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Events over the past decade have led to much debate and reflection on an important question at the core of dispute resolution in India — the arbitrability of fraud. In N. Radhakrishnan v. Maestro Engineers1 (“Maestro”), the Supreme Court had stood in the way of disputes being arbitrated if there was an allegation of fraud. This obviously led to much chagrin as the simple way to avoid a reference was to trump up an allegation of fraud and sidestep the law. Six years later, in 2016, an opportunity presented itself for course correction and the Supreme Court attempted to clear the way in A. Ayyasamy v. A. Paramasivam2 (“Ayyasamy”) without explicitly overruling Radhakrishnan1. In fact, both Sikri and Chandrachud, JJ. separately concluded that it would be overbroad to allow Radhakrishnan1 to be interpreted to refer to all types of fraud permitting an avoidance of arbitration and that it ought to be limited only to instances of serious fraud which would go to the root of the contract itself.

This clarification in Ayyasamy2 would not have been strictly necessary in all cases where there was an allegation of fraud if one traces the beginning of the jurisprudence on the subject which held the ground that the person accused of fraud has the right to redeem himself in a court of law. Conversely, the accuser of fraud could not himself refuse the reference on the grounds of fraud. For the purpose of tracing the roots, turn to the seminal case of Russell v. Russell3 from 1880 (“Russell”, also cited in Ayyasamy2). Since Russell4, there have been multiple judgments on the issue in India, most recently — Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.5 (“Avitel”), Vidya Drolia v. Durga Trading Corpn.6 (“Vidya Drolia”) and N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.7 (“N.N. Global”). This article attempts to explore the issue of fraud and arbitrability through the lens of Russell4 and its application and evolution in the Indian jurisprudence.

THE GENESIS: RUSSELL4

In Russell4, partner W.A. Russell gave notice to the other partners — Henry Russell and Robert Crawford for the partnership to determine. This was permitted according to the partnership deed. As a counterblast, Henry Russell commenced an action against W.A. Russell alleging fraud, claiming the notice was void and sought an injunction against acting on such notice. W.A. Russell then invoked the arbitration clause of the partnership deed and filed a motion in court for the reference of all disputes to arbitration. Henry Russell objected to arbitration on the ground of fraud by W.A. Russell and requested for the continuance of his court proceedings. Both the issues were heard together by the Court. While refusing to grant an injunction, the Court held4:

… It must be an injury, as a rule, to the person charged with fraud to have it published, and I must say that I am by no means satisfied that the mere desire of the person charging the fraud is sufficient reason for the Court refusing to send the case to arbitration.

… that rule ought only to be applied, as a matter of course, without investigating the circumstances, in cases where the person charged with the fraud desires the enquiry to be public.

***

The next question … is … what foundation there is for the charges, … There must be sufficient prima facie evidence of fraud, not conclusive or final evidence, because it is not the trial of the action, but sufficient prima facie evidence.8

The two principles

Thus, there were two principles that broadly emerged:

(i) First, on an allegation of fraud, arbitration could be resisted if the person charged with the fraud wanted a public enquiry.

(ii) Second, there should be a prima facie case of fraud irrespective of who was resisting it for the Court to consider refusing a reference to arbitration.

For the sake of convenience, I will call it the Russell4 Principle 1 and Principle 2, respectively, though it really is circular for reasons explained below.

Principle 1 does not seem to have gotten its due place in the trajectory of arbitrability of fraud in India as compared to the other principles. The Chancery Division’s reasoning for Principle 1 was that anyone who faced an injury to his reputation had the right to get it cleared in public in open court and by a Jury. Jury trials represented trial by a society of peers where a not guilty verdict would exonerate the shame in a public fashion. Though Section 11 of the Common Law Procedure Act, 1854 of England9 provided a wide discretion to the Court to enter or refuse reference to arbitration, the same was understood to be exercised in exceptional cases once the parties had agreed to arbitrate.3 Jury trials were abolished in India in 1973 with the passing of the Code of Criminal Procedure, 197310 and now it is the Judge who rules on the evidence. Though still in public domain, the element of peers ruling on a person’s innocence is no longer available. Even so, Principle 1 has been recognised by the Indian Courts even after abolishment of jury trials and change in the laws in England11 until recently12.

While applying Principle 1, the Indian Courts have not been consistent. Two early High Court judgments which dealt with Principle 1 divergently are Manindra Chandra Nandy v. H.V. Low and Co. Ltd.13 and Narsingh Prasad Boobna v. Dhanraj Mills14. While the Calcutta High Court observed13 (and misapplied Principle 1)—

8. … provided a prima facie case of fraud is made out, the action will be allowed to proceed, although it is the party alleging the fraud who desires the public enquiry.15

The Patna High Court observed16:

… if the party resisting an application to stay a civil suit is the party making a charge of fraud, different considerations arise as the person charged does not desire trial by a civil court.16

One of the earlier Supreme Court decisions dealing with this principle of law was the case of Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak17 (“Abdul Kadir”). Here the reference was under Section 20 of the Arbitration Act, 194018 — a provision which gave expansive discretionary powers to the Court for the purpose of deciding whether a matter should be referred to arbitration. The Supreme Court recognised the application of Principle 1 to the facts of the case correctly but as the allegations of fraud were held not serious and like in Russell4 only based on suspicion, the matter was referred to arbitration.19

Thus, it is important to note that Principle 1 does not have an independent standing and is subservient to Principle 2. The test of Principle 2 (discussed below) also has to be met for Principle 1 to succeed. This gives rise to a peculiar situation. If there is a serious allegation of fraud, the reference to arbitration may fail (irrespective of who is resisting the reference) as the Court is likely to hold that it cannot be arbitrated. If a sufficient prima facie case of fraud20 is not made out by the accuser, then, even if the accused wishes to resist arbitration, the Court may hold that it is not a serious or sufficient charge and refer it to arbitration. It is for this reason, that it may be interesting to observe how Principle 1 has played out in the Indian courts.

PRINCIPLE 1 — THE STEPCHILD

Of the twenty-nine cases21 that were looked at where Principle No. 1 and/or the Russell4 judgment were discussed, in sixteen cases, it was the accuser of fraud who attempted to resist arbitration. Of those sixteen cases, eight times the Court refused to refer to arbitration holding that there was a prima facie case of fraud and/or serious fraud. Of the thirteen times the accused resisted arbitration, six times the Court refused to refer the matter to arbitration on the ground that the fact-situation prima facie pointed at serious fraud or that a civil court would be able to appreciate complex and voluminous evidence better than an arbitrator. It appears from these cases that the issue of fraud vexes the person charging the fraud quite often. Perhaps the reason is that they would like the accused to be held accountable in public and hence prefer a court trial. It may also be that if the accuser feels heavy evidence needs to be adduced in support of its claim, then a Court is a better forum. Conversely, it may well be that the person accused of fraud prefers the privacy of an arbitration to avoid public cynosure, especially if they have a weak case. Principle 1 in the long run up to Avitel22 seems to have lost steam and only plays a small supporting role in the reasoning of a Court while declining or entering a reference for arbitration. Even so, Russell4 is often cited for Principle 1 in decisions relating to fraud and arbitrability. Though Principle 2 does not trace its inception to Russell4, it is reiterated there and forms a strong basis of the verdict of the Chancery Division.

PRINCIPLE 2 — THE CHAMELEON

Principle 2 has gained a life of its own from a prima facie case of fraud in the 1880 judgment to a prima facie case of serious fraud in the Indian context23. This issue takes on a subjective form which has caused the courts to spend much time trying to define its contours. In Russell4, the allegation of fraud was made on affidavit and no details were provided. The Court held the allegation was a—

… statement of belief, sufficient on a motion of this kind to call upon the party for a denial, but useless for any other purpose.24

Thus, in Russell4 the Court referred the matter to arbitration because a prima facie case of fraud was not met. In the Indian context, the Courts have oscillated between a prima facie case of fraud and a prima facie case of serious fraud as grounds for refusing arbitration. Though really this difference was illusionary given that there was no objective threshold for what amounted to serious fraud. While Principle 2 came into the spotlight with the judgment of Abdul Kadir17 in 1962, it is really between 2009 and 2011 that a spate of judgments like Maestro,125 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd.26 (“Afcons”) and Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.27 (“Booz Allen”) cemented the importance of the issue of arbitrability of serious fraud28. In Maestro1, the Supreme Court accepted that malpractices of finance amounted to a serious allegation of fraud that could not be dealt with by the arbitrator. However, no cogent reason was provided as to why the arbitrator would not be competent enough to deal with the same. In Afcons26, the Supreme Court of India spelled out certain types of cases which it held to be not suitable for the process of alternative dispute resolution. This list included in Entry (iv) cases involving serious and specific allegations of fraud, fabrication of documents, etc. This was followed by Booz Allen27 where it clarified that actions in rem were outside the purview of arbitration. Though these judgments held that serious fraud was not arbitrable, in reality they were and are cited regularly to resist arbitration even in simpler cases.

It took only 6 years for the tide to turn for Principle 2.29 In Ayyasamy2, the Supreme Court held that mere allegation of fraud simpliciter may not be enough to nullify an arbitration agreement. It held that a court has to consider what the nature of the dispute is and then strict and meticulous enquiry into the allegations is needed. Only when the court is satisfied that the allegations are serious and of a complicated nature that the reference to arbitration should be refused. The Court clarified that serious fraud would include allegations which make a case of criminal offense30, allegations which are complicated and require appreciation of voluminous evidence, allegations of forgery/fabrication of documents, allegations of fraud against the arbitration agreement itself/fraud permeating the contract. The Court also held that allegations of fraud touching upon the internal affairs of the parties (with no implication on the public domain) could be referred to arbitration. The Supreme Court in Ameet Lalchand Shah v. Rishabh Enterprises31 (“Ameet Lalchand”) and Rashid Raza v. Sadaf Akhtar32 (“Rashid Raza”) followed Ayyasamy2 and also distinguished between serious and simple fraud. In N.N. Global7, the Court has gone as far as stating that the judgment in Russell4 is obsolete. Though the Court in N.N. Global7 does not distinguish between Principle 1 and Principle 2, the observation has to be perhaps read in light of Principle 2 as the Court prefaces the obsoletion with the observation that allegations of fraud no longer relate to the competence of the arbitrator and voluminous evidence. As Principle 2 is not unidimensional in its invocation, it would be useful to see how allegations of serious fraud have manifested in cases:

Suit for accounts: In Abdul Kadir17, the allegation was that the accounts were not made up to date, were incomplete and incorrect. On a closer look, the Court observed the allegations were based only on a suspicion. The Court held that such allegations on correctness of entries of accounts are often made in account suits but do not amount to serious fraud. In Maestro1, the Court while relying on Abdul Kadir17 for the ratio on serious fraud not being arbitrable, took a different turn on the appreciation of facts. The Court held that malpractice in account books and finances of the partnership could not be dealt with by an arbitrator. The position seems to have turned a full circle in Ayyasamy2 and Avitel22. In Ayyasamy2, the issue of signing a cheque without the consent of other partners was held to be an accounts issue and not one of serious fraud or involving any complex issue33. In Avitel22, the Supreme Court on a prima facie finding, allowed the relief of a full deposit in a Section 9 of the Arbitration & Conciliation Act, 1996 (“the Act”) proceeding to safeguard the pending enforcement proceedings under Section 48 of the Act. This was despite the objection of the respondent that the foreign award would not be enforceable under Indian laws as there were serious allegations of fraud including siphoning of funds. Thus, it can be said that inter-party accounting irregularities and siphoning of funds can be dealt with in arbitration.

Voluminous evidence better suited for Court: The Court in Maestro34 accepted the argument that when detailed material evidence (both documentary and oral) is required to prove malpractice, then the arbitrator would not be a competent authority. Even the Court in Ayyasamy2 observed that there could be complex cases which could only be tried by the Court due to voluminous evidence. This factor has caused much heartburn, as the question is often raised : Why cannot an Arbitral Tribunal conduct a commercial trial even if the matter is complicated? There seems to be little clarity on what matters may require such complex voluminous evidence and why a Tribunal cannot deal with the same, especially after the enactment of Section 26 and Section 27 of the Act. The international arbitration space is thriving with complex private disputes35. The old perception of ADR36 still manifests in contemporary Indian arbitral jurisprudence despite the enactment of a modern statute (the Act) and its consequent amendments. The Supreme Court in N.N. Global7 has called out on this issue while observing that

96. … Arbitrability of fraud is no longer an issue relating to the competence of the arbitrator, or dealing with voluminous evidence. …

***

116. … In contemporary arbitration practice, arbitral tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction, industry, etc.37

Public domain: If the allegation at hand, has a public element, it is unlikely the same can be arbitrated as a private dispute. In World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd.38, Part II of the Act was under consideration. The Supreme Court held that consideration of fraud was not relevant for the purposes of Section 45. Even so, the impugned order of the Bombay High Court made39 an interesting observation on the issue of arbitrability when it touches the public domain. It observed that when the issues of fraud have a bearing on the position of BCCI in the game of cricket, the involvement of the general public in the game and the television rights which are conferred for viewing the games by public, and also presence of BCCI being necessary, then, the matter is fit for an open public trial by a court of law. Thus, even an indirect public element may lead to a stay on arbitration. On the other hand, in Rashid Raza40, the Supreme Court held that the affairs of partnership and siphoning of funds do not concern the public domain and the dispute was arbitrable. Taking this further, the Court in N.N. Global7 held that allegations of fraud with respect to the invocation of bank guarantee are arbitrable as it arises from disputes between parties inter se and is not in the realm of public law. It would be interesting to see the same Court’s observations below in the case of criminal matters which it holds to be in the public realm.

Effect of parallel criminal proceedings: An interesting discussion in Avitel22 is about the effect a criminal proceeding has on a reference for arbitration. As the standard of proof is different in civil and criminal proceedings, the mere filing of a criminal case would not amount to the allegations of fraud being upscaled to serious in the civil proceedings. While the concept of finding of facts in civil and criminal matters not having a bearing on each other is trite law, it has been expounded in a crystal-clear manner in the context of reference to arbitration matters in Avitel22. Thus, both Afcons26 and Booz Allen27 may have to henceforth be read with a rider that that merely because criminal proceedings can be or have been instituted in respect of the same subject-matter, it would not mean that a dispute which is otherwise arbitrable, ceases to be so.41 However, it is to be kept in mind that the recent case of N.N. Global7 (a three-Judge Bench) after noting the observations of Ayyasamy2 (a two-Judge Bench), Vidya Drolia6 (a three-Judge Bench) and Avitel22 (a two-Judge Bench), and without departing from them, states that the criminal aspect of fraud, forgery or fabrication which have penal consequences and criminal sanctions can be adjudicated only by a court of law since it may result in a conviction, which is in the realm of public law. To this extent it would appear there is perhaps some pull back from Avitel22 if the observations were read in isolation without comprehending the context of criminal law. The matter though seems settled if one turns to Vidya Drolia6 (also a three-Judge Bench) where the Court has concurred with the Avitel22 view that Maestro1 “has no legs to stand on”42 and then proceeded to overrule it, stating that allegations of fraud can be the subject-matter of an arbitration if they relate to a civil dispute, leaving only the caveat that “fraud, which would vitiate and invalidate the arbitration clause, is an aspect relating to non arbitrability”43.

THE WAY AHEAD

While the above factors are not exhaustive and the outcome of each case will depend on its facts, they do provide a strong indication that courts are steadfast in permitting commercial fraud to be arbitrated. It goes without saying that any serious allegations of fraud cannot be based on mere suspicion for the court to consider refusing arbitration. In Avitel22, the Supreme Court while relying on Ayyasamy2, has tried to distill the various factors into a two-prong test for meeting the threshold of a serious allegation of fraud44. The first test is satisfied when the arbitration clause itself cannot be said to exist in a clear case in which the Court finds that the party against whom breach is alleged, cannot have been said to have entered into the agreement at all. The second test is where allegations are made against the State or its instrumentalities of arbitrary and fraudulent conduct which would require adjudication in a writ court.44 Though the intention to streamline the threshold for fraud by the two-prong test is well meaning, it is quite narrow. It is possible that litigants will rely on Ayyasamy2 to keep the door of serious fraud open a little wider. They will have further assistance in N.N. Global7 which observes that fraud not being arbitrable is a wholly archaic view.

Russell4 to Avitel22 and N.N. Global7, has been a long journey for arbitrability of fraud. While Indian courts have relied on the principles propounded in Russell4 to grapple with questions of fraud, the Supreme Court’s tests laid down in Ayyasamy2 and Avitel22 have attempted to forge touchstones for these principles. This will hopefully bring in some predictability on how courts will look at the issue of fraud and arbitration and is a progressive step towards strengthening the arbitration regime in India. This is also in keeping with the international trend of private resolution for inter-party disputes. In a country like India, where the case pendency is a staggering 3,78,96,456 cases45, and bound to get worse due to the Covid-19 Pandemic, the importance of ADR cannot be overemphasised. All efforts should be made by the courts to give ADR the impetus needed to thrive.

Why should not the childish quarrels of princes be settled through the arbitration of these learned men.” — Desiderius Erasmus…. sometime in the 1500s.46


* This article was originally published in the October 2020 Newsletter of Nani Palkhivala Arbitration Centre. As the Supreme Court has thereafter pronounced two important judgments—Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 and N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379 on the issue, the article has been updated in relevant paragraphs.

Partner, Khaitan & Co.

3 [1880] 14 Ch.D. 471, 474.

4 Russell v. Russell, [1880] 14 Ch.D. 471.

5 2020 SCC Online SC 656 – In this case, the main issue that the Supreme Court was called upon to address was, whether for the purpose of granting relief under Section 9 of the Arbitration Act, 1996 to the respondent, had the respondent made out a strong prima facie case in the pending enforcement proceedings under Section 48 of the Act in the Bombay High Court. It was the appellant’s case, that as there were allegations of serious fraud, the matter was not arbitrable and the award ought not to be enforced under Indian law. The Supreme Court held that on a prima facie basis and on balance of convenience the respondent had made out a case for interlocutory relief under Section 9 of the Arbitration & Conciliation Act, 1996.

4 Russell v. Russell, [1880] 14 Ch.D. 471.

8 Id, pp. 477 & 481.

9 Section 11, Common Law Procedure Act (UK), 1854. The amendments that took place in the law with the passing of the English Arbitration Act, 1934 and thereafter in 1950 and 1979, continued to give courts discretion and allowed them to grant stay. The real change in England came with the Arbitration Act, 1996. Under the previous statute (Arbitration Act, 1950), the courts could prevent tribunals from dealing with claims of fraud. This provision was repealed by Section 107(2) of the Arbitration Act, 1996.

3 Russell v. Russell, [1880] 14 Ch.D. 471, 474.

10 Code of Criminal Procedure, 1973.

11 See N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379.

12 The Court in N.N. Global, (2021) 4 SCC 379, states that the judgment in Russell, [1880] 14 Ch.D. 471 is dead. The same is discussed in detail below.

14 1942 SCC Online Pat 235 : AIR 1943 Pat 53. Though the principle was correctly applied, the civil suit was allowed to proceed as the Court held there was a prima facie case of fraud.

16 Narsingh Prasad Boobna v. Dhanraj Mills, 1942 SCC Online Pat 235 : AIR 1943 Pat 53.

18 Section 20, Arbitration Act, 1940 (now repealed).

4 Russell v. Russell, [1880] 14 Ch.D. 471.

19 See the discussion in Paras 50 & 51 of the 246th Report of the Law Commission of India (2014), which is also discussed in paras 22 and 23 of A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386.

20 Sufficient case of serious fraud in the Indian context.

21 Ivory Properties & Hotels (P) Ltd. v. Nusli Neville Wadia, 2011 SCC Online Bom 22; Punjab National Bank v. Kohinoor Foods Ltd., 2015 SCC Online Del 7351; Sandeep Soni v. Sanjay Roy, 2018 SCC Online Del 11169; Suvidhaa Info Serve (P) Ltd. v. Dakshin Haryana Bijli Vitran Nigam Ltd., Arbitration Petition No 224 of 2014 (O&M), decided on 16-10-2015 (P&H); Muthavarapu Venkateswara Rao v. N. Subba Rao, 1984 SCC Online AP 20 : AIR 1984 AP 200; RRB Energy Ltd. v. Vestas Wind Systems, 2015 SCC Online Del 8734; Pawan Kumar Gupta v. Vinay Malani, 2014 SCC Online Del 3370; Jansamma Regi v. Usha Mani, 2018 SCC Online Ker 7868; Rattan Polychem (P) Ltd. v. Reliable Insupacks (P) Ltd., 2018 SCC Online Del 11140; Kapil Chopra v. Haryana City Gas Distribution Ltd., 2014 SCC Online CLB 121; C.E. Constructions Ltd. v. Intertoll ICS India (P) Ltd., 2014 SCC Online Del 6485; Bharat Lal v. Haryana Chit (P) Ltd., 1998 SCC Online Del 381; C.S. Ravishankar v. C.K. Ravishankar, 2011 SCC Online Kar 4128 : (2012) 1 AIR Kant R 293; Nitya Kumar Chatterjee v. Sukhendu Chandra, 1976 SCC Online Cal 239 : AIR 1977 Cal 130; Bengal Jute Mill Co. Ltd. v. Lalchand Dugar, 1963 SCC Online Cal 4 : AIR 1963 Cal 405; General Enterprises v. Jardine Handerson Ltd., 1977 SCC Online Cal 196 : AIR 1978 Cal 407; Sudhangsu Bhattacharjee v. Ruplekha Pictures, 1954 SCC Online Cal 3 : AIR 1954 Cal 281; Sushanta Kumar Nayak v. Dilip Kumar Mohanty, 1987 SCC Online Ori 6 : AIR 1988 Ori 186; Subhash Chander Kathuria v. Ashoka Alloys Steels (P) Ltd., 1995 SCC Online Del 442 : (1995) 35 DRJ 319; S.K. Talim Ali v. Hindustan Petroleum Corpn. Ltd., 2020 SCC Online Ori 340; C.D. Gopinath v. Gorden Woodroffe and Co. (Madras)(P) Ltd., 1978 SCC Online Mad 207 : (1979) 92 LW 531; Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406; N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72; Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710; Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677; Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656; A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386; Manindra Chandra Nandy v. H.V. Low and Co. Ltd., 1924 SCC Online Cal 172 : AIR 1924 Cal 796; Narsingh Prasad Boobna v. Dhanraj Mills, 1942 SCC Online Pat 235 : AIR 1943 Pat 53.

22 Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656.

4 Russell v. Russell, [1880] 14 Ch.D. 471.

23 Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656; A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386; Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710.

24 Russell v. Russell, [1880] 14 Ch.D. 471, p. 481.

17 Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406.

1 N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72.

25 N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72. The Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656, states that the ratio in Maestro, (2010) 1 SCC 72, being based on a judgment of the 1940 Act and without considering Sections 5, 8 and 16 of the 1996 Act, cannot be applied as a precedent on the application of fraud to negate arbitration (para 31).

28 The Arbitration & Conciliation Act, 1996 does not specify what matters are not arbitrable.

1 N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72.

29 A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386, para 25.

2 A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386.

30 It is to be noted that in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656, the Court has stated that the filing of a criminal case will have no bearing on the allegation of fraud. Thus, there appears to be some amount of ambiguity here.

7 N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379.

4 Russell v. Russell, [1880] 14 Ch.D. 471.

17 Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406.

1 N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72.

2 A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386.

22 Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656.

33 A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386, para 26.

34 N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72, para 20.

35 See <https://iccwbo.org/media-wall/news-speeches/icc-releases-2019-dispute-resolution-statistics/>; <https://www.siac.org.sg/images/stories/articles/annual_report/SIAC%20AR_FA-Final-Online%20(30%20June%202020).pdf>. — From the websites of the International Chamber of Commerce and the Singapore International Arbitration Centre. Last accessed 9-9-2020.

36 Alternate Dispute Resolution.

7 N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379.

37 Id, paras 96 & 116.

39 MSM Satellite (Singapore) Pte Ltd. v. World Sport Group (Mauritius) Ltd., 2010 SCC Online Bom 1375, para 58.

40 Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710, para 5.

22 Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656.

26 Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24.

27 Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532.

41 Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656, para 42; See also : Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677; Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678.

7 N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379.

2 A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386.

6 Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1.

1 N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72.

42 Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, para 73.

43 Id, para 78.

2 A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386.

44 Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656, para 34.

7 N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379.

4 Russell v. Russell, [1880] 14 Ch.D. 471.

22 Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC Online SC 656.

45 <https://njdg.ecourts.gov.in/njdgnew/index.php>. National Judicial Data Grid – Last accessed 8-3-2021. When the article was originally published in 2020, the data on pending cases was 3,43,17,238 cases as on 9-9-2020. The increase of over 35 lakh cases in a mere 6 months is a cause for concern.

46 Desiderius Erasmus, ADAGIA, Chil. IV, Centur. I. Prov. I, quoted in Henry S. Fraser, “A Sketch of the History of International Arbitration,” 11 Cornell LQ 179, 186 (1925-1926 : 2) <https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=1236&context=clr> last accessed 9-9-2020.

Jammu & Kashmir and Ladakh High Court
Case BriefsHigh Courts

   

Jammu and Kashmir and Ladakh High Court: While deciding the instant petitions, the question that came up before that Court was whether a person can be prosecuted for offence under Section 420 of IPC as also for offence under Section 138 of NI Act, on the same set of facts and whether or not it would amount to double jeopardy. The single Judge Bench of Sanjay Dhar, J., observed that the offences under Section 138, NI act and Section 420, IPC, are two distinct offences, therefore the principle of double jeopardy or rule of estoppel does not come into play.

Relevant Facts of the case: The two clubbed petitions dealt with complaints filed by the respondents under S. 138 of Negotiable Instruments Act, 1881 concerning the sale of a patch of land. In both cases, the petitioners approached the respondents to sell the land and promised to pay damages if the sale did not proceed. In both cases the land could not be cold thereby the respondents became entitled to damages. The petitioners issued cheques drawn on HDFC Bank Branch unit Baghat, Barzulla, bearing the amount that was to be paid as damages; however, the cheques were dishonoured with the endorsement “drawers account closed”.

Contentions: The petitioners submitted before the Court that the respondent, prior to the filing of the complaints under S. 138, NI Act, had filed an FIR for offences under Section 420, 506 IPC, the contents of which are identical to the impugned complaints. The petitioners argued that they cannot be prosecuted twice on the basis of some set of facts as it would amount to double jeopardy. It was also contended that continuance of proceedings in the impugned criminal complaints would be an abuse of process of law and it would amount of forum shopping.

Analysis/ Observations: Perusing the facts and contentions of the matter, the Court referred to Maqbool Hussain v. State of Bombay, 1953 SCR 730, wherein the Constitution Bench of the Supreme Court had dealt with the issue of double jeopardy and held that the fundamental right which is guaranteed under Art. 20(2) of the Constitution enunciates the principle of “double jeopardy” i.e., a person must not be put in peril twice for the same offence. The High Court further referred the case of Sangeetaben Mahendrabhai Patel v. State of Gujarat, (2012) 7 SCC 621.

  • The High Court observed that offences under Section 138 of the NI Act and Section 420 of IPC are distinct from each other because ingredients of the two offences are different. Examining the distinctions in both the offences, the Court pointed out that- in a prosecution under Section 138, fraudulent or dishonest intention at the time of issuance of cheque need not be proved; but in a prosecution under Section 420, fraudulent or dishonest intention is an important ingredient to be established.

  • It was further noted that for an offence under Section 138, NI Act, it has to be established that the cheque has been issued by the accused to discharge a legally enforceable debt or liability and the same has been dishonoured for insufficiency of funds etc. and despite receipt of statutory notice of demand, the accused has failed to pay the amount of cheque within the stipulated time. Whereas in Section 420, IPC, it has to be proved by prosecution that at the very inception i.e., at the time of issuance of the cheque by the accused, he had a dishonest intention.

Decision: With the afore-stated analysis, the Court dismissed the petitions and held that merely because the respondent had lodged an FIR under Section 420, IPC containing allegations relating to the same transaction, which is subject matter of the impugned complaints, it does not make out a case of forum shopping or double jeopardy. The Court further held that the respondents are well within their rights to continue prosecution for both these offences under Section 138 of NI Act and Section 420 of IPC simultaneously.

Upon the question of belated filing of the impugned complaints, the Court held that the impugned complaints have been filed by respondents during the period which is covered by the order of the Supreme Court in Cognizance for Extension of Limitation, In re, (2022) 3 SCC 117.

[Fayaz Ahmad Sheikh v. Mushtaq Ahmad Khan, CRM(M) No.280/2021, decided on 15-07-2022]


Advocates who appeared in this case :

Sheikh Hilal, Advocatefor the Petitioner;

Waseem Shamas, Advocate, for the Respondents.


*Sucheta Sarkar, Editorial Assistant has prepared this brief

Case BriefsTribunals/Commissions/Regulatory Bodies

District Consumer Disputes Redressal Commission (DCDRC), Gondia: In the instant ‘unique’ complaint, relief in the nature of directions to Facebook were sought vis-a-vis discontinuation of unfair/ restrictive trade practices; not putting up misleading advertisements and neutralization of the effect of misleading advertisements on their platform. The coram of Bhaskar B. Yogi (President) and Sarita B. Raipure (Member) directed Facebook and Meta Inc. to run scam related awareness advertisement on various media, social sites, TV and OTT platforms to create awareness regarding various scam on regular basis to neutralize the impact of misleading advertisements. The Commission also stated that Facebook has a legal and social duty and obligation to provide funding to a step-by-step service to aid and advise the public regarding online frauds and scams.

Facts of the case: The complainant who hails from Maharashtra, is a daily wager coming from Below Poverty Line Family and currently remains unemployed due to Covid19 pandemic. Facebook (opposite party) is a major social networking site.

The complainant is an active Facebook user. On 16-09-2020, the complainant noticed on his Facebook-wall an advertisement of Marya Studio, offering shoes of Nike Company for Rs. 599. As the advertisement was on Facebook, the complainant did not doubt its authenticity and immediately placed the order for shoes and paid Rs. 599 through his debit card. The Complainant waited for a long time but he did not receive any text or call from the Marya Studio regarding shipping of the shoes booked by him, and since Facebook did not contain any contact details of Marya Studio, therefore the complainant googled Marya Studio’s customer care number and in result he came to the website www.consumersathi.com which showed 4-5 numbers of Marya Studio Customer Care. The Complainant called on one of the numbers and the person receiving the call introduced themselves as Marya Studio’s Customer Care Executive. The person sent a link to the Complainant and asked him to fill debit card details in that link for the purposes of refund. The Complainant was further asked to download AnyDesk App in order to receive the refund amount. The Complainant did as he was instructed and also the provided the OTP number as required by the Customer Care Executive. However, the complainant was duped for Rs. 7568.

Thereafter the complainant tried to bring this fraud to the notice of Facebook (via Twitter and then e-mail) and sought compensation of Rs. 7568, but Facebook never replied. Therefore the complainant was compelled to knock the doors of the District Commission, Gondia, against Facebook.

Contentions: The counsels of the complainant put forth the following contentions-

  • It was argued that Facebook voluntarily and intentionally runs a false, frivolous, misleading and fraudulent advertisement and causes loss to the public at large. The complainant pointed out the names of the many fake pages advertised on Facebook like- Marya Studio, Yaryastudio, Crunchkart, G9fashionnn etc. The complainant also cited the names of other persons who were victims of such fake advertisements.
  • It was argued that the complainant is unemployed has suffered a lot due to the loss of the afore-stated amount. It was stated that he has no money to buy groceries and vegetables and that him and his family members are suffering from starvation. Such circumstances have caused a great deal of mental and physical pain to the Complainant and his family.

Per-contra, the opposite parties (Facebook/ Meta) argued on the following points-

  • It was contended that Complaint is not maintainable since the Complainant is not a ‘consumer‘ of Facebook India.
  • It was submitted that Facebook India is a wrong entity for adjudicating this Complaint since it does not operate/control the Facebook service- as Facebook would be considered as an intermediary, and therefore, immune from liability under the provisions of the Information Technology Act, 2000. Furthermore Facebook would be under no obligation to proactively monitor the Facebook Service under the IT Act and as per the decision of the Supreme Court in Shreya Singhal v. Union of India, (2015) 5 SCC 1.
  • Meta submitted that it has taken reasonable steps to enforce policies to protect its users and offers several user friendly tools to enable users to report violations of these policies.

Observations: Based on the facts and contentions presented in the case, the Commission framed certain important issues and made the following observations-

  • The Commission pointed out that to establish the consumer-service provider relationship, the complainant has to prove whether he has paid any consideration for service while buying online product from third party. Perusing the details provided by the complainant, the Commission observed that complainant paid Rs 599 for purchase of the shoe, whose advertisement was hosted on Facebook. The revenue of opposite parties mainly comes by selling the space for advertising which is clear from their Memorandum of Association. The Commission thus noted that the complainant falls under the category of ‘consumer’.
  • The Commission noted that the complainant suffered from financial loss due to misleading advertisement. However, the Commission deliberated on the extent to which the opposite party was bound to compensate. The Commission perused the “Help Centre” details provided on Facebook titled “Privacy, safety and security- Shopping safety”. It was noted that transaction of buying shoes Rs. 599 was due to a misleading advertisement; but, the second transaction of sharing OTP and personal bank details by the complainant was due to his own unawareness regarding online scams, therefore can be termed as ‘contributory negligence’ for which the opposite parties are not liable.
  • It was observed that the Government of India has taken various measure to curb the menace of online fraud from time to time by inserting concerned provisions in the Consumer Protection Act and Consumer Protection (E-commerce) Rules, 2020. It was noted that the law provides a clear mandate of compliance for social media websites. The Commission pointed out that complainant was lured to purchase the product by looking to the rate of the shoes, and it is mandatory obligations of e-commerce websites to provide complete name, address, contact numbers, email address of the seller so that in case of any consumer grievance it can be redressed immediately. The e-commerce websites, as prescribed by RBI have a Corporate Social Responsibility to educate the masses regarding various online frauds. It was stated that opposite parties failed to sufficiently safeguard and protect the Indian consumers from unscrupulous exploitation.

Decision/Directions: Perusing the facts and contentions presented by the parties and making the afore-stated observations, the Commission partly allowed the complaint and made the following directions-

  • The opposite parties are to pay to the complainant the price of product (Nike shoes) not delivered i.e. Rs. 599. The opposite parties were directed to pay Rs. 25,000 for mental agony and legal costs suffered by the complainant.
  • Facebook/ Meta directed to comply the Consumer Protection (e-commerce) Rules, 2020 in letter and spirit and submit report of compliance within a period of 45 days to this Commission.
  • Facebook was directed to issue corrective advertisement in order to neutralize the effect of misleading advertisement that came to question in the instant complaint.

[Tribhuvan v. Facebook India Online Services Pvt. Ltd., Complaint No. : CC/117/2020, decided on 30-06-2022]


Advocates who appeared in this case :

Sagar J. Chavhan, Advocate, for the Complainant;

M. B. Ramteke, Advocate, for Opposite Parties.


*Sucheta Sarkar, Editorial Assistant has prepared this brief

Income Tax Appellate Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT), Bangalore: The coram of N.V. Vasudevan (Vice President) and Padmavathy S. (Accountant Member), considered the instant appeal, wherein, the issue that came to the forefront was when can a loss due to embezzlement, be allowed as a deduction during computation of income tax. It was held that the loss should be allowed as a deduction in the year in which the embezzlement was discovered.

Facts and Submissions: Relating to the Assessment Year 2011-12, the matter concerned a District Central Co-operative Bank [Assessee]. The assessee had been conducting the banking business governed by Karnataka State Co-operative Societies Act, 1959 and the rules and regulations of NABARD and RBI Guidelines for Banking activities. The assessee had debited an amount of Rs.7,50,99,000/- as provision for misappropriation in the P&L [profit and loss] account and computed income from business after such deduction.

The assessee had reduced this amount from loans and advances in the balance sheet. It was explained by the assessee that the Co-op Department of Government of Karnataka conducted an enquiry on misappropriation in one of assessee’s branch at Honalli. The assessee submitted that a fraud occurred in the bank and was under enquiry by the Co-operative Societies Enquiry Office as per the provisions of S. 64 of Karnataka Co-operative Societies Act, 1959. It is very difficult to recover the amount misappropriated, as such a recovery depends upon the enquiry report as per the afore-mentioned provision.

The Assessing Officer [A.O.] however, had a contrary opinion after examining the assessee’s claim and held that there was a reasonable prospect of getting the misappropriated amount back since, the bank has already attached the assets of the persons who indulged in fraud.

Aggrieved by the order of the AO, the assessee preferred appeal before the Commissioner Income Tax (Appeals). The CIT(A) deleted the addition made by the AO and held that the assessee is entitled to claim deduction of bad debts purely based on mere write- off. Aggrieved by this decision, the Revenue preferred the instant appeal.

Observations and Decision: Upon perusing the facts and submissions, the Tribunal observed that the CIT(A) had proceeded on an erroneous presumption that the sum claimed as a deduction was on account of write- off bad debts; the presumption being factually wrong because it was a case of embezzlement by the employee of the assessee which resulted in a loss to the bank.

The Tribunal then pointed out that neither A.O. nor the CIT (A) had considered a crucial question as to when a deduction on account of a loss due to embezzlement can be allowed as a deduction. The Tribunal noted that the Central Board of Direct Taxes issued a Circular- No. 35-D (XLVII-20) [F. No. 10/48/65-1T(A-0], dt. 24-11-1965, which specifically pertains to the query raised by the Tribunal. Upon examining clause-1 of the Circular, the Tribunal pointed out that loss due to embezzlement by employees should be treated as a loss incidental to business.

It was thus noted by the Tribunal that there is no doubt that the assessee suffered a loss on account of embezzlement, in the sense that a fraud was carried out in one of its branches. Therefore, as per the afore-mentioned CBDT Circular, the loss by the assessee should be allowed as a deduction.

The Tribunal decided that since the above aspect was not examined by anyone involved in the matter (assessee or A.O. or CIT), it is appropriate that the A.O. considers the matter afresh in the light of the referred CBDT circular, only on the question as to in which year the loss has to be allowed as a deduction. The Tribunal also directed the A.O. to allow deduction in the year in which the embezzlement by the employee was discovered by the assessee.

The appeal of the Revenue was allowed for statistical purposes.

[ACIT v. Davangere District Central Co-op Bank Ltd., 2022 SCC OnLine ITAT 264, decided on 17-06-2022]


Advocates who appeared in this case :

Sanjay Kumar S. K, CIT(DR)(ITAT), for the Revenue;

Suresh Muthukrishnan, CA, for the Assessee.


*Sucheta Sarkar, Editorial Assistant has reported this brief.

NCLAT
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): While deciding the instant appeal filed by Amazon.com NV Investment Holdings LLC challenging the order passed by the Competition Commission of India dated 17-12-2021 [Amazon.com NV Investment Holdings, In re, 2021 SCC OnLine CCI 71], wherein the CCI had imposed a penalty of INR Two Hundred Crore upon Amazon due to their failure to notify combination in terms of the obligation cast under S. 6(2) of the Competition Act; the Bench of Justice M. Venugopal (Judicial Member) and Dr. Ashok Kumar Mishra (Technical Member) in a 300-page deliberation, upheld the decision taken by the CCI to impose such a penalty. The Tribunal held that Amazon did not make full, whole, fair, forthright and frank disclosure of relevant materials and had furnished only limited details / disclosures, pertaining to its `acquiring strategic rights and interests’ over `FRL’, and executing `Commercial Contracts’ among itself and `FRL’ concerning the ambit and purpose of `Combination’, therefore the penalty imposed is justified. Amazon was directed to furnish the penalty within 45 days from the date of NCLAT’s decision.  

Background: In a recapitulation of facts; the matter revolved around the appellant’s [Amazon] acquisition of 49% shareholding in Future Coupons Private Limited (FCPL). FCPL filed an application stating that Amazon had initiated arbitration proceedings in relation to transfer of assets of FRL, a company in which FCPL holds 9.82% of the shareholding and there are related litigations pending before the constitutional courts. It was alleged that Amazon took completely contradictory stands in the arbitration proceedings and constitutional courts with respect to its investments in FCPL as compared to the representation and submissions made before the Commission. Such contradictions were said to establish false representation and suppression of material facts before the Commission. 

Contentions by Amazon before the NCLAT 

The counsels appearing for Amazon put forth many contentions before the Tribunal, primary among them are as follows- 

  • The `Investor Affiliate’, `Amazon Seller Services Private Limited’ (`ASSPL’) was not acquiring any `Shares’ or `Voting Rights’ or `Assets’ or `Control’ in `Future Retail Limited’ (`FRL’) and as such, therefore S. 5 of the Competition Act, 2002 was not attracted in the instant case. It was contended that the `proviso to S. 20 (1) of the Competition Act, bars the CCI from enquiring into a consummated transaction, more than one year, after the said transaction had taken effect. 
  • The date on which the combination took effect is considered to be the date of payment and that the payment was effected on 26.12.2019 and that `FCPL SHA’ came into effect on 26.12.2019 and that the limitation under S. 20 (1) of the Competition Act, 2002 for the CCI to `inquire’ into the notified Combination, expired on 25.12.2020, being a `Holiday’, the `Limitation’ came to an end on 26.12.2020.  
  • As per the appellant, Competition Act does not empower revisiting or reopening the `approvals’ granted after 210 days in case a notification is filed under S. 6 (2) of the Competition Act or one year from the date on which a combination took effect, in respect of cases covered under `S. 20 (1) of the Competition Act, 2002. 
  • The appellants also contended that the impugned order by the CCI is bad in law because of the fact that it was passed in the absence of a `Judicial Member’, completely disregarding the observations made by the Supreme Court in State of Gujarat v. Utility Users Welfare Association, 2018 (6) SCC 21 
  • It was also argued that there was no fraud in the present case and in reality, the `Finding of Fraud’ necessarily requires a decision that the information/documents purportedly `suppressed/undisclosed’ as a `material impact’ on the assessment of the Combination; i.e., mere mentioning and using the word fraud/ fraudulent without any material particulars, would not amount to pleading of Fraud.   

Contentions by the Respondents 

  • The respondents contended that during the time of `notifying the Combination’, the appellant had stated that the intended ambit and purpose of the `Combination’ vis-a-vis, its investment in `FCPL’ (2nd Respondent) was in view of `FCPL’s potential’ for `Long Term Value Creation’ and providing `Returns’ on its `Investment’; and also, with a view to strengthen and augment the `Business of `FCPL’ that `it does not have any direct or indirect Shareholding’ in `FRL’ and further that it would not acquire directly any rights in `FRL’ and was only acquiring `Limited Investor Protection Rights’ via `FCPL’ (2nd Respondent) with a view to protect the value of its investment in `FCPL’. It was thus contended that the whole attention, as represented, during the time of notifying the `Combination’ was “FCPL and its ‘business’ with ‘rights’ in `FRL’ being reflected as mere `Investor Protection Rights’”. 
  • It was brought to the notice of the `Tribunal’ that the CCI in regard to the considerations for the `Appellant’s Investment’ in `FCPL’, the nature and rationale of the rights, in respect of the `Appellant’ under `FRL SHA’, raised some queries and that the `appellant’ through letter dated 15.11.2019, once again emphasized `FCPL’ to be the `attention of the Combination’. 
  • The respondents submitted that the `Combination Approval Process’ requires the `notifying person’ to submit the true, correct and complete information as regards the actual `Combination’ pursued by the `parties’ and to meet the requirements of the `Competition Act, 2002 and Regulations prescribed thereunder. Only then, the CCI will evaluate the effects of a `Combination’ in a proper perspective. 
  • It was argued that CCI had no possibility for to conduct `Combination Assessment’ from the `point of Strategic Alignments’ between `FRL’ and `Amazon group’. Since the effect of Commercial Contracts entered into between `FRL’ and `Amazon group’ entities in their normal course of `Business’ would be considerably different from `parties’ envisaging `Strategic Alignments’ between their `Business’ though `Strategic Investments’. Therefore, the `Regulatory Process’ of `Notification’ and the nature of `Economic’ and `Legal’ enquiry would differ in the two situations.  
  • As per the respondents, Amazon had failed to submit Key Internal Documents and instead, provided the documents relating to the Coupons and Payments Business of `FCPL’. The appellant was also required to clarify `Economic’ and `Strategic Purpose’ (Rationale) of the `Proposed Combination’ however, the appellant, had stated that its rationale as FCPL’s potential for long term value creation, returns on investment and to strengthen FCPL’s business of loyalty, gift and reward cards.  
  • The appellant repeatedly asserted that its decision to invest in `FCPL’ was based on the `Long Term Potential’ of `FCPL’ and it was submitted that appellant had misrepresented the scope and purpose of the `Proposed Combination’. The `Appellant had deliberately strived to `Misrepresent’ and `Suppress’ material particulars and documents vis-à-vis the `Proposed Combination’ and in short, the `Appellant’ had repeated the same false statements in relation to ambit and purpose of the `Proposed Combination’, etc., even after being asked with the pointed follow up questions.  

Observations- In deciding the appeal, the Bench perused the concerned provisions of the Competition Act, 2002 [definitions of ‘agreement’, ‘market’, ‘relevant product market’, ‘combination’ etc.] and Combination Regulations, 2011. The Bench noted that Competition Commission of India has a duty to “institute a system of undistorted competition which is commensurate to the promotion of the interest of the Consumers”. The Bench delved into the scope of CCI’s authority as enshrined in the 2002 Act- “CCI can take `suo moto cognisance’ of the case based on an anonymous complaint. But the Commission must be satisfied that there exists a prima facie case for ordering into the allegation of violation of S. 3 (1) or S. 4 (1) of the 2002 Act”. The provisions concerning ‘combinations’, ‘penalty to be imposed by CCI [Ss. 44 and 45] were also perused. The Bench also observed that it is up to the CCI after considering the facts on records, (details provided in `Notice’ and `Response’ filed by the `Parties’) may form a prima facie opinion that the `Proposed Combination’ is likely to cause an Appreciable Adverse Effect within `relevant market’ in India.  

Examining the transactions that were involved in the Amazon-Future Deal, the Tribunal noted that Amazon’ had mentioned that it does not have any direct or indirect shareholding in `FRL’ and further it would not acquire directly any rights in `FRL’ based on which CCI’ had issued the `Approval Order’ on 28.11.2019 as per S. 31 (1) of the Competition Act based on the `Competition Assessment’ arriving at the opinion that the `Combination’ is not likely to cause any appreciable adverse effect on `competition’ in India. However, all that changed when FCPL in its letter dated 25-03-2021 raised major issues with the deal. “It cannot be brushed aside that if an individual had entered into or intended to enter into any `Transaction’ being a `Combination’, within the `purview of S. 5 of the Competition Act, 2002’, then that `person’ compulsorily enjoined to file a `Notice’ as per S. 6 (2) of the Competition Act, 2002 coupled with the concerned `Combination Regulations, 2011’. No wonder, an individual who had not notified a `Combination’ as per the ingredients of  S. 6 (2) of the Competition Act, 2002, cannot press into service the ingredients of S. 6 (2-A) of the Act”.  

It was observed that, `Appellant/Amazon’ would enter into `Commercial Agreements’ with `FRL’ to expand the coverage, while also involving in `strategic’ discussions for `call option’ over shares held by `FRL’s Promoters with a view to leave the `Appellant/Amazon’, `well positioned to become the single largest shareholder of FRL’. In fact, the number of Equity Shares of `FRL’ to be held by `FCPL’ `was calculated’ such that `Amazon’ can indirectly hold the same number of shares of `FRL’ at a price per share representing a 25% premium on the minimum Regulatory Price”   

The Tribunal pointed out that on the part of the  Amazon’ there is a `Misstatement of Fact’/`Misrepresentation’ in not exhibiting the internal emails which make known the real ambit and purpose of the notified transactions, thereby misleading the CCI in approving the `Proposed Transaction’.  

The Tribunal perusing the internal communications/emails of  Amazon pointed out that the appellant had projected in `FRL’, `FCPL’ only a vehicle, for which, no intention was assigned- “This `Tribunal’ comes to an inevitable and inescapable conclusion that Amazon had not fulfilled its obligation as per ingredients of S. 6 (2) of the Competition Act, 2002, attracting imposition of penalty under S. 43A of the Act, extending to 1% of the total turnover or the Assets whichever is higher of such a `Combination’ 

Conclusion and Decision- The Tribunal held that Amazon had indeed hidden the true objective behind the combination and justified the penalty imposed by the CCI. However, the Tribunal opined that the imposition of maximum penalty of Rs.1 Crore each, as per the `impugned order’ passed by the `CCI’, as per Ss. 44 and 45 of the Competition Act, is slightly on the excessive side.   

[Amazon.com NV Investment Holdings LLC v. CCI, 2022 SCC OnLine NCLAT 238, decided on 13-06-2022] 


For Appellant :  Gopal Subramanium, Arun Kathpalia and  Amit Sibal, Senior Advocates  

For Respondent [CCI]: N. Venkataraman, ASG with Manu Chaturvedi, Chandrashekhar Bharathi and Sanyat Lodha, Advocates  

Shama Nargis, Deputy Director Law, CCI


*Sucheta Sarkar, Editorial Assistant has reported this brief.

Chhattisgarh High Court
Case BriefsHigh Courts

Chhattisgarh High Court: A Division Bench of Arup Kumar Goswami CJ. and Rajendra Chandra Singh Samant J. dismissed the appeal and remarked that quality cannot be claimed in illegality.

The facts of the case are such that the writ petitioners were appointed to the post of Agriculture Teachers. At the time of appointment, the petitioners were pursuing PhD courses and as a result of obtaining an appointment, they could not pursue the Ph.D. course. A joint application was filed by the petitioners to allow them to pursue Ph.D. course and to grant leave without pay, but no response was given by the authorities. Thus, the petitioners approached and filed writ petition which was disposed of providing that the representation of the petitioners would be considered within a period of 15 days. Assailing this, instant appeal was preferred.

The Single Judge observed, “It is relevant at this juncture to take note of the fact that as regards grant of leave is concerned, the same has been dealt with under the Chhattisgarh Civil Services (Leave) Rules, 2010.”

Counsel for appellants Mr. Kesharwani submitted that there are number of instances when the Government granted study leave even though the conditions enumerated under Rule 42(5) of the Rules of 2010 had not been fulfilled and therefore, the present petitioners are treated discriminatorily.

The Court relied on judgment Basawaraj v. Special Land Acquisition Officer, (2013) 14 SCC 81, and observed that Article 14 of the Constitution does not envisage negative equality but has only a positive aspect and thus, if some other similarly situated persons had been granted some relief/benefit inadvertently or by mistake, such an order does not confer any legal right on others to get the same relief as well.

The Court further observed that Article 14 of the Constitution is not meant to perpetuate illegality or fraud, even by extending the wrong decisions made in other cases. If a wrong is committed in an earlier case, it cannot be perpetuated. Equality cannot be claimed in illegality and therefore, cannot be enforced by a citizen or Court in a negative manner.

The Court thus held “we find no good ground to interfere with the order of the learned Single Judge and, accordingly, the writ appeal is dismissed.”

[Lokesh Ahirwar v. State of Chhattisgarh, 2022 SCC OnLine Chh 757, decided on 27-04-2022]


Appearances

For Appellants: Mr. Rajesh Kumar Kesharwani, Advocate.

For Respondents No. 1 to 5: Ms. Astha Shukla, Government Advocate.

For Respondent No. 6: Mr. Shashank Thakur, Advocate


Arunima Bose, Editorial Assistant has reported this brief.

Karnataka High Court
Case BriefsHigh Courts

Karnataka High Court: Suraj Govindaraj, J., allowed the petition and quashed the compromise decree in the original suit filed before Principal Senior Civil Judge at Hubballi in the Lok-Adalat proceedings.

The facts of the case are such that a compromise petition was filed before Principal Senior Civil Judge at Hubballi in the Lok-Adalat proceedings by a person claiming to be the power of attorney holder of the petitioner and as such the petitioner’s interest in the suit schedule property therein was compromised without the knowledge of the petitioner and therefore a fraud was committed on the petitioner by resorting to an abuse of the process of the Court and filing of a compromise petition in the Lok-Adalat. Thus instant petition was filed under Articles 226 and 227 of the Constitution of India praying to quash the compromise decree and restore the original suit before Principal Senior Civil Judge at Huballi on merits.

Counsel for petitioner Mr Mahesh Wodeyar submitted that the petitioner not having executed any power of attorney in favour of respondent 1, the power of attorney claimed by respondent 1 is fabricated one and as such neither the agreement of sale could be executed by respondent 1 in favour of respondent 2 nor could a compromise be entered into by the respondent 1 with respondent 2 for the Lok-Adalat to record. Thus, the petition needs to be allowed and the compromise recorded by the Lok-Adalat be set aside.

Counsel for the respondent Mr Padmanabha Mahale submitted that respondent 1 is the power of attorney holder of the petitioner and respondent 1 has entered into a compromise with the knowledge and consent of the petitioner with respondent 2. The compromise having been filed before the Court and the Court having forwarded the matter to the Lok- Adalat the compromise is one which is filed before the Court and as such the present petition is not maintainable since the trial Court having taken the compromise on record, only a suit challenging the compromise is maintainable.

The Court after perusing all the material facts observed that the plaintiff in a suit cannot array a defendant to be represented by power of attorney showing the address of the said power of attorney without even showing the address of the defendant. It was also observed that the net result of the entire proceedings and procedure followed is that the plaintiff who was not aware of the said proceedings, a compromise decree has been passed against the petitioner who though arrayed as a party to the preceding was never served with the notice nor did the defendant contest the said the proceedings. There is a procedural irregularity inasmuch as the compromise petition was filed before the Court and thereafter the matter referred to Lok-Adalat for recordal of the compromise.

The Court relied on Akkubai v. Venkatrao, 2014 SCC OnLine Kar 10110  and deprecated the said practice of recording compromise before the Court and thereafter referring to Lok-Adalat, as it is not contemplated in the Legal Services Authorities Act, 1987 and such compromise if recorded before the Lok Adalat is required to be set aside.

The Court also issued general directions in matters relating to compromise before the Lok Adalat which are challenged by way of writ petitions

(i) When a compromise is filed before the Court in terms of the decision in Akkubai v. Shri Venkatrao, 2014 SCC OnLine Kar 10110  it is for the Court to record the compromise and not refer the matter to the Lok- Adalat.

(ii) It is only if there is no settlement arrived at before the Court and the parties request for the matter to be referred to Lok-Adalat to enable a settlement then in such event the parties are to be referred to the Lok-Adalat and in the event of a compromise being arrived at before the Lok- Adalat, the same could be recorded by the lok- Adalat.

(iii) When the matter is referred to Lok-Adalat, separate order sheets would have to be opened and maintained by the said Lok-Adalat and the order sheet of the Court in the suit cannot be used by the Lok-Adalat.

(iv) The trial Court and or the Lok-Adalat while recording compromise is required to ascertain if the parties are present personally as also to ascertain and verify their identities by production of suitable documentary proof.

(v) In the event of a power of attorney appearing, it would be the bounden duty of the Court or the Lok-Adalat to ascertain if the concerned party has been served with notice.

(vi) The Court as also the Lok-Adalat would always have to be suspicious if the party were to enter appearance even before service of notice which is a red flag that there is something that is fishy in the matter.

(vii) When recording a compromise being entered into by a power of attorney, the original of the power of attorney is required to be examined by the Court and the Lok-Adalat and necessary endorsement made in the order to that effect and the original power of attorney returned to the parties.

(viii) As far as possible the trial Court and or the Lok- Adalat to secure the presence of the party and obtain signature of such party rather than the power of attorney.

(ix) The Trial Courts shall ensure that proper and acceptable proof of identity of the parties to proceedings as mandated by the Government for various purposes (such as Aadhar Card, Driving Licence, Passport Copy, Election Identity card, etc.,) are obtained as a matter of rule.

The Court allowed the petition and quashed the compromise decree dated 26-07-2014 in O.S. No.246/2014. [Renuka v. Ramanand, Writ Petition No. 103766 of 2018, decided on 31-03-2022]


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: In a case where a Postal Assistant was accused of committing a fraud of Rs.16,59,065/- but had voluntarily deposited the defrauded amount along with penal interest, the bench of MR Shah* and BV Nagarathna, JJ has held that the same cannot be a ground to interfere with the order of punishment imposed by the Disciplinary Authority and substitute the same from removal to that of compulsory retirement.

The respondent in the case at hand, had, during the period from 2004 to 2007, committed fraud by way of fraudulent withdrawal in 85 RD accounts and by way of non-credit of deposits in 71 RD accounts and defrauded a sum of Rs.16,59,065/-. The Disciplinary Authority had imposed the punishment of removing the delinquent employee from service. The respondent, who had the experience of 39 years, admitted the charge of having defrauded Rs.16,59,065/- and on detecting the fraud, he deposited the defrauded amount of Rs.16,59,065/- along with penal interest.

The Central Administrative Tribunal as well as the Madras High Court, however, substituted the same from removal to that of compulsory retirement. Neither the Tribunal nor the High Court found any irregularity in conducting the departmental enquiry. No procedural lapses were found.

The Supreme Court, however, observed that if it were not for the detection of the fraud, probably, the respondent employee would not have deposited the defrauded amount. Once, a conscious decision was taken by the Disciplinary Authority to remove an employee on the proved misconduct of a very serious nature of defrauding public money, neither the Tribunal nor the High Court should have interfered with the order of punishment imposed by the Disciplinary Authority, which was after considering the gravity and seriousness of the misconduct.

The Court observed that,

“Merely because the respondent-employee had worked for 39 years and in those years, there was no punishment imposed and/or that he voluntarily deposited the defrauded amount along with penal interest and therefore there was no loss to the Government/Department cannot be a ground to interfere with the order of punishment imposed by the Disciplinary Authority and substitute the same from removal to that of compulsory retirement.”

It further said that neither the Tribunal nor the High Court have, in fact, considered the nature and gravity of the misconduct committed by the delinquent officer. Therefore, both, the Tribunal as well as the High Court had exceeded in their jurisdiction in interfering with the quantum of punishment imposed by the Disciplinary Authority.

Holding that no sympathy on such an employee was warranted, the Court observed that,

“Being a public servant in the post office, the delinquent officer was holding the post of trust. Merely because subsequently the employee had deposited the defrauded amount and therefore there was no loss caused to the department cannot be a ground to take a lenient view and/or to show undue sympathy in favour of such an employee. What about the loss caused to the department by way of goodwill, name and fame of the department and its reliability amongst the public? By such a misconduct/act on the part of the delinquent officer, the reputation of the department had been tarnished.”

Hence, the impugned judgment and order passed by the High Court as well as the order passed by the Tribunal substituting the order of punishment from removal to that of compulsory retirement was quashed and set aside and the Disciplinary Authority’s order of removal from service was restored.

[Union of India v. M. Duraisamy,  2022 SCC OnLine SC 464, decided on 19.04.222]


*Judgment by: Justice MR Shah

Case BriefsHigh Courts

Delhi High Court: Prateek Jalan, J., grants bail to a person who was alleged to cause fraudulent transactions and loss to the government.

An applicant sought bail for offences registered under Sections 420, 468 and 471 of the Penal Code, 1860.

The only accused named in the FIR was Sanjay Garg, son of Deep Chand Garg. The FIR alleged cheating and fraud by Saraswati Enterprises, of which Sanjay Garg was the proprietor, causing a loss to the government for the sum of Rs 9.97 crores.

The allegations in the FIR were with regard to the unauthorized and fraudulent claim of input tax credit in respect of Goods and Services Tax [GST] by Saraswati.

The allegation against the applicant was that he and a co-accused had set up a number of fictitious companies, which were being used for the purposes of defrauding the government. It was contended that the accused persons had opened banks accounts in fictitious names and provided their telephone numbers and email addresses in this respect.

Analysis and Decision

In Court’s opinion, the applicant was entitled to bail.

From the status reported, it appeared that the main link of the present applicant with the transactions in question was on the basis of the use of the mobile No. and his email address.

High Court expressed that the applicant in conspiracy with co-accused had registered various bogus firms and opened fictitious bank accounts.

Further, as per the status report, the applicant neither has prior criminal antecedents nor is there any material to suggest that he is a flight risk.

The evidence in the present case was largely documentary and had already been placed before the trial court. Hence, the chances of the applicant tampering with the evidence was therefore unlikely.

Seriousness of the offences alone is not conclusive of the applicant’s entitlement to bail, as held by the Supreme Court inter alia in Sanjay Chandra v. Central Bureau of Investigation (2012) 1 SCC 40.

Concluding the matter, the applicant was granted bail subject to the following conditions:

  1. The applicant will furnish a personal bond in the sum of ₹1,00,000/- with two sureties of the like amount, one of which will be from a blood relative of the applicant, to the satisfaction of the Trial Court.
  2. The applicant will remain resident at the address mentioned in the memo of parties
  3. The applicant will inform the Investigating Officer and the Trial Court in advance of any change in his residential address.
  4. The applicant will appear on each and every date fixed before the Trial Court.
  5. The applicant will give his mobile numbers to the IO and ensure that the mobile numbers are kept operational and reachable at all times.
  6. The applicant will not directly or indirectly tamper with evidence or try to influence any of the prosecution witness in the case. In case the same is established, the bail granted to the applicant shall stand cancelled forthwith.

In view of the above, application stood disposed of. [Pulkit v. State (NCT of Delhi), 2022 SCC OnLine Del 1074, decided on 12-4-2022]


Advocates before the Court:

For the Petitioner:

Sunil Dalal, Senior Advocate with Kapil Madan, Gurmukh Singh Arora, Ramya Verma, Pulkit Pandey, Advocates

For the Respondent:

Amit Chadha, APP for the State with Insp. J.S. Mishra, PS EOW

Case BriefsHigh Courts

Delhi High Court: Noting that the Trial Court failed to perform its duty and rendered a mechanical order, Subramonium Prasad, J., set aside the trial Court’s order in a matter wherein, a woman had alleged that she was subjected to physical relationship with a boy on a false promise of marriage.

A petition was filed under Sections 397/401 CrPC read with Section 482 CrPC for setting aside the decision of Additional Sessions, Tis Hazari Courts arising out of an FIR registered for offences under Section 376(2)(n) of the Penal Code, 1860.

Factual Background

Petitioner had extended a false promise of marriage to the prosecutrix on the basis of which he had sustained a physical relationship with her.

It was stated that the prosecutrix and the petitioner were engaged, but the wedding was postponed due to some issues on the family of the prosecutrix. Prosecutrix had requested the petitioner to marry her by way of court marriage or in Arya Samaj Temple and the said request was rejected by the petitioner.

Prosecutrix alleged that the petitioner’s family raised the issue that the prosecutrix was not financially well-off and that the petitioner wanted to marry a girl whose father would have the wherewithal to invest money in his marriage. Hence the FIR was registered under Section 376(2)(n) IPC.

In January, 2020 the Court had granted anticipatory bail to the petitioner, after which a charge sheet was filed and Trial framed charges against the petitioner. On being aggrieved with the same, the instant revision petition was filed.

Analysis, Law and Decision

As per Section 376(2)(n) IPC, whoever commits rape repeatedly on the same woman shall be punished with rigorous imprisonment for a term which shall not be less than ten years, but which may extend to imprisonment for life, which shall mean imprisonment for the remainder of that person’s natural life and shall also be liable to fine.

The primary allegation in the instant matter was that under the garb of marriage, the petitioner repeatedly raped the prosecutrix.

High Court examined the difference between a false promise of marriage and breach of promise to marry.

Breach of Promise to Marry: In this, sexual relations are initiated on the premise that two individuals will marry at a later point in time.

False Promise of Marriage: Sexual relations take place without any intention of marrying at all and the consent that is obtained for the said relations to take place is vitiated by way of misconception of fact. The said aspect was elaborate by the Supreme Court in various decisions, one of such judgments was:  Pramod Suryabhan Pawar v. State of Maharashtra, (2019) 9 SCC 608.

In the decision of Deepak Gulati v. State of Haryana, (2013) 7 SCC 675, Supreme Court had categorically distinguished between rape and consensual sex, as well as the distinction between mere breach of a promise and not fulfilling a false promise.

Hence, in order to arrive at the conclusion that the sexual relations were coerced, it is necessary to examine whether at the stage of rendering a promise to marry, it was done with the intention of not keeping the promise and, therefore, was false at the inception of itself. (Sonu v. State of U.P., 2021 SCC OnLine SC 181)

As per the FIR, the prosecutrix and petitioner were in a long term relationship and were engaged.

On perusal of Section 90 IPC, it is clear that consent given under fear or misconception cannot be said to be consent. In the instant matter, Bench stated that the petitioner and prosecutrix were in a long-term relationship and furthermore, an engagement ceremony had taken place between the two.

The above-said indicated that the petitioner intended to marry the prosecutrix, but just because the relationship ended on hostile terms, it could not be concluded that the petitioner had no intent to marry the prosecutrix in the first place.

From the above, the High Court opined that consent so accorded by the prosecutrix for the establishment of a physical relationship was not predicated upon misconception or fear.

Bench concluded that the impugned order failed to accord the reasons to substantiate how there was sufficient material to proceed against the petitioner under Section 376(2)(n) of the IPC.

Trial Court is not a mere post office and must apply its mind to the facts of the case to arrive at the conclusion as to whether a prima facie case is made out against the accused that would warrant charges to be framed against them.

In view of the above petition was allowed. [Shailendra Kumar Yadav v. State, 2022 SCC OnLine Del 976, decided on 5-4-2022]


Advocates before the Court:

For the Petitioner:

Badar Mahmood, Advocate

For the Respondent:

Neelam Sharma, APP for the State with SI Ajay Singh, Police Station Paharganj. Complainant – in person

Uttarakhand High Court
Case BriefsHigh Courts

Uttaranchal High Court: Alok Kumar Verma, J. rejected three bail applications of the applicants who were in custody for the offence under Sections 188, 269, 270, 420, 467, 468, 471, 120B of IPC, Section 3 of the Epidemic Diseases Act, 1897 and Section 53 of the Disaster Management Act, 2005.

Informant, Chief Medical Officer, Haridwar lodged an FIR on 17-06-2021 with the allegations that a complaint was made by a person to the Indian Council of Medical Research (in short, “I.C.M.R.”) that his Aadhar Card Number and Mobile Number were used for conducting Rapid Antigen Test, but, no sample was given by him. The said complaint was sent back by the I.C.M.R. to the Health Department of Uttarakhand on 14-05-2021. Evidence were found to the effect that the name of the sample collection centre for Rapid Antigen Test was shown as “M/s. Max Corporate Service Kumbh Mela” and sample was tested by “Nalwa Laboratories Pvt. Ltd.”, Hisar. The accused persons were partners of “M/s. Max Corporate Services” who had executed an MoU with “Nalwa Lab”, Hisar and “Dr. Lalchandani Lab”, Delhi stating that their company is registered under the Companies Act, 1956.

Applicant-accused had submitted an affidavit stating therein that “Dr. Lalchandani Labs”, and “Nalwa Laboratories Pvt. Ltd.” belonged to him and by misleading the Kumbh Mela Officer, got the contract for testing of Covid-19 from the Government, whereas, their firm was not authorized to conduct test for Covid-19 as per the guidelines of ICMR due to lack of testing lab with their firm. The applicants had prepared forged testing report, uploaded on Web-portal of I.C.M.R. and submitted bills of about Rs.4 Crore, out of which, they had withdrawn Rs.15,41,670/-.

The Court stated that the Society has a vital interest in grant or refusal of bail because, criminal offence is the offence against the society. The Court relied on the Supreme court cases of Kalyan Chandra Sarkar v. Rajesh Ranjan, (2004) 7 SCC 528, State of U.P. v. Amarmani Tripathi, (2005) 8 SCC 21 where it was held that law in regard to grant or refusal of bail is very well settled. The court granting bail should exercise its discretion in a judicious manner and not as a matter of course.

The Court also mentioned the case of Ram Govind Upadhyay v. Sudarshan Singh, (2002) 3 SCC 598 stating that dealing with an application for bail, there is a need to indicate in the order, reasons for prima facie considering why bail is being granted.

The Court further was of the opinion that it would be inappropriate to discuss the evidence in depth at this stage. At this stage, detailed appreciation of evidence shall affect the trial. But, from the perusal of the evidence, collected during the investigation by the Investigating Officer, it prima facie appears that the applicants-accused persons were involved in this crime.

The bail applications were rejected finding no good grounds for enlarging the applicants on bail.[Ashish Vashisth v. State of Uttarakhand, 2022 SCC OnLine Utt 219, decided on 25-03-2022]


Counsel for the Applicant: Mr Arvind Vashisth, assisted by Mr Hemant Singh Mehra, counsel holding brief of Mr Shubhr Rastogi

Counsel for the State: Mr T.C. Agarwal assisted by Mr Rohit Dhyani


Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of UU Lalit, S. Ravindra Bhat and PS Narsimha, JJ has set aside the Punjab and Haryana High Court order directing that the advertisements on OLX platform be deleted and be re-listed only after attaching an open PDF file along with each advertisement containing proofs and certificates.

The High Court had taken note of the fact that in recent years, in Districts of Gurugram, Faridabad, Rewari, Palwal and Mewat, hundreds of FIRs have been registered, in which accused persons, by using OLX platform, have given various advertisements regarding sale of gold (in different form) or sale of vehicles like motorcycle or car at cheaper price or asking for professional service like architect or accountants have allured many innocent persons and thus, have committed the offence of cheating and forgery. The common modus operandi of these accused persons, locally called ‘Titloo Gang’, is that as and when a person responds to OLX advertisement, the accused person would call him to their native village or nearby place and then by playing fraud, dupes a victim by taking money under threat and in that process, some of the persons have lost lacs of rupees. In many cases, victims are from different states, who are allured to buy gold at lower price and then given fake gold by taking huge money.

The High Court, had, hence directed that,

“… all the advertisements on OLX platform be deleted and be re-listed only after attaching an open PDF file along with each advertisement, containing the following: –

(a) At least 02 ID proofs of the person, who is proposing to sell a property (moveable or immoveable) or asking any professional service.

(b) Two mobile numbers with a screen shot/photocopy of message sent by the server, who issued the SIM verifying name of owner as per their record.

(c) Details of the property to be sold whether moveable or immoveable and a document of title like Registration Certificate or insurance paper for vehicles or sale deed etc. for property.

(d) In aforesaid five Districts, in case the proposed seller is residing in a village or in the area of Municipal Corporation/Municipal Council, a certificate of Member of the Panchayat or Municipal Councillor certifying that the proposed seller is not involved in any such or similar criminal case and is a genuine owner of property.

(e) Only by putting this information in PDF file, the advertisements will be accepted by OLX or any other such agency and will be floated for the general public. Learned State counsel is directed to file the affidavit before the next date of hearing.”

OLX, hence, approached the Supreme Court and argued that the it does is to make available the services of an internet platform through which prospective vendors of goods and merchandise can issue appropriate advertisements soliciting responses from the intending purchasers and that as an internet platform or an intermediary, the appellant is not liable to guarantee the quality of the goods or merchandise which is put up for sale nor is it possible for the appellant to certify about the genuineness and correctness of the deal sought to be entered into. Hence, the High Court ought not to have issued notice and issued interim directions.

While the Supreme Court refused to enter into and deal with the submissions advanced by OLX and left it to agitate all of the issues before the High Court, it was of the opinion that there was no occasion for the High Court to pass the aforementioned directions; and more particularly, without hearing the appellant.

The Court, hence, quashed the impugned order.

[OLX India BV v. State of Haryana, 2022 SCC OnLine SC 286, order dated 08.03.2022]


Counsels

For OLX: Senior Advocate Sidharth Luthra

For State: Nikhil Goel, Additional Advocate General for the State.

Legal RoundUpSupreme Court Roundups

“No doubt, that a Judicial Officer while discharging his/her duties, is expected to be independent, fearless, impassionate and non-impulsive. But a Judicial Officer is also a human being. A Judicial Officer is also a parent. He/she could be a father or a mother. “

X v. High Court of MP

2022 SCC OnLine SC 171


STORY OF THE MONTH


Harassed, transferred, left with no choice but to resign: Read how this MP District Judge won half the battle in alleged sexual harassment case as SC orders her reinstatement

The resignation by the petitioner was on account of exasperation and frustration actuated by a thought, that injustice was being meted out to her by the very Institution of Judiciary.

The Court observed that,

“… in a gruesome battle between a mother and a Judicial Officer, the Judicial Officer lost the battle to the mother.”

Read more…


UNMISSABLE STORIES


Fraudulent Trading| SEBI must disclose all relevant material, including Investigation Report, to noticee except certain sensitive information

“If the report of the investigation authority under Regulation 9 has to be considered by the Board before satisfaction is arrived at on a possible violation of the regulations, the principles of natural justice require due disclosure of the report.”

Read more…

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Supreme Court rejects default bail plea of Rahul Modi, MD of Adarsh Group

“Filing of the charge-sheet within stipulated period is sufficient compliance u/s 167 of CrPC.”

Read more…

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Amazon-Future-Reliance Dispute| SC allows Future Group to approach Delhi HC for continuation of merger deal with Reliance Group

The 3-judge bench of NV Ramana, CJ and AS Bopanna and Hima Kohli, JJ has granted liberty to Future Retail Limited (FRL) to approach the Delhi High Court by filing an application seeking continuation of the NCLT proceedings beyond the 8th Stage i.e. Meeting of Shareholders and creditors.

Read more…

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Section 498A IPC| Husband’s relatives cannot be forced to undergo trial in absence of specific allegations of dowry demand

“A criminal trial leading to an eventual acquittal also inflicts severe scars upon the accused.”

Read more…

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Supreme Court furthers SOP for evidence recording via video-conferencing in cases related to child victims/witnesses of human trafficking

“It is well known that our country is a technological powerhouse and if we are unable to take advantage of the resources available with us and fully utilise the benefits of technology through computers and the internet for the benefit of children, our status as a technological powerhouse would be in jeopardy and would remain only on paper.”

Read more…

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POCSO Offenders Deserve No Leniency; “A Message Must Be Conveyed To The Society At Large”

“Cases of sexual assault or sexual harassment on the children are instances of perverse lust for sex where even innocent children are not spared in pursuit of such debased sexual pleasure.”

Read more…

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Bullet Train Project: Even Republic of India can’t deviate from terms and conditions of a fully foreign funded contract; SC sets aside Delhi High Court verdict

Japan International Cooperation Agency (JICA) has invested Rs.1 lakh crores in the Bullet Train Project.

Read more…


EXPLAINERS



MORE STORIES


Not mandatory to register partition document only detailing how the properties are to be dealt with in future

The Court was deciding a case where the panchayatdars had passed an award in the form of a resolution in relation to a family property.

Read more…

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Lok Adalat Award cannot be a basis for redetermination of the compensation under Section 28A of the LA Act

An Award passed under Section 19 of the 1987 Act is a product of compromise. Sans compromise, the Lok Adalat loses jurisdiction.

Read more…

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Applications under Section 156 (3) Cr.P.C. being filed only to harass other; Filing of affidavit a must

In a case where the Magistrate had passed an order under Section 156(3) CrPC even in absence of an affidavit duly sworn by the complainant, the bench of BR Gavai* and Krishna Murari, JJ that many a times the applications under Section 156 (3) of the Cr.P.C. are filed in a routine manner without taking any responsibility only to harass certain persons and hence, such applications are to be supported by affidavits.

Read more…

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Minor penalties, without cumulative effect, are still a proof of tainted service record; Benefit of Selection Grade can’t be claimed as a right

In a case where a former employee of Rajasthan State Road Transport Corporation sought benefit of Selection Grade, 7 years after his compulsory retirement, the bench of Dr. DY Chandrachud and Surya Kant, JJ has held that the grant of the Selection Grade is not a matter of right and is subject to the stipulated terms and conditions which, in the present case, included a clean and untainted service record.

Read more…

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Merely writing “cancelled” on registered power of attorney wouldn’t make it null and void

The Division Bench of K.M. Joseph* and Pamidighantam Sri Narasimha, JJ., held that mere writing the word “cancelled” or drawing a line would not render Power of Attorney null and void as there must be cancellation and it must further be brought to the notice of the third party at any rate.

Read more…

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Law passed by legislature is good law till it is declared unconstitutional by a Court

The Supreme Court held that, the Manipur Legislature was not competent to introduce a saving clause in the Repealing Act 2018.

Read more…

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Consent decree cannot be modified/ altered unless the mistake is a patent or obvious one

“Even assuming there is a mistake, a consent decree cannot be modified/ altered unless the mistake is a patent or obvious mistake. Or else, there is a danger of every consent decree being sought to be altered on the ground of mistake/ misunderstanding by a party to the consent decree.”

Read more…

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IBC Amendment, 2018; Supreme Court elaborates conditions for disqualification of Resolution Professional under S. 29A(h) of IBC

“…what is required to earn a disqualification under the said provision is a mere existence of a personal guarantee that stands invoked by a single creditor, notwithstanding the application being filed by any other creditor seeking initiation of insolvency resolution process subject to further compliance of invocation of the said personal guarantee by any other creditor.”

Read more…

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Compassionate Appointment cannot be denied to children born from the second wife of a deceased employee

“A policy cannot discriminate against a person only on the ground of descent by classifying children of the deceased employee as legitimate and illegitimate and recognizing only the right of legitimate descendant.”

Read more…

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No Corporation/Planning Authority can be compelled to acquire an unusable or unsuitable land and be compelled to pay compensation to landowners

“Once by operation of law, the reservation is deemed to have lapsed, it is lapsed for all purposes and for all times to come.”

Read more…

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Default/Delay in payment of EPF by employer: Mens rea or actus reus not an essential element for imposing civil penalty/damages

The bench of Ajay Rastogi and Abhay S. Oka, JJ has held that any default or delay in the payment of EPF contribution by the employer under the Employees Provident Fund & Miscellaneous Provisions Act, 1952 is a sine qua non for imposition of levy of damages under Section 14B and mens rea or actus reus is not an essential element for imposing penalty/damages for breach of civil obligations/liabilities.

Read more…

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Advocate an officer of the Court; May be appointed by CMM/DM to assist in execution of order passed under Section 14(1) of SARFAESI Act

The Court was called upon to decide whether the past practice followed by most of the courts across the country in recognising the power of the CMM/DM to appoint an advocate as a commissioner to assist him in merely taking possession of the secured assets and documents relating thereto and to forward the same to the secured creditor, needs to be discontinued as being prohibited owing to insertion of sub-Section (1A) of Section 14 of SARFAESI Act?

Read more…

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Benefit conferred on one or a set of people, without legal basis or justification, cannot multiply and be relied upon as a principle of parity

“A principle, axiomatic in this country’s constitutional lore is that there is no negative equality.”

Read more…

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Is independent suit questioning a compromise decree maintainable or one has to approach the same Court which recorded the compromise to challenge it? SC answers

“If clever drafting of the plaint has created the illusion of a cause of action, the court will nip it in the bud at the earliest so that bogus litigation will end at the earlier stage.”

Read more…

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Bank Employees misappropriate funds. Confession by one leads to mild penalty; No evidence against another leads to dismissal! SC directs reinstatement

“A reading of the disciplinary authority’s order reveals that his past record of minor misconduct played a major role in determining his guilt, despite lack of evidence, and the extreme penalty of dismissal.”

Read more…

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Section 138 NI Act| Prima-facie indication as to complaint by a company through an authorised employee having knowledge of the case enough for Magistrate to take cognizance

The 3-judge bench of NV Ramana, CJ and AS Bopanna* and Hima Kohli, JJ has held that when the complainant/payee for a complaint filed under Section 138 of NI Act is a company, an authorized employee can represent the company. Such averment need not be in any particular manner and prima facie material is sufficient for the Magistrate to take cognizance and issue process.

Read more…

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SC discusses law on compensation for injurious affection; Summarises items under S. 23(1) of LA Act to be considered by court while determining compensation

“Railway line is not like a roadway. Roads can take diversion easily, but not railway lines.”

Read more…

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Can sale pursuant to a public auction, be set aside at the instance of strangers to the auction proceeding? SC decides

if there was any error in the decision-making process adopted by the authority, the remedy available was to question the sale deed in an appropriate proceeding available under the law and not by filing a petition under Article 226 of the Constitution of India”.

Read more…

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Financier-in-possession of a motor/transport vehicle liable to pay tax under U.P. Motor Vehicles Taxation Act, 1997

While dealing with the scope of Section 12 of the U.P. Motor Vehicles Taxation Act, 1997, bench of MR Shah* and BV Nagarathna, JJ has held that a financier of a motor vehicle/transport vehicle in respect of which a hire-purchase, lease or hypothecation agreement has been entered, is liable to tax from the date of taking possession of the said vehicle under the said agreements.

Read more…

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Chased and killed in the mid night much after the altercation, even after the deceased reached his house. Cold blooded murder or  culpable homicide not amounting to murder? SC decides

In a case relating to murder versus culpable homicide legal controversy, the Division Bench of M.R. Shah* and B.V. Nagarathna, JJ., held that the Uttaranchal High Court had erred in observing that the case would fall under Fourth exception to Section 300 IPC and had failed to properly appreciate the multiple injuries sustained by the deceased.

Read more…

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Bank entitled to withhold payment where Bond holder’s title is clouded as fraudulent

“Shylock has received their promised pound of flesh but they seem to want more”

Read more…

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Is unstamped Arbitration Agreement enforceable?

Supreme Court holds question being pending before larger Bench will not hinder arbitration proceedings unless issue indicates existence of deadwood.

Read more…

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Economic Offence| 25 crores siphoned off by forging documents and misusing KYCs of employees; SC cancels Delhi HC’s order granting bail to the suspect

Mere non-misuse of liberty cannot be a ground to confirm the bail order otherwise not sustainable in law.

Read more…

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5-year moratorium on new Pharmacy Colleges: Chh HC’s interim order directing PCI to consider application for affiliation stayed; Matter to be disposed of in 4 weeks

Supreme Court imposed a stay on the Chattisgarh High Court’s interim order directing the PCI to permit the respondents to submit their application required for the necessary permission and approval and also for grant of necessary affiliation for the academic session 2022-23.

Read more…

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Post Poll Violence| Anticipatory Bail to Mamta’s Banerjee’s Election Agent SK Supiyan in murder case; Must fully cooperate in the probe

The Court made clear that the pre-arrest bail is liable to be cancelled if it is found that the appellant is not cooperating for the investigation.

Read more…

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By purchasing power at higher rate, Andhra Pradesh DISCOMS have acted contrary to public interest

“Every action of a State is required to be guided by the touch¬stone of non-arbitrariness, reasonableness and rationality. Every action of a State is equally required to be guided by public interest. Every holder of a public office is a trustee, whose highest duty is to the people of the country.”

Read more…

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Whether lotteries being res extra commercium takes away CCI’s Jurisdiction to entertain anti-competition activities relating to lotteries? SC decides

“A simple aspect of anti-competitive practices and cartelisation had got dragged on for almost ten years in what appears to be a mis-application by the High Court of the interplay of the two Acts, i.e., the Competition Act and the Regulation Act.”

Read more…

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“Debt arising out of advance payment for supply of goods or services is an operational debt”; SC allows operational creditor to initiate CIRP

“…no doubt that a debt which arises out of advance payment made to a corporate debtor for supply of goods or services would be considered as an operational debt.”

Read more…

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SC sets aside HC order for applying test of criminal proceedings to departmental proceedings

“No case for interference either on law or on moral grounds”

Read more…


IN OTHER NEWS


Supreme Court invites applications seeking conferment of designation of Senior Advocates


SUPREME COURT CASES 

[An overview of the cases reported in the latest volumes of SCC]


2021 SCC Vol. 9 Part 3

In Part 3 of Volume 9, read this very interesting decision, where the Election Commission of India (EC) had sought a direction.

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2021 SCC Vol. 10 Part 1

In Part 1 Volume 10 of 2021, read Supreme Court’s decision in Supertech Ltd. v. Emerald Court Owner Resident Welfare Assn.(2021) 10 SCC 1, wherein the Court made an observation that “illegal constructions have to be dealt with strictly to ensure compliance with the rule of law.”

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2021 SCC Vol. 10 Part 2

In this part, read three really interesting Articles along with some very carefully analysed decisions of the Supreme Court by our editors.

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2021 SCC Vol. 10 Part 3

This part has a very interesting decision from the Supreme Court, wherein the Court issued “general uniform direction” of deduction of 15 per cent of the annual school fees for the academic year 2020-2021 in lieu of unutilised facilities/activities and not on the basis of actual data school-wise.[Indian School v. State of Rajasthan, (2021) 10 SCC 517].

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2021 SCC Vol. 10 Part 4

Evidence Law, Arbitration Law, Service Law and many more interesting decisions covered in this part covering some very pertinent laws.

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2022 SCC Vol. 1 Part 1

In 2022 SCC Volume 1 Part 1, read a very significant decision of Supreme Court wherein it made a very pertinent observation with regard to arbitral awards,

“There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention …”

[Delhi Airport Metro Express (P) Ltd. v. DMRC, 2021 SCC OnLine SC 695]


 

Case BriefsHigh Courts

Bombay High Court: B.P. Colabawalla, J., addressed an arbitration application filed under Section 11 of the Arbitration and Conciliation Act, 1996.

Instant application was filed under Section 11 of the Arbitration and Conciliation Act, 1996 seeking the appointment of a Sole Arbitrator to adjudicate upon the disputes and differences between the applicant and respondent arising out of the Service Level Agreement.

High Court noted that the existence of the Arbitration Clause has not been disputed by the respondent.

Grounds on which the application was opposed:

  • Dispute between the parties is not arbitrable as the claims made by the applicant is outside the term of SLA as well as the pleaded case of the applicant as reflected

For the above-stated, respondent’s counsel brought to the Court’s attention Clause 2.1 of the SLA which defined the term of SLA and stipulated that the same shall continue to be in force and in effect for a period of three years and can be extended for a term of one year and shall supersede all prior or contemporaneous communications, proposals and agreements between the respondent and the petitioner.

Further, the counsel submitted that the period of SLA came to an end on 2-05-2017. However, the claim of the applicant was in relation to the services rendered and invoices raised for the period after 2-5-2017. Hence, he submitted that the disputes were clearly not arbitrable and there was no question of referring the disputes to arbitration.

High Court stated that it cannot come to the conclusion as to whether the disputes between the applicant and the respondent are arbitrable or otherwise.

Another argument was that the disputes cannot be referred to arbitration because there is a fraud that has been played by the applicant on the respondent. On being unimpressed with the said argument, Court expressed that on the issue of fraud, the law is well settled. Supreme Court in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379, clearly held that all civil or commercial disputes, either contractual or non-contractual, which can be adjudicated upon by a Civil Court, in principle, can be adjudicated and resolved through arbitration, unless it is excluded expressly either by statute, or by necessary implication.

Supreme Court has categorically held that the Arbitration and Conciliation Act, 1996 does not exclude any category of disputes as being non-arbitrable. Section 2 (3) of the Arbitration Act, however, recognizes that certain categories of disputes by law may not be submitted to arbitration. Finally, the Supreme Court has held that the civil aspect of fraud is considered to be arbitrable in contemporary arbitration jurisprudence with the only exception being where the allegation is that the Arbitration Agreement itself is vitiated by fraud or fraudulent inducement, or the fraud goes to the validity of the underlying contract, and impeaches the arbitration clause itself.

Respondent’s case was that the alleged fraud was that the former employees of the Respondent (in connivance with the Applicant) continued to avail of the services of the Applicant beyond the expiry of the SLA merely to siphon off the funds of the Respondent unlawfully.

Further, the fraud alleged was that the former employees, along with the applicant siphoned off monies of the Respondent even after the expiry of the said SLA.

The Court opined that the respondent counsel’s submission that dispute between parties cannot be referred to arbitration on account of fraud was incorrect.

High Court held that it has no hesitation in constituting the arbitral tribunal to decide the disputes and differences between the applicant and the respondent arising out of the said SLA.

Parties agreed before the Court that for the purposes of deciding their disputes and differences Mikhail Behl an Advocate of this Court, be appointed as a Sole Arbitrator.

Order of the Court:

(a) By consent of parties, Mr Mikhail Behl, an advocate of this Court is hereby appointed to act as a Sole Arbitrator to decide the disputes and differences between the Applicant and the Respondent arising out of and/or in connection with and/or in relation to the Service Level Agreement dated 3rd May, 2014.

(b) A copy of this order will be communicated to the learned Sole Arbitrator by the advocates for the Applicant within a period of two weeks from today.

(c) The learned Sole Arbitrator is requested to forward his Statement of Disclosure under Section 11 (8) read with Section 12 (1) of the Arbitration Act to the advocates for the Applicant so as to enable them to file the same in the Registry of this Court. The Registry of this Court shall retain the said Statement on the file of this Application and a copy of the same shall be furnished by the advocates for the Applicant to the advocates for the Respondent.

(d) The parties shall appear before the Sole Arbitrator on such date and at such place as he nominates to obtain appropriate directions with regard to fixing a schedule for completing pleadings etc. The Arbitral Tribunal shall give all further directions with reference to the arbitration and also as to how it is to proceed.

(e) Contact and communication particulars shall be provided by both sides to the Sole Arbitrator within a period of two weeks. This information shall include a valid and functional email address as well as mobile numbers of the respective advocates.

(f) The Respondent is at liberty to raise all questions of jurisdiction within the meaning of Section 16 of the Arbitration Act. All contentions in that regard are expressly kept open on both sides. It is made clear that any observations made by me herein are only prima facie and tentative and shall not bind the Arbitral Tribunal while deciding any issue of jurisdiction. It is however made clear that the Respondent shall not be allowed to contend before the Arbitral Tribunal that there does not exist an Arbitration Agreement as the same has been expressly admitted.

(g) The parties have agreed that the Arbitral Tribunal shall be free to fix its own fees and shall not be bound by the 4th Schedule of the Arbitration and Conciliation Act, 1996 or the Bombay High Court (Fee payable to Arbitrators) Rules, 2018. The parties further agree that all arbitral costs and fees of the Arbitrator will be borne by the parties equally and will be subject to the final Award that may be passed by the Tribunal.

(h) The parties immediately consent to a further extension of up to six months to complete the Arbitration should the learned Sole Arbitrator find it necessary.

(i) The parties have agreed that the venue and seat of the arbitration will be in Mumbai.

In view of the above terms, the arbitration application was disposed of.[One Point One Solutions Ltd. v. Reliance Nippon Life Insurance Company Ltd., 2021 SCC OnLine Bom 7861, decided on 28-9-2021]


Advocates before the Court:

Mr Jamshed Master a/w Delan Fernandez, Radhika Motwani i/b Purazar P. Fouzdar, for the Applicant.

Mr Shyam Kapadia a/w Dhruva Gandhi, Mehafrin Mehta i/b HSA Advocates, for the Respondent.

Case BriefsSupreme Court

Supreme Court: While addressing a case related to systematic fraud by creating the false/forged documents and/or misusing the PAN Cards, Aadhar Cards and KYCs of the employees and showing them as Directors of the fake and shell companies and siphoning of Rs. 25 crores, the Division Bench of M.R. Shah* and Sanjiv Khanna, JJ., held that mere non-misuse of liberty cannot be a ground to confirm the bail order otherwise not sustainable in law.

Background

The genesis of the case relates back to the FIR filed by the appellant, a non-banking financial company in PS Economic Offences Wing against the company, Sri Aranath Logistics Limited (formerly known as M/s LMJ Logistics Limited)-Respondent 2, Jayant Kumar Jain–Managing Director and others for the offences under Sections 409, 420, 467, 468, 471 and 120B Penal Code, 1860 alleging that the amount of 25 crores was siphoned off and transferred to other shell companies and the said amount was used by the Respondent 2 for other companies.

The appellant had preferred the instant appeal against the impugned judgment and order of the Delhi High Court by which the High Court had granted bail to the respondent 2. Noticeably, a detailed status report was filed pointing out how a sum of Rs.25 crores to be used by M/s LMJ Logistic Ltd. was transferred to shell and other companies such as M/s LMJ Logistic Limited and how a systematic fraud was committed.

The grievance of the appellant was that despite the said status report, by the impugned judgment and order, the High Court had directed to release Respondent 2 on bail merely on the ground that the case arose out of a commercial transaction and was based on documents already seized.

Observations and Analysis

on bail the High Court has not at all adverted to and/or considered the nature of accusation and the material found/collected during the course of investigation and the serious allegations of siphoning off the huge amount through various shell companies. Even the High Court has not at all taken note of the reasoning given by the learned Sessions Court while rejecting the bail application of Respondent No.2. and has released Respondent No.2 on bail by simply observing that case arises out of a commercial transaction and the dispute is of a civil nature.

Applying the law laid down by the Supreme Court in Prasanta Kumar Sarkar v. Ashis Chatterjee, (2010) 14 SCC 496, Anil Kumar v. State (NCT of Delhi), (2018) 12 SCC 129 and Prahlad Singh Bhati v. (State) NCT of Delhi, (2001) 4 SCC 280, the Bench held that the High Court had not at all considered the modus operandi adopted by the accused in commission of serious offence of siphoning and/or transferring the huge sum to another company through shell companies. The High Court had also not taken into consideration the status report filed by the I.O. in which it had been pointed out in detail how systematically the accused had committed the offence and misappropriated/siphoned off the huge sum through shell companies.

On the argument of the respondent that as there were no allegations of misusing liberty, the bail may not be cancelled, the Bench noted that the order passed by the High Court releasing the accused on bail had been passed mechanically and without adverting to the relevant facts and without considering the nature of accusation and allegations and the nature of the gravity of the accusation. Therefore, the Bench opined,

“There is no absolute proposition of law that once the bail is granted by the High Court, though the High Court could not have granted the bail, in absence of any allegation of misuse of liberty and/or breach of any of the conditions of the bail, the bail cannot be set aside when grant of bail is itself subject matter of challenge in appeal/revision.”

Difference between Rejection and Cancellation of Bail

Opining that the rejection of bail in a non-bailable case at an initial stage and cancellation of bail so granted has to be dealt with and considered on different basis, the Bench stated that very cogent and overwhelming circumstances are necessary for an order directing the cancellation of the bail already granted. Reliance, in this regard was placed by the Court on Mahipal v. Rajesh Kumar, (2020) 2 SCC 118, wherein after drawing the distinction between the power of an appellate court in assessing the correctness of an order granting bail and an application for the cancellation of the bail, the Court had observed,

“The correctness of an order granting bail is tested on the anvil of whether there was an improper or arbitrary exercise of the discretion in the grant of bail…on the other hand, an application for cancellation of bail is generally examined on the anvil of the existence of supervening circumstances or violations of the conditions of bail by a person to whom bail has been granted.”

Hence, the Bench held that where a Court while considering an application for bail fails to consider the relevant factors, an Appellate Court may justifiably set aside the order granting bail. The Appellate Court is thus required to consider whether the order granting bail suffers from a non-application of mind or a prima facie view from the evidence available on record.

Conclusion

In the light of above, the Bench concluded that the High Court releasing Respondent 2 on bail was unsustainable as the High Court had not exercised the jurisdiction judiciously and had not considered the relevant factors while granting bail. Consequently, the impugned order was quashed and the accused was directed to surrender before the Court/Jail Authority concerned.

[Centrum Financial Services Ltd. v. State (NCT of Delhi), 2022 SCC OnLine SC 100, decided on 28-01-2022]


*Judgment by: Justice M.R. Shah


Appearance by:

For the Respondent 2: Mukul Rohatgi, Senior Advocate


Kamini Sharma, Editorial Assistant has put this report together

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of L. Nageswara Rao, Sanjiv Khanna* and BR Gavai, JJ has held that the post office/bank can be held liable for the fraud or wrongs committed by its employees.

In the case at hand, the appellants had sought transfer of their Kisan Vikas Patras from branch of the Post Office to another and they were made to believe that this transfer was not possible without the help of one Rukhsana, who convinced them that she had been working and associated with the post office for fifteen years. A sum of Rs. 25,54,000/- was paid in cash to Rukhsana, who had pocketed the entire amount. Later, the involvement of one of the Post Office Employees, one MK Singh, was alleged, who, contrary to the rules, had paid the maturity proceeds in cash and not by cheque in the names of the appellants.

Noticing that M.K. Singh is not a third person but an officer and an employee of the Post Office, the Court observed that post Office, as an abstract entity, functions through its employees. Employees, as individuals, are capable of being dishonest and committing acts of fraud or wrongs themselves or in collusion with others. Such acts of bank/post office employees, when done during their course of employment, are binding on the bank/post office at the instance of the person who is damnified by the fraud and wrongful acts of the officers of the bank/post office. Such acts of bank/post office employees being within their course of employment will give a right to the appellants to legally proceed for injury, as this is their only remedy against the post office. Thus, the post office, like a bank, can and is entitled to proceed against the officers for the loss caused due to the fraud etc., but this would not absolve them from their liability if the employee involved was acting in the course of his employment and duties.

In State Bank of India v. Smt. Shyama Devi, (1978) 3 SCC 399 held that for the employer to be liable, it is not enough that the employment afforded the servant or agent an opportunity of committing the crime, but what is relevant is whether the crime, in the form of fraud etc., was perpetrated by the servant/employee during the course of his employment. Once this is established, the employer would be liable for the employee’s wrongful act, even if they amount to a crime. Whether the fraud is committed during the course of employment would be a question of fact that needs to be determined in the facts and circumstances of the case.

The Court concluded that, in the present case, the payment was made in violation of the statutory mandate of Section 10 of the NI Act and, therefore, there is no valid discharge under clause (c) to Section 82 of the NI Act. Further, Rukhsana not being a ‘holder’, payment to her is not a valid discharge under Section 78 read with Section 8 of the NI Act. The respondents would have avoided the liability and claimed valid discharge if they had accepted the KVPs with the identity slip or if they had made payment by cross cheque, in which case, they would have satisfied the condition that they had made payment in good faith and there was no negligence, a requirement of clause (c) to Section 82 read with Section 10 of the NI Act.

[Pradeep Kumar v. Post Master General, 2022 SCC OnLine SC 154, decided on 07.02.2022]


*Judgment by: Justice Sanjiv Khanna,

Case BriefsSupreme Court

Supreme Court: The bench of MR Shah* and BV Nagarathna, JJ has held that a consent decree cannot be modified/ altered unless the mistake is a patent or obvious mistake.

The Court said that if held otherwise, there is a danger of every consent decree being sought to be altered on the ground of mistake/ misunderstanding by a party to the consent decree.

Factual Background

The Case pertains to ORPAT and CASIO scientific/Electronic calculators.

  • According to the Plaintiff, the Defendant lifted each and every novel element of the original design, shape and configuration for its scientific/ electronic calculator ‘ORPAT FX-991ES PLUS’.
  • The Respondent applied for a design registration for its electronic calculator namely ‘CASIO FX991ES PLUS’ and it was introduced in India in October, 2011. Having knowledge about the sale of the scientific calculator by the Appellant under the name ‘ORPAT FX- 991ES PLUS’, the Respondent filed a civil suit.
  • The High Court of Delhi passed an ex-parte ad-interim order of stay on 28.11.2018.
  • Thereafter, the parties were referred to mediation by the High Court of Delhi on 18.12.2018.
  • After a detailed correspondence and exchange of e-mails between the counsel appearing for the parties, a settlement was arrived at vide a Settlement Agreement dated 16.05.2019.
  • The High Court decreed the suit on 03.07.2019 in terms of the Settlement Agreement.
  • Subsequently, an Application was filed by the Appellant under Sections 152 and 153 read with Section 151 of the CPC for correction/ rectification/ amendment of the judgment dated 03.07.2019. The Appellant stated in the said Application that the Settlement Agreement pertains only to trademark “FX-991ES PLUS’/ ‘FX-991”. However, there was an inadvertent typographical error of the trademark in the Settlement Agreement as “FX-991ES PLUS/ FX/ 991”.
  • The High Court dismissed the said application.

Analysis

The Court explained that a judgment by consent is intended to stop litigation between the parties just as much as a judgment resulting from a decision of the Court at the end of a long drawnout fight. A compromise decree creates an estoppel by judgment. However, a consent decree would not serve as an estoppel, where the compromise was vitiated by fraud, misrepresentation, or mistake. The Court in exercise of its inherent power may rectify the consent decree to ensure that it is free from clerical or arithmetical errors so as to bring it in conformity with the terms of the compromise. Undoubtedly, the Court can entertain an Application under Section 151 of the CPC for alterations/ modification of the consent decree if the same is vitiated by fraud, misrepresentation, or misunderstanding. But a consent decree cannot be modified/ altered unless the mistake is a patent or obvious mistake.

In the present case, the Court observed that the misunderstanding as projected by the Appellant between parties relates to use of “FX” or “991” as separate marks in the Settlement Agreement. The understanding between the parties was with respect to “FX-991ES PLUS” as a whole and not with reference to “FX”. A close scrutiny of the correspondence between the parties showed that the Settlement Agreement was arrived at after detailed consultation and deliberations. Thereafter, the parties were communicating with each other and they took six months to arrive at a settlement. The final Settlement Agreement was approved by the mediator.

The High Court applied its mind and passed a decree in terms of the Settlement Agreement dated 16.05.2019.

There is no allegation either of fraud or misrepresentation on the part of the Respondent. The Court disagreed with the Appellant that there was a mistake committed while entering into a settlement agreement due to misunderstanding.

“Correspondence between the advocates for the parties who are experts in law would show that there is no ambiguity or lack of clarity giving rise to any misunderstanding. Even assuming there is a mistake, a consent decree cannot be modified/ altered unless the mistake is a patent or obvious mistake. Or else, there is a danger of every consent decree being sought to be altered on the ground of mistake/ misunderstanding by a party to the consent decree.”

[Ajanta LLP v. Casio Keisanki Kabushiki Kaisha d/b/a Casio Computer Co. Ltd, 2022 SCC OnLine SC 148, decided on 04.02.2022]


*Judgment by: Justice MR Shah


Counsels

For appellant: Senior Advocate K.V. Viswanathan

For respondents: Senior Advocate Dr. Abhishek Manu Singhvi and Mr. Chander Lal

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

Appellate Tribunal for Electricity (APTEL)


State commission disallows benefit of increase in the tariff based on the change in law provision; Tribunal directs reconsideration

A Coram of R.K. Gauba (Officiating Chairperson) and Sandesh Kumar Sharma (Technical Member) decided on an appeal which was filed by Solar Power Project Developer (“SPD”) assailing order passed by respondent Bihar Electricity Regulatory Commission (“the State Commission”) disallowing the benefit of increase in the tariff based on the change in law provision with respect to increased Operation and Maintenance (O&M) costs of its 10MW solar power generating system.

Read full report here…


Armed Forces Tribunal (AFT)


AFT grants war injury pension to soldier who sustained injuries resulting in disability during Operation Hifazat

The Bench of Justice Dharam Chand Chaudhary (Member J) and Vice Admiral HCS Bisht (Member A), granted war injury pension to the ex-serviceman who had sustained injuries resulting in disability during Operation Hifazat.

Read full report here…


Arbitral Tribunal, New Delhi


Arbitral Tribunal finds SJDA at fault; directs to refund bid amount of Rs 84.24 crores to the claimant in New Township Project

“No permission for conversion of land was obtained and, therefore, even if all other conditions were fulfilled, the Claimant-Developer could not have commenced construction activities on the agricultural lands without obtaining conversion of land use.”

Read full report here…


 Competition Commission of India (CCI)


Apple charging a commission of up to 30% on all payments made through its in-app purchase system, is a violation of its dominant position? CCI orders investigation 

“Some consumers may have preference for closed ecosystem like Apple and others may have a preference for open ecosystems like that of Google.” 

Read full report here… 

Why did CCI suspend the Amazon-Future deal? Detailed analysis of CCI order imposing Rs 202 crores penalty on Amazon

“Amazon had misled the Commission to believe, through false statements and material omissions, that the Combination and its purpose were the interest of Amazon in the business of FCPL.”

Read full report here…

Is Google abusing dominant position in news aggregation? CCI gives prima facie findings; discusses Snippets, Mirror Image Websites, Paywall Options, etc.

“Google appears to operate as a gateway between various news publishers on the one hand and news readers on the other. Another alternative for the news publisher is to forgo the traffic generated by Google for them, which would be unfavourable to their revenue generation.”

Read full report here…


 Customs Excise & Service Tax Appellate Tribunal (CESTAT)


“Obiter dictum” not legally binding as precedent; jurisdictional commissioner cautioned for filing frivolous applications

Suvendu Kumar Pati (Judicial Member) dismissed an appeal which was filed in response to the order passed by this Tribunal for rectification of mistake on the ground that the order to the extent of availment of service of outdoor catering was not proper.

Read full report here…

Jurisdiction for claim of refund filed/initiated to be dealt under the provision Central Excise law and not by the provision of CGST law

Ashok Jindal (Judicial Member) dismissed the application filed by the Revenue (CCE & ST, Panchkula) for ratification of mistake in a final order by the Tribunal which was noticed by the Applicant. The Tribunal dealt with two issues (a) whether to ratify previous order & (b) to deal with the jurisdiction

Read full report here…

Is there any provision under Cenvat Credit Rules, 2004 or Finance Act, 1994 for reversal of CENVAT credit for services provided for which no consideration is received by an assessee? CESTAT analyses

“CENVAT Credit Rules or Finance Act there was no provision for reversal of CENVAT credit for the services provided for which no consideration for service provided was received by an assessee.”

Read full report here…


District Consumer Disputes Redressal Commission, Kolkata


Consumer cannot be forced to pay “service charge” in a restaurant: Consumer Forum finds conduct of restaurant contrary to principles of Consumer Protection Act

“The OPs must have been aware of the guidelines of Fair Trade Practice related to changing of service charge from the consumers by hotels/restaurant issued by Department of Consumer Affairs, Government of India, inter alia, stipulating that service charge on hotel and restaurant bill is “totally voluntarily” and not mandatory.”

Read full report here…


Income Tax Appellate Tribunal (ITAT)


If lessee is not actual owner of property, can actual rental expenses be claimed on return of income? ITAT decides

“The assessee-company has merely taken the assets on lease from the owner, and it is accordingly eligible to claim actual rental expenses in the return of income.”

Read full report here… 

Can merely disowning bank accounts exempt assessee from paying tax? Read why ITAT approved addition of Rs 12.81 Crores under S.68 of Income Tax Act

“Merely disowning the bank accounts by the assessee does not lead to the conclusion that the accounts are not maintained by him when there is a direct evidence contrary to the contention of the assessee.”

Read full report here…


 National Consumer Disputes Redressal Commission (NCDRC)


Homebuyers cannot be expected to wait indefinitely for taking possession: NCDRC allows consumer complaint against Builder, directs refund, imposes costs

Commission dealt with a complaint filed under Section 21 read with Section 2(c) of the Consumer Protection Act, 1986 by the complainant in respect of a plot allotted to him promoted by the OP, claiming deficiency of service due to delay in handing over possession of the plot allotted and claiming refund of amount deposited with compensation.

Read full report here… 

Insurer refuses to issue insurance policy as Risk Confirmation letter obtained on concealment of material fact by Insurance Broker: Policy will be vitiated? NCDRC answers

“Section 19 of Contract Act, 1872, provides that when the consent of an agreement is caused by coercion, fraud, or misrepresentation, the agreement is voidable at the option of the party whose consent is so caused.”

Read full report here…

Plastic pieces found in slices of bread, but compensation denied to consumer. Read why NCDRC set aside State Commission’s order of compensation

Ram Surat Maurya (Presiding Member) addressed a matter wherein Britannia was alleged to have pieces of plastic in its bread, but the complainant failed to prove that the bread was manufactured by the said company.

Read full report here…

Minor treated for “Measles” instead of “Stevens-Johnson Syndrome” due to wrong diagnosis and leading to medical negligence: Read detailed report on NCDRC’s decision

“The patient at her young age of 12 years suffered very serious and potentially fatal SJ syndrome. It was the patient’s sheer good luck that she survived in spite of such grossly inappropriate/inadequate treatment at every stage.”

Read full report here…


National Company Law Appellate Tribunal (NCLAT) 


Is it proper for NCLT to record finding regarding default when RP is yet to consider it and submit report? NCLAT discusses Ss. 95, 97, 99 IBC

“…there cannot be any dispute with the statutory scheme as contained in Section 97 that when application is filed by the Resolution Professional under Section 95, the Adjudicating Authority shall direct the Board within seven days of the date of the application to confirm that disciplinary proceedings pending against the Resolution Professional or not and the Board was required within seven days to communicate in writing either confirming the appointment of the Resolution Professional or rejecting the appointment of the Resolution Professional and nominating another Resolution Professional.” 

Read full report here…

Aggrieved with the categorisation as ‘unsecured creditor’, Tribunal secures ‘secured creditor’, having relinquished the security interest

The Coram of Ashok Bhushan J, (Chairperson), and Dr Alok Srivastava (Technical Member) while accepting the appeal and rejecting the claim of the respondent, the Tribunal was of the opinion that the Adjudicating Authority committed an error in rejecting the claim of the appellant to be ‘secured creditor’.

Read full report here…

Is approval with 90% vote of CoC required before allowing withdrawal of CIRP application even where CoC was not yet constituted? NCLAT clarifies law on S. 12-A IBC 

“…when the application is filed prior to the constitution of Committee of Creditors, the requirement of ninety percent vote of Committee of Creditors is not applicable and the Adjudicating Authority has to consider the Application without requiring approval by ninety percent vote of the Committee of Creditors.”

Read full report here…

Dominant position and Predatory Pricing or Win-Win for riders and drivers? NCLAT upholds CCI’s decision

“We do not think that Ola could operate independently of other competitors in the relevant market, and hence it did not enjoy a dominant position in the market.”

Read full report here…

Once Adjudicating Authority approves Resolution Plan, does it still remains a confidential document? Read what NCLAT says

“The category of creditors including the Members of the suspended Board of Directors or the partners of the corporate persons, who are entitled to participate in the meeting of the Committee of Creditors are entitled to receive copies of all documents.”

Read full report here…


 National Green Tribunal (NGT)


Rampant noise pollution, incessant use of horns; a Deplorable state of affairs! NGT finds Rajasthan in contempt of Supreme Court’s order 

While addressing the issue of pressure/air horns and motor vehicles being driven with intolerable sound in Rajasthan, the Bench comprising of Justice Sheo Kumar Singh (Judicial Member) and Dr. Arun Kumar Verma (Expert Member) found the State of Rajasthan in contempt of the Supreme Court’s order and issued notice to the state government to reply within three weeks.

Read full report here…


Securities Exchange Board of India (SEBI)


Twitter, Telegram and the tattered chances-Illicit act of swindlers recommending stock tips on social media; Tribunal acts immediately

“The tips circulated through the Channel create an inducing impact which are then followed by the subscribers and ironically, such stock tips may also prove to be true, if large number of recipients of such tips believe it and collectively act on it. Slowly and gradually, after seeing the price of the said thinly traded scrip actually rising, more and more subscribers start believing in the tips and start acting on it, which further strengthens the belief of such tips being genuine, as large number of individuals end up acting on such tips and by their collective buying actions, convert the deceitful, specious and baseless tips to realty”

Read full report here…

‘Billionaire’ dream turns into dread-Unauthorsied investment advisory amounted to fraud & misrepresentation

S.K. Mohanty, Whole Time Member while affirming an ex-parte interim order of SEBI, was of the view that the activities of the Noticees, Billionaire Solutions Pvt. Ltd. (Sole proprietor Akash Jaiswal) was covered within the definition of “fraud” defined under regulation 2(1)(c) of the PFUTP Regulations, 2003. And therefore was held liable for the violation of provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992, Regulations 3 (b), (c) & (d), 4(1), 4(2)(k) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations, 2003).

Read full report here…

Case BriefsSupreme Court

Supreme Court: Addressing a case of dismissal of a Bank clerk for breaching the trust of a widowed sister-in-law as well as of the bank, the Division Bench of Sanjay Kishan Kaul* and M.M. Sundresh, JJ., held that it was hardly a case for interference either on law or on moral grounds. The Court opined,

“The High Court had applied the test of criminal proceedings to departmental proceedings while traversing the path of requirement of a hand writing expert to be called for the said purpose.”

Backdrop

The dispute in the instant case was with regard to departmental proceedings made by the Indian Overseas Bank against the respondent employee and declaring him guilty on various counts inter alia including breach of duty as a custodian of public money and dishonesty, fraud or manipulation of documents.

The respondent was employed with the appellant-Bank as a clerk cum-cashier. It was on a complaint from the sister-in-law of the respondent, Smt. Meera Srivastava, complainant herein, that the respondent had opened and operated a savings account in the joint name of the respondent and his sister-in-law by forging her signatures, and encashed a demand draft of Rs. 20,000 which was issued to her by Kalyan Nigam Ltd., employer of her deceased husband, who passed away in a road accident, that the departmental proceedings were initiated against the respondent and he was placed under suspension and later on, on charges being proved against him he was dismissed from service.

Award by the Industrial Tribunal

The Industrial Tribunal decided the preliminary issue against the Bank as the Management/Bank had failed to produce original documents and most photocopies of the relevant pages were not readable. It was, thus, concluded that there was violation of the principles of natural justice. However, the Tribunal allowed the Bank to prove the charges against the respondent by adducing evidence. Consequently, the Tribunal opined that the Bank/Management had been successful in establishing all the charges against the respondent. On the issue of quantum of punishment also it was held that the same was commensurate to the charges levelled and proved against the respondent.

Findings of the High Court

However, by the impugned judgment the High Court had held that when the earlier departmental proceedings were found to be violative of the principles of natural justice then no findings vis-a-vis charges 1, 2, 3, 6 & 7 should have been arrived at, based on the plea that the Bank led evidence only in respect of charges 4 & 5. In respect of charges 4 & 5 it was opined that on the request of the respondent the signatures of the complainant should have been got compared with her admitted signatures by an expert and then only a correct conclusion could have been arrived at whether the signatures on the account opening form or the withdrawal form had been forged by the respondent or not and the Tribunal should have refrained from acting like an expert. The High Court held that degree of investigation should have been a standard which is resorted to by a criminal court.

Factual Analysis

Noticeably, while observing the admitted signatures in comparison with the signatures in question from a banker’s eye, the inquiry officer had opined that it could be said that there was absence of similarity. The stand of the complainant was that even the account was opened fraudulently without her ever visiting the bank. Considering that in her cross-examination it was never put to the complainant that she had gone to the Bank to open the account and the account opening form bears her signatures nor was it put to her that she had gone to the Bank to withdraw the amounts of Rs.7,000 and Rs.13,000, the Bench opined,

“We are of the view that the High Court has fallen into an error in coming to the conclusion in the impugned judgment and directing, once again, the matter to be remitted to the Industrial Tribunal to now seek opinion of a hand writing expert.”

The Bench emphasised that at the threshold that there are certain inherent legal limitations to the scrutiny of an award of a Tribunal by the High Court while exercising jurisdiction under Article 226 of the Constitution. Referring to GE Power India Ltd. v. A. Aziz, 2020 SCC Online SC 782, the Bench stated, “if there is no jurisdictional error or violation of natural justice or error of law apparent on the face of the record, there is no occasion for the High Court to get into the merits of the controversy as an appellate court.” That too, on the aspect of an opinion formed in respect of two sets of signatures where the inquiry was held by an officer of the bank who came to an opinion on a bare comparison of the signatures that there was a difference in the same.

Further, the Inquiry Officer had opined while observing the admitted signatures in comparison with the signatures in question, it was not just the ipse dixit of the Inquiry Officer but was based on the deposition of the complainant. She unfortunately lost her husband in an accident. Observing the sorry state of situation, the Bench remarked,

“She unfortunately lost her husband in an accident. The two drafts were received from his employer and those drafts were kept in custody with the respondent, possibly because he was a banker and the elder brother of her deceased husband. Instead of extending the benefits of the same to her, the respondent went on a path of opening an account jointly in his and his sister-in-law’s name, presenting the drafts, and drawing the amounts with appropriation of the same to himself.”

Findings and Conclusion

Referring to a recent judgment in Ashoo Surendranath Tewari v. CBI, (2020) 9 SCC 636, where it had been observed that the standard of proof in departmental proceedings, being based on preponderance of probability, is somewhat lower than the standard of proof in criminal proceedings where the case has to be proved beyond reasonable doubt, the Bench opined that the evidence was enough to implicate the respondent and  the High Court had applied the test of criminal proceedings to departmental proceedings while traversing the path of requirement of a hand writing expert to be called for the said purpose.

With regard to opinion of the High Court that only charges 4 & 5 could really have been gone into by the Industrial Tribunal, which required further evidence of a hand writing expert and that no evidence was led for other charges, the Bench held that view was neither the correct approach nor borne out of the record as, the Bench said,

“Evidence was led. Even earlier, the material in respect of other charges emanates from the record of the bank which shows the conduct of the respondent which are apparent from the manner of framing of the charges themselves and the material led in support thereof. Thus, even the aspect of the other charges could not have been brushed aside in the manner it purports to. “

In the light of above the Bench held that the respondent, a clerk-cum-cashier which was a post of confidence had breached that confidence along with the trust of a widowed sister-in-law, making it hardly a case for interference either on law or on moral grounds. Accordingly, the punishment imposed on the respondent was held to be appropriate as the conduct established of him did not entitle him to continue in service. The impugned judgment was set aside and the challenge to the award of the Industrial Tribunal was repelled.

[Indian Overseas Bank v. Om Prakash Lal Srivastava, 2022 SCC OnLine SC 62, decided on 19-01-2022]


*Judgment by: Justice Sanjay Kishan Kaul


Kamini Sharma, Editorial Assistant has put this report together 


Case BriefsSupreme Court

Supreme Court: In the case where the bench of Hemant Gupta and V. Ramasubramanian*, JJ upheld NCLAT’s order of winding up of Devas Multimedia Private Limited, the requirement of advertising the winding up petition was looked into and the Court observed that the failure to publish an advertisement would not lead to the automatic dismissal of the petition for winding up.

Analysis

The Court analysed Rule 5 of the  the Companies (Transfer of Pending Proceedings) Rules, 2016 which prescribes the procedure to be followed by the Tribunal, upon the filing of a petition for winding up.

What does Rule 5 state?

The step-by-step procedure prescribed in Rule 5 is as follows:-

(1) The petition should first be posted before the Tribunal for admission.

(2) The purpose of posting the petition for admission is threefold, namely,

(i)  fixing a date for hearing of the petition;

(ii) issuing appropriate directions as to the advertisement to be published; and

(iii) indicating the persons upon whom the copies of the petition are to be served.

(3)  On the date when the petition is posted for admission, the Tribunal may direct notice to be given   to   the company and also provide an opportunity of being heard before giving directions as to the advertisement of the petition.

What is the purpose of advertisement?

The Court noticed that the essence of Rule 5 is to provide an opportunity of being heard to the company sought to be wound up, even before directions as to the advertisement of the petition are given.

Two purposes:

  • it provides an opportunity to all the stakeholders such as (i)creditors; (ii)workers; (iii) suppliers; (iv) customers; and (v) the general public, either to support or oppose the proceedings for winding up.
  • it serves as a warning/notice or red alert to all those dealing with the company so that they know that there could be an element of risk in dealing with the company.

Explaining why an opportunity of being heard is contemplated in Rule 5, before ordering the advertisement of the petition, the Court said,

“After all, the winding up of a company is like the insolvency of an individual. The advertisement of the petition for winding up, not merely serves as an opportunity to support or oppose winding up, but also harms the reputation of the company and sends shock waves in the stock market, if it is a listed company or among the stakeholders who have dealings with the company.”

What happens in case of failure to publish an advertisement?

The Court went through a number of authorities where the Court took a view that advertisement is mandatory, not only in view of the prescription contained in the Rules, but also in view of the specific order passed by the Company Court at the time of admission, directing the publication of the advertisement in specified newspapers. The Court, however, observed that even in such cases the failure to publish an advertisement was not seen as something that would lead to the automatic dismissal of the petition for winding up.

“This is for the reason that the advertisement of a petition for winding up is perceived to be something that worked at cross purposes, sometimes beneficial to several stakeholders as it provides an opportunity of hearing to them and sometimes as a measure of harassment of the company. There are cases where the companies themselves have opposed the advertisement of the petition on the ground that the same would harm their reputation and cripple their commercial activities. There are also cases where the failure to advertise has led to some of the creditors not having any notice of the proceedings and thereby suffering prejudice.”

Was non-publishing of advertisement detrimental to the case at hand?

In the case at hand it was alleged that the petition for winding up of Devas was never advertised nor even ordered to be advertised, either upon the admission of the petition or anytime thereafter. It was therefore contended that the failure to comply with this requirement which is mandatory, vitiates the whole proceedings.

To know what the case was about, read this.

In the present case, there were no stakeholders who were prejudiced by the failure of NCLT to order the publication of advertisement of the petition.

Also, this was not a case where the company is sought to be wound up on the ground of inability to pay debts or on just and equitable ground. This was a case of fraud and all stakeholders were fully aware of the proceedings and they had even shown extreme urgency in enforcing an ICC Arbitration award and BIT awards, before the conclusion of the winding up proceedings.

Therefore, the Court rejected the argument that the failure of the Tribunal to order the publication of an advertisement rendered the entire proceedings unlawful.

[DEVAS Multimedia Pvt. Ltd.v. Antrix Corporation Ltd., 2022 SCC OnLine SC 46, decided on 17.01.2022]


*Judgment by: Justice V. Ramasybramanian


Counsels

For DEVAS: Senior Advocate Mukul Rohtagi,

For shareholder¬appellant: Senior Advocate Arvind P. Datar,

For Antrix: Additional Solicitor General N. Venkataraman

For UPI: Additional Solicitor General Balbir Singh