari, JJ has held that

“… it is only exercisable for the first time when the cause of such a right arises, in a situation where the plaintiff-pre-emptor chooses to waive such right after the 1966 Act becoming operational. Section 9 of the said Act operates as a bar on his exercising such right on a subsequent transaction relating to the same immovable property.”

Origin and history of right of pre-emption

The historical perspective of the right of pre-emption shows that it owes its origination to the advent of the Mohammedan rule, based on customs, which came to be accepted in various courts largely located in the north of India. The pre-emptor has two rights. The inherent or primary right, which is the right to the offer of a thing about to be sold and the secondary or remedial right to follow the thing sold. It is a secondary right, which is simply a right of substitution in place of the original vendee. The pre-emptor is bound to show that he not only has a right as good as that of the vendee, but it is superior to that of the vendee; and that too at the time when the pre-emptor exercises his right.

“… the right is a “very weak right” and is, thus, capable of being defeated by all legitimate methods including the claim of superior or equal right.”

Recurring right or a one-time right

  • Section 21 of the Rajasthan Pre-Emption Act, 1966 stipulates that the right of pre-emption has to be exercised, in case of a sale, within one year from the date of sale and if the sale is not by a registered deed, on the purchaser taking the physical possession of any part of the property sold.
  • This period has to be as per Article 97 of the Limitation Act which states that it is one year from the date when the sale is registered.
  • The loss of right of pre-emption on transfer has been defined under Section 9 of the said Act which provides that the loss is only occasioned, when, within two months from the date of service of the notice, the price is not tendered. However, that is the loss of the right, vis-à-vis the transaction in question.

On the question whether such a right of pre-emption is a recurring right, i.e. every time the property is sold, the right would rearise, in a case the pre-empting plaintiff himself has chosen not to exercise such right over the subject immovable property when sold to another purchaser earlier, the Court held,

“… it would not be appropriate or permissible to adopt legal reasoning making such a weak right, some kind of a right in perpetuity arising to a plaintiff every time there is a subsequent transaction or sale once the plaintiff has waived his right or pre-emption over the subject immovable property.”

Holding that the loss of right mandated under Section 9 of the Act is absolute, the Court further stated that the plain reading of the said provision does not reveal that such right can re-arise to the person who waives his right of pre-emption in an earlier transaction. To do so would mean that a person, whether not having the means or for any other reason, does not exercise the right of pre-emption and yet he, even after decades, can exercise such a right.

“This would create some sort of a cloud on a title and uncertainty as a subsequent purchaser would not know, when he wants to sell the property, whether he can complete the transaction or not or whether a cosharer will jump into the scene. This is not contemplated in the 1966 Act. This is bound to have an effect on the price offered by a purchaser at that time because he would have an impression of uncertainty about the proposed transaction.”

The Court, hence, held that such a right is available once – whether to take it or leave it to a person having a right of pre-emption. If such person finds it is not worth once, it is not an open right available for all times to come to that person.

[Raghunath v. Radha Mohan,  2020 SCC OnLine SC 828, decided on 13.10.2020]

Case BriefsSupreme Court

Supreme Court: The bench of UU Lait and Indira Banerjee, JJ has explained that Section 12 of the Specific Relief Act, 1963 has to be construed in a liberal, purposive manner that is fair and promotes justice.

“A contractee who frustrates a contract deliberately by his own wrongful acts cannot be permitted to escape scot free.”

While hearing a case relating to sale of land in the year 1984, the Court held that Section 12 of the Specific Relief Act is to be construed and interpreted in a purposive and meaningful manner to empower the Court to direct specific performance by the defaulting party, of so much of the contract, as can be performed, in a case like this.

“To hold otherwise would permit a party to a contract for sale of land, to deliberately frustrate the entire contract by transferring a part of the suit property and creating third party interests over the same.”

The Court explained that the relief of specific performance of an agreement, was at all material times, equitable, discretionary relief, governed by the provisions of the Specific Relief Act 1963. Even though the power of the Court to direct specific performance of an agreement may have been discretionary, such power could not be arbitrary. The discretion had necessarily to be exercised in accordance with sound and reasonable judicial principles.

After the amendment of Section 10 of the Specific Relief Act, the words “specific performance of any contract may, in the discretion of the Court, be enforced” have been substituted with the words “specific performance of a contract shall be enforced subject to …”. Hence,

“the Court is, now obliged to enforce the specific performance of a contract, subject to the provisions of sub-section (2) of Section 11, Section 14 and Section 16 of the S.R.A. Relief of specific performance of a contract is no longer discretionary, after the amendment.”

Referring to suits relating to sale of land, the Court explained that

“an agreement to sell immovable property, generally creates a right in personam in favour of the Vendee. The Vendee acquires a legitimate right to enforce specific performance of the agreement.”

The Court ordinarily enforces a contract in its entirety by passing a decree for its specific performance. However, Section 12 of the Specific Relief Act carves out exceptions, where the Court might direct specific performance of a contract in part.

Further, where a party to the contract is unable to perform the whole of his part of the contract, the Court may, in the circumstances mentioned in Section 12 of the Specific Relief Act, direct the specific performance of so much of the contract, as can be performed, particularly where the value of the part of the contract left unperformed would be small in proportion to the total value of the contract and admits of compensation.

The Court may, under Section 12 of the Specific Relief Act direct the party in default to perform specifically, so much of his part of the contract, as he can perform, provided the other party pays or has paid the consideration for the whole of the contract, reduced by the consideration for the part which must be left unperformed.

[B. Santoshamma v. D. Sarala, CIVIL APPEAL NO.3574 OF 2009, decided on 18.09.2020]

Case BriefsSupreme Court

Supreme Court: Asking Telecom Operators to make the payment of 10% of the total AGR dues as by 31.3.2021, the 3-judge bench of Arun Mishra, SA Nazeer and MR Shah, JJ gave 10 years to the Telecom Service Providers (TSPs) to complete the payment of their AGR dues.

“The TSPs make payment in yearly instalments commencing from 1.4.2021 up to 31.3.2031 payable by 31st March of every succeeding financial year.”

The Union of India on the representation made by the telecom service providers and Indian Banks’ Association, had decided to provide the facility of making payment in instalments within 20 years. The Court, however, said that the period of 20 years fixed for payment is excessive.

“… it is a revenue sharing regime, and it is grant of sovereign right to the TSPs. under the Telecom Policy. We feel that some reasonable time is to be granted, considering the financial stress and the banking sector’s involvement. We deem it appropriate to grant facility of time to make payment of dues in equal yearly instalments.”

The Court, however, clarified that at the same time, it is to be ensured that the dues are paid in toto.

“The concession is granted only on the condition that the dues shall be paid punctually within the time stipulated by this Court. Even a single default will attract the dues along with interest, penalty and interest on penalty at the rate specified in the agreement.”

The Court noticed that the decision of the Cabinet is based on the various factors, and in the interest of the economy and the consumers. The decision is taken after extensive deliberations and consultations, and till the date of judgment, the dues have been worked out as per the decision rendered by this Court. Only for the subsequent period, some relaxation has been given as to the rate of interest, penalty, and interest on penalty, which is permissible.

“The arrears have accumulated for the last 20 years. It is also to be noted that some of the companies are under insolvency proceedings, validity of which is to be examined, and they were having huge arrears of AGR dues against them.  For protecting the telecom sector, a decision has been taken on various considerations mentioned above, which cannot be objected to.”

Last year, in Union of India v. Association of Unified Telecom Service Providers of India, 2019 SCC OnLine SC 1393the bench of Arun Mishra, SA Nazeer and MR Shah, JJ had refused to change the definition of gross revenue as defined in clause 19.1 of the licence agreement granted by the Government of India to the Telecom Service Providers. It had held,

“The definition in agreement is unambiguous, clear, and beyond the pale of doubt, and there is no confusion in the definition of gross revenue, which is the basis for realisation of the licence fee. Licensees have made a futile attempt to wriggle out of the definition in an indirect method, which was rejected directly in the decision of 2011 between the parties and it was held that these very heads form part of gross revenue.”

The Court, hence, noticed that is clear that in the case, which was decided by this Court relating to AGR dues, respondents were the parties, and they were litigating with respect to the definition of AGR in the second round of appeal filed before this Court.  Each of them was aware that the dispute as to the definition of AGR was pending in this Court. Thus, it is apparent that it was known to the parties that AGR dues to be finalised as per the decision of this Court in a pending matter, and lis was pending for the last 20 years.

“The liability cannot be escaped as specified in the Trading Guidelines to the extent that the seller or buyer is liable. They have to pay the AGR as per the judgment rendered by this Court. The purchasers who are not seller or buyer, shall have to pay the dues to the extent they are liable under the Guidelines, as discussed above.”

On the submission that they have paid dues as per the self-assessment or, in some cases, demands have not been raised, the Court directed DoT to complete the assessment in such cases of trade and raise demand if it has not been raised and to examine the correctness of self-assessment and raise demand, if necessary, after due verification.

“In  case demand notice has not been issued, let DoT raise the demand within six weeks from today.”

The Court, hence, issued the following directions:

  • That for the demand raised by the Department of Telecom in respect of the AGR dues based on the judgment of this Court, there shall not be any dispute raised by any of the Telecom Operators and that there shall not be any re-assessment.
  • That, at the first instance, the respective Telecom Operators shall make the payment of 10% of the total dues as demanded by DoT by 31.3.2021.
  • TSPs have to make payment in yearly instalments commencing from 1.4.2021 up to 31.3.2031 payable by 31st March of every succeeding financial year.
  • Various companies through Managing Director/Chairman or other authorised officer, to furnish an undertaking within four weeks, to make payment of arrears as per the order.
  • The existing bank guarantees that have been submitted regarding the spectrum shall be kept alive by TSPs. until the payment is made.
  • In the event of any default in making payment of annual instalments, interest would become payable as per the agreement along with penalty and interest on penalty automatically without reference to Court. Besides, it would be punishable for contempt of Court.
  • Compliance of order to be reported by all TSPs and DoT every year by 7th April of each succeeding year.

[Union of India v. Association of Unified Telecom Service Providers India, 2020 SCC OnLine SC 703, decided on 01.09.2020]

Case BriefsSupreme Court

Supreme Court: The bench of Indira Banjerjee and Indu Malhotra, JJ that the Courts are duty bound to issue a writ of Mandamus for enforcement of a public duty.

“The High Courts exercising their jurisdiction under Article 226 of the Constitution of India, not only have the power to issue a Writ of Mandamus or in the nature of Mandamus, but are duty bound to exercise such power, where the Government or a public authority has failed to exercise or has wrongly exercised discretion conferred upon it by a Statute, or a rule, or a policy decision of the Government or has exercised such discretion malafide, or on irrelevant consideration.”

The Court was hearing the case pertaining to a private road in Pune being declared as being owned by Pune Municipal Corporation whilst in the property records, there was no private road.  In 1970, by an order of the Pune Municipal Corporation, a Plot was divided into 4 plots and a private road admeasuring 414.14 square meters. Read more

“There is no whisper as to how the road came to be shown as in possession of Pune Municipal Commissioner nor of the procedure adopted for effecting changes, if any, in the property records.”

Considering the issue at hand, the Court noticed in case of dispossession except under the authority of law, the owner might obtain restoration of possession by a proceeding for Mandamus against the Government. It said that in all such cases, the High Court must issue a Writ of Mandamus and give directions to compel performance in an appropriate and lawful manner of the discretion conferred upon the Government or a public authority.”

“In appropriate cases, in order to prevent injustice to the parties, the Court may itself pass an order or give directions which the government or the public authorities should have passed, had it properly and lawfully exercised its discretion.”

Stating that the Court is duty bound to issue a writ of Mandamus for enforcement of a public duty, the bench said that there can be no doubt that an important requisite for issue of Mandamus is that Mandamus lies to enforce a legal duty. This duty must be shown to exist towards the applicant.

“A statutory duty must exist before it can be enforced through Mandamus. Unless a statutory duty or right can be read in the provision, Mandamus cannot be issued to enforce the same.”

It further said that High Court is not deprived of its jurisdiction to entertain a petition under Article 226 merely because in considering the petitioner’s right to relief questions of fact may fall to be determined. In a petition under Article 226 the High Court has jurisdiction to try issues both of fact and law. Exercise of the jurisdiction is, it is true, discretionary, but the discretion must be exercised on sound judicial principles.

[Hari Krishna Mandir Trust v. State of Maharashtra,  2020 SCC OnLine SC 631, decided on 07.08.2020]


SCC Online is now on Telegram and Instagram. Join our channel @scconline on Telegram and @scconline_ on Instagram and stay updated with the latest legal news from within and outside India

Case BriefsSupreme Court

Supreme court: The 2-judge bench of Indira Banerjee and Indu Malhotra, JJ has held that Section 88 of Maharashtra Regional and Town Planning Act, 1966 cannot be read in isolation from the other provisions of the Act, particularly Sections 65, 66, 125 and 126 thereof. It further, said,

“however laudable be the purpose, the Executive cannot deprive a person of his property without specific legal authority, which can be established in a court of law.”

On whether Section 88 of Maharashtra Regional and Town Planning Act, 1966 can be read in isolation

Section 125 read with Section 126 enables the state/Planning authority to acquire land. Section 65 read with Section 66, on the other hand, protect the interests of the owners. Considering all the relevant provisions, the Court held that on a proper construction of Section 88, when land is acquired for the purposes of a Development Scheme, the same vests in the State free from encumbrances. No third party can claim any right of easement to the land, or claim any right as an occupier, licensee, tenant, lessee, mortgagee or under any sale agreement. However,

“Section 88 of the Regional and Town Planning Act cannot be read in isolation. It has to be read with Section 125 to 129 relating to compulsory acquisition as also Section 59, 69 and 65.”

On Right to property vis-à-vis Doctrine of Eminent Domain

Article 300A of the Constitution of India embodies the doctrine of eminent domain which comprises two parts,

  • possession of property in the public interest; and
  • payment of reasonable compensation.

Noticing that the right to property may not be a fundamental right any longer, but it is still a constitutional right under Article 300A and a human right, the Court said that the right to property includes any proprietary interest hereditary interest in the right of management of a religion endowment, as well as anything acquired by inheritance. However laudable be the purpose, the Executive cannot deprive a person of his property without specific legal authority, which can be established in a court of law.

“In case of dispossession except under the authority of law, the owner might obtain restoration of possession by a proceeding for Mandamus against the Government.”

Factual background and Ruling

The Court was hearing the case pertaining to a private road in Pune being declared as being owned by Pune Municipal Corporation whilst in the property records, there was no private road.  In 1970, by an order of the Pune Municipal Corporation, a Plot was divided into 4 plots and a private road admeasuring 414.14 square meters.

On perusal of the documents, the Court noticed that there can be no doubt at all that the road in question measuring 444.14 sqm. never belonged to the Pune Municipal Corporation. In the property records, there was no private road. The Municipal Corporation was never shown as owner of the vacant plot or of any private road. Even assuming that there was any policy decision to have an approach road to every plot, it was incumbent upon the authorities concerned to acquire the land.

“There is no whisper as to how the road came to be shown as in possession of Pune Municipal Commissioner nor of the procedure adopted for effecting changes, if any, in the property records.”

The Court, hence, held that the Pune Municipal Corporation had a public duty under Section 91 to appropriately modify the scheme and to show the private road as property of its legitimate owners, as per the property records in existence, and or in the award of the Arbitrator.

It, hence, directed the Municipal Corporation to

“delete the name of the Pune Municipal Corporation as owner of the private road in the records pertaining to the Scheme and carry out such other consequential alterations as may be necessary under Section 91 of the Maharashtra Regional and Town Planning Act, 1966.”

[Hari Krishna Mandir Trust v. State of Maharashtra,  2020 SCC OnLine SC 631, decided on 07.08.2020]


SCC Online is now on Telegram and Instagram. Join our channel @scconline on Telegram and @scconline_ on Instagram and stay updated with the latest legal news from within and outside India

Case BriefsSupreme Court

Supreme Court: In a major turnaround in the AGR case, with respect to Public Sector Undertakings, the Department of Telecommunication has decided to withdraw the demands which constitute 96% of the of the ?4 lakh crore demand. However, with respect to 4% other Public Sector Undertakings, Solicitor General Tushar Mehta told the bench of Arun Mishra, SA Nazeer and MR Shah, JJ that “the final decision shall be taken before the next date of hearing and placed on record.

The decision came after the Court pulled up the Government for misusing it’s 2019 verdict and had said that the said verdict only applied to AGR dues owed by the telecom companies and not to PSUs.

In today’s order, the Court directed the telecom operators to file audited Balance Sheets, for the last 10 years including for the Calendar year ending 31.3.2020 as well as the Income Tax Returns and the particulars of AGR deposited during the last 10 years. It also requested to make payments of reasonable amount also to show their bonafides, before the next date of hearing.

The matter is scheduled to be taken up in the 3rd week of July.

Last year, in Union of India v. Association of Unified Telecom Service Providers of India, 2019 SCC OnLine SC 1393, where it had  refused  to change the definition of gross revenue as defined in clause 19.1 of the licence agreement granted by the Government of India to the Telecom Service Providers and had said,

“The definition of revenue has been taken in a broad, comprehensive, and inclusive manner to pose fewer problems of interpretation, and exclusion of certain items was avoided.”

[In re Mandar Deshpande, 2020 SCC OnLine SC 518 , order dated 18.06.2020]


Also read:

In a big blow to the Telecom Sector, SC refuses to change AGR definition

 

 

Case BriefsSupreme Court

Supreme Court: Dealing with the questions relating to interpretation of Section 47-A of the Indian Stamp Act, 1899 and the Tamil Nadu Stamp (Prevention of Undervaluation of Instruments) Rules, 1968 as amended from time to time, the bench of UU Lait and Indu Malhotra, JJ has held,

“There is nothing in the scheme of the Act which purports to restrict the exercise of suo motu power under Section 47-A, and confines it to cases where knowledge of any illegality or infirmity in the proceedings undertaken by the subordinate officers must be gathered from sources other than through a pending appeal.”

Under sub-section (1) of Section 47-A of the Act, if there is reason to believe that the market value has not been truly set forth in the Instrument tendered for registration, a reference can be made to the Collector, who (i) after giving the parties reasonable opportunity of being heard; and (ii) after holding an enquiry in such manner as may be prescribed by Rules, has to determine the correct value of the concerned property.

As per Rule 7 of the Rules, after considering the representations in writing and those urged at the time of hearing as well as all the relevant factors and evidence, the Collector must pass an order determining the market value of the concerned property and assess the element of duty payable on the instrument of transfer. Such order is required to be passed “within three months from the date of first notice”.

Here are the issues decided by the Court:

Whether Rule 7 of the Rules prescribing 3 months’ time for the Collector to pass an order determining the market value of the properties and duty payable on the instrument from the first notice, is directory or mandatory?

Explaining why requirement of the passing of order within 3 months from the date of first notice cannot be mandatory, the Court said,

“Form I notice itself must give twenty-one days to the concerned persons to respond. Depending upon their response, their statements would be recorded and/or certain information may be required to be called for, whereafter the Order in Form II is to be issued provisionally determining the market value. The concerned persons are entitled to raise objections in writing and must be afforded hearing. After fulfilling these requirements, the order in terms of Rule 7 can be passed. All these stages may not be completed in three months.”

The Court further explained that Section 47-A by itself does not prescribe any timeline. If the stipulation or fixation of period of three months from the first notice in terms of Rule 6 or from notice in Form II is taken to be mandatory it would lead to a situation of incongruity. The fact that Form II notice had been issued, would mean that on a prima facie view of the record and material, the value stated in the instrument was not the correct value; which in turn would mean that prima facie the Government Coffers were being denied the rightful dues.

“If for any reason the proceedings are not completed within three months and, therefore, must be held to be vitiated, the public interest would suffer, and the persons who were prime facie responsible for suppressing the real value, would stand to gain.”

The Court, hence, held that the amendment of Rule 7 incorporating the period of three months was essentially to guide the public officials to complete the process as early as possible but was not intended to create a right in favour of those who had prime facie conducted themselves prejudicing public interest.

Whether the appellate authority has power under Section 47A of the Act to enhance the market value of the property while deciding the appeal filed by the registrants?

Explaining the scope of appellate authority’s power under Section 47-A, the Court held that while entertaining an appeal, if an obvious illegality is noticed by the revisional authority, it can certainly exercise suo motu power to undo the mistake, or rectify an error committed by the subordinate officer authority, subject to such restrictions as are imposed on the exercise of the power by the statute.

Stating that nothing in the scheme of the Act purports to restrict the exercise of suo motu power under Section 47-A, and confines it to cases where knowledge of any illegality or infirmity in the proceedings undertaken by the subordinate officers must be gathered from sources other than through a pending appeal, the Court said,

“Unless the statute expressly or even by necessary implication restricts the exercise of power, there would be no occasion to read into the power, any other limitations.”

The Court, further, said that it makes no difference as to what was the source of the information or knowledge, so long as the power is exercised within the confines of the limitations or restrictions imposed by the statute, and is in accordance with law. Apart from the restrictions imposed by the statute, none can be read into the exercise of power on the ground as to the nature or source of information.

[Inspector General of Registration, Tamil Nadu v. K. Baskaran, 2020 SCC OnLine SC 509 , decided on 15.06.2020]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Arun Mishra, SA Nazeer and MR Shah, JJ has given 5 days to Telecom Service Providers to file a joint affidavit with respect to their proposal to secure the amount, which is to be paid against AGR dues. The matter will now be taken up on June 18, 2020.

The issues that are to be considered are:

  • reasonable time-frame
  • how to ensure the payment of the amount even within that time-frame
  • what kind of securities, undertakings and guarantees should be furnished to ensure that the amount is paid by the Telecom Service Providers

It was also brought into Court’s notice that how the demand was raised on the basis of it’s judgment with respect to Public Sector Undertakings when the licences were different and the judgment never dealt with the issue of Public Sector Undertakings and their agreements are quite different. Noticing that the licences are different, the Court asked the Department of Telecom reconsider the demand that has been sprung, within three days, and on the next date of hearing report the compliance of the action taken on the basis of this order.

Last year, in Union of India v. Association of Unified Telecom Service Providers of India, 2019 SCC OnLine SC 1393, the Court had refused  to change the definition of gross revenue as defined in clause 19.1 of the licence agreement granted by the Government of India to the Telecom Service Providers and had said,

“The definition of revenue has been taken in a broad, comprehensive, and inclusive manner to pose fewer problems of interpretation, and exclusion of certain items was avoided.”

[In re Mandar Deshpande, 2020 SCC OnLine SC 501, order dated 11.06.2020]


Also read:

In a big blow to the Telecom Sector, SC refuses to change AGR definition

Case BriefsSupreme Court

Supreme Court: The 2-judge bench of AM Khanwilkar and Dinesh Maheshwari, JJ has held that for bringing any particular foreign exchange receipt within the ambit of Section 80-O of Income Tax Act for deduction, it must be a consideration attributable to information and service contemplated by Section 80-O; and in case of a contract involving multiple or manifold activities and obligations, every consideration received therein in foreign exchange will not ipso facto fall within the ambit of Section 80-O.

Factual Background

The appellants, who had been engaged in providing services to certain foreign buyers of frozen seafood and/or marine products and had received service charges from such foreign buyers/enterprises in foreign exchange, claimed deduction under Section 80-O of the Act of 1961, as applicable for the relevant assessment year/s. In both these cases, the respective Assessing Officer/s denied such claim for deduction essentially with the finding that the services rendered by respective assessees were the ‘services rendered in India’ and not the ‘services rendered from India’ and, therefore, the service charges received by the assessees from the foreign enterprises did not qualify for deduction in view of clause (iii) of the Explanation to Section 80-O of the Act of 1961.

ITAT Decision: As per the agreements with the referred foreign enterprises, the assessee had passed on the necessary information which were utilised by the foreign enterprises concerned to make a decision either to purchase or not to purchase; and hence, it were a service rendered from India

Kerala High Court Decision: Assessees were merely marine product procuring agents for the foreign enterprises, without any claim for expertise capable of being used abroad rather than in India and hence, the services rendered by them do not qualify as the ‘services rendered from India’, for the purpose of Section 80-O of the Act of 1961.

Supreme Court Ruling

Explaining the law on the issue the Court said that any foreign exchange receipt has to be attributable to the information or service contemplated by the provision and only that part of foreign exchange receipt, which is so attributable to the activity contemplated by Section 80-O, would qualify for claiming deduction. Such enquiry is required to be made by the Assessing Officer; and for the purpose of this imperative enquiry, requisite material ought to be placed by the assessee to co-relate the foreign exchange receipt with information/service referable to Section 80-O. Evidently, such an enquiry by the Assessing Officer could be made only if concrete material is placed on record to show the requisite correlation.

On the argument that Section 80-O of the Act is essentially an incentive provision and, therefore, needs to be interpreted and applied liberally, the Court said that that deductions, exemptions, rebates et cetera are the different species of incentives extended by the IT Act.

“Section 80-O is only one of the provisions in the Act of 1961 dealing with incentive; and even as regards the incentive for earning or saving foreign exchange, there are other provisions in the Act …”

Without expanding unnecessarily on variegated provisions dealing with different incentives, the Court said that it would be suffice to notice that the proposition that incentive provisions must receive “liberal interpretation” or to say, leaning in favour of grant of relief to the assessee is not an approach countenanced by this Court.

“at and until the stage of finding out eligibility to claim deduction, the ambit and scope of the provision for the purpose of its applicability cannot be expanded or widened and remains subject to strict interpretation but, once eligibility is decided in favour of the person claiming such deduction, it could be construed liberally in regard to other requirements, which may be formal or directory in nature.”

Applying the aforementioned principles, the Court noticed that, in the case at hand, all the clauses of the agreements read together make it absolutely clear that the appellant was merely a procuring agent and it was his responsibility to ensure that proper goods are supplied in proper packing to the satisfaction of the principal.

“Even if certain information was sent by the assessee to the principals, the information did not fall in the category of such professional services or information which could justify its claim for deduction under Section 80-O of the Act.”

The Court, hence, upheld the verdict of the High Court.

[Ramnath and Co. v. Commissioner of Income Tax, 2020 SCC OnLine SC 484 , decided on 05.06.2020]

Case BriefsSupreme Court

Supreme Court: The bench of Dr. DY Chandrachud and Ajay Rastogi, JJ Section 37 of the Architects Act 1972 does not prohibit individuals not registered under the Architects Act from undertaking the practice of architecture and its cognate activities.

The Court was hearing an appeal against the Allahabad High Court verdict where it was held that Section 37 only prohibits unregistered individuals from using the title “architect”. As a necessary adjunct of this reasoning, the High Court held that the Promotion Policy 2005, which allowed for individuals not holding a degree in architecture being appointed to the Class II post of Associate Architect, did not contravene Section 37 of the Architects Act in so far as they would be carrying out the activities of an architect. It said,

“mere nomenclature of the particular post will not in any way be said to violate the provisions of the Architects Act 1971.”

However, when the matter reached the Supreme Court, it noticed that where a plain reading of the text of the statute leads to an absurd or unreasonable meaning, the text of the statute must be construed in light of the object and purpose with which the legislature enacted the statute as a whole. It said,

“The Statement of Objects and Reasons of the Architects Act makes it evident that the legislature was undoubtedly concerned with the risk of unqualified persons undertaking the construction of buildings leading to costly and dangerous buildings. In guarding against this risk, the legislature first set out a minimum standard of statutorily recognised qualifications to be met before an individual is designated as an architect under the Architects Act.”

Architecture undoubtedly constitutes a highly specialised profession requiring the possession of minimum educational qualifications. However, architects are by and large engaged by means of a contract for services. In other words, architects provide a set of specialised services towards the larger goal of construction. Architects are not embarking on construction independently of other actors. By virtue of the Architects Act, anybody engaging the services of an individual calling themselves an “Architect” is assured that such an individual possesses statutorily recognised educational qualifications and is competent to complete the task at hand.

The Court further explained that the legislature chose to define an “architect” as an individual registered under the Architects Act and not as an individual practicing architecture or any cognate activities. Thus, the legislature limited the regulatory regime created by the Architects Act to the first class of individuals.

“In protecting the public from the risk of the second class, untrained individuals, the legislature had two options: first it could bar this second class of individuals from engaging in the profession altogether (as it had done with physicians and advocates); or alternatively it could prevent this second class of individuals from calling themselves “Architects”.”

The Court, hence, held that the Statement of Objects and Reasons make it clear that the legislature chose the second option and in fact went to great lengths to clarify that choice. The legislature stated that with the passing of the legislation, it shall be unlawful for an unregistered individual to designate himself as an “architect”.

[Council of Architecture v. Mukesh Goyal, 2020 SCC OnLine SC 329, decided on 17.03.2020]

Hot Off The PressNews

Supreme Court:  The bench of Arun Mishra and MR Shah, JJ has dismissed a petition filed by Vodafone against the levy of one-time spectrum charges (OTSC).

When Senior advocate Abhishek Manu Singhvi, appearing for Vodafone, told a bench that the charges are related to the adjusted gross revenue (AGR), a rather furious Justice Mishra said,

“Don’t pay anything… not this, not AGR. You will still not be touched,”

The Department of Telecommunications (DoT) had sought to levy a one-time spectrum charge on telecom service providers. This comes after the telecom companies paid their AGR dues to the Central government after the Supreme Court pulled them up for violating its earlier order and not paying the money on time.

Last year, in Union of India v. Association of Unified Telecom Service Providers of India, 2019 SCC OnLine SC 1393the bench of Arun Mishra, SA Nazeer and MR Shah, JJ had refused to change the definition of gross revenue as defined in clause 19.1 of the licence agreement granted by the Government of India to the Telecom Service Providers. It had held,

“The definition in agreement is unambiguous, clear, and beyond the pale of doubt, and there is no confusion in the definition of gross revenue, which is the basis for realisation of the licence fee. Licensees have made a futile attempt to wriggle out of the definition in an indirect method, which was rejected directly in the decision of 2011 between the parties and it was held that these very heads form part of gross revenue.”

Vodafone Idea’s total AGR dues, as estimated by the DoT stand at Rs 53,038 crore, which includes Rs 24,729 crore of spectrum dues and Rs 28,309 crore as the license fee. On the other hand, Bharti Airtel’s total AGR dues reportedly amount to Rs 35,586 crore.

(Source: ANI)

Case BriefsSupreme Court (Constitution Benches)

Supreme Court: In a landmark ruling the 5-judge bench of Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah, and Ravindra Bhat, JJ has unanimously held that the land owners who had refused to accept compensation or who sought reference for higher compensation, cannot claim that the acquisition proceedings had lapsed under Section 24(2) of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (Land Acquisition Act, 2013).

The bench also held that under the provisions of Section 24(1)(a) of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, in case the award is not made as on 1.1.2014, the date of commencement of Act of 2013, there is no lapse of proceedings. Compensation has to be determined under the provisions of Act of 2013.

Giving elaborate explanation to the provision under Section 24 of the Land Acquisition Act, 2013, the Court, further, held,

  • In case the award has been passed within the window period of five years excluding the period covered by an interim order of the court, then proceedings shall continue as provided under Section 24(1)(b) of the Act of 2013 under the Act of 1894 as if it has not been repealed.
  • The word ‘or’ used in Section 24(2) between possession and compensation has to be read as ‘nor’ or as ‘and’. The deemed lapse of land acquisition proceedings under Section 24(2) of the Act of 2013 takes place where due to inaction of authorities for five years or more prior to commencement of the said Act, the possession of land has not been taken nor compensation has been paid.

“in case possession has been taken, compensation has not been paid then there is no lapse. Similarly, if compensation has been paid, possession has not been taken then there is no lapse.”

  • The expression ‘paid’ in the main part of Section 24(2) of the Act of 2013 does not include a deposit of compensation in court.

“Non-deposit of compensation (in court) does not result in the lapse of land acquisition proceedings. In case of non-deposit with respect to the majority of holdings for five years or more, compensation under the Act of 2013 has to be paid to the “landowners” as on the date of notification for land acquisition under Section 4 of the Act of 1894.”

  • In case a person has been tendered the compensation as provided under Section 31(1) of the Act of 1894, it is not open to him to claim that acquisition has lapsed under Section 24(2) due to non-payment or non-deposit of compensation in court. The obligation to pay is complete by tendering the amount under Section 31(1).
  • The proviso to Section 24(2) of the Act of 2013 is to be treated as part of Section 24(2) not part of Section 24(1)(b).
  • The mode of taking possession under the Act of 1894 and as contemplated under Section 24(2) is by drawing of inquest report/ memorandum. Once award has been passed on taking possession under Section 16 of the Act of 1894, the land vests in State there is no divesting provided under Section 24(2) of the Act of 2013, as once possession has been taken there is no lapse under Section 24(2).
  • The provisions of Section 24(2) providing for a deemed lapse of proceedings are applicable in case authorities have failed due to their inaction to take possession and pay compensation for five years or more before the Act of 2013 came into force, in a proceeding for land acquisition pending with concerned authority as on 1.1.2014. The period of subsistence of interim orders passed by court has to be excluded in the computation of five years.
  • Section 24(2) of the Act of 2013 does not give rise to new cause of action to question the legality of concluded proceedings of land 319 acquisition. Section 24 applies to a proceeding pending on the date of enforcement of the Act of 2013, i.e., 1.1.2014. It does not revive stale and time-barred claims and does not reopen concluded proceedings nor allow landowners to question the legality of mode of taking possession to reopen proceedings or mode of deposit of compensation in the treasury instead of court to invalidate acquisition.

Last year, Justice Arun Mishra, heading the Bench, had refused to recuse himself from hearing the case and had said,

“I would be committing a grave blunder by recusal in the circumstances, on the grounds prayed for, and posterity will not forgive me down the line for setting a bad precedent. It is only for the interest of the judiciary (which is supreme) and the system (which is nulli secundus) that has compelled me not to recuse.”

Justice Mishra’s recusal was sought on the ground that he was heading a Bench meant to re-examine a judgment that he had himself given in 2018 in in Indore Development Authority v. Shailendra, (2018) 3 SCC 412. 

He, however, said that if recusal is made, it would tantamount to giving room to unscrupulous litigant to have a Judge of their choice who can share the views which are to be canvassed by them. The plea cannot be termed anything other than Bench hunting, if it is said that until and unless the one which suits a litigant is found the matters are not to be argued.

[Indore Development Authority v. Manohar Lal Sharma, 2020 SCC OnLine SC 316, decided on 06.03.2020]

Case BriefsSupreme Court

Supreme Court: A 3-judge bench of RF Nariman, Aniruddha Bose and V. Ramasubramanian, JJ has held that enforcement of a foreign award may under Section 48 of the Arbitration and Conciliation Act, 1996 be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The said grounds are watertight – no ground outside Section 48 can be looked at.

Stating that Court’s power under Article 142 ought not to be used to circumvent the legislative policy contained in Section 48 of the Arbitration Act, the bench said,

“nothing in Section 48 of the Arbitration Act would permit an enforcing court to add to or subtract from a foreign award that must either be enforced or rejected by reason of any of the grounds under Section 48 being made out to resist enforcement of such foreign award.”

Some of the important considerations highlighted by the Court for enforcement of a foreign award

  • Unlike Section 37 of the Arbitration Act, which is contained in Part I of the said Act, and which provides an appeal against either setting aside or refusing to set aside a ‘domestic’ arbitration award, the legislative policy so far as recognition and enforcement of foreign awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award but not the other way around (i.e. an order recognising and enforcing an award).

“This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act and which have been rejected.”

  • The foreign award must be read as a whole, fairly, and without nit-picking. If read as a whole, the said award has addressed the basic issues raised by the parties and has, in substance, decided the claims and counter-claims of the parties, enforcement must follow.
  • Grounds for resisting enforcement of a foreign award under Section 48
    • Enforcement of a foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion to be exercised to enforce such award if the scales are tilted in its favour.
    • Where the grounds taken to resist enforcement can be said to be linked to party interest alone, for example, that a party has been unable to present its case before the arbitrator, and which ground is capable of waiver or abandonment, or, the ground being made out, no prejudice has been caused to the party on such ground being made out, a Court may well enforce a foreign award, even if such ground is made out.
    • When it comes to the “public policy of India” ground there would be no discretion in enforcing an award which is induced by fraud or corruption, or which violates the fundamental policy of Indian law, or is in conflict with the most basic notions of morality or justice.
  • The expression “may” in Section 48 can, depending upon the context, mean “shall” or as connoting that a residual discretion remains in the Court to enforce a foreign award, despite grounds for its resistance having been made out. In that case a balancing act may be performed by the Court enforcing a foreign award.
  • Given the fact that the object of Section 48 is to enforce foreign awards subject to certain well-defined narrow exceptions, the 108 expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties.
  • If a foreign award fails to determine a material issue which goes to the root of the matter or fails to decide a claim or counter-claim in its entirety, the award may shock the conscience of the Court and may be set aside.

[Vijay Karia v. Prysmian Cavi E Sistemi Srl, 2020 SCC OnLine SC 177, decided on 13.02.2020]

Case BriefsSupreme Court

Supreme Court: Taking a strong note of non-compliance of its order asking telecom companies to pay adjusted gross revenue of Rs 1.47 lakh crore to DoT, a bench headed by Justice Arun Mishra, JJ has issued contempt notice to the telecom companies. The managing directors of Bharti Airtel , Vodafone, MTNL, BSNL, Reliance Communications, Tata Telecommunication and others have been summoned to the court on March 17.

The Court said that the telecom companies have violated the order passed by this Court in pith and substance as in spite of the dismissal of the Review application, they have not deposited any amount so far.

“Shocked” over the non-compliance of it’s 2019 order, the bench said,

“It appears the way in which things are happening that they have scant respect to the directions issued by this court.”

The Court also issued notice to a DoT Desk Officer who asked the Attorney General to not insist on payment of dues as directed by the Supreme Court.  On this, a furious Justice Mishra said,

“A Desk Officer of the Department of Telecommunications has the temerity to pass the order to the effect of issuing a direction to the Accountant General, another Constitutional Authority”

The Desk Officer had asked the Attorney General

“not to insist for any payment pursuant to the order passed by this Court and not to take any coercive steps till further orders.”

The Court said that this kind of order was nothing but a device to scuttle order of the Supreme Court.

Last year, in Union of India v. Association of Unified Telecom Service Providers of India, 2019 SCC OnLine SC 1393the bench of Arun Mishra, SA Nazeer and MR Shah, JJ had refused to change the definition of gross revenue as defined in clause 19.1 of the licence agreement granted by the Government of India to the Telecom Service Providers. It had held,

“The definition in agreement is unambiguous, clear, and beyond the pale of doubt, and there is no confusion in the definition of gross revenue, which is the basis for realisation of the licence fee. Licensees have made a futile attempt to wriggle out of the definition in an indirect method, which was rejected directly in the decision of 2011 between the parties and it was held that these very heads form part of gross revenue.”

According to DoT, Bharti Airtel owes around Rs 23,000 crore, Vodafone Idea Rs 19,823 crore and Reliance Communications Rs 16,456 crore.

[Union of India v. Association of Unified Telecom Service Providers of India, 2020 SCC OnLine SC 182, order dated 14.02.2020]

Case BriefsSupreme Court

Supreme Court: Refusing to change the definition of gross revenue as defined in clause 19.1 of the licence agreement granted by the Government of India to the Telecom Service Providers, the 3-judge bench of Arun Mishra, SA Nazeer and MR Shah, JJ has said,

“The definition of revenue has been taken in a broad, comprehensive, and inclusive manner to pose fewer problems of interpretation, and exclusion of certain items was avoided.”

The Court agreed that to a certain extent, it cannot be disputed that to have clarity, uniformity, and definitiveness; the accounting standards lay down guidelines with respect to financial terms. It, however, said that when the financial terms in the agreement are clear in the form of definition of gross revenue governed by Clause 19.1 of the agreement, the definition of Accounting Standard­9 cannot supersede it which is a general one.

“The definition in agreement is unambiguous, clear, and beyond the pale of doubt, and there is no confusion in the definition of gross revenue, which is the basis for realisation of the licence fee. Licensees have made a futile attempt to wriggle out of the definition in an indirect method, which was rejected directly in the decision of 2011 between the parties and it was held that these very heads form part of gross revenue.”

The Court further noticed that the parties had agreed to various inclusions in the agreement and have willingly switched over to revenue­ sharing regime under the National Telecom Policy, 1999. TSPs agreed to interpretation and accepted it as held by this Court in 2011 judgment.

“The deliberations were held with the licensees, experts, and then finally migration package, revenue sharing regime is being consented to, was worked out in which the definition of adjusted gross revenue as a part of the financial condition of the licence is mentioned.”

Going through the chequered history on the case, the Court noticed:

  • The demand was raised for the first time in the year 2003 despite the fact that the definition of gross revenue was clear. Licensees were aware that these items concerning which they have raised the dispute were included in the definition of gross revenue, as such, they had initially questioned inclusion on the basis of the validity of the definition of gross revenue. The challenge was found to be sans any basis by this Court.
  • The objections raised concerning the validity of the gross revenue, were wholly unsustainable and on the face of it, were liable to be rejected, and came to be rejected finally and conclusively by this Court in the year 2011.
  • After that, again the objections have been repeated to exclude those very revenue items which were held to be included once over an effort has been made to get rid of the definition of gross revenue. The objections which have been raised pertained to the definition of gross revenue for which the court held they are part of revenue.

“Now, relying upon AS­9 standards, an attempt has been made by an indirect method for excluding items, which are expressly included in the definition of gross revenue. Objections are too tenuous, and, as a matter of fact, there was no scope to raise such objections in 2003 itself.”

In the over 150 pages long verdict, the Court has discussed at length the various revenue heads not being revenue and has held that they all fall within the purview of gross revenue.

[Union of India v. Association of Unified Telecom Service Providers of India, 2019 SCC OnLine SC 1393, decided on 24.10.2019]