Case BriefsSupreme Court

Supreme Court: In a case where a woman had sought compassionate appointment after her mother’s death in the year 2012, the bench of MR Shah* and Anirudhha Bose, JJ has held that the norms prevailing on the date of consideration of the application should be the basis of consideration of claim for compassionate appointment and since the word ‘divorced daughter’ has been added to Rule 3 of Karnataka Civil Services (Appointment on Compassionate Grounds) Rules 1996 subsequently by Amendment, 2021, the respondent was not entitled to compassionate appointment.

[Note: Rule 2[1] and Rule 3[2] of the Rules 1996 do not include ‘divorced daughter’ as eligible for appointment on compassionate ground and even as ‘dependent’. The same was added to Rule 3 recently by Amendment, 2021.]

However, as straightforward as the case might look, the facts had a very interesting story to tell.

  • The mother of the original writ petitioner, who was employed with the Government of Karnataka as Second Division Assistant at Mandya District Treasury, died on 25.03.2012. The respondent, at that time, was a married daughter.
  • Immediately on the death of the deceased employee, the respondent initiated the divorced proceedings under Section 13B of the Hindu Marriage Act, 1955 on 12.09.2012 for decree of divorce by mutual consent.
  • By Judgment dated 20.03.2013, the Learned Principal Civil Judge, Mandya granted the decree of divorce by mutual consent.
  • Immediately on the very next day i.e. on 21.03.2013, the respondent, on the basis of the decree of divorce by mutual consent applied for appointment on compassionate ground.

Taking note of the aforementioned chronology of dates and events, the Court opined that only for the purpose of getting appointment on compassionate ground the decree of divorce by mutual consent has been obtained. Otherwise, as a married daughter she was not entitled to the appointment on compassionate ground.

Interestingly, the High Court had directed the appointing authority to grant compassionate   appointment to the respondent after interpreting Rule 3 of the Rules, 1996 by putting “divorced daughter” in the same class of an unmarried or widowed daughter.

The said judgment was, however, erroneous as per the ruling in N.C. Santhosh v. State of Karnataka, (2020) 7 SCC 617, wherein it was held that

(i) the compassionate appointment is an exception to the general rule;

(ii) no aspirant has a right to compassionate appointment;

(iii) the appointment to any public post in the service of the State has to be made on the basis of the principle in accordance with Articles 14 and 16 of the Constitution of India;

(iv) appointment on compassionate ground can be made only on fulfilling the norms laid down by the State’s policy and/or satisfaction of the eligibility criteria as per the policy;

(v) the norms prevailing on the date of the consideration of the application should be the basis for consideration of claim for compassionate appointment.

Taking note of point number (v), the Court said that,

“… only ‘unmarried daughter’ and ‘widowed daughter’ who were dependent upon the deceased female Government servant at the time of her death and living with her can be said to be ‘dependent’ of a deceased Government servant and that ‘an unmarried daughter’ and ‘widowed daughter’ only can be said to be eligible for appointment on compassionate ground in the case of death of the female Government servant.”

Calling the High Court’s decision erroneous, the Court said that

“…even if it is assumed that the ‘divorced daughter’ may fall in the same class of ‘unmarried daughter’ and ‘widowed daughter’ in that case also the date on which the deceased employee died, the respondent herein was not the ‘divorced daughter’ as she obtained  the divorce by mutual consent subsequent to the death of the deceased employee.

Hence, the respondent shall not be eligible for the appointment on compassionate ground on the death of her mother and deceased employee.

[Director of Treasuries in Karnataka v. V. Somyashree, 2021 SCC OnLine SC 704, decided on 13.09.2021]


[1] 2.   Definitions:­

(1)   In   these   rules, unless the context otherwise requires:­

(a) “Dependent   of   a   deceased   Government servant” means­

(i) in   the   case   of   deceased   male   Government servant, his widow, son, (unmarried daughter and widowed daughter) who were dependent upon him; and were living with him; and

(ii) in the case of a deceased female Government servant,   her   widower,   son,   (unmarried daughter   and   widowed   daughter)   who   were dependent upon her and were living with her;

(iii) ‘family’ in relation to a deceased Government servant means his or her spouse and their son,   (unmarried   daughter   and   widowed daughter) who were living with him.

(2)     Words   and   expressions   used   but   not defined shall have the same meaning assigned to   them   in   the   Karnataka   Civil   Services (General Recruitment) Rules, 1977.

[2] Rule 3(2)(ii):­

(ii)   in the case of the deceased female Government servant;

(a) a son;

(b) an   unmarried   daughter,   if   the   son   is   not eligible or for any valid reason he is not willing to accept the appointment;

(c) the widower, if the son and daughter are not eligible or for any valid reason they are not willing to accept the appointment.

(d) a widowed daughter, if the widower, son and unmarried daughter are not eligible or for any valid reason they are not willing to accept the appointment.


*Judgment by: Justice MR Shah

Know Thy Judge | Justice M. R. Shah

Appearances before the Court by:

For State: Advocate V.N. Raghupathy

For Respondent: Advocate Mohd. Irshad Hanif

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of AM Khanwilkar, BR Gavai* and Krishna Murari has explained the true test to determine whether a party has waived its rights or not. It has held that for establishing waiver, it will have to be established, that a party expressly or by its conduct acted in a manner, which is inconsistent with the continuance of its rights. There can be no waiver unless the person who is said to have waived, is fully informed as to his rights and with full knowledge about the same, he intentionally abandons them.

“As such, for applying the principle of waiver, it will have to be established, that though a party was aware about the relevant facts and the right to take an objection, he has neglected to take such an objection.”

However, the mere acts of indulgence will not amount to waiver. A party claiming waiver would also not be entitled to claim the benefit of waiver, unless it has altered its position in reliance on the same.

The Court explained that a waiver cannot always and in every case be inferred merely from the failure of the party to take the objection. Waiver can be inferred, only if and after it is shown that the party knew about the relevant facts and was aware of his right to take the objection in question.

“The waiver or acquiescence, like election, presupposes, that the person to be bound is fully cognizant of his rights, and that being so, he neglects to enforce them, or chooses one benefit instead of another.”

Distinguishing waiver from estoppel, the Court explained that the principle of waiver although is akin to the principle of estoppel; estoppel is not a cause of action and is a rule of evidence, whereas waiver is contractual and may constitute a cause of action. It is an agreement between the parties and a party fully knowing of its rights has agreed not to assert a right for a consideration.

“… whenever waiver is pleaded, it is for the party pleading the same to show that an agreement waiving the right in consideration of some compromise came into being.”

The Court also explained the difference between waiver and acquiescence and said that for constituting acquiescence or waiver it must be established, that though a party knows the material facts and is conscious of his legal rights in a given matter, but fails to assert its rights at the earliest possible opportunity, it creates an effective bar of waiver against him. Whereas, acquiescence would be a conduct where a party is sitting by, when another is invading his rights. The acquiescence must be such as to lead to the inference of a licence sufficient to create a new right in the defendant.

[Kalparaj Dharamshi v. Kotak Investment Advisors Ltd,  2021 SCC OnLine SC 204, decided on 10.03.2021]


*Judgment by: Justice BR Gavai

Appearances before the Court by:

For Kalparaj: Senior Advocates Mukul Rohatgi, Dr. Abhishek Manu Singhvi and Pinaki Mishra,

For Deutsche Bank and CoC: Senior Advocate K.V. Viswanathan

For Fourth Dimension Solutions Limited: Senior Advocates C.A. Sundaram, Gopal Sankar Narayanan and P.P. Chaudary,

For RP: Senior Advocates Shyam Divan

For KIAL: Senior Advocate: Senior Advocate Neeraj Kishan Kaul

ALSO READ 

‘Commercial wisdom of Committee of Creditors is not to be interfered with’; Supreme Court sheds light on the limited scope of interference by NLAT/NCLAT

Case BriefsSupreme Court

Supreme Court: Posed with the issue of Interpreting Section 60(5) of the Insolvency and Bankruptcy Code, 2016 in order to understand the scope of the jurisdiction of NCLT in dealing with the corporate disputes arising out of insolvency, the bench of Dr. DY Chandrachud* and MR Shah, JJ had the occasion to visit the principle to be kept in mind while interpreting ‘similar words’ in ‘distinct settings’.

Stating that in such cases it is necessary to bear in mind the context in which the phrases have been used, the Court took note of a commentary by Justice G.P. Singh wherein it was stated that,

“When the question arises as to the meaning of a certain provision in a statute, it is not only legitimate but proper to read that provision in its context. The context here means, the statute as a whole, the previous state of the law, other statutes in pari materia, the general scope of the statute and the mischief that it was intended to remedy.”

The Court, hence, said that textually similar language in different enactments has to be construed in the context and scheme of the statue in which the words appear.

“The meaning and content attributed to statutory language in one enactment cannot in all circumstances be transplanted into a distinct, if not, alien soil. For, it is trite law that the words of a statute have to be construed in a manner which would give them a sensible meaning which accords with the overall scheme of the statute, the context in which the words are used and the purpose of the underlying provision.”

[Gujarat Urja Vikas Nigam Limited v. Amit Gupta,  2021 SCC OnLine SC 194, decided on 08.03.2021]


*Judgment by: Justice Dr. DY Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

Appearances before the Court by”

For appellant: Senior Advocate Shyam Diwan and Advocate Ranjitha Ramachandran

For Respondent: Senior Advocate C U Singh and Nakul Dewan

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman*, Hemant Gupta and BR Gavai, JJ has held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India.

Background

The Court was hearing an appeal arising from the judgment of the High Court of Karnataka dated 15.10.2011 reported as CIT v. Samsung Electronics Co. Ltd., (2012) 345 ITR 494, wherein it was held that the amounts paid by the concerned persons resident in India to non-resident, foreign software suppliers, amounted to royalty and as this was so, the same constituted taxable income deemed to accrue in India under section 9(1)(vi) of the Income Tax Act, 1961, thereby making it incumbent upon all such persons to deduct tax at source and pay such tax deductible at source [TDS] under section 195 of the Income Tax Act.

The Court grouped the appeals before it into four categories:

i) The first category dealt with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer

ii) The second category of cases dealt with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users.

iii) The third category dealt with cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users.

iv) The fourth category dealt with cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users

Scheme of Income Tax Act vis-à-vis applicability of Double Taxation Avoidance Agreements (DTAA)

The scheme of the Income Tax Act, in relation to the questions before the Court, is that for income to be taxed under the Income Tax Act, residence in India, as defined by section 6, is necessary in most cases.

Under section 5(2) of the Income Tax Act, the total income of a person who is a non-resident, includes all income from whatever source derived, which accrues or arises or is deemed to accrue or arise to such person in India during such year. This, however, is subject to the provisions of the Income Tax Act. Certain income is deemed to arise or accrue in India, under section 9 of the Income Tax Act, notwithstanding the fact that such income may accrue or arise to a non-resident outside India. One such income is income by way of royalty, which, under section 9(1)(vi) of the Income Tax Act, means the transfer of all or any rights, including the granting of a licence, in respect of any copyright in a literary work.

That such transaction may be governed by a DTAA is then recognized by section 5(2) read with section 90 of the Income Tax Act, making it clear that the Central Government may enter into any such agreement with the government of another country so as to grant relief in respect of income tax chargeable under the Income Tax Act or under any corresponding law in force in that foreign country, or for the avoidance of double taxation of income under the Income Tax Act and under the corresponding law in force in that country.

“What is of importance is that once a DTAA applies, the provisions of the Income Tax Act can only apply to the extent that they are more beneficial to the assessee and not otherwise.”

Further, by explanation 4 to section 90 of the Income Tax Act, it has been clarified by the Parliament that where any term is defined in a DTAA, the definition contained in the DTAA is to be looked at. It is only where there is no such definition that the definition in the Income Tax Act can then be applied.

The machinery provision contained in section 195 of the Income Tax Act is inextricably linked with the charging provision contained in section 9 read with section 4 of the Income Tax Act, as a result of which, a person resident in India, responsible for paying a sum of money, “chargeable under the provisions of [the] Act”, to a non-resident, shall at the time of credit of such amount to the account of the payee in any mode, deduct tax at source at the rate in force which, under section 2(37A)(iii) of the Income Tax Act, is the rate in force prescribed by the DTAA. Importantly, such deduction is only to be made if the non-resident is liable to pay tax under the charging provision contained in section 9 read with section 4 of the Income Tax Act, read with the DTAA.

When is making of copies or adaptation of a computer programme not copyright infringement?

The making of copies or adaptation of a computer programme in order to utilise the said computer programme for the purpose for which it was supplied, or to make up back-up copies as a temporary protection against loss, destruction or damage so as to be able to utilise the computer programme for the purpose for which it was supplied, does not constitute an act of infringement of copyright 54 under section 52(1)(aa) of the Copyright Act. What is referred to in section 52(1)(aa) of the Copyright Act would not amount to reproduction so as to amount to an infringement of copyright.

Section 52(1)(ad) is independent of section 52(1)(aa) of the Copyright Act, and states that the making of copies of a computer programme from a personally legally obtained copy for non-commercial personal use would not amount to an infringement of copyright. However, it is not possible to deduce from this that if personally legally obtained copies of a computer programme are to be exploited for commercial use, it would necessarily amount to an infringement of copyright.

“Section 52(1)(ad) of the Copyright Act cannot be read to negate the effect of section 52(1)(aa), since it deals with a subject matter that is separate and distinct from that contained in section 52(1)(aa) of the Copyright Act.”

Definition of Royalty in the DTAAs vis-à-vis the Income Tax Act

Under Article 12 of the India-Singapore DTAA, the term “royalties” uses the expression “means”, thereby making it exhaustive and it refers to payments of any kind that are received as a consideration for the use of or the right to use any copyright in a literary work.

As opposed to this, the definition contained in explanation 2 to section 9(1)(vi) of the Income Tax Act, is wider in at least three respects:

i. It speaks of “consideration”, but also includes a lump-sum consideration which would not amount to income of the recipient chargeable under the head “capital gains”;

ii. When it speaks of the transfer of “all or any rights”, it expressly includes the granting of a licence in respect thereof; and

iii. It states that such transfer must be “in respect of” any copyright of any literary work.

However, even where such transfer is “in respect of” copyright, the transfer of all or any rights in relation to copyright is a sine qua non under explanation 2 to section 9(1)(vi) of the Income Tax Act. In short, there must be transfer by way of licence or otherwise, of all or any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act.

The transfer of “all or any rights (including the granting of a licence) in respect of any copyright”, in the context of computer software, is referable to sections 14(a), 14(b) and 30 of the Copyright Act. The expression “in respect of” is equivalent to “in” or “attributable to”.

“Thus, explanation 2(v) to section 9(1)(vi) of the Income Tax Act, when it speaks of “all of any rights…in respect of copyright” is certainly more expansive than the DTAA provision, which speaks of the “use of, or the right to use” any copyright.”

However, when it comes to the expression “use of, or the right to use”, the same position would obtain under explanation 2(v) of section 9(1)(vi) of the Income Tax Act, inasmuch as, there must, under the licence granted or sale made, be a transfer of any of the rights contained in sections 14(a) or 14(b) of the Copyright Act, for explanation 2(v) to apply. To this extent, there will be no difference in the position between the definition of “royalties” in the DTAAs and the definition of “royalty” in explanation 2(v) of section 9(1)(vi) of the Income Tax Act.

Conclusion

The Court held that the “person” mentioned in section 195 of the Income Tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of “royalty” inserted by explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute.

“… persons are not obligated to do the impossible, i.e., to apply a provision of a statute when it was not actually and factually on the statute book.”

Hence, the distribution of copyrighted computer software, would not constitute the grant of an interest in copyright under section 14(b)(ii) of the Copyright Act, thus necessitating the deduction of tax at source under section 195 of the Income Tax Act.

The Court highlighted that the effect of section 90(2) of the Income Tax Act, read with explanation 4 thereof, is to treat the DTAA provisions as the law that must be followed by Indian courts, notwithstanding what may be contained in the Income Tax Act to the contrary, unless more beneficial to the assessee. Hence, it was held that,

“Given the definition of royalties contained in Article 12 of the DTAAs, there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases.”

[Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax, 2021 SCC OnLine SC 159, decided on 02.03.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For appellants: Senior Advocates Arvind Datar, Percy Pardiwala, S. Ganesh, Ajay Vohra, Preetesh Kapur and Advocates Sachit Jolly, Kunal Verma

For Revenue: Additional Solicitor General Balbir Singh

Case BriefsSupreme Court

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

The Court held that

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

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

OBJECT AND INTERPRETATION OF SECTION 14 OF THE IBC

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

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

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

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

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

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

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

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

NATURE OF PROCEEDINGS UNDER CHAPTER XVII OF THE NEGOTIABLE INSTRUMENTS ACT

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

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

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

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

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

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

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

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

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

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

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

CONCLUSION

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

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

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


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For Appellants: Senior Advocate Jayanth Muth Raj

For Respondent: Advocate Jayant Mehta

Case BriefsSupreme Court

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

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

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

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

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

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

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

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

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

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

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

The Court, hence, concluded,

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

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


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by:

For Appellant: Advocate Rajshekhar Rao

For Respondent: Senior Advocate Mukul Rohatgi

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Ashok Bhushan*, R. Subhash Reddy and MR Shah, JJ has held that while determining the taxable value of lottery the prize money is not to be excluded for the purpose of levy of GST.

The Court explained that for determining the value of the lottery, there is statutory provision contained in Section 15 read with Rule 31A. Section 15 of the Central Goods and Services Tax Act, 2017 by sub-section (2) provides what shall be included in the value of supply. What can be included in the value is enumerated in sub-clause (a) to (e) of sub-section (2) of Section 15. Further, subsection (3) of Section 15 provides that what shall not be included in the value of the supply.

“What is the value of taxable supply is subject to the statutory provision which clearly regulates, which provision has to be given its full effect and something which is not required to be excluded in the value of taxable supply cannot be added by judicial interpretation.”

Further, Rule 31A as noted above, sub-rule (2) as amended clearly provides that value of supply shall be deemed to be 100/128 of the face value of ticket or of the prize as notified in the Official Gazette by the Organising State, whichever is higher.

The Court said that the value of taxable supply is a matter of statutory regulation and when the value is to be transaction value which is to be determined as per Section 15 it is not permissible to compute the value of taxable supply by excluding prize which has been contemplated in the statutory scheme. It was hence, held that

“When prize paid by the distributor/agent is not contemplated to be excluded from the value of taxable supply, we are not persuaded to accept the submission of the petitioner that prize money should be excluded for computing the taxable value of supply.”

[Skill Lotto Solutions v. Union of India, 2020 SCC OnLine SC 990, decided on 03.12.2020]


*Justice Ashok Bhushan has penned this judgment

For petitioner: Senior Advocate Ravindra Shrivastava,

For Union of India: Additional Solicitor General Vikramjit Banerjee

For Intervenor: Senior Advocate C.A. Sundaram

Also read: Supreme Court upholds constitutionality of imposition of GST on lotteries, betting and gambling 

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Ashok Bhushan, R. Subhash Reddy and MR Shah, JJ has upheld the constitutionality of imposition of GST on lotteries, betting and gambling.

Here are the key takeaways from the judgment: 

Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional?

The inclusion of actionable claim in definition “goods” as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is not contrary to the legal meaning of goods nor it is in conflict with the definition of goods given under Article 366(12).

“The Constitution framers were well aware of the definition of goods as occurring in the Sale of Goods Act, 1930 when the Constitution was enforced. By providing an inclusive definition of goods in Article 366(12), the Constitution framers never intended to give any restrictive meaning of goods.”

Parliament by the  Constitution (One Hundred and First Amendment) Act, 2016 inserted Article 246A, a special provision with respect to goods and services tax in which special power has to be liberally construed empowering the Parliament to make laws with respect to goods and services tax. Article 246A begins with non obstante clause that is “Notwithstanding anything contained in Articles 246 and 254”, which confers very wide power to make laws. When the Parliament has been conferred power to make law with respect to goods and services, the legislative power of the Parliament is plenary.

“The power to make laws as conferred by Article 246A fully empowers the Parliament to make laws with respect to goods and services tax and expansive definition of goods given in Section 2(52) cannot be said to be not in accord with the constitutional provisions.”

Whether the Constitution Bench’s observation ‘lottery is an actionable claim’ in Sunrise Associates v. Govt. of NCT of Delhi, (2006) 5 SCC 603 a law or obiter dicta?

The definition of goods in Section 2(j) as noticed by the Constitution Bench states that ‘goods’ means all kinds of movable property (other than newspaper, actionable claims, stocks, shares and securities). The exclusion of the actionable claims from the goods as enumerated in the definition is also a part of the definition.

“If a particular item is covered by exclusion it is obvious that it does not fall in the definition of the goods. When the Constitution Bench came to the conclusion that the lottery is an actionable claim it was considering the definition of 2(j) itself and what has been held by the Constitution Bench cannot be held to be obiter dicta.”

The Constitution Bench in Sunrise Associates has categorically held that lottery is actionable claim after due consideration which is ratio of the judgment. The expansion of definition of goods under Section 2(52) of Act, 2017 by including actionable claim is in the line with the Constitution Bench pronouncement in Sunrise Associates and no exception can be taken to the definition of the goods as occurring in Section 2(52).

Whether exclusion of lottery, betting and gambling from Item No.6 Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India?

The Constitution Bench in State of Bombay Vs. R.M.D. Chamarbaugwala, AIR 1957 SC 699 has clearly stated that Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country’s trade or business or commerce.

Lottery, betting and gambling are well known concepts and have been in practice in this country since before independence and were regulated and taxed by different legislations. When Act, 2017 defined the goods to include actionable claims and included only three categories of actionable claims, i.e., lottery, betting and gambling for purposes of levy of GST, it cannot be said that there was no rationale for including these three actionable claims for tax purposes.

“It is a duty of the State to strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life.”

Hence, there is no violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.

Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded? 

Read here 

[Skill Lotto Solutions v. Union of India, 2020 SCC OnLine SC 990, decided on 03.12.2020]


*Justice Ashok Bhushan has penned this judgment

For petitioner: Senior Advocate Ravindra Shrivastava,

For Union of India: Additional Solicitor General Vikramjit Banerjee

For Intervenor: Senior Advocate C.A. Sundaram

 

Also read: GST on lotteries| Prize money not to be excluded for computing the taxable value of supply, holds SC