Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal which was filed against the impugned order wherein the penalty of Rs 50,000 had been imposed under Section 112 read with Section 114AA of the Customs Act, 1962.

The appellant was a customs broker and handled import consignment of the importer, namely, Inder International. The appellant had filed 4 Bills of entry declaring the goods as cold-rolled coil (non-alloy) alongwith invoices, test certificate and other relevant documents for clearance of the same. After filing bills of entry, the importer filed a declaration that the exporter had intimated to the appellant that the goods is of prime in nature. Thereafter, the goods were examined and found to be prime in nature, therefore, a case had been booked against the importer for mis-declaration of the goods to evade payment of duty on the said goods. It was alleged that the appellant has made a false declaration in respect of the said consignments.

The Counsel for the appellant, Mr Sudhir Malhotra submitted that the appellant had filed bills of entry as per the directions of the importer who had imported the said goods on high-seas sale basis the relevant documents, namely, invoices, high-seas agreement, test certificate were also filed by the appellant alongwith the bills of entry and the appellant had never examined the goods before filing the bills of entry, in that circumstances, it cannot be alleged that the appellant had knowingly mis-declared the goods on behalf of the importer. Therefore, there was no mens-rea of the appellant to have undue benefit of mis-declaration, in that circumstances, the penalty cannot be imposed on the appellant.

The Tribunal observed that no where it had been placed on record that the appellant was having prior knowledge of defective/secondary material. In fact, in the invoices, high-seas agreements, test certificates, it was mentioned that the material was of prime nature. It further held that the Revenue had further failed to establish the fact that the appellant about the doing omission of the act which would render the goods liable for confiscation.

The Tribunal while allowing the appeal held that act of filing the test certificate showed that the appellant had no mens rea and filed the documents being a bonafide facilitator and in view of the same no penalty was imposable upon the appellant, therefore, the penalty imposed on the appellant under Section 112 along with 114AA of the Customs Act, 1962 was set-aside.[MS Exim Services v. C.C. Ludhiana, 2021 SCC OnLine CESTAT 14, decided on 04-02-2021]


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Case BriefsHigh Courts

Delhi High Court: Prathiba M. Singh, J., upheld that order of the Central Information Commission whereby a penalty of Rs 10000 was imposed on the petitioners for changing stands while not providing the information as sought by the applicant under the RTI Act.

The instant petition was filed by two officers working with the Union Bank of India as Central Public Information Officers (CPIO).

The above-two officers challenged the impugned Order passed by the Central Information Commission vide which penalties amounting to Rs 10,000 were imposed upon them.

Background

An RTI application was filed by the applicant who was the Chief Manager at the Union Bank of India wherein he sought the following information:

Details of the Board approval along with justification for giving exemption with regard to 3 years branch head service.

The Office of the CPIO had informed the applicant that copy of the board note, being an internal document of commercial confidence would be exempted from disclosure.

Even the appellant authority stated that the copy of the board approval was exempted from being disclosed under Section 8(1)(d) of the RTI Act.

In the second appeal with regard to the matter, CIC found that there was no reason why complete information was not provided to the applicant and held that the responses provided were rather incomplete and evasive. Therefore, a show-cause notice to the CPIOs of the bank was issued.

On receiving the above show cause notice, the CPIOs responded stating that the information which was sought could not be found on record. Due to the change in stand by the petitioners, CIC imposed a penalty of Rs 10,000 under Section 20 of the RTI Act.

Analysis and Decision

Bench referred to this Court’s decision in R.K Jain v. Union of India, 2018 SCC OnLine Del 10957  wherein it was recognized that the CPIO, being the custodian of information or documents sought for, is primarily responsible under the scheme of the RTI Act to supply the information, and in cases of default, the penal action is to be invoked against the CPIO only.

In the decision of Registrar of Companies v. Dharmendra Kumar Garg (WP(C) 11271/2009, decided on 1st June, 2012), the role of CPIOs under the RTI Act was elaborately dealt with.

Further, in the decision of J.P. Agrawal v. Union of India, (WP(C) 7232/2009, decided on 4th August, 2011) the Single Judge recognized that:

CPIOs/PIOs are not merely “post offices” and have a crucial responsibility in facilitating the purpose of the RTI Act.

 In light of the above decisions, the High Court laid down the following principles:

i)  CPIO/PIOs cannot withhold information without reasonable cause;

ii)  A PIO/CPIO cannot be held responsible if they have genuinely rejected the information sought on valid grounds permissible under the Act. A mere difference of opinion on the part of CIC cannot lead to an imposition of penalty under Section 20 of the RTI Act;

iii)  Government departments ought not to be permitted to evade disclosure of information. Diligence has to be exercised by the said departments, by conducting a thorough search and enquiry, before concluding that the information is not available or traceable;

iv) Every effort should be made to locate information, and the fear of disciplinary action would work as a deterrent against the suppression of information for vested interests;

v) PIO/CPIO cannot function merely as “post offices” but instead are responsible to ensure that the information sought under the RTI Act is provided;

vi) A PIO/CPIO has to apply their mind, analyze the material, and then direct disclosure or give reasons for non-disclosure. The PIO cannot rely upon subordinate officers;

vii) Duty of compliance lies upon the PIO/CPIO. The exercise of power by the PIO/CPIO has to be with objectivity and seriousness the PIO/CPIO cannot be casual in their approach.

viii) Information cannot be refused without reasonable cause.

Conclusion

Hence, the Court held that under the RTI Act, the CPIOs have a solemn responsibility.

Section 5(3) requires that every CPIO or SPIO shall deal with requests for information and `render reasonable assistance’ to the persons seeking information.

CPIOs or SPIOs can seek assistance from higher/other officials in the organisation in order to enable them to furnish the information sought for the `proper discharge’ of their duties, as per Section 5(4).

 In the present matter, CPIOs changed their stands which would go on to show that there was an intention to withhold certain important documents or information, leading to the finding of mala fides and unreasonable conduct.

In light of the above, Court opined that the penalty imposed could not be faulted with. However, considering the fact that both the CPIOs since retired from the service of the Bank, the penalty was reduced to Rs 5,000 each. [Rakesh Kumar Gupta (Erstwhile CPIO) Union Bank of India v. CIC, 2021 SCC OnLine Del 194, decided on 22-01-2021]


Advocates for the parties:

For the Petitioners: Mr O.P. Gaggar, Advocate.

For the Respondents: Mr Gaurang Kanth, Standing Counsel with Mr Aman Singh Bakhshi, Advocate.

Case BriefsHigh Courts

Chhattisgarh High Court: A Division Bench of P.R. Ramchandra Menon and Parth Prateem Sahu JJ., dismissed the appeal being devoid of merits.

The facts of the case are such that one Rajendra Sharma was employed as Driver in the truck owned by non-applicant 1 and insured by non-applicant 2 who while driving from Bilaspur to Raigarh carrying dolomite was attacked and assaulted by some unknown persons with the intention to cause robbery and thereby eventually succumbed to death. FIR was lodged and an application under Section 10 of the Employees Compensation Act 1923 was filed before the Commissioner seeking compensation by the wife and children of the deceased which was thereby granted on grounds that the death happened during the course of employment and fastened the liability to pay on the employer.  Assailing the said order, employer appellant filed an appeal before High Court on grounds that the penalty was imposed without issuing show-cause notice and without affording opportunity of hearing to the employer as envisaged under Section 4A (3) (b) of the Employees’ Compensation Act 1923 wherein appeal was allowed and impugned order was set aside in part relating to the amount of penalty and remitted the matter back to pass award afresh after affording reasonable opportunity of hearing to the employer. The Commissioner had fresh proceedings and issued notice to the parties and awarded 50% of the awarded amount of compensation as penalty and held the employer liable to pay amount of penalty.

Counsel for the appellants-employer submitted that there was again non-compliance of the provisions of Section 4A (3) (b) of Employees Compensation Act 1923. He contended that unless and until there is specific notice in this regard, as directed in MA No.148/2003, the impugned order awarding penalty to the extent of 50% and fastening liability upon appellant is bad in law and liable to be set aside.

Counsel for the respondents submitted that the Commissioner after receipt of the case back on remand, drawn fresh proceeding, granted opportunity of hearing and producing evidence, but appellant employer failed to produce any evidence on the issue. He submitted that the Commissioner is well within four corners of law in awarding penalty of 50% as provided under Section 4A (3) (b) of the Employees’ Compensation Act 1923.

The Court observed that the only ground relevant to the facts is that whether without issuance of notice the entire proceeding drawn by the Commissioner would be considered vitiated or not. The Court further observed that the Appellant was well aware of the fact that the case has been remanded back to the Commissioner with a specific direction for appearance of the parties before the Commissioner and to decide the issue of penalty afresh. It was further observed that the issuance of notice as provided under Section 4A (3) (b) of the Act of 1923 to be mandatory is only to bring it to the knowledge of the employer that the penalty is to be imposed, so that the employer may submit explanation and evidence for the delay occurred in depositing amount of compensation and satisfy the Commissioner on the said issue.

The Court thus held that “In the case at hand, earlier appeal was filed by appellant challenging the order of award of penalty by the Commissioner on the ground of non-issuance of show-cause notice as envisaged under Section 4A(3)(b) of the Act of 1923, which was allowed and the case was remitted back to the Commissioner. Appellant was well aware as to why the case has been remanded back to the Commissioner and also about the proceeding drawn by the Commissioner, but even then appellant has not submitted any explanation nor produced any evidence in this regard. When once the case is remitted back to the Commissioner for limited purpose of considering award of penalty; the appellant appeared before the Commissioner and participated in the proceeding but failed to submit any explanation or bring on record any evidence on issue, then he cannot be permitted to again raise the same ground that specific notice in terms of Section 4A (3) (b) of the Act of 1923 has not been issued.”

 The Court thus dismissed the appeal as the appeal did not involve any question of law which is a prerequisite for entertaining appeal under Section 30 of Employees’ Compensation Act 1923.[Ramjilal Jagannath Partnership Firm v. Kusumdevi, 2020 SCC OnLine Chh 2051, decided on 17-11-2020]


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Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Ramesh Nair (Judicial Member) and Raju (Technical Member) allowed an appeal which was filed against in demand of reversal Cenvat Credit, Interest, and Imposition of penalty.

The issue involved in appeal was that whether Rule 6 (3) (b) and Rule 6 (3)(i)(ii) of Cenvat Credit Rules,2004 would be applicable to the removal of byproducts (i.e spent sulphuric Acid) which were removed under serial No 32 of Notification No. 04/2006 –CE dated 1st March 2006 to fertilizer manufacturing units following the procedure laid down under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods)Rule 2001. Notices were issued for recovery of CENVAT under Rule 6(3)(b) and Rule 6(3)(i)(ii) of Cenvat Credit Rules,2004 by treating the removal of Spent Sulphuric Acid under Notification No.04/2006-CE dated 1st March,2006 as exempted goods. The Adjudicating Authority had not accepted the contention of the Appellant that the by-Products were removed at Nil rate of duty on receipt of Annexure-1 from fertilizer manufacturing units.

The Tribunal allowed the appeal and observed that the appellant were engaged in manufacture of Chemicals namely Dichloro Nitro Benzene, etc. and were availing Cenvat Credit in respect of certain inputs and inputs services during the process of manufacture Sulphuric Acid also came into existence. They further observed that appellants were clearing such Sulphuric acid to manufacturers of fertilizers by availing benefit of Procedure Chapter X (Cleared at Nil Rate of Duty). The appellants had contended that they procured Sulphuric Acid from outside and used the same in the process of manufacturing their final products. What is left after the process was nothing but the spent sulphuric acid which was waste/refuse. They claimed that the spent sulphuric acid was not a by-product. The appellant had claimed that spent sulphuric acid was the residue of the input sulphuric acid procured from outside and used in the processing within the factory. The appellant claimed that they had cleared only such Sulphuric Acid under Notification No. 4/2006 – CE. The Tribunal found that a similar issue was decided upon in the case of Nirma Limited – 2012(276) ELT 283.[Panoli Intermediate (India) (P) Ltd. v. C.C.E. & S.T., 2021 SCC OnLine CESTAT 5 , decided on 18-01-2021]


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Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): P.K. Choudhary (Judicial Member) partly allowed an appeal which was filed against the Order-in-Appeal whereby two separate appeals of the appellant against two Orders-in-Original had been dismissed. The basic issue recorded by the Commissioner (Appeals) was whether confiscation of goods and imposition of fine and penalty by the Lower Authority in absence of valid PSI certificate was maintainable.

It was contended on behalf of the appellant that the imported goods were declared as Tin Waste and Scrap (Light Melting Scrap) in accordance with the import documents provided by the foreign supplier. Only during 100% examination after import, a Chartered Engineer was appointed who opined on visual examination that the goods are Tin Plated Steel Scrap as steel predominates by weight. It was contended that prior to such inspection, it was not possible for the appellant to verify the actual nature of goods being supplied by the foreign supplier. The counsel for the appellant further submitted that there was neither any knowledge nor reason to believe on the part of the appellant herein w.r.t. the alleged mis-declaration of the goods so imported. He further submitted that the goods imported during January, 2013 were of no material value as on date and as such, the appellant was no more interested in getting release of the goods against the redemption fine as imposed by the Adjudicating Authority.

The Tribunal after perusing the records found that the goods declared as Tin Waste and Scrap (Light Melting Scrap) were on verification by the qualified Chartered Engineer certified as Tin Plated Steel Scrap since steel predominates by weight. The appellant had not asked for any re-test or alike at the relevant point of time. On the contrary the appellant/ importer had waived his right of show cause notice and/or hearing at the stage of adjudication and hence, the contention on behalf of the appellant before me that the certificate was issued by the Chartered Engineer on visual examination, cannot come to rescue of the appellant with regard to the proper description of the goods. The Tribunal reminded that importation was permitted only against Pre Shipment Inspection

Certificates and it was settled position of law that conditions for import, if not fulfilled, the importation was not permitted. The Tribunal further explained that when goods imported or exported without complying with the conditions subject to which such goods are permitted for export and import, the goods shall be rendered as ‘Prohibited Goods’.

The Tribunal while partly allowing the appeal explained that at the time of importation of the goods, admittedly, Pre Shipment Inspection Certificates were not available and the goods were wrongly described as scrap of tin instead of scrap of steel. The appellant could not even produce such certificates prior to adjudication and thus the order of confiscation of the imported goods was proper and correct under Section 111(d) of the Customs Act, 1962 and thus upheld on the other hand the law requires existence of mens rea and maintenance of balance of convenience prior to imposition of penalty upon any person and in the present case there was no existence of ingredient of section 112 of the Customs Act, 1962 nor any mens rea and hence, the imposition of penalty upon the appellant was bad in law and liable to be quashed.[Sanjay Kumar Agarwal v. Commr. Of Customs, 2020 SCC OnLine CESTAT 397 ; decided on 23-12-2020]


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Security and Exchange Board of India (SEBI): B J Dilip, (Adjudicating Officer) imposed the penalty of 25 crores and 15 crore respectively on Reliance Industries Ltd. (RIL) and its MD,  Mukesh D. Ambani for making unfair and undue profits by means of fraudulent trade practices.

SEBI conducted an investigation into trading in the scrip of Reliance Petroleum Ltd. (RPL) to ascertain whether there was any violation of the provisions of SEBI Act, 1992.

A resolution was passed by BoD of RIL on 29-03-2007 which inter alia approved the operating plan for the year 2007-08 and resource requirements for the next two years, i.e., approximately Rs. 87,000 crore. Thereafter, RIL had entered into a scheme of manipulative trades in respect of the sale of 5% (up to 22.5 crore RPL shares) of RIL stake in RPL. However, before undertaking sale transactions in the Cash Segment, RIL fraudulently booked large short positions in the RPL November Futures through 12 Agents with whom it had entered into an agreement to circumvent position limits for a commission payment. Consequently, RIL fraudulently earned nearly 93% of open interest in RPL November Futures. RIL also undertook transactions in RPL shares in the cash segment. By employing these devices and acting through its 12 Agents, RIL had clandestinely accumulated position limits far in excess of limits permissible for a single client. The above steps in the F&O segment in view of its planned sale of 22.5 crore of RPL Shares in the cash segment was naturally expected to trigger steep price declines in the cash segment and alongside in the futures segment. The only way to take advantage of the sharp price decline would be by taking large positions in futures markets. By roping in 12 agent entities to act on its behalf, RIL had proportionately amplified its position taking capacity in futures which was fraudulent in nature as defined in section 12A (a), (b) & (c) of the SEBI Act and Regulations 3 and 4 of Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market (PFUTP Regulations) Regulations, 2003.

The Board observed that after the sale of shares on 29-11-2007, RIL still had 2.21 crore shares left to sell out of the 22.50 crores shares which suggested that RIL’s real objective was to bring down the RPL share price by dumping huge quantity of shares in the cash segment during the last 10 minutes to influence the settlement price in F&O segment. The manipulative and deceptive transactions of RIL were prima-facie, covered under the definition of ‘fraud’ and therefore were “fraudulent”, as defined under regulation 2(1) (c) of the PFUTP Regulations, 2003

Managing Director of RIL,  Mukesh D. Ambani had been held liable for manipulative trading done by RIL. SEBI observed that it was difficult to believe that entire asset sale to raise Rs 87,000 crore could be done without the supervision of MD, that too when the said amount was a substantial percentage of its total assets and its turnover. It was held that Mukesh D. Ambani, being the Chairman and Managing Director of RIL, was responsible for its day-to-day affairs and thereby, liable under Section 15HA of SEBI Act for the manipulative trading done by RIL.

In view of the above, the Board imposed the penalty of 25 crore and 15 crore on RIL and its MD respectively. It was also observed that Navi Mumbai SEZ Pvt. Ltd. and Mumbai SEZ Ltd. had allegedly aided and abetted RIL by providing funds to agents appointed by RIL, for making the margin payments for the short positions in RPL November Futures. Therefore, penalty of 20 crore and 10 crore respectively were imposed on them as well. The Board disposed of the matter with further directions that the said amount of penalty should be remitted or paid within 45 days of receipt of order. [Reliance Petroleum Ltd. In Re.,  2021 SCC OnLine SEBI 1, decided on 01-01-2021]

Case BriefsHigh Courts

Allahabad High Court: Dr Kaushal Jayendra Thaker, J., observed that if the insurance co. will not be liable to pay interest, then it will be against the spirit of taking an insurance policy, and the very object for introducing insurance policy will get frustrated.

Appeals in the instant matter are out of the decision and award passed by the Commissioner, Workmen’s Compensation Act, 1923 being Additional Labour Commissioner, Kanpur awarding a sum of Rs 6,30,062 with interest at the rate of 9% in favour the claimants.

The owner was saddled with the liability to pay interest.

Question of law in the instant case:

Whether in the given facts and circumstances of the case, the Commission has committed a manifest error of law holding that if the respondent has failed to deposit the awarded amount within 30 days from the date of judgment then only claimants are entitled to the interest at the rate of 9% from the date of award till the amount is deposited.

Owner’s Counsel submitted that the Commissioner committed patent error directing the owner to pay interest.

Counsel for the insurance Company tried to point out that the judgment and order impugned was just and proper as it was the duty of the owner to notify the insurance company about the accident which was not done and hence the owner was saddled with the payment of interest till the date of the decision.

While dealing with the above question of law, the Court found it appropriate to reproduce Section 4A of the Act. 

Section 4A. Compensation to be paid when due and the penalty for default.

Supreme Court’s decision in Oriental Insurance Company v. Siby George, 2012 (4) T.A.C 4(SC) wherein it was held that the payment of interest is a consequence of default and it has to be directed to be paid without going into the reasons for the delay and only in case where the delay is without justification, the employer might also be held liable to a penalty after giving him a show-cause notice. Thus, just because the owner had not intimated to the Insurance Company, it cannot be the reason for not directing the Insurance Company to pay the interest.

Hence, in the findings that the Insurance Company will not be liable for interest is against the spirit of taking the insurance policy and the very object for introducing insurance policy would get frustrated.

High Court in view of the several Supreme Court decisions partly allowed the appeals.

Hence Judgment and award of the Commissioner shall stand modified to the aforesaid extent namely to the extent that the Insurance Company shall deposit the decretal amount with interest at the rate of 12% from one month after the date of accident till the amount is deposited.

In the present matter, it is the parents who were demanding from one son for the death of another son and they have claimed from Insurance Company with whom the vehicle was insured to make payment. Therefore, the minimum penalty of Rs 10,000 would suffice on the Insurance Company. 

Appellants shall deposit a sum of Rs 10,000 which would be a substitution for the penalty. [Chanda Begum v. Shahnawaz, 2020 SCC OnLine All 1487, decided on 16-12-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Bench of Justice Venugopal M. (Judicial Member) and V.P. Singh (Technical Member) and Shreesha Merla (Technical Member), while addressing the present Company Appeal observed that:

No penalty can be saddled either under Section 65(1) or (2) of the Code without recording an opinion that a prima facie case is established to suggest that a person ‘fraudulently’ or with malicious intent for the purpose other than the resolution of Insolvency or Liquidation or with an intent to defraud any person has filed the Application.

The instant appeal emanates from the Order passed by National Company Law Tribunal Delhi whereby application under Section 7 of the Insolvency and Bankruptcy Code 2016 was admitted.

Factual Matrix

Corporate Debtor is a builder of High-End Project wherein a flat was booked for a total sale consideration of Rs 3,80,10,000. 

Respondents were the second purchasers of the above-stated flat booked vide Agreement Buyer Agreement. As per Agreement, the completion period was 36 months plus six months as a grace period, i.e. February 2015.

Appellant contended that after adjusting the payments made by the Original buyer, the respondent paid a total sum of Rs 2,75,55,186 as against the total cost of the flat as Rs 3,80,10,000. The last payment was made by the respondents on 26-08-2013, and after that, despite several reminders, no payment was made.

Respondents opted for a Construction linked plan but failed to pay the instalments on time.

Appellants submitted that the respondents are defaulters. Therefore, Corporate Debtor was constrained to cancel their allotment.

Respondents initiated the proceedings under Section 7 of the Insolvency and Bankruptcy Code against the appellant.

Appellant pleaded that the proceedings initiated by respondents 1 and 2 are against the provisions of the Code and have been done so, to pressurise the Corporate Debtor.

Further, respondent 1/Homebuyer submitted that as per the Agreement, possession was to be handed over within 36 months from the date of commencement of the construction or execution of the Agreement, whichever is later.

Despite the assurances, the Appellant failed to deliver the possession of the said unit to the Respondents. Therefore, the Respondents/Financial Creditor had filed the Application under Section 7 of the Code.

NCLT observed that the Corporate Debtor did not hand over the possession of the flat to the Financial Creditor as the construction work could not be completed within the stipulated time and there was no proof of extension of time by the Authority concerned. A debt of more than Rs 1 lakh was due and payable, which the Corporate Debtor failed to pay.

In view of the above circumstances, application wad admitted by NCLT and the same has been challenged in the instant appeal.

Issues for Consideration:

  1. Whether the Corporate Debtor has committed default in not completing the Construction of the flat in time and handing over possession of the same in terms of Agreement?
  2. Whether Financial Creditor/Home Buyer committed default in making payment of the instalments as per ‘ABA’ under construction link Plan?
  3. Whether the Application under Section 7 of the Code is filed fraudulently with malicious intent for the purposes other than for the Resolution of Insolvency or liquidation, as defined under Section 65 of the I&B Code, 2016?
  4. Whether the application is barred by limitation?

Analysis and Decision

On considering the above-stated issues, Bench observed that the Corporate had committed default in completing the construction work of the flat n time and failed to deliver the possession on the stipulated date as per the Agreement.

In a reply to a notice, Corporate Debtor himself admitted that unlike other builders who have abandoned the project and stopped the work, it is completing the Project which is at the final stage where flooring and finishing work is underway.

It was observed from the Agreement that under the Construction linked payment plan, it is mandatory to issue demand notice for instalments in the commencement of respective stages of Construction by speed post or courier.

In the instant case, there was no evidence to show that the demand notice at the respective stages of Construction was ever sent to the Allottee. Whereas, Clause 2.18 of the Agreement makes it mandatory to send the Notice to the Allottee under Construction linked plan. No compliance of conditions of Clause 2.17 and 2.18 were made in the instant case.

Hence, in the present case, it is difficult to ascertain as to when Instalment became due, at the start of the respective stage of the Construction.

Bench observed that:

Mandatory condition of issuing Notice through speed post or courier to the Allottee, at every stage of Construction as per Agreement has not been followed.

Hence, it cannot be concluded that the allotted committed any default in paying the instalment when due and the fact that the flat was to be delivered latest by 2nd week of February 2016, but construction work was still going on in the year 2018 also cannot be denied.

Justification for Invoking Section 65 of the Code

In accordance with the Supreme Court decision in Pioneer’ Urban Land Infrastructure v. Union of India, (2019) 8 S SCC 416, Corporate Debtor has the responsibility to furnish the details of default. It was held that:

“Under Section 65 of the Code, the real estate developer can also point out that the insolvency resolution process under the Code has been invoked fraudulently, with malicious intent, or for any purpose other than the resolution of Insolvency. The Allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/Apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it. The Allottee does not, in fact, want to go ahead with its obligation to take possession of the flat/Apartment under RERA, but wants to jump ship and really get back, by way of this coercive measure, monies already paid by it.”

Bench stressed upon the point that Section 65 of the Code is not meant to negate the process under Section 7 or 9 of the Code. Penal action under Section 65 can be taken only when the provision of the Code has been invoked fraudulently, with malicious intent.

In the Supreme Court decision of Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, it was held that:

“…in order to protect the corporate debtor from being dragged into the corporate insolvency resolution process mala fide, the Code prescribes penalties.”

Hence, from the above discussion, it is clear that

the Code provides stringent action under Section 65 against the person who initiates proceedings under the Code fraudulently or with malicious intent, for the purpose other than the resolution of Insolvency or liquidation under the Code.

Requirement for levying penalty under Section 65 IBC is that a ‘prima facie’ opinion is required to be arrived at that a person has filed the petition for initiation of proceedings fraudulently or with malicious intent.

While parting with the decision, Tribunal held that the Real Estate Developer failed to prove that Allottee is a speculative Investor and is not genuinely interested in purchasing the flat and initiated proceeding under the Code to pressurise the Corporate Debtor.

Thus, Tribunal found no justification to invoke Section 65 of the I&B Code against the Allottee.

Decision

NCLT’s order requires no interference. [Amit Katyal v. Meera Ahuja, 2020 SCC OnLine NCLAT 748, decided on 09-11-2020]

Case BriefsSupreme Court

Supreme Court: The bench of Ashok Bhushan and MR Shah*, JJ has held that Magistrate can in exercise of powers under Section 156(3) of the Criminal Procedure Code order/direct the concerned Incharge/SHO of the police station to lodge/register crime case/FIR even for the offences under the the Mines & Minerals (Development & Regulation) Act, 1957 (MMDR Act) and the Rules framed thereunder and at this stage the bar under Section 22 of the MMDR Act shall not be attracted.

The Court was hearing a case relating to offences under Sections 379 and 414 IPC, Sections 4/21 of the MMDR Act and Rule 18 of the M.P. Minerals (Prevention of illegal Mining, Transportation and Storage) Rules, 2006 where the Magistrate in exercise of powers conferred under Section 156(3), Cr.P.C. suo motu directed to register criminal case under Section 156(3) Cr.P.C. for initiation of investigation and for submitting of report after due investigation is conducted. The concerned In-charge/SHOs of the concerned police stations was also directed to register the first information report and a copy of the first information report be sent to the learned Magistrate as per the provisions of Section 157, Cr.P.C. The Madhya Pradesh High Court had refused to quash the criminal proceedings.

It hence, concluded

i) that the Magistrate can in exercise of powers under Section 156(3) of the Code order/direct the concerned Incharge/SHO of the police station to lodge/register crime case/FIR even for the offences under the MMDR Act and the Rules made thereunder and at this stage the bar under Section 22 of the MMDR Act shall not be attracted;

ii) the bar under Section 22 of the MMDR Act shall be attracted only when the Magistrate takes cognizance of the offences under the MMDR Act and Rules made thereunder and orders issuance of process/summons for the offences under the MMDR Act and Rules made thereunder;

iii) for commission of the offence under the IPC, on receipt of the police report, the Magistrate having jurisdiction can take cognizance of the said offence without awaiting the receipt of complaint that may be filed by the authorised officer for taking cognizance in respect of violation of various provisions of the MMDR Act and Rules made thereunder; and

iv) that in respect of violation of various provisions of the MMDR Act and the Rules made thereunder, when a Magistrate passes an order under Section 156(3) of the Code and directs the concerned In-charge/SHO of the police station to register/lodge the crime case/FIR in respect of the violation of various provisions of the Act and Rules made thereunder and thereafter after investigation the concerned In-charge of the police station/investigating officer submits a report, the same can be sent to the concerned Magistrate as well as to the concerned authorised officer as mentioned in Section 22 of the MMDR Act and thereafter the concerned authorised officer may file the complaint before the Magistrate along with the report submitted by the concerned investigating officer and thereafter it will be open for the learned Magistrate to take cognizance after following due procedure, issue process/summons in respect of the violations of the various provisions of the MMDR Act and Rules made thereunder and at that stage it can be said that cognizance has been taken by the learned Magistrate.

v) in a case where the violator is permitted to compound the offences on payment of penalty as per sub-section 1 of Section 23A, considering sub-section 2 of Section 23A of the MMDR Act, there shall not be any proceedings or further proceedings against the offender in respect of the offences punishable under the MMDR Act or any rule made thereunder so compounded. However, the bar under sub-section 2 of Section 23A shall not affect any proceedings for the offences under the IPC, such as, Sections 379 and 414 IPC and the same shall be proceeded with further.

Considering the need for stringent provisions which may have deterrent effect so that the violators may think twice before causing damage to the earth and the nature, the Supreme Court said

“It might be true that by permitting the violators to compound the offences under the MMDR Act or the rules made thereunder, the State may get the revenue and the same shall be on the principle of person who causes the damage shall have to compensate the damage and shall have to pay the penalty like the principle of polluters to pay in case of damage to the environment. However, in view of the large scale damages being caused to the nature, the policy and object of MMDR Act and Rules are the result of an increasing awareness of the compelling need to restore the serious ecological imbalance and to stop the damages being caused to the nature.”

In the present case, on a surprise inspection, the respective Mining Inspectors checked the tractor/trolleys of the private appellants along with the minor mineral (sand/storage/yellow soil etc.) loaded in them.

[Jayant v. State of Madhya Pradesh, 2020 SCC OnLine SC 989, decided on 03.12.2020]


*Justice MR Shah has penned this judgment 

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): Justice Tarun Agarwal allowed the appeal and substituted the penalty imposed by the impugned order with a warning.

The facts of the case are such that the appellant in the instant case is National Highway Authority of India i.e. NHAI an autonomous body set up by the Parliament under ‘NHAI Act’. It is also listed on the Bombay Stock Exchange and National Stock Exchange and is subject to the provisions of the (Listing Obligations and Disclosure Requirements) Regulations, 2015 i.e. LODR Regulations, 2015. Regulation 52(1) of the LODR Regulations, 2015 mandates filing of the unaudited half-yearly financial results within 45 days from the end of the half financial year. An extension application under Regulation 102 of LODR Regulation 2015 was filed on two occasions with a  procedural fee of Rs 1 lakh pursuant to which SEBI asked for certain clarification which were given therewith yet the request was rejected. The appellants failing which, as there was a delay in filing the half-yearly financial results for the period ending 30-09- 2018 and 31-03-2019, has been slapped with a penalty of Rs 7 lakh by SEBI Board vide order dated 26-05-2020. Being aggrieved by the said order present appeal has been filed.

Counsel for the petitioners Rajesh Ranjan and Neeraj Matta submitted that the delay was a procedural delay which was beyond the control of the officers of NHAI as the NHAI body constituted under the NHAI Act mandates the composition to be from among the high level secretaries from the Union Ministries which makes it difficult for regular meetings to be convened due to lack of adequate quorum and it is also mandated under Regulation 4 of NHAI (Transaction of Business) Regulations, 1997 that no meeting of the Board would be legal or valid unless it was approved by two-third of the members failing which even after the financial results being ready on time it could not been signed and submitted/ furnished. It was further submitted that in view of Section 27 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the ‘SEBI Act’) no proceedings could have been initiated for imposing penalty under Section 15A of the SEBI Act unless and until the Officers in default were identified and prosecuted under Section 27 of the Act. It was also submitted that the extension application was rejected without giving proper reasons for doing so and hence is against principles of natural justice and Section 15 J was not taken into consideration before imposing penalty.

Counsel for the respondents Abhiraj Arora and Rashi Dalmia opposed the submissions by petitioners stating that the penalty has been imposed as per Regulation 52 of the LODR Regulations and there being no provision for relaxation, relaxation has not been granted and penalty imposed keeping in mind that such callousness has been shown by NHAI on previous 7 instances and thereby 7 Lakh has been imposed.

Regulation 52(1) “Financial Results.

52(1) The listed entity shall prepare and submit un-audited or audited financial results on a half yearly basis in the format as specified by the Board within forty five days from the end of the half year to the recognised stock exchange(s).”

 Regulation 102 “Power to relax strict enforcement of the regulations. 102.The Board may in the interest of investors and securities market and for the development of the securities market, relax the strict enforcement of any requirement of these regulations, if the Board is satisfied that: (a) any provision of Act(s), Rule(s), regulation(s) under which the listed entity is established or is governed by, is required to be given precedence to; or (b) the requirement may cause undue hardship to investors; or (c) the disclosure requirement is not relevant for a particular industry or class of listed entities; or (d) the requirement is technical in nature; or (e) the non-compliance is caused due to factors affecting a class of entities but being beyond the control of the entities.”

 The Tribunal stated that in the instant case penalty became leviable under Section 15A (b) of the SEBI Act as the unaudited half-yearly financial results were not filed within the stipulated period. The Tribunal observed that prosecution under Section 27 of the SEBI Act can be initiated against the Company and its Directors/Officers and persons responsible for the default but penalty proceedings can be initiated under Section 15A for non-filing of the financial results without taking recourse to Sec. 27 of the Act. However, there is an exception to the rule and exemption can be granted by extending the time to comply with the provisions Regulation 102 of the LODR Regulations. It was further observed that the Appellate Authority consists of senior government functionaries who are entrusted with multifarious functions in the Union Government and hence strict compliance must be subject to consideration for the extension of time under Regulation 102 of the LODR Regulations.

The Tribunal held that imposing 7 lakh as penalty without assigning reasons as well as the reason cited by the authorities that the amount so fined is due to his default 7 times is wholly arbitrary as not filing the financial results for the financial years 2015-2016 to 2018-2019 cannot be taken into consideration as a ground for imposition as the violation was only for non-filing of the unaudited half-yearly financial results for the year ending 30-09-2018 and 31-03-2019. The delay in the filing of the returns for the earlier financial years stood exempted and condoned by the respondent themselves which cannot be taken as a mitigating circumstance for the imposition of penalty.

The Tribunal also relied on judgment titled Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90 which held that the conditions stipulated in clause (a), (b), and (c) of Section 15-J SEBI Act, 1992 are not exhaustive and, in a given case, the AO can take note of other factors which are not specified in clause (a), (b), and (c) of Section 15-J of the Act. The Adjudicating Officer also could have taken into consideration the mitigating circumstances in addition to the factors mentioned under Section 15J while considering the imposition of penalty.

The Tribunal held that the Adjudicating Officer failed to take into consideration the mitigating circumstances as a factor under Section 15-J while considering the imposition of penalty.

In view of the above, the Court allowed the appeal and found the imposition of Rs 7 lakhs as unsustainable.[National Highway Authority of India v. Securities Exchange Board of India, 2020 SCC OnLine SAT 158, decided on 27-08-2020]


Arunima Bose, Editorial Assistant has put this story together

Case BriefsHigh Courts

Rajasthan High Court: Arun Bhansali, J., rejected a stay application that was filed aggrieved by the order of the Director, Mines demanding penalty, revoking sanction and passing debarring order against the petitioner.

It was submitted that the petitioner pursuant to the e-auction notification for collection of excess royalty and DMFT amount on masonry stone participated, being a petitioner was granted the contract and was required to fulfill the requirements as indicated successful bidder, However, on account of lockdown imposed due to COVID-19 pandemic, needful could not be done by the petitioner and he requested the respondents to grant time for fulfilling the requirements of the office wherein, he was required to do the needful within 15 days. Thus, the petitioner had sent a communication seeking extension of date for signing the agreement ‘without penalty’ which was responded to by the mining engineer who had asked to do the needful in 3 days along with the penalty. The petitioner again had asked for the waiver of penalty consequently the matter was forwarded to the Director, Mines for taking action under the provisions of Rule 45 of the Rajasthan Minor Mineral Concession Rules, 2017 (‘the Rules, 2017’). In the order passed by the Director the bid security amount was forfeited, the sanction was revoked and the petitioner was debarred from participating in the forthcoming auction.

The Court while rejecting the stay application explained that in the over all circumstances of the case where the formalities had to be completed in 15 days taking into consideration the effect of lockdown, and the prayer made by the petitioner seeking exemption from payment of amount of penalty was declined he was required to do the needful including payment of amount of penalty, the submission that as the communication was a recommendation only, the petitioner had no cause at that stage cannot be accepted inasmuch as insofar as the prayer made regarding exemption from payment of the amount of penalty is concerned stood rejected, which had provided cause to the petitioner. The Court added that the petitioner was not vigilant enough to seek his remedy in relation to the grievance as raised in the writ petition.[Bhaniyana Construction v. State of Rajasthan, 2020 SCC OnLine Raj 1386, decided on 30-09-2020]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): A Division Bench of Anil Choudhary (Judicial Member) and P. Venkata Subba Rao (Technical Member), allowed an appeal which was filed on being aggrieved by the dismissal of the appeal by the Commissioner (Appeals).

The appellant is registered with the Service Tax Department and was engaged in the business of civil construction classifiable under ‘Works Contract Services’. During verification of the records and accounts maintained by the appellant and on reconciliation with the ST-3 returns filed by the appellant, it appeared that the appellant had not paid service tax on some part of their turnover during the period 2011-12 to 2014-15 particularly in respect of service provided to organizations like Andhra Pradesh Power Generation Corporation (AP GENCO), Andhra Pradesh Tourism Development Corporation (APTDC), etc. It further appeared that in respect of service rendered the recipient(s) did not fall under the category of Government/ local authority/ Government authority. The show-cause notice was adjudicated on the contest and the aforementioned demands were confirmed along with penalty of Rs 1,03,83,141/- under Section 78 of the Act and a further penalty of Rs 10,000/ under Section 77(2) of the Finance Act, 1994. Aggrieved by which the appellant had filed an appeal with the Commissioner (Appeals) who had dismissed the appeal but had reduced the penalty. Thus, the instant appeal was filed.

The Tribunal while allowing the appeal explained that admittedly all the companies / Corporations have been established by the Government of Andhra Pradesh under the various Acts and /or ‘Government order’, as aforementioned and thus held that the appellant had provided service to Governmental authority. Thus, the service recipients were covered under sub-clause (i) of clause (5), of the definition of the term ‘Govt. Authority’, in Notification No. 25/2012-ST, as amended by Notification No. 2/2014-ST (by way of substitution). Accordingly, the appellant is entitled to exemption and the demand of Rs 97,63,710 is set aside. Further, in the second issue, it was found that the construction of flats under the ‘development agreement’ with the landowner by the appellant is on principal to principal basis. In such a transaction, there is neither any element of service provided to the landowner, nor any element of sale, thus, the Tribunal held that the service tax was not imposable setting aside the demand of Rs 5,55,458/-. Lastly, in the third issue, the Tribunal held that the appellant had already provided the service as well as raised the invoice before the due date. Further, admittedly appellant had not given the option for payment of tax as per the date of receipt of consideration. Thus, the Tribunal held that demand of tax, relying on Rule 11 of Point of Taxation Rules was bad, setting aside the penalty of Rs 63,973. [Krishi Constructions (P) Ltd. v. Commr. of Central Tax, 2020 SCC OnLine CESTAT 199, decided on 22-09-2020]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Delhi High Court: A Division Bench of Manmohan and Sanjeev Narula, JJ., stayed  the anti profiteering penalty proceedings against Samsonite South Asia Pvt. Ltd. till further orders.

The plaintiff had filed the petition, challenging the constitutionality and legality of the National Anti Profiteering Authority as well as Section 171 of the Central Goods and Services Tax Act and Rule 126 of the Central Goods and Services Tax Rules. The petitioner claimed breach of principle of natural justice because of absence of any methodology of the entire proceedings before the NAA. The petitioner also sought that it be allowed to deposit profiteered amount in instalments, in light of COVID-19 pandemic.

The plaintiff was represented by Rohan Shah, Advocate with Alok Yadav and Srisabari, Advocates. The respondents were represented by  Asheesh Jain, Advocate with Adarsh Kumar Gupta, Advocate and others.

The respondents objected the grant of instalments to the petitioner, but the court keeping in view the COVID-19 pandemic situation, directed the petitioner to deposit the principal profiteered amount i.e. Rs 21,81,20,748, in six equated monthly instalments. The interest amount and penalty proceeding were stayed by the Court. The court directed both the parties to file brief written submissions, while issuing notice to Central Government.

The matter will be taken up next on 24-08-2020, when the Court will be hearing 35 other similar matters.[Samsonite South Asia (P) Ltd v. Union Of India, 2020 SCC OnLine Del 794 , decided on 20-07-2020]

COVID 19Legislation UpdatesNotifications

Extension of time in filing ESI contribution

As a relief measure, the period for filing ESI contribution for the month of February and March was earlier extended to 15th April and 15th May, respectively. Now, considering the hardship being faced by employers, the period for filing ESI contribution for the month of February has been further extended from earlier extended period i.e. 15th April to 15th May, 2020.

No penalty or interest or damage will be levied on establishments during the extended period.

Besides these, following relief measures have been undertaken for Insured Persons and Beneficiaries:-

  1. In order to ease hardship of ESI Beneficiaries, purchase of medicines by ESI beneficiaries from private chemists during the lockdown period and its subsequent reimbursement by ESIC has been permitted.
  2. A provision has also been made for providing medical services to Insured Persons (IPs) and beneficiaries from Tie-up Hospitals, if an ESIC Hospital is declared as a dedicated Covid-19 Hospital to cater exclusively to Corona suspected/confirmed cases. ESI beneficiaries can be referred to tie-up Hospitals for providing prescribed secondary/SST consultation/admission/ investigation, during the period for which concerned ESIC Hospital functions as dedicated Covid-19 Hospital. ESI Beneficiary may also seek Emergency/non-Emergency medical treatment from tie-up hospital directly without referral letter, in accordance with his entitlement.
  3. Medical Benefit is provided under Rule 60-61 to the Insured persons who cease to be in insurable employment on account of permanent disablement and to the retired Insured Persons, on payment of advance lump-sum contribution for a year at the rate of Rs.10/- per month. Under the prevailing circumstances of lockdown, there may be cases where validity of the medical benefit cards issued to these beneficiaries expire as these beneficiaries are unable to deposit the advance annual lump-sum contribution due to lockdown. Such beneficiaries have been allowed to avail medical benefit under Rule 60 and 61 of ESI (Central Rules) till 30.06.2020.
  4. The payment of Rs 41.00 crore (approx.) in respect of Permanent Disablement Benefit and Dependants’ Benefit have been sent to the bank accounts of beneficiaries in the month of March, 2020.


Employees State Insurance Corporation

[Press release dt. 14-04-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Anil Choudhary (Judicial member) allowed an appeal filed against a common impugned Order-in-Appeal.

The appellant 1 were engaged in manufacture of MS Bars falling under Chapter 72 of the First Schedule to Central Excise Tariff Act, 1985 and there was another dealer who were engaged in the manufacture of M.S. Flat, Round etc. falling under Chapter 72, to which appellant- SRSDL supplied rejected MS Ingot. A search was conducted by Director General of Central Excise Intelligence (‘DGCEI’) in the factory of Bhiwadi RMPL at Bhiwadi on 06-09-2012 when the officers of DGCEI New Delhi, gathered information that Bhiwadi RMPL were indulging in clandestine removal and sale of finished goods manufactured by them without proper accounting and payment of Central Excise duty. Accordingly show cause notice was issued to all the three appellants. The Adjudicating Authority confirmed the demand of Rs 24,53,544 upon appellant No. 1 besides imposing penalty of equal amount. He also imposed penalty of Rs 2,50,000 each upon appellant 2 & 3. The Commissioner (Appeals) also upheld the Order-in-Original.

The Tribunal while allowing the appeal stated that whole of the case was based upon third party record. The director of appellant 1 specifically denied any clandestine clearance of Miss-Roll to BRMPL. The department had neither made investigation from the transporter or the truck drivers who transported the goods from the factory of the appellant 1. There was no corroborative evidence that SRSDL received raw material, manufactured and cleared the goods clandestinely. Hence allegations made against SRSDL and Sh. Ajay Kumar Malhotra, appellant 1 & 2 were not sustainable and their appeals were to be allowed. As regard appellant 3 the counsel argued that penalty under Rule 26 cannot be imposed upon a corporate body. The appellant is a private limited company hence penalty imposed was not sustainable. [Rathi Steel Dakshin Ltd. v. Commr. Of CE & CGST, Excise Appeal No. 50065 of 2019, decided on 17-03-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): A Two-Member Bench of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) was hearing two appeals pertaining to the orders passed by Adjudicating Officer (AO) of Securities and Exchange Board of India (SEBI) imposing penalty over appellants.

The appeals were filed by Subrata Bhattacharya and Gurmeet Singh, Directors of Pearl Agrotech Corporation Limited which was involved in mobilizing funds from the General Public by sponsoring schemes. SEBI found out that the schemes by the company are the Collective Investment Scheme (CIS) and was in violation with Section 15-HA of SEBI Act, 1992. Therefore, SEBI directed the company to wind up the CIS and return the money to the investors. The AO imposed a penalty of Rs 7,269,49,70,295 to be paid by appellants which was later quashed by the present tribunal back in 2016. Later after hearing the appellants, the AO revised the penalty to Rs 24,23,16,56,765. The Appeal was filed against this order of the AO.

The Counsel for the appellants, Kunal Katariya, Pulkit Sharma assisted by Pranav Shah submitted that the show cause notice was quashed by Rajasthan High Court and it held that the scheme was not CIS. The orders of High Court even though were set aside by the Supreme Court no interim order was passed, so the directors have not collected money illegally. The Counsel further submitted that there was no proof that the appellants have made profits from the scheme and the scheme floated was a valid scheme that did not require registration. Therefore, the penalty was imposed without considering the relevant factors.

The Counsel for the respondent, Shyam Mehta and Shehaab Roshan submitted that the appellants have unlawfully drawn the fund causing loss to investors.

The Tribunal relied on Regulation 4(2)(t) of Prohibition of Fraudulent and Unfair Trade Practices and observed that the collection made by the appellants was illegal and the total amount of collection amounts to illegal profits made by the appellants and the company and the amount was raised under CIS as not registered from SEBI. Further, it was observed that the orders of AO are in consideration with the law by placing reliance on Section 15-HA of SEBI Act, 1992.

In the view of above, the Tribunal dismissed the appeals.[Subrata Bhattacharya v. SEBI, 2020 SCC OnLine SAT 5, decided on 14-01-2020] 

Op EdsOP. ED.

Internet is to this century what oil was to the last[1]. The Government of India realising the impact of data has placed two strategic bills, the Personal Data Protection Bill, 2018 and the Draft National E-Commerce Policy (DEPC) to regulate the access and use of the data collected from individuals in our country. This is further strengthened by the fact that the United Nations has recognised access to the internet as a human right.[2] Therefore, fair usage and access to internet services is an ancillary right of the netizens. But is it really the case? Do netizens get a fair service? Are we able to use the internet without one or the other algorithmic prejudices? These questions are far from one’s contemplation? What happens, if one is denied the most basic internet service, of a general search? What does a biased search on the internet lead to? Would a bias in the search result in any manner reduce consumer experience or mislead them? Google Inc. is at the forefront of the answers to these questions. Antitrust agencies globally are or have been at some point arrested with the accusations of search bias against Google. This article is however limited to the effect of search bias in India. The Competition Commission of India (CCI/Commission), has by and large through its order (primary order)[3] against Google set the tone for intervention in the digital market whilst cautiously balancing market innovation and antitrust intervention. It is, however, through its recent (android investigation)[4] that the CCI seemingly took a sterner view in calling for a level playing field in digital markets.

The Primary Order

By way of background, Consim, now known as Matrimony.com and Consumer Unity and Trust Society (CUTS) had filed an information with the CCI alleging inter alia that Google had created an uneven playing field by preferring its own services and partners by manually manipulating algorithmic search results to the advantage of its verticals. It further alleged that Google is leveraging its strong position in the various online search markets to enter into and enhance its position in ancillary markets.

Now let us understand the process, service providers with two-sided platforms like Google, display free services to users and earn revenue through sponsored advertisements by publishers. When a user enters a query, Google’s algorithm runs the query, crawls it through billions of pages, index it and then in accordance with its relevance, display it to the user. It is understood that topmost results are the most relevant and are the ones to capture maximum clicks. Websites compete for the top positions on the Search Engine Results Page (SERP), as that ensures their viability. It is at this stage that Google manually manipulates the algorithm and displays its own vertical services at the prominent locations of the SERP, denying competitors the business that they would have otherwise garnered, at the same instance misleading consumers into believing this relevance. A lot of our readers would be of the mind that Google offers free services and therefore shall be outside the purview of the competition law. As Google charges for placing ads on its platform, which is an economic activity, it can be called under the ambit of the Competition Act, 2002 (Act). Further, our Act also considers free services and there is no requirement of monetary considerations for an enterprise to be held liable under our Act. Since Google is significantly present in both general and specified search, the CCI marked (a) market for online general web search services in India; and (b) market for online search advertising services in India as relevant markets. Google was found dominant by the virtue of inter alia the volume of business, total revenue, market share and the high entry barriers in terms of scale and technology in India.

The Commission found Google to be abusing its dominant position on three counts, each explained below:

  1. Universal Results: Universal results are a group of results for a specific category. The CCI found the abuse of dominance until 2010, where universal results were shown only at the 1st, 4th and 10th places, irrespective of their relevance in the SERP. Post-2010, it is found to be on a free-floating basis. Since it was historic conduct the CCI did not choose to plunge on it further.
  2. Commercial Flight Units: The most interesting part of the search bias can be definitely the self-preferencing placement of Google’s own sponsored advertisement. Google displays Google Flights on the top of the SERP with the tag of sponsored that on clicking leads to Google’s own flight page, instead of a third-party page. This in the view of the majority is abusive conduct as it misleads the user and denies the competitor the coveted real estate taking away the chance to business or possibly driving them out of business. It is, however, the dissent order, interestingly, that highlights the lack of evidence in arriving at this decision as well as the fact that most of the decision on this very point is based on surmises of a third-party misery. It also brings to the fore that users being aware of such a search being sponsored will not click it, should they choose and therefore, the remedy of putting a disclaimer of the click leading to a third-party website can only do so much.

The majority order recognises down that asking Google to replace its commercial flights’ link and integrate third-party verticals shall be confusing to the users and difficult for Google. Google will not be in a position to algorithmically first few results and use an entirely different method to rank the following set of results. This is again a failure in rectifying a situation by the CCI, whereby it could have asked Google to rank its pages systematically in consonance with regard to the third-party pages, which it felt so strongly for.

  1. Syndicate Search Agreements: Under this head the CCI deliberated with the unfair terms in the negotiated intermediation agreement that Google induces the website publishers to adhere, should they wish to incorporate Google search/advertising services within their websites, to ease customer experience by not incorporating a search technology same or similar to Google. The CCI has asked Google to cease and desist from this practice while stating that it is an act of leveraging dominance in one field, namely, the two relevant markets to gain dominance in the syndicate search. However, as a practice that leveraging dominance in the other field requires delineating a separate relevant market which the CCI failed to define in this case[5].

The CCI imposed a paltry penalty of INR 135.86, which was a 5% penalty on Google’s average total revenue generated from India operations in three years.

The Hits and Misses

The order highlights the pro-innovation and limited intervention in the digital market stance of our regulator. At one point before dealing with the issues of abuse, the majority order claims of market behaviour to be self-correcting for a dominant enterprise, be it a digital enterprise, in a digital/virtual market. This according to me can be denied as given the lack of proper alternatives, with such organised search skills, it is highly doubtful if Google’s behaviour can be exposed to self-correction by the market. Albeit, the decision is heavily biased in favour of Google, with limited modifications, denying a lot of valid DG assertions, still can be said to be a guiding light for Indian jurisprudence in terms of digital markets. It, however, fails to do any justice to the claims of search bias in the view of the author, as the order could have easily been supported by empirical studies and evidence which could have gone a long way in making this a strong decision, holding Google’s conduct more sternly liable.

As the dissent note highlights most of the findings in the order are relied upon by Google’s public statements and Microsoft’s studies. The Commission’s sprawling economic wing did not get into finding evidence or conducting market studies, as its European counterpart so effectively did. There was no study of the click-through rate or loss of sales by the customer due to Google’s abusive behaviour. Google’s monopoly over internet search still remains a serious issue. Various hypotheticals and past conduct in different jurisdictions show how Google may still display its results first even after the order. This order has, however, paved the way for more such intervention in the digital space and set the difficulties that agencies worldwide grapple with while dealing with the dynamic markets.

The Android Investigation

The present information deals primarily with Android-related abuse against Google in India. The informants have placed reliance on the search bias in the primary order along with the order of the European Commission (EC)[6] on the same dispute. Being the innovator that it is, Google had realised quite early on the shift of the user base from PCs to mobile phones given the flexibility of use and ease of access. Google’s search engine is admittedly its primary source of revenue and also aids its process of revenue generation as witnessed in the analysis of the primary order by collecting data from its search services. It acquired Android in 2005, which is used by the majority of phone manufacturers in India. Google cajoles the manufactures to enter into an agreement to install Google Mobile Services (GMS), a collection of Google applications including Google Maps, Gmail, and YouTube, Play Store. Interestingly, the end-users will be unable to avail of such services directly. The aforesaid agreement inter alia stipulates, in exchange for a free licence to GMS, the manufacturer shall agree to the placement of the Google search widget, the play icon, and a folder with a selection of other Google apps (such as Chrome) on the default home screen. Though Google confesses such apps take very little space and can be uninstalled by the consumer/user at any point in time, it fails to consider the resultant dysfunctioning of various other non-Google Android applications.

In terms of search bias, the users are now better able to input search queries with the accessibility of mobile phone allowing Google to further accumulate its data bank. The CCI whilst ordering an investigation under Section 26(1) of the Act, noted such placement of the search engine as denying market access to other competing search engines. The order also recognises the data-driven scale effects of the search engines and raised apprehension regarding the impugned conduct of Google in perpetuating its dominance in the online search market.

Its Import in the Competition Jurisprudence

Albeit an investigation order, this step of the CCI is bold in recognising the perpetual possibilities of Google’s abusive conduct in search results. The order only spells denial of market access to the competitors and a possible stifling in innovation; it misses out the fact that given the preinstalled Google search will help in accumulating the data bank and a possibility of further search bias. The increased ability and chances of the users to give feedback on their phones towards the improvement in algorithmic search shall also contribute to furthering search-related display of related services. Google has appealed the primary order, its historic conduct worldwide, however, gives a glaring impression of faltering the guidelines imposed by the Commission. Finding an abuse against Google and levying a penalty under the Act can act as a deterrent. The EC had levied a penalty of €4.34 billion in the similar litigation referred above. The decision shall be quicker than expected if the investigation as envisaged by the CCI is completed in 150 days, though highly unlikely as the CCI takes multiple years to decide. This decision will be of further assistance in establishing a stronger sense of abuse against the Goliath when the National Company Law Appellate Tribunal (NCLAT) decides the appeal of the primary order.

The Road Ahead

In summary, CCI has a chance to prove itself to be a stern regulator, one that does not shy away from enabling businesses in the digital economy to thrive and grow while ensuring that innovation of the internet economy is not hindered. Of late, the CCI has given progressive decision in the disruptive market, be it suggesting online platforms to be a potential ground for resale price maintenance whilst ruling that resale price maintenance did not require actual resale or  showing  concerns[7] or  flagging  big  data  concerns  during  the  Bayer/Monsanto  merger[8] or questioning  the  price-fixing  algorithm  in  the  air  cargo  cartel[9] or  the  multiple  orders  on price-fixing, collusion as well as abuse of dominance against the online cab aggregators. Understandably, the battle against Google’s dominance shall go a long way in paving paths for many other groundbreaking steps in the regulation of big data companies. Also interesting will be to see the impact of the DPEC in these decisions which (whenever sees the light of day) is expected to inter alia regulates the conduct of search engines such as Google whilst seeking to create a level playing field against the digital companies as well as regulating the sale of data. The DEPC strongly condemns the self-preferencing model that Google is charged in both the cases, can be the propeller for setting new principles in correcting Google’s conduct. Time shall only tell the outcome of Google’s abusive conduct but history shall bear witness to struggle and efforts of the CCI in achieving a level playing field in digitised markets.


 †  Research Associate, Competition Law, Email id: ssdoyne@gmail.com.

[1] <https://economictimes.indiatimes.com/magazines/panache/data-is-the-21st-centurys-oil-says-siemens-ceo-joe-kaeser/articleshow/64298125.cms>.

[2] Human Rights Council, UN Doc. A/HRC/17/27 (16-5-2011), available at <http://www2.ohchr.org/english/bodies/hrcouncil/docs/17session/A.HRC.17.27_en.pdf>.

[3] Cases Nos. 7 and 30 of 2012, 8-2-2018, available at <https://www.cci.gov.in/sites/default/files/07%20&%20%2030%20of%202012.pdf>.

[4]  Case No. 39 of 2018, 16-4-2019, available at <https://www.cci.gov.in/sites/default/files/39-of-2018.pdf>.

[5]  2015 SCC Online CCI 139: (2015) CCI 143 and 74 of 2015, available at <https://www.cci.gov.in/sites/default/files/6%20%26%2074%20of%202015.pdf>.

[6]  European Commission – Press release, 18-7-2018, available at <http://europa.eu/rapid/press-release_IP-18-4581_en.htm>.

[7]  Case No. 61 of 2014, 15-1-2019 available at <https://www.cci.gov.in/sites/default/files/61-of-2014.pdf>.

[8] Combination Registration No. C-2017/08/523, 14-6-2018, available at <https://www.cci.gov.in/sites/default/files/Notice_order_document/Order_14.06.2018.pdf>.

[9]  Press Trust of India, New Delhi, 1-11-2018, CCI lens on ticket-pricing algorithms used by airlines for fixing airfares available at <https://www.business-standard.com/article/current-affairs/cci-lens-on-ticket-pricing-algorithms-used-by-airlines-for-fixing-airfares-118110101144_1.html>.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): The Coram of Justice Tarun Agarwala, (Presiding Officer) and Justice M. T. Joshi (Judicial Member), and Dr C. K. G. Nair (Member) dismissed the appeal filed by the appellant to modify the order passed by the National Commodity and Derivatives Exchange Limited.

On 21-09-2018, the respondent had imposed a penalty of Rs 25,53,000 on the appellant on three separate counts. Aggrieved by this order, the appellant filed an appeal with SAT.

As per the records, the respondent had carried out the inspection of the appellant trader in 2016. Through this inspection, it was found that the appellant had a wrongly reported margin provided by their client, particularly, on 26-10-2015 and 28-10-2015 for which a penalty of Rs 25 lakh was imposed. Secondly, it was found that the appellant had used the client’s bank account for the purpose other than specified by the exchange for its own use. Therefore, a penalty of Rs 50,000 was imposed. Lastly, a penalty of Rs 3,000 was imposed for misdeclaration given in the annual compliance report after the inspection.

Parties submitted that the appellant made wrong reporting of the margin of Rs 1,69,71,959 for the trading on the above referred two dates. As per the appellant, there were huge volatility in Dhaniya (coriander) contracts on October 26 and 27. The clients, however, had stocks held in the sister concern of the appellant. In the circumstances, though cheques were issued by the respective clients, at their request the cheques were not encashed and later on the accounts were squared off. The appellant by giving this explanation had admitted that there was a shortfall.

Advocate Rajesh Khandelwal on behalf the appellant argued that it was due to the volatility in the market that there was a margin shortfall and therefore wrong reporting of the margin in 22 cases had occurred. Since a sufficient margin of the same client was available with the sister concern in the form of security, wrong reporting of margin money was merely a technical error. Therefore, a lesser penalty should have been imposed.

Tribunal was of the opinion that the order of the respondent needed no interference. A huge shortfall in margin was wrongly reported by the appellant. In such circumstances, a 100% penalty could have also been imposed according to the relevant circulars SEBI. The explanation that the clients had requested for not encashing the cheques as they had provided securities to sister concern was not accepted by the Tribunal stating that the market integrity must be maintained at all costs. [Pumarth Commodities (P) Ltd. v. National Commodity and Derivatives Exchange Ltd., 2019 SCC OnLine SAT 199, decided on 07-11-2019]

Case BriefsHigh Courts

Bombay High Court: Sadhana S. Jadhav, allowed a criminal appeal filed against the order of the trial court whereby the appellant was convicted for offence punishable under Section 7 read with Section 3 of the Essential Commodities Act, 1955 for violating sub-clause (3) of clause 6 of the Liquified Petroleum Gas (Regulation of Supply and Distribution) Order, 1988.

The appellant was convicted as aforesaid for selling bogus/duplicate gas regulators. Y.M. Nakhwa, APP for the State, submitted that even if the regulators were genuine, the appellant was selling them without holding a license for possession, distribution or sale. Per contra, Anand Shivaki Patil, counsel for the appellant, submitted that the prosecution had not proved the ownership of the shop and neither they had seized the license and therefore, the conviction of the accused had resulted in grave injustice.

Perusing the record and giving due consideration to the submissions made on the behalf of the parties, the High Court was of the opinion that the conviction of the appellant was not proper. It was observed: “The accused-appellant was not a license holder. Since the appellant is not a holder of a valid license under Section 3 of the Essential Commodities Act, there could not be any conviction recorded under Section 7 of the Essential Commodities Act.”

Moreover, the Court noted that the said Order of 1988 contemplates search and seizure by a person not below the rank of Inspector authorised by such Government and notified by the Central Government or any officer, not below the rank of a Sales Officer of an Oil Company, or a person authorised by the Central Government or a State Government and notified by the Central government with a view to ensure compliance with the provisions of this Order, for the purpose of satisfying itself that this Order or any order made thereunder has been complied with. The issue, in Court’s opinion, was overlooked by the Special Judge while farming of charge.

The Court was of the view that in fact, no charge should have been framed against the appellant under Section 3 and no penalty could be imposed upon him under Section 7. Accordingly, the appeal was allowed and the appellant was acquitted of the charges levelled against him. [Jayendra Sadarmal Talreja v. State of Maharashtra, 2019 SCC OnLine Bom 3130, decided on 16-10-2019]