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2025 (4) TMI 1404
Dismissal of Section 9 Application filed before the Adjudicating Authority - initiation of CIRP - Existence of debt and default or not - quality of goods or services - breach of a representation or warranty - HELD THAT:- Upon perusal of the Purchase Orders, which form basis of the current Company Petition, annexed as "ANNEXURE V-1 to V-8", we find that all the said Purchase Orders have been signed by Mrs. Ashwini Ghodi or Mr. Gaurang Ghodi, and not a single Purchase Order bears the signature of the Intervener, Mrs. Sheetal Dahanukar. Further it is claimed by the Intervener that all the said purchase orders are post April 2021, which is after the date on which dispute between Mr. Nilesh Dahanaukar and the Intervener grew strenuous and the intervener left her matrimonial house. This disputed nature of the aforementioned facts raises serious doubts about the genuineness of the claim filed by the Petition Firm. Thus, the Intervener's contention with respect to the same holds merit and cannot be ignored.
There exists a nexus between the partner of Pan Products, Mr. Gaurang Ghodi, and the Respondent Company and Mr Nilesh who is the Director of Appellant-OC-Om Sai. In view of the aforementioned email dated 03.01.2023 and the Purchase Orders dated 27.10.2021 and 13.06.2022, which are signed by Mr Ghodi, we find that Mr. Gaurang Ghodi is also involved in the day-to-day internal affairs and workings of the Respondent-CD-Plastomax Engineering, to such an extent that Mr. Gaurang Ghodi was in a position to send official emails and even sign Purchase Orders on behalf of the Respondent Company.
The allegations of fabrication of documents as alleged by the Intervenor, Mrs. Sheetal Dahanukar who is wife of the Petitioner also noted. The Intervenor has raised serious allegations about the authenticity of the invoices and purchase orders presented by the Petitioner - keeping this offence of forgery committed by Mr. Nilesh Dahanukar in mind and in view of the contentions raised by the Intervener, we have sufficient grounds to believe that it is plausible for Mr. Nilesh Dahanukar to forge signature of his wife, the Intervener and the contention raised by the Intervener with respect to the same holds merit and cannot be brushed aside.
The Appellant claims to qualify as an operational creditor under Section 5(20) of the IBC, and accordingly claims that the debt is clearly an operational debt arising from the supply of goods to the Respondent. It claims that the personal and matrimonial disputes raised by the director of the Respondent do not constitute a "dispute" as per Section 5(6) of the IBC. And the IBC defines a "dispute" as one related to the existence of the debt, quality of goods/services, or breach of warranty or representation, none of which are applicable to the alleged personal disputes between the parties. The disputes raised by Mrs. Sheetal Dahanukar were personal in nature (e.g., matrimonial issues and shareholder oppression) and not related to the operational debt or quality of goods supplied - It is also claimed that the Respondent did not raise any valid dispute about the debt, and the alleged disputes are related to personal matters such as matrimonial discord and shareholder disputes, which do not qualify as valid disputes under Section 5(6) of the IBC.
Conclusion - The company petition has not been filed for insolvency proceedings but is for ulterior motives. There are no infirmity in the findings of the adjudicating authority that the Section 9 application has been filed to settle personal disputes and such an act is reprehensible. In this background, the finding of the adjudicating authority for imposition of a cost of ₹ 10 lakhs on the petitioner for filing frivolous and motivated petition also agreed.
Appeal dismissed.
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2025 (4) TMI 1403
Invocation of the personal guarantee by issuance of the demand notice - notice was sent to an address different from that specified in the guarantee deed - application filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 (the Code) for initiating insolvency resolution process against the personal guarantor was barred by limitation or not.
Notice was sent to an address different from that specified in the guarantee deed - HELD THAT:- The argument of the Appellant that it has been clearly provided in the guarantee deed that it has to be sent on the address provided in the guarantee deed and can also be sent to a different address with prior intimation of the Appellant is of no consequence because in the entire pleadings, both before the Tribunal and before this Court, the Appellant has not said a word that the said Notice was never received. Rather the Appellant has taken a technical plea that Notice should have been sent on the address provided in the guarantee deed. In the absence of denial on the part of the Appellant that he did not receive the Notice dated 16th January 2017, having been sent on an address different from the one provided in the deed of guarantee, it has to be presumed that the notice was duly received by the Appellant.
Moreover, Respondent No.1 sent the Notice dated 9.9.2021, under Rule 7 of the Rules, addressed to Shri Vipin Shersingh Agarwal, Vaishnav Sadan, Bungalow No.2, Vikas Classique CHS, Behind Bansant Cinema, Chembur, Mumbai – 400074 which was delivered to the Appellant on the same address by hand. In these circumstances, the Appellant had duly received the Notice of invoking of guarantee deed dated 16th January, 2017 in relation to guarantee deed dated 17th December, 2014.
Time limitation - HELD THAT:- The default occurred on 31st January, 2017 for which the application under Section 95 could have been filed up to 31st January, 2020. However, in between while the period of limitation was continuing the Corporate Debtor acknowledged the debt in the balance sheets which further enlarged to period of limitation from every date of acknowledgement - any admission of liability by the borrower shall be deemed to be admission of debt by the guarantor as well, the balance sheets, being part of the record of the Tribunal has to be looked into for the purpose of extension of limitation from the date of acknowledgement. It is needless to mention that as per Section 18, the acknowledgement has to be in writing which of course in this case has been signed by the RP on behalf of the Corporate Debtor as well as the guarantor.
Conclusion - i) The invocation of the guarantee by the notice dated 16th January, 2017 is valid and maintainable despite being sent to an address different from that in the guarantee deed. ii) The application under Section 95 is not barred by limitation due to the acknowledgment of debt extending the limitation period.
Appeal dismissed.
There are no merit in the appeal - appeal dismissed.
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2025 (4) TMI 1402
Seeking direction for payment of operational debts - Power of Committee of Creditors (CoC) was empowered under the Process Memorandum to invoke the Performance Bank Guarantee (PBG) - clear violation of letter of intent and process memorandum by Formation.
Whether under the Process Memorandum (March 2018) issued by RP, the action of CoC to invoke PBG on 10.12.2018 was not covered by any of Clauses of Process Memorandum and invocation of PBG was unsustainable? - HELD THAT:- In the facts of the present case, when Resolution Plan was submitted by the SRA, which was considered and approved and the approved Resolution Plan is statutory binding on the SRA by virtue of Section 31, sub-section (1) and as per law laid down by the Hon’ble Supreme Court in Ebix Singapore [2021 (9) TMI 672 - SUPREME COURT]. Learned Counsel for the Formation has also referred to Clause 14.2 to 14.6 and 15.1 of the Process Memorandum to submit that invocation of PBG of Rs. 50 crores was made towards the money required for equity component. Thus, there is no question of Clause 14.6(c) being attracted, since the Resolution Plan itself was vitiated. It is submitted that Clause 15.1 was also not attracted, since Resolution Plan submitted by Formation was approved and the said clause applies only when there is withdrawal prior to approval by Adjudicating Authority. Clause 14.6 as noted above empowers the CoC to invoke the Performance Guarantee, if Resolution Plan has not been implemented by the SRA to the satisfaction of the CoC. Clause 14.6, thus, clearly contemplate the situation when Performance Guarantee can be invoked. The present is not a case where CoC has exercised Clause 15.1. Clause 15.1 is neither attracted nor has been invoked by the CoC. However, Clause 15.4 reserve the right to CoC to take any action against the Successful Resolution Applicant including invocation of PBG as well earnest money.
It is also noted the email dated 17.01.2020, by which decision of the CoC was communicated to the Formation, which clearly mentions that CoC has invoked the Performance Guarantee since SRA has failed to implement the Resolution Plan.
The CoC, thus, has invoked its power under Clause 14.2 to 14.6 and 15.4 for invocation of the PBG, which is fully in accord with the Process Memorandum and the submission of the Formation that CoC could not have invoked the PBG in the facts of the present case is without any substance.
Whether the finding of the Adjudicating Authority that CoC and RP had not treated that approved Resolution Plan had been contravened by the Formation are based on materials on record? - Whether sufficient materials were placed by CoC and RP before the Adjudicating Authority to establish that Formation has failed to implement the approved Resolution Plan? - HELD THAT:- The Adjudicating Authority itself has noticed the submission of the CoC that Resolution Applicant has defaulted in making the payment as per the Resolution Plan. The findings returned by the Adjudicating Authority in paragraph 50 that CoC and RP had not treated that the approved resolution plan had been contravened by the applicant-Formation, is unsustainable. There was sufficient material placed by the CoC and RP by means of various applications and affidavits filed before the Adjudicating Authority that the Formation has failed to implement the approved Resolution Plan.
The Adjudicating Authority has also observed that Appellant has failed to implement the Resolution Plan. There was sufficient material on record to hold that Applicant – Formation failed to implement the Plan which is clearly proved and beyond any pale of doubt.
Whether the amount of PBG and earnest money has to be adjusted in the equity infusion, which was required to be made by the SRA under the Resolution Plan, had the PBG lost its nature and character to enable the CoC to invoke the PBG after the RP’s treated it towards equity infusion? - HELD THAT:- The Minutes of the Financial Creditor, does not help the Appellant to contend that payment of PBG towards was for equity infusion. The equity infusion is clear consideration, which is to be paid by the SRA as per Resolution Plan and is clearly distinct from PBG. Hence, the submission of the Appellant that the PBG having been accepted towards equity infusion, the PBG lying with the CoC has lost its character and could not have been invoked, cannot be accepted. PBG given by the Appellant – SRA was as per the RFRP had to continue till 100% implementation of the Resolution Plan and the said PBG cannot be treated as equity infusion as per the Resolution Plan.
Whether the RP was obliged under Section 29 read with Regulation 36, sub-regulation (2) of the CIRP Regulations 2016 to include the Transaction Audit Report in the Information Memorandum and share the same to Formation, failure of which makes the implementation of the Resolution Plan voidable? - HELD THAT:- The present is not a case where Appellant’s case is that the financial statement and audited financial statement of the corporate debtor of the last two financial years have not been provided. It is also not the case that provisional financial statement for the current financial year made upto the date not earlier than 14 days from the date of the application has not been provided - The findings of the adjudicating authority that RP and CoC did not inform the applicant Formation of forensic audit report and the application under Section 60(6), having direct effect on the financial position of the corporate debtor, they come in the purview of relevant information under estimation to Section 29 cannot be supported.
The Formation cannot raise any issue regarding non-sharing of transaction audit report or not including the transaction audit report in the information memorandum for wriggling out from its obligation in the resolution plan, which had approved by the adjudicating authority on 30.11.2018. The finding of the adjudicating authority returned in paragraph 61 that non-disclosure of the above information, performance of terms of resolution plan becomes voidable is also an incorrect finding. Non-sharing of transaction audit report in no manner can affect implementation of the resolution plan and it is far fetched to hold that due to not sharing of the said transaction audit report, the performance of the resolution plan became voidable.
There is material on record to indicate that earnest money was invoked in October 2018 itself by the CoC, on Formation not extending the EMD as per provisions of the Process Memorandum. The PBG was invoked on 10.12.2019.
Whether the RP had not provided the correct financial position of the CD to RA, due to which performance of Resolution Plan became voidable? - HELD THAT:- The judgment of the Hon’ble Supreme Court in ‘Ebix Singapore’ [2021 (9) TMI 672 - SUPREME COURT], clearly binds SRA from its obligation and it cannot be allowed to wriggle out there its obligation as sought to be made in the present case. The submission which has been raised by learned counsel for the Formation distinguishing the judgment of the Hon’ble Supreme Court in Ebix Singapore, have no substance.
When the plan is approved by the adjudicating authority, obligations on the SRA to implement the plan becomes obligation which are to be statutorily enforced. Thus, on the said ground, the judgment of the Hon’ble Supreme Court in Ebix Singapore, cannot be distinguished nor SRA can be allowed to wriggle out from its obligation on the exclusion and pretext as was raised before the adjudicating authority. Adjudicating Authority committed an error in holding that due to not providing correct financial provisions of the corporate debtor to resolution applicant performance of the resolution plan became voidable. The said findings are incorrect findings and has been recorded without correct appreciation of facts and law.
Whether the Formation had made out a case for direction to refund the amount of Rs. 93.08 crores and the order of Adjudicating Authority directing such refund is sustainable? - HELD THAT:- The Bank has forfeited the PBG and EMD, which was earlier done in October 2018. Thus, only the aforesaid two amounts were forfeited by the CoC, which was rightly forfeited by the CoC, which could not have been directed to be refunded by the CoC. With regard to Rs.38.2 crores, which by adding interest was kept in fixed deposit of Rs.42.99 crores, orders were required for utilization of the said amount. We, thus, are of the view that order of Adjudicating Authority of 06.07.2023, insofar as it directed refund of the EMD and PBG, cannot be sustained and it deserve to be set aside. With regard to other part of the amount of Rs.38.2 crores, which was subsequently kept in fixed deposit of Rs.42.99 crores, orders were necessary to be passed for utilization of the said amount.
The direction of adjudicating Authority to refund 93.82 Crore to the Formation cannot be upheld, and the said direction need to be set aside subject to further orders in this batch of appeals, which need to be considered while considering the appeals filed by Interim Trade Creditors.
Whether the Application filed by the RP as well as Application filed by Interim Trade Creditors (who are Appellant before us) were maintainable before the Adjudicating Authority in view of the approval of Resolution Plan of DLH on 19.05.2021 and Adjudicating Authority has rightly taken the view that Application of Interim Trade Creditors has to be decided in appropriate proceedings and not by Adjudicating Authority? - Whether Interim Trade Creditors had made out a case for issuing a direction to make payment of their outstanding amount of Rs. 20.09 crores towards goods and services provided to CD, when it was under control of the Formation? - HELD THAT:- The application by Interim Trade Creditors were filed before the adjudicating authority in the same CIRP proceedings where the Interim Trade Creditors has supplied goods and services to the corporate debtor at the time when it was in the control and management of Formation - It is true that after the approval of the resolution plan by the Formation, Formation took control and management of the corporate on 30.01.2019 and the steps taken by the SRA, under which it could not implement the resolution plan was subject matter of various application filed before the adjudicating authority, which applications were entertained and decided by adjudicating authority by various orders as noted above. The application filed by Interim Trade Creditors were also one said of such application which was filed for payment of their outstanding dues arising out of goods and services supplied to the corporate debtor.
There was no occasion for Interim Trade Creditors to file its claim, the adjudicating authority being conscious of the liability which was incurred by the Formation during the period it had control and management has noted liabilities of Rs.22.53 Crore out of which only Rs.1.63 Crore was paid in the resolution plan. It was due to the above reasons that liberty was reserved to the Interim Trade Creditors and direction was issued to keep the amount of Rs.42.99 Crore in the fixed deposit. The application filed by Interim Trade Creditors was occasion for the Adjudicating Authority to consider the application. Adjudicating authority with regard to application filed by RP Charu Desai observes that after approval of the resolution plan, RP has become functus officio, hence the application is infructuous.
The application filed by Interim Trade Creditors deserves to be allowed and respondents are directed to pay the balance outstanding amount of Rs.20.9 Crore from the fixed sum of Rs.42.99 Crore which is lying in the fixed deposit with the CoC. The CoC shall take steps to discharge the said amount - after discharging the dues of Interim Trade Creditors of Rs.20.9 Crores along with the interest earned on it, the balance amount of Rs.42.99 Crore which was kept in the fixed deposit towards amount infused by the Formation, thus rest of the amount along with interest earned on it need to be refunded to the Formation, i.e., amount of Rs.22.09 Crore with interest earned on it.
Whether Formation was entitled to claim interest @ 12% as prayed in IA No.443 of 2021? - HELD THAT:- As per the provisions of Process Memorandum, no consideration as per the Resolution Plan can be set-off with the equity requirement. There being specific clause in the Process Memorandum, the case of Formation that the payment of earnest money towards PBG could be treated towards equity payment, cannot be accepted. Further, insofar as the emails, which were sent by the RP and the CoC, asking the Formation to pay balance amount of Rs.21 crores, towards the equity, suffice it to say that both RP and CoC have taken a stand that Formation has not paid the balance amount of equity. In this reference the letter written by Bank of Baroda to Formation dated 04.04.2019 is referred to, in which letter the Bank of Baroda clearly informed that Formation has paid only Rs.38.82 towards part payment of FTL’s equity component under the Resolution Plan as well as for purposes of buying out the Financial Creditor’s share of the equity held in MIL. Further, Bank of Baroda on 22.07.2019 has written to National Stock Exchange informing that SRA has not been able to make payment towards equity, hence, shares be not allotted.
The Formation has not paid entire amount, which was required to be paid in the equity. Hence, the claim of interest @ 12% cannot be accepted - The said Section 42 was with respect to provisions in the Companies Act pertaining to share on a private placement basis. The above provision cannot be pressed into service where equity is required to be provided under the Resolution Plan. The consequence of providing or not providing the equity has to be read from Resolution Plan itself. Hence, the provision of Section 42, sub-section (6), cannot be pressed by the Formation. The prayer of the Formation for claiming interest @ 12% could not have been granted.
Whether the Adjudicating Authority is right in observing that in view of the order passed in IA 443 of 2021, there is nothing to adjudicate in IA No.1847 of 2021 filed by the Bank of Baroda and if not, what relief to be granted to the Bank of Baroda in IA No.1847 of 2021? - HELD THAT:- The law is well settled that insofar as breach of any undertaking or Clauses, which provide for forfeiture of any amount, there is no question of referring to Section 74 of the Indian Contract Act, 1872 and the said amount can be awarded. However, when damages or loss is difficult to prove, Court is empowered to award liquidated amount - The Hon'ble Supreme Court in Kailash Nath Associates vs. Delhi Development Authority and Anr. [2015 (1) TMI 1377 - SUPREME COURT] has clarified the law. The Adjudicating Authority on breach of any terms and conditions by the SRA could very well have directed for payment of amount, which is contemplated in the Process Memorandum, under which the Resolution Plan is submitted - the Adjudicating Authority could not have proceeded to adjudicate about the compensation or damages, which are not liquidated damages in exercise of jurisdiction under Section 60, sub-section (5) (c) of the IBC.
Conclusion - i) Invocation of PBG by CoC was valid and sustainable. ii) The SRA failed to implement the approved Resolution Plan. iii) PBG and EMD cannot be adjusted against equity infusion. iv) Non-disclosure of Transaction Audit Report did not vitiate the Resolution Plan. v) Refund of Rs. 93.82 crores to SRA is not sustainable except for balance equity infusion amount in fixed deposit. vi) Interim Trade Creditors are entitled to payment of Rs. 20.9 crores from fixed deposit. vii) SRA not entitled to 12% interest on refund. viii) Bank of Baroda's claim for compensation is not maintainable under IBC.
Appeal disposed off.
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2025 (4) TMI 1401
Direction for replacement of the Resolution Professional (RP) prior to completion of the land survey and without deciding the pending application for replacement - HELD THAT:- The adjudicating authority itself has directed for land survey in paragraph 40 as noted above. Affidavit was also filed by the suspended director which has been noticed in the order of the adjudicating authority.
In view of the facts of the case, adjudicating authority has rightly directed for land survey and in effect no grievance has been raised to the land survey by the RP or the CoC in the present case.
Conclusion - The ends of justice be served by directing the adjudicating authority to consider replacement of the RP after the land survey is completed
Appeal disposed off.
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2025 (4) TMI 1400
Admission of Section 9 application - threshold limit of operational debt claimed by the Operational Creditor qua the Corporate Debtor in the present facts of the case has been met or otherwise - HELD THAT:- The Appellant is agreed upon that the entire payments made by them to the Operational Creditor has been suppressed by the Operational Creditor. Prima-facie, it is persuaded to infer that the Ledger Account of the Corporate Debtor as maintained by the Operational Creditor is not an updated Ledger Account and did not depict the true and correct status of payments received by them from the Corporate Debtor. If the payment of Rs 11 lakhs claimed to have been made by the Corporate Debtor after 12.05.2023 is taken into account, the outstanding liability falls below Rs 1 Cr. and thus fails to meet the minimum threshold limit prescribed under Section 4 of the IBC. The Adjudicating Authority was therefore misled into admitting the Corporate Debtor into CIRP. It is also mindful of the fact that the impugned order of the Adjudicating Authority was passed exparte and the Appellant did not get an opportunity to defend themselves.
In the absence of provision of interest in the contract and no practice of interest payment having been demonstrated by the Operational Creditor, it is inclined to agree with the Appellant that the Operational Creditor has tried to cleverly add interest liability to cross the Section 4 threshold criteria. If the payments made by the Corporate Debtor after 12.05.2023 are factorised, the debt due to the Operational Creditor was clearly below the prescribed minimum threshold limit of Rs 1 Cr. and hence the Section 9 application of the Operational Creditor was not maintainable.
Conclusion - Triggering of CIRP in the present facts of the case where, prima-facie, the outstanding liability is below the threshold limit is unwarranted.
The Adjudicating Authority has erroneously admitted the application under Section 9 of the IBC. The Appeal is admitted.
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2025 (4) TMI 1399
Admission of claim filed by the Applicant - Claim of Worker (ex-employee) - Layoff having not challenged by the Appellant - collation of claim and calculation of the salary payment till date of layoff - HELD THAT:- In the present case, the Resolution Professional has calculated the salary till the layoff period and accordingly, admitted the claim to the tune of Rs.185,62,360/-, which has been reaffirmed by the Resolution Professional.
Non-computation of salary after lay off by the Resolution Professional cannot be faulted with since the Resolution Professional has no adjudicatory jurisdiction and the Adjudicating Authority has rightly observed that whether the Workers are entitled to claim their dues for the layoff period under provisions of Industrial Dispute Act is not in the domain of the Adjudicating Authority.
There are no error in the order passed by the Adjudicating Authority warranting any interference - appeal dismissed.
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2025 (4) TMI 1398
Challenge to direction issued by the Directorate of Enforcement (ED) to the HDFC Bank, by invoking sub-section (4) of Section 8 of the Prevention of Money-Laundering Act, 2002 - provisional attachment of the properties - power of Directorate of Enforcement (ED) to direct a bank to transfer the amounts held in Fixed Deposits (FDs) along with accrued interest - HELD THAT:- Since the fixed FDRs, which is a movable property and the power has been exercised by the Deputy Director, an Officer subordinate to the Director of Enforcement, who is bound by the procedure that is specifically set out in Chapter III of the PMLA in relation to the attachment, adjudication and confiscation, since the FDR’s of the petitioners has already faced an attachment, the direction issued to transfer the amount in the name of the Directorate of Enforcement to be unsustainable.
The attempt on the part of the respondent to seek recourse to the provisions of the Prevention of Money-Laundering (Issuance of Provisional Attachment Order) Rules, 2013, it is unable to trace any such power, to direct transfer of the property while the proceedings are pending before the Special Court, in the name of the Enforcement Director and we do not think that Rule 5 of the Rules of 2013, in any case, permit such a course of action to be adopted.
There are no justification for the aforesaid action and the learned Additional Public Prosecutor in addition has not been able to point out any power permitting the transfer of the amount in the Fixed Deposits along with the interest in the name of the Enforcement Directorate, it is deemed appropriate to quash and set aside the said direction, though it is made clear that in so far as the order of attachment, which is already pending before the appellate Authority, the final decision shall be taken by the Authority, with all the remedies that are available to be invoked by the petitioner.
Conclusion - i) The direction issued by the ED to the bank to transfer the FD amounts along with accrued interest to the Enforcement Directorate was quashed and set aside. ii) The attachment order confirmed by the Adjudicating Authority remains in force, and the petitioner's appeal against it is pending, with all remedies available.
Petition allowed in part.
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2025 (4) TMI 1397
Exemption from payment of Service Tax on public services rendered by the petitioners pursuant to the circular issued by KMC and the Mega exemption N/N. 25/2012-ST dated 20th June 2012 - jurisdiction and authority of service Tax authorities to impose Service Tax on the petitioners in respect of contracts with KMC - HELD THAT:- Admittedly, in this case it would transpire that initially the petitioners had individually applied before this Court challenging, inter alia, the circular issued by the KMC claiming that the KMC is exempted from paying service tax in respect of the service rendered by the petitioners, and the authority of the Service Tax Authority to impose Service Tax. Although, by separate orders all dated 25th April 2017, such petitions were dismissed on the ground noted above, on writ appeals being preferred, the Hon’ble Division Bench of this Court was of the view that having regard to the claim made by the KMC that services rendered by them and services given to them in rendering public service is exempted from payment of service tax, in the light of the Mega exemption notification no. 25/2012-ST dated 20th June 2012 issued by the Government of India since according to KMC the functioning of duties of KMC is concomitant to public interest, such issue was required to be decided upon notice to the KMC at the first instance.
It may be noted here that the respective petitioners have no connection or nexus with each other. The cause of action of the individual petitioners against the KMC are individual and distinct. Though there is a common question of law involved, facts are, however, separate. At no point of time the petitioners questioned the jurisdiction of the respective adjudicating authority to decide the case. In fact, three separate adjudicating orders were passed by the respective adjudicating authorities dated 5th December, 2022, 7th December, 2022 and 8th December, 2022. When the writ petitions were filed in the first round in the year 2022, this question was not raised either before the writ Court or before the appeal Court. The issue as to whether the matter should be remanded back to a common adjudicating authority was also not raised.
Although, the ground on which the commissioner had rejected the application cannot be said to be proper, however, having regard to the peculiar facts of the case, it is not inclined to interfere with the same as the prayer for a common adjudicator appears to be an afterthought and is likely to further delay the proceedings.
Conclusion - i) The KMC's exemption claim is subject to adjudication and not accepted outright. ii) The original adjudication orders were set aside for violation of natural justice and remanded for fresh adjudication.
Petition disposed off.
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2025 (4) TMI 1396
Availment of CENVAT credit on input services under the Reverse Charge Mechanism (RCM) on the basis of invoices/bills rather than the prescribed GAR-7 challans evidencing payment of service tax - Rule 9 of the CENVAT Credit Rules, 2004 - HELD THAT:- The CENVAT Credit of the service tax on the input services is available to appellant on the receipt of invoice by the service recipient. The scheme of taxation of services provide for payment of the tax either by the service provider or the service recipient after the closure of the month in which the invoice is issued. In case of the reverse charge mechanism the scheme of taxation follows the same pattern. It is true in terms of Rule 9 the document prescribed for availing the CENVAT Credit is challan evidencing the payment of Service Tax by the service recipient. However Rule 9 will have to be read along with the Rule 4 (7), and the CENVAT Credit will be allowed only after the tax has been paid in terms of first proviso.
The appellant has taken CENVAT Credit and declared in their return filed for the Month of June 2017 only after the receipt of the challan evidencing the payment of Service Tax paid by them on the reverse charge basis. They have taken the credit and utilized the same for payment of the tax due for the month of June 2017. It is not the case of the revenue that the said amount would not be admissible as CENVAT Credit but the what is under dispute is that the said credit could not have been utilized for payment of Service Tax for the month of June 2017.
When the admissibility of the CENVAT credit is not in dispute, then the credit taken by the appellant in the month of June 2017 for the payment made by them during the Month of July 2017 cannot be anything but an procedural lapse as has been held by the Ahmedabad Bench in case of Gujarat Pipavav Port Ltd. [2008 (2) TMI 376 - CESTAT, AHMEDABAD]. Bench observed that 'The entire credit cannot be denied to them. Admittedly, the same stands availed premature and in any case was available during the subsequent period. Inasmuch, as, the same is utilized by the appellant, interest in accordance with law is required to be paid. Taking a lenient view, I do not find it a fit case for imposition of penalty.'
Conclusion - The credit of service tax on input services under RCM is admissible on receipt of invoice and payment of service tax by the recipient, as per Rule 4(7) read with Rule 9 of the CENVAT Credit Rules, 2004.
There are no merits in the appeal filed by the revenue - Appeal filed by the revenue is dismissed.
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2025 (4) TMI 1395
Levy of service tax - Business Auxiliary service - appellant as an individual distributor of Amway products, is liable to pay service tax on the commission received from Amway or not - cum duty benefit - invocation of extended period of limitation - HELD THAT:- The activity of the appellant is the activity of marketing or sale of the goods belonging to Amway and the commission received by the Distributor from Amway, is linked to the performance of his sales group is liable to be treated as consideration for Business Auxiliary Service of sales promotion provided to Amway. Therefore, service tax would be chargeable on the commission received by a Distributor from Amway on the products purchased by his sales group.
In this context, it is noted that the appellant is a similarly placed distributor of Amway India Enterprise Pvt Ltd, as the various distributors involved in the judgment of Charanjeet Singh Khanuja vs Commissioner of Central Excise and Service Tax, Indore [2015 (6) TMI 585 - CESTAT NEW DELHI] where it was held that 'in the impugned orders Service tax has been demanded on the gross amount of commission and no distinction has been made between the commission earned by a Distributor from Amway based on his own volume of purchase from Amway and the commission earned by him on the basis of the volume of purchases of Amway products made by his sales group i.e. group of second level of Distributors appointed by Amway on being sponsored by the Distributor. For quantifying the Service tax demand on the commission received from Amway on the volume of purchase made by the distributors sponsored /enrolled by a particular distributor i.e. the Distributor‟s sales group, these matters would have to be remanded to the Original Adjudicating Authority.'
The Tribunal in its decision in the case of M/s Manish Kumar Khaptawala, Pragna Arunkumar Patakh, Ravi Prakash, Smita Verma, Master Bhavna N Patel, Binal Manoj versus C.C.E. & S.T. - Surat-I, C.S.T., Service Tax – Ahmedabad [2018 (8) TMI 1114 - CESTAT AHMEDABAD] held that the appellant was liable to pay service tax.
Duty cum benefit - HELD THAT:- The Hon’ble Supreme Court in its judgment in Commissioner of Central Excise Vs. Maruti Udyog Ltd., [2002 (2) TMI 101 - SUPREME COURT] granted the cum-duty benefits to the assessee, holding that 'There is nothing to show that once the demand was raised by the Department, the respondent sought to recover the same from the purchaser of scrap. The facts indicate that after the sale transaction was completed, the purchaser was under no obligation to pay any extra amount to the seller, namely, the respondent. In such a transaction, it is the seller who takes on the obligation of paying all taxes on the goods sold and in such a case the said taxes on the goods sold are to be deducted under Section 4(4)(d)(ii) and this is precisely what has been directed by the Tribunal. There is also nothing to show that the sale price was not cum-duty.'
Invocation of the extended period - HELD THAT:- It is important to note that the respondent is an individual, who cannot be faulted if she thought that she was only a dealer; a difference between the purchase price and the sale price or MRP is available to her and therefore, it cannot be said that there was an intention to evade service tax. The said issue arose only because Amway called such amount as 'commission' whereas the appellant simply sold the goods to the person who asked a product at a particular MRP - the Hon’ble Supreme Court in the case of Continental Foundation Joint Venture v. CCE, Chandigarh [2007 (8) TMI 11 - SUPREME COURT] held that when there is scope for doubt in the mind of an assessee on a particular issue, the longer limitation period, under proviso to Section 11A(1) cannot be invoked - the extended limitation period of 5 years under proviso to Section 73(1) of the Finance Act, 1994 cannot be sustained.
Conclusion - i) The demand of service tax on the commission received by the appellant linked to the performance of her sales group, treating it as consideration for Business Auxiliary Service upheld. ii) The appellant is granted the benefit of cum-tax valuation, and the denial of such benefit by the Commissioner (Appeals) is held to be beyond the scope of appeal and thus not sustainable. iii) Penalties equivalent to the service tax amount under Section 78 set aside due to absence of deliberate default, while penalties under Section 77 also reconsidered.
The impugned order is modified to the extent indicated above and the appeal is allowed partially.
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2025 (4) TMI 1394
Levy of service tax - amounts collected by the appellant in the nature of forfeiture of security deposits/earnest money and fines/penalties etc. against delayed completion of works - Section 66E(e) of the Finance Act, 1994 - HELD THAT:- There are other series of decisions as relied on by the appellant and what emerges is that a consistent view has been taken that the amount charged has necessarily to be a consideration for the taxable service provided under the Finance Act and the amount which has no nexus with the taxable service is not a consideration for the service provided and therefore, does not become part of the value which is taxable. Such amounts have been held to be in the nature of penal charges on account of breach or non-performance of contract and are recovered with the intention to make good for the losses and to also act as a deterrent to ensure that buyer or supplier do not violate the terms of the contract. These amounts cannot be termed as ‘consideration’ in lieu of any service under Section 65B (44) of the Act.
Further, it has been laid down that an activity to be covered as a declared service under Section 60E of the Act, there must necessarily be an independent agreement to refrain or tolerate or to do an act between the parties.
The Department has issued Circular No.214/1/2023-ST dated 28.02.2023 analysing the provisions of Section 66E(e) read with 66B(44) and clarified that the activities contemplated under Section 66E(e), ‘when one party agrees to refrain from an act, or to tolerate an act or a situation, or to do an act, are the activities where the agreement specifically refers to such an activity and there is a flow of consideration for this activity’. In view thereof, the amount in question is not a consideration for providing any services.
Conclusion - The amount collected by the appellant is not towards rendering declared service.
Appeal allowed.
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2025 (4) TMI 1393
Time limitation for issuance of SCN - SCN issued beyond the statutory limitation period prescribed under Section 73 of the Finance Act, 1994 - suppression of facts or not - HELD THAT:- In the case of Uniworth Textile Ltd Vs CCE, Raipur [2013 (1) TMI 616 - SUPREME COURT] as well as Continental Foundation Joint Venture Holding Vs CCE, Chandigarh-I [2007 (8) TMI 11 - SUPREME COURT], the Hon’ble Supreme Court held that the expression 'suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression.
In the case of section 73 of the Finance Act, the words ‘suppression’ is not preceded by wilful. It is clear that the word ‘suppression of facts’ has not been qualified with the word ‘wilful’. In other words, mere suppression of facts is enough to invoke the extended period under the Service Tax law and impose penalty under section 78 of the Act. Hon’ble Andhra Pradesh High Court in the case of Nizam Sugar Factory Ltd Vs CUE [1986 (3) TMI 84 - HIGH COURT OF ANDHRA PRADESH AT HYDERABAD], has held that ‘mensrea’ is not an essential ingredient for imposing penalty.
Conclusion - The extended period of limitation is held to be rightly invoked due to suppression of facts by the appellant in their ST3 returns, despite disclosure of actual income in Income Tax returns.
The department has rightly invoked the extended period of limitation. Accordingly, the appeal filed by appellant is liable to be dismissed.
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2025 (4) TMI 1392
Levy of service tax along with penalty under Section 78 and interest received against works contract executed with certain entities registered under Section 12AA of the Income Tax Act, 1961 - entities registered under Section 12AA of the ITA, 1961 are "meant predominantly for religious use by general public" so as to qualify for exemption under clause 13 of Notification No.25/2012-ST dated 20.06.2012, as amended - use for which the buildings were put to - HELD THAT:- The issue is no more res-integra as this Tribunal in M/S. S. KUMAR BUILDERS VERSUS COMMISSIONER OF CENTRAL GOODS & SERVICE TAX & CENTRAL EXCISE, JABALPUR (MADHYA PRADESH) [2022 (11) TMI 47 - CESTAT NEW DELHI] has considered the identical issue and after considering Section(s) 12AA, 12A and the definition of expression 'charitable purpose' under Section 2(15) of the ITA, 1961 has held educational and medical purpose is a 'charitable purpose' and therefore the benefit of clause 13 of Notification No.25/2012-ST dated 20.06.2012, as amended, cannot be denied, if the buildings owned by entities registered under Section 12AA are used for educational and medical purposes. The ld. Authorized Representative could not produce any decision to the contrary and therefore we find that the Appellant is entitled to relief on this count.
In the present case, since the Appellant has discharged VAT on the consideration received against works contract, hence the said value on which VAT has been paid, is deemed to the value of property in goods transferred in the execution of works contract. Consequently, the amount so arrived at is clearly liable to be deducted from the total consideration. Once this is done and the benefit of Notification No.30/2012-ST dated 20.06.2012 is extended, as has been done in the impugned order, the remaining receipts will be much lower than the taxable amount, taxable under the Act. Thus, the submission of the counsel for the Appellant is accepted on this count also.
Conclusion - The entire proceedings were initiated against the Appellant on the ITR, Form 26AS and in catena of decisions, the coordinate benches of this Tribunal has held that demand based on income tax records cannot be sustained.
The demand of service tax, interest and penalty, to the extent challenged are set-aside and the appeal is allowed with consequential relief to the Appellant.
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2025 (4) TMI 1391
Eligibility for exemption from payment of service tax under entry 29(g) of N/N. 25/2012 dated 20.06.2012 to the extent they have provided services to banking companies - ppellant have appropriately paid service tax on providing services to Rajcomp Info Services Ltd. or not - invocation of extended period of limitation - penalties - demand of late fee.
Whether Appellant were eligible for exemption from payment of service tax under entry 29(g) of Notification No.25/2012 dated 20.06.2012 to the extent they have provided services to banking companies? - HELD THAT:- Appellant’s main activity has been opening of Saving Bank Account, cash deposits & cash withdrawals as business correspondent to Bank’s Rural area branch. They have also submitted that in the nature of their business, details of remuneration payable to them used to be computed by banks as per data available in the banks. In this connection, they drew my attention to a sample copy of details provided by State Bank of Bikaner and Jaipur for the month of April 2016. As per the details, the name of District; name of the concerned branch; name of the concerned location where Appellant’s agent is posted and the name of the agent code are given. It is noticed that Branch Code is different and the location of the agent is also different. Appellant have submitted that each location falls in a village and that all the branches are Rural area branch in District Bikaner and Sikar - the Appellant have actually provided services with respect to accounts in Rural area branch of the Bank.
Appellant have provided services as business correspondent to a banking company with respect to accounts in its Rural area branch and were eligible for exemption under entry No.29(g) of Notification No.25/2012 dated 20.06.2012 to the extent these services have been provided to State Bank of Bikaner and Jaipur (later merged with SBI), HDFC Bank Ltd. and State Bank of India. The demand of service tax alongwith interest thereon on this account is therefore set aside.
Whether Appellant have appropriately paid service tax on providing services to Rajcomp Info Services Ltd. - HELD THAT:- Appellants were liable for payment of service tax amounting to Rs.12,91,420/- on services provided to Rajcomp Info Services Ltd. As per para 8 of the SCN, Appellant have already paid service tax of Rs.10,90,950/- + Rs.2,06,826/- = Rs.12,97,776/-. It is therefore clear that the Appellant have paid more than the amount due to be paid by them on providing services to Rajcomp Info Services Ltd. - there is no short payment of service tax on account of the taxable services provided to Rajcomp Info Services Ltd.
Whether extended period of limitation is invokable? - HELD THAT:- In the case of D. N. Pandey & Co. [2019 (9) TMI 221 - CESTAT ALLAHABAD] the Tribunal observed that the Revenue has not referred to any positive evidence on record to establish mala-fide intent on the part of Appellant. Longer period of limitation is not available merely for not taking registration and non- filing of ST-3 Returns - in the facts of the present case, the demand could not have been confirmed by invoking extended period of limitation, as the Appellant bona-fidely believed that their services to banking companies were exempted from payment of service tax under entry No.29(g) of Notification No.25/2012 dated 20.06.2012.
Whether penalties and late fee are demandable from the Appellant? - HELD THAT:- It has already been held that the demand of Rs.34,80,934/- is liable to be set aside on merits as well as on limitation. Therefore, penalty under Section 78 for evasion of service tax cannot be sustained and is liable to be set aside - Penalty of Rs.10,000/- have been imposed under Section 77(1)(d) for non payment of service tax electronically. As I have held that there is no short payment of service tax, therefore, there was no question of paying the same electronically. Therefore, the penalty imposed under Section 77(1)(d) is set aside - Penalty of Rs.10,000/- has been imposed under Section 77(2). As per Section 77(2) penalty is imposable for contravention of the provision of service tax for which no penalty is provided separately. It is on record that Appellant have not filed some of the service tax Returns. Therefore, penalty of Rs.10,000/- under Section 77(2) of the Finance Act, 1994 upheld.
Demand of late fee - HELD THAT:- Late fee of Rs.40,000/- has been demanded under Rule 7C of Service Tax Rules, 1994 for not filing the ST-3 Returns during the relevant period. Rule 7 C is applicable to the cases of delayed filing of ST-3 Returns. The said Rule is not applicable where the assessee has not filed the ST-3 Returns. Therefore, demand of late fee is also liable to be set aside.
Conclusion - i) The appellant is eligible for exemption under entry 29(g) for services provided to banking companies in rural branches during 01.04.2015 to 30.06.2017. ii) No short payment of service tax is found on services provided to Rajcomp Info Services Ltd. iii) Extended period of limitation is not invokable; demand is barred by limitation. iv) Penalties under Sections 78 and 77(1)(d) and late fee under Rule 7C set aside; penalty under Section 77(2) upheld.
Appeal disposed off.
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2025 (4) TMI 1390
Levy of penalty u/s 77(1) of the Finance Act, 1994 for failure to appear before the Central Excise Officer when issued with summon for appearance to produce documents in an inquiry is sustainable or not - HELD THAT:- There is no explanation for the delay caused in submission of the records. However, the penalty in the case of delay in submission of document should be a token penalty to insure compliance with the provisions of law. This fact has been admitted in the impugned order, whereby penalty from Rs.200/day has been reduced to Rs.50/day. Still the penalty is on higher side and reduced the same to Rs.10,000/-.
Appeal is partly allowed.
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2025 (4) TMI 1389
Entitlement for concessional central sales tax - respondent despite falling in the negative list would still be entitled to the tax rebate as set out in the notification dated 01.04.2013, that too, for the period 2015-16, especially, when it was not disputed before the authorities below that the industrial unit of the respondent falls in the ‘negative list’ - failure to take into consideration the judgment of the Hon’ble Supreme Court in Lloyd Electric and Engineering Limited vs. State of Himachal Pradesh & Ors, [2015 (9) TMI 370 - SUPREME COURT], wherein the Hon’ble Supreme Court has held that the State Government cannot speak in two voices - principles of natural justice - HELD THAT:- In Ambica Quarry Works v. State of Gujarat and others [1986 (12) TMI 365 - SUPREME COURT], the Hon’ble Supreme Court held that the ratio of any decision must be understood in the background of the facts of that case. Relying on Quinn v. Leathem, it has been held that the case is only an authority for what it actually decides, and not what logically flows from it.
In Union of India v. Amrit Lal Manchanda and another [2004 (2) TMI 361 - SUPREME COURT], it has been stated by the Hon’ble Supreme Court that observations of courts are neither to be read as Euclid’s theorems nor as provisions of the statute and that too taken out of their context. The observations must be read in the context in which they appear to have been stated. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes.
It was not disputed before the Hon’ble Supreme Court that the appellant therein was found eligible for said concession since it satisfied the parameters prescribed in the notification till 31.03.2009. These incentives were thereafter extended not only for five years up to 19.05.2009 but were thereafter extended vide notification dated 29.05.2009 upto 31.03.2013 or till the time CST is phased out or whichever is earlier.
This notification clearly excluded the industrial units specified in the negative list from the concessional rate of 1.5% of the taxable turnover of such goods w.e.f. 01.04.2013 for a period of five years or till the implementation of the Goods and Services Tax Act, whichever is earlier - the notification clearly excluded the industrial units specified in the negative list from the concessional rate of 1.5% of the taxable turnover of such goods w.e.f. 01.04.2013 for a period of five years or till the implementation of the Goods and Services Tax Act, whichever is earlier.
Conclusion - i) The respondent's industrial unit, being part of the negative list, is not entitled to the concessional CST rate of 1.5% under the notification dated 01.04.2013. ii) The assessment imposing CST at the rate of 2% and associated interest and penalty is valid and rightly upheld by the assessing and appellate authorities.
Appeal allowed.
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2025 (4) TMI 1388
Dismissal of Second Appeal for non-payment of pre-deposit, especially when the Appellant has already made pre-deposit in the First Appeal - Tribunal exceeded the pre-deposit amount to an extent of the entire tax demand - increasing the pre-deposit amount in Second Appeal in comparison with the pre-deposit amount of first appeal, when the tax demand has been reduced in comparison of the first appeal.
HELD THAT:- The appellant submitted that total demand disputed by the appellant in the Second Appeal before the Tribunal is around Rs. 4,50,000/- whereas the appellant has already deposited Rs. 1,80,000/- (Rs. 1,30,000/- before the First Appellate Authority and Rs. 50,000/- before the Tribunal) and therefore, the appellant has also prayed for waiver of remaining amount of pre-deposit before the Tribunal but the Tribunal did not consider the request of the appellant and dismissed the appeal of the appellant and as such, the appellant is prevented from availing the opportunity to make submissions on merits of the case.
In view of above submission by the appellant, the interest of justice would be served, if the order passed by the Tribunal for pre-deposit of Rs. 3,00,000/- is modified.
The order of the Tribunal is modified by giving credit of Rs. 1,30,000/- deposited by the appellant before the First Appellate Authority, reducing the pre-deposit amount to Rs. 1,70,000/-. As the appellant has deposited Rs. 50,000/- before the Tribunal, the Appellant is directed to deposit Rs. 1,20,000/- towards pre-deposit within a period of four weeks from today. On deposit of Rs. 1,20,000/- within four weeks, the Second Appeal No. 610/2021 shall stand restored to file of the Tribunal.
Appeal is disposed off.
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2025 (4) TMI 1387
Setting aside of arbitral award - binding nature of Development Agreement dated 10.03.1998 entered into between the Respondent and the Claimants - coercion and economic duress on the claimants - breaches of the fundamental terms of the Development Agreement - downsizing/ exit of the business of real estate development and not to pay EDC or commence development work - non provisions of security of the development site and unprovoked unilateral abandonment of the site by L&T - termination of development agreement for the reasons stated in the letter of termination - obligation to commence construction in phase I - termination of the contract by the Claimants amounts to wrongful repudiation - Respondent is entitled to be relieved of its obligations under the Tripartite Agreement or not - liability to compensate the Claimants under the agreement of indemnity - authority to institute the instant claim petition and to carry out acts necessary to prosecute the instant claim petition on behalf of Claimants other than Puri Construction Limited.
Power of the Court under Section 34 of partly setting aside the award - HELD THAT:- This issue was dealt with by this Court in the case of Project Director, National Highways No. 45 E and 220, National Highways Authority of India v. M. Hakeem and Another [2021 (7) TMI 1343 - SUPREME COURT]. This Court, in the said decision, considered its earlier decision in the case of McDermott International Inc. v Burn Standard Co. Ltd. & Ors. [2006 (5) TMI 442 - SUPREME COURT] - Ultimately, in paragraph 42, this Court held 'Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the Uncitral Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the “limited remedy” under Section 34 is coterminous with the “limited right”, namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996.'
The Development Agreement is a contract between PCL and L&T. Clause 4 of the Development Agreement refers to the obligations of PCL under the agreement entered into by it on 30th July, 1997 with ITCREF. It refers to the fact that PCL had agreed to hand over 1,95,000 sq. ft. of built-up area in the Schedule ‘A’ property, after its development, comprising high-rise and low-rise buildings, inclusive of a car park, to ITCREF - The Agreement provides that L&T shall complete the construction of the building on the Schedule ‘B’ property within 60 months or such mutually extended period from the date of obtaining sanction for the building plan, or tax clearance under Section 37-I of the Income Tax Act, and making the said property available for development, whichever is later. It has also stipulated that construction shall be carried out in phases. After completion of phase of 3,00,000 sq. ft. on Schedule ‘B’ property, L&T, in consultation with PCL, by mutual consent, shall have the option and liberty to renew and revise the specifications/amenities and built-up area of the balance development and extend the period of completion by a further period of 12 months, depending upon the prevalent market conditions.
In the recital of the Supplementary Agreement, it is mentioned that L&T has made only partial compliance with the requirement under the Development Agreement to pay EDC to DTCP. Moreover, L&T has failed to furnish a bank guarantee for the balance payment of EDC. In fact, it records that L&T had taken a stand that in view of the adverse market conditions, the project had become unviable and sought further time from PCL to allow the prevailing real estate market conditions to improve - Clause (I) of the Supplementary Agreement makes it very clear that the Supplementary Agreement shall come into effect only upon the occurrence of the four events specified therein. That is how the Supplementary Agreement remained a non-starter.
It is apparent from the recitals in the Supplementary Agreement as well as Tripartite Agreement that as L&T did not discharge its obligation under the Development Agreement to pay EDC, the Bank was required to be brought into the picture so that it could advance a sum of Rs. 6 crores by way of loan for making payment of the said amount to DTCP.
The Division Bench referred to Section 16(3) of the Contract Act which provides that where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that there was no undue influence is on the person in a position to dominate the will of the other - After examining the evidence, the Division Bench held that there was no patent illegality in the findings recorded by the Arbitral Tribunal that the Supplementary Agreement and the Tripartite Agreement were tainted by coercion. On consideration of the facts discussed before, such a view by the Arbitral Tribunal cannot be said to be contrary to justice and morality.
Whether the Claimants committed breaches of the fundamental terms of the Development Agreement dated 10.03.1998 to enable the Respondent to resile from the agreement of development? - HELD THAT:- The Tribunal found that L&T committed a breach of Clause 19 of the Development Agreement by not making payment of a single instalment of EDC. Moreover, interest free deposit of Rs. 5 crores in terms of Clause 12 of the Development Agreement was not paid by L&T to PCL. The Tribunal found that there was no Development work carried out and not a single floor of any residential building was constructed for which development plans were sanctioned. Therefore, the finding recorded by the Tribunal that L&T committed fundamental breaches of the agreement cannot be interfered within the limited jurisdiction under Section 34 of the Arbitration Act.
Whether the respondent's Board of directors in pursuance of reports of Boston Consulting Group (for short ‘BCG’). Richard Ellis and Jones Lang La Salle decide to downsize/ exit the business of real estate development and not to pay EDC or commence development work? - Whether there had been non provisions of security of the development site and unprovoked unilateral abandonment of the site by L&T. If so whether such actions had resulted in encroachments causing monetary loss to the Claimants and in the event of such monetary loss caused to the Claimants what is the extent of such loss? - HELD THAT:- The powers of the Appellate Court under Section 37 of the Arbitration Act are not broader than those of the Court under Section 34 of the Arbitration Act. Therefore, what cannot be done in the exercise of the powers under Section 34 cannot be done in an Appeal under Section 37. An Arbitral Award cannot be modified. Thus, even after recording the conclusions in paragraph no. 119, the Division Bench has not modified the Award by partly setting aside the Judgment under Section 34 - the remedy of PCL has been kept open to pursue appropriate course of action under law as there cannot be a remand to the Arbitral Tribunal for quantification of monetary claim. As the finding of the Arbitral Tribunal regarding breaches committed by L&T was affirmed, the Division Bench has rightly segregated that part of the Award by which, cost of arbitration was ordered to be paid to PCL by L&T. This part has been severed from rest of the Award. Therefore, this part of the Award must be complied with by L&T, if not already done. As documents of title were deposited with the Registrar, the direction to hand over the same to PCL cannot be faulted with.
Conclusion - i) The conditions precedent in Clauses (I), (II), and (III) of the Supplementary Agreement were not fulfilled. Therefore, the Supplementary Agreement was a non-starter, hence, only the Development Agreement was binding on the parties which was not novated by the Supplementary Agreement. ii) The Supplementary Agreement and the Tripartite Agreement were tainted by coercion. iii) L&T committed fundamental breach of the Development Agreement by unilaterally abandoning the project, failing to pay EDC, and not fulfilling its obligations towards statutory authorities, ITCREF, and the Bank. iv) The termination of the Development Agreement by PCL was justified and did not amount to wrongful repudiation entitling L&T to rescind or claim damages. v) The courts under Sections 34 and 37 of the Arbitration Act do not have the power to modify or partially set aside arbitral awards; they may only uphold or set aside in entirety or remand under limited circumstances. vi) The authority of the claimant's representative to institute arbitration was valid and unchallenged.
Appeal dismissed.
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2025 (4) TMI 1386
Maintainability of suit - issue as regards the maintainability of the suit, raised on the ground that a partner of an unregistered partnership firm could not have filed the Suit for recovery of money, being hit by Section 69 of the Indian Partnership Act, 1932 - HELD THAT:- It is evident from a reading of sub-sections (1) and (2) of Section 69 that it assumes a mandatory character. Section 69(1) prohibits a suit amongst the partners of an unregistered partnership firm, for the enforcement of a right either arising from a contract or conferred by the Act, unless the suit amongst the partners is in the nature of dissolution of the partnership firm and/or rendition of accounts. Section 69(2) prohibits the institution of a suit by an unregistered firm against third persons for the enforcement of a right arising from a contract. As a consequence, a suit filed by an unregistered partnership firm and all proceedings arising thereunder, which fall within the ambit of Section 69 would be without jurisdiction.
This Court in Seth Loonkaran Sethiya and Others v. Mr. Ivan E. John and Others [1976 (10) TMI 160 - SUPREME COURT] had categorically held that Section 69 is mandatory in character and a suit instituted by a plaintiff in respect of a right which was vested in him by virtue of a contract and entered into in his capacity as a partner of a partnership firm, would be void, if such a firm was unregistered.
In the case on hand, the petitioners (original plaintiffs) had filed the suit for recovery of money in their capacity as partners of an unregistered partnership firm, against the respondent (original defendant) in her capacity as a partner of the same unregistered partnership firm. The Trial Court itself had arrived at a finding that the agreement executed between the parties was in fact a partnership deed and not a bond as claimed by the petitioners.
It is a clear as a noon day that the present suit had not been instituted by or on behalf of the firm against any third persons so as to fall under the ambit of Section 69(2). The petitioners have also not filed the instant suit for enforcing any statutory right conferred under any other law or a common law right so as to exempt the application of Section 69. Hence, the rigours of Section 69(1) would apply on such a suit and the partnership firm being unregistered would prevent the petitioners from filing a bare suit for recovery of money from the respondent.
The defence that the partnership business had not yet commenced and thus, such a suit for dissolution could not have been preferred, would not be of any avail to the petitioners, particularly for overcoming the jurisdictional bar under Section 69(1). The High Court is right in taking the view that a suit of such nature could not be said to be maintainable in the absence of the registration of the partnership firm.
Conclusion - The suit filed by the petitioners, partners of an unregistered partnership firm, against another partner for recovery of money arising from the partnership agreement is not maintainable under Section 69(1) of the Indian Partnership Act, 1932.
There are no error not to speak of any error of law could be said to have been committed by the High Court in passing the impugned order - SLP dismissed.
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2025 (4) TMI 1385
Maintainability of petition - survival of terms of the allotment letter after the execution of the lease deed - cancellation of the allotment letter has the consequent effect of cancelling the lease deed, in absence of specific reference to the lease deed - petitioner's prior writ petition challenging proportionate cancellation disentitles it from challenging the present cancellation on proportionality grounds - cancellation of the entire allotment for non- payment of some dues is excessive administrative action and hit by the doctrine of proportionality - cancellation of the entire allotment was only on account of non-payment of dues or also on the account of purported defaults in development/construction - cancellation of allotment was on account of purported defaults in development/ constructions -subsistence of homebuyers and banks' sub-leases without validity of lease.
Whether the writ petition is maintainable? - HELD THAT:- The impugned order of cancellation is being challenged as an illegal, arbitrary and disproportionate executive fiat. The petitioner is not seeking to establish any new right but attempting to safeguard its rights under the allotment made in its favour. The impugned order itself recites that it was passed not only to protect the interest of YEA but also the sub-lessees and homebuyers. It thus seeks to subserve larger public interest. As such, it cannot be said that the writ petition is liable to be thrown out on the ground of maintainability. However, the exercise of power of judicial review shall have to be within the well established parameters - the issue is answered against YEA and in favour of the petitioner holding the writ petition as maintainable.
Whether the terms of the allotment letter, except those, specifically referred to and incorporated by reference in the lease dead, survive after the execution of the lease deed? - Whether the impugned cancellation of the allotment letter by letter dated 12.02.2020 has the consequent effect of cancelling the lease deed, in absence of specific reference to the lease deed? - HELD THAT:- The provisions relating to sub-lease as contained in the letter of allotment also find mention in the reservation letter (vide Clauses 9.12, 9.13, 9.14). The allottee was also given right to mortgage the property for arranging funds for implementation of the project subject to certain conditions. The allottee was required to complete minimum 40% of the permissible covered area earmarked for core activity within five years from the date of execution of lease deed. In special circumstances, the said period could be extended. The provisions of U.P. Industrial Area Development Act, 1976 and regulations framed thereunder were made applicable.
The power under Section 14 of the Act, 1976 is not confined to transfer by lease only. It also applies to transfer by other modes contemplated under Section 7 of the Act, 1976, i.e., sale, auction, allotment or otherwise. Therefore, the legislation has not provided any specific procedure for exercise of the power of resumption of the site or building (except implicit requirement of compliance of the principles of natural justice) unlike Section 111(g) of the Transfer of Property Act, 1882. All that is required is that the order should reveal that the building site is being resumed for breach of any express condition of the lease/transfer.
The instant case is not a case of absolute transfer by sale and, therefore, Sections 10 and 11 of the Transfer of Property Act on which A.P. Industrial Infrastructure Corporation Limited was grounded are not applicable. Moreover, it was a case based on sole interpretation of the terms of contract. In the instant case, as already discussed, the respondent-Corporation, even independent of Clause 4.2 of the Allotment letter, continued to have power to cancel the lease in view of Clause 38 of the lease deed which saved all rights conferred on YEA under any law for the time being in force including Section 14 of the Act, 1976. The statutory power under Section 14 to resume the site was not whittled down in any manner.
The allotment letters existed for limited purposes alongwith the lease deeds and, irrespective of Clause 4.2 of the Allotment letters, the YEA had the power to resume the site by virtue of Section 14 of UPIAD Act, independent of, and read with Clause 38 of the lease deeds. The impugned order, thus, has the effect of cancelling the lease deeds.
Whether the petitioner's earlier Writ C- No. 47262/2017 challenging the decision taken by the respondent in its meeting dated 04.09.2017 for cancelling proportionate land would disentitle the petitioner from challenging present cancellation on the ground of proportionality? - HELD THAT:- The challenge in the earlier Writ Petition No. 47262 of 2017 was essentially based on the ground that there was no occasion even to proportionately cancel the land in view of the fact that the default in payment was due to various actions of the respondents themselves such as not approving building plans, etc. - the issue is answered in favour of the petitioner and is decided accordingly
Whether the cancellation of the entire allotment for non- payment of some dues is excessive administrative action and hit by the doctrine of proportionality? - Whether the cancellation of the entire allotment was only on account of non-payment of dues or also on the account of purported defaults in development/construction? - Whether, if the cancellation of allotment was on account of purported defaults in development/ constructions, the cancellation is illegal? - HELD THAT:- The basic ground for cancellation was default on part of the petitioner- Company in failing to pay the dues of the Development Authority. Even, last show-cause notice dated 09.12.2019 was for alleged non- payment of the dues of the Authority and not on account of non- development and, therefore, we agree with the submission of learned Senior Counsel for the petitioner that non-development could not be a ground for cancellation.
While holding that the recital regarding non-development was not ground for cancellation it was a relevant consideration while cancelling the allotment in entirety, even, on ground of non-payment of dues. Likewise, the obligation of the petitioner-Company to the homebuyers, another important stakeholder of the SDZ policy, was also duly kept in mind. It shows that the Authority consciously took into consideration different factors, which were necessary for attaining the goal of planned development of the area and objectives of the SDZ policy. This, in fact, is a strong countervailing factor in favour of the Authority to repel the contention that its action was arbitrary and taken in undue haste.
The sole and primary objective of the allotment under the SDZ policy was to ensure planned development along the Yamuna Expressway. The respondent being the nodal agency to oversee proper implementation of SDZ project and as a Development Authority for the area while deciding what action was to be taken in the facts of the instant case should be given sufficient leeway to decide what specific measure would be in larger public interest. For the said purpose, it was competent to, and had rightly, considered different aspects regarding non-development, interest of homebuyers and sub-lessees.
The cancellation of entire allotment is not hit by doctrine of proportionality nor was illegal for any other reason - while passing the cancellation order, the Authority had considered several factors including default in development/construction but the cancellation was primarily on ground of non-payment of the dues of the Authority.
Whether homebuyers and banks' sub-leases can subsist without validity of lease? - HELD THAT:- Undoubtedly, the homebuyers are one of the major stakeholders in the present dispute. In fact, the main ground which impelled YEA to resort to the extreme step of resumption of the leased land is inordinate delay on part of JAL in abiding by the timelines prescribed for completing the constructions, resulting in immense difficulties to the homebuyers. Further, as noted, YEA has also filed affidavit reiterating its commitment to safeguard the interest of the homebuyers and the steps it would take in this respect. It is therefore necessary to issue directions to ensure that YEA fulfills its commitment and interest of the allottees/homebuyers is protected.
Undoubtedly, the Financial Institutions cannot be expected to engage in development of land and construction activity. The sub-lease was obtained by the Financial Institutions to protect the money advanced to JAL. The same was admittedly with the consent of YEA and in terms of the provisions of the allotment orders/lease deeds, YEA is committed to protect interest of the sub-lessees, which would apply to all sub-leases including the lease in favour of financial institutions. It is opined that the Financial Institutions should be permitted to assign their interest in favour of third party.
Conclusion - i) The writ petition challenging cancellation is maintainable. ii) The allotment letters and lease deeds coexist; cancellation of allotment cancels leases. iii) The cancellation order dated 12.02.2020 effectively cancelled the lease deeds. iv) The earlier writ petition challenging proportionate cancellation does not bar present challenge. v) Cancellation of entire allotment is lawful, not violative of proportionality, given persistent defaults and public interest. vi) Cancellation was primarily for non-payment, but non-development was a relevant factor. vii) Money deposited by petitioner is not forfeited automatically and must be refunded to be dealt with under insolvency. viii) Homebuyers' and sub-lessees' interests must be protected; directions issued for their protection and project completion. ix) Sub-leases in favour of financial institutions stand protected with option to obtain leases directly from Authority. x) Insolvency proceedings continue; claims and funds to be managed under IBC framework.
The impugned cancellation order dated 12.02.2020 is upheld.
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