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AI TextQuick Glance (AI)Headnote
Acknowledgment in Balance Sheet Valid Under Section 18 Restarts Limitation Period for IBC Section 7 Filing
Acknowledgment in Balance Sheet Valid Under Section 18 Restarts Limitation Period for IBC Section 7 Filing
The SC allowed the appeal, holding that the entry in the respondent's Balance Sheet for F.Y. 2019-20 constituted a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963. This acknowledgment restarted the limitation period for filing the Section 7 application under the IBC, 2016. The Court clarified that the limitation period, considering the acknowledgment dated 12.08.2020 and the exclusion period under the Court's earlier order, commenced on 01.03.2022 and continues till 28.02.2025. Since the application was filed on 15.01.2024, it was within the prescribed limitation period. The matter was remitted to the adjudicating authority to proceed with the application on merits, treating it as timely filed.
Dismissal of Section 7 application filed by the appellant against the respondent under the Insolvency and Bankruptcy Code, 2016 - dismissal of application on the ground that the same was being barred by limitation - entry in the Balance Sheet of F.Y. 2019-20 constitute a valid acknowledgement of debt by the respondent under Section 18 of the Limitation Act, 1963 or not - HELD THAT:- It is now well settled in view of Section 238A of the IBC that the Limitation Act, 1963 shall, as far as may be, apply to the proceedings under the Code. It is also well settled that Article 137 of the first schedule to the Limitation Act providing a period of three years from the date when the right to apply accrues will govern the situation.
The question as to what constitutes a valid acknowledgment has come up for consideration before this Court both under the Limitation Act, 1908 and the Limitation Act, 1963 - an acknowledgment of debt merely renews the debt and does not create a new right of action. It is further essential that the acknowledgment must relate to a subsisting liability and must indicate the jural relationship between the parties such as that of debtor and creditor, and it must appear that the statement is made with the intention to admit such jural relationship. It was also held that such intention can be inferred by implication from the nature of the admission and need not be expressed in words. It has also been held that in construing the words used in the statements, surrounding circumstances can always be considered and that Courts lean in favour of a liberal construction of such statements, though intention cannot be fastened by an involved or far-fetched process of reasoning.
In the application under Section 7 detailed averments were made referring to a series of audited financial statements and Balance Sheet from F.Y. 2015-16 to F.Y. 2019-20 to make out a case that the entry in F.Y. 2019-20 constituted an acknowledgment under Section 18 of the Limitation Act by the respondent. In any event, we have not based our finding on the mere factum of non-denial but have construed the entry in the Balance Sheet of F.Y. 2019-20 to conclude that the entry in the F.Y. 2019-20 constitutes a valid acknowledgment.
There are no manner of doubt that sub-Para 1 of Para 5 of the order of this Court dated 10.01.2022 would apply and the entire period from 15.03.2020 to 28.02.2022 would stand excluded, which would mean that the limitation would, reckoning the acknowledgment of 12.08.2020, commence on 01.03.2022 and continue till 28.02.2025. Since the application has been filed on 15.01.2024 the same is within time. Limitation, in view of the acknowledgment as found above, having commenced only on 12.08.2020, the question of limitation expiring between 15.03.2022 and 28.02.2022 cannot arise. Hence, Para 5(III) of the order of this Court dated 10.01.2022, has no application to the facts of this case.
The matter is remitted to the adjudicating authority to proceed with and decide in accordance with law, treating the application under Section 7 of the IBC, filed by the appellant, as one filed within limitation - appeal allowed.
AI TextQuick Glance (AI)Headnote
Resigned Director Cannot File or Maintain Appeal for Corporate Debtor Under Relevant Corporate Law Provisions
Resigned Director Cannot File or Maintain Appeal for Corporate Debtor Under Relevant Corporate Law Provisions
The SC upheld the NCLAT's decision that the resignation of a director terminates their capacity to file or maintain an appeal on behalf of the corporate debtor. Consequently, the appeal filed by the resigned director was dismissed. The court found no valid reason to interfere with the impugned order of the NCLAT and dismissed the appeal.
Seeking recall of the order - resignation of a director affects the maintainability of an appeal filed by that director on behalf of the corporate debtor or not - it was held by NCLAT that the resignation of a director nullifies their capacity to maintain an appeal on behalf of the corporate debtor, leading to the dismissal of the appeal.
HELD THAT:- There are no good ground and reason to interfere with the impugned judgment/order passed by the National Company Law Appellate Tribunal.
Appeal dismissed.
AI TextQuick Glance (AI)Headnote
SC upholds FIR registration under Section 156(3) CrPC; no jurisdictional error found, proceedings to continue
SC upholds FIR registration under Section 156(3) CrPC; no jurisdictional error found, proceedings to continue
The SC upheld the Metropolitan Magistrate's order directing registration of the FIR under Section 156(3) CrPC, finding no lack of jurisdiction or failure to apply mind. The Court held that the informant must first approach police authorities before filing under Section 156(3), but the Magistrate's satisfaction that a cognizable offence was disclosed was sufficient. The HC rightly refused to quash the FIR and related order since investigations were complete and chargesheets filed. The dispute was not purely civil, given prior FIRs on the same MoU breach. The subsequent FIR was not barred as a successive FIR because the allegations and parties differed from the earlier FIR. The SC declined to interfere with the HC's discretionary refusal to quash, dismissing the petitions and allowing proceedings to continue.
Power of High Court under Section 482 of Code of Criminal Procedure to quash the FIR - filing of an application u/s 156(3) of the CrPC without approaching the police authorities - order passed without application of mind - denial of quashing of order for the reason that the investigations have been completed and the chargesheets have been filed against the accused persons - nature of dispute raised in the offending FIR is of a civil nature or not - present FIR amounts to a successive FIR and to be investigated independently.
Whether an application under Section 156(3) CrPC could have been filed without approaching the police authorities? - HELD THAT:- On a conspicuous reading of the provisions of Sections 154, 156 and 190 of the CrPC together, it is crystal clear that an informant who wants to report about a commission of a cognizable offence has to, in the first instance, approach the officer-in-charge of the police station for setting the criminal law into motion by lodging an FIR. However, if such an information is not accepted by the officer-in-charge of the police station and he refuses to record it, the remedy of the informant is to approach the Superintendent of Police concerned. It is only subsequent to availing the above opportunities if he is not successful, he may approach the Magistrate under Section 156(3) CrPC for necessary action or of taking cognizance in accordance with Section 190 of the CrPC.
In the instant case, a bare perusal of the application filed under Section 156(3) of the CrPC dated 01.07.2005 would reveal that the informant therein had simply stated that an offence under Sections 420, 120-B and 34 of the IPC have been committed and that the informant had approached the “police officials” several times but in vain, but the application is completely silent as to when did the informant approach the Police or the Superintendent of Police. The application nowhere states that the informant has ever approached the officer-in-charge of the police station for lodging the FIR in accordance with Section 154 of the CrPC or that on refusal to record such information he has availed the remedy of approaching the Superintendent of Police concerned. The mere bald allegation without any details or proof thereof, that the police authorities were approached several times is not acceptable.
The Magistrate ought not to ordinarily entertain an application under Section 156(3) CrPC directly unless the informant has availed and exhausted his remedies provided under Section 154(3) CrPC, but as the Magistrate is otherwise competent under Section 156(3) CrPC to direct the registration of an FIR if the allegations in the application/complaint discloses the commission of a cognizable offence, it is opined that the order so passed by the Magistrate would not be without jurisdiction and would not stand vitiated on this count.
Whether the order dated 01.07.2005 passed by the Metropolitan Magistrate is an order passed without application of mind, irrespective of the fact that it states that the parties were “heard” and the documents were “perused”? - HELD THAT:- The provisions of Section 156 (3) of the CrPC have subsequently been interpreted and it has been held that the Magistrate while directing for registering an FIR has to apply his independent mind based upon legal principles and the order so passed has to be a reasoned order. The provision so interpreted exists from its inception. Merely because a judgment by the Court has simply interpreted and reiterated the established principles of law that ought to have been into practice, it would not mean that such principles would be applicable prospectively only from the date of its interpretation. The interpretation made later on would not mean that the provision had a different meaning prior to its above interpretation. Therefore, the High Court manifestly erred in holding that at the relevant time there was no requirement of application of mind and for passing a speaking order, as the judgments of the higher courts holding otherwise have been penned down subsequently.
The mere stating in the order that the counsel has been heard and the application and the material produced have been perused, may not be indicative of the fact that the Magistrate had actually applied his mind to the controversy in issue. However, the fact that the perusal of the application and complaint attached to it, satisfied the Magistrate that it discloses a cognizable offence, is very material and relevant which proves the application of mind by him. Once such a satisfaction has been recorded by the Magistrate, even if wrongly, it is not liable to be interfered with in exercise of inherent powers by the higher courts. The powers vested in the court either under Section 482 CrPC or Article 226/227 of the Constitution of India are not for the purposes of appreciating the evidence or examining the correctness of the evidence collected during investigation to record a different conclusion other than recorded by the Magistrate that he is satisfied that a cognizable offence has been disclosed in the application/complaint.
In these facts and circumstances, for the reason that the Magistrate not only heard the counsel and perused the documents but has even considered the case law cited and has opined that the information discloses a cognizable offence, implies that he has actually applied his mind to the contents of the application before passing the impugned order directing for the registration of the FIR. Therefore, there is no fault with the order of the High Court in refusing to quash the order.
Whether the High Court can deny quashing of the order dated 01.07.2005 passed by the Metropolitan Magistrate and the FIR registered pursuant to it for the reasons that the investigations have been completed and the chargesheets have been filed against the accused persons? - HELD THAT:- In the present case with which we are dealing, we have already opined earlier that there is no legal flaw in the order passed by the Magistrate dated 01.07.2005 directing for the registration of the FIR. The order clearly states that the Magistrate is satisfied that the allegations indeed make out a cognizable offence for the purposes of investigation. The said satisfaction recorded by the Magistrate cannot be disturbed in exercise of inherent powers. Therefore, if in pursuance of the said order, the FIR has been registered which discloses a cognizable offence, the same cannot be struck down at this stage.
Once much water has flown down the bridge subsequent to the order of the registration of FIR and the registration of FIR, giving rise to a fresh cause of action to challenge the chargesheets, it is opined that the High Court has rightly refused to exercise its discretionary jurisdiction so as to interfere with the FIR as the investigations have been completed and the chargesheets have been filed.
Whether the nature of dispute raised in the offending FIR is of a civil nature and there is no involvement of criminality when both sides have previously lodged FIRs originating from the same MoU dated 11.03.1995? - HELD THAT:- The breach of conditions of the MoU or allegations of false promises in relation to the aforesaid MoU are undisputedly subject matter of the different FIRs lodged by VLS itself. Therefore, violation of those conditions for some reasons have been considered by VLS to be offensive. Therefore, the High Court rightly held that if breach of those conditions of the MoU itself has been considered to be of criminal nature by VLS, it cannot be permitted to turn around and allege that such breach of conditions would be of pure civil nature.
Whether the present FIR amounts to a successive FIR based upon the same allegations as contained in an earlier FIR No.326/2004 and as such cannot be investigated independently? - HELD THAT:- It has been well settled that successive FIRs in respect of a same cognizable offence are not maintainable provided that on the basis of the earlier FIR, investigations have been completed and the trial had either resulted in conviction or acquittal of the accused.
In the case at hand, FIR No.326/2004 was lodged at Police Station, Connaught Place, New Delhi, whereas the subsequent FIR No.380/2005 was lodged at Police Station, Defence Colony, New Delhi. Both the FIRs may be based on similar allegations but they are not virtually the same. The allegations are different and even the parties against whom the FIRs were filed are not the same. Therefore, such a subsequent FIR may be maintainable but refrained from making any final comment on the above aspect as no such finding on this aspect has been returned by the court below.
Since in connection with FIR No.380/2005, investigations have been completed and the High Court has refused to quash the said FIR in exercise of its discretionary power, it is not deemed necessary to exercise discretion to override that of the High Court and leave the matter to proceed further in accordance with law.
It is not required to interfere with the orders impugned and the petitions are dismissed.
AI TextQuick Glance (AI)Headnote
Jurisdiction for Section 138 N.I. Act lies with court where payee's bank branch is located, per Section 142(2)(a)
Jurisdiction for Section 138 N.I. Act lies with court where payee's bank branch is located, per Section 142(2)(a)
The SC held that jurisdiction for offences under Section 138 of the N.I. Act lies exclusively with the Court within whose local jurisdiction the branch of the bank where the payee maintains the account is situated, per Section 142(2)(a). Since the complainant's account was with the Kotak Mahindra Bank branch at Mangalore, filing the complaint there was proper. The Magistrate and HC erred by assuming jurisdiction based on a different branch location. The SC set aside the impugned order and allowed the appeal, affirming the territorial jurisdiction as per the amended Section 142(2)(a) of the N.I. Act.
Dishonour of Cheque - requirement file his complaints in relation to offences punishable under Section 138 of the Negotiable Instruments Act, 1881 - territorial jurisdiction for instituting a complaint in relation to dishonor of a cheque - HELD THAT:- Section 142(2)(a) of the N.I. Act makes it clear that an offence under Section 138 thereof should be inquired into and tried only by a Court within whose local jurisdiction, if the cheque is delivered for collection through an account, the branch of the bank where the payee maintains the account is situated. This provision, as it stands after its amendment in 2015, was considered in Bridgestone India Private Limited vs. Inderpal Singh [2015 (12) TMI 777 - SUPREME COURT] and this Court affirmed that Section 142(2)(a) of the N.I. Act vests jurisdiction apropos an offence under Section 138 thereof in the Court where the cheque is delivered for collection, that is, through an account in the Branch of the Bank where the payee maintains that account.
Therefore, once it is established that, at the time of presentation of the cheques in question, the appellant maintained his account with the Kotak Mahindra Bank at its Bendurwell, Mangalore Branch, he was fully justified in filing his complaint cases before the jurisdictional Court at Mangalore. The understanding to the contrary of the learned Magistrate at Mangalore was erroneous and completely opposed to the clear mandate of Section 142(2)(a) of the N.I. Act. The High Court proceeded to confirm the erroneous order passed by the learned Magistrate under the wrong impression that the appellant maintained his bank account at the Opera House Branch of the Kotak Mahindra Bank at Mumbai.
The impugned order is set aside - appeal allowed.
AI TextQuick Glance (AI)Headnote
Criminal Court Can Allow Complaint Amendments Post-Cognizance If No Prejudice, Under Section 200 Cr.P.C.
Criminal Court Can Allow Complaint Amendments Post-Cognizance If No Prejudice, Under Section 200 Cr.P.C.
The SC held that a criminal court has the power to allow amendment of a complaint under Section 200 Cr.P.C. post cognizance if the amendment relates to a curable infirmity and causes no prejudice to the accused. In this case, the amendment corrected a misdescription of the supplied product from "Desi Ghee" to "milk," an inadvertent error carried from the legal notice. Since the amendment occurred after summons issuance but before completion of evidence, and did not alter the complaint's nature or cause prejudice, the Trial Court rightly permitted it. The HC erred in focusing on GST implications and in holding that the amendment changed the complaint's character. The SC set aside the HC order and allowed the appeal, affirming the Trial Court's decision to permit the amendment.
Dishonour of cheque - power of criminal court to order amendment of a complaint filed u/s 200 of the Cr.P.C. post cognizance stage - By virtue of the impugned order, the High Court has allowed the petition, holding that the amendment sought was not in the nature of a typographical error, but it had a wider impact upon the entire matter in dispute and, therefore, it changed the nature of the complaint. The High Court also found merit in the contention of the respondents that the amendment was sought, as no GST was leviable on milk.
HELD THAT:- The issue, whether a criminal court has power to order amendment of a complaint filed under Section 200 of the Cr.P.C., is no longer res integra. In S.R. Sukumar v. S. Sunaad Raghuram [2015 (7) TMI 1260 - SUPREME COURT], this Court held that 'What is discernible from U.P. Pollution Control Board case is that an easily curable legal infirmity could be cured by means of a formal application for amendment. If the amendment sought to be made relates to a simple infirmity which is curable by means of a formal amendment and by allowing such amendment, no prejudice could be caused to the other side, notwithstanding the fact that there is no enabling provision in the Code for entertaining such amendment, the court may permit such an amendment to be made. On the contrary, if the amendment sought to be made in the complaint does not relate either to a curable infirmity or the same cannot be corrected by a formal amendment or if there is likelihood of prejudice to the other side, then the court shall not allow such amendment in the complaint.'
A careful reading of the judgment in S.R. Sukumar’s case reveals that the said judgment followed the earlier judgment of this Court in U.P. Pollution Control Board vs. Modi Distillery and Others [1987 (8) TMI 449 - SUPREME COURT]. In Modi Distillery, after the process was issued to the respondents therein, a revision was filed by few of the accused and a Section 482 petition was filed by few other accused. Invoking the revisional jurisdiction, the High Court quashed the proceedings holding that vicarious liability could not be saddled on the Directors unless “Modi Industries Limited” was arrayed as accused. The Complainant in that case had arrayed “Modi Distillery”, an industrial unit and averred that Modi Distillery was a Company. The High Court focusing on the technical flaw in the complaint quashed the proceedings on the premise that “Modi Industries Limited” was not made an accused.
The complaint and the application for amendment is carefully perused. The amendment was moved at a stage when after summons being issued to the respondents, the chief examination of the complainant had concluded and when cross-examination was awaited. The amendment made is also only with regard to the products supplied. According to the complainant, while what was supplied was “milk”, by an inadvertent error “Desi Ghee (milk products)” was mentioned. The error which occurred in the legal notice was carried in the complaint also.
On the facts of the present case and considering the stage of the trial, it is found that absolutely no prejudice would be caused to the accused/respondents. The actual facts will have to be thrashed out at the trial. As to what impact the amendment will have on the existence of debt or other liability is for the Trial Court to decide based on the evidence. It was a curable irregularity which the Trial Court rightly addressed by allowing the amendment. It could not be said that by allowing the amendment at a stage when the evidence of the complainant was incomplete, failure of justice would occasion.
The High Court completely mis-directed itself in delving into the aspects of leviability of GST which would be the concern of the appropriate authorities under the relevant statute. It could also not be said that the amendment altered the nature and character of the complaint - The judgment and order of the High Court of Punjab and Haryana at Chandigarh is set aside - appeal allowed.
AI TextQuick Glance (AI)Headnote
SC rules UAE tax resident has fixed place PE in India under Article 5(1) of India-UAE DTAA due to coordinated business presence
SC rules UAE tax resident has fixed place PE in India under Article 5(1) of India-UAE DTAA due to coordinated business presence
The SC affirmed that the appellant, a UAE tax resident, has a fixed place PE in India under Article 5(1) of the India-UAE DTAA. Despite no single employee exceeding the nine-month stay threshold, the aggregate continuous and coordinated business presence through frequent visits and operational control established a PE. The appellant's role extended beyond decision-making to substantive operational control, enforcing compliance and deriving profit-linked fees from the hotel's earnings. The Court held that taxability depends on business presence, not global profitability, aligning with the Larger Bench ruling of the Delhi HC. Consequently, income received under the SOSA agreements is attributable to the PE and taxable in India.
Income deemed to accrue or arise in India - Permanent Establishment (PE) in India - royalty/Fees for Technical Services -service charges received by the appellant under the various SOSA agreement - assessee submitted it did not have any fixed place of business, office, or branch in India, and that the presence of its employees in India during the relevant previous year did not exceed the nine-month threshold under Article 5(2) of the DTAA - assessee being a company incorporated in Dubai and a tax resident of the UAE
HELD THAT:- There is no strait- jacket formula applicable to all cases. Typically, trading operations require a continuously used fixed place, whereas service-oriented business may not. Some jurisdictions consider mere use of a place sufficient, while others require legal or operational control over the premises.
In our view, determining whether a Fixed place PE exists must involve a fact-specific inquiry, including: the enterprise’s right of disposal over the premises, the degree of control and supervision exercised, and the presence of ownership, management, or operational authority.
It is undisputed that the appellant’s executives and employees made frequent and regular visits to India to oversee operations and implement the SOSA. The findings of the assessing officer, based on travel logs and job functions, establish continuous and coordinated engagement, even though no single individual exceeded the 9-month stay threshold. Under Article 5(2)(i) of the DTAA, the relevant consideration is the continuity of business presence in aggregate – not the length of stay of each individual employee. Once it is found that there is continuity in the business operations, the intermittent presence or return of a particular employee becomes immaterial and insignificant in determining the existence of a permanent establishment.
Accordingly, the High Court was correct in concluding that the appellant’s role was not confined to high-level decision making, but extended to substantive operational control and implementation. The appellant’s ability to enforce compliance, oversee operations, and derive profit-linked fees from the hotel’s earnings demonstrates a clear and continuous commercial nexus and control with the hotel’s core functions. This nexus satisfies the conditions necessary for the constitution of a Fixed Place Permanent Establishment under Article 5(1) of the India – UAE DTAA.
At this juncture, we also note the reference made to a Larger Bench of the Delhi High Court in Hyatt International Southwest Asia Ltd [2023 (1) TMI 1416 - DELHI HIGH COURT] where it was held that profit attribution to a PE in India is permissible even if the overall foreign enterprise has incurred losses. Accordingly, the question as answered in the affirmative, reinforcing the principle that taxability is based on business presence and not the global profitability of the enterprise.
We affirm the findings of the High Court that the appellant has a fixed place PE in India within the meaning of Article 5(1) of the DTAA, and that, the income received under the SOSA is attributable to such PE and is therefore taxable in India.
AI TextQuick Glance (AI)Headnote
Payment under Section 129(5) CGST Act doesn't replace need for final, reasoned order under Section 129(3)
Payment under Section 129(5) CGST Act doesn't replace need for final, reasoned order under Section 129(3)
The SC held that payment of tax and penalty under section 129(5) of the CGST Act does not dispense with the requirement for the proper officer to pass a final, reasoned order under section 129(3). Where objections are filed and payment is made under protest, the adjudicating authority must issue a speaking order to conclude proceedings and enable the taxpayer's right of appeal under section 107. The absence of such an order deprives the taxpayer of a statutory remedy and renders any tax or penalty demand without legal authority, violating Article 265. The HC's refusal to direct passing of a final order was set aside. The SC directed the proper officer to pass a reasoned order in Form GST MOV-09, provide an opportunity of hearing, and upload the summary in Form GST DRC-07 within one month. The appeal was allowed.
Requirement of proper officer to pass a final order under section 129(3) of CGST Act or deeming fiction under section 129(5) dispenses with such requirement - Though detained goods were released under Form GST MOV-05, final order was not passed - payment of tax and penalty done by the appellant within the time stipulated in the notice u/s 129(3) - HELD THAT:- Evidently, the discharge order merely records that the detained goods and vehicle were released upon payment of the proposed tax and penalty. It makes no mention of any withdrawal of objections or of the conclusion of proceedings initiated under Section 129(3) of the CGST Act, 2017 - It is a well settled principle that every show cause notice must culminate in a final, reasoned order. While Section 129(5) of the CGST Act, 2017 provides that proceedings shall be deemed to be concluded upon payment of tax and penalty, this deeming fiction cannot be interpreted to imply that the assessee has agreed to waive or abandon the right to challenge the levy – a right that is protected by the very enactment itself. The term “conclusion” as used in Section 129(5) merely signifies that no further proceedings for prosecution will be initiated. It does not absolve the responsibility of the proper officer to pass an order concluding the proceedings. Therefore, the proper officer is duty-bound to pass a formal order in Form GST MOV-09 and upload a summary thereof in Form GST DRT 07 as mandated under Rule 142(5) and the Circular dated 13.04.2018, so as to enable the taxpayer to avail the appeal remedy as per law.
In the present case, payment was made under protest, and objections had already been filed by the appellant. Once objections are filed, adjudication is not optional, it becomes imperative to pass a speaking order to justify the demand of tax and penalty, to safeguard the right of appeal under Section 107 of the CGST Act, 2017. The language of section 129(3) is categorical in stating that the officer “shall issue a notice… and thereafter, pass an order”. The use of the words “and thereafter” reinforces the mandatory nature of passing a reasoned order, regardless of payment, particularly where protest or dispute is raised.
A waiver, as settled, is an abandonment of a right by express terms or by implication. It is an act by which a party elects to abandon his right to pursue a particular remedy with full knowledge of its existence, making the other party to alter his position or legal status. Acquiescence, on the other hand, will imply the conduct of a party, who refrains from taking any action for a long period of time, despite the knowledge of the violation of his right, thereby precluding his future right to agitate the issue, as it would be hit by laches.
The principles of natural justice mandate that when a taxpayer submits a response to a show cause notice, the adjudicating authority is required to consider such response and render a reasoned, speaking order. This is not a mere procedural formality, but a substantive safeguard ensuring fairness in quasi- judicial proceedings. The right to appeal under Section 107 of the CGST Act, 2017, is predicated upon the existence of a formal adjudication. An appeal can lie only against an ‘order’, and in the absence of a reasoned order passed under Section 129(3) of the Act, the taxpayer is effectively deprived of the statutory remedy of appeal -
Any consequential action including imposition of tax or penalty, would then be unsupported by authority of law, thereby potentially violating Article 265 of the Constitution of India, which prohibits the levy or collection of tax except by authority of law.
Thus, taking into account that objections were filed, payment was stated to have been made under protest due to business exigencies, and the appellant seeks to challenge the levy, the proper officer was under a clear statutory obligation to pass a final order under section 129(3) in Form GST MOV-09 and DRC-07. The refusal by the High Court to direct the passing of such an order, has the effect of frustrating the appellant’s statutory right to appeal and is contrary to well established legal principles governing tax adjudication and procedural fairness.
The impugned order passed by the High Court is set aside. Respondent No.3 is directed to pass a reasoned final order under section 129(3) of the CGST Act, 2017, in Form GST MOV-09, after granting an opportunity of being heard as mandated under Section 129(4), and upload the summary thereof in Form GST DRC-07 within a period of one month from the date of receipt of a copy of this judgment - Appeal allowed.
AI TextQuick Glance (AI)Headnote
Appeal dismissed for failing to secure regulatory approvals within statutory timeline under Insolvency and Bankruptcy Code
Appeal dismissed for failing to secure regulatory approvals within statutory timeline under Insolvency and Bankruptcy Code
The SC dismissed the appeal, affirming the NCLAT's decision that the appellant failed to implement the approved resolution plan due to not obtaining necessary regulatory approvals within the statutory timeline. Despite the plan's approval on 03.02.2022, the appellant did not secure the required clearances even after three years, resulting in non-implementation. The court found no grounds to interfere with the NCLAT's ruling.
Failure to implement the revised resolution plan - it was held by NCLAT that 'The appellant having failed to obtain the necessary regulatory approvals within the statutory timeline, the resolution plan has not been implemented.'
HELD THAT:- The appellant has not been able to get the necessary clearances even after a period of three years. The undisputed fact here is that the resolution plan was approved as far back as on 03.02.2022. Even after three years, the plan remains unimplemented, for reasons that the SRA i.e., the appellant has failed to get the necessary clearances.
There cannot be a different opinion to what has been given by the National Company Law Appellate Tribunal, Delhi. There are no grounds for interference. The present appeal is accordingly dismissed.
AI TextQuick Glance (AI)Headnote
Arbitration clause using "may" creates optional procedure, not binding agreement under Section 7
Arbitration clause using "may" creates optional procedure, not binding agreement under Section 7
The SC dismissed an appeal challenging the HC's refusal to appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The dispute arose from a transportation/handling contract where the appellant claimed Clause 13 constituted an arbitration agreement. The SC held that courts must examine the existence of arbitration agreements prima facie under Section 11(6-A) through plain reading without conducting mini-trials. The Court found Clause 13 merely provided a two-stage dispute resolution procedure with arbitration as an optional method using "may," not creating a binding arbitration agreement under Section 7. Since parties never subsequently agreed to arbitration, and Clause 13 did not establish a valid arbitration agreement, the application was properly rejected. Clause 32 regarding jurisdiction did not affect this conclusion as no arbitration agreement existed.
Dismissal of application u/s 11 of the Arbitration and Conciliation Act, 1996 on the ground that there exists no arbitration agreement between the parties - disputes arose between the parties during the subsistence of the contract relating to transportation/handling of goods.
Whether the question of existence of an arbitration agreement should be left for the arbitral tribunal to decide? - HELD THAT:- In the instant case, the appellant is relying on just one clause in the contract which, according to the appellant, constitutes an arbitration agreement whereas according to the respondent, though the clause is not disputed, the same does not constitute an arbitration agreement. In such circumstances, the Court while exercising power under Section 11 would not have to hold a mini-trial or an enquiry into its existence rather a plain reading of the clause would indicate whether it is, or it is not, an arbitration agreement, prima facie, satisfying the necessary ingredients of it, as required by Section 7 of the 1996 Act. Such a limited exercise would not transgress the limit set out by sub-section (6-A) Section 11. (6-A). The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement. of Section 11 of the 1996 Act as introduced by 2015 Amendment because the object of such an exercise (i.e., of examination) is to weed out frivolous claims for appointment of an arbitrator/ reference to an arbitral tribunal - the argument of the appellant that Referral Court should straight away refer the matter and leave it to the arbitral tribunal to decide whether the arbitration agreement exists or not cannot be accepted.
Whether clause 13 would constitute an arbitration agreement between the parties as contemplated under Section 7 of the 1996 Act? - HELD THAT:- Clause 13 in its first paragraph sets out intent to avoid litigation and advises the contractor to make effort to settle the dispute at the company level. Second paragraph sets out the procedure for raising the dispute/ claim for settlement at the company level. It provides that the contractor should make request in writing to the Engineer-in-charge for settlement of disputes/ claims within 30 days of arising of the cause of dispute/ claim failing which it shall not be entertained by the company. Thereafter, clause 13 provides for a two-stage procedure for resolution of the dispute.
The argument of the learned counsel for the appellant is that clause 13 provides option to the parties, which include any of one of the parties, to seek dispute resolution through arbitration and, therefore, it is nothing but an arbitration clause. According to him, use of the word “may” in clause 13 does not provide choice to the parties to agree, or not to agree, for arbitration, rather it is a choice given to either of the parties to seek a settlement through arbitration and, therefore, when one party exercises the option, the other party cannot resile from the agreement. In that sense, according to him, clause 13 is an arbitration agreement - As it is not the case of the appellant that parties at any later stage have agreed to refer the disputes to arbitration, the High Court was justified in rejecting the application seeking appointment of an arbitrator.
Whether clause 32 of Instructions to Bidders negates the existence of an arbitration agreement? - HELD THAT:- Clause 32 does not exclude resolution of disputes through arbitration agreement. It only fixes jurisdiction and in the event of there being an arbitration agreement could determine the juridical seat. However, since it is held that there is no arbitration agreement between the parties, decision of this issue is of no consequence.
Appeal dismissed.
AI TextQuick Glance (AI)Headnote
SC upholds 5% tax on flavoured milk under Item 04030000, dismissing petition challenging classification
SC upholds 5% tax on flavoured milk under Item 04030000, dismissing petition challenging classification
The SC upheld the Writ Court's decision classifying flavoured milk under Item 04030000, subject to a 5% tax rate. The petition challenging this classification was dismissed.
Classification of flavoured milk - to be classified as Item 403 taxable at the rate of 5% or as Item 9930 taxable at the rate of 12% - HELD THAT:- The Writ Court has held that it has to be classified as Item 04030000 and has to be taxed at the rate of 5%.
Petition dismissed.
AI TextQuick Glance (AI)Headnote
MSMED Act conciliation proceedings exempt from Limitation Act but arbitration proceedings remain subject to limitation
MSMED Act conciliation proceedings exempt from Limitation Act but arbitration proceedings remain subject to limitation
The SC held that the Limitation Act, 1963 does not apply to conciliation proceedings under Section 18(2) of the MSMED Act, 2006, and time-barred claims can be referred to such conciliation. The Court reasoned that conciliation is non-coercive as parties must voluntarily agree to settlement terms, distinguishing it from recovery processes in precedent cases. A settlement agreement for time-barred claims through conciliation constitutes a valid contract under Section 25(3) of the Contract Act. However, the SC ruled that the Limitation Act does apply to arbitration proceedings under Section 18(3) of the MSMED Act, as Section 18(3) makes all ACA provisions applicable including Section 43, which incorporates limitation provisions. The MSMED Act's non-obstante clause ensures its provisions override conflicting ACA provisions. The appeal was allowed in part.
Applicability of provisions of the Limitation Act, 1963 to conciliation and arbitration proceedings initiated under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 - supplier can recover a time-barred debt by taking recourse to the remedies provisioned under Section 18 of the MSMED Act or not.
HELD THAT:- Section 3 of the Limitation Act provides that when a suit, appeal, or application is filed after the prescribed period of limitation as per the Schedule, the same shall be dismissed even if limitation is not set up as a defence. The calculation of the limitation period is subject to Sections 4 to 24 of the Limitation Act. Further, Section 29(2) of the Limitation Act makes its provisions applicable to special or local laws when they prescribe a different period of limitation than what is provided in the Schedule. In such a situation, Section 3 will apply as if such period were prescribed in the Schedule, and Sections 4 to 24 will apply to the extent that they are not impliedly or expressly excluded by the local or special law.
Section 18 which falls for interpretation, provides the remedies for recovery of the “amount due” calculated under Section 17. While dealing with the interpretation of its sub- sections in more detail at a later stage, it is relevant to note the following about the remedial mechanism: first, any party to a dispute with regard to the amount due can make a reference before the Facilitation Council; second, the Facilitation Council shall, on receipt of such reference, conduct conciliation or refer the dispute for conciliation to an institution or centre; third, such conciliation shall be conducted as per Sections 65 to 81 of the ACA as if the conciliation is initiated under Part III of the ACA; fourth, in case of failure and termination of conciliation without any settlement, the Facilitation Council shall either take up the dispute for arbitration or refer it to any institution or centre for arbitration; fifth, the provisions of the ACA shall apply to the dispute as if the arbitration was pursuant to an arbitration agreement; sixth, notwithstanding any other law, the Facilitation Council can act as a conciliator and arbitrator in the dispute when the supplier is located in its jurisdiction; and seventh, the reference shall be decided within 90 days of it being made - Section 19 stipulates a pre-deposit requirement for filing an application under Section 34 of the ACA to set aside the award. Section 20 provides for establishment of the Facilitation Council and Section 21 provides for its composition.
Whether the Limitation Act applies to conciliation proceedings under Section 18(2) of the MSMED Act, and even if not, whether time-barred claims can be referred to conciliation? - HELD THAT:- While Section 18(2) of the MSMED Act does away with the requirement of consent for conciliation as provided in Section 61 of the ACA and statutorily mandates the Facilitation Council and parties to explore conciliation for dispute resolution, the ultimate outcome of conciliation remains entirely dependent on the parties. Sections 65 to 81 of the ACA apply to conciliation proceedings under the MSMED Act as per Section 18(2). The parties must be agreeable to the terms of settlement. The conciliator cannot, and must not, coerce the parties to agree to certain terms or settle the dispute. Ultimately, if the parties are not willing to amicably settle the dispute, either or both of them can terminate the conciliation proceedings as per Section 76 of the ACA. Hence, conciliation cannot be termed as a “coercive” process, which was another consideration of the Court in V.R. Kalliyanikutty [1999 (4) TMI 609 - SUPREME COURT].
The recovery process considered in V.R. Kalliyanikutty can be said to stand on a different footing than conciliation under Section 18(2) of the MSMED Act read with Sections 65 to 81 of the ACA. Hence, the decision is inapplicable to the present context. The High Court did not consider these aspects of the matter, and rather relied on the compulsory nature of conciliation under Section 18(2) as well as the object of speedy recovery under the MSMED Act to hold that time-barred claims cannot be referred to conciliation.
A settlement agreement for a time-barred claim arrived at between the buyer and supplier through conciliation under Section 18(2) is precisely in the nature of a contract recognised and declared valid under Section 25(3) of the Contract Act. It is clear that although certain remedies are no longer available in law to the creditor once the limitation period expires, the creditor can adopt other methods, including contractual agreements, to recover time- barred debts. Conciliation as a dispute-resolution process only facilitates the parties in arriving at such a contract or settlement agreement - The High Court did not fully appreciate this aspect and rather relied on the object of speedy recovery to arrive at its conclusion. In doing so, it lost sight of the forest for the trees and entirely foreclosed a beneficial mechanism made available to the supplier under the MSMED Act, and more generally recognised in law, to recover the amounts due to him even if they are time- barred.
Neither the Limitation Act applies to conciliation proceedings under Section 18(2) nor are time-barred claims excluded from such conciliation. The supplier’s right to recover the principal amount and interest thereon subsists even after the expiry of the limitation period, and he may recover the same through a settlement agreement arrived at through conciliation by the Facilitation Council under Section 18(2). In case such settlement is not reached between the parties and the conciliation proceedings are terminated for this reason, the matter must be referred to arbitration as per Section 18(3), which we will deal with presently.
Whether time-barred claims can be referred to arbitration under Section 18(3) of the MSMED Act? - HELD THAT:- In Silpi Industries [2021 (6) TMI 1119 - SUPREME COURT], the Court was faced with a similar fact-situation wherein the suppliers initially approached the Industrial Facilitation Council under the 1993 Act for recovery of time-barred claims. As conciliation failed, the claims were decided by the Facilitation Council under the MSMED Act and it made arbitral awards in favour of the suppliers. The buyer/respondent therein challenged the award under Sections 34 and 37 of the ACA, wherein the High Court held that the Limitation Act is applicable to arbitration claims under the MSMED Act. In the suppliers’ appeals, this Court considered the issue of whether the provisions of the Limitation Act apply to arbitration proceedings initiated under Section 18(3) of the MSMED Act, which is the very issue arising for consideration.
There is a clear and apparent conflict in the manner in which the provisions of the ACA are made applicable – while Section 2(4) provides for the exclusion of Section 43 to statutory arbitrations, Section 18(3) provides for the applicability of all the provisions of the ACA as would apply if there were an arbitration agreement, which includes Section 43 - Section 18(3) of the MSMED Act will prevail over Section 2(4) of the ACA. There is a clear legislative intent that the provisions of the MSMED Act will have an overriding effect in case of inconsistency, which is evidenced from the non-obstante clause in Section 18 and the express language in Section 24. The language of Section 2(4) itself also supports this overriding effect of the special law.
The applicability of the ACA to arbitrations under the MSMED Act is not determined by Section 2(4) of the ACA, and is rather determined as per Section 18(3) of the MSMED Act. Pursuant to the deeming fiction ingrained in the language of Section 18(3), the arbitration conducted thereunder would attract the provisions that are otherwise applicable when there is an arbitration agreement. This includes Section 43, thereby making the Limitation Act applicable to arbitral proceedings under the MSMED Act.
Appeal allowed in part.
AI TextQuick Glance (AI)Headnote
SC restores ejectment decree, confirms notice by registered post valid under Section 27 General Clauses Act
SC restores ejectment decree, confirms notice by registered post valid under Section 27 General Clauses Act
The SC set aside the HC's order that had nullified the ejectment decree due to non-delivery of notice under Section 106 of the Transfer of Property Act. The Court held that service by registered post, even if marked "Not Delivered," is presumed valid under Section 27 of the General Clauses Act. The HC erred in disregarding this presumption. Consequently, the Trial Court's ejectment decree was restored, and the tenant was directed to vacate the premises within three months. The appeal was allowed.
Setting aside the ejectment decree passed by the Trial Court in favour of the appellant - notice u/s 106 of Transfer of Property Act, 1882, was not served upon the respondent - postal letter was returned with endorsement “ND” which denotes “Not Delivered” - HELD THAT:- In M/s. Madan and Co. v. Wazir Jaivir Chand [1988 (11) TMI 348 - SUPREME COURT] which was a case concerned with the payment of arrears of rent under the J&K Houses and Shops Rent Control Act, 1966. The proviso to Section 11 which is titled as “Protection of a Tenant against Eviction” states that unless the landlord serves notice upon the rent becoming due, through the Post Office under a registered cover, no amount shall be deemed to be in arrears. Regarding service of notice by post, it was observed that in order to comply with the proviso, all that is within the landlord's domain to do is to post a pre-paid registered letter containing the correct address and nothing further. It is then presumed to be delivered under Section 27 of the GC Act. Irrespective of whether the addressee accepts or rejects “there is no difficulty, for the acceptance or refusal can be treated as a service on, and receipt by the addressee.”
Undisputedly, notice was sent to the respondent by Registered Post in compliance with Section 106 of the Transfer of Property Act. The High Court, as we have observed, held that since the endorsement on the notice read “ND”, the notice was not delivered and, therefore, any and all proceedings arising therefrom would be bad in law and, hence, the decree of ejectment was set aside. We are of the view that the High Court was plainly in error in coming to this conclusion. The impugned order was passed without consideration of Section 27 of GC Act, which provides that if services are made through Registered Post, it is deemed to have been made in accordance with law.
The ejectment decree passed by the Trial Court in S.C.C. Suit No.23/2000 is restored. The tenant is directed to hand over vacant and peaceful possession of the suit property to the landlord within three months from the date of communication of this judgment - Appeal allowed.
AI TextQuick Glance (AI)Headnote
SC rules CERC Regulations 2019 don't bar free power supply beyond 13% under valid Implementation Agreement
SC rules CERC Regulations 2019 don't bar free power supply beyond 13% under valid Implementation Agreement
The SC held that the CERC Regulations, 2019 do not bar the respondent from supplying free power beyond 13% to the State, as the Implementation Agreement's free power supply obligation constitutes valid contractual consideration. The CERC's order only overrides inconsistent provisions in the PPA and PSAs, not the Implementation Agreement. The HC erred in relying on the CERC order to modify the Implementation Agreement via writ jurisdiction, which is impermissible since tariff determination and related disputes fall within the regulator's exclusive domain. The respondent's failure to appeal the CERC order before APTEL renders those findings final. Consequently, the Implementation Agreement remains valid and unaffected by the Regulations, and the HC order was set aside with the appeal allowed.
Bar of CERC Regulations, 2019 on respondent no. 1 from supplying free power to the appellant-State beyond 13% - invocation of High Court’s writ jurisdiction for aligning the Implementation Agreement with the CERC Regulations, 2019 - scope and ambit of the Electricity Act and the rights and liabilities of the entities governed thereunder - whether the State Commission could have directed a generating company to allot additional quantities of power to a particular distribution company based on its requirements and number of consumers? - HELD THAT:- Answering the question in the negative, this Court held that generating companies have the freedom to enter into agreements for the sale of generated electricity, including the freedom to allocate the quantum of electricity to be sold to each distribution company. However, such freedom is not entirely unregulated as the generating company is subject to tariff determination by the appropriate Regulatory Commission, and its agreements with distribution companies are subject to the approval of State Commissions under Section 86(1)(b), who will examine whether the allocation of power and terms and conditions of the agreement are reasonable.
The contractual obligation of respondent no. 1 to supply free power can be understood as a form of “royalty” payable to the State as compensation, in lieu of being allowed to utilise river water, which is a public and commons resource, for undertaking its commercial activity of power generation from which it derives benefits through sale of power. Perusal of Article 4 of the Implementation Agreement also shows that the appellant-State fulfilled various other obligations like acquiring land, granting permissions, and executing leases in favour of respondent no. 1 to enable it to set up its hydropower generating station. In return, respondent no. 1 undertook various obligations provided in Article 5 of the Implementation Agreement, including supplying free power at a certain percentage. Therefore, it is clear that the free power supply is a part of the consideration by respondent no. 1 under the Implementation Agreement.
Whether such a consideration is impermissible or prohibited by virtue of the CERC Regulations, 2019? - HELD THAT:- While sub-clause (1) deals with raising bills for capacity and energy charges and payment, sub-clause (2) is relevant for our purpose. It provides that payment of capacity and energy charges for a hydro-generating station shall be shared by its beneficiaries in proportion to their shares in saleable capacity, which is to be determined after deducting the capacity corresponding to FEHS as per Note 3. Hence, Note 3 of Regulation 55 is relevant for the calculation of saleable power, which is in turn relevant for the generating company to raise bills and for payments by beneficiaries.
There are two aspects of the CERC’s reasoning and decision that we must note: first, the CERC was made aware of the contractual obligation of respondent no. 1 under the Implementation Agreement, but it did not hold the same as being overridden by Note 3 of Regulation 55. This is in line with the interpretation of the cap that we have elaborated hereinabove, i.e., it does not prohibit or restrain respondent no. 1 from entering into or performing a contract for supplying a higher quantum of free power. Second, the CERC only held that the PPA and PSAs stand overridden to the extent that they are inconsistent with the Regulation. The effect of this is that only 13% of free power would be considered as a pass-through for tariff fixation and recovery of charges from the beneficiary distribution companies as per the Regulations. Since respondent no. 1 did not appeal this order before the APTEL under Section 111 of the Electricity Act, these findings are now final and binding on it.
Whether the High Court could have, in exercise of its writ jurisdiction, granted the relief of aligning the Implementation Agreement by relying on the CERC’s order dated 17.03.2022? - HELD THAT:- The jurisprudence on regulation is that independent regulators, armed with statutory powers and duties, were established to reduce the government’s control and interference with the market while safeguarding consumer interests, preventing abuse of monopoly, and enabling private participation in the sector. Therefore, the regulator has socio-economic obligations of ensuring accessibility of goods and services, as well as the duties towards the development of the industry by promoting efficiency and competition. The nature of functions and the jurisdiction of these regulatory bodies are wide and extensive as they perform a mix of legislative, executive and administrative, and judicial functions.43 Concomitantly, they are sufficiently empowered under the statute, and legislative, executive and adjudicatory powers are telescoped into one institution. Regulators have the power to lay down rules and regulations; issue licenses; fix prices and scope and areas of operation; investigate and prosecute offences, and impose penalties; adjudicate disputes and interpret the law; implement and enforce the statute, the rules and regulations made thereunder, and their decisions; and exercise incidental and ancillary powers to deal with all aspects relating to the sector.
This Court has time and again emphasised that since tariff determination, including the power to make regulations for this purpose, has been entrusted to a specialised and expert regulator constituted under the statute itself, it would not be proper for constitutional courts to interfere and assume these functions, or to examine tariff fixation on its merits and substitute its own determination for the one made by the expert body after duly considering all material circumstances.47 We are of the opinion that this is necessary not only to ensure that these specialised functions are performed by expert regulators but to also facilitate a systematic and consistent development of sectoral laws.
The High Court incorrectly relied on the CERC’s order dated 17.03.2022 to grant relief to respondent no. 1. As explained above, the CERC’s order only deals with the PPA and PSAs despite taking note of Article 5.1 of the Implementation Agreement. Upon reading the order, it is clear that its effect is not that of restraining respondent no. 1 from supplying free power beyond 13%. Hence, it does not in any way adversely affect or prejudice the contractual rights of the appellant-State. Hence, the High Court could not have proceeded on the basis of this order to grant the relief of modifying the Implementation Agreement.
CERC Regulations, 2019 do not prohibit respondent no. 1 from supplying free power beyond 13% to the appellant-State, and the Implementation Agreement does not stand overridden by the operation of these Regulations. Further, a writ petition before the High Court for aligning the Implementation Agreement with the CERC Regulations, 2019 and the CERC’s order dated 17.03.2022 is not maintainable. Once respondent no. 1’s prayer for relief was rejected by the CERC and it specifically held only the PPA and PSAs to stand overridden, which finding was not further appealed, it would not be open for respondent no. 1 to seek modification of the Implementation Agreement by way of a writ petition before the High Court.
The order of High Court set aside - appeal allowed.
AI TextQuick Glance (AI)Headnote
Interest on SEBI Act penalties starts after payment deadline per Section 28A, not from demand notice date
Interest on SEBI Act penalties starts after payment deadline per Section 28A, not from demand notice date
The SC held that interest on penalties under the SEBI Act accrues from the expiry of the payment period specified in the adjudication order, not from the date of subsequent demand notices. Section 28A and Explanation 4 clarify that interest is compensatory, aimed at offsetting the revenue loss due to delayed payment. Where no payment timeline is specified, a 30-day period under the Income Tax Act applies. The adjudication order's payment deadline operates as a notice of demand, making separate demand notices unnecessary. The appeals challenging the interest liability and its retrospective computation were dismissed. The appellants were directed to pay the interest within 15 days, affirming the Tribunal's order and upholding the enforcement framework's integrity. No costs were awarded.
Determination of interest liability - Power of Recovery Officer powers u/s 28A of the SEBI Act to impose retrospective interest computed from the date of the original adjudication orders u/s 15-I of the SEBI Act - Recovery proceedings under the SEBI Act is governed by Section 28A read with Sections 220 to 227, 228A, 229, 232, along with the Second and Third Schedules to the Income Tax Act, 1961, and the Income Tax (Certificate Proceedings) Rules, 1962
Whether interest on penalties imposed by the Adjudicating Officer is payable by the appellants, and if so, from which date – whether from the date of the adjudication orders passed by the Adjudicating Officer or the demand notices issued by the respondent?
HELD THAT:- The liability of interest is fortified after the enactment of section 28A, which is a substantive law. Furthermore, Explanation 4 to section 28A inserted on 21.02.2019, explicitly states that interest under section 220 shall accrue from the date the amount became payable. We have already held that the liability to pay penalty stood triggered from the date of adjudication and that no separate notice of demand is necessary.
Further, in the present case, as the adjudication order itself specified the time for payment of the penalty, the liability to pay interest would commence upon the expiry of the period mentioned in the assessment notice.
An “explanation” in any law serves to clarify, restrict, or expand the scope of the main provision. The nature and effect of an Explanation must be understood in the context of the object of the Act, and in particular, the provision to which the Explanation is inserted. The Explanation introduced in 2019, in our view, did not bring about any substantive change but merely clarified the existing legal position. We also foresee another situation: where the original adjudication order under the SEBI Act does not specify any time for payment, the period of 30 days under Section 220 of the Income Tax Act should be deemed to apply for making the payment, failure of which would trigger the liability to pay interest. Thus, the adjudication officer’s order which specified payment within 45 days, effectively operates as a notice of demand, rendering any separate demand notice redundant.
It is to be pointed out that interest on unpaid penalties is compensatory in nature, not penal. Its primary purpose is not to punish the defaulter, but to make good the financial loss occurred to the Revenue on account of delay in receiving the payment that was lawfully due. When a penalty is imposed, a specific period is granted for compliance. If the payment is not made within that stipulated period, the delay deprives the Revenue of the timely use of funds that rightfully belong to the public exchequer. Therefore, the accrual of interest upon default is automatic and flows from the nature of the liability – serving to compensate for the time value of money and the disruption caused by delayed payment, rather than to impose an additional punitive burden
Interest must accrue from the expiry of the 45-day compliance period following the adjudication orders dated 28.08.2014. The subsequent demand notices are nothing but reminders and are not the first demand notices before the accrual of liability for interest. Accepting the appellants’ position would encourage defaulters to delay payment indefinitely under the guise of awaiting formal orders, thereby undermining the efficacy of the enforcement framework and resulting in a loss to the revenue.
In view thereof, the authorities relied upon by the appellants lack persuasive value, and we find no infirmity or illegality in the order passed by the Tribunal that would warrant our interference.
Accordingly, all these appeals stand dismissed. The appellants are directed to pay interest calculated by the respondent, within a period of 15 days from the date of receipt of a copy of this judgment. No costs. Consequently, connected miscellaneous application(s), if any, shall stand closed.
AI TextQuick Glance (AI)Headnote
EPF Act applies to entities with common ownership and management despite separate legal status
EPF Act applies to entities with common ownership and management despite separate legal status
The SC dismissed the appeal concerning the applicability of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 from September 1995. The court upheld the treatment of appellant and respondent as one unit for EPF purposes based on unity of ownership, management, control, and functional integrality. Following precedent from Associated Cement Companies Ltd., the court considered multiple factors including unity of ownership, management control, finance, geographical location, and functional integrality. The authorities correctly found common ownership, management, supervision, employment, finance, and general purpose between the entities. The appellant's claims for infancy protection under Section 16(1)(d) were rejected due to the clubbing finding. The court also dismissed arguments regarding the show cause notice timing and the necessity of issuing notice to the other respondent, concluding the authorities acted justifiably in seeking dues from September 1995.
Applicability of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 with effect from September, 1995 - treatment of appellant and the Vindas-Respondent No. 3 as one unit for the purpose of the EPF Act - unity of ownership or unity of management and control and the features that will demonstrate the presence of functional integrality - HELD THAT:- The earliest case where this issue was discussed was in Associated Cement Companies Ltd. [1959 (9) TMI 74 - SUPREME COURT] where this Court had to examine the question whether the lay off of the workers in certain sections of the Chaibasa Cement Works due to a strike on the part of the workmen at the Rajanka limestone quarry was justified under Section 25-E (iii) of the Industrial Disputes Act, 1947. Section 25-E (iii) of the I.D. Act stated that no compensation was to be paid to workmen who have been laid off due to a strike or slowing-down of production on the part of workmen in another part of establishment.
It will be seen that this Court held that several factors are relevant and the significance and importance of the several relevant factors would not be the same in each case. It was also held that unity of ownership and management and control, general unity of the two concerns; unity of finance; geographical location, functional integrality would all be relevant factors depending on the facts of each case. It was further held that unity of purpose or design or even parallel or coordinate activity intended to achieve a common object for the purpose of carrying out the business of the one or the other would also assume relevance and importance.
In Rajasthan Prem Krishan Goods Transport Co. vs. Regional Provident Fund Commissioner, New Delhi and Others, [1996 (5) TMI 451 - SUPREME COURT], the authorities found unity of ownership, management, supervision and control, employment, finance, and general purpose to treat M/s Rajasthan Prem Krishan Goods Transport Co. and M/s Rajasthan Prem Krishan Transport Company as a single establishment for the purpose of the EPF Act. This was on the finding that ten partners were common for both the entities; the place of business, address and telephone numbers were common and the management was also common. It was also found that the trucks plied by the two entities were owned by the partners and were being hired through both the units. This Court endorsed the finding of the authorities and upheld the clubbing of the two units.
The claim for infancy protection under the erstwhile Section 16(1)(d) would also not arise in view of our finding of clubbing. Being an integrated unit of Vindas respondent no. 3 since 1995 no separate infancy protection will enure to the benefit of appellant. Equally, untenable is the argument that the show cause notice originally being issued for coverage from 01.04.2004 the authorities were not justified to direct deposit of dues from September 1995. In fact, as would be clear from the factual narration hereinabove from the submissions of 10.10.2005 of the appellant itself it is clear that the authorities were evaluating the possibility of clubbing - there is no hesitation in rejecting the submissions of the appellant that the authorities were not justified in seeking remittance of the dues from September 1995. Similarly, the contention of the appellant that notice of clubbing ought to have been issued to Vindas-respondent No.3 also lacks merit. As rightly contended for the Authorities since the ultimate contribution was to be levied only for the respective employees of the units and since employees of Vindas-respondent No.3 were already covered for the period in question, there was no necessity for issuing notice to Vindas-respondent No.3.
There are no merit in the appeal. The appeal is dismissed.
AI TextQuick Glance (AI)Headnote
Compulsorily retired bank employees entitled to two-thirds pension under regulation 33, prior Board consultation mandatory
The core legal questions considered in this judgment revolve around the interpretation and application of Regulation 33 of the Central Bank of India (Employees') Pension Regulations, 1995, particularly concerning the entitlement and quantum of pension payable to an employee compulsorily retired as a penalty. The issues include:
(a) Whether a compulsorily retired employee is entitled to pension, and if so, at what minimum rate under the Pension Regulations;
(b) The interpretation of clauses (1) and (2) of Regulation 33, specifically the roles of the "authority higher than the authority competent to impose penalty" and the "Competent Authority" in awarding or reducing pension;
(c) Whether prior consultation with the Board of Directors is mandatory before reducing pension below full admissible pension;
(d) The constitutional protection of pension rights under Article 300A and the procedural safeguards required before pension can be curtailed;
(e) The validity of the decision to reduce the appellant's pension to two-thirds without prior consultation with the Board of Directors and without affording an opportunity of hearing;
(f) The permissibility of post facto approval by the Board of Directors in lieu of prior consultation;
(g) The scope of the Court's extraordinary powers under Article 142 to uphold or modify the pension reduction.
Issue-wise detailed analysis:
1. Entitlement to Pension and Minimum Quantum under Regulation 33
The Court examined Regulation 33 of the Pension Regulations, which governs compulsory retirement pension. Clause (1) states that an employee compulsorily retired as a penalty may be granted pension at a rate not less than two-thirds and not more than full pension by an authority higher than the authority competent to impose the penalty, provided the employee was otherwise entitled to pension on superannuation. Clause (3) mandates a minimum pension of Rs. 375 per mensem.
The Court emphasized that the word "may" in clause (1) does not confer discretion to grant less than two-thirds pension but clarifies that pension is payable only if the employee is otherwise entitled on superannuation. The High Court's interpretation that grant of pension is discretionary was held to be erroneous. The Court held that a compulsorily retired employee is entitled to receive pension not less than two-thirds of the full pension or Rs. 375 per month, whichever is higher, unless disqualified by other provisions.
2. Interpretation of Clauses (1) and (2) of Regulation 33 and Identification of Authorities
Clause (1) empowers an authority higher than the disciplinary authority to grant pension at not less than two-thirds. Clause (2) requires that whenever a competent authority awards pension less than full compensation pension, the Board of Directors must be consulted before passing such order. The Court analyzed the definitions of "Competent Authority" under both the Discipline and Appeal Regulations and Pension Regulations, noting that the competent authority must be superior to the delinquent and not below scale IV officer.
The Court found that the Field General Manager, a scale VII officer, is both an authority superior to the disciplinary authority and the appellate authority competent to reduce pension under clause (2). The Bank's contention that clauses (1) and (2) operate independently, and that prior consultation with the Board is unnecessary when pension is reduced under clause (1) by a superior authority, was rejected.
The Court reasoned that reading the clauses independently would lead to an anomalous situation where the same authority could reduce pension without Board consultation under clause (1), but would require it under clause (2) when exercising appellate or review powers. Such interpretation would render clause (2) nugatory, which is impermissible.
3. Mandatory Nature of Prior Consultation with Board of Directors
The Court held that prior consultation with the Board of Directors is a mandatory procedural safeguard before pension can be reduced below full admissible pension. The Board is the highest authority of the Bank, and consultation ensures protection of the employee's constitutional right to pension under Article 300A, which safeguards property rights.
The Court distinguished between prior consultation and post facto approval, holding that post facto approval cannot substitute for mandatory prior consultation. It relied on authoritative principles from precedent concerning the nature and purpose of consultation, emphasizing that consultation requires a "meeting of minds" and must be meaningful and prior to the decision.
The Court cited parameters from a landmark case which outlined that when fundamental rights are affected, prior consultation is mandatory and non-compliance renders the action invalid. The Court concluded that the Bank's failure to consult the Board prior to reducing pension was a violation of the procedural safeguards embedded in the Pension Regulations.
4. Constitutional Right to Pension and Procedural Safeguards
The Court reiterated that pension is a valuable right, not a bounty, protected under Article 300A of the Constitution. It can only be denied or curtailed by clear statutory authority and after due procedure. The reduction of pension without prior consultation and without affording the appellant an opportunity of hearing was held to be contrary to principles of natural justice and statutory requirements.
5. Validity of Pension Reduction and Opportunity of Hearing
The disciplinary and appellate authorities had imposed compulsory retirement and reduced the pension to two-thirds without prior consultation with the Board and without giving the appellant an opportunity to be heard on the pension reduction. The Court found that no evidence was placed on record regarding the computation of the alleged financial loss caused by the appellant, nor was any hearing conducted before pension reduction.
This procedural lapse was held to vitiate the impugned pension reduction order. The Court emphasized that all procedural safeguards must be strictly followed when an employee's pension rights are curtailed.
6. Post facto Approval versus Prior Consultation
The Court rejected the Bank's argument that the pension reduction order could be placed before the Board for ex post facto approval. It held that the regulation mandates prior consultation, which is a substantive safeguard and cannot be replaced by after-the-fact approval. The Court analyzed the nature of consultation and the binding effect of the Board's opinion to conclude that prior consultation is mandatory and non-compliance renders the pension reduction invalid.
7. Exercise of Extraordinary Powers under Article 142
The Bank sought endorsement of the pension reduction under the Court's extraordinary powers under Article 142 to do complete justice. The Court declined to exercise such powers, noting the absence of evidence on the quantum of loss and the procedural irregularities in pension reduction. It held that no exceptional circumstances justified such intervention.
Conclusions
The Court allowed the appeal, set aside the High Court's judgment and the Field General Manager's order reducing pension without prior consultation of the Board of Directors. It directed the Bank to take an appropriate decision regarding pension reduction after giving the appellant an opportunity of hearing and with prior consultation of the Board within two months. Failing such action, the appellant shall be entitled to full pension from the date of superannuation.
Significant holdings and core principles:
"The word 'may' occurring in clause (1) does not give discretion to superior authority to award pension less than two-thirds of the full pension payable."
"A combined reading of the clauses in regulation 33 clearly indicates that the pension payable to an employee who has been compulsorily retired as a penalty shall not be less than two-thirds of his full pension or Rs. 375 per mensem, whichever is higher."
"Whenever the full pension admissible to a compulsorily retired employee under the regulations is reduced, prior consultation with the Board of Directors is necessary."
"Post facto approval cannot be a substitute of prior consultation with the Board before the decision is made."
"Pension is not a bounty but a valuable right to property and can be denied only through authority of law with all procedural safeguards."
"Non-compliance with mandatory prior consultation and failure to afford opportunity of hearing renders the pension reduction order invalid."
"Any interpretation which renders words or expressions in a statute otiose ought to be eschewed."
The judgment establishes that pension rights of compulsorily retired bank officers are protected by statutory and constitutional safeguards, requiring strict adherence to procedural requirements including prior consultation with the Board of Directors and opportunity of hearing before pension can be reduced below the prescribed minimum. The Court's ruling underscores the importance of harmoniously construing regulatory provisions to avoid anomalies and protect employee rights.
Compulsorily retired bank employees entitled to two-thirds pension under regulation 33, prior Board consultation mandatory
The SC allowed the appeal regarding pension reduction under regulation 33 of the Central Bank of India (Employees') Pension Regulations, 1995. The HC erroneously held that compulsorily retired employees are not entitled to pension unless specifically ordered under regulation 33(1). The SC clarified that compulsorily retired employees are entitled to at least two-thirds of full pension or ? 375 per month, whichever is higher. The word "may" in the regulation does not vest discretion to grant less than two-thirds pension but clarifies entitlement conditions. Clauses (1) and (2) of regulation 33 must be read together, requiring mandatory prior consultation with the Board of Directors before reducing pension. Post facto approval cannot substitute prior consultation, which serves as a constitutional safeguard. The Field General Manager's order reducing pension without prior Board consultation was invalid.
Interpretation of statute - regulation 33 of the Pension Regulations - compulsory retirement pension - Reduction of one-third of the pension payable to the appellant under the Central Bank of India (Employees’) Pension Regulations, 1995 - HELD THAT:- High Court failed to read the regulation in its proper perspective and went a step ahead to hold that a compulsorily retired employee would not be entitled to any pension unless an order is passed under regulation 33 (1). A combined reading of the clauses in regulation 33 clearly indicates that the pension payable to an employee who has been compulsorily retired as a penalty shall not be less than twothird of his full pension or Rs. 375 per mensem, whichever is higher - The word ‘may’ must be read in its proper context, that is to say, it was used in the regulation not to vest discretion in the superior authority to grant pension less than twothird of full pension payable but to clarify that the aforesaid clause will not entitle a compulsorily retired employee to pension if he is not otherwise entitled to such pension on superannuation on that day. For example, if an employee is compulsorily retired without completing ‘qualifying service’ making him eligible to pension under the regulations.
Clause (1) and clause (2) of regulation 33 must be read conjointly and in all cases when the full pension admissible to a compulsorily retired employee under the regulations is reduced, a prior consultation with the Board is necessary.
A plain reading of regulation 33 would show award of pension less than full pension is to be done with prior consultation of the Board of Directors. Such prior consultation with the highest authority of the Bank i.e., Board of Directors must be understood as a valuable mandatory safeguard before an employee’s constitutional right to pension is curtailed. In these circumstances, a post facto approval cannot be a substitute of prior consultation with the Board before the decision is made - Though it is claimed that the delinquent acts of the appellant had caused an approximate loss to the tune of Rs. 3.26 crores to the bank, no evidence relating to the computation of such loss was either considered by the disciplinary authority or by the appellate authority. Further, no opportunity of hearing was given by the authorities prior to reducing his pension. No exceptional case to exercise our extraordinary powers under Article 142 is made out.
The order of the High Court and order of the Field General Manager dated 07.08.2015 reducing pension without prior consultation of the Board of Directors - Appeal allowed.
AI TextQuick Glance (AI)Headnote
Supreme Court rejects tenancy claim over secured asset due to insufficient evidence of pre-existing possession rights
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court include:
(a) Whether the High Court was justified in directing restoration of possession of the secured asset to the tenant (1st Respondent) despite the existence of an alternate remedy under the SARFAESI Act;
(b) The legal status and protection of tenancy rights claimed by the 1st Respondent under an unregistered tenancy agreement, particularly in light of the SARFAESI Act and the Rent Act;
(c) The effect of the statutory scheme under SARFAESI, especially post-amendment provisions, on the rights of lessees/tenants in secured assets;
(d) The evidentiary burden on tenants claiming tenancy rights to establish valid occupation prior to issuance of demand notice under Section 13(2) of SARFAESI;
(e) Whether the High Court erred in interfering with the recovery measures initiated by the secured creditor under SARFAESI without exhausting statutory remedies;
(f) The interplay between SARFAESI Act's non obstante clause and the protections afforded under rent control laws, particularly the West Bengal Premises Tenancy Act, 1997;
(g) The propriety of the ejectment suit instituted by the borrower/landlord and its relevance to possession disputes under SARFAESI.
2. ISSUE-WISE DETAILED ANALYSIS
(a) Jurisdiction of High Court and availability of alternate remedy under SARFAESI
The Court examined the statutory framework of SARFAESI, particularly post the 2016 amendment introducing Section 17(4A), which empowers any person claiming to be a lessee/tenant to challenge recovery measures under Section 13(4) before the Debt Recovery Tribunal (DRT). The DRT's orders are appealable before the Appellate Tribunal under Section 18.
The Court noted that the High Court erroneously entertained the tenant's application under Article 227 despite the existence of this efficacious statutory remedy. Reliance on the pre-amendment decision in Harshad Govardhan Sondagar was misplaced, as it was based on a regime where tenants had no statutory remedy before the DRT.
The Court emphasized its consistent stance in recent precedents that High Courts should refrain from interfering in SARFAESI matters under Articles 226/227 when alternate remedies exist, thereby preserving the statutory scheme and specialized adjudicatory mechanism.
(b) Legal status of tenancy under unregistered agreement and protection under rent laws
The tenant claimed tenancy rights under an unregistered agreement originally executed with the prior landlord. The Court analyzed the interplay between SARFAESI and rent control laws, referencing key precedents:
- Harshad Govardhan Sondagar held that leases created after issuance of Section 13(2) notice without secured creditor's permission are invalid; prior registered leases may subsist, but oral/unregistered leases are limited to one year post-notice.
- Vishal N. Kalsaria clarified that SARFAESI does not override rent laws; tenants under rent laws cannot be evicted without due process, and the non obstante clause in SARFAESI applies only to laws operating in the same field.
- Bajarang Shyamsunder Agarwal nuanced this by holding that while tenancy rights under rent laws should be respected, the non obstante clause in SARFAESI is broad and can override other laws; tenants under oral/unregistered agreements must prove tenancy through documentary evidence and such tenancy does not extend beyond one year after Section 13(2) notice.
- The Court also referred to constitutional and rent law precedents affirming protection of tenancy rights created through unregistered instruments, emphasizing the need for due process before eviction.
(c) Evidentiary burden and tenant's conduct
The Court found that the 1st Respondent failed to produce convincing evidence of tenancy prior to the issuance of the Section 13(2) demand notice. The tenant could not furnish rent receipts, tax or utility bills evidencing occupation before the demand notice, relying instead on documents post-dating the demand notice.
The Court held that mere references in sale deeds or letters of attornment without independent possessory evidence are insufficient to establish tenancy rights capable of restraining SARFAESI action.
Furthermore, the tenant's failure to notify the secured creditor of tenancy rights despite public notices of symbolic possession and physical possession taken under statutory authority was deemed indicative of indifference and lack of bona fide claim.
(d) Effect of ejectment suit and possible collusion
The Court observed that the ejectment suit filed by the borrower/landlord against the tenant was not determinative of tenancy rights in the SARFAESI context, especially given the possibility of collusion to defeat the secured creditor's claim.
(e) Application of law to facts and conclusions on possession
Applying the above principles, the Court concluded that the High Court erred in restoring possession to the tenant without considering the statutory scheme, evidentiary deficiencies, and tenant's conduct. The tenant had not established a compelling case to warrant mandatory restoration of possession.
The Court directed status quo to be maintained pending disposal of the tenant's securitization application before the DRT, emphasizing prompt adjudication within two months.
3. SIGNIFICANT HOLDINGS
The Court held:
"The High Court erroneously relied on Harshad Govardhan Sondagar (supra) to entertain the application. The observations in Harshad Govardhan Sondagar (supra) with regard to absence of statutory remedy available to a lessee/tenant to assail measures under section 13(4) before DRT is based on the preamended law and has no manner of application under the post amendment regime."
"It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant." (citing Vishal N. Kalsaria)
"Tenancies created through an oral/unregistered agreement would not continue beyond one year from issuance of notice under section 13(2) of SARFAESI and the tenant upon expiry of the said period shall be deemed to be a 'tenant in sufferance'." (citing Bajarang Shyamsunder Agarwal)
"Mere reference to some preexisting tenancy in the sale deed or issuance of letter of attornment by 2nd Respondent (who is also the borrower) unsubstantiated by independent and convincing possessory evidence would not establish a compelling case of preexisting tenancy in favour of 1st Respondent."
"A mandatory order restoring status quo ante necessitates a compelling cast iron case which 1st Respondent has failed to establish."
"We allow the appeal and set aside the impugned order passed by the High Court and direct status quo in respect of the secured asset till the disposal of securitization application No.737/2023. The application shall be disposed of within 2 months from the date of communication of this order without granting unnecessary adjournment to either of the parties."
Supreme Court rejects tenancy claim over secured asset due to insufficient evidence of pre-existing possession rights
The SC set aside the HC order directing restoration of possession to the 1st Respondent who claimed pre-existing tenancy rights over a secured asset. The SC found the 1st Respondent's evidence of tenancy from 1987 unconvincing, noting absence of rent receipts, tax receipts, or electricity bills proving continued occupation before the SARFAESI demand notice. The only evidence was rent deposits with Rent Controller from January-December 2022, after the demand notice was issued. The SC held that mere reference to tenancy in sale deed without independent possessory evidence cannot establish pre-existing tenancy. The 1st Respondent's failure to respond to published possession notices demonstrated indifferent conduct. The appeal was allowed, directing maintenance of status quo until disposal of the securitization application.
Direction to handback to the 1st Respondent, whose possession was taken by the Appellant - pre-existing tenancy rights - availability of alternative remedy under SARFAESI Act - HELD THAT:- The evidence adduced by 1st Respondent before the DRT with regard to prior tenancy is not convincing. Although 1st Respondent claimed he was a tenant in the secured asset from 1987, he was unable to place on record any rent receipt, tax receipt or electricity bill evidencing continued occupation of the premises prior to issuance of demand notice under section 13(2) of SARFAESI. 1st Respondent has only relied on documents showing deposit of rent with Rent Controller from January 2022 to December 2022, that is, after demand notice was issued by the Appellant.
Mere reference to some preexisting tenancy in the sale deed or issuance of letter of attornment by 2nd Respondent (who is also the borrower) unsubstantiated by independent and convincing possessory evidence would not establish a compelling case of preexisting tenancy in favour of 1st Respondent. Given this situation, institution of the ejectment suit by 2nd Respondent may not be a determining factor as the possibility of setting up a sham and collusive suit to defeat the claim of the Appellant cannot be ruled out.
High Court failed to consider these relevant aspects and illegally directed restoration of status quo ante. High Court also lost sight of the conduct of the 1st Respondent in failing to take prompt steps to protect his interest in the secured asset. Appellant had on 02.12.2021 published notice of taking symbolic possession of the secured asset in two leading newspapers and also pasted the notice in a conspicuous place on the secured asset. In spite of such publication, 1st Respondent did not bother to intimate the Appellant with regard to his preexisting tenancy rights or approach the DRT - A mandatory order restoring status quo ante necessitates a compelling cast iron case which 1st Respondent has failed to establish. His indifferent conduct and failure to produce rent receipts and/or other evidence regarding continued possession prior to issuance of demand notice under section 13(2) of SARFAESI does not justify a mandatory order.
The impugned order passed by the High Court set aside - it is directed to maintain status quo in respect of the secured asset till the disposal of securitization application - appeal allowed.
AI TextQuick Glance (AI)Headnote
Umbilical cord blood stem cell banking services qualify for healthcare service tax exemption under Section 73
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
(a) Whether the services of enrolment, collection, processing, and storage of umbilical cord blood stem cells provided by the appellant during the period from 01.07.2012 to 16.02.2014 fall within the ambit of "Healthcare Services" as defined under the relevant service tax exemption notifications, thereby qualifying for exemption from service tax.
(b) Whether the show cause notice issued by the Department on 28.07.2017 demanding service tax for the aforesaid period is barred by limitation, particularly in light of the extended period of limitation invoked under Section 73 of the Finance Act, 1994.
(c) Whether the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 are justified, considering the appellant's bona fide belief in the exemption and their conduct during the investigation.
2. ISSUE-WISE DETAILED ANALYSIS
(a) Whether the appellant's services fall within the ambit of "Healthcare Services" and are exempt from service tax for the period 01.07.2012 to 16.02.2014
Relevant legal framework and precedents:
The exemption from service tax is governed by Notification No. 25/2012-ST dated 20.06.2012, which exempts "Healthcare Services by a clinical establishment, an authorized medical practitioner or para-medics" under Serial No. 2. Clause 2(t) of this notification defines "health care services" broadly as "any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India."
Subsequently, Notification No. 4/2014-ST dated 17.02.2014 inserted Entry 2A, specifically exempting "services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation."
Judicial precedents such as the Andhra Pradesh High Court's decision in M. Satyanarayana Raju Charitable Trust v. UOI emphasized a liberal and beneficial interpretation of healthcare services, including preventive services. The Supreme Court in CCE, Bombay-I & Anr. vs. Parle Exports Pvt. Ltd. held that exemption notifications have statutory force and must be interpreted in their ordinary parlance and context, with a liberal approach favoring the assessee, avoiding absurd results.
The Ministry of Health and Family Welfare's Office Memorandum dated 22.05.2013 clarified that services rendered by stem cell banks are part of healthcare services and qualify for exemption.
Court's interpretation and reasoning:
The Court found that the appellant qualifies as a clinical establishment under the notification and that their core activities-collection, processing, testing, cryopreservation, and storage of umbilical cord blood stem cells-are preventive and curative healthcare services. The appellant's services support diagnosis, treatment, and care, including post-transplant monitoring and clinical trials, which are integral to healthcare.
The Court rejected the Department's narrow interpretation that these services do not constitute healthcare services because they are not used for regular illnesses. Instead, the Court held that the term "any service" in the exemption notification must be read expansively, covering the appellant's activities.
The Court noted that the insertion of Entry 2A by Notification No. 4/2014-ST does not curtail the scope of Entry 2 but rather clarifies and specifically exempts cord blood banking services. Therefore, the appellant's services fall within the ambit of "Healthcare Services" for the disputed period.
Key evidence and findings:
The appellant submitted extensive documentary evidence, including brochures, laboratory protocols, clinical trial data, expert opinions, and regulatory approvals under the Drugs and Cosmetics Act. The Ministry's Office Memorandum further supported the appellant's claim.
Treatment of competing arguments:
The Department contended that the exemption for cord blood banking services was introduced only by the 2014 notification and was not applicable for the disputed period. The Court disagreed, holding that the 2014 notification is clarificatory and illustrative, not restrictive, and the appellant's services were covered under the broader healthcare exemption from 01.07.2012.
Conclusion:
The Court concluded that the appellant's services fall within the definition of "Healthcare Services" and are exempt from service tax for the period 01.07.2012 to 16.02.2014.
(b) Whether the show cause notice issued on 28.07.2017 is barred by limitation
Relevant legal framework and precedents:
Section 73(1) of the Finance Act, 1994 mandates that a show cause notice for service tax demand must ordinarily be issued within one year from the relevant date. The proviso allows an extended period of up to five years only if the non-payment or short payment is due to fraud, collusion, wilful misstatement, suppression of facts, or contravention of the Act or Rules with intent to evade tax.
Precedents such as Padmini Products v. CCE, CCE v. Chemphar Drugs and Liniments, Pushpam Pharmaceuticals Co. v. CCE, and CCE v. Punjab Laminates (P) Ltd. establish that invocation of the extended period requires positive evidence of deliberate evasion or suppression, not mere non-payment or bona fide dispute.
Court's interpretation and reasoning:
The Court observed that the Department was aware of the appellant's activities as early as 2013, evidenced by communications seeking documents. The appellant had acted bona fide, responding to queries, making representations seeking clarification, and depositing Rs. 40,00,000 under protest. No evidence of fraud, collusion, wilful misstatement, or suppression with intent to evade was found.
The Court held that mere non-payment of service tax, absent any element of intent or suppression, does not justify invoking the extended limitation period. The show cause notice issued after more than five years from the relevant period was therefore time-barred.
Key evidence and findings:
Communications between the Department and appellant, the appellant's proactive deposit and representations, and absence of any allegation or proof of fraudulent intent.
Treatment of competing arguments:
The Department argued that the extended period was justified due to the appellant's failure to pay service tax. The Court rejected this, emphasizing settled legal principles requiring positive evidence of evasion for extended limitation.
Conclusion:
The show cause notice dated 28.07.2017 is barred by limitation and thus invalid.
(c) Whether the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 are justified
Relevant legal framework and precedents:
Penalties under Section 78 are imposed for misstatement, suppression, or contravention with intent to evade tax. Section 80 protects bona fide taxpayers acting under reasonable belief. Judicial precedents emphasize that penal provisions are deterrent and not to be imposed for bona fide errors or disputes.
Court's interpretation and reasoning:
The Court found no evidence of suppression or concealment by the appellant. The appellant's conduct was consistent with a bona fide belief in exemption, supported by regulatory registrations and Ministry clarifications. The appellant cooperated fully with the Department.
Given the show cause notice was time-barred and no intent to evade was demonstrated, imposition of penalties was unwarranted.
Key evidence and findings:
Correspondence seeking clarifications, deposit of tax under protest, and absence of any adverse findings on appellant's bona fides.
Treatment of competing arguments:
The Department justified penalties on grounds of non-registration, non-payment, and procedural lapses. The Court held that such procedural defaults, in the absence of intent to evade, do not warrant penalties.
Conclusion:
Penalties imposed under Sections 77 and 78 are quashed.
3. SIGNIFICANT HOLDINGS
"The use of the phrase 'any service' in the exemption notification gives an expansive scope to the term 'health care services'. The appellant's activities of enrolment, collection, processing, and storage of umbilical cord blood stem cells are preventive and curative in nature and fall within the ambit of 'Healthcare Services' as defined under Notification No. 25/2012-ST."
"The insertion of Entry 2A by Notification No. 4/2014-ST dated 17.02.2014 is clarificatory and illustrative of the exemption already available under Entry 2. It does not curtail the scope of the earlier exemption notification."
"In the absence of any evidence of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade payment of service tax, the extended period of limitation under Section 73 of the Finance Act, 1994 cannot be invoked. Mere non-payment or bona fide dispute does not justify invoking the extended limitation period."
"Penal provisions under the Finance Act are meant to deter deliberate contraventions and are not to be imposed on bona fide taxpayers acting under reasonable belief and in good faith."
"The show cause notice issued on 28.07.2017 is barred by limitation and the penalties imposed are unwarranted. The deposit of Rs. 40,00,000/- made by the appellant shall be refunded."
Umbilical cord blood stem cell banking services qualify for healthcare service tax exemption under Section 73
The SC held that umbilical cord blood stem cell banking services constitute healthcare services qualifying for service tax exemption. The court ruled that the department's invocation of extended limitation period under Section 73 of Finance Act, 1994 was unwarranted, as there was no active tax evasion, fraud, or suppression of facts by the appellant. The show cause notice was time-barred since mere non-payment of service tax without intent to evade does not justify extended limitation. The court found that stem cell banking services are preventive and curative healthcare services encompassing diagnosis, treatment, and care. The February 2014 notification clarifying healthcare services exemption was held to be illustrative and clarificatory, not retrospective. No penalties were imposed as the appellant had maintained transparent communication with the department seeking clarifications. The impugned order was set aside entirely and appeals were allowed.
Classification of services - Healthcare Services or not - services of enrolment, collection, processing, and storage of umbilical cord blood stem cells, provided by the appellant during the period from 01.07.2012 to 16.02.2014 - extended period of limitation - Imposition of penalties - HELD THAT:- It is a settled principle of law that, for the department to invoke the extended period of limitation, there must be an active and deliberate act on the part of the assessee to evade payment of tax. Mere non-payment of tax, without any element of intent or suppression, is not sufficient to attract the extended limitation period.
Therefore, in the absence of fraud, collusion, wilful misstatement, or suppression of facts with an intent to evade payment of service tax, the invocation of the extended period of limitation under Section 73 of the Finance Act, 1994 is wholly unwarranted. Mere non-payment of service tax, by itself, does not justify the invocation of the extended limitation period. Accordingly, the show cause notice issued by the department is clearly time-barred. On this ground alone, the impugned order deserves to be set aside.
In the present case, since it is rendered a finding that stem cell banking services constitute a healthcare service, which was specifically so stated by the notification dated 17.02.2014, the said notification must necessarily be held to be illustrative and clarificatory to that extent. This clarification/specific exemption, coupled with our finding that stem cell banking services fall within the ambit of “Healthcare Services”, must necessarily inure to the benefit of the appellant. This is not to say that the notification dated 17.02.2014 is retrospective in operation - It is a well-settled principle of law that unless a notification or circular explicitly provides for retrospective operation, it must be construed as prospective. Admittedly, the said notification does not contain any express provision indicating retrospective effect. Therefore, it can only be applied prospectively. However, for the reasons stated in the preceding paragraphs, while we concur with the decision of the Madras High Court to the extent that Notification No. 4/2014-ST cannot be considered to be retrospective, it is opined that the said amendment is indeed clarificatory.
Whether the services rendered by the appellant – relating to enrolment, collection, processing, and storage of umbilical cord blood stem cells – fall within the definition of "Healthcare Services", so as to qualify for exemption from service tax during the disputed period? - HELD THAT:- The Andhra Pradesh High Court in M. Satyanarayana Raju Charitable Trust v. UOI [2017 (5) TMI 672 - ANDHRA PRADESH HIGH COURT], interpreted “Healthcare Services” to include preventive services. Being a beneficial exemption, the provision must be liberally construed - Thus, it is evident that the appellant’s services fall within the ambit of “Healthcare Services” as defined under the exemption notification. These services are preventive and curative in nature and encompass diagnosis, treatment, and care.
Imposition of penalties - HELD THAT:- It is evident that the appellant neither suppressed nor concealed any material facts from the Department. On the contrary, they were in constant communications with the Department, seeking clarifications on whether their services were exempt from the levy of service tax. The show cause notice issued by the Department is time-barred. Therefore, the imposition of penalties is not warranted.
The impugned order is set aside in its entirety. Accordingly, these appeals stand allowed.
AI TextQuick Glance (AI)Headnote
Manufacturers liable for entry tax under Section 3 despite goods sold to State warehouse
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were:
(a) Whether the appellants, who are manufacturers of Indian Made Foreign Liquor (IMFL) and beer, are liable to pay entry tax under Section 3 of the Madhya Pradesh Entry Tax Act, 1976, for the period 01.04.2007 to 31.03.2008.
(b) Whether the State Government warehouses, which act as intermediaries between the manufacturers and retail licensees, are dealers liable to pay entry tax or merely act in a supervisory capacity.
(c) Whether the appellants "caused to effect the entry of goods" into the local area within the meaning of the Entry Tax Act, thereby attracting liability.
(d) Whether the absence of a notification under Section 3B of the Entry Tax Act, which empowers the State Government to specify the manner of collection of entry tax on foreign liquor, precludes levy and collection of entry tax on the appellants.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a) and (c): Liability of appellants as manufacturers to pay entry tax and whether they caused entry of goods
Relevant legal framework and precedents:
The Madhya Pradesh Entry Tax Act, 1976, as amended in 2007, imposes entry tax on the entry of specified goods, including Indian made foreign liquor and beer (added to Schedule II), into local areas for consumption, use, or sale. Section 3(1)(a) provides for levy of entry tax on entry of goods by a dealer. Section 2(1)(aa) defines "entry of goods into a local area" as entry from outside the local area including from outside the State. Section 2(3) clarifies that "has effected entry" includes "has caused to be effected entry." Section 14 vests assessment and collection powers with authorities under the VAT Act.
"Dealer" is defined under the VAT Act to include persons carrying on business of buying, selling, supplying or distributing goods, including government departments acting as dealers. "Goods" and "sale" are also defined broadly under the VAT Act.
Precedents relating to canalizing agencies and inseverable transactions were considered, notably the principles enunciated in K. Gopinathan Nair & Ors. v. State of Kerala, which set out tests for determining when intermediary or canalizing agency transactions are inseverable and when they constitute separate transactions.
Court's interpretation and reasoning:
The Court examined the factual matrix where manufacturers supply IMFL and beer to State Government warehouses, which then supply to licensed retailers. The warehouses issue No Objection Certificates (NOCs), maintain stock, collect payments from retailers, and transfer amounts to manufacturers after deducting excise duty, VAT, and transportation fees. Retailers deal with the warehouses, not directly with manufacturers.
Applying the principles from K. Gopinathan Nair, the Court found that the transactions between manufacturers and warehouses, and warehouses and retailers, are two independent transactions with no inseverable or inseparable link. The warehouses are not mere agents or name lenders but enter into back-to-back contracts with manufacturers and retailers. Thus, the State's contention that warehouses only supervise sales was rejected.
However, the Court emphasized that the appellants, as manufacturers, by selling to the warehouses, have caused the entry of goods into the local area. The definition of "cause" was considered in light of precedent from Azad Coach Builders and Coffee Board, Bangalore, where "cause" or "occasion" was interpreted to mean the immediate cause or factor producing the event (here, entry of goods).
The Court held that the appellants' sale to the warehouse causes the entry of goods into the local area for consumption or sale, attracting entry tax liability. The appellants are "dealers" under the VAT Act and have effected entry within the meaning of the Entry Tax Act.
Key evidence and findings:
The Court relied on the documentary evidence including communications from the Finance Department and Excise Commissioner, and the detailed guidelines for warehouse operations, which showed the warehouses' role in storing, supervising, and facilitating supply but not purchasing or selling as principals.
Nevertheless, the financial flow and contractual arrangements demonstrated that manufacturers effect entry by selling to warehouses, which then supply retailers.
Application of law to facts:
The Court applied the statutory definitions and principles from case law to the facts, concluding that the appellants caused the entry of goods into the local area and are liable to pay entry tax.
Treatment of competing arguments:
The appellants' argument that the warehouses are dealers liable to pay entry tax and that manufacturers do not cause entry was rejected. The Court found that even if the warehouses are dealers, the appellants' act of sale causes entry and they are liable. The contention that no notification was issued under Section 3B to specify collection procedure was also rejected, as discussed below.
Issue (b): Role and status of State Government warehouses as dealers
Relevant legal framework:
Explanation II to Section 2(i) of the VAT Act includes Central or State Government or their departments or offices as deemed dealers if they buy, sell, supply, or distribute goods for valuable consideration.
Court's interpretation and reasoning:
The Court noted that the warehouses do not purchase or sell liquor as principals but act under supervision and control of the State Excise Department. The warehouses facilitate supply and collection but do not have privity of contract with retailers, who are licensed to purchase from the warehouses.
The High Court's finding that warehouses neither purchase nor sell liquor was upheld. Therefore, the warehouses do not qualify as dealers liable for entry tax under the Act, but this does not absolve manufacturers from liability.
Issue (d): Effect of absence of notification under Section 3B on levy and collection of entry tax
Relevant legal framework and precedents:
Section 3B is an enabling provision allowing the State Government to specify the manner and appoint competent authorities for collection of entry tax on IMFL and beer by notification. Section 14 vests powers of assessment and collection with authorities under the VAT Act.
Precedents such as A.G. Varadarajulu v. State of T.N. and Union of India v. G.M. Kokil were cited to interpret the interplay between non-obstante clauses and other statutory provisions.
Court's interpretation and reasoning:
The Court held that Section 3B is a machinery provision and does not curtail the general power of the authorities under Section 14 to assess and collect entry tax. The absence of any notification under Section 3B does not preclude levy or collection of entry tax under the general provisions.
The non-obstante clause in Section 3B would only override Section 14 if a contrary provision existed, which was not the case here. Thus, the State could recover entry tax as per the general procedure prescribed under Section 14.
Key evidence and findings:
The Court relied on the High Court's reasoning that since no notification under Section 3B was issued, the general machinery under Section 14 applies. Communications between the Commercial Tax Commissioner and Excise Commissioner clarified that manufacturers are liable to pay entry tax.
Application of law to facts and treatment of competing arguments:
The appellants' contention that no levy could be made without notification under Section 3B was rejected. The Court found no legal impediment to levy and collection under Section 14, even in the absence of notification under Section 3B.
3. SIGNIFICANT HOLDINGS
"The appellants by the sale to the warehouse caused to be effected the entry of goods and the entry was occasioned on the account of the sale into the local area for consumption, use or sale therein."
"The appellants certainly occasioned the entry of goods and the levy of entry tax on them, which could always be passed on, is perfectly justifiable in law."
"Section 3B is only a machinery provision and in the teeth of Section 14 of the M.P. Entry Tax Act, it is not correct to say that there cannot be any assessment or collection of Entry Tax merely because there is no notification under Section 3B."
"When something is required to be done so as to bring the non-obstante clause into play till that thing has been done, non-obstante clause would not come into play."
Core principles established include:
- Entry tax liability arises on the dealer who causes the entry of goods into the local area, and this includes manufacturers selling to warehouses which facilitate supply to retailers.
- Transactions involving canalizing agencies or intermediaries are to be examined for inseverability; independent back-to-back contracts negate inseverability.
- The absence of a notification under an enabling machinery provision does not preclude levy and collection under general provisions unless a conflict exists.
- Government warehouses acting as supervisory agents without privity of contract do not qualify as dealers liable for entry tax, but this does not absolve manufacturers.
Final determinations:
- The appellants are liable to pay entry tax under Section 3 of the M.P. Entry Tax Act, 1976, for the relevant period.
- The State Government warehouses are not dealers liable to pay entry tax.
- The absence of notification under Section 3B does not invalidate the levy or collection of entry tax under Section 14.
- The appeals are dismissed with no order as to costs.
Manufacturers liable for entry tax under Section 3 despite goods sold to State warehouse
The SC held that appellant manufacturers were liable for entry tax under Section 3 of the Madhya Pradesh Entry Tax Act, 1976. The court found two independent transactions existed: one between manufacturers and State warehouse, and another between warehouse and retailers. Despite appellant's contention that the State warehouse was also a dealer, the court ruled that manufacturers occasioned the entry of goods into the local area through their sale to the warehouse, making them liable for entry tax which could be passed on. The appeal was dismissed.
Liability of appellant for payment of entry tax under Section 3 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 - entry of goods into the local area as required under Section 3(1)(a) read with Section 2(1)(aa), 2(1)(b) and 2(3) of the M.P. Entry Tax Act, 1976 - no privity of contract - Sale of Liquor to State Government warehouses - HELD THAT:- Under the modus operandi adopted, as set out in hereinabove, it will be clear that demand note for each and every shop is submitted to the warehouse by the retailer. After assessing the local demand, the Divisional Commissioner issues directions to the Officer in charge for issuance of a No Objection Certificate to the manufacturing units. The manufacturing units were allowed to store beer and IMFL in departmental godowns. The manufacturing units declare the Ex-godown price and supply of liquor is effected by the warehouse after levying 5 per cent additional fee. The retail buyer deposits the amount with the warehouse and the transfer of money to the manufacturer is made by the warehouse and thereafter, delivery is taken by the retailer from the warehouse.
The issue of when can a sale which involves a canalizing agent/intermediary be said to be inseverable has arisen in the context of exemption sought by assessees under the Central Sales Tax Act before this Court in several cases. In K. Gopinathan Nair & Ors. v. State of Kerala, [1997 (3) TMI 513 - SUPREME COURT], this Court, after analyzing the precedents applicable to the issue, held that 'Since there is a direct and inseverable link between the transaction of sale and the import of goods on account of the nature of the understanding between the parties as also by reason of the canalising scheme pertaining to the import of cashewnuts, the sales in question cannot be taxed under the Kerala General Sales Tax Act or the Karnataka Sales Tax Act, as the case may be.'
Thus, in case a canalising agency or intermediary agency is involved, unless their role is merely that of a name lender, the sale will not be treated as an inseparable or an inseverable sale. It will also be clear that if an independent canalising agency enters into back-to-back contracts and there is no direct linkage or causal connection between the export by foreign exporter and the receipt of the imported goods in India by local users, then the integrity of the entire transaction would be disrupted and would be substituted by two independent transactions. In K. Gopinathan Nair it was held that transactions were not integral and were two separate transactions.
There are no manner of doubt that there were two independent transactions, one between the appellant – manufacturers and the State Warehouse and the other between the State warehouse and the retailers. Hence, it will be difficult to accept the contention of the State that the role of the State is only supervisory and the warehouses didn’t purchase beer and IMFL from the manufacturer.
There are no manner of doubt that there were two independent transactions, one between the appellant – manufacturers and the State Warehouse and the other between the State warehouse and the retailers. Hence, it will be difficult to accept the contention of the State that the role of the State is only supervisory and the warehouses didn’t purchase beer and IMFL from the manufacturer.
Reverting to Sections 3(1) read with 2(1)(aa) and 2(1)(b) and 2(3), it is clear that the appellants by the sale to the warehouse caused to be effected the entry of goods and the entry was occasioned on the account of the sale into the local area for consumption, use or sale therein. It is also not disputed that the appellant is a dealer as defined under the Madhya Pradesh VAT Act 2002, as it stood then. The only contention of the appellants is this that the State warehouse is also a dealer. That makes no difference since it cannot be disputed that the appellants certainly occasioned the entry of goods and the levy of entry tax on them, which could always be passed on, is perfectly justifiable in law.
This Court answered the question in favor of the State - appeal dismissed.
AI TextQuick Glance (AI)Headnote
Partnership firm continues after partner's death when deed allows under Section 42 Partnership Act
The core legal questions considered by the Court include: (i) whether the death of a partner in a multi-partner partnership firm automatically dissolves the firm under the Indian Partnership Act, 1932; (ii) the validity and applicability of the dealership agreement clauses concerning reconstitution of the partnership and continuation or termination of dealership on death of a partner; (iii) the interpretation and enforcement of the revised policy guidelines dated 01.12.2008 issued by the Indian Oil Corporation Limited (IOCL) regarding reconstitution of partnership firms upon death of a partner; (iv) whether IOCL acted arbitrarily and beyond its powers in refusing to recognize the reconstituted partnership firm and discontinuing kerosene supply; and (v) the extent of judicial intervention in directing continuation of supply pending reconstitution of the partnership.
Regarding the first issue, the Court examined the provisions of the Indian Partnership Act, 1932, especially Section 42, which provides that a partnership is dissolved on the death of a partner, but this applies primarily to two-partner firms. The Court noted that where the partnership deed provides otherwise and the firm consists of more than two partners, the firm does not automatically dissolve on a partner's death. The partnership deed in this case explicitly stipulated that the death of a partner would not cause discontinuance of the partnership business and that the surviving partners may admit competent heirs of the deceased partner. The Court relied on authoritative precedents including decisions from the Supreme Court and various High Courts, which established that death of a partner results in change in constitution but not dissolution if the deed so provides. Thus, the Court held that the partnership continued despite the death of the major partner.
On the second issue, the Court analyzed the dealership agreement dated 11.05.1990 entered between the partnership firm and IOCL. Clause 30 of the agreement required immediate notification to IOCL upon death of a partner, and gave IOCL three options: continue dealership with the existing firm, enter into a fresh agreement with the reconstituted firm, or terminate the dealership agreement. The Court found that IOCL had not exercised the termination option and had allowed the firm to propose reconstitution including surviving partners and one heir. However, IOCL refused to recognize the reconstituted firm because not all legal heirs had joined or expressed willingness to join. The Court interpreted the agreement as permitting continuation of the dealership with the existing firm unless formally terminated, and that IOCL could not unilaterally discontinue supply without terminating the dealership.
The third issue involved the interpretation of the revised policy guidelines dated 01.12.2008 issued by IOCL. Clause 1.5 required reconstitution of the partnership with legal heirs and surviving partners upon death of a partner. IOCL contended that since all heirs had not joined or consented, it was not bound to continue supply. The Court rejected this narrow interpretation, noting that the guidelines did not mandate all heirs must join or provide no objection certificates. Instead, the guidelines allowed reconstitution with willing heirs and surviving partners. The Court emphasized that the partnership deed itself permitted surviving partners to admit any competent heirs on mutually agreed terms, and IOCL had no role in determining competency or mandating unanimity among heirs. The Court concluded that IOCL misconstrued its own guidelines by refusing to recognize the reconstituted firm with some heirs and surviving partners.
On the fourth issue, the Court scrutinized IOCL's conduct in refusing to continue kerosene supply to the firm pending reconstitution. The Court found IOCL's approach to be arbitrary, high-handed, and lacking fairness, especially since the partnership business had been running continuously for many years and the heirs had not challenged the High Court's directions allowing continuation. The Court underscored that IOCL, as a state instrumentality, must act in the interest of consumers and not disrupt ongoing business by adopting hyper-technical interpretations of policy guidelines. The Court held that IOCL's refusal to extend supply without termination of dealership was unjustified and contrary to the principles of equity and commercial fairness.
Finally, on the issue of judicial intervention, the Court supported the High Court's exercise of writ jurisdiction under Article 226 of the Constitution to issue mandamus directing IOCL to continue kerosene supply to the partnership firm until proper reconstitution or termination by competent courts. The Court noted that the High Court's directions balanced the interests of the parties and consumers, allowed for review on a yearly basis, and preserved the rights of all heirs to approach civil courts for probate or partition. The Court affirmed that such judicial oversight was necessary to prevent arbitrary exercise of statutory powers by IOCL and to ensure continuity of business and supply to consumers.
The significant holdings include the following:
"The partnership would continue despite the death of one of the partners in terms of the Partnership Deed."
"The death of any partner shall not cause discontinuance of the partnership business and the surviving partners may continue the business and the interest of the deceased partner shall vest in the legal heirs of the deceased."
"The IOCL could not have discontinued the supply of kerosene to the existing firm without terminating its dealership."
"The guidelines nowhere stipulate that it is mandatory for all the legal heirs to join or reconstitute the partnership firm or otherwise to express their unwillingness to participate."
"The insistence of the IOCL that all the legal heirs of the deceased partner should join the reconstituted firm or give 'No Objection Certificate' to the reconstituted firm would be contrary to the spirit of the original deed of partnership."
"The IOCL is supposed to act in a manner which is beneficial for the continuance of the business and not to adopt an arbitrary approach thereby creating hindrance in the running business."
"The High Court issued mandamus directing IOCL to continue the supply of kerosene to the existing partnership firm till it is properly reconstituted, subject to any order that may be passed in the probate case or by the competent Civil Court."
The Court's final determination was to dismiss the Special Leave Petition filed by IOCL, upholding the High Court's orders directing continuation of kerosene supply to the partnership firm. The Court emphasized that IOCL should avoid interfering with the continuance of any running business by adopting narrow or technical interpretations of policy guidelines and must act fairly and equitably in the interest of consumers and business continuity.
Partnership firm continues after partner's death when deed allows under Section 42 Partnership Act
SC held that partnership firm did not automatically dissolve upon death of one partner where deed provided otherwise. Under Section 42 of Partnership Act, automatic dissolution applies only to two-partner firms. Here, three-partner firm's deed explicitly allowed continuation with surviving partners. IOCL misconstrued its guidelines by refusing to recognize reconstituted firm with surviving partners and deceased partner's heir. Dealership agreement permitted continuation with existing or reconstituted firm. Court found partnership validly continued despite partner's death, as deed provisions overrode automatic dissolution rule. SLP dismissed, HC order upheld.
Continuation of pertnership, despite the death of one of the partners - applicability of Section 42 of the Partnership Act - To be dissolved automatically or not - Or mere change of Constitution - HELD THAT:- It would be prudent to first refer to the Dealership Agreement dated 11.05.1990 which lays down the conditions of dealership inter alia that in the event of death of any partner, the subsisting partners of the dealership shall immediately inform to the IOCL about the death of the partner with necessary details of legal heirs of the deceased partner; whereupon it would be open for the IOCL to:- (i) either continue the dealership with the existing firm; or (ii) to have the fresh agreement of the dealership with the firm if reconstituted; or (iii) to terminate the dealership agreement. The above three conditions are evident from the plain and simple reading of Clause 30 of the dealership agreement.
It is an admitted position that the IOCL till date has not exercised the option of terminating the dealership of the firm, rather has provided opportunity to the firm to reconstitute itself. The firm has been reconstituted as per the proposal submitted on 13.04.2010 having the surviving partners and Vijay Sonthalia, one of the heirs and legal representatives of the deceased, as the third partner. However, the said reconstituted firm has not been recognised by the IOCL simply for the reason that all the heirs and legal representatives of the deceased persons have not joined or have not expressed their unwillingness to join the partnership firm.
It is settled in law by virtue of Section 42 of the Partnership Act, 1932 that the partnership will stand dissolved inter alia on the death of the partner but this is applicable in cases where there are only two partners constituting the partnership firm. The aforesaid principle would not apply where there are more than two partners in a partnership firm and the deed of partnership provides otherwise that the firm will not stand automatically dissolved on the death of one of the partners - In the case at hand, the partnership consisted of three partners and the deed of partnership, in unequivocal terms, provided that the death of a partner shall not cause discontinuance of partnership and the surviving partners may continue with the business. Therefore, the principle laid down under Section 42 of the Partnership Act would not be applicable and the partnership would continue despite the death of one of the partners.
The IOCL appeared to have misconstrued its own guidelines in not recognising the reconstitution of the partnership firm with the surviving partners and one new partner being one of the competent heir and legal representative of the deceased partner.
The impugned order(s) of the High Court need not be interfered - SLP dismissed.