Legal E-Bulletin November 2021



RESEARCH WING

A. LABOUR LAWS

Labour Court’s decision should not be based on mere hypothesis: Supreme Court

The bench of Ajay Rastogi and Abhay S. Oka, JJ has held that the decision of the Labour Court should not be based on mere hypothesis and it cannot overturn the decision of the management on ipse dixit. Stating that Labour Court’s jurisdiction under Section 11-A of the Industrial Dispute Act, 1947 although is a wide one but it must be judiciously exercised, the Court said, “Judicial discretion, it is trite, cannot be exercised either whimsically or capriciously. It may scrutinize or analyze the evidence but what is important is how it does so.”

The respondent-­workman was dismissed from his services by the Standard Chartered Bank for drunkenness within the premises of the appellant-Bank and for manhandling and assaulting the senior officers and also hurling abuses at the management. The alleged delinquency had been committed on 12th January,1988. The enquiry officer after holding enquiry in terms of the Bipartite Settlement and after due compliance of the principles of natural justice held the charges proved against the delinquent respondent and the disciplinary authority after due compliance, confirmed the finding recorded by the enquiry officer and punished him with the penalty of dismissal from service by an order dated 22nd August, 1991.

The Industrial Tribunal, However, revisited the record of enquiry and apprised the statement of the management witnesses and recorded a finding that the Bank management has “miserably failed” to establish the charges levelled against the respondent-workman and hence, set aside the order of dismissal from service and directed the appellant to reinstate the respondent-workman in service with full back wages, seniority and all the consequential benefits attached to the post by its Award dated 14th September, 2006.

The High Court also upheld the said order. The respondent-workman had attained the age of superannuation on 31st January, 2012 and during the period of litigation, he has throughout been paid his last wages drawn in terms of Section 17¬B of the Act 1947. The respondent-workman had been paid around Rs. 57 Lakhs. The Supreme Court had, on 27th February, 2015, stayed the payment of back wages.

The Court noticed that once domestic enquiry was held it to be fair and proper, the Tribunal had a very limited scope to interfere in the domestic enquiry to the extent as to whether there is any apparent perversity in the finding of fact which has been recorded by the enquiry officer in his report of enquiry obviously, based on the evidence recorded during the course of enquiry and as to whether the compliance of the Bipartite Settlement which provides the procedure of holding enquiry is violated or the punishment levelled against the workman commensurate with the nature of allegation proved against him. However, if the punishment is grossly disproportionate, the tribunal will always be justified to interfere by invoking its statutory power under Section 11-A of the Act 1947.

“The scope of judicial review in the matter of domestic enquiry is to examine whether the procedure in holding domestic enquiry has been violated or the principles of natural justice has been complied with, or any perversity in the finding of guilt recorded during the course of domestic enquiry has been committed.” The Court noticed that the Tribunal has converted itself into a Court of Appeal as an appellate authority and has exceeded its jurisdiction while appreciating the finding recorded in the course of domestic enquiry and tested on the broad principles of charge to be proved beyond reasonable doubt which is a test in the criminal justice system and has completely forgotten the fact that the domestic enquiry is to be tested on the principles of preponderance of probabilities and if a piece of evidence is on record which could support the charge which has been levelled against the delinquent unless it is per se unsustainable or perverse, ordinarily is not to be interfered by the Tribunal, more so when the domestic enquiry has been held to be fair and proper.

The Court, hence, held that the Tribunal has completely overlooked and exceeded its jurisdiction while interfering with the finding recorded during the course of enquiry in furtherance of which, the respondent was dismissed from service and the High Court has also committed a manifest error while passing the judgment impugned. However, looking to the peculiar facts of this case where the respondent-workman had been paid Rs.57,16,517.72 and had attained the age of superannuation on 31st January, 2012, stay was granted by this Court in reference to back wages by order 27th February, 2015, while upholding the order of penalty of dismissal from service dated 22nd August, 1991 passed by the authority in the domestic enquiry, the Court directed that no recovery shall be made in reference to the payment which has been made over to the workman in the interregnum period. [Standard Chartered Bank v. RC Srivastava, 2021 SCC OnLine SC 830, decided on September 29,2021].


Overall activities and functions of the Irrigation Department would have to be considered while deciding the question whether it is carrying on manufacturing activities: Supreme Court

The Division Bench comprising of Ajay Rastogi and Abhay S. Oka, JJ., held that Irrigation Department was not a factory within the meaning of Factories Act, 1948 as there was no indulgence in manufacturing process in the Department. The Bench expressed, “Even assuming that some of the employees may be doing the work of pumping of water, that is not sufficient to hold that Irrigation Department of the first appellant is carrying on manufacturing process.” Originally, the State had challenged the award made by the Labour Court by which the State was directed to reinstate the respondent in Rajghat Canal Project of the Irrigation Department. The respondent was initially appointed as a daily wage employee on the post of Helper in the Irrigation Department of the first appellant. However, his employment was terminated again after reinstating him in the year 2004.

The State contended that Irrigation Department was not an Industrial Establishment within the meaning of Section 25L of the ID Act and Chapter VB would have no application. The State argued, though the Irrigation Department might have more than hundred workers, it was not a factory within the meaning Section 2(m) of the Factories Act, 1948 as it was not carrying on manufacturing process. Though there was no dispute that the Irrigation Department satisfied the test of having not less than hundred workmen employed on an average; however, the question before the Court was whether the Irrigation Department was an Industrial Establishment as defined in Section 25L of ID Act.

Section 25L of the ID Act reads as: “(a) “industrial establishment” means— (i) a factory as defined in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948);” It was the case of the respondent that the Irrigation Department of the first appellant was an Industrial Establishment as it was a Factory as defined in Section 2(m) (ii) of the Factories Act, which states, a Factory is: “ (ii) whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on…” However, as the definition suggested, an establishment cannot be termed as a factory unless it is carrying on manufacturing process. The manufacturing process is defined under Section 2(k)(ii) of the Factories Act, which reads thus: “‘Manufacturing process’ means any process for— (ii) pumping oil, water, sewage or any other substance;”

In the above backdrop, the Bench was of the view that even assuming that some of the employees may be doing the work of pumping of water, that was not sufficient to hold that Irrigation Department of the first appellant was carrying on manufacturing process. The Bench emphasised, “Overall activities and functions of the Irrigation Department would have to be considered while deciding the question whether it is carrying on manufacturing activities.” The Bench added, “Few employees of the Irrigation Department out of several may be incidentally operating pumps. But the test is what are the predominant functions and activities of the said Department.”

The Bench held that even if the activity of operation of pumps was carried on by few employees, the Irrigation department did not carry on manufacturing process, hence, it was not a factory within the meaning of clause (m) of section 2 of the Factories Act. Accordingly, the Bench rejected the reasoning of the High Court that the Irrigation Department was an Industrial Establishment within the meaning of Section 25L and Chapter VB would have application in the case. Hence, the appeal was allowed. The impugned judgments and orders were set aside and the termination of employment of the respondent was held to be legal and valid. [State of M.P. v. Somdutt Sharma, 2021 SCC OnLine SC 829, reported on October 02,2021].

B. COMPANY LAW


Interplay between IBC and Companies Act regarding winding up petitions; Court decides in matter of transfer of company petition to NCLT: Karnataka High Court

S. Sunil Dutt Yadav, J., decided in the matter of a petition which was filed praying to transfer a company petition on the file of the High of Karnataka to the National Company Law Tribunal, Bengaluru under the Insolvency and Bankruptcy Code, 2016. Company petition had been filed seeking an order of winding-up of the respondent-company claiming that it had committed defaults as regards the payment of; rent, interest on rent, service tax and penalty on service tax.

It was contended that the respondent company had demonstrated its inability to pay the debt and accordingly the winding up proceedings had been initiated and in between the proceeding a company application was filed by the respondent seeking transfer of the company petition to NCLT. The petitioner had opposed the application asserting that no reason was assigned in the application invoking exercise of discretion of the Court in terms of power vested under the fifth proviso to Section 434 (1) of the Companies Act, 2013. On this argument it was contended that provision of transfer of proceedings does not require any explanation.

It was further contended that transfer of proceedings to the NCLT would prejudice the interest of the petitioners’ claim insofar as IBC Code imposes rigours and the ambiguity in the orders of the NCLT and NCLAT as to whether rental dues was an operational debt would prejudice petitioners rights to realise its claims which otherwise was admissible in the present winding up proceedings pending before this court. It was contended that exercise of discretion under the fifth proviso to Section 434(1)(c) could be premised on various considerations including existence of parallel proceedings. It was also contended that exercise of judicial discretion cannot have the effect of prejudicing the rights of the petitioner nor can it be exercised in a manner so as to cause injustice.

It is further contended that transfer of proceedings to the NCLT would deny the petitioner the right to a remedy. It was specifically asserted that the court while exercising judicial discretion ought to also keep in mind as to whether provisions of the IBC in terms of which the winding up proceedings would be decided by the NCLT, would make the claim maintainable failing which the question of transferring the proceedings ought not to be considered at all. The Court after the hearing both the parties reiterated that in the present case, notice having been served and the matter was pending for admission when the application invoking the fifth proviso under Section 434 of the Companies Act, 2013 had been filed, the manner of disposal of such application was to be done in terms of the fifth proviso and plain reading of the fifth proviso as extracted hereinabove would indicate that any party or parties to any proceedings may file an application for transfer and the court may by order transfer such proceedings to the Tribunal. However, what needs to be looked into was the interpretation placed by the Apex Court relating to the exercise of power under the proviso.

The Court analyzed the judgment of Supreme Court in Action Ispat and Power (P) Ltd. v. Shyam Metalics and Energy Ltd., Civil Appeal Nos. 4042-4043 of 2020 decided on 15-12-2020 and explained that where the winding up proceedings have reached a stage where it is irreversible making it impossible to set the clock back and in such an event, the Company Court must proceed with the winding up instead of transferring the proceedings to NCLT is to be noticed. It further reiterated the relevant context relating to the present case, “27. …..As has been correctly pointed out by Shri Sinha, a discretionary jurisdiction under the fifth proviso to Section 434(1)(c) of the Companies Act, 2013 cannot prevail over the undoubted jurisdiction of the NCLT under the IBC once the parameters of Section 7 and other provisions of the IBC have been met….” (emphasis supplied)

Court further stated that it is clear that provisions of IBC would prevail over the provisions of the Companies Act relating to winding up proceedings. It was noted that in the present case, there were no parallel proceedings before the NCLT apart from the present proceedings for winding up but the Court held that even in the absence of parallel proceedings exercise to transfer proceedings may involve taking note of other factors which may include the case made out by the Company demonstrating that if the matter is transferred to NCLT to be disposed off under the IBC, there would be a greater possibility of restructuring and revival of the Company. The Court rejected the contention of petitioner that no reasons need be assigned as long as power is available to be invoked as per the statutory provision thus under the fifth proviso to Section 434 of Companies Act, 2013 the party seeking such transfer must make out grounds. In the present case, no such grounds are forthcoming as regards the need for restructuring of the Company, if proceedings are transferred to NCLT. The Company applications were rejected by the Court stating, “The legal regime in winding up proceedings does not disentitle the consideration of winding up merely in light of pre-existing dispute and the considerations for declining to exercise jurisdiction under Section 434 of the Companies Act, 2013 is on different grounds and not necessarily attached to the existence of a dispute in parallel forum.” [Nitesh Residency Hotels (P) Ltd. v. Archdiocese of Bangalore, 2021 SCC OnLine Kar 14704, decided on 28-09-2021 reported on October 27,2021].

C. INTERNATIONAL NEWS


A permanent injunction, stating Apple could no longer prohibit developers linking to their own purchasing mechanisms; held that Epic Games failed to show how Apple Inc. was operating an illegal monopoly: United States District Court, North District of California

Plaintiff Epic Game Inc. sued Apple Inc. alleging violations of federal and state antitrust laws and California’s unfair competition laws based upon Apple’s operation of its App Store. Epic Games claimed that Apple is an antitrust monopolist over: Apple’s own system of distributing apps on Apple’s own devices in the App Store and Apple’s own system of collecting payments and commissions of purchases made on Apple’s own devices in the App Store.

In 2010, Epic Games agreed to and signed a Developer Product Licensing Agreement (“DPLA”) with Apple. Epic International subsequently signed a Developer Agreement and DPLA (for the account associated with Unreal Engine). At the time of the signing of these contracts, Mr. Sweeney understood and agreed to key contractual terms including, that Epic Games (i) was required to pay a commission on in-app purchases; (ii) was prohibited from putting a store within the App Store; (iii) was prohibited from sideloading apps on to iOS devices; and (iv) was required to use Apple’s commerce technology for any payments. Knowing the terms, Epic Games chose to enter into those contracts.

Court considered whether the App Store provides two-sided transaction services or as Epic Games argued “distribution services”. The Supreme Court has seemingly resolved the question: two-sided transaction platforms sell transactions. In two-sided markets, a seller “offers different products or services to two different groups who both depend on the platform to intermediate between them.” Court found that the relevant App store product is transactions, not services, but that providing transactions may include facilitating services.

Whether to narrow the scope of the transactions in terms of defining the product market. Court concluded that the appropriate submarket to consider is digital game transactions as compared to general non-gaming apps. Further, the Court stated that there were nine indicia indicating a submarket for gaming apps as opposed to non-gaming apps: the App Store’s business model is fundamentally built upon lucrative gaming transactions; gaming apps constitute a significant majority of the App Store’s revenues; both the gaming, mobile, and software industry, as well as the general public, recognize a distinction between gaming apps and non-gaming apps; gaming apps and their transactions exhibit peculiar characteristics and users; game app developers often employ specialized technology inherent and unique to that industry in the development of their product; game apps further have distinct producers—game developers—that generally specialize in the production of only gaming apps; game apps are subject to distinct pricing structures as compared to other categories of apps; games and gaming transactions are sold by specialized vendors; and game apps are subject to unique and emerging competitive pressures, that differs in both kind and degree from the competition in the market for non-gaming apps.

Between digital game transactions and all app transactions, the relevant product is game transactions. Court observed that the appropriate submarket to consider is the mobile gaming transactions market. On a careful consideration of the evidence, Court found that Apples’ app distribution restrictions do have some anti-competitive effects. Unlike the increased merchant fees in Amex, Apple’s maintenance of its commission rate stems from market power, not competition in changing markets Apple has shown procompetitive justifications based on security and the corollary interbrand competition, as well as generally with respect to intellectual property rights. Epic Games has not met its burden to show that its proposed alternatives are “virtually as effective” as the current distribution model and can be implemented “without significantly increased cost. California’s Unfair Competition Law: Epic Games challenges Apple’s conduct under the “unlawful” and “unfair” provisions of the UCL. Court found that Epic Games has the standing to bring a UCL claim as a quasi-consumer, not merely as a competitor.

Since Epic could not show a violation of law, the claim under the “unlawful” standard failed. While Apple’s conduct did not fall within the confines of traditional antitrust law, the conduct fell within the purview of an incipient antitrust violation with particular anti-competitive practices which have not been justified. Apple contractually enforces silence, in the form of anti-steering provisions, and gains a competitive advantage. Moreover, it hides information for consumer choice which is not easily remedied with money damages. Apple’s business justifications focus on other parts of the Apple ecosystem and will not be significantly impacted by the increase of information to and choice for consumers. A nationwide injunction shall issue enjoining Apple from prohibiting developers to include in their: Apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to IAP. Nor may Apple prohibit developers from: Communicating with customers through points of contact obtained voluntarily from customers through account registration within the app.

The Court concluded that Epic Games has not shown that the DPLA is unconscionable. A contractual term is not unconscionable unless it is found to be both procedurally and substantively unconscionable. Here, the absence of substantive unconscionability is dispositive. A contractual term is not substantively unconscionable unless it so “one-sided so as to ‘shock the conscience”. Epic Games pointed to no other evidence or authority based upon which the Court could find that the provisions at issue “shock the conscience.” These are billion and trillion dollar companies with a business dispute. Under California law, “the elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011) Further, it was contended that, Epic Games’ actions violated the DPLA provisions

(1) requiring developers not to “hide, misrepresent or obscure any features, content, services or functionality” in their apps and not to “provide, unlock or enable additional features or functionality through distribution mechanisms other than the App Store,”; and (2) requiring Epic Games to pay Apple “a commission equal to thirty percent (30%) of all prices payable by each end-user” through the App Store. Court concluded that Epic games breached the provisions of DPLA and that Apple was entitled to relief for the violations. Since Court had concluded that Apple was entitled to relief on its breach of contract claim, the Court denied relief to Apple as to its alternative claim for the breach of the implied covenant of good faith and fair dealing.

Apple asserts a counterclaim for unjust enrichment against plaintiff based on its alleged failure to pay Apple the agreed-upon 30% commission under the DPLA, but it asserts this counterclaim only “[i]n the alternative” to its claim for breach of contract. Under California law, “[a]n indem ity agreement is to be interpreted according to the language and contents of the contract as well as the intention of the parties as indicated by the contract.” Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 13 Cal. App. 4th 949, 968 (1993). Apple contended that it is entitled to indemnification from Epic Games under the indemnification provision because plaintiff’s lawsuit involved claims arising from or related to its breaches of its certifications, covenants, obligations, representations, or warranties under the DPLA, and its use of the Apple Software or services, its licensed application information, its covered products, and its development and distribution of the foregoing. No such express language was included in the indemnification provision at issue. In light of the absence of such express language, and in light of the terms used in the indemnification provision that suggested that it covers only third-party claims, the Court found and concluded that Apple has not shown that it is entitled to recover attorneys’ fees and costs from Epic Games pursuant to Section 10 of the DPLA.

Epic Games never showed why it had to breach its agreements to challenge the conduct litigated. In Court’s opinion, plaintiff’s challenges to Apple’s claim for declaratory relief failed as to the remaining requests. Relief to which Apple was entitled is that to which Epic Games stipulated in the event that the Court found it liable for breach of contract, namely: damages in an amount equal to (i) 30% of the $12,167,719 in revenue Epic Games collected from users in the Fortnite app on iOS through Epic Direct Payment between August and October 2020, plus (ii) 30% of any such revenue Epic Games collected from November 1, 2020, through the date of judgment; and a declaration that (i) Apple’s termination of the DPLA and the related agreements between Epic Games and Apple was valid, lawful, and enforceable, and (ii) Apple has the contractual right to terminate its DPLA with any or all of Epic Games’ wholly owned subsidiaries, affiliates, and/or other entities under Epic Games’ control at any time and at Apple’s sole discretion.

As a major player in the wider video gaming industry, Epic Games brought this lawsuit to challenge Apple’s control over access to a considerable portion of this submarket for mobile gaming transactions. Ultimately, Epic Games overreached. Court did not find Apple as an antitrust monopolist in the submarket for mobile gaming transactions. Though, the Court did find Apple’s conduct in enforcing anti-steering restrictions to be anti-competitive. In view of the above discussion, Court gave the verdict in favour of Apple except with respect to violation of California’s Unfair Competition Law and only partially with respect to its claim for declaratory relief. Apple Inc. and its officers, agents, servants, employees, and any person in active concert or participation with them were hereby permanently restrained and enjoined from prohibiting developers from including in their apps and their metadata buttons, external links, or other calls to action that direct customers to purchasing mechanisms, in addition to In-App Purchasing and communicating with customers through points of contact obtained voluntarily from customers through account registration within the app. Injunction which was previously ordered was terminated.[Epic Games Inc. v. Apple Inc., Case No. 4:20-cv-05640-YGR, decided on September 10, 2021].

D. INCOME TAX LAWS


Interest income generated out of surplus fund invested in the Fixed Deposit is a part of the business income: ITAT

The fact of the case is that, assessment under Section 143(3) read with Section 263 of the Income Tax Act, 1961 (IT Act) was finalized at Rs. 42,09,980 after making disallowance under Section 40(a)(ia) of Rs. 12,03,690 and disallowance under Section 40(b) of Rs. 10,18,000. The AO has made disallowance of Rs. 12,03,960 on the ground that, assessee has not made any TDS on payment of testing charges of Rs. 12,32,344. The assessee has made disallowance under Section 40(b) of Rs. 11,68,000 on the ground that, while calculating the allowable remuneration to the partners, the assessee has not excluded the income of Rs. 20,56,185 earned on account of interest on fixed deposit. The aggrieved assessee has filed appeal before the Learned CIT(A) against the aforesaid disallowance made by the AO. The Learned CIT(A) has allowed the appeal of the assessee. In respect of addition of Rs. 12,32,344 made under Section 40(a)(ia) of the IT Act, the Learned CIT(A) has held that, assessee was not liable to deduct tax as the actual payment to the contractor for testing charges was made by the Government and the assessee had only reimbursed the expenses to the Government. Regarding disallowance of Rs. 10,18,000 on account of partner's' remuneration under Section 40(b) of the IT Act on the ground that, interest received on Fixed Deposit/SSNL Bonds was income from other sources, the Learned CIT(A) after following the decision of High Court in the case of CIT vs. J. J. Industries allowed the appeal of the assessee holding that, interest income generated out of surplus fund invested in the Fixed Deposit was a part of the business income.

The AO has made disallowance of Rs. 12,03,690 under Section 40(a)(ia) being the amount of expenses claimed under the head testing charges on the reason that, the assessee has not deducted tax on such payment in accordance with the provision of Section 194C of the IT Act. The Learned CIT(A) in his finding held that, the assessee has not awarded any contract to any party for testing charges, in fact, the testing charges were deducted by the Government while making payment to the assessee on running bills raised by the assessee upon the Government. The assessee has not made any payment directly for testing charges to any party. Further, the Government has awarded a contract to some entity for testing charges and the assessee has only reimbursed the expenses to the Government.

There is no infirmity in the decision of the Learned CIT(A) holding that, testing charges was made by the Government and the assessee has only reimbursed the expenses through the mode of deduction made by the Government out of running bills of contract. Therefore, there is no merit in the ground of appeal of the Revenue and the same stand dismissed. Regarding second ground of the Revenue, the AO has disallowed Rs. 10,18,000 under Section 40(b) of the IT Act. The assessee has claimed that, interest on Fixed Deposit, interest on SSNL Fixed Deposit and interest on SSNL Bonds was made out of surplus funds available with the assessee and the interest income was part of the business income. Therefore, the same was correctly included for calculating remuneration of the partners. The assessee has also placed a copy of decision of the High Court in the case of CIT vs. J.J. Industries wherein it is held that, interest from Fixed Deposit on spare funds cannot be excluded from book profit for the purpose of determining allowable deduction of remuneration paid to partners. There is no error in the decision of the Learned CIT(A). The appeal of the Revenue is dismissed. [DCIT, Circle-1(2) vs. Niyati Construction Company, Income Tax Appellate Tribunal MANU/IB/0236/2021, dated October 25, 2021].

E. INDIRECT TAX LAWS


The services provided by subsidiary company to its parent company in a foreign country could be treated as export of services: CESTAT

Anil Choudhary (Judicial Member) allowed the appeals which were filed against the common Order-in-Appeal which dealt with the issue as to whether the services provided by the appellant to its parent company in Hong Kong, could be treated as export of services, and if the answer was in affirmative, whether the refund of amount paid under mistake of law by treating such export of services, as taxable service, could be denied by the revenue.

Appellant (M/s CHF Industries India (P) Ltd.) was a wholly owned subsidiary of M/s CHF International Limited, Hong Kong. The appellant was incorporated under the Companies Act, 2013, and was having service tax registration. They provided services in the nature of „assistance in procurement of goods‟ by the parent company in Hong Kong, directly from third parties in India during October, 2015 to March, 2016 and April, 2016 to September, 2016. For the services so provided, the appellant raised invoice for reimbursement of expenses, without charging any service tax and payment for the same was received by the appellant in convertible foreign exchange. The appellant erroneously paid service tax of Rs. 12,84,404/- for the period October, 2015 to March, 2016 and Rs. 9,82,965/- for the period April, 2016 to September, 2016 on wrong legal advice. Subsequently, appellant filed revised returns for both the periods and the entire amount received in convertible foreign exchange was claimed exempt, against “export of services”. The refund claims were rejected by the Assistant Commissioner on the ground that clause (d) & (f) of Rule 6A(1) of Service Tax Rules, 1994, were not fulfilled i.e. place of provision of service was not outside India, and the provider of service and recipient of service were establishments of same person, under Explanation 3(b) of clause (44) of Section 65B of the Act. The appeals of the same were dismissed by Commissioner (Appeals), thus the instant appeal was filed.

The Tribunal concluded that the appellant as well as its parent company in Hong Kong were separate legal entities and therefore they cannot be treated as “same person”. Merely because the parent company in Hong Kong is a holding company of the appellant, the same does not means that the appellant and its parent company are same “person”. The Tribunal relied upon the Supreme Court judgment in Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613 where it was held, “72. The approach of both the corporate and tax laws, particularly in the matter of corporate taxation, generally is founded on the abovementioned separate entity principle i.e. treat a company as a separate person. The Income Tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence of companies and other entities subject to income tax. Companies and other entities are viewed as economic entities with legal independence vis-à-vis their shareholders/participants. It is fairly well accepted that a subsidiary and its parent are totally distinct taxpayers. Consequently, the entities subject to income tax are taxed on profits derived by them on stand-alone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders/participants. Furthermore, shareholders/ participants that are subject to (personal or corporate) income tax, are generally taxed on profits derived in consideration of their shareholding/participations, such as capital gains. Nowadays, it is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct taxpayers.”

The Tribunal further added that in the present case appellant is neither arranging nor facilitating provision of service between the parent company at Hong Kong and the third parties in India but is providing its services directly, on its own account, on principal to principal basis, hence appellant is not an “intermediary” and services provided by the appellant to its parent company in Hong Kong cannot be categorized as “intermediary services”. The Tribunal allowing the appeals finally held that Rule 2(f) read with Rule 9 of Place of provision of Service Rules, 2012, clearly provides that „intermediary‟ which means one who procure or an agent, does not include a person who provides the main service or supply of goods on his account directing the Adjudicating Authority to grant the refund within a period of thirty days from the date of receipt of this order, along with interest @12% per annum. [CHF Industries India (P) Ltd. v. Commr. Of CGST, Service Tax Appeal No. 70457 of 2020, decided on October 08, 2021]



Notes of HSN can be relied upon to decide the classification: CESTAT

The Appellant is a manufacturer of medical and dental equipment and furniture and is registered with Central Excise department. Its records were audited by the departmental audit party. Audit officers felt that, the goods do not qualify as medical equipment and should be classifiable under Central Excise Tariff Heading 8419.10 (up to February, 2005) and 8419.2010 (from March, 2005). Accordingly, a show cause notice was issued to the Appellant proposing to re-classify the above four goods and assess them to duty @ 16% ad valorem as applicable. It was also alleged in the show cause notice that, the assessee had suppressed the fact of manufacture and clearance of these products from the Department with an intention to evade payment of Central Excise duty. Accordingly, the differential duty was demanded invoking the extended period of limitation for the period August 2002 to March 2007 by the show cause notice and invoking the extended period of limitation under the proviso to Section 11A of Central Excise Act, 1944.

Interest was also demanded at the appropriate rate under Section 11AB of the Act. It was also proposed to impose a penalty on them under Section 11AC read with Rule 25 of the Central Excise Rules, 2002. The appellant contested the demand both on merits and on limitation. The Additional Commissioner confirmed the demands as proposed in the show cause notice along with interest and imposed a penalty under Section 11AC equivalent to the amount of duty. Aggrieved, the appellant appealed to the Commissioner (Appeals) who in the impugned order, upheld the order of the Additional Commissioner and rejected the appeal. Hence, present appeal.

The Autoclave, Glass Bead Sterilizer, Steam Clave and Hot Air Sterilizer are not medical equipment but are used for sterilizing medical/dental equipment. The question which arises is whether such goods should be classified under medical equipment or sterilizers under 8419. The Central Excise Tariff is framed on the lines of the Harmonized System of Nomenclature (HSN). It classifies all goods into Sections, chapters within in each section and headings within each Chapter and sub-headings within the headings.

While the Central Excise Tariff has only Rules of Interpretation, the Harmonized System of Nomenclature based on which the Tariff is drafted, also has detailed explanatory notes explaining the scope of each heading. It has been held in Bakelite Hylam that notes of HSN can be relied upon to decide the classification. The argument of the Appellant is that, since their sterilizing equipment is used by dentists, the same should be classified under Chapter 90. The argument of the Revenue is that sterilizing equipment, though used by a dentist is not medical equipment and it should fall under 8419 as sterilizing equipment. The Harmonised System of Nomenclature explains that, 8419 includes not only autoclaves for industrial purposes but also those used for installation and operation theatres, etc. The four goods manufactured by the Appellant are classifiable under 8419 as asserted by the Revenue and are chargeable to appropriate duty. Therefore, on merits, the contention of the Revenue should be accepted.

The next issue is regarding invocation of extended period of limitation. As per Section 11A of the Act, demand could be raised only within six months. The proviso to Section 11A of the Act permitted raising of demand within the extended period of limitation of five years if there is an element of (a) fraud (b) collusion (c) wilful mis-statement (d) suppression of facts or (e) contravention of any provisions of the Act or the Rules made thereunder with intent to evade payment of duty. If none of these elements are established in any case, the demand can only be raised within the normal period of limitation. The assertion in the show cause notice that, the Appellant has not declared the manufacture of these products is not true as can be seen from the declaration made by the appellant under Rule 173B and its acknowledgement by the department. If the excise returns required certain details to be given, it has no obligation to give more details then what is mandated. It is the responsibility of the Central Excise officer to scrutinize whether the return is in order and if considered necessary, he can seek more details. The Appellant cannot be held responsible, if the officer has chosen not to seek more details. Therefore, that allegation of suppression of facts by the Appellant in the show cause notice is completely unfounded. The other elements such as fraud, collusion and willful mis-statement have not even been alleged in the show cause notice. Therefore, the demand cannot be raised by invoking the extended period of limitation.

As far as the normal period of limitation is concerned, the Appellant submits that although they have been contesting that classification on merits they have already paid the differential duty for the normal period of limitation from September 2006 to March 2007 along with interest. The impugned order is modified to the extent it upholds the demand and interest as applicable within the normal period of limitation but set aside the demand for the extended period of limitation. The penalty imposed under section 11AC read with Rule 24 is also set aside. The appeal is allowed in part. [Confident Dental Equipments Limited Vs. The Commissioner of Central Excise Bangalore III Commissionerate, Bangalore, Customs, Excise and Service Tax Appellate Tribunal, MANU/CB/0103/2021 October 04, 2021].

F. BANKING LAWS


Sections 138 and 141 of NI Act: Vicarious liability of directors of a company for dishonour of cheques : Supreme Court

Explaining the law relating to vicarious liability of the Directors of a company under Sections 138 and 141 of the Negotiable Instruments Act, 1881, the bench of Ajay Rastogi and Abhay S. Oka, JJ has held that if, at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company and and if statutory compliance of Section 141 of the NI Act has been made, the High Court cannot quash the proceedings against the person accused under Section 482 CrPC.

It can, however, do so, if “… it comes across some unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly indicate that the Director could not have been concerned with the issuance of cheques and asking him to stand the trial would be abuse of process of Court. Despite the presence of basic averment, it may come to a conclusion that no case is made out against the particular Director for which there could be various reasons.”

In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla, (2005) 8 SCC 89, while dealing with an offence under Section 138 of the NI Act, the Court explained the duty of a Magistrate while issuing process and his power to dismiss a complaint under Section 203 without even issuing process. It held, “5. … a complaint must contain material to enable the Magistrate to make up his mind for issuing process. If this were not the requirement, consequences could be far-reaching. If a Magistrate had to issue process in every case, the burden of work before the Magistrate as well as the harassment caused to the respondents to whom process is issued would be tremendous. Even Section 204 of the Code starts with the words ‘if in the opinion of the Magistrate taking cognizance of an offence there is sufficient ground for proceeding’. The words ‘sufficient ground for proceeding’ again suggest that ground should be made out in the complaint for proceeding against the respondent. It is settled law that at the time of issuing of the process the Magistrate is required to see only the allegations in the complaint and where allegations in the complaint or the charge-sheet do not constitute an offence against a person, the complaint is liable to be dismissed.”

The same judgment then went on to explain the requirements under Section 141 of the NI Act:

(a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.

(b) Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.

(c) The managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under subsection (2) of Section 141.

In the case at hand, the Court was concerned with Directors who were not signatories to the cheques. So far as Directors who are not the signatories to the cheques or who are not Managing Directors or Joint Managing Directors are concerned, it is necessary to aver in the complaint filed under Section 138 read with Section 141 of the NI Act that at the relevant time when the offence was committed, the Directors were in charge of and were responsible for the conduct of the business of the company. This averment assumes importance because it is the basic and essential averment which persuades the Magistrate to issue process against the Director.

In the present case, the Court noticed that the allegations in the complaint are that at the time at which the cheques were issued by the Company and dishonoured by the Bank, the appellants were the Directors of the Company and were responsible for its business and all the appellants were involved in the business of the Company and were responsible for all the affairs of the Company. “It may not be proper to split while reading the complaint so as to come to a conclusion that the allegations as a whole are not sufficient to fulfil the requirement of Section 141 of the NI Act.” Since the complaint specifically refers to the point of time when the cheques were issued, their presentment, dishonour and failure to pay in spite of notice of dishonour, the High Court was right in not exercising its power under Section 482 of CrPC. [Ashutosh Ashok Parasrampuriya v. Gharrkul Industries Pvt. Ltd., 2021 SCC OnLine SC 915, decided on October 08, 2021].



If signature on cheque is admitted, presumption under Section 139 of NI Act that cheque was issued in discharge of a legally enforceable debt will be raised: Supreme Court

The Appellant is before present Court assailing the common order passed by the High Court. Through the said order, the learned Single Judge has allowed Petition filed by the Respondent herein. Consequently, the conviction of the Respondent, ordered by the learned Judicial Magistrate and affirmed by the learned Session Judge is set aside.

The record would disclose that, the signature on the documents at Exhibits P¬6 and P¬2 is not disputed. Exhibit P¬2 is the dishonoured cheque based on which the complaint was filed. From the evidence tendered before the JMFC, it is clear that the Respondent has not disputed the signature on the cheque. If that be the position, as noted by the Courts below, a presumption would arise under Section 139 of Negotiable Instruments Act, 1881 (NI Act) in favour of the Appellant who was the holder of the cheque. Section 139 of the NI Act provides that, it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability. The case put forth by the Respondent does not satisfy the requirement of rebuttal even if tested on the touchstone of preponderance of probability. Therefore, in the present facts, it cannot be held that the presumption which had arisen in favour of the Appellant had been successfully rebutted by the responent herein. The High Court therefore was not justified in its conclusion.

As observed by this Court in Kaushalya Devi Massand vs. Roopkishore Khore, the gravity of complaint under NI Act cannot be equated with an offence under the provisions of the Indian Penal Code, 1860 or other criminal offences. In that view, in the facts and circumstances of the instant case, if an enhanced fine is imposed, it would meet the ends of justice. The order passed by the High Court in Criminal Revision Petition is set aside. The conviction is restored. The sentence to undergo simple imprisonment for six months and fine of Rs.2,00,000 is however modified. The Respondent/Accused is instead sentenced to pay the fine of Rs. 2,50,000 within three months. In default of payment of fine the Respondent/Accused shall undergo simple imprisonment for six months. Appeals are accordingly allowed in part. [Triyambak S.Hegde vs. Sripad MANU/SC/0690/2021].

G. PROPERTY LAWS

Ø “If the Khararunama/family settlement by itself, does not ‘affect’ immovable property there would be no breach of Section 49(1)(c), as it is not being used as evidence of a transaction effecting such property.”: Supreme Court

The Division Bench of K.M Joseph and S. Ravindra Bhat, JJ., held that an unregistered family settlement document is admissible to be placed “in” evidence if it does not by itself affect the transaction though the same cannot be allowed “as” evidence. The Bench expressed, “Merely admitting the Khararunama containing record of the alleged past transaction, is not to be understood as meaning that if those past transactions require registration, then, the mere admission, in evidence of the Khararunama and the receipt would produce any legal effect on the immovable properties in question.”

The Court was dealing with the impugned order of the Telangana High Court, whereby the High Court had set aside the order passed by the Trial Court by holding that the unregistered and unstamped family settlement “Khararunama” and receipt of Rs. 2,00,000 by the respondent were not admissible in evidence.

The respondent, younger brother of the appellants had instituted a suit seeking declaration of title over the plaint schedule property and for eviction of the appellants and consequential perpetual injunction was also sought against the appellants. Evidently, there was a partition between the appellants, the respondent and their other siblings. Pursuant to some disputes between the parties a Khararunama dated 15-04-1986 was executed recording the facts. It was contended by the respondent that the Khararunama required registration under section 17(1)(b) of the Registration Act, 1908 and under the said settlement, appellants ought to pay certain sum to the respondent. The document would come into force after the receipt of the consideration.

Undoubtedly, Section 17(1)(b) makes ‘other non-testamentary instruments’, which purport or operate to create, assign, limit or extinguish whether in present or in future any right or interest whether vested or contingent of the value of Rs.100/- and upwards in an immovable property compulsorily registrable. Section 17(1)(c) reads as follows: “17(1)(c) non-testamentary instruments which acknowledge the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; and

Section 49(c) of Registration Act prohibits the admitting of compulsorily registrable documents which are unregistered as evidence of any transaction affecting immovable property unless it has been registered. Opining that unregistered document can be used as evidence of any collateral transaction, the Bench stated, however, the said collateral transaction should not itself be one which must be affected by a registered document. In K. Panchapagesa Ayyar v. K. Kalyanasundaram Ayyar, 1956 SCC OnLine Mad 141, the Madras High Court was of the view:

“To sum up it is well settled in a long series of decisions which have since received statutory recognition by the Amending Act of 1929 (vide the concluding words of the new proviso to Section 49 of the Registration Act) that a compulsorily registrable but an unregistered document is admissible in evidence for a collateral purpose that is to say, for any purpose other than that of creating, declaring, assigning, limiting or extinguishing a right to immovable property”.

Whether the Khararunama by itself affected rights in the immovable properties in question? The next question before the Bench was whether the Khararunama by itself ‘affects’, i.e., by itself creates, declares, limits or extinguishes rights in the immovable properties in question or whether it merely refers to what the appellants alleged were past transactions which had been entered into by the parties, the Bench answered, going by the words used in the document, they indicate that the words were intended to refer to the arrangements allegedly which the parties made in the past and the document did not purport to by itself create, declare, assign, extinguish or limit right in properties.

As per Section 49(1) (a), a compulsorily registrable document, which is not registered, cannot produce any effect on the rights in immovable property by way of creation, declaration, assignment, limiting or extinguishment. Thus, observing that Section 49(1) prevents an unregistered document being used ‘as’ evidence of the transaction, which affects immovable property, the Bench stated, “If the Khararunama by itself, does not ‘affect’ immovable property, being a record of the alleged past transaction, though relating to immovable property, there would be no breach of Section 49(1)(c), as it is not being used as evidence of a transaction effecting such property.” The Bench held that being let in evidence is different from being used as evidence of the transaction; thus, the transaction or the past transactions could not be proved by using the Khararunama as evidence of the transaction. In other words, the Bench held, “merely admitting the Khararunama containing record of the alleged past transaction, is not to be, understood as meaning that if those past transactions require registration, then, the mere admission, in evidence of the Khararunama and the receipt would produce any legal effect on the immovable properties in question.”

In Muruga Mudallar v. Subba Reddiar, 1950 SCC OnLine Mad 136, the Madras High Court had held that, “the consequence of non-registration is to prohibit the document from being received not “in” evidence, but “as” evidence of any transaction affecting such property.” As far as stamp duty was concerned, the Bench was of the view that since the Khararunama was a mere record of past transaction it did not require to be stamped.

Lastly, the Bench held, when there had been a partition, there may be no scope for invoking the concept of antecedent right as such, therefore since the appellants and the respondents had partitioned their joint family properties, the properties mentioned in the Khararunama would be separate properties of the respondent. Resultantly, the Appeal was allowed. The impugned Judgment was set aside and the Khararunama was held to be admissible in evidence but not as evidence. [Korukonda Chalapathi v. Korukonda Annapurna Sampath Kumar, 2021 SCC OnLine SC 847, decided on October 01, 2021].

H. PERSONAL LAWS


The Investigating Agency, deserves a free hand to investigate the role of the Respondent-Mother-in-law, if any, in the unnatural and untimely death of her daughter in-law: Supreme Court

The 3-judge bench of NV Ramana, CJ and Surya Kant* and Hima Kohli, JJ has explained the principles governing cancellation of bail and has held that it is necessary that ‘cogent and overwhelming reasons’ are present for the cancellation of bail. “Conventionally, there can be supervening circumstances which may develop post the grant of bail and are non-conducive to fair trial, making it necessary to cancel the bail.”

Principles governing the cancellation of bail: Daulat Ram v. State of Haryana, (1995) 1 SCC 349 “Rejection of bail in a non-bailable case at the initial stage and the cancellation of bail so granted, have to be considered and dealt with on different basis. Very cogent and overwhelming circumstances are necessary for an order directing the cancellation of the bail, already granted. Generally speaking, the grounds for cancellation of bail, broadly (illustrative and not exhaustive) are: interference or attempt to interfere with the due course of administration of Justice or evasion or attempt to evade the due course of justice or abuse of the concession granted to the accused in any manner. The satisfaction of the court, on the basis of material placed on the record of the possibility of the accused absconding is yet another reason justifying the cancellation of bail. However, bail once granted should not be cancelled in a mechanical manner without considering whether any supervening circumstances have rendered it no longer conducive to a fair trial to allow the accused to retain his freedom by enjoying the concession of bail during the trial.”

“… bail can also be revoked where the court has considered irrelevant factors or has ignored relevant material available on record which renders the order granting bail legally untenable. The gravity of the offence, conduct of the accused and societal impact of an undue indulgence by Court when the investigation is at the threshold, are also amongst a few situations, where a Superior Court can interfere in an order of bail to prevent the miscarriage of justice and to bolster the administration of criminal justice system.”

The Court was hearing the case wherein the mother-in-law of the deceased was charged under Sections 304B, 302 read with 120B after the deceased’s father alleged that, just two months into her marriage with the accused, his daughter died an unnatural death in suspicious circumstances . In these twi months, the accused family members harassed and physically tortured the deceased on the pretext of dowry demands. After two failed failed attempts of seeking anticipatory bail, the mother-in-law went on a run and was declared an absconder. She continued to evade arrest until Supreme Court granted bail to her younger son i.e. deceased’s brother-in-law.

Taking advantage of this subsequent event and presenting the same as a material change in circumstance, she filed two petitions before the High Court, seeking quashing of the order that declared her a ‘proclaimed offender’ and further sought the relief of anticipatory bail on the ground of parity. The Supreme Court noticed that “… the High Court seems to have been primarily swayed by the fact that the Respondent-Accused was ‘co-operating’ with investigation. This is, however, contrary to the record as the Respondent¬Accused remained absconding for more than two years after being declared a proclaimed offender on 23.04.2018. She chose to join investigation only after securing interim bail from the High Court. She kept on hiding from the Investigating Agency as well as Magistrate’s Court till she got protection against arrest from the High Court in the 2nd round of bail proceedings.”

On procedural irregularity in declaring the deceased’s mother-in-law as an absconder: The Court held that even if there was any procedural irregularity in declaring the Respondent-Accused as an absconder, that by itself was not a justifiable ground to grant pre-arrest bail in a case of grave offence save where the High Court on perusal of case-diary and other material on record is, prima facie, satisfied that it is a case of false or overexaggerated accusation. Such being not the case here, the High Court went on a wrong premise in granting anticipatory bail to the Respondent-Accused.

On ground of parity with the deceased’s brother in law: The allegations in the FIR against the Respondent Mother-in-Law and her younger son are materially different. While some of the allegations against all the family members are common but there are other specific allegations accusing the Respondent Mother-in-Law of playing a key role in the alleged offence. “The conduct of the Respondent-Accused in absconding for more than two years without any justifiable reason should have weighed in mind while granting her any discretionary relief. These facts put her on a starkly different pedestal than the co0accused with whom she seeks parity.”

“The offence alleged in the instant case is heinous and protrudes our medieval social structure which still wails for reforms despite multiple efforts made by Legislation and Judiciary.” The Court noticed that it has to be borne in mind that the deceased met with a tragic end within three months of her marriage and a young life came to an abrupt end befor realizing any of her dreams which were grimly shattered. She having died an unnatural death in her matrimonial home, the Investigating Agency, deserves a free hand to investigate the role of the Respondent-Mother-in-law, if any, in the unnatural and untimely death of her daughter in-law. [Vipin Kumar Dhir v. State of Punjab, 2021 SCC OnLine SC 854, decided on October 04,2021].



Under the provisions of the Hindu Marriage Act, the relief of divorce, judicial separation etc. can be between the husband and the wife only and cannot extend to the third party: Supreme Court

In a case where a woman had, by way of counter claim in a marriage petition filed by her husband for dissolution of the marriage, sought to declare her husband’s alleged second marriage to be “illegal, void and voidable” and son born out of the said “adulterous” relationship illegitimate, the bench of MR Shah* and AS Bopanna, JJ has held that no such relief qua the third party can be prayed as per Section 23A of the Hindu Marriage Act, 1955.

The respondent-husband filed a Hindu Marriage Petition before the Family Court under Section 13 of the Hindu Marriage Act for dissolution of marriage, mainly on the ground that the appellant-wife is guilty of cruelty. According to the appellant-wife, the respondent-husband deserted her and their son on 9.2.2006 and the respondent-husband refused to provide maintenance for her and their son. It was also her case that the respondent-husband as on today is cohabiting with another woman, openly moves around with the said woman and introduces the said lady as his new wife and is travelling not only in the country but abroad with her and also has a son with her. Since the respondent-husband wants to marry the said woman, a false and fabricated story is placed before the Court.

Section 23A of the Hindu Marriage Act: 23A. Relief for respondent in divorce and other proceedings – In any proceeding for divorce or judicial separation or restitution of conjugal rights, the respondent may not only oppose the relief sought on the ground of petitioner’s adultery, cruelty or desertion, but also make a counter-claim for any relief under this Act on that ground; and if the petitioner’s adultery, cruelty or desertion is proved, the court may give to the respondent any relief under this Act to which he or she would have been entitled if he or she had presented a petition seeking such relief on that ground.

Holding that no relief can be prayed qua the third party under Section 23A of the Hindu Marriage Act, the Court explained that by way of counter claim, the respondent in any proceedings for divorce or judicial separation or restitution of conjugal rights can pray for the relief by way of counter claim only those reliefs which can be prayed and/or granted under the Hindu Marriage Act, namely, Section 9 (Restitution of conjugal rights); Section 10(judicial separation); Sections 11 & 12(declaration of marriage between the petitioner and the respondent void) Section 13 (divorce).

Therefore, the respondent to the aforesaid proceedings can pray for the aforesaid reliefs only by way of counter claim and that too between the petitioner and the respondent. Since under the provisions of the Hindu Marriage Act, the relief of divorce, judicial separation etc. can be between the husband and the wife only and cannot extend to the third party, therefore, it was not open for the appellant-wife to seek declaration to the effect that the marriage between the respondent-husband and the third party is void. Further, no relief can be prayed by way of counter claim even against the son born out of the alleged wedlock between the respondent-husband and the third party. The Court, however, explained that in such a situation, the only remedy available to the appellant would be to file a substantive suit and/or initiate independent proceedings claiming such reliefs.

“At the most, the appellant herein – original defendant by way of counter claim could have claimed the relief and prayed for divorce and/or judicial separation on the ground of husband’s adultery. Beyond that, no relief which cannot be granted under the provisions of the Hindu Marriage Act can be claimed by way of counter claim.” [Nitaben Dinesh Patel v. Dinesh Dahyabhai Patel, 2021 SCC OnLine SC 902, decided on October 07, 2021].



“How an individual copes up with a threat- both physical and emotional, expressing (or refraining to express) love, loss, sorrow and happiness, varies greatly in view of the multi-faceted nature of the human mind and emotions.”: Supreme Court

In a case where the Single Judge of Karnataka High Court had termed person committing suicide a ‘weakling’ and also made observations on how the behavior of the deceased before he committed suicide was not that of a person who is depressed and suffering from mental health issues, the bench of Dr. DY Chandrachud and BV Nagarathna, JJ has held that such observations describing the manner in which a depressed person ought to have behaved deeply diminishes the gravity of mental health issues and that, “The mental health of a person cannot be compressed into a one size fits all approach.”

Deceased, who was working as a driver for the accused-second respondent, was found dead on 6 December 2016, with a 12 pages long suicide note next to him. The suicide note was uploaded by the deceased on his Facebook account through his mobile. The suicide note has referred to the illegal activities of the accused in amassing wealth in excess of Rs. 100 crores, converting black money into white and transferring funds from the bank account of the deceased through his mobile to the accounts of the relatives of the accused. The complaint alleged that the accused had threatened the deceased with death and harassed him as a result of which the deceased, having suffered mental stress, committed suicide by consuming poison. Both the second respondent and his “house driver” were specifically named as responsible for this death.

The transfer of funds in several lakhs of rupees by the accused to his relatives by using the cell phone and bank account of the deceased; The conversion of approximately Rs. 100 crores into currency notes of Rs. 2,000/-, Rs. 100/- and Rs. 50/-; The knowledge of the deceased in regard to the transactions of the accused as a result of which he had been threatened to be killed “by rowdies”; A raid conducted against the accused by the establishment of the Lokayukta of Karnataka while he was posted in the Housing Board; The involvement of judges to whom presents or gifts were made; The payment of salary to the deceased having been stopped at the behest of the accused; The accused having used the deceased for changing currency worth over Rs. 75 crores; and The deceased being in knowledge of “all the information”, and when a shortage of an amount of Rs. 8 lakh was found, the deceased had been directed to make good the deficiency, failing which he was threatened to be killed by rowdies.

The Court noticed that the High Court has evidently travelled far beyond the limits of its inherent power under Section 482 CrPC since instead of determining whether on a perusal of the complaint, a prima facie case is made out, it has analysed the sufficiency of the evidence with reference to the suicide note. While adjudicating on an application under Section 482 CrPC, the High Court in the present case travelled far away from the parameters for the exercise of the jurisdiction. Essentially, the task before the High Court was to determine whether the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety did or did not prima facie constitute an offence or make out a case against the accused. Instead of applying this settled principle, the High Court has proceeded to analyze from its own perspective the veracity of the allegations. “The entire judgment of the High Court consists of a litany of surmises and conjectures and such an exercise is beyond the domain of proceeding under section 482 of the CrPC. The High Court has proceeded to scrutinize what has been disclosed during the investigation, ignoring that the investigation had been stayed by an interim order of the High Court, during the pendency of the proceedings under section 482.”

The High Court observed that a prima facie case for the commission of offence under Section 306 of the IPC is not made out since: the suicide note does not describe the specific threats; details of the alleged demand of Rs. 8 lacs from the deceased by the respondent-accused are not set out in the suicide note; and no material to corroborate the allegations detailed in the suicide note has been unearthed by the investigating agency. The High Court observed that since the deceased took considerable time to write a twelve page suicide note, “it would have been but natural for the author to set out the details”.

Not only this but the High Court had commented upon and made strong observations on the suicide note itself, diminishing the importance of mental health.

37. It is not the case of the deceased that the accused had deprived him of his wealth or have committed acts that have shattered his hopes in life or separated him from his family and friends. It is not the case of the prosecution that the deceased was running away from or escaping the petitioner or his henchmen, but as is his habit, to visit his parents and to spend time with his friends. If the deceased had really felt threatened, he would have definitely approached the police. It is not that he was naive or not worldly-wise. If his employment with the petitioner was true, then the Police Commissionerate was only a stone’s throw away. It is not that the deceased was a weakling. The deceased by profession, is a driver. A profession where, accidents causing loss of life and limb are a daily occurrence and every driver is aware that he could be involved in an accident at any time.

His act of attending a relatives marriage in a different town and his interacting with friends and relatives are all actions of a normal person and not of a person under severe duress. The contention that this criminal case would jeopardize his career progression also cannot be brushed aside. It is also not forthcoming as to how he sourced the poison.” The Court held that the above mentioned observations describing the manner in which a depressed person ought to have behaved deeply diminishes the gravity of mental health issues. “Behavioral scientists have initiated the discourse on the heterogeneity of every individual and have challenged the traditional notion of ‘all humans behave alike’. Individual personality differences manifest as a variation in the behavior of people. Therefore, how an individual copes up with a threat- both physical and emotional, expressing (or refraining to express) love, loss, sorrow and happiness, varies greatly in view of the multi-faceted nature of the human mind and emotions.” [Mahendra KC v. State of Karnataka, 2021 SCC OnLine SC 1021, decided on October 29, 2021].

I.ARBITRARTION LAWS

Ø Pre -deposit of 75% of arbitration award amount under Section 19 of the MSME Act, 2006 mandatory or discretionary? : Supreme Court

The bench of MR Shah and AS Bopanna, JJ has held that in an appeal/application filed under Section 34 of the Arbitration & Conciliation Act, 1996 read with Section 19[1] of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act, 2006), the appellate court would not have any discretion to deviate from deposit of 75% of the awarded amount as a pre-deposit. The Court held that as per Section 19 of the MSME Act, 2006, at the time/before entertaining the application for setting aside the award made under Section 34 of the Arbitration & Conciliation Act, the applicant/appellant has to deposit 75% of the amount in terms of the award as a pre-deposit.

Hence, the requirement of deposit of 75% of the amount in terms of the award as a pre-deposit is mandatory. However, at the same time, considering the hardship which may be projected before the appellate court and if the appellate court is satisfied that there shall be undue hardship caused to the appellant/applicant to deposit 75% of the awarded amount as a predeposit at a time, the court may allow the pre-deposit to be made in instalments.

In Goodyear India Limited v. Norton Intech Rubbers Private Limited, (2012) 6 SCC 345, the Court had taken the same view wherein it was held that in the manner directed by such court” would indicate the discretion given to the court to allow the pre-deposit to be made, if felt necessary, in instalments. Otherwise the deposit of 75% as a pre-deposit is mandatory and the appellate court would have no discretion at all to deviate from the mandate under Section 19 of the MSME Act, 2006.

Hence, considering the language used in Section 19 of the MSME Act, 2006 and the object and purpose of providing deposit of 75% of the awarded amount as a pre-deposit while preferring the application/appeal for setting aside the award, it has to be held that the requirement of deposit of 75% of the awarded amount as a predeposit is mandatory. [Gujarat State Disaster Management Authority v. Aska Equipments Limited, 2021 SCC OnLine SC 917, decided on October 08, 2021]

Ø If the contract contains a specific clause which expressly bars payment of interest, then it is not open for the arbitrator to grant pendente lite interest: Supreme Court

The bench of SA Nazeer and Krishna Murari, JJ has held that if the contract contains a specific clause which expressly bars payment of interest, then it is not open for the arbitrator to grant pendente lite interest. Parties entered into a contract for construction of boundary wall at 2×750 MW Pragati III Combined Cycle Power at Bawana, Delhi, which, inter alia, contained the interest barring the following clause:

“Clause 17: No interest shall be payable by BHEL on Earnest Money Deposit, Security Deposit or on any moneys due to the contractor.”

When the dispute arose between the parties, the appellant, apart from claiming various amounts under different heads, inter alia claimed pre-reference, pendente lite and future interest at the rate of 24% on the value of the award. The Arbitrator concluded that there is no prohibition in the contract about payment of interest for the pre-suit, pendente lite and future period. Therefore, he awarded pendente lite and future interest at the rate of 10% p.a. to the appellant on the award amount from the date of filing of the claim petition i.e. 02.12.2011 till the date of realization of the award amount.

Interest payments are governed in general by the Interest Act, 1978 in addition to the specific statutes that govern an impugned matter. Section 2 (a) of the Interest Act defines a “Court” which includes both a Tribunal and an Arbitrator. Section 3 allows a “Court” to grant interest at prevailing interest rates in various cases. The provisions of Section 3 (3) of the Interest Act, 1978 explicitly allows the parties to waive their claim to an interest by virtue of an agreement. Section 3(3)(a)(ii) states that the Interest Act will not apply to situations where the payment of interest is “barred by virtue of an express agreement”. Further, the provisions of the Arbitration and Conciliation Act, 1996 give paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre-reference and pendente lite interest when the parties themselves have agreed to the contrary.

Section 31(7)(a) of the 1996 Act which deals with the payment of interest is as under : “31(7)(a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.” The provision makes it clear that if the contract prohibits pre-reference and pendente lite interest, the arbitrator cannot award interest for the said period. In the present case, clause barring interest is very clear and categorical. It uses the expression “any moneys due to the contractor” by the employer which includes the amount awarded by the arbitrator. Hence, it was held that when there is an express statutory permission for the parties to contract out of receiving interest and they have done so without any vitiation of free consent, it is not open for the Arbitrator to grant pendent lite interest.

Sayeed Ahmed and Company v. State of Uttar Pradesh, (2009) 12 SCC 26- A provision has been made under Section 31(7)(a) of the 1996 Act in relation to the power of the arbitrator to award interest. As per this section, if the contract bars payment of interest, the arbitrator cannot award interest from the date of cause of action till the date of award. In Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), (2010) 8 SCC 767 - here the parties had agreed that the interest shall not be payable, the Arbitral Tribunal cannot award interest between the date on which the cause of action arose to the date of the award. In Sri Chittaranjan Maity v. Union of India, (2017) 9 SCC 611- If a contract prohibits award of interest for pre-award period, the arbitrator cannot award interest for the said period. [Garg Builders v. Bharat Heavy Electricals Ltd., 2021 SCC OnLine SC 855, decided on October 04, 2021].




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