Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): P Dinesha (Judicial Member) allowed an appeal in which the Tribunal had to decide whether the appellant was entitled to refund under Rule 5 of CENVAT Credit Rules, 2004 (CCR).

The Tribunal noted that the adjudicating authority had rejected the refund claim mainly on the ground that the appellant had not debited the amount claimed as refund from their CENVAT credit account, which according to the said authority, was in violation of Para 2(h) of Notification No.27/2012-CE (NT) dated 18-06-2012. Commissioner (Appeals) had dismissed the appeal thus the instant appeal was filed.

The appellant stated that he in fact, had debited the amount claimed as refund in its Returns filed for the period ended 30-06-2017 and the said ST-3 Returns were very much available for verification.

The Tribunal quoted the relevant para in the judgment of Suretax Prophylactics India (P) Ltd. v. CCE, (2020) 116 Taxmann.com 566 wherein the Karnataka High Court had ruled,

“In other words, time limit has to be computed from the last date of the last month of the quarter which would be the relevant date for the purposes of examining if the claim is filed within the limitation prescribed under Section 11-B or otherwise.”

The Tribunal was of the opinion that claim of the appellant had been filed before the expiry of the quarter in which one year period from the last date of receipt of falls and accordingly the applications for refund was well within time. However, as regards the reversal the adjudicating officer had no chance of verifying the veracity of the appellant’s claim vis-à-vis ST-3 Returns in the subsequent period wherein the said reversal was claimed to have been made. Thus, the Tribunal deemed it proper to remand the case for the file of adjudicating authority before whom the appellant shall furnish its ST-3 Returns for the subsequent period wherein the said reversal is reflected. The Tribunal allowed the appeal by the way of remand.[Zafin Software Centre Of Excellence (P) Ltd. v. Commr. Of CT & CE, Service Tax Appeal No. 20009 of 2020, decided on 12-10-2021]


Suchita Shukla, Editorial Assistant has reported this brief.

Advani & Co.Experts Corner


Introduction


 

The Arbitration and Conciliation Act, 1996 (the A&C Act) is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration, the enactment of the A&C Act signified the inception of the effort being made by the Indian legislature to bring India closer to the modern and pro-arbitral renaissance that was being spearheaded by the western world. Section 16 of the A&C Act embodies the sacrosanct doctrine of kompetenz-kompetenz which gives primacy to the Arbitral Tribunal to rule on its own jurisdiction including objections pertaining to the existence or validity of the arbitration agreement.

Although, Section 16 gives the express power to the Arbitral Tribunal to decide all issues pertaining to its own jurisdiction comprising an array of preliminary issues, it is silent as to what these preliminary issues include. The pertinent question that has warranted tremendous scholarly discourse by prominent practitioners in the global arbitral fraternity is whether the issue of limitation is one of jurisdiction or an adjudication on merits of the claim and whether this decision could be made by the Arbitral Tribunal under Section 16 of the A&C Act.

 

The present article will analyse two recent decisions of the Supreme Court of India where the Court has delivered conflicting opinions as to whether limitation constitutes a jurisdictional issue. The authors will conclude by suggesting a way forward until the controversy is conclusively settled by the judgment of a larger Bench of the Supreme Court.

 


The Controversy


The pertinent question of whether the decision of an Arbitral Tribunal on whether the claim of the claimant is barred under the law of limitation is an interim order or an interim award came up before the Division Bench of the Supreme Court comprising Nariman and Sinha, JJ. in Indian Farmers Fertilizer Coop. Ltd. v. Bhadra Products[1] (Indian Farmers). The Court was confronted with a case where the respondent had invoked arbitration and the Tribunal considered it appropriate to decide whether the claimant’s claim was barred by the law of limitation at first as a preliminary issue before traversing into the merits of the dispute. The arbitrator held that the claimant’s claim was not barred by the law of limitation. Aggrieved by the aforesaid interim decision of the arbitrator, the petitioner preferred an application filed under Section 34 of the A&C Act before the trial court styling it as the “first partial award”. The trial Judge held that the arbitrator’s decision did not constitute an award and dismissed the petition. Aggrieved by this judgment, the petitioner preferred an appeal to the High Court of Orissa wherein the High Court concurred with the findings of the trial court thereby dismissing the appeal proceedings. When the matter reached the Supreme Court, the Court at the outset had to decide whether the petition filed under Section 34 was maintainable. The Court realised that this could be determined by ascertaining whether the decision of the arbitrator on the issue of limitation constituted an interim award under Section 2(1)(c) r/w Section 31(6) and therefore assailable before the Court under Section 34 or whether the issue of limitation was one of jurisdiction and fell within the ambit of Sections 16(2) and (3) and therefore assailable before the Court only under the recourse envisaged under Section 37(2)(a) of the A&C Act. In the light of the aforesaid conundrum, the Court in Indian Farmers[2] framed the following issues:

 

(i) Whether an award on the issue of limitation can first be said to be an interim award?

(ii) Whether a decision on a point of limitation would go to jurisdiction and therefore be covered by Section 16?

 

The Court in Indian Farmers[3] began its reasoning with a conjoint reading of Sections 2(1)(c) and 31(6) observing that an arbitral award includes an interim award while noting that the A&C Act does not define an interim award. The Court was then constrained to rely on the wordings of Section 31(6) wherein it observed that the legislature had given the express power to the Arbitral Tribunal to make an interim award with respect to any matter on which it may make a final arbitral award. The Court relied on Section 32(1) to hold that there can be more than one interim award prior to the final award which could conclusively determine some issues between the parties.

 

The Court in Indian Farmers[4] relied on the wordings embodied in Section 47 of the English Arbitration Act, 1996 (English Arbitration Act) as it throws some light on what constitutes an interim award under English law. Relying on Section 47 of the English Arbitration Act, it was observed that a preliminary issue that affected the whole claim would expressly be the subject-matter of an interim award under the English Arbitration Act. It is pertinent to note that the Court stressed on the fact that the English Arbitration Act advisedly does not use the expression interim or partial so as to make it clear that the award covered by Section 47 of the English Arbitration Act would be a final determination of the particular issue arising from the dispute between the parties.

 

The Court in Indian Farmers[5] in order to augment its ratio went on to rely on an earlier decision of the Supreme Court that laid emphasis on what characteristics were required to constitute an interim award under the Indian arbitral regime. The Court relied on the decision in Satwant Singh Sodhi v. State of Punjab[6] (Satwant Singh) wherein an interim award in respect of one particular item was made by the arbitrator and the Court was confronted with whether such an award could be made a rule of the court. In Satwant Singh[7] it was held that an interim award which finally determines the rights of the parties with respect a certain claim and one which could not be readjudicated again could validly be made a rule of the court. Applying the dictum in Satwant Singh[8], the Court in Indian Farmers[9] held that as the issue of limitation was a final determination with respect to a part of the claim and was one which could not be readjudicated again it therefore validly constituted an interim award under Section 31(6) of the A&C Act. The Court in Indian Farmers[10] also relied on the dictum of the Supreme Court in the famous case of McDermott International Inc. v. Burn Standard Co. Ltd.[11] (McDermott International) wherein the Court has held that a partial award or an interim award is a final award on matters covered therein made at an intermediate stage of the arbitral proceedings. Relying on the above authorities, the Court in Indian Farmers[12] has held that a final decision of the arbitrator on the issue of limitation is an interim award within meaning of Section 2(1)(c) r/w with Section 31(6) and by virtue of being an award, it was capable of being challenged under Section 34 of the A&C Act.

 

Moving on to the second issue, as to whether the issue of limitation would fall within the ambit of Section 16 warranted a lengthy consideration by the Court. While answering this question in the negative, the Court after discussing the rationale of the doctrine of kompetenz-kompetenz relied on the corresponding provisions in Sections 30 and 31 of the English Arbitration Act. After carefully examining the wordings of the said provisions, it held that the doctrine of kompetenz-kompetenz connoted that the term “jurisdiction” under Section 16 only encompassed reference to three particular determinations:

(i) As to whether there is the existence of a valid arbitration agreement.

(ii) Whether the Arbitral Tribunal is properly constituted.

(iii) Matters submitted to arbitration should be in accordance with the arbitration agreement.

To further inquire whether limitation converged with jurisdiction, the Court relied on the decision of the Constitution Bench in Ittyavira Mathai v. Varkey Varkey[13] (Varkey Varkey) where the Constitution Bench interpreted the connotation jurisdiction wherein it laid down that a court has jurisdiction over the subject-matter pertaining to the case and the parties. It further held that it is true that courts are bound to rule while correctly applying the law, it is true that courts have been susceptible to making errors. The Court in Varkey Varkey[14] concluded that in spite of the fact that a court might have erred in coming to its conclusion it does not tantamount that the court has acted outside its jurisdiction.

 

More importantly, the Court in Indian Farmers[15] vehemently concurred with the findings of the Supreme Court in NTPC Ltd. v. Siemens Atkeingesellchaft[16] (NTPC) wherein it was held that when no question of jurisdiction has been addressed by the arbitrator in its findings, a party cannot disguise it to be one of jurisdiction falling within the ambit of Sections 16(2) and (3) so as to enable it to file an appeal under the recourse contemplated by Section 37(2). The Court in NTPC[17] observed that the appropriate recourse is for the aggrieved to prefer an application under Section 34 against the partial award and thereafter it could prefer an appeal under Section 37. Supplementing the opinion of the Court delivered at first by Mathur, J. in NTPC[18], Balasubramanyan, J. when discussing the ambit of jurisdiction under Section 16 laid down that when an Arbitral Tribunal finds that the claim was not maintainable for other valid reasons or that the claim was barred by the law of limitation it tantamounted to an adjudication by the Arbitral Tribunal on the merits of the claim and therefore would be assailable under Section 34 of the A&C Act.

 

Ultimately, the Court in Indian Farmers[19] relying on the above authorities held that the award passed by the arbitrator was an interim award, which being an arbitral award could be challenged by preferring an application under Section 34 and not Section 37. The Court held that the issue of limitation does not fall within the ambit of the Arbitral Tribunal’s jurisdiction under Section 16 and therefore the drill of Sections 16(5) and (6) need not be followed.

 

At this juncture it is important to study the controversy that has arisen in contemporary arbitral jurisprudence with regard to whether the issue of limitation falls within the Arbitral Tribunal’s power to rule on its own jurisdiction. A Coordinate Bench of the Supreme Court comprising Malhotra and Rastogi, JJ. in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.[20] (Uttarakhand Purv Sainik) had to consider the ambit and scope of the newly inserted Section 11(6-A) in the light of the 2015 Amendment of the A&C Act. The Court in Uttarakhand Purv Sainik[21] observed that insertion of Section 11(6-A) marked a significant departure from the opinion of the 7-Judge Constitution Bench in SBP & Co. v. Patel Engg. Ltd.[22] (SBP & Co.) where many threshold issues could be decided by the Court. The Court observed that in view of the non obstante clause in Section 11(6-A), the decision in SBP & Co.[23] stood legislatively overruled on that point. Moreover, the Court in Uttarakhand Purv Sainik[24] laid down its opinion on the scope and ambit of Section 16 as to what constitutes an issue of jurisdiction wherein it relied on the decision in ITW Signode (India) Ltd. v. CCE[25] (ITW Signode). In ITW Signode[26] a Bench of three Judges held that the issue of whether a claim was time barred under law of limitation is a jurisdictional issue.

 

It is interesting to note what the Court in Uttarakhand Purv Sainik[27] has discerned from the dictums in Indian Farmers[28] and NTPC[29], as the Court relied on the same in coming to the conclusion that the issue of limitation is one of jurisdiction and falls within the ambit of the doctrine of kompetenz-kompetenz under Section 16. It is needless to say that Court has wrongly imported and applied the dictums in Indian Farmers[30] and NTPC[31] to the question that had arisen before it under Section 11(6-A) and has arrived at such an anomalous outcome.

 

Adding to the controversy, in a recent judgment of the Bombay High Court in C. Shamsuddin v. Now Realty Ventures LLP[32] (C. Shamsuddin), G.S. Patel, J. was confronted with opining on the scope of jurisdiction of the Court at the pre-reference stage in an application filed under Section 11. The Bombay High Court in C. Shamsuddin[33] considered the interplay between Sections 11 and 16 and while relying on the decisions of the Supreme Court in Indian Farmers[34] and Uttarakhand Purv Sainik[35] held that the issue of limitation should be decided by the Arbitral Tribunal under Section 16. It is our opinion that the Court in C. Shamsuddin[36] appears to have been left astray by following the ruling in Uttarakhand Purv Sainik[37] which erred in applying the decision in Indian Farmers[38].


Conclusion


It is evident that the decisions in Uttarakhand Purv Sainik[39] and C. Shamsuddin[40] suffer from the infirmity of incorrectly construing and applying the decision in Indian Farmers[41]. It is our opinion that the decision in Indian Farmers[42] was cogent, succinct and in consonance with contemporary pro-arbitral jurisprudence. It is also without doubt that the clarity brought about by the decision in Indian Farmers[43] was long awaited by the arbitral fraternity. The decision also gave sufficient clarity to litigants that the appropriate remedy is to file an application under Section 34 before the appropriate court in the event that one of them is aggrieved by the decision of the arbitrator on the issue of limitation. It is our opinion that the laudable effort of Nariman, J. in Indian Farmers[44] to settle ambiguity has been obscured by the ruling in Uttarakhand Purv Sainik[45] and has left the scope and ambit of the doctrine of kompetenz-kompetenz in dubiety. It is in our opinion that the present conundrum warrants cognizance by a larger Bench of the Supreme Court at the earliest possible opportunity, in order to prevent another series of conflicting judgments and also to bring about consonance between decisions of the leading High Courts.

 

It is a settled canon of law in India that where there are conflicting decisions of concurrent Benches of the Supreme Court, it is for the subordinate courts to follow the judgments which appears to have laid down the law more emphatically and accurately in the correct scenario having regard to the issue being dealt with by the court together with proper consideration of the factual matrix. In light of the above, it is our opinion that the decision in Indian Farmers[46] appears to have accurately and with adequate reasoning answered the questions with respect to the issues framed and is in the context of Section 16 rather than the decision in Uttarakhand Purv Sainik[47] that appears to have wrongly imported the decision in Indian Farmers[48] to the context of Section 11.

 

The decision in Uttarakhand Purv Sainik[49] has evidently obscured the essence of the underlying rationale in Indian Farmers[50] whilst erring by disregarding the nuanced difference between limitation and jurisdiction. It is our opinion that decision in Indian Farmers[51] correctly distinguished limitation as being a defect pertaining to the claim or right of a party to approach the court for reliefs whereas jurisdiction is a defect pertaining the power of the adjudicating authority to take cognizance of a claim based on other statutory considerations. Therefore, we suggest that the decision in Indian Farmers[52] be considered as the correct position of law in this regard. It is also recommended that the High Courts follow the decision in Indian Farmers[53] rather than Uttarakhand Purv Sainik[54] in order to prevent another series of conflicting decisions and to provide certainty to the arbitral fraternity thereby fostering the landscape for arbitration in India.

 


† Hiroo Advani, Senior Managing Partner at Advani & Co.

†† Manav Nagpal, Associate at Advani & Co.

[1] (2018) 2 SCC 534.

[2] (2018) 2 SCC 534.

[3] (2018) 2 SCC 534.

[4] (2018) 2 SCC 534.

[5] (2018) 2 SCC 534.

[6] (1999) 3 SCC 487.

[7] (1999) 3 SCC 487.

[8] (1999) 3 SCC 487.

[9] (2018) 2 SCC 534.

[10] (2018) 2 SCC 534.

[11] (2006) 11 SCC 181.

[12] (2018) 2 SCC 534.

[13] (1964) 1 SCR 495 : AIR 1964 SC 907.

[14] (1964) 1 SCR 495 : AIR 1964 SC 907.

[15] (2018) 2 SCC 534.

[16] (2007) 4 SCC 451.

[17] (2007) 4 SCC 451.

[18] (2007) 4 SCC 451.

[19] (2018) 2 SCC 534.

[20] (2020) 2 SCC 455.

[21] (2020) 2 SCC 455.

[22] (2005) 8 SCC 618.

[23] (2005) 8 SCC 618.

[24] (2020) 2 SCC 455.

[25] (2004) 3 SCC 48.

[26] (2004) 3 SCC 48.

[27] (2020) 2 SCC 455.

[28] (2018) 2 SCC 534.

[29] (2007) 4 SCC 451.

[30] (2018) 2 SCC 534.

[31] (2007) 4 SCC 451.

[32] 2020 SCC OnLine Bom 100 : (2020) 6 Mah LJ 108.

[33] 2020 SCC OnLine Bom 100 : (2020) 6 Mah LJ 108.

[34] (2018) 2 SCC 534.

[35] (2020) 2 SCC 455.

[36] 2020 SCC OnLine Bom 100 : (2020) 6 Mah LJ 108.

[37] (2020) 2 SCC 455.

[38] (2018) 2 SCC 534.

[39] (2020) 2 SCC 455.

[40] 2020 SCC OnLine Bom 100 : (2020) 6 Mah LJ 108.

[41] (2018) 2 SCC 534.

[42] (2018) 2 SCC 534.

[43] (2018) 2 SCC 534.

[44] (2018) 2 SCC 534.

[45] (2020) 2 SCC 455.

[46] (2018) 2 SCC 534.

[47] (2020) 2 SCC 455.

[48] (2018) 2 SCC 534.

[49] (2020) 2 SCC 455.

[50] (2018) 2 SCC 534.

[51] (2018) 2 SCC 534.

[52] (2018) 2 SCC 534.

[53] (2018) 2 SCC 534.

[54] (2020) 2 SCC 455.

Experts CornerTariq Khan

Vigilantibus non dormientibus jura subveniunt, the common rationale behind the law of limitation which means “laws serve the vigilant, not those who sleep”, is not a stranger to the arbitration proceedings.

 

It is not uncommon to see the claims of the parties being rejected by the Arbitral Tribunal on account of same being barred by the law of limitation. In fact, some parties are under a misconception that if they send continuous reminders seeking their pending payments, then the period of limitation gets extended or the cause of action gets delayed and as a result, their “live claims” become “stale claims”.

The applicability of the Limitation Act, 1963 to various provisions of Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Arbitration Act”) has often been an issue before various courts in India. Time and again, the courts have given conflicting decisions; however, in March, 2021, the Supreme Court in BSNL v. Nortel Networks India (P) Ltd.[1] (hereinafter referred to as “Nortel Networks”) has settled the law and held that Article 137 of the First Schedule of the Limitation Act will govern the limitation period for filing an application under Section 11 of the Arbitration Act, 1996 and the limitation period will trigger from the date when there is failure to appoint the arbitrator. Further, the Court held that in exceptional cases, where the claims are ex facie time barred, and it is evident that there is no subsisting dispute, the Court may refuse to appoint an arbitrator.

 


Statutory Regime for Applicability of Limitation to Arbitration 


Section 43(1) of the Arbitration Act states that “the Limitation Act, 1963 (36 of 1963), shall apply to arbitrations as it applies to proceedings in court”. Moreover, Section 3 of the Limitation Act bars the remedy of filing of suits, appeals and applications, after a prescribed period of time. Thus, the claim for arbitration should be raised as soon as the “cause of arbitration arises” just like “cause of action arises” in a civil suit. Incidentally, Incidentally, Section 9 of the Limitation Act states that, “once time begins to run no subsequent disability or inability can stop to institute a suit or make an application”.[2]

 

In Nortel Networks[3], it was observed that since there is no provision in the Arbitration Act specifying the period of limitation for filing an application under Section 11; however, the Limitation Act nowhere provides a time period for filing an application for appointment of an arbitrator under Section 11, thus it would be covered by the residual provision Article 137 of the Limitation Act. The Court also clarified that once the period of limitation starts, no subsequent disability or inability can stop it.

 


Starting Point of the Limitation Period 


The period of limitation for filing an application seeking appointment of an arbitrator stands on a different footing than the period of limitation applicable to the substantive claims made in a contract. As per Article 55 of the Schedule of the Limitation Act, the limitation period for making a claim in cases pertaining to breach of contract is three years from the date of accrual of the cause of action. Furthermore, by virtue of Article 137 of the First Schedule to the Limitation Act, the limitation period for filing an application under Section 11 for appointment of an arbitrator before a court is three years from the date of refusal to appoint the arbitrator or on expiry of 30 days from receipt of notice invoking arbitration by other side, whichever is earlier.

 

The two­-Judge Bench in Panchu Gopal Bose v. Port of Calcutta[4] observed that the claim is “hopelessly barred” by limitation as the petitioner by his own conduct had slept over his right for more than 10 years. It was further held that the period of limitation for an application for appointment of arbitrator under the Arbitration Act, had there been no arbitration clause, commences on the date on which the “cause of arbitration” accrued.

 


Extension of Limitation Period: A Fresh Start


As per Section 18 (effect of acknowledgement in writing) of the Limitation Act, the period of limitation for filing a claim gets extended when there is an acknowledgement of an existing liability. The said acknowledgement shall be in writing and signed by the party against whom the claim is sought. Further, the acknowledgement shall be made before the expiry of the limitation period for raising that claim.

 

As per Section 19 (effect of payment of debt or interest) of the Limitation Act, where payment on account of a debt is made before the expiration of the prescribed period, a fresh period of limitation shall be computed from the time when the payment was made.


Initiation of Proceedings


Arbitration can be initiated by sending a notice of invocation to the other party as per Section 21 of the Arbitration Act or by filing an application under Section 8 or Section 11 of the Act.

 

Thus, the starting point of limitation for initiation of arbitration is from the date when the cause of action accrues, and the stopping point is the giving of the notice of invocation or the filing of the application under Section 11 or Section 8 of the Arbitration Act.

 


Time Spent in Pre-Arbitration Negotiations/Settlement Discussions


In Geo Miller & Co. (P) Ltd. v. Rajasthan Vidyut Utpadan Nigam Ltd.[5] (hereinafter referred to as “Geo Miller”), the Supreme Court has held that time spent in pre-arbitration negotiations, held in good faith, may be excluded while computing the period of limitation. However, the entire negotiation history between the parties must be carefully considered and the court must find out the “breaking point” at which any reasonable party would have abandoned all efforts to arrive at the amicable settlement or reconciliation and considered referral of the dispute to arbitration. For the computation of the limitation period such “breaking point” would be treated as the date on which the cause of action arises, regardless of whether the arbitration agreement mentions a clause on pre-arbitration negotiation or not.

 

In Shree Ram Mills Ltd.[6], the Supreme Court considered the history of negotiation and concluded that the limitation for arbitration purpose would be deemed to have not commenced.

 


No Denial, No Dispute


In some cases, the courts have taken a view that where there is no denial to the claim, the limitation period does not get triggered. In other words, the cause of action arises only when one party asserts and the other party denies any right.[7]

In Paramjeet Singh Narula v. DDA[7], the Court held that since, the contract was kept alive by the respondent and the respondent had not finalised the bills of the petitioner, it cannot be said that the claims were barred by limitation. Accordingly, the petition under Section 11 was allowed and an arbitrator was appointed.

 


Conclusion


The judgment in Nortel Networks[8] case answers many questions which were unanswered for a long time and it gives clarity to the application of Limitation Act to the Arbitration Act. Interestingly, the Court rightly opined that the period of three years, when the right to apply accrues, is an “unduly long” period for filing an application under Section 11. The author is in full agreement with the suggestion given by the Supreme Court that a limitation period for filing an application under Section 11 should be provided under the Act of 1996.

In the absence of any specific time frame for filing an application under Section 11, the purpose of the Arbitration Act, 1996 gets defeated i.e. speedy resolution of disputes. Incidentally, Section 29-A provides a total time frame of 18 months for completion of arbitral proceedings and passing of an award. Moreover, Section 11 itself provides that an endeavour shall be made to dispose of the petition within a period of 60 days from the date of service of the notice on the opposite party therefore, providing a period of 3 years for filing an application under Section 11 for appointment of an arbitrator is against the ethos of the Arbitration Act, 1996. We can only hope that in future, this issue is addressed by the legislature by introducing a limitation period of 2-3 months for filing an application under Section 11 from the date of refusal to appoint the arbitrator or on expiry of 30 days from receipt of notice invoking arbitration by other side, whichever is earlier.

 


† Advocate, Supreme Court of India.The author can be reached at advocate.tariqkhan@gmail.com.

The author would like to thank Dikshi Arora, Third Year Student at Rajiv Gandhi National University of Law for her able assistance.

[1] (2021) 5 SCC 738 : 2021 SCC OnLine SC 207.

[2] Secunderabad Cantonment Board v. B. Ramachandraiah & Sons, (2021) 5 SCC 705

[3] (2021) 5 SCC 738 : 2021 SCC OnLine SC 207.

[4] (1993) 4 SCC 338.

[5] (2020) 14 SCC 643 : 2019 SCC OnLine SC 1137.

[6] Shree Ram Mills Ltd. v. Utility Premises (P) Ltd., (2007) 4 SCC 599.

[7]Rashtriya Ispat Nigam Ltd. v. Prathyusha Resources and Infra (P) Ltd., (2016) 12 SCC 405.

[8] 2009 SCC OnLine Del 2948.

[9] (2021) 5 SCC 738 : 2021 SCC OnLine SC 207.

Case BriefsHigh Courts

Jharkhand High Court: Sanjay Kumar Dwivedi, J., held that Section 106 of the Factories Act is mandatory in nature and the Courts have no power to entertain the issue once the period prescribed therein has ended.

The petitioners had filed this petition for quashing the order passed in a revision petition filed by the petitioners had been dismissed. The further prayer was made for quashing entire criminal proceeding initiated as against the petitioners.

Background

A prosecution report was filed by the opposite party arraying the petitioners as accused with a prayer to take cognizance against them for allegedly committing an offence in terms of Section 92 of the Factories Act for violation of Rules 55(A )(2) and 56(A) of the Bihar (now Jharkhand) Factories Rules, 1950. The petitioners had been arrayed in their capacity as an occupier and Manager respectively of M/s. Tata Steel Ltd.

The complaint had been lodged in connection with an accident which took place on 19-06-2012 at 06:20 p.m. at G&H Blast Furnace Plavourize Coal bin/hopper where it was alleged that at the time of installation of 600 Kg mouthpiece the upper portion of chain block was broken due to which Birju Prasad, Fitter who was standing under it was crushed by the said mouthpiece and had sustained grievous injuries. The injured workman was carried to the hospital but died during the course of treatment. It had been alleged that the accident took place due to violation of Rule 55(A)(2) and 56(A) for which the petitioners were responsible.

Stand taken by the Petitioners

The petitioners contended that Section 106 of the Factories Act prescribes the period of limitation for three months for filing the complaint, under Section 92 of the Factories Act from the date of occurrence. Evidently, the date of occurrence was 19-06-2012 and the opposite party 2 inspected the place of occurrence on 20-06-2012 and subsequently, required information was furnished in statutory Form 17A by the company.

Hence, the petitioners contended that the knowledge was there to the Inspector on 19-06-2012 itself and the complaint was filed on 20-09-2012. It was further submitted the complaint had been filed after 90 days which was against the mandatory provision made under Section 106 of the Factories Act. It was also submitted that there was no provision of condonation of delay.

For ready reference, Section 106 of the Factories Act reads as under:-

“106. Limitation of prosecutions.—No Court shall take cognizance of any offence punishable under this Act unless complaint thereof is made within three months of the date on which the alleged commission of the offence came to the knowledge of an Inspector…”

Findings and Conclusion

On perusal of Section 106 of the Factories Act, the Bench stated that the law with regard to filing of the complaint under the Factories Act within a period of three months from the date of commission of the offence or from the date of knowledge of the occurrence is crystal clear. Noticeably, it was in the knowledge of the Inspector that the occurrence took place on 19-06-2012 and the complaint was admittedly filed on 20-09-2012 and the cognizance under Section 92 of the Factories Act was taken against the petitioners even though there is no provision of condonation of delay.

Hence, the Bench opined that the revisional court’s finding about the knowledge of date of filing of the report was erroneous as Section 106 clearly speaks that no Court shall take cognizance of any offence unless complaint is made within three months of the date on which the alleged commission of the offence came to the knowledge of an Inspector. Similarly, the Court was of the view that the Judicial Magistrate by taking cognizance had filled up the lines and section and had failed to apply judicial mind as the complaint petition itself was time barred under Section 106 of the Factories Act.

In view of the aforesaid, the entire criminal proceedings including the revision order were quashed. [Hemant Madhusudan Nerurkar v. State of Jharkhand, 2021 SCC OnLine Jhar 624, decided on 15-09-2021]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance:

For the Petitioners: Indrajit Sinha, Advocate

For the Opposite Party-State: Veervijay Pradhan, A.P.P.

Case BriefsSupreme Court

Supreme Court: A Division Bench of Indira Banerjee and V. Ramasubramanian, JJ. held that there is no bar in law to amendment of pleadings in an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 or to filing of additional documents apart from those initially filed, at any time until a final order either admitting or dismissing the application has been passed.

The Court also held that an application under Section 7 for imitation of corporate insolvency resolution process against a corporate debtor is not be barred by limitation if there is an acknowledgement of the debt by the corporate debtor before expiry of the limitation period. Such acknowledgment can be by way of statement of accounts, balance sheets, financial statements and offer of one time settlement.

Moreover, a final judgment and/or decree of any court or tribunal or any arbitral award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7.

Factual Matrix and Timeline

In 2011, Dena Bank sanctioned a term loan of to the Corporate Debtor, which was to be repaid in 24 quarterly installments. The Corporate Debtor defaulted in repayment and their account was declared Non Performing Asset (“NPA”) in December 2013. In 2014, the Bank sent a letter to the Corporate Debtor to repay the outstanding dues. However, no payment was made.

In 2015, the Bank initiated proceedings before the Debts Recovery Tribunal (“DRT”) for recovery of outstanding dues from the Corporate Debtor. By a letter dated 5 January 2015, the Corporate Debtor requested the Bank to restructure the loan. Again, on 3 March 2017, while proceedings were pending before DRT, the Corporate Debtor gave an offer for one time settlement of the term loan account, which  was rejected by the Bank. On 27 March 2017, DRT passed an order against the Corporate Debtor for recovery of outstanding dues to the Bank. In May 2017, DRT issued a Recovery Certificate in favour of the Bank. Thereafter in June 2017, the Corporate Debtor once again gave the Bank a proposal for one time settlement to mutually settle the loan amount.

In October 2018, the Bank sought initiation of corporate insolvency resolution process against the Corporate Debtor. It filed a petition under Section 7 of the Insolvency and Bankruptcy Code (“IBC”) before the National Company Law Tribunal, Bengaluru. Thereafter, twice in 2019, the Bank filed applications for permission to place additional documents on record. Both these applications were allowed by NCLT. In March 2019, NCLT passed an order to admit the Section 7 petition filed by the Bank.

Appeal

The Corporate Debtor challenged the order of NCLT in an appeal under Section 61 IBC before the National Company Law Appellate Tribunal. The NCLAT allowed the appeal reversed the order of NCLT. Aggrieved, the Bank approached the Supreme Court.

Issues

Three questions arose for consideration of the Court:

(i) Whether a petition under Section 7 IBC would be barred by limitation, on the sole ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the appellant Bank, within a period of three years prior to the date of filing of the Section 7 petition, by making a proposal for a one time settlement, or by acknowledging the debt in its statutory balance sheets and books of accounts.

(ii) Whether a final judgment and decree of DRT in favour of financial creditor, or the issuance of a Certificate of Recovery in favour of financial creditor, would give rise to a fresh cause of action to financial creditor to initiate proceedings under Section 7 IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recovery.

(iii) Whether there is any bar in law to the amendment of pleadings, in a petition under Section 7 IBC, or to the filing of additional documents, apart from those filed initially, along with the Section 7 petition in Form-1 given in the Annexure to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“2016 Adjudicating Authority Rules”).

Analysis and Observations

Interpretation of the Code

Discussing the object of IBC, the Court observed that it is imperative that provisions of IBC and Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute, and not be given a narrow, pedantic interpretation which defeats its purposes.

Permissibility of amending Section 7 petition for filing additional documents

On a careful reading of IBC provisions and in particular the provisions of Section 7(2) to (5) read with the 2016 Adjudicating Authority Rules, the Court reached a conclusion that there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed.

The Court noted that under Section 7(2) IBC, a financial creditor is required to apply for initiation of corporate insolvency resolution process against a corporate debtor in the prescribed Form-1 under the 2016 Adjudicating Authority Rules. Since a financial creditor is required to apply under Section 7 IBC in statutory Form-1, the financial creditor can only fill in particulars as specified in the various columns of the Form. There is no scope for elaborate pleadings. The Court observed:

An application to the Adjudicating Authority (NCLT) under Section 7 of the IBC in the prescribed form, cannot therefore, be compared with the plaint in a suit. Such application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law.

The Court summed up the discussion on this point by mentioning that there is no bar in law to amendment of pleadings in an application under Section 7 IBC, or to filing of additional documents, apart from those initially filed along with application under Section 7 in Form-1. It was observed:

In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that NCLT committed any illegality or error in permitting the Bank to file additional documents.

However, the Court added that depending on the facts and circumstances of the case, when there is inordinate delay, the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.

Lastly, it was clarified that Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 is not an authority for the proposition that there can be no amendment of pleadings at the fag end of NCLT proceedings. Moreover, in the instant case, the amendments were not made at the fag end of the proceedings but within 2/3 months of their initiation, before admission of the petition under Section 7 IBC.

Limitation and effect of acknowledgment of debt

Under the scheme of IBC, the insolvency resolution process begins when a default takes place, in the sense that a debt becomes due and is not paid. Before considering the main point, the Court noted that there can be no dispute with the proposition that in terms of Article 137 of Limitation Act, 1963, the period of limitation for making an application under Section 7 IBC is three years from the date of accrual of the right to sue, that is, the date of default.

However, as per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. The acknowledgement must be made before the relevant period of limitation has expired. Relying on Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank Ltd., 2021 SCC Online SC 244 and Laxmi Pat Surana v. Union Bank of India, 2021 SCC Online SC 267, the Court reiterated that there is no reason to exclude the effect of Section 18 of the Limitation Act to proceedings initiated under IBC.

Relying further on Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC Online SC 321, the Court noted that:

It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act.

In view of such law, the Court concluded that NCLAT’s finding that there was nothing on record to suggest that the Corporate Debtor acknowledged the debt within three years and agreed to pay debt, was not sustainable in law in view of the statement of accounts/balance sheets/financial statements for the years 2016-2017 and 2017-2018 and the offer of one time settlement including in particular the offer of one time settlement made on 3 March 2017.

In the instant case, Rs 1.11 crore had been paid towards outstanding interest on 28 March 2014 and the offer of one time settlement was within three years thereafter. In any case, NCLAT overlooked the fact that a Certificate of Recovery was issued by DRT in favour of the Bank on 25 May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Court held:

The Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. The petition under Section 7 IBC was well within three years from 28th March 2014.

The Court relied on Jignesh Shah v. Union of India, (2019) 10 SCC 750 for concluding that a final judgment and/or decree of any court or tribunal or any arbitral award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 IBC.

Before concluding, the Court considered that when the petition under Section 7 IBC was filed, the date of default was mentioned as 30 September 2013 and the date of declaration of term loan account of the Corporate Debtor as NPA was stated as 31 December 2013. However, according to the Court, it was not correct to say that there was no averment in the petition of any acknowledgment of debt. Such averments were duly incorporated by way of amendment, and NCLT rightly looked into the amended pleadings to admit the petition of Bank. The Court reiterated:

Even assuming that documents were brought on record at a later stage … the Adjudicating Authority was not precluded from considering the same. The documents were brought on record before any final decision was taken in the petition under Section 7 of IBC.

Decision

For the reasons discussed above, the Supreme Court held that the Section 7 IBC petition filed by Dena Bank was admissible. The impugned judgment of NCLAT was unsustainable which was set aside. [Dena Bank v. C. Shivakumar Reddy, 2021 SCC OnLine SC 543, decided on 4-8-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Bombay High Court: Manish Pitale, J., while upholding the decision of Sessions Court discussed more on the concept of ‘continuing offence’ under the Domestic Violence Act, 2005.

Background

Petitioner had filed an application under the provisions of The Protection of Women of Domestic Violence Act, 2005 for various reliefs. The said application was partly allowed by the Judicial Magistrate directing Omprakash (husband) to pay an amount of maintenance and rent to his wife, whereas the return of Stridhan and household articles was rejected.

With the above decision, both the wife and husband were aggrieved and hence filed appeals before the Sessions Court. Sessions Court had partly allowed the appeal of the wife by enhancing the monthly maintenance and additionally the husband was directed to pay an amount of Rs 50,000 to his wife towards compensation.

Appeal filed by the husband was dismissed.

Aggrieved by the judgment, present petitions were filed in which the Court issued notices.

Analysis, Law and Decision

Limitation

In the instant matter, Court stated that it is concerned with the complaint filed by the wife under Section 12 and other provisions of the D.V. Act.

The wife claimed that she was harassed and abused and that she also suffered economic abuse at the hands of the husband and his relatives. Further, she added that she was subjected to “domestic violence” as defined under Section 3 of the D.V. Act, hence sought redressal for such abuse and claimed return of articles gifted to her by her parents and other relatives.

“…concept of continuing cause of action and continuing offence needs to be appreciated from the point of view of the aggrieved person i.e. wife.”

 In the case of Krishna Bhattacharjee v. Sarathi Choudhury, (2016) 2 SCC 705, Supreme Court held that the concept of continuing offence gets attracted from the date of deprivation of Stridhan and that therefore, an application in that context would have to be entertained and it cannot be thrown out on the ground of limitation

Continuing Offences

Court opined that, the definition of ‘domestic violence’ under Section 3 of the D.V. Act shows that depriving an aggrieved person of not only Stridhan but also shared household, maintenance, alienation from assets, banks lockers etc., prevention from entering place of employment of the aggrieved person, would all be covered, under the concept of continuing offences.

Hence, merely because the wife filed a complaint after one year, the said complaint cannot be barred by limitation.

Enhancement of Maintenance

High Court held that considering the salary of the husband, he directed to pay an amount of Rs 6,000 and the same cannot be said to be unreasonable.

Physical Abuse 

Husband contended that since the wife did not place on record any material to show any physical abuse or proof of having filed any police complaint, she did not deserve to be paid any compensation.

To the above, Court reasoned that in cases of domestic violence, it is often found that the aggrieved person does not immediately rush to the police when inflicted with physical, mental, and physiological and economic abuse.

Adding to the above, Bench stated that even if such persons suffer injuries, they will not necessarily keep medical records of the same and it cannot be said that only because no medical documents were produced, the wife in the present matter was not entitled to compensation.

In view of the above discussions, the Session Court’s decision was upheld. [Aruna v. Omprakash, Criminal Writ Petition No. 372 of 2019, decided on 27-7-2021]


Advocates before the Court:

Shri. C. A. Joshi, Advocate for Petitioner

Shri. A. S. Joshi, Advocate for Respondent.

Akaant MittalExperts Corner

Recapitulation

The present column post will conclude the 3-part series on the law of limitation and its interplay with the Insolvency and Bankruptcy Code, 2016 (IB Code).

 

In the first part of the column, we had discussed the initial issues in the interplay of IB Code with the law on limitation and how they were resolved by the insertion of Section 238-A to the IB Code and the Supreme Court rulings in B.K. Educational Services[1] and Vashdeo R. Bhojwani v. Abhyudaya Cooperative Bank Ltd.[2] We also discussed the recent ruling of the Supreme Court in Sesh Nath Singh v. Baidyabati Sheoraphuli Cooperative Bank Ltd.[3] which provided some respite as far as Section 14 of the Limitation Act is concerned and how a creditor can use that provision to seek extension of limitation period.

 

In the second part of the column, we discussed the applicability of Section 18 of the Limitation Act to the applications seeking initiation of resolution process under the IB Code. The missed opportunities of Babulal Vardharji[4] now stand settled conclusively by the rulings in Laxmi Pat[5]. Similarly, the limitation issues concerning the acknowledgment of debt for the purposes of Section 18 of the Limitation Act by virtue of entries in balance sheets of a company was settled by the Supreme Court in Asset Reconstruction Co.[6] ruling.

 

In this third part, we will discuss the issue of the effect of Section 19 of the Limitation Act, 1963 which stipulates the “effect of payment on account of debt or of interest on legacy” on an application seeking initiation of resolution process under the IB Code.

 

Brief on Section 19 of the Limitation Act, 1963

 

  1. Effect of payment on account of debt or of interest on legacy.—Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made:

Provided that, save in the case of payment of interest made before the 1st day of January, 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment.

 

To attract the application of Section 19, two conditions are essential (i) the payment must be made within the prescribed period of limitation; and (ii) it must be acknowledged by some form of writing, either in the handwriting of the payee himself or signed by him.

 

Applicability of Section 19 of the Limitation Act, 1963 to IB Code

The National Company Law Appellate Tribunal (NCLAT) has been confronted on several occasions where partial payment of the debt or payment of interest has been made by the debtor on account of the debt.

 

For instance in Neha Himatsingka v. Himatsingka Resorts (P) Ltd.[7] the argument that the debt in question was time barred was rejected. The NCLAT noted that as per the record the corporate debtor had paid interest even after the year 2016-2017 and also issued cheques in the year 2018; therefore, the argument that the claim is time barred was rejected.

 

Similarly in T. Johnson[8], the creditor relied upon (1) the revival letter dated 20-2-2016; (2) balance confirmation letter dated 22-2-2016 by the corporate debtor; and (3) the factum of last payment having been made on 14-11-2017 to establish that its claim is not time barred.

 

The NCLAT noting that apart from the above, there is an admission on the part of the corporate debtor on the basis of the written submissions of the appellant before the National Company Law Tribunal (NCLT) and the fact that the appellant debtor is merely disputing the correctness of the quantum of balance claimed by the financial creditor rejected the argument that the claim is time barred.[9]

 

As we have seen in the previous columns, in the rulings of Laxmi Pat[10], Sesh Nath[11] and Asset Reconstruction Co.[12] the Supreme Court has settled that the phrase “the provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable” in Section 238-A of the IB Code means that all the relevant provisions of the Limitation Act can be invoked while filing an application under the IB Code. The same in those cases meant that Sections 5, 14 and 18 of the Limitation Act were invoked to extend limitation period.

 

Now the recent ruling of the NCLAT ruling in Rajendra Narottamdas Sheth v. Chandra Prakash Jain,[13] provides us with a more useful reference point to understand the interplay between Section 19 of the Limitation Act, 1963 with the IB Code.

 

In Rajendra Narottamdas[14], the account of the debtor was declared as a non-performing asset (NPA) on 30-9-2014 and the financial creditor filed an application seeking initiation of corporate insolvency resolution process (CIRP) against the debtor on 25-4-2019.[15] The debtor claimed that the application is time barred as it was beyond the three-year limitation period that commenced on the date of the NPA.[16] The financial creditor argued that the limitation period got extended on account of Section 18 of the Limitation Act by relying on the documents showing acknowledgments of debt by the corporate debtor in writing. The creditor also placed reliance on the statements of accounts showing various instalments paid on account of debt and interest, even after the declaration of NPA to invoke the application of Section 19 of the Limitation Act.[17]

 

The NCLAT referred to the following undisputed facts where: (a) the corporate debtor had issued balance confirmation letter dated 7-4-2016 and acknowledged the debt; (b) the account statements showed regular credit entries after 7-4-2016 till May 2018; and (c) the corporate debtor issued a letter dated 17-11-2018 giving details of amounts repaid till 30-9-2018 and acknowledging amount outstanding in respective accounts as on that date.

 

On the basis of these facts, the NCLAT held that the benefit of Sections 18 and 19 were attracted and the application by the creditor was not time barred.[18]

 

Conclusion

 

If the reasoning in Sesh Nath[19], Laxmi Pat[20] and Asset Reconstruction Co.[21] is to be accepted that the “provisions of Limitation Act have been made applicable to the proceedings under the Code, as far as may be applicable”[22], then clearly Section 19 of the Limitation Act can be used to extend limitation period. To that effect, the ruling of the NCLAT in Rajendra Narottamdas[23] shows the way ahead for the application of Section 19 of the Limitation Act to the IB Code.


± Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is also a visiting lecturer at the NUJS, Kolkata and the author of the commentary Insolvency and Bankruptcy Code – Law and Practice.

The author gratefully acknowledges the research and assistance of Sh. Abhishek Jain, 3rd Year, B.A.LLB. (Hons.), Student at National University of Juridical Sciences, Kolkata, in writing this article.

 

[1] B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528.

[2] (2019) 9 SCC 158 : (2019) 4 SCC (Civ) 308.

[3] 2021 SCC OnLine SC 244.

[4]Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 : 2020 SCC OnLine SC 647.

[5] Laxmi Pat Surana v. Union Bank of India, 2021 SCC OnLine SC 267.

[6] Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC OnLine SC 321.

[7] 2018 SCC OnLine NCLAT 784.

[8] T. Johnson v. Phoenix ARC (P) Ltd., 2019 SCC OnLine NCLAT 244.

[9] Id., para 6.

[10] 2021 SCC OnLine SC 267.

[11] 2021 SCC OnLine SC 244.

[12] 2021 SCC OnLine SC 321.

[13] 2020 SCC OnLine NCLAT 827.

[14] Id.

[15] Id, para 3.

[16] Id, para 4.

[17] Id, para 8.

[18] Id, paras 24-27.

[19] 2021 SCC OnLine SC 244.

[20] 2021 SCC OnLine SC 267.

[21] 2021 SCC OnLine SC 321.

[22] Laxmi Pat Surana, 2021 SCC OnLine SC 267, para 41.

[23] 2020 SCC OnLine NCLAT 827.

Akaant MittalExperts Corner

Recapitulation

In the previous column, we discussed the initial issues in the interplay of Insolvency and Bankruptcy Code, 2016 (IB Code) with the law on limitation and how they were resolved by the insertion of Section 238-A to the IB Code and the Supreme Court rulings in B.K. Educational Services[1] and Vashdeo R.  Bhojwani v. Abhyudaya Cooperative Bank Ltd.[2]

 

We then discussed that currently there are three major issues that require a modicum of certainty, namely, whether the creditors can use the following provisions of the Limitation Act to extend/renew the period of limitation while seeking initiation of resolution process against a corporate debtor:

 

(i) Section 14 of the Limitation Act, 1963, which states “exclusion of time of proceeding bona fide in court without jurisdiction” is applicable.

(ii) Section 18 of the Limitation Act, 1963 which provides for the “effect of acknowledgment in writing”.

(iii) Section 19 of the Limitation Act, 1963 which stipulates the “effect of payment on account of debt or of interest on legacy”.

 

In the previous column, we had discussed that the recent ruling of the Supreme Court in Sesh Nath Singh v. Baidyabati Sheoraphuli Cooperative Bank Ltd.[3] does provide some respite as far as Section 14 of the Limitation Act is concerned and a creditor can use that provision to seek extension of limitation period. But there were still some lingering doubts on whether Section 14 could still come to the rescue of the creditors even when rightly pursuing remedy in another court or tribunal before coming to the National Company Law Tribunal (NCLT) in an application under Section 7 or Section 9 or Section10 of the IB Code.

 

Brief on Section 18 of the Limitation Act, 1963

Coming to issue (ii), Section 18 of the Limitation Act, 1963 provides:

 

  1. Effect of acknowledgment in writing.—(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

 

Section 18 of the Limitation Act requires acknowledgment of liability to be made before the expiration of the prescribed period and to be in the form of, or in writing signed by the party against whom such right is claimed, in order to be effective to extend limitation.[4]

 

The fact that a debtor has acknowledged that there is debt is sufficient to restart the period of limitation.[5] It is however essential that a person either making acknowledgment of liability or a person making the payment must make acknowledgment or payment by his own writing signed by him or in writing at least signed by him and such acknowledgment must be before the expiration of the existing period of limitation[6]. In other words, there must be a written acknowledgment containing an admission of a subsisting liability, and a mere admission of past liability is not sufficient to constitute such an “acknowledgment”.[7]

 

Judicial Discourse on the Applicability of Section 18

The issue of Section 18 was explicitly a matter of issue in Babulal Vardharji. In Babulal Vardharji[8], the appellant before the National Company Law Appellate Tribunal (NCLAT) argued that the default took place in July 2011 and the application under Section 7 being filed in March 2018 was barred by limitation. The respondent, in turn, contended that there is a continuous cause of action. The NCLAT noted the proceedings undertaken by the respondent creditor before the Debts Recovery Tribunal under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) and the same were pending. The financial creditor also brought on record a letter dated 31-7-2018 issued by the appellant seeking a one-time settlement (OTS) with the creditor bank. Based on a culmination of these factors, the NCLAT found that the claim is not time barred as well.

 

However, when the matter in Babulal Vardharji went into appeal before the Supreme Court[9] the Supreme Court set aside the order of the NCLAT. The Supreme Court held that since the date of default is 8-7-2011, therefore, on account of the Limitation Act, the application under Section 7 is time barred. The Court also specifically discussed the reliance made by the NCLAT on the pendency of the application under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the fact that corporate debtor had made a prayer for OTS in July 2018. The Supreme Court on these grounds stated that “noticeably, though the Appellate Tribunal has referred to [these factors] … [but the NCLAT] has not recorded any specific finding about the effect of these factors.”[10]

 

While the Court sought to answer if Section 18 of the Limitation Act is applicable, in the end, it seems to have confined its findings only to the facts of the case. It stated:

 

  1. even if it be assumed that the principles relating to acknowledgment as per Section 18 of the Limitation Act are applicable for extension of time for the purpose of the application under Section 7 of the Code, in our view, neither the said provision and principles come in operation in the present case nor do they enure to the benefit of Respondent 2 for the fundamental reason that in the application made before NCLT, Respondent. 2 specifically stated the date of default as “8-7-2011 being the date of NPA” .

35.1. … [i]n other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgment.[11]

 

Therefore, it is submitted that the ruling in Babulal Vardharji[12] still left the issue of applicability of Section 18 of the Limitation Act unaddressed. The Supreme Court has overlooked (a) the acknowledgment of debt on account of the OTS offer; (b) the pending litigation before Debts Recovery Tribunal; and (c) the differentiation that NCLAT made between the limitation in filing the application vis-à-vis the time barred of the debt amount. The NCLAT applied Article 137 to the filing of an application under the IB Code to only hold that the application itself is not barred on account of the law of limitation. Regarding the bar on the debt amount itself, the NCLAT analysed that all the due attempts are being made to recover the debt amount before the appropriate forum (before the IB Code came to be enacted).

 

The Court had the opportune occasion to categorically put to rest any debate on the applicability of Section 18 of the Limitation Act to extend limitation for an application under Section 7 or Section 9 under the IB Code. However, the same was a missed opportunity.

 

The ruling in Babulal Vardharji[13] formed the basis of the NCLT ruling in Lampex Electronics Ltd. v. AMI Tech (India) (P) Ltd.[14] and a Calcutta High Court ruling in Gouri Shankar Chatterjee v. SBI[15] where relying on Babulal Vardharji[16], the courts held that Section 18 is inapplicable.

 

However, in a decision dated 26-3-2021, the Supreme Court in Laxmi Pat Surana v. Union Bank of India[17] seems to have put to rest this issue with respect to Section 18.

 

The corporate debtor – guarantor in this case argued that the date of default was in the year 2010 when the account of the principal borrower was declared non-performing asset. The respondent creditor – bank, in turn, submitted that on account of the time-to-time acknowledgments of debt given by the principal borrower and even the guarantor – corporate debtor, the last of which was given on 8-12-2018 means that the debt is not time barred.

 

The Court, firstly, addressed the purport of Babulal Vardharji[18] with respect to the issue of whether Section 18 of the Limitation Act applies to an application under the IB Code. It put to rest that in that ruling the Supreme Court had not ruled out the application of Section 18 of the Limitation Act to the proceedings under the IB Code, if the fact situation of the case so warrants.

 

Subsequently taking note of the provision of Section 238-A of the IB Code, the Court opined that once the provisions of Limitation Act have been made applicable to the proceedings under the IB Code, as far as such provisions may be applicable, there remains no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the IB Code.

 

Therefore, it was directed that a fresh period of limitation be computed from the date of acknowledgment of a debt by the principal borrower and/or the corporate guarantor, including in particular the last communication dated 8-12-2018. Resultantly, the application of the financial creditor under Section 7 of the IB Code was found to be within the limitation by granting the benefit of exclusion of time period under Section 18 of the Limitation Act.

 

The same also formed the basis for the Supreme Court ruling in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal,[19] where the Court set aside the 5- Judge ruling of the NCLAT in V. Padmakumar,[20] which had held that entries in balance sheets would not amount to an acknowledgment of debt for the purpose of extending limitation under Section 18 of the Limitation Act.

 

The Court relied on the observations in Sesh Nath Singh[21] and the categorical position laid down in Laxmi Pat[22] to firstly conclude that Section 18 of the Limitation Act applies to the proceedings under the IB Code. The Court also set aside the ruling of the Calcutta High Court in Gouri Shankar Chatterjee.[23]

 

Then, the Court went on to discuss that how entries in a balance sheet may amount to an acknowledgment for the purposes of Section 18 of the Limitation Act.

 

The implication of this decision may be a matter of discussion since accounting rules, if conservative, may require recognition of claims even if the corporate debtor is contesting the same. Therefore, even when a dispute is under contest for a period of over 3 years, still the balance sheet of the company may show under the head of contingent liability of the notes in the balance sheet. Just to prevent any misinterpretation, the Court was cognizant of the same and even noted this circumstance and discussed as to when an entry in a balance sheet may not necessarily mean an acknowledgment of liability. The Court stated:

 

  1. 19. … this judgment holds that though the filing of a balance sheet is by compulsion of law, the acknowledgment of a debt is not necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor’s report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgment of debt for reasons given in the said note.

                                               ***

  1. 32. … the statement of law contained in Bengal Silk Mills[24], that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case-by-case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.[25]

 

With the rulings in Laxmi Pat[26] and Asset Reconstruction Co.[27], it is submitted that the issue of the application of Section 18 of the Limitation Act to the applications seeking initiation of resolution process under the IB Code is settled unequivocally and put to a categorical end.

 

Conclusion

The Supreme Court while reiterating the applicability of Section 18 of the Limitation Act to the applications seeking initiation of resolution process under the IB Code has set out the interpretative standards for future references. The missed opportunities of Babulal Vardharji[28] which was subsequently followed by the tribunals, and the High Courts now stand settled conclusively by the ruling in Laxmi Pat[29]. Similarly the erroneous determination by the NCLAT in V. Padmakumar[30] of the limitation issues concerning the acknowledgment of debt under Section 18 by virtue of entries in balance sheets of a company was equally enigmatic. While correcting this error, the Supreme Court reiterated the position settled in Laxmi Pat[31], putting a conclusive end to the issue of the application of Section 18 of the Limitation Act to the applications seeking initiation of resolution process under the IB Code.

 

† Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is also a visiting lecturer at the NUJS, Kolkata and the author of the commentary Insolvency and Bankruptcy Code – Law and Practice.

The author gratefully acknowledges the research and assistance of Sh. Yash Borana, 4th Year, B.A.LLB. (Hons.), Student at National Law University, Nagpur, in writing this article.

 

[1] B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633 : (2018) 5 SCC (Civ) 528.

[2] (2019) 9 SCC 158 : (2019) 4 SCC (Civ) 308.

[3] 2021 SCC OnLine SC 244.

[4] Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium Corpn. of India, (1971) 1 SCC 67 : AIR 1971 SC 1482; Laxmi Pat Surana v. Union Bank of India, 2021 SCC OnLine SC 267.

[5] See also Shalini Publicity Creative (P) Ltd. v. Dena Bank, 2019 SCC OnLine NCLAT 91, para 7.

[6] Laxmi Pat Surana v. Union Bank of India, 2021 SCC OnLine SC 267, para 37.

[7] Valliamma Champaka Pillai v. Sivathanu Pillai, (1979) 4 SCC 429.

[8] Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., 2019 SCC OnLine NCLAT 295.

[9] Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 : 2020 SCC OnLine SC 647.

[10] Ibid, para 12 (additions made]).

[11] Ibid, paras 35 and 35.1 (emphasis added).

[12] Ibid.

[13] Ibid.

[14] C.P. No. 1810/IBC/MB/2018.

[15] C.O. 1257 of 2020.

[16] (2020) 15 SCC 1 : 2020 SCC OnLine SC 647

[17]  2021 SCC OnLine SC 267.

[18]  (2020) 15 SCC 1 : 2020 SCC OnLine SC 647.

[19] 2021 SCC OnLine SC 321.

[20] V. Padmakumar v. Stressed Assets Stabilisation Fund, 2020 SCC OnLine NCLAT 417.

[21] Sesh Nath Singh  v. Baidyabati Sheoraphuli Cooperative Bank Ltd., 2021 SCC OnLine SC 244.

[22] 2021 SCC OnLine SC 267.

[23] Civil appeal arising out of SLP (Civil) No. 1168 of 2021 in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC OnLine SC 321.

[24] Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128.

[25] 2021 SCC OnLine SC 321, paras 19 and 32 (emphasis added).

[26] 2021 SCC OnLine SC 267.

[27] 2021 SCC OnLine SC 321.

[28] (2020) 15 SCC 1 : 2020 SCC OnLine SC 647

[29] 2021 SCC OnLine SC 267.

[30] 2020 SCC OnLine NCLAT 417.

[31] 2021 SCC OnLine SC 267.

Case BriefsHigh Courts

Chhattisgarh High Court: Rajendra Chandra Singh Samant, J., allowed the petition and set aside the impugned order.

The facts of the case are such that the respondents were Malgujars of Malkharauda Jagirdari, who were holders of the land in question and the petitioners are the persons in possession of the land in question on the ground of grant or purchase or by sikhmi rights or by a registered sale deed. Proceeding was drawn against the respondents under the M.P. Ceiling of Agriculture Holdings Act, 1960 (i.e. “Act, 1960”). The petitioners filed their objections which came to be dismissed by the Sub-Divisional Officer (Revenue) vesting the disputed land with the State Government. Subsequent to that the petitioners and the various villagers made representation before the Sub-Divisional Officer, Sakti, for allotment of land from the government. The applications of some of the villagers were entertained and lease was granted in favour of some of the villagers, but the case of the petitioners was not considered. The petitioners then preferred an appeal before the Board of Revenue and Additional Tahsildar, Malkharauda submitted report making recommendations in favour of the petitioners for grant of government land on lease. The Board of Revenue has dismissed the appeal only on the ground of limitation. Being aggrieved by the said order instant petition was filed.

Counsel for the petitioners Mr Rajeev Shrivastava submitted that the order passed by the Board of Revenue is cryptic order, by taking technical approach, without considering that the petitioners have been prosecuted their claim since the very beginning by raising their objections. Hence, the order passed is erroneous without any justification.

Counsel for the respondents Mr Adil Minhaj submitted that the appeal was clearly delayed by two years, before it was filed in the Board of Revenue, regarding which, day to day explanation was required and there had been no such explanation given by the petitioners’ side. Hence, the impugned order has been correctly passed, which needs no interference.

The Court relied on Oriental Aroma Chemical Industries Ltd. v. Gujrat Industrial Development Corpn., (2010) 5 SCC 459 wherein it was held “law of limitation is founded on public policy. The legislature does not prescribe limitation with the object of destroying the rights of the parties, but to ensure that they do not resort to dilatory tactics and seek remedy without delay, therefore, the expression sufficient cause must receive a liberal construction so as to advance substantial justice.”

The Court further relied on State of Karnataka v. Y. Moideen Kunhi (dead) by LRS., (2009) 13 SCC 192 wherein it was held that “the Court must not be pedantic in deciding delay condonation petition, which should not be dismissed on mere ground of longer delay, if the, explanation offered is bonafide.”

The Court observed that Section 44 of the Act, 1960 provides for limitation of 60 days from the order against which appeal or revision is to be preferred. It is further provided that the provisions of Section 4, 5, 12 and 14 of the Indian Limitation Act shall also apply to the filing of such appeal or application for revision. It was further observed that Section 5 of the Indian Limitation Act provides for extension of prescribed period, in certain cases, where in, the applicant satisfies the Court that he had sufficient cause for not preferring the appeal within the prescribed period.

It was further observed that that the petitioners have a claim for allotment of surplus land vested with the State in ceiling proceeding, in their favour on the basis of their entitlement and that despite there being recommendation in their favour, the same was not considered by the Sub-Divisional Officer and also the reasons for delay mentioned in their memo of appeal and application for condonation of delay, which appears to be bonafide.

The Court thus held that “learned Board of Revenue has failed to exercise the jurisdiction and dismissed the application for condonation of delay of the petitioners in mechanical and arbitrary manner.” 

In view of the above, petition was allowed.[Rajendra Kumar v. State of Chhattisgarh, 2021 SCC OnLine Chh 445, decided on 03-03-2021]


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman, BR Gavai and Hrishikesh Roy, JJ has held that given the object of speedy disposal sought to be achieved both under the Arbitration and Conciliation Act, 1996 and Commercial Courts Act, 2015, for appeals filed under section 37 of the Arbitration Act that are governed by Articles 116 and 117 of the Limitation Act or section 13(1A) of the Commercial Courts Act, a delay beyond 90 days, 30 days or 60 days, respectively, is to be condoned by way of exception and not by way of rule.

However,

“in a fit case in which a party has otherwise acted bona fide and not in a negligent manner, a short delay beyond such period can, in the discretion of the court, be condoned, always bearing in mind that the other side of the picture is that the opposite party may have acquired both in equity and justice, what may now be lost by the first party’s inaction, negligence or laches.”

Resultantly, the Court has overruled last year’s judgment in N.V. International v. State of Assam, (2020) 2 SCC 109 , wherein it was held that any delay beyond 120 days in the filing of an appeal under Section  37 from an application being either dismissed or allowed under Section 34 cannot be allowed. It was further, clarified that the said period of 120 days, comprises of a grace period of 30 days under Section 5 of the Limitation Act added to the prescribed period of 90 days.

The Court said that merely because sufficient cause has been made out in the facts of a given case, there is no right in the appellant to have delay condoned.

“Given the object sought to be achieved under both the Arbitration Act and the Commercial Courts Act, that is, the speedy resolution of disputes, the expression “sufficient cause” is not elastic enough to cover long delays beyond the period provided by the appeal provision itself. Besides, the expression “sufficient cause” is not itself a loose panacea for the ill of pressing negligent and stale claims.”

Section 37 of the Arbitration Act, when read with section 43 thereof, makes it clear that the provisions of the Limitation Act will apply to appeals that are filed under section 37. Articles 116 and 117 of the Limitation Act provide for a limitation period of 90 days and 30 days, depending upon whether the appeal is from any other court to a High Court or an intra-High Court appeal. Further, when the Commercial Courts Act is applied to the aforesaid appeals, given the definition of “specified value” and the provisions contained in sections 10 and 13 thereof, it is clear that it is only when the specified value is for a sum less than three lakh rupees that the appellate provision contained in section 37 of the Arbitration Act will be governed, for the purposes of limitation, by Articles 116 and 117 of the Limitation Act.

On this, the Court explained that,

“… the main object of the Arbitration Act requiring speedy resolution of disputes would be the most important principle to be applied when applications under section 5 of the Limitation Act are filed to condone delay beyond 90 days and/or 30 days depending upon whether Article 116(a) or 116(b) or 117 applies. As a matter of fact, given the timelines contained in sections 8, 9(2), 11(4), 11(13), 13(2)-(5), 29A, 29B, 33(3)-(5) and 34(3) of the Arbitration Act, and the observations made in some of this Court’s judgments, the object of speedy resolution of disputes would govern appeals covered by Articles 116 and 117 of the Limitation Act.”

Hence, from the scheme of the Arbitration Act, condonation of delay under section 5 of the Limitation Act has to be seen in the context of the object of speedy resolution of disputes.

Why was NV International overruled?

Firstly, N.V. International does not notice the provisions of the Commercial Courts Act at all and can be said to be per incuriam on this count.

Secondly, the period of 90 days plus 30 days and not thereafter mentioned in section 34(3) of the Arbitration Act cannot now apply, the limitation period for filing of appeals under the Commercial Courts Act being 60 days and not 90 days.

Thirdly, the argument that absent a provision curtailing the condonation of delay beyond the period provided in section 13 of the Commercial Courts Act would also make it clear that any such bodily lifting of the last part of section 34(3) into section 37 of the Arbitration Act would also be unwarranted.

Stating that the difference between interpretation and legislation is sometimes a fine one, as it has repeatedly been held that judges do not merely interpret the law but also create law, the Court referred to the judgment in Eera v. State (NCT of Delhi), (2017) 15 SCC 133, wherein it was held,

“The golden rule in determining whether the judiciary has crossed the Lakshman Rekha in the guise of interpreting a statute is really whether a Judge has only ironed out the creases that he found in a statute in the light of its object, or whether he has altered the material of which the Act is woven. In short, the difference is the well-known philosophical difference between “is” and “ought”. Does the Judge put himself in the place of the legislator and ask himself whether the legislator intended a certain result, or does he state that this must have been the intent of the legislator and infuse what he thinks should have been done had he been the legislator. If the latter, it is clear that the Judge then would add something more than what there is in the statute by way of a supposed intention of the legislator and would go beyond creative interpretation of legislation to legislating itself. It is at this point that the Judge crosses the Lakshman Rekha and becomes a legislator, stating what the law ought to be instead of what the law is.”

Hence, given the ‘lakshman rekha’ laid down in the aforementioned judgment, the Court found it little difficult to appreciate how a cap can be judicially engrafted onto a statutory provision which then bars condonation of delay by even one day beyond the cap so engrafted.

[Government of Maharashtra v. Borse Brothers Engineers and Contractors Pvt. Ltd., 2021 SCC OnLine SC 233, decided on 19.03.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Case BriefsSupreme Court

Supreme Court: In an important ruling, the bench of Indu Malhotra* and Ajay Rastogi, JJ has held that the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996 would be governed by Article 137 of the First Schedule of the Limitation Act, 1963. Hence, the period of limitation will begin to run from the date when there is failure to appoint the arbitrator. Further,iIn rare and exceptional cases, where the claims are ex facie timebarred, and it is manifest that there is no subsisting dispute, the Court may refuse to make the reference.

The Court also suggested that,

“It would be necessary for Parliament to effect an amendment to Section 11, prescribing a specific period of limitation within which a party may move the court for making an application for appointment of the arbitration under Section 11 of the 1996 Act.”

This would be in consonance with the object of expeditious disposal of arbitration proceedings.

What would be the period of limitation for filing an application under Section 11 of the Arbitration and Conciliation Act, 1996?

Section 11 does not prescribe any time period for filing an application under sub-section (6) for appointment of an arbitrator. Since there is no provision in the 1996 Act specifying the period of limitation for filing an application under Section 11, one would have to take recourse to the Limitation Act, 1963, as per Section 43 of the Arbitration Act, which provides that the Limitation Act shall apply to arbitrations, as it applies to proceedings in Court.

It is a settled law that the limitation for filing an application under Section 11 would arise upon the failure to make the appointment of the arbitrator within a period of 30 days’ from issuance of the notice invoking arbitration.

“… an application under Section 11 can be filed only after a notice of arbitration in respect of the particular claim(s) / dispute(s) to be referred to arbitration [as contemplated by Section 21 of the Act] is made, and there is failure to make the appointment.”

However,  the period of limitation for filing a petition seeking appointment of an arbitrator/s cannot be confused or conflated with the period of limitation applicable to the substantive claims made in the underlying commercial contract. The period of limitation for such claims is prescribed under various Articles of the Limitation Act, 1963.

“The limitation for deciding the underlying substantive disputes is necessarily distinct from that of filing an application for appointment of an arbitrator. This position was recognized even under Section 20 of the Arbitration Act 1940.”

Given the vacuum in the law to provide a period of limitation under Section 11 of the Arbitration and Conciliation 1996, the Courts have taken recourse to the position that since none of the Articles in the Schedule to the Limitation Act, 1963 provide a time period for filing an application for appointment of an arbitrator under Section 11, it would be covered by the residual provision Article 137 of the Limitation Act, 1963 which provides a period of 3 years from the date when the right to apply accrues.

However, this is an unduly long period for filing an application u/S. 11, since it would defeat the very object of the Act, which provides for expeditious resolution of commercial disputes within a time bound period.

“The 1996 Act has been amended twice over in 2015 and 2019, to provide for further time limits to ensure that the arbitration proceedings are conducted and concluded expeditiously. Section 29A mandates that the arbitral tribunal will conclude the proceedings within a period of 18 months. In view of the legislative intent, the period of 3 years for filing an application under Section 11 would run contrary to the scheme of the Act.”

Hence, the period of limitation for filing an application under Section 11 would be governed by Article 137 of the First Schedule of the Limitation Act, 1963. The period of limitation will begin to run from the date when there is failure to appoint the arbitrator. This position will hold field till the Legislature comes up with an amendment to Section 11 of the 1996 Act to provide a period of limitation for filing an application under this provision, which is in consonance with the object of expeditious disposal of arbitration proceedings.

Whether the Court while exercising jurisdiction under Section 11 is obligated to appoint an arbitrator even in a case where the claims are ex facie time-barred?

In view of the legislative mandate contained in the amended Section 11(6A), the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the kompetenz-komptenz principle.

“The doctrine of kompetenz-komptenz implies that the arbitral tribunal is empowered and has the competence to rule on its own jurisdiction, including determination of all jurisdictional issues. This was intended to minimise judicial intervention at the pre-reference stage, so that the arbitral process is not thwarted at the threshold when a preliminary objection is raised by the parties.”

In a recent judgment delivered by a three-judge bench in Vidya Drolia v. Durga Trading Corporation(2021) 2 SCC 1, on the scope of power under Sections 8 and 11, it has been held that the Court must undertake a primary first review to weed out “manifestly ex facie non-existent and invalid arbitration agreements, or non-arbitrable disputes.”

“The prima facie review at the reference stage is to cut the deadwood, where dismissal is bare faced and pellucid, and when on the facts and law, the litigation must stop at the first stage. Only when the Court is certain that no valid arbitration agreement exists, or that the subject matter is not arbitrable, that reference may be refused.”

While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the Courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere “only” when it is “manifest” that the claims are ex facie time barred and dead, or there is no subsisting dispute.

“It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred, or that the dispute is non-arbitrable, that the court may decline to make the reference. However, if there is even the slightest doubt, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal.”

[BSNL v. Nortel Network India Pvt. Ltd., 2021 SCC OnLine SC 207, decided on 10.03.2021]


*Judgment by: Justice Indu Malhotra 

Appearances before the Court by:

For appellants: Senior Advocate R.D. Agrawala

For respondent: Senior AdvocateNeeraj Kumar Jain, Senior Advocate

Amicus Curiae: Senior Advocate Arvind Datar

Case BriefsSupreme Court

Supreme Court: As the country heads towards returning to normalcy, the 3-judge bench of SA Bobde, CJ and L. Nageswara Rao and S. Ravindra Bhat, JJ jas issued fresh guidelines in relation to the period of limitation for filing petitions/applications/suits/appeals/all other proceedings.

“Though, we have not seen the end of the pandemic, there is considerable improvement. The lockdown has been lifted and the country is returning to normalcy. Almost all the Courts and Tribunals are functioning either physically or by virtual mode.”

Due to the onset of COVID-19 pandemic, by an order dated 27.03.2020*, the Supreme Court had extended the period of limitation prescribed under the general law or special laws whether compoundable or not with effect from 15.03.2020 till further orders. The order dated 15.03.2020* was extended from time to time. The said decision was taken after taking note of the difficulties that might be faced by the litigants across the country in filing petitions/applications/suits/appeals/all other proceedings within the period of limitation prescribed under the general law of limitation or under any special laws (both Central or State).

Here are the fresh directions:

  1. In computing the period of limitation for any suit, appeal, application or proceeding, the period from 15.03.2020 till 14.03.2021 shall stand excluded. Consequently, the balance period of limitation remaining as on 15.03.2020, if any, shall become available with effect from 15.03.2021.
  2. In cases where the limitation would have expired during the period between 15.03.2020 till 14.03.2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 15.03.2021. In the event the actual balance period of limitation remaining, with effect from 15.03.2021, is greater than 90 days, that longer period shall apply.
  3. The period from 15.03.2020 till 14.03.2021 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.
  4. The Government of India shall amend the guidelines for containment zones, to state. “Regulated movement will be allowed for medical emergencies, provision of essential goods and services, and other necessary functions, such as, time bound applications, including for legal purposes, and educational and job-related requirements.”

[IN RE: COGNIZANCE FOR EXTENSION OF LIMITATION, 2021 SCC OnLine SC 193, order dated 08.03.2021]


*Ed. Note: The order erroneously mentions the order dated 23.03.2020 as the order dated 27.03.2020 and the order dated 15.03.2020. Read the following report on the order dated 23.03.2020 extending the limitation period for filing petitions/applications/suits/appeals/etc. 

Coronavirus (COVID-19)| SC extends limitation period for filing petitions/applications/suits/appeals, etc.

Case BriefsSupreme Court

Supreme Court: The bench of Indu Malhotra* and Ajay Rastogi, JJ was posed with the question as to whether the period of limitation for filing the Petition under Section 34 of the Arbitration and Conciliation Act, 1996 would commence from the date on which the draft award is circulated to the parties, or the date on which the signed copy of the award is provided. Going with the latter, the Court held that the period of limitation for filing objections would have to be reckoned from the date on which the signed copy of the award was made available to the parties.

“There is only one date recognised by law i.e. the date on which a signed copy of the final award is received by the parties, from which the period of limitation for filing objections would start ticking. There can be no finality in the award, except after it is signed, because signing of the award gives legal effect and finality to the award.”

Below are the key points highlighted by the Court:

  • Section 31 (1) is couched in mandatory terms, and provides that an arbitral award shall be made in writing and signed by all the members of the arbitral tribunal.

“If the arbitral tribunal comprises of more than one arbitrator, the award is made when the arbitrators acting together finally express their decision in writing, and is authenticated by their signatures.”

  • An award takes legal effect only after it is signed by the arbitrators, which gives it authentication. There can be no finality of the award, except after it is signed, since signing of the award gives legal effect and validity to it.
  • The making and delivery of the award are different stages of an arbitration proceeding. An award is made when it is authenticated by the person who makes it. The statute makes it obligatory for each of the members of the tribunal to sign the award, to make it a valid award. The usage of the term “shall” makes it a mandatory requirement. It is not merely a ministerial act, or an empty formality which can be dispensed with.
  • The legal requirement under sub-section (5) of Section 31 is the delivery of a copy of the award signed by the members of the arbitral tribunal / arbitrator, and not any copy of the award. On a harmonious construction of Section 31(5) read with Section 34(3), the period of limitation prescribed for filing objections would commence only from the date when the signed copy of the award is delivered to the party making the application for setting aside the award.

“If the law prescribes that a copy of the award is to be communicated, delivered, dispatched, forwarded, rendered, or sent to the parties concerned in a particular way, and since the law sets a period of limitation for challenging the award in question by the aggrieved party, then the period of limitation can only commence from the date on which the award was received by the concerned party in the manner prescribed by law.”

  • In an arbitral tribunal comprising of a panel of three members, if one of the members gives a dissenting opinion, it must be delivered contemporaneously on the same date as the final award, and not on a subsequent date, as the tribunal becomes functus officio upon the passing of the final award. The period for rendering the award and dissenting opinion must be within the period prescribed by Section 29A of the Act.
    • The dissenting opinion of a minority arbitrator can be relied upon by the party seeking to set aside the award to buttress its submissions in the proceedings under Section 34.
    • At the stage of judicial scrutiny by the Court under Section 34, the Court is not precluded from considering the findings and conclusions of the dissenting opinion of the minority member of the tribunal
  • The date on which the signed award is provided to the parties is a crucial date in arbitration proceedings under the Arbitration and Conciliation Act, 1996. It is from this date that:

(a) the period of 30 days’ for filing an application under Section 33 for correction and interpretation of the award, or additional award may be filed;

(b) the arbitral proceedings would terminate as provided by Section 32(1) of the Act;

(c) the period of limitation for filing objections to the award under Section 34 commences.

  • Section 34(3) provides a specific time limit of three months from the date of “receipt” of the award, and a further period of thirty days, if the Court is satisfied that the party was prevented by sufficient cause from making the application within the said period, but not thereafter

“If the objections are not filed within the period prescribed by Section 34, the award holder is entitled to move for enforcement of the arbitral award as a deemed decree of the Court u/S. 36 of the Act.”

[DAKSHIN HARYANA BIJLI VITRAN NIGAM LTD. v. NAVIGANT TECHNOLOGIES PVT. LTD., 2021 SCC OnLine SC 157 , decided on 02.03.2021]


*Judgment by: Justice Indu Malhotra

Case BriefsSupreme Court

Supreme Court: The bench of Dr. DY Chandrachud and MR Shah, JJ has held that consumer fora has no jurisdiction and/or power to accept the written statement beyond the period of 45 days.

The Court was hearing the case where the National Consumer Disputes Redressal Commission had confirmed the order passed by the Karnataka State Consumer Disputes Redressal Commission rejecting the application seeking condonation of delay in filing the written statement to the consumer complaint. The written version/written statement was filed beyond the prescribed period of limitation provided under the Consumer Protection Act, 1986, i.e., beyond the period of 45 days.

As per the Consumer Protection Act, 1986, the written version/written statement is required to be filed within 30 days and the same can be extended by a further period of 15 days.

As per the decision of the Constitution Bench in New India Assurance company Limited v. Hilli Multipurpose Cold Storage Private Limited, (2020) 5 SCC 757,

“the District Forum has no power to extend the time to file the response to the complaint beyond the period of 15 days in addition to 30 days as is envisaged under Section 13 of the Act.”

It was, however, submitted by the petitioner that as observed in paragraph 63, the said judgment shall be applicable prospectively only. Therefore, the aforesaid decision shall not be applicable retrospectively to the complaints filed before the said decision.

Refusing the accept the contention, the Court said that as per the decision in J.J. Merchant v. Shrinath Chaturvedi, (2002) 6 SCC 635, which was a three Judge Bench decision, consumer fora has no power to extend the time for filing a reply/written statement beyond the period prescribed under the Act. However, thereafter, despite the above three Judge Bench decision, a contrary view was taken by a two Judge Bench and therefore the matter was referred to the five Judge Bench and the Constitution Bench has reiterated the view taken in the case of J.J.Merchant and has again reiterated that the consumer fora has no power and/or jurisdiction to accept the written statement beyond the statutory period prescribed under the Act, i.e., 45 days in all.

The petitioner had then relied on Reliance General Insurance Co. Ltd. v.  Mampee Timbers & Hardwares Pvt. Ltd., 2017 SCC OnLine SC 2027, wherein it was directed that the consumer fora may accept the written statement beyond the stipulated time of 45 days in an appropriate case, on suitable terms, including the payment of costs and to proceed with the matter, keeping in view the fact that the judgment of this Court in the case of New India Assurance Company Limited v. Hilli Multipurpose Cold Storage Private Limited, (2015) 16 SCC 20 has been referred to a larger Bench.

The Court rejected this contention too on the ground that the Court had, in Reliance General Insurance Co. Ltd, specifically mentioned that

“it will be open to the concerned fora to accept the written statement filed beyond the stipulated period of 45 days in an appropriate case, on suitable terms, including the payment of costs and to proceed with the matter.”

Therefore, ultimately, it was left to the concerned fora to accept the written statement beyond the stipulated period of 45 days in an appropriate case.

In the present case, despite sufficient time granted the written statement was not filed within the prescribed period of limitation. Therefore, the Court observed that the National Commission had considered the aspect of condonation of delay on merits also.

[Daddy’s Builders Pvt. Ltd. v. Manisha Bhargava, 2021 SCC OnLine SC 82, decided on 11.02.2021]


*Judgment by: Justice MR Shah

Petitioner’s Counsel: Advocate Ashish Choudhary

ALSO READ

District Forum can’t extend limitation period of 45 days for filing response under Section 13 of Consumer Protection Act

Case BriefsHigh Courts

Himachal Pradesh High Court: Jyotsna Rewal Dua J., dismissed the petition being non-maintainable.

The petitioner by way of this instant petition has challenged the election of Respondent 5 as Member, Block Development Committee, Misserwala, District Sirmour in the elections to Panchayati Raj Institutions of the State concluded in January 2021. The writ petition has been filed seeking that the respondent election commission may be directed to start the fresh election and declare the election under challenge as null and void.

The issue before the High Court is the maintainability of writ petitions under Article 226 of the Constitution of India vis-à-vis Article 243-O of the Constitution of India in respect of limitation in exercise of judicial review by the Court in election matters.

Section 162 of the H.P. Panchayati Raj Act provides that no election under the Act shall be called in question except by an election petition presented in accordance with the provisions of the chapter and Section 175 of the Act enumerates the grounds for declaring election to be void.

The Court stated

 “We are also conscious of the limitations set forth on such exercise of judicial review in view of bar of jurisdiction imposed by Article 243-O of the Constitution of India, which is quoted hereinbelow:-

“243-O. Bar to interference by Courts in electoral matters- Notwithstanding anything in this Constitution-

(a) the validity of any law relating to the delimitation of constituencies or the allotment of seats to such constituencies made or purporting to be made under article 243K, shall not be called in question in any court;

(b) no election to any Panchayat shall be called in question except by an election petition presented to such authority and in such manner as is provided for by or under any Law made by the Legislature of a State.”

 The Court further relied on judgment Laxmibai v. Collector, Nanded, (2020) 12 SCC 186 wherein it was observed the maintainability of writ petitions under Article 226 of the Constitution of India vis-a-vis Article 243-O of the Constitution of India in respect of limitation in exercise of judicial review by the Court in election matters, it was held that all election disputes must be determined only by way of an election petition. This by itself may not per-se bar judicial review, which is the basic structure of the Constitution but ordinarily, such jurisdiction would not be exercised. The relevant paragraphs of the judgment are extracted hereinafter:

 “15. It is true that the High Court exercises a plenary jurisdiction under Article 226 of the Constitution of India. Such jurisdiction being discretionary in nature may not be exercised inter alia keeping in view of the fact that an efficacious alternative remedy is available therefor. (See Mrs.

  1. Article 243-O of the Constitution of India mandates that all election disputes must be determined only by way of an election petition. This by itself may not per se bar judicial review which is the basic structure of the Constitution, but ordinarily such jurisdiction would not be exercised. There may be some cases where a writ petition would be entertained but in this case we are not concerned with the said question.
  2. ….a writ petition should not be entertained when the main question which fell for decision before the High Court was non-compliance of the provisions of the Act which was one of the grounds for an election petition in terms Rule 12 framed under the Act.”
  3. Section 10A of the 1959 Act and Section 9A of the 1961 Act read with Articles 243-K and 243-O, are pari material with Article 324 of the Constitution of India. In view of the judgments referred, we find that the remedy of an aggrieved person accepting or rejecting nomination of a candidate is by way of an election petition in view of the bar created under Section 15A of the 1959 Act. The said Act is a complete code providing machinery for redressal to the grievances pertaining to election as contained in Section 15 of the 1959 Act. The High Court though exercises extraordinary jurisdiction under Article 226 of the Constitution of India but such jurisdiction is discretionary in nature and may not be exercised in view of the fact that an efficacious alternative remedy is available and more so exercise restraint in terms of Article 243-O of the Constitution of India. Once alternate machinery is provided by the statute, the recourse to writ jurisdiction is not an appropriate remedy. It is a prudent discretion to be exercised by the High Court not to interfere in the election matters, especially after declaration of the results of the elections but relegate the parties to the remedy contemplated by the statute. In view of the above, the writ petition should not have been entertained by the High Court. However, the order of the High Court that the appellant has not furnished the election expenses incurred on the date of election does not warrant any interference.”

 The Court thus held that “the instant writ petition is not maintainable at all and the same is accordingly dismissed with liberty reserved to the petitioner to avail appropriate alternate remedy in accordance with law.” [Kauser v. State Election Commission,  2021 SCC OnLine HP 227, decided on 08-02-2021]


Arunima Bose, Editorial Assistant has put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Ashok Jindal (Judicial Member) allowed an appeal which was filed against the impugned order wherein credit had been denied on the premise as per Notification No.02/14-CE (N.T.) dt. 20-01-2014, the appellant was not entitled to credit prior to the Notification No.01/10-CE dt. 6-02-2010.

The appellant was located in the State of Jammu & Kashmir and was availing the benefit of exemption Notification No.01/10-CE dt.6-02-2010. The appellant procured certain inputs and availed credit of duty paid on these inputs. The Revenue stated that an assessee is not entitled to avail credit against the inputs issued by the units, who were availing exemption under Notification No.01/10-CE dt. 6-02-2010 and after the introduction of Notification No.02/14-CE (N.T.) dt. 20-01-2014, the notification No.01/10-CE dt. 6-02-2010 was amended thereafter the credit was available to the assessee. After adjudication, the credit availed by the appellant was denied. Counsel for the appellant also submitted that the period involved in this case was 01-08-2012 to 19-01-2014 whereas the show cause notice had been issued on 31-08-2017 by invoking the extended period of limitation.

The Tribunal observed that similarly placed assessee was allowed the credit although against those orders, the appeals had been filed by the Revenue before the Commissioner (Appeals), in that circumstance, when the Revenue was having divergent views on the issue, the extended period of limitation was not applicable.

The Tribunal allowed the appeal stating that the denial of credit was barred by limitation as the show cause notice was issued by invoking the extended period of limitation.[Pioneer Pesticides (P) Ltd. v. Commr. of CGST, 2021 SCC OnLine CESTAT 8, decided on 12-01-2021]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsSupreme Court Roundups

Did you know? In the year 2020,

    • All the Constitution bench verdicts were unanimous with no dissenting opinion.
    • 9 out of 11 Constitution bench judgments were delivered by benches consisting of Justices Arun Mishra, Indira Banerjee, Vineet Saran and M.R. Shah, followed by Justices Aniruddha Bose and S. Ravindra Bhat who were part of Constitution benches in 5 and 4 cases, respectively.

As we look forward to the new year of 2021, here is a quick recap of the Constitution bench verdicts delivered by the Supreme Court of India in 2020.

1. Questions of law can be referred to larger bench while hearing a review petition

9-judge bench: SA Bobde, CJ and R Banumathi, Ashok Bhushan, L Nageswara Rao, M M Shantanagoudar, S A Nazeer, R Subhash Reddy, B R Gavai and Surya Kant, JJ

After renowned jurist and senior advocate Fali Nariman objected to the manner in which the Supreme Court turned a review of the Sabarimala case into an opportunity to set up a nine-judge Bench and examine whether certain essential religious practices of various faiths, including Islam and Zoroastrianism, should be constitutionally protected, the 9-judge bench held that the Supreme Court can refer questions of law to a larger bench while exercising its review jurisdiction.

The Court had in November last year, suggested that the Sabarimala issue along with other related issues, be heard by a larger bench of at least 7-judges. [Read: Sabarimala Review Petitions Not Referred To A Larger Bench, But Kept Pending. Here’s What Supreme Court Has Actually Held]

Read more…

[Kantaru Rajeevaru v. Indian Young Lawyers Assn, (2020) 3 SCC 52]


2. Pleas challenging the abrogation of Article 370 not referred to a larger bench

5-judge bench: NV Ramana, SK Kaul, R. Subhash Reddy, BR Gavai and Surya Kant, JJ

The bench refused to refer the petitions challenging the constitutional validity of the Centre’s move to abrogate Article 370 to a larger bench. Holding that there is no conflict between the judgments in the Prem Nath Kaul case and the Sampat Prakash casethe bench said that judgments cannot be interpreted in a vacuum, separate from their facts and context. Observations made in a judgment cannot be selectively picked in order to give them a particular meaning. It noted,

the Constitution Bench in the Prem Nath Kaul case did not discuss the continuation or cessation of the operation of Article 370 of the Constitution after the dissolution of the Constituent Assembly of the State. This was not an issue in question before the Court, unlike in the Sampat Prakash case where the contention was specifically made before, and refuted by, the Court. This Court sees no reason to read into the Prem Nath Kaul case an interpretation which results in it being in conflict with the subsequent judgments of this Court, particularly when an ordinary reading of the judgment does not result in such an interpretation.”

Read more…

[Dr. Shah Faesal v. Union of India, (2020) 4 SCC 1]


3. No time limit could be fixed while granting anticipatory bail

5-judge bench: Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah, and S. Ravindra Bhat, JJ

The bench unanimously ruled that the protection granted to a person under Section 438 Cr.PC should not invariably be limited to a fixed period; it should inure in favour of the accused without any restriction on time.

Read more…

[Sushila Aggarwal v. State of NCT of Delhi,  (2020) 5 SCC 1]


4. No lapse of acquisition proceedings if government has ‘paid’ compensation

5-judge bench: Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah, and S. Ravindra Bhat, JJ

The bench unanimously held that the land owners who had refused to accept compensation or who sought reference for higher compensation, cannot claim that the acquisition proceedings had lapsed under Section 24(2) of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013

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

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

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

Read more…

[Indore Development Authority v. Manohar Lal Sharma, (2020) 8 SCC 129]


5. States, and not MCI, have power to make reservation for in-service candidates in Post Graduate Medical Course 

5-judge bench: Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, JJ

The bench unanimously held that States have the legislative competence and/or authority to provide for a separate source of entry for in-service candidates seeking admission to postgraduate degree/diploma courses, in exercise of powers under Entry 25, List III.

“…policy must provide that subsequent to obtaining the postgraduate degree by the concerned in-service doctors obtaining entry  in degree courses through such separate channel serve the State in the rural, tribal and hilly areas at least for five years after obtaining the degree/diploma and for that they will execute bonds for  such  sum the   respective  States  may   consider   fit  and  proper”

 The Court, however, specifically observed and clarified that the present decision shall operate prospectively, and any admissions given earlier taking a contrary view shall not be affected by this judgment.

Read more…

[TN Medical Officers Association v. Union of India, 2020 SCC OnLine SC 699]


6. Sub-classification of Scheduled Castes| E.V. Chinnaiah decision to be revisited; Matter referred to larger bench

5-judge bench: Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, JJ

After noticing that a 5-Judge Bench in E.V. Chinnaiah v. State of A.P., (2005) 1 SCC 394, is required to be revisited, the bench referred the matter to a larger bench and said,

“Reservation was not contemplated for all the time by the framers of the Constitution.  On the one hand, there is no exclusion of those who have come up, on the other hand, if sub¬classification is denied, it would defeat right to equality by treating unequal as equal.”

Read more…

[State of Punjab v. Davinder Singh, (2020) 8 SCC 1]


7. SARFAESI Act applicable to Co­operative Banks

5-judge bench of Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, JJ

The bench unanimously held that banking’ relating to co­operatives can be included within the purview of Entry 45 of List I, and it cannot be said to be over inclusion to cover provisions of recovery by co­operative banks in the SARFAESI Act.

Holding that Co­operative bank’s entire operation and activity of banking are governed by a law enacted under Entry 45 of List I, i.e., the BR Act, 1949, and the RBI Act under Entry 38 of List I, the bench said,

“recovery of dues would be an essential function of any banking institution and the Parliament can enact a law under Entry 45 of List I as the activity of banking done by co­operative banks is within the purview of Entry 45 of List I. Obviously, it is open to the Parliament to provide the remedy for recovery under Section 13 of the SARFAESI Act.”

Read more…  

[Pandurang Ganpati Chaugale v. Vishwasrao Patil Murgud Sahakari Bank Ltd,  (2020) 9 SCC 215]


8. Andhra Pradesh’s 100% reservation for Scheduled Tribe candidates for the post of teachers without rhyme or reason

5-judge bench: Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, JJ 

Holding the Government Office Ms. No.3 dated 10.1.2000 issued by the erstwhile State of Andhra Pradesh providing 100% reservation to the Scheduled Tribe candidates out of whom 33.1/3% shall be women for the post of teachers in the schools in the scheduled areas in the State of Andhra Pradesh, unconstitutional, the bench said that there was no rhyme or reason with the State Government to resort to 100% reservation.

“It was least expected from the functionary like Government to act in aforesaid manner as they were bound by the dictum laid down by this Court in Indra Sawhney and other decisions holding that the limit of reservation not to exceed 50%.”

Read more…

[Chebrolu Leela Prasad Rao v. State of Andhra Pradesh, 2020 SCC OnLine SC 383]


9. District Forum can’t extend limitation period of 45 days for filing response under Section 13 of Consumer Protection Act

5-judge bench: Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and S. Ravindra Bhat, JJ

The bench unanimously held that the District Forum has no power to extend the time for filing the response to the complaint beyond the period of 15 days in addition to 30 days as is envisaged under Section 13 of the Consumer Protection Act, 1986.

The bench was answering the reference relating to the grant of time for filing response to a complaint under the provisions of the Consumer Protection Act, 1986 wherein the answers to the following questions were sought:

  • whether Section 13(2) (a) of the Consumer Protection Act, which provides for the respondent/opposite party filing its response to the complaint within 30 days or such extended period, not exceeding 15 days, should be read as mandatory or directory; i.e., whether the District Forum has power to extend the time for filing the response beyond the period of 15 days, in addition to 30 days.
  • what would be the commencing point of limitation of 30 days stipulated under the aforesaid Section.

Read more…

[New India Assurance v. Hilli Multipurpose Cold Storage Pvt. Ltd., (2020) 5 SCC 757]


10. Accused under NDPS Act not entitled to acquittal as a blanket rule merely because the complainant is the investigating officer

5-judge bench: Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and S. Ravindra Bhat, JJ

The bench unanimously held that the accused under the Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act) is not entitled to an acquittal as a blanket rule merely because the complainant is the investigating officer.

“… merely because the informant is the investigator, by that itself the investigation would not suffer the vice of unfairness or bias and therefore on the sole ground that informant is the investigator, the accused is not entitled to acquittal. The matter has to be decided on a case to case basis.”

Read more…

[Mukesh v. State (Narcotic Branch of Delhi), (2020) 10 SCC 120]


11. State Government cannot fix the “minimum price” of sugarcane once Centre has already fixed it

5-judge bench: Arun Mishra, Indira Banerjee and Vineet Saran, M.R. Shah and Aniruddha Bose, JJ,

The bench unanimously held that once the Central Government having exercised the power under Entries 33 and 34 List III of seventh Schedule and fixed the “minimum price”, the State Government cannot fix the “minimum price” of sugarcane.

By virtue of Entries 33 and 34 List III of seventh Schedule, both the Central Government as well as the State Government have the power to fix the price of sugarcane. The Court, however, clarified that

“it is always open for the State Government to fix the “advised price” which is always higher than the “minimum price”, in view of the relevant provisions of the Sugarcane (Control) Order, 1966, which has been issued in exercise of powers under Section 16 of the U.P. Sugarcane (Regulation of Supply and Purchase) Act, 1953.”

Read more…

[West UP Sugar Mills Association v. State of Uttar Pradesh, (2020) 9 SCC 548]


Also read:

Supreme Court year-end roundup| From important judgments to unmissable facts and stories, here’s a comprehensive roundup of all that happened in 2020

Case BriefsSupreme Court

Supreme Court: The bench of AM Khanwilkar* and Dinesh Maheshwari, JJ has held that for invoking Section 17 of the Limitation Act, 1963, two ingredients i.e. existence of a fraud and discovery of such fraud, have to be pleaded and duly proved and that in case of failure to establish the existence of fraud, there is no occasion for its discovery.


Background of the case


The dispute dating back to 1990 pertains to a General Power of Attorney (GPA) purported to have been executed by the plaintiff in favour of defendant No. 1 and consequently sale deeds executed by defendant No. 1 as an attorney of the plaintiff. However, according to the plaintiff, reposing complete trust in her step brothers to step-brothers, she had signed on blank papers under the guise of preparation and processing of documents for the purpose of getting the estate left behind by their father mutated in their names.

After analysing the evidence on record, the trial Court dismissed the suit filed by the plaintiff and this order was upheld by the appellate Court. The High Court, however, reversed the concurrent opinions of two Courts and held that the trial Court as well as the first appellate Court committed manifest error and misapplied the settled legal position.

Challenging the High Court’s decision before the Supreme Court, the defendants argued that interference by the High Court was unwarranted as the same did not involve any substantial question of law. On merits, the aforesaid defendants contended that the evidence of the plaintiff was self­-contradictory, as she first claimed that her signatures were taken on blank papers and then denied her signatures occurring on the 1990 GPA. The plea that the signatures were taken on blank papers was not substantiated as the 1990 GPA was executed on stamp papers.


Analysis


The Court held that the diverse grounds urged by the plaintiff in disputing the 1990 GPA and the sale deeds were unsubstantiated and untenable. Here are the key factors taken into consideration by the Court:

  • As the record revealed that the disputed documents were registered, the Court, guided by the settled legal principle that a document is presumed to be genuine if the same is registered, was of the opinion that the initial onus was on the plaintiff, who had challenged the stated registered document.
  • As the execution of the 1990 GPA and the sale deeds in the present cases was denied by the plaintiff, it became necessary for the plaintiff to examine the attesting witnesses of the disputed documents to establish her allegation about its non-execution. However, both the attesting witnesses were not examined.

“The trial Court had justly placed the initial burden of proof upon the plaintiff as it was her case that the subject documents were forged or product of fraud and moreso because the documents bore her signature. The first appellate Court did not elaborate on that aspect. Even assuming that the burden had shifted upon the defendants, the witness identifying signatures of the dead attesting witness was examined by the defendants. Therefore, the documents stood proved and the burden was duly discharged by the defendants.”

  • The evidence of plaintiff’s deed writer (PW4) unveiled that the stated documents were prepared on the basis of instructions of the plaintiff and had been duly executed by her in the presence of the attesting witnesses.

“… the trial Court and the first appellate Court had relied upon the evidence of PW4. The High Court, however, proceeded on surmises and conjectures and took a view which is perverse and tenuous.   In that, the ground on which the High Court rejected the evidence of PW4 is that he was known to the defendant No. 4 since his school days. We do not find it to be a correct approach to disregard  the credible testimony of the witness examined by the plaintiff herself (without declaring him as a hostile witness) and especially when it had come on record that the said scribe is a regular deed writer at  the  Tehsil  complex,  Dasuya.  Notably, PW4 had not been declared hostile at the instance of the plaintiff and as such, this part of his testimony would be staring at the plaintiff.”

  • Since the attesting witness had proved the execution of the sale deeds, the primary onus upon the plaintiff had not shifted unto the defendants. Further, the plaintiff was obliged to rebut the positive evidence produced by the defendants regarding payment of consideration amount to the plaintiff; but also ought to have independently proved her case of non-receipt of the consideration amount.

Ruling


Concluding that the plaintiff failed to prove that her signatures on the subject documents are forged, the Court reiterated that the standard of proof required in a civil dispute is preponderance of probabilities and not beyond reasonable doubt.

“In the present cases, though the discrepancies in the 1990 GPA are bound to create some doubt, however, in absence of any tangible evidence produced by the plaintiff to support the plea of fraud, it does not take the matter further. Rather, in this case the testimony of the attesting witness, scribe and other independent witnesses plainly support the case of the defendants. That evidence dispels the doubt if any; and tilt the balance in favour of the defendants.”

[Rattan Singh v. Nirmal Gill, 2020 SCC OnLine SC 936, decided on 16.11.2020]


*Justice AM Khanwilkar has penned this judgment 

Case BriefsSupreme Court

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

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

Origin and history of right of pre-emption

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

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

Recurring right or a one-time right

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

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

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

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

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

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

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

Case BriefsHigh Courts

Patna High Court: In a petition alleging Section 234E of the Income Tax Act, 1961 to be unconstitutional, ultra vires and in contravention of the Constitution of India, Division Bench of Sanjay Karol, CJ., and S. Kumar, J., disposed of the petition refuting all the said allegations and upholding Section 234E as constitutionally valid.

Two fold submissions have been made by the petitioner in the present petition which are (1) constitutional validity of Section 234E of the Income Tax Act, 1961 is challenged; (2) Initiation of proceedings under Section 200A of the Income Tax Act, 1961 is bad in law.

The factual matrix in the present matter is such that a fee for default in furnishing statement under heading Levy of fee in certain cases in chapter XVII-Collection and Recovery-Interest Chargeable has been levied on the petitioner and the same has been challenged.

While dealing with the first issue whereby the constitutional validity of Section 234E of the Income Tax Act, 1961 has been challenged, the Court found no substance in the said contention raised by the petitioner. It is held that under no circumstances can it be implied that the aforementioned statute has was passed by an incompetent legislature or that it has infringed the rights guaranteed under Part III of the Constitution of India. Section 234E is reproduced below for reference-

“234E. Fee for default in furnishing statements.

—(1) Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.

(2) The amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible, as the case may be.

(3) The amount of fee referred to in sub-section (1) shall be paid before delivering or causing to be delivered a statement in accordance with sub-section

(3) of section 200 or the proviso to sub-section (3) of section 206C.

(4) The provisions of this section shall apply to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of Section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.”

Further, relying on the position adopted by other Indian Courts of law while settling a similar issue in a string of case laws, the Court dismissed this contention raised by the petitioner basis the judgments delivered in the cases of Rashmikant Kundailia v. Union of India, (2015) 373 ITR 0268 (Bom), Dr Amrit Lal Mangal v. Union of India, (2015) 235 Taxman 0410 (P &H) and Biswajit Das v. Union of India, (2019) 413 ITR 0092 (Delhi).

Now with respect to the second contention of the petitioner that the proceedings under Section 200A of the Income Tax Act, 1961 is bad in law, the counsel for the petitioner, D.V. Pathy has submitted that the petitioner will be taking recourse under the statutory remedy that is available to him. He pleads for the issue of limitation to be relaxed.

Counsel of the respondents, Archana Sinha has submitted that the issue of limitation shall not be raised during the proceedings given that the petitioner takes recourse under the statute within a period of thirty days from the date of passing of this order.

In view of the facts, circumstances, authorities cited and the arguments advances, the Court disposed of the petition with the direction that the subject of limitation shall not come into the picture if statutory proceedings are initiated within a period of thirty days from the date of this order.[L.N. Sales Pvt. Ltd. v. Union of India, 2020 SCC OnLine Pat 1232, decided on 20-08-2020]