fraud

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): S.K. Mohanty, Whole Time Member, passed an order finding the promoters of New Delhi Television Ltd. (“NDTV”)  Dr Prannoy Roy, Chairman (“Noticee 2”), Radhika Roy, Managing Director (“Noticee 3”) and RRPR Holdings (P) Ltd. (“Noticee 1”)  grossly violated the provisions of Section 12-A(a), (b) and (c) of the Securities and Exchange Board of India Act, 1992 read with Regulations 3(a), (b), (c), and (d) and 4(1) of the SEBI (Prohibition of Fraudulent Trade Practices relating to Securities Market) Regulations, 2003. Further, Dr Pronnoy Roy and Radhika Roy were additionally found to have violated Clause 49(1)(d) of the Equity Listing Agreement read with Section 21 of the Securities Contracts (Regulation) Act, 1956. 

In view of such findings and in order to protect the interest of investors and the securities market the Board passed following Directions against the Noticees:

(i) All the Noticees are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of 2 years. During the said period of restraint/prohibition, the existing holding, including units of mutual funds, of the Noticees shall remain frozen; 

(ii) Dr Prannoy Roy and Radhika Roy are restrained from holding or occupying position as Director or any key managerial personnel in NDTV for a period of 2 years; and 

(iii) Dr Prannoy Roy and Radhika Roy are restrained from holding or occupying position as Director or any key managerial personnel in any other listed company for a period of 1 year.

The backdrop

In August and December of 2017, SEBI received complaints from a shareholder of NDTV alleging, inter alia, that RRPR Holdings, which is one of the promoters of NDTV, and Dr Pronnoy Roy and Radhika Roy, who are promoters as well as Directors of NDTV, have violated the provisions of SEBI Act and the rules and regulations made thereunder by omitting to disclose material information to the shareholders of NDTV about certain loan agreements entered into by them. 

NDTV is a company listed on BSE and NSE, and the three Noticees together constituted for 63.17% aggregate promoters shareholding in NDTV during the period of investigation, i.e., 14-10-2008 to 22-11-2017. 

Upshot of findings in the investigation

(a) The Noticees entered into three loan agreements, one with ICICI Bank Ltd. (a rupee term loan not exceeding Rs 375 crores) and two with Vishvapradhan Commercial Private Ltd. (“VCPL”) (total amounting to more than Rs 400 crores, interest-free and payable at the end of 10 years period). These loan agreements contained material and price sensitive information, in as much as action/decision on many important matters pertaining to NDTV were made subject to prior written consent of the ostensible lender and without the knowledge of the minority shareholders of NDTV. 

(b) Further, under the VCPL agreements and the two call option agreements executed as supplementary to the said loan agreements, beneficial interest in 30% shares of NDTV was effectively vested in VCPL. All these information were profoundly material and price sensitive information which would have influenced the investment decision of the investors in the shares of NDTV, had they been made aware of this information at that time. 

(c) Terms of the loan agreements were devised to affect the interest of shareholders of NDTV. Although various clauses in the loan agreements deceitfully created binding obligations on NDTV, the Noticees consented to such clauses behind the back of the shareholders of NDTV to further their own private interests. 

(d) Having held the dominant position and being majority shareholders of NDTV, the Noticees manifestly assured VCPL to ensure swift compliance of such clauses of the loan agreements pertaining to NDTV, thereby taking all other shareholders for granted and also compromising the interest of shareholders of NDTV. 

(e) In order to conceal the said information from the investors so that the investors continue to trade in the shares of NDTV blissfully ignorant of the fact that the promoters of the company have already vested their voting rights to the extent of 30% in favour of a third external party, Noticees 2 and 3 chose to act in flagrant breach of Code of Conduct of NDTV. If the said information regarding loan agreements had been disclosed by Noticees 2 and 3 to the Board of Directors of NDTV, then the company was bound to intimate the same to the stock exchanges which in turn, would have disseminated such information on their websites for information of the general public. 

(f) The loan agreements were unmistakably structured as a scheme to defraud the investors by camouflaging the information about the adversarial terms and conditions impinging upon the interest of NDTV’s shareholders, thereby inducing innocent investors to continue to trade in the shares of NDTV oblivious to such adversarial developments in the shareholding of NDTV.  

Observation on fiduciary duty and conflict of interest

It was argued that Noticees 2 and 3 could not have acted in terms of the loan agreements in view of their statutory fiduciary duty towards NDTV. That even if the agreements entered into by Noticees 2 and 3 contained provisions prejudicial to NDTV or its investors, yet such agreements were unenforceable if they were in violation of the statutory fiduciary duty of Noticees 2 and 3 as Directors of NDTV.  

In Board’s opinion, the question of enforceability of an agreement by the Courts would arise only in case of breach of the agreement by any of the parties. However, if the parties to an agreement decide to honour the undertakings and covenants provided for in such agreement out of their own volition, such agreements can always be performed by the parties, provided agreement is not prohibited by law. In the present case, the VCPL loan agreements, even though prejudicial to the interest of NDTV and creating conflict for Noticees 2 and 3 in the discharge of their fiduciary duties on the Board of NDTV, these agreements had been dutifully complied by the Noticees, till date. The Noticees, being fully aware and conscious about their pivotal role and positions in NDTV, still agreed/consented and executed agreements containing clauses which have an adversarial effect on the shareholders of NDTV. It restricts NDTV from raising fresh capital, making any restructuring, going for a merger, etc., without the prior written consent of ICICI/VCPL. It certainly amounts to acting in breach of fiduciary duties by Noticees 2 and 3. 

Shareholder’s vote, right to property, and freedom to exercise thereof

It was also contended that Noticess were also shareholders of NDTV, and a shareholder’s vote being a right to property, prima facie may be exercised by him as he thinks fit in his own interest. 

Rejecting the contention, the Board stated that it is to be understood that the case against the Noticees was not that they could not have entered into such loan agreements or exercised their voting rights the way they desired to, but the case against the Noticees was that they entered into certain transactions with a third party whereby they agreed to comply with certain conditions which bind NDTV and the interest of its shareholders too. In other words, by entering into such transaction, Noticees brought their personal interest in conflict with the interest of NDTV.

Based on such findings, the Securities and Exchange Board of India passed directions as aforementioned against Dr Prannoy Roy, Chairman, NDTV Ltd.; Radhika Roy, Managing Director, NDTV Ltd.; and RRPR Holdings (P) Ltd. all promoters of NDTV Ltd. It was directed that the directions made in the order shall come into effect with immediate effect. [NDTV Ltd, In re, 2019 SCC OnLine SEBI 47, decided on 14-6-2019]  

Case BriefsSupreme Court

Supreme Court: The bench of L Nageswara Rao and MR Shah, JJ held that a man, by virtue of the disciplinary proceedings being dropped, the Appellant becomes entitled to claim full salary for the period from the date of his suspension till the date of closure of the departmental inquiry.

Factual Background

  • The Court was hearing the case of a Sorting Assistant in Railway Mail Service against whom disciplinary proceedings were initiated on the allegations of involvement in forged payments of high value money orders.
  • He was suspended on 23.10.1979 and an FIR under Sections 409, 420 and 467 IPC was filed.
  • The order of suspension was revoked on 21.10.1987 pursuant to which he joined duty and worked till 28.02.1997, when he was dismissed from service in view of his conviction under Section 409, 467 and 420 IPC. He was sentenced to imprisonment for three years.
  • His appeal against conviction was allowed and he was acquitted of the charges for offences under Section 409, 420 and 467 IPC.
  • He claimed that he should be entitled to full back wages from the date of the order of his acquittal i.e. 31.08.2001 till the date of his reinstatement i.e. 20.01.2003.

Ruling

After perusing various judgments, the Court said that the department would become liable for back wages in the event of a finding that the initiation of the criminal proceedings was mala fide or with vexatious intent. It, however, clarified:

“If an employee is involved in embezzlement of funds or is found indulging in demand and acceptance of illegal gratification, the employer cannot be mulcted with full back wages on the acquittal of the person by a criminal Court, unless it is found that the prosecution is malicious.”

Noticing that it was the Appellant who was seeking postponement of the departmental inquiry in view of the pendency of criminal case and that the order of suspension was in contemplation of disciplinary proceedings, the Court said:

“the Respondents took four years to reinstate him by revoking his suspension. The order of suspension dated 23.10.1979 came to an end on 21.03.1983 which is the date on which disciplinary proceedings were dropped. The Appellant ought to have been reinstated immediately thereafter unless a fresh order was passed, placing him under suspension during the pendency of the criminal trial which did not happen.”

The Court, hence, held that the Appellant is entitled for full wages from 23.10.1979 to 21.10.1987 after adjustment of the amounts already paid towards subsistence allowance.

[Raj Narain v. Union of India, 2019 SCC OnLine SC 452, decided on 01.04.2019]

Case BriefsSupreme Court

Supreme Court: The bench of Abhay Manohar Sapre and UU Lalit, JJ has held that Section 212 of the Companies Act, 2013 does not prescribe any period within which a report has to be submitted by Serious Fraud Investigation Office (SFIO) to the Central Government.

Lalit, J, writing for himself and Sapre, J listed down the ‘basic features’ that were considered while coming to this conclusion:

  1. Absolute transfer of investigation in terms of Section 212(2) of 2013 Act in favour of SFIO and upon such transfer all documents and records are required to be transferred to SFIO by every other Investigating Agency.
  2. For completion of investigation, sub-Section (12) of Section 212 does not contemplate any period.
  3. Under sub-Section (11) of Section 212 there could be interim reports as and when directed.

He said that in the face of these three salient features it cannot be said that the prescription of period within which a report is to be submitted by SFIO under sub-Section (3) of Section 212 is for completion of period of investigation and on the expiry of that period the mandate in favour of SFIO must come to an end. If it was to come to an end, the legislation would have contemplated it.

“In the absence of any clear stipulation, in our view, an interpretation that with the expiry of the period, the mandate in favour of SFIO must come to an end, will cause great violence to the scheme of legislation. If such interpretation is accepted, with the transfer of investigation in terms of sub Section (2) of Section 212 the original Investigating Agencies would be denuded of power to investigate and with the expiry of mandate SFIO would also be powerless which would lead to an incongruous situation that serious frauds would remain beyond investigation. That could never have been the idea.”

The Court hence concluded that the only construction which was, possible therefore, was that the prescription of period within which a report has to be submitted to the Central Government under sub-Section (3) of Section 212 is purely directory. It added:

“Even after the expiry of such stipulated period, the mandate in favour of the SFIO and the assignment of investigation under sub-Section (1) would not come to an end. The only logical end as contemplated is after completion of investigation when a final report or “investigation report” is submitted in terms of sub-Section (12) of Section 212.”

Sapre, J in his concurrent opinion said:

“If the submission of the learned counsel for the respondents (writ petitioners) that the compliance of sub-section (3) of Section 212 of the Act in relation to the submission of the report be held mandatory is accepted (which I am afraid, I cannot accept) in our view, the very purpose of enacting Section 212 of the Act would get defeated and will become nugatory.”

[Serious Fraud Investigation Office v. Rahul Modi, 2019 SCC OnLine SC 423, decided on 27.03.2019]

Case BriefsHigh Courts

‘Vigilantibus, non-dermientibus, jura subveniunt’

(the law helps those who are watchful and not those who are asleep)

Delhi High Court: Vinod Goel, J., dismissed Delhi Waqf Board’s applications for condoning the delay of 21 years and restoring a revision petition.

Hashmat Nabi and Swathi, Advocates for the Waqf Board submitted that on 15-05-2018, the newly constituted management took notice of the disposal of the present petition after instructing its standing counsel to prepare a list of matters which have been disposed of. The petition was originally filed though Raman Kapur, Advocate; and B.D. Sharma, Advocate appeared for the Board from 1989 till 1994. However, after that, no appearance was made o behalf of the Board and therefore, the petition was dismissed for non-prosecution. In such background of the case, the application for condonation of 21 years’ delay along with the application for restoration of revision petition was filed.

At the outset, the High Court observed, “it is a well-settled principle of law that a litigant, whether it is an individual or a government body or any legal entity, it owes a duty to be vigilant of its rights and is also expected to be equally vigilant about the judicial proceedings pending in the court of law against it or initiated at its instance.”Holding that the Board could not be permitted to blame the previous counsel after 21 years for not providing the case record, the Court stated, “it appears that the blame is being attributed to the previous counsel with a view to get the delay condoned. After filing the revision petition, the applicant cannot go off to sleep and wake up from a deep slumber after the passage of a long period of 21 years as if the court is a storage of the petitions filed by such negligent litigants. Simply because there is a change in the management cannot give sufficient cause to the applicant to file such an application for restoration after a long period of 21 years has elapsed.” Relying on N. Balakrishnan v. M. Krishnamurthy, (1998) 7 SCC 123, the court reiterated, “the object of the law of limitation is to compel a person to exercise his right of action within a reasonable time as also to discourage and suppress stale, fake or fraudulent claims.” In such view of the matter, the court did not find any merit in the applications and therefore dismissed them. [Delhi Wakf Board v. Mohd. Bi, 2019 SCC OnLine Del 7178, dated 25-01-2019]

Hot Off The PressNews

As reported by the media, Sajid Javid the UK Home Secretary signed the extradition order of Vijay Mallya on 04-02-2019.

Westminster Magistrates’ Court had sent Vijay Mallya’s case to the Home Secretary for a decision on whether to order extradition.

Mallya said he intends to appeal the decision, “After the decision was handed down on December 10, 2018, by Westminster Magistrates Court, I stated my intention to appeal. I couldn’t initiate appeal process before a decision by Home Secretary. Now I’ll initiate the appeal process”.

Mallya has 14 days’ time to appeal against his extradition in a higher court.

Vijay Mallya was facing charges of fraud, money laundering and violation of Foreign Exchange Management Act (FEMA).

[Source: Economic Times]
Case BriefsForeign Courts

Westminster Magistrates’ Court: A Single Judge Bench comprising of Senior District Judge (the Chief Magistrate) Emma Arbuthnot accepted the Government of India’s (GoI) extradition request for tycoon Vijay Mallya to face trial on charges of fraud and money laundering.

The Court considered the vast evidence placed on record by GoI and relying on the case of Devani v. Republic of Kenya, [2015] EWHC 3535 opined that there was a prima facie case that the funds loaned by Indian banks to Mallya were misused. A number of email trails were relied on to rule that he had misrepresented his net worth to the banks.

It was further held that there was a prima facie case of a conspiracy to defraud which involved not just the Kingfisher Airlines executives but also some bankers. There was clear evidence of misapplication of loan funds and thus there was a prima facie case of conspiracy to launder money was found against Mallya.

The Court also took note of Mallya’s concerns that the Central Bureau of Investigation (CBI) which had investigated this case was susceptible to political interference and was a “caged parrot” speaking with its master’s voice, especially by the ruling party BJP. The said concern was dismissed holding that there was no evidence showing that the present extradition request was, in fact, being made to prosecute him for his political opinions.

It was ruled that Mallya’s allegations against the professional integrity of Mr Rakesh Asthana, who leads the CBI and was the prosecutor of his case, was without any basis since the Supreme Court of India had cleared Mr. Asthana of allegations made against his integrity and there was no reliable or significant evidence produced by Mallya to support his averment.

Mallya argued against his extradition, saying Indian jails do not have proper air and light. The Court applied Othman criteria of Othman v. UK, (2012) 55 EHRR 1 to decide whether Mallya’s extradition would be compatible with his Convention rights within the meaning of the Human Rights Act, 1998. It viewed the video submitted by GoI and found clear assurance that the cell for Mallya’s lodging – Barrack No. 12 in Arthur Road Jail, Mumbai – had requisite living conditions where he would be able to obtain his medical treatment.

One might recall that the learned Judge’s demand for a video of Mallya’s barrack did not go down well with India and earlier this year PM Modi had told his British counterpart Theresa May that it was not right for Courts in her country to ask about the condition of Indian jails “as we still have the prisons where they jailed our leaders like Mahatma Gandhi and Jawaharlal Nehru.”[1]

Bearing in mind the findings of prima facie case, no evidence that the prosecution was politically motivated, and no lack of fair trial, Mallya’s contention of abuse of process was also dismissed.

In view of the above, Mallya’s case was sent to the United Kingdom Home Office (the British equivalent of Home Ministry) where Home Secretary, Sajid Javid would decide whether to order his extradition based on the verdict of the Magistrates’ Court.[Govt. of India v. Vijay Mallya, decided on 10-12-2018]

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[1] https://www.ndtv.com/india-news/pm-narendra-modis-sharp-retort-to-theresa-may-on-indian-jails-revealed-1858878

Case BriefsHigh Courts

Patna High Court: A Single Judge Bench comprising of Sanjay Kumar, J. set aside a trial court order abating a title suit ruling that declaration of voidability of a document is within the jurisdiction of a Civil Court.

Petitioner before this Court was the plaintiff in a title suit filed in trial court for cancellation of registered sale deed allegedly executed by her father in favour of the respondent-defendant. The petitioner’s submission before trial court was that the land in dispute is joint family property and that her aged had lost his consciousness for the last six months before his death. The respondent-defendant taking advantage of his mental condition executed the sale deed by committing fraud and forgery. The trial court, noting the submissions of the petitioner, abated the said suit in terms of Section 4(c) of Bihar Consolidation of Holdings and Prevention of Fragmentation Act, 1956. Aggrieved thereby, the instant petition was filed for quashing the said order.

The High Court noted that the petitioner’s father neither received any consideration money nor executed any document nor affixed his thumb impression on the purported sale deed. The court relied on full bench decision in Ramkrit Singh v. State of Bihar, 1979 SCC OnLine Pat 30 and observed that if a document has to be set aside, civil suit would be maintainable; but a mere declaration of title or a mere declaration that the document is void can be done by the consideration authority. In the instant case, the purported sale deed was voidable and therefore it was within the jurisdiction of civil court to cancel or set aside the said document.

The Court noted that cancellation of purported sale deed was sought by petitioner on the grounds of fraud and forgery which could be determined only after recording evidence of the parties. As such, the impugned order was set aside and trial court was directed to proceed with the suit. [Gangotri Devi v. Bhukhan Singh,2018 SCC OnLine Pat 1984, decided on 02-11-2018]

 

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): A Division Bench of S.M. Kantikar and Dinesh Singh, Members, allowed an appeal filed against the order of Delhi State Consumer Disputes Redressal Commission whereby the appellant’s petition was dismissed at the stage of maintainability itself.

The appellant had filed a complaint against the respondents for medical negligence. One of the respondents had prescribed a medicine for appellant’s husband; however, the pharmacist (OP-2) gave the wrong medicine. The appellant’s husband died because of taking the wrong medicine.

The main issue that arose before the Commission was whether the present dispute amounts to a consumer dispute and hence whether it can be adjudicated upon under the provisions of Consumer Protection Act, 1986.

The Commission observed that the State Commission had cited the case of Bright Transport Co. Ltd. v. Sangli Sehkari Bank Ltd., II (2012) CPJ 151 (NC) wherein it was held that complaints which are based on allegations of fraud, forgery, etc. and trial of which would require voluminous evidence and consideration are not to be entertained by the consumer fora. However, in the instant case the appellant had neither alleged fraud nor did she allege forgery on the part of respondents.

The Commission held that it was a case of medical negligence and deficiency in services and it does not require recording of voluminous evidence and consideration, as may make the adjudication of this case unfeasible or prescribed in consumer fora. The allegations of medical negligence and deficiency of services is a complaint within the meaning of Section 2(1)(c) of the 1986 Act and would convert into a “consumer dispute” within the meaning of Section 2(1)(e) if the opposite parties dispute or deny the allegations contained in the complaint. [Vimla v. Ashwani Gupta, First Appeal No. 1062 of 2018, order dated 05-08-2018]

Case BriefsHigh Courts

Bombay High Court: A Single Judge Bench comprising of Mangesh S. Patil, J. dismissed a writ petition filed against the order of the Magistrate recalling his earlier order.

Brief facts of the case are that the Magistrate concerned, on an earlier occasion, had ordered investigation under Section 156 CrPC in a criminal case. Subsequently, the same Magistrate, vide the order impugned, recalled his earlier order. The petitioner submitted that the subsequent order was passed without jurisdiction as CrPC does not empower a Magistrate to recall his earlier orders. Reliance was placed upon Supreme Court decisions in Subramanium Sethuraman v. State of Maharashtra, (2004) 13 SCC 324 and Iris Computers Ltd. v. Askari Infotech (P) Ltd., (2015) 14 SCC 399.

The High Court, at the outset, observed that the principle laid down in the cases mentioned hereinabove does not cover a case of the instant nature. A trite principle was laid down in the said cases that a Magistrate does not have any power under CrPC to recall, review or reconsider his own order, howsoever illegal it might be. However, in the present case, it was not a matter of legality or otherwise of the order passed by the Magistrate but the manner in which the order was procured by misleading the Court by suppression of material facts and circumstances. Fraud vitiates everything, observed the Court. It was noted that the petitioner failed to disclose the fact of filing a complaint with the police; he misused the process by approaching a different Magistrate and had solicited the order which was subsequently set aside by the order impugned. Such and additional facts were serious matters which constitute fraud on the court. The Court was of the view that there was no illegality committed by the Magistrate in recalling his own order. The writ petition was accordingly dismissed. [Deepak v. Shriram,2018 SCC OnLine Bom 2199, dated 20-08-2018]

Case BriefsHigh Courts

Bombay High Court: The Division Bench of Bharati H. Dangre and S.C. Dharmadhikari, JJ., addressed a petition concerning the cancellation of an MBA degree holder of NMIMS, Mumbai, on grounds of attaining the admission through fraudulent means. The Bench also explained the principle of ‘Natural Justice’ on the lines of the present case.

In the instant case, the petitioner-aggrieved had attained a degree of MBA (Pharmaceutical Management) by following the due process of selection. The petitioner was working at a company in which he got placed through the college itself after completing the course. After a lapse of 3 years on completion of the degree, a show cause notice in regard of cancellation of the degree was sent stating that the petitioner had secured the admission through unfair means for which a complaint was filed by Respondent-1: NMIMS with the Crime Branch, Mumbai

It has been alleged that the petitioner engaged a ‘dummy candidate’ to appear on his behalf for the stated entrance test. Petitioner also contended that he was not supplied with the documents on which the show cause notice was relied upon which clearly did not give the petitioner an opportunity to deal with the documents which further if resulted into the cancellation of his degree would amount to the violation of principles of natural justice.

On complete analysis of the facts and contentions of the present case, the Hon’ble High Court concluded by stating that although the fraud was detected and a show cause notice was served to the petitioner, no material was supplied to deal with the allegations. One of the prominent observations made was that, the institute was a State recognised institute and any of its administrative decisions or actions resulting into civil consequences are liable to be judicially reviewed on the anvil of principles of natural justice, therefore, in the present case the impugned order was rendered as null and void due to violation of principles of natural justice. [Shiva Dhawan v. SVKM’s Narsee Monjee Institute of Management Studies,  2018 SCC OnLine Bom 1272, order decided on 20-06-2018]

Case BriefsHigh Courts

Punjab and Haryana High Court: A Single Judge Bench comprising of Kuldip Singh, J. dismissed the appeal filed against the order passed by the Civil Judge in execution proceedings.

The appeal was filed by partners of one Dashmesh Artia Cotton Factory which was attached and auctioned as a result of recovery and execution proceedings against one of its partners. Other partners filed an objection to the said auction under Order XXI Rule 90 CPC  which was dismissed by the learned Civil Judge. The appellant challenged the decision of the Civil Judge.

The High Court considered the submissions of the appellant and after referring to various decisions of the Apex Court as well as other High Courts, observed that under Order XXI Rule 90 CPC, the auction can be set aside only on account of fraud or material irregularity which has resulted in substantial injury to the applicant. For this purpose bald allegations are not sufficient, fraud has to be alleged and established. On the facts of the instant case, the Court held that there was no such fraud or material irregularity in the auction sale of the property concerned that would render it liable to be set aside under Order XXI Rule 90. Therefore, the appeals were dismissed. [Bahadur Chand v. Madanlal,  2018 SCC OnLine P&H 636, dated 01-03-2018]

Case BriefsHigh Courts

Gauhati High Court: The appellant company invited tenders for transportation of gas cylinders to which the respondent company replied and was accepted to transport cylinders at the rate of Rs 65 per cylinder, excluding toll and ferry charges, as the respondent indicated on their price bid. Their bid was accepted and against production of appropriate government-issued receipts for toll and ferry charges, the respondent was reimbursed accordingly by the appellant from February 2001 to November 2001 over and above the amount agreed upon (i.e. Rs 65) but their bills for December 2001 to May 2004 were not cleared because another transporter on contract with the appellant had been charging considerably less for the transportation, to which the respondent replied saying that the transporter in question had been ferrying the cylinders on regular ferries with other goods and people while they had been hiring exclusive ferries in compliance with Explosive Rules and Regulation .

The appellant company contended that nowhere does the terms for the tender specify that toll and ferry charges will be paid over and above the charge agreed upon per cylinder, i.e. Rs 65. This was despite the fact that in the tender preceding this, i.e. the one in force till January 2001 and even for a few months of the contract with the respondent, these charges were ordinarily reimbursed over and above the price agreed in the tender documents. Hence the arbitrator allowed the respondent’s claim. This was challenged under Section 34 of the Arbitration and Conciliation At, 1996 (“Act”) but the challenge was dismissed by the District Judge and hence the appellant company approached the High Court under Section 37 of the Act.

The appellant’s grievance was that the arbitrator had not confined himself to the contract between the parties while passing his award. The tender document laid out Rs 65 as the all-inclusive charge of transportation and the contract contained no mention of toll and ferry

charges. The payment made for the first few months was the result of a mistake on part of the appellant and further, only because these charges were reimbursed separately historically is no ground for them to be reimbursed in the current contract as well. The arbitrator, according to the appellant, thus, went beyond the contract agreement and the District Judge also failed to take notice of this. Hence the arbitral award was hit by Section 34 of the Act, relying on Delhi Development Authority v. R.S. Sharma and Company, (2008) 13 SCC 80 and State of Rajasthan v. Nav Bharat Construction Co., (2006) 1 SCC 86.

The respondent-transportation company argued that though the original tender document made no provision for reimbursing toll and ferry charges, the same had been agreed upon during the finalization of the tender process by the appellant which is shown by the written statements filed by the appellant. These charges were also paid to the other transporter currently engaged by the appellant and also to previous such transporters. The arbitrator had taken all this into consideration while passing the award and though he did not stick to the four walls of the contract, his award was based on substantial evidence which was in no manner perverse and hit by Section 34. The respondent relied on the case of Oil and Natural Gas Corporation Ltd. v. Astra Construction (P.) Ltd., 2012 SCC OnLine Gau 515.

The Court held that as the claim for toll and ferry charges was allowed during the finalization of the tender proceedings, the appellant company could not refute the same payment only because the tender document did not provide for it. It also found that Rule D(2)(k) of the tender document which deals with ‘Safety’ mandates that the cylinders should not be transported with other goods and persons except the driver and cleaner of the truck. Also, evidence was produced to show that since no standard rate existed for the transfer of cylinders, the respondent was not wrong in resorting to hiring exclusive ferries.

The Court relied on McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181 to reiterate the supervisory role of the court in the arbitration proceeding, where intervention should happen only in cases of fraud or bias. The appellants raised objections to the authenticity of certain documents produced by the respondent in front of the arbitrator but subsequently failed to ask for court assistance in taking evidence, therefore waiving off that right.

Hence the Court held that the arbitrator passed his award well within the terms of the contract, keeping in view the safety guidelines prescribed for the transportation of gas cylinders and no interference was called for. The appeal was accordingly dismissed. [Indian Oil Corporation Ltd. v. Moni Madhav Dutta, 2018 SCC OnLine Gau 465, decided on 14-05-2018]

Case BriefsForeign Courts

Supreme Court of the United States: While deciding the issue that whether the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, covers the protection of an individual who has not reported a violation of the securities law to the Securities and Exchange Commission (SEC), and whether such individual comes under the definition of ‘whistleblower’ for the purposes of the said Act, a 10-Judge Bench headed by John G. Roberts, C.J., answering in negative, held that, Dodd-Frank’s anti-retaliation provision does not extend to an individual who has not reported any legal violations to the SEC.

In order to combat and root out corporate fraud, US Congress passed the Sar-banes-Oxley Act, 2002 (Sarbanes-Oxley) and the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to protect the whistleblowers from retaliatory measures of the guilty corporations. The Dodd-Frank Reform defines a ‘whistleblower’ as any individual who provides information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission. In the present case, the respondent alleged that the petitioner terminated his employment soon after he reported a suspected securities-law violation by the company to the senior management. The respondent claimed protection under the anti- retaliation provision in the Dodd-Frank Reform. However, the petitioner contended that the respondent is not a whistleblower as he did not alert the SEC prior to his termination.

Perusing the laws and the contentions, the Bench interpreted the term ‘whistleblower’ as stated in the Dodd-Frank Reform and observed that a statute’s explicit definition must be followed, even if it varies from a term’s ordinary meaning. Furthermore looking into the objective of the Dodd-Frank Reform, the Court noted that the provisions aim to aid the Commission’s enforcement efforts by motivating people, who know of securities law violations, to tell the SEC. [Digital Realty Trust Inc. v. Somers, No. 16–1276, decided on 21.02.2018]

Case BriefsSupreme Court

Supreme Court: Refusing to release Sanjay Chandra and Ajay Chandra, involved in the Unitech Flats controversy as alleged by the home-buyers, the 3-judge bench of Dipak Misra, CJ and AM Khanwilkar and Dr CY Chandrachud, JJ held that the petitioners will be granted bail only if they deposit a sum of Rs.750 crores in the Registry of this Court by the end of this year which shall be kept in an interest earning fixed deposit.

Amicus curiae Pawan Shree Agrawal submitted before the Court that he has got the information from the home buyers that some of them intend to have flats and some of them want the amount refunded and that the amount that is computed for refund at present may go above Rs.2000 crores.

Senior advocate Ranjit Kumar and advocate Abhimanyu Bhandari, appearing for petitioners, submitted that if they are allowed liberty they would monetise their assets and would be able to complete the projects so that the home buyers who intend to have possession can be satisfied.

The Court, hence, directed that the petitioners can arrange the money by executing appropriate documents within a fixed period. However, the counsels appearing on behalf of the petitioners submitted that the petitioners were not allowed to meet the lawyers more than once a week and that too without papers. The Court, hence, directed the jail authorities to facilitate the meetings of the petitioners with their officers/officials/employees at such intervals as may be intimated by the petitioners. It also directed that the video conferencing facility be made available to the petitioners within the visiting hours so that they shall be in a position to negotiate. The Court, however, made clear that the petitioners are only entitled to negotiate in respect of unencumbered properties or assets.

The Court also asked amicus curiae to create a portal where the persons who have invested with Unitech by way of fixed deposits shall give the requisite information. However, the home buyers who have already expressed their option in the portal made by the learned amicus curiae shall not put in anything by which their option will be changed.

The matter will now be taken up  in the second week of January 2018. [Sanjay Chandra v. State Govt. of NCT of Delhi,  2017 SCC OnLine SC 1260, order dated 30.10.2017]

Case BriefsSupreme Court

Supreme Court: Dealing with the legality of ‘non-intermediary frontrunning’ in security market under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (FUTP 2003), the bench of NV Ramana and Ranjan Gogoi, JJ held that non-intermediary front running may be brought under the prohibition prescribed under regulations 3 and 4 (1), for being fraudulent or unfair trade practice, provided that the ingredients under those heads are satisfied.

In the matter where both the judges gave separate but concurring opinions, Ramana, J said:

“The information of possible trades that the company is going to undertake is the confidential information of the company concerned, which it has absolute liberty to deal with. Therefore, a person conveying confidential information to another person (tippee) breaches his duty prescribed by law and if the recipient of such information knows of the breach and trades, and there is an inducement to bring about an inequitable result, then the recipient tippee may be said to have committed the fraud.”

He further added that in order to establish charges against tippee, under regulations 3 (a), (b), (c) and (d) and 4 (1) of FUTP 2003, one needs to prove that a person who had provided the tip was under a duty to keep the non-public information under confidence, further such breach of duty was known to the tippee and he still trades thereby defrauding the person, whose orders were front-runned, by inducing him to deal at the price he did.

Gogoi, J, in his opinion on the applicability of the said regulations on the tippees said:

“To attract the rigor of Regulations 3 and 4 of the 2003 Regulations, mens rea is not an indispensable requirement and the correct test is one of preponderance of probabilities. Merely because the operation of the aforesaid two provisions of the 2003 Regulations invite penal consequences on the defaulters, proof beyond reasonable doubt is not an indispensable requirement.”

The Court was hearing a batch of cases dealing with insider trading. The question before the Court was to decide whether the person, to who the information has been leaked, may be said to have committed fraud. Considering facts of the cases i.e. the volume of shares sold and purchased; the proximity of time between the transactions of sale and purchase and the repeated nature of transactions on different dates, the Court held that the conduct of the respondents was in breach of the code of business integrity in the securities market. [SEBI v. Kanaiyalal Baldevbhai Patel, 2017 SCC OnLine SC 1148, decided on 20.09.2017]

 

Case BriefsTribunals/Commissions/Regulatory Bodies

Central Information Commission: While hearing upon the present matter wherein the issue was related to few people perpetuating fraud by way of producing false receipts with official stamps, thereby resulting into serious losses being accrued by the parties, the Central Information Commissioner, M. Sridhar Acharyulu, held that the concerned public authority (the Post Office) has failed miserably to initiate any inquiry or action against its staff members who generated such fraudulent receipts. The Commissioner further berated the public authority for their failure to take any action by stating that such callousness would seriously affect the rights of parties and will create hurdles in adjudication. Therefore the Commission directed respondent to provide details of the date on which documents were removed and also directed the SSPO/CPIO to show why maximum penalty should not be imposed upon them for not giving a proper reply to the appellant’s RTI and for not attending the second appeal.

As per the facts of the matter, the appellant filed a RTI seeking to know whether he was sent a legal notice via registered post regarding sale of his property and provide any record in respect of issuance of said registered post. The appellant contended that he never intended to sell his property, however a lawyer created a false record of sale, and even though no notice was received by him, but a proof of service was created which resulted in ex parte proceeding against him, depriving him of his property. It was further stated that receipt in question issued by the post office did not bear any signature and because of such forged service proofs, people like him are losing their valuable properties in court litigation as, on the basis of this receipt the opposite party claimed it to be a legal notice. On filing RTI with the Post Office, the concerned authority informed the appellant that record of registered article has been weeded out due to lapse of time period as per departmental rule, hence, the information cannot be provided

The Commission agreeing with the issues raised by the appellant questioned the District Court Post Office as to how they can issue a receipt without any signature. Therefore the appellant was right in seeking an explanation and details of action against this kind of issuance of receipts. The Commission also observed that this small level fraud is widespread all over the country causing serious loss to the parties discrediting the system of law and adjudication only because of inaction of the administrators of Post Office against falsification of service proof. The Commission noted that the miserable tactics of dealing with the issue was also revealed in the authority’s reply to the RTI filed by the appellant. It was held that certain unscrupulous elements in the Post Office have effectuated this fraud of producing wrongful receipts with official stamps and the public authority has easily escaped from its duty of accountability as there was no signature or name of the person who prepared that receipt. [Ashok Kumar v. PIO, District Court Post Office, 2017 SCC OnLine CIC 735, decided on 18.05.2017]

 

Case BriefsSupreme Court

Supreme Court: In the matter where the appellants had challenged the order cancelling the admissions to Medical Institutes in the wake of the VYAPAM Scam and had sought for direction allowing them to complete their education to satisfy the demands of justice as the future of 634 students was at stakes, the 3-judge bench of J.S. Khehar, CJ and Kurian Joseph and Arun Mishra, JJ said that the actions of the appellants, are founded on unacceptable behaviour, and in complete breach of the rule of law and hence, refused to invoke Article 142 of the Constitution.

The present controversy arose after the Madhya Pradesh Professional Examination Board cancelled the results of the appellants admitted to the MBBS course during the years 2008 to 2012, on the ground that the appellants had gained admission to the course, by resorting to unfair means, during the Pre-Medical Test. The manipulation by which the appellants obtained admission involved, not only a breach in the computer system, whereby roll numbers were allotted to the appellants, to effectuate their plans. It also involved the procurement of meritorious candidates/persons, who would assist them, in answering the questions in the Pre-Medical Test. The appellants’ position, next to the concerned helper, at the examination, was also based on further computer interpolations. Not only were the seating plans distorted for achieving the purpose, even the institutions where the appellants were to take the Pre-Medical Test, were arranged in a manner, as would suit the appellants, again by a similar process of computer falsification.

On 12.05.2016, the bench of J. Chelameswar and A.M. Sapre, JJ had given a split decision and had placed the matter before the Chief Justice of India. Chelameswar, J was of the view that the knowledge of the appellants would be simply rendered useless for the society in the sense their knowledge cannot be utilized for the welfare of the society, said that the appellants be allowed to complete their education. Sapre, J, on the other hand, said that grant of any equitable relief may be construed as awarding premium to the appellants of what they did.

Agreeing with the view taken by Sapre, J, the Court said that the actions of the appellants constitute acts of deceit, invading into a righteous social order. Rejecting the argument that individual benefits, that may be drawn by the appellants, may be drastically curtailed, and their academic pursuit be regularised, for societal benefit, the Court said that national character cannot be sacrificed for benefits – individual or societal. It was held that even the trivialist act of wrong doing, based on a singular act of fraud, cannot be countenanced, in the name of justice. The present case, unfolds a mass fraud. The course suggested, if accepted, would not only be imprudent, but would also be irresponsible. It would encourage others, to follow the same course. The bench said that “If we desire to build a nation on the touchstone of ethics and character, and if our determined goal is to build a nation where only the rule of law prevails, then we cannot accept the claim of the appellants, for the suggested societal gains.” [Nidhi Kaim v. State of Madhya Pradesh, 2017 SCC OnLine SC 123, decided on 13.02.17]

Case BriefsSupreme Court

Supreme Court: Explaining the scope of Section 8 of the Arbitration and Conciliation Act, 1996, the Bench of Dr. A.K. Sikri and D.Y. Chandrachud, JJ held that mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. Where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration.

The Court further explained that it is only in those cases where the Court finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself.

It was, hence, said that while dealing with an application under Section 8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects such as disputes relating to rights and liabilities which give rise to or arise out of criminal offences; matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody; Insolvency and winding up; etc., are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts are better suited than a private forum of arbitration.

D.Y. Chandrachud, J added that the Arbitration and Conciliation Act, 1996, should be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle. [A. Ayyasamy v. A. Paramasivam, 2016 SCC OnLine SC 1110, decided on 04.10.2016]