Proceeding u/s 9 of A & C Act 1996

OMP No. 65/2008 Page 1 of 19
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP No. 65/2008
Reserved on : 8th July, 2009
% Date of decision: 15th July, 2009
M/S VALUE ADVISORY SERVICES ….… Petitioner
Through: Mr. P.V. Kapur, Sr. Advocate with Ms. Chetna Gulati, Advocate.
Versus
M/S ZTE CORPORATION & ORS ....... Respondents
Through: Mr. Dayan Krishnan & Mr. Gautam Narayan, Advocates for Respondent No.3.
CORAM :-
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? Yes
2. To be referred to the reporter or not? Yes
3. Whether the judgment should be reported Yes
in the Digest?
RAJIV SAHAI ENDLAW, J.
1. Petition has been preferred under Section 9 of the Arbitration Act, 1996 for interim measures. The petitioner is stated to be involved in an International Commercial Arbitration of the International Chamber of Commerce with the respondents No. 1 and 2. The senior counsel for the petitioner informs that the said arbitration is at a final stage and the award has been reserved. It is informed that the petitioner has monetary claims against the
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respondents No. 1 and 2. The respondent No.1 is a corporation incorporated in China and respondent No.2, an Indian Company, is stated to be a subsidiary of the respondent No.1. M/s ITI Limited has been impleaded as the respondent No.3. It is stated that monies are due from the respondent No.3 to the respondents No. 1 and 2.
2. The petitioner had earlier filed another petition under Section 9 of the Act against the same respondents and which was registered as OMP.No.359/2006. Vide ex parte order dated 4th August, 2006 in OMP 359/2006, on the petitioner expressing apprehension that if the respondent No.3 releases all monies due to the respondents No.1 and 2, the petitioner will be left with no means to recover the monies ultimately awarded to it, the respondent No.3 was restrained from releasing to the respondents No. 1 and 2 the amount then stated to be due to the petitioner from the respondents No. 1 and 2. The respondents No. 1 and 2 failed to appear in OMP.No. 359/2006 in spite of entering appearance and were ordered to be proceeded against ex parte. The said OMP was disposed of vide order dated 27th August, 2007. Though the said order notices that the respondent No.3 is a third party to the contract, however, on the statement at bar of the counsel for the respondent No.3 that the respondent No.3 shall not release the payment to the respondents No.1 and 2 in terms of prayer (e) of OMP 359/2006 without prior permission of the court or till the disposal of the arbitration proceedings pending in Singapore, the ex parte order was made absolute and the OMP was disposed of. The said order remains in force.
3. The petitioner has now moved this OMP for the relief of restraining the respondent No.3 from releasing the payments in the
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sum of USD 3476258 to the respondent No.1 and for directing the respondent No.3 to deposit the said sum and/or its Indian equivalent in this court. The first of the aforesaid reliefs is squarely covered by the relief granted in the earlier OMP. The petition has been urged only on the ground of direction to the respondent No.3 to deposit the amounts in this court.
4. The respondent No.3 has filed reply in opposition to the petition and the grant of the relief aforesaid and has pleaded –
i) that it is not a party to the agreement containing the arbitration clause and not concerned with the dispute between the petitioner on the one hand and the respondents No.1&2 on the other hand and no petition under Section 9 of the Act lies against it, especially when the main/principle relief claimed in the petition is against a non-party to the arbitration agreement;
ii) that till the award for any amount in favour of the petitioner, the petitioner cannot be said to be entitled to any amount from the respondent No.2 and hence not entitled to deposit in this court of any amount;
iii) that even in the earlier OMP No.359/2006 the petitioner had sought the relief of deposit of the monies due from the respondents No.3 to the respondents No.1&2 in this court and the respondent No.3 had contested the said relief inter-alia on the ground that it was a sick company within the meaning of Sick Industrial Companies Act, 1985 (SICA) and was before the BIFR and petitioner in the garb of the relief under Section 9 of
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the Act could not circumvent the provisions of SICA and further that any order of deposit of the monies in this court would jeopardize the scheme of rehabilitation formulated by the operating agency appointed by the BIFR for rehabilitation of the respondent No.3;
iv) the court while passing orders in OMP No.359/2006 had not returned any finding of the petition under Section 9 being maintainable against the respondent No.3, a non-party to the arbitration agreement and had merely acted on the consent given by the respondent No.3; that the order therein was in the nature of the consent order and if the petitioner desires to challenge the same, the respondent No.3 is entitled to withdraw the consent given in OMP No.359/2006.
5. Though notice of the petition was issued to all the respondents but the record reveals that the respondents No.1&2 remained unserved. However, considering that the respondents No.1&2 had failed to appear in OMP No.359/2006 also in spite of service and further considering the nature of the controversy in the present case, need was not felt to postpone the matter further for service of the respondents No.1&2 and the senior counsel for the petitioner and the counsel for the respondent No.3 have been heard.
6. The senior counsel for the petitioner has contended:
a) That the contention of the respondent of being sick is misconceived in as much as the courts have held that the bar under Section 22 of SICA, 1985 applies only when the amounts claimed are shown to be admitted and are part of the scheme of rehabilitation of
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the sick company; the respondent No.3 has in its reply nowhere stated that the liability for the amounts to the petitioner or to the respondents No.1&2 is admitted or is shown in the scheme of rehabilitation. Reliance in this regard is placed on Mafatlal Industries Ltd Vs MTNL 99(2002) DLT 204;
b) that there is no bar in Section 22 or any other provision of SICA, 1985 to the court directing a sick company to deposit the monies in the court;
c) that the provisions of SICA, 1985 do not apply to arbitration. Reliance in this regard is placed on Lloyd Insulations (India) Ltd. Vs. Cement Corporation of India Ltd. 2001 II AD (Delhi) 567 (DB);
d) that if the sick company desires to avoid an order of deposit it was for the sick company to approach the BIFR under Section 22A of SICA, 1985 and seek orders in this respect.
e) the senior counsel fairly conceded that there was a divergence of opinion in various judgments of single judges of this court on the aspect of maintainability of a petition under Section 9 of the Act against a third party;
f) Reference was made to:
i) Arun Kapur Vs. Vikram Kapur 95 (2002) DLT 42 where it was held in para 44 thereof that while a petition under Section 17 of the Act is moved before the Arbitral Tribunal for an order against a party to the proceedings, Section 9 vests remedy in a party to arbitration proceedings to seek interim measures of protection
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against the person who need not be either party to the arbitration agreement or to arbitration proceedings.
ii) CREF Finance Limited vs. Puri Construction Ltd. 2000 (3) Arb. LR 331 (Delhi) where in exercise of powers under Section 9 of the Act orders were made against a third party, of course holding the said third party to be not a stranger to the covenants between the parties to the agreement containing an arbitration clause; in that case the third party against whom orders were made was an agent of the party to the agreement.
iii) Mikuni Corporation Vs UCAL Fuel Systems Ltd 2008 (1) Arb. LR 503 (Delhi) where it was held that since no arbitration proceedings could take place vis-à-vis the party against whom orders were sought, application under Section 9 did not lie against such party. The judgment in CREF Finance Limited was distinguished since in that case the third party was an agent of a party to the arbitration agreement and reliance was placed on National Highways Authority of India Vs. China Coal Construction Group Corporation AIR 2006 Delhi 134 holding that an interim order could be passed in respect of parties to arbitration and in connection with subject matter thereof and no interim order could be passed in respect of a party who had no privity of contract with the petitioner. Thus the petition seeking interim measures against a non party to the arbitration was held to be not maintainable.
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iv) Smt. Kanta Vashist Vs. Shri Ashwani Khurana MANU/DE/0380/2008 also holding that no injunction could be issued even against companies which though of the family, members whereof were parties to the arbitration, were independent legal entities and not parties to the arbitration agreement.
g) The senior counsel for the petitioner contended that in the present case also the respondent No.3 cannot be called a total stranger to the transaction between the petitioner and the respondents No.1&2 in as much as the claims of the petitioner against the respondents No.1&2 were for agreed commission for facilitating the contract of the respondents No.1&2 with the respondent No.3. It was contended that in fact it was the petitioner who had been negotiating and dealing with the respondent No.3 on behalf of the respondents No.1&2 and the petitioner was fully in the picture of the transaction between the respondents No.1&2 on the one hand and the respondent No.3 on the other hand and the respondent No.3 was also in the know of the same.
h) It was further contended that it was not the case of the respondent No.3 that the amounts were not payable by it to the respondents No.1&2 and there was no bar in SICA to the respondents No.1&2 paying the said amounts to the respondent No.3 and thus no impediment to the deposit of the same in this court.
i) It also was contended that the order sought by the petitioner was in the nature of a garnishee order and fell
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within the ambit of Section 9 (ii) (b) of the Arbitration Act.
j) That the respondent No.3 was merely a trustee of the money and cannot take the protection of BIFR and the plea of the respondent No.3 of the order if made of deposit, interfering with the working capital of the respondent No.3 indicated that the respondent No.3 was violating the said trust and using the monies lying with it in trust, for its own purposes.
k) That the suit by the petitioner for the same reliefs as claimed in the present petition may be barred by Section 5 r/w Section 8 of the Act and if it was to be held that the petitioner was not entitled to the relief under Section 9 also, for the reason of Respondent No.3 being a third party, the petitioner would be left remediless.
l) That the Arbitration Act was not a complete or a self-contained code and thus the provisions of CPC as available to a court, of attachment of monies belonging to a judgment debtor in the hands of the others, were available. Reliance was placed on Ludwig Wunsche & Co. Vs. Raunaq International Ltd. AIR 1983 Delhi 247 and Orient Middle East Lines Ltd. Vs. M/s Brace Transport Corporation of Monrovia AIR 1986 Gujarat 62.
7. The counsel for the respondent No.3 besides relying on the same judgments as aforesaid holding petition under Section 9 to be not maintainable against a non-party to an arbitration agreement,
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contended that in the present case the respondent No.3 had nothing whatsoever to do with the transaction, if any, between the petitioner and the respondents No.1&2; he also relied on 21st Edition of Russell on Arbitration, at paragraphs 6-131 & 6-132 prescribing that a Tribunal does not have jurisdiction over a third party even though that third party may hold the monies, goods or property in dispute and the Tribunal thus is less able to secure compliance by a third party with an injunction then it is to secure compliance by the parties to the arbitration. He further contended that the order under Section 9 was in the nature of an interim order and it was a settled principle of law that interim order could only be in aid of the final order and when there was no possibility of any final order against the respondent No.3 in an arbitration between the petitioner on the one hand and the respondents No.1&2 on the other hand, the question of granting any interim order in favour of the petitioner against the respondent No.3 did not arise. He further contended that an order in the nature of a garnishee order also could be made only where the amount was admitted or agreed and no adjudication at that stage could be undertaken. It was further contended that the Division Bench of this court in Lloyd Insulations (India) Ltd. (supra) had merely held Section 22 of SICA was not a bar to the continuance of the arbitration proceedings had not dealt with the execution of arbitral award as a decree and which would definitely be within the purview of the said Section 22. He vehemently contended that no reliance could be placed by the petitioner of the earlier order which was a concession given in all fairness and in retrospect erroneously.
8. The senior counsel for the petitioner after the conclusion of hearing on 6th July, 2009 had mentioned the matter to draw attention
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to certain other documents which remained to be placed on record. On the next day, permission was granted to the petitioner to file an additional affidavit in the court. In the said additional affidavit it has been stated that a query under the Right to Information Act was made from the respondent No.3 and to which a reply dated 15th February, 2007 had been given by the respondent No.3 in which it is inter-alia stated that respondent No.3 has kept reserved a sum of USD 34,76,258/- out of the total payment due to the respondent No.1; that as on 4th August, 2006 a sum of USD 141,74,748/- and as on 30th December, 2006 a sum of USD 182,72,191/- were due to the respondent No.1 from the respondent No.3; that even after 1st March, 2006 till 23nd December, 2006 orders of the value of USD 244,493,283.62 had been placed by the respondent No.3 on the respondent No.1; that after the order dated 4th August, 2006 (Supra) in OMP No.359/2006 and till that date payment of USD 2,50,000/- had been made directly by respondentNo.3 to the respondents No. 1 and 2 and not including payments under LC by various banks; that after 4th August, 2006 LCs for the sum USD 83,84,624.18 had been opened by respondent No.3 in favour of the respondent No.1.
9. It was the contention of the senior counsel for the petitioner on the basis of the aforesaid document that since the respondent No.3 had admitted to making payments from time to time to the respondent No.1, they could have no objection, if out of the said payments, the amount claimed by the petitioner is deposited in this court instead of being paid to the respondent No.3. Reliance was also placed on K. Chandrasekharam Vs. M/s Vijay Bhargavi Chit Fund Pvt. Ltd. 2000(1)ALD761 laying down that attachment before judgment can be ordered even against a third party and on Goel Associates Vs. Jivan Bima Rashtriya Avas Samati Ltd. 114(2004)
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Delhi Law Times 478 (DB) laying down that the principle of Order 38 Rule 5 though not contained in the 1996 Act, the principles thereof are applicable.
10. The counsel for the respondent No.3 on the next day responded that in the short time available he could not take instructions but however contended that even if payments had been made after 4th August, 2006 by the respondent No.3 to the respondent No.1, the same were not to the detriment of the petitioner in as much as the amount which it had agreed to retain stood retained by the respondent No.3. Else, it was stated that the said documents did not change the pleas taken in the reply and during the oral submissions.
11. The points of controversy which arise for determination in this petition can be framed as:-
A. Whether in exercise of powers under Section 9 of the Act, the court can make an order against or with respect to any party other than a party to the arbitration.
B. If it is found that such orders can be made, whether the order as sought in the present case is in the teeth of Section 22 of SICA, 1985.
Re: Point A
12. Besides the judgments noted above, I find that recently in NAFED Vs. Earthtech Enterprises Ltd. MANU/DE/0534/09 also it has been held that an application under Section 9 can be made only
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against the parties to the arbitration agreement and cannot be entertained against third party.
13. A conspectus of the judgments aforesaid on Section 9 would show that the court in each case has made the observation with regard to maintainability/applicability of Section 9 qua third parties depending upon facts of each case and depending upon feasibility of the order sought/required therein. In my view, no general principle of maintainability/applicability or non-maintainability/non-applicability can be laid down. It will have to be determined by the court in the facts of each case whether for the purpose of interim measure of protection, preservation, sale of any goods, securing the amount in dispute, an order affecting a third party can be made or not.
14. In my view, if as a general rule it is laid down that in exercise of power under Section 9, no direction can be issued to parties not parties to agreement containing an arbitration clause or not parties to arbitration proceedings, the same will hamper the efficacy of the said provision. Under clause (i) thereof, the guardian to be appointed may not be such a party; similarly the goods under clause (ii) (a) may be or may be required to be in custody of or delivered to or sold to such third parties – further orders against such third parties may also be required in connection with such sale; under clause (ii)(b) the amount to be secured may be in the form of money payable or property in hands of such third party – the scope cannot / ought not to be restricted to securing possible with orders against parties to arbitration only. Similar examples can be given with respect to other clauses also.
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15. The proceedings in a court, as distinct from those before an arbitrator, are also between parties to an agreement/transaction only. Still, the practice of issuing interim orders/directions qua third parties exists; not only in execution proceeding, provisions wherefor exists in Sections 47, 60 and Order 21 Rules 46 and 46A to F but also in pre-decretal stage, as provided for in Order 38 Rules 6 to 11A of CPC. It is difficult to fathom and there is no indication whatsoever of it in the Act, that the legislature while empowering the court under Section 9 to grant interim measures has restricted the power aforesaid of the court in any manner. On the contrary, Section 9 provides that the court for the purposes of Section 9 “shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it”. The conclusion is thus inescapable that if the court, in relation to proceedings before it could have made an order against/qua third parties, similar order can be made under Section 9 as well, subject to the discussion below.
16. The CPC, at pre decretal stage, permits attachment of property to satisfy any decree which may be passed in the suit (Order 38 Rule 6). Such attachment can also be of property of defendant, not in possession of defendant but belonging to the defendant and over which defendant has disposing power or which is in possession of another person in trust for or on behalf of judgment debtor. The rules for such attachment are the same as of attachment in execution of decree (Order 38 Rule 7). Such attachment of property of judgment debtor in hands of others is permissible under Section 60 CPC. There is no reason for holding that if the claimant in an arbitration had been a plaintiff in a suit and could have obtained attachment before judgment of property of defendant in hands of
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third parties, merely because he is before an arbitrator, he is not entitled to such order. Such orders can be crucial. Normally proceedings before court or before arbitrator take time. The defendant cannot during the said time be permitted to arrange his affairs in a manner to leave the plaintiff/claimant with merely a paper decree/award. An attachment before judgment under Order 38 Rule 11 CPC continues post judgment also. If it is to be held that in arbitration proceedings such interim relief of attachment of properties of respondent/defendant is not possible, it will discourage rather than encourage arbitration, which is the need of the hour.
17. However whenever attachment qua properties/monies in hands of third parties is made, the possibility of such third party contesting the same cannot be ruled out; while the party seeking attachment may aver the property to be of person against whom he is seeking a decree, the third party may set up title in such property in himself or in yet another party or resist attachment on other grounds. Order 38 Rule 8 CPC provides for adjudication of such claims by the court. The question which arises is, whether and how such disputes to attachment, if raised pursuant to attachment under Section 9 are also to be adjudicated. The necessary corollary to what I have held above is that the court, even in a proceeding under Section 9 will have to adjudicate such disputes. Order 38 Rules 7,8 and 11A apply the provisions of attachment in relation to execution in Order 21 Rules 46, 46A to F, to attachment before judgment also. Rule 46C of Order 21 provides for trial of disputed questions where such third party disputes liability, as a suit.
18. However, considering the nature of proceeding under Section 9, I find that the court is not bound to, where the third party, with
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respect to property/money in whose hands attachment is issued, denies liability and such denial raises disputed questions of fact which cannot be adjudicated without trial, to conduct trial. The court, in such cases in its discretion can on a prima facie view of the matter, either refuse to exercise powers under Section 9 or pass other appropriate order to protect the interest of all parties concerned.
19. Thus the first point of controversy framed above is answered accordingly. Axiomatically, interim measure in the nature of attachment before judgment can be sought by petitioner against respondent No.3 and the plea of respondent No.3 to such an order is to be decided in these proceedings only. That will answer the second point of controversy as well. The plea of respondent No.3 does not entail any disputed questions of facts requiring trial.
20. Under Order 21 Rule 46 attachment is prescribed to effect by prohibiting payment/delivery until further orders, to the defendant/judgment debtor. To that extent, the respondent No.3 has in the earlier OMP already consented. The question is whether an order of deposit in court of the monies due from respondent No.3 to Respondents No. 1 and 2 can be made. Prior to 1976 amendment of CPC, such order of deposit was not contemplated under Rule 46 of Order 21. Under sub-rule 3 an option was given to the third party with respect to monies/goods in whose hands attachment was issued to deposit the same in court, in discharge of his liability. However, the court could not compel such third party to deposit in court. It was so held in Maharajadhiraj Sir Kameshwar Singh Bahadur Vs. Kuleshwar Singh and Ors. AIR 1942 Patna 508. By the 1976 amendment of CPC, Rule 46A was introduced, whereunder the order
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against third party of deposit in court also became possible. However, that provision is in Order 21 relating to execution of decree. Though by virtue of Order 38 Rules 7, 8 and 11A attachment before judgment has to be in the same manner as in Order 21, but the court is not bound to direct deposit in court. Rule 46A itself uses the word “may” and the power thereunder is discretionary.
21. Thus in the present case, where as yet there is no decree or award in favour of petitioner and when the claims of the petitioner are being disputed by respondents No. 1 and 2, and when the interest of the petitioner is sufficiently protected by order in the earlier petition, it is not deemed appropriate to direct the respondent No.3 to deposit the monies owed by it to respondents No. 1 and 2, in this court. The reason of respondent No.3 using the said monies for its own purpose also does not sway me to direct so, for the reasons of Section 22 of SICA, 1985, though ordinarily the possibility of such third party/garnishee dissipating the monies may be a reason for directing deposit in court. I do not find the respondent No.3 to be in the position of a trustee. Also, there is considerable force in the contention of counsel for respondent No.3 that the petitioner had sought the said relief in the earlier petition also and it was not so granted. There is no change in position since then. The principles of res judicata apply to interim orders also and the petitioner cannot relitigate.
Re: Point B
22. The attachment of monies in hands of a third party/garnishee cannot be in supersession of/ detriment to rights of such third party/garnishee. Thus if respondents No. 1 and 2 as creditors of
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respondent No.3 could not compel the respondent No.3 to deposit the monies in court in a proceeding initiated by them or could not recover monies from respondent No.3 owing to the bar of Section 22 SICA, 1985, the petitioner, as creditor of respondents No. 1 and 2 will have no superior rights against respondent No.3.
23. In Syndicate Bank Vs Vijay Kumar (1992) 2 SCC 331, attachment was effected with respect to the two FDRs of the judgment debtor with the bank. The bank claimed its general lien over the amounts of the FDRs. The Supreme Court held that in the circumstances the said FDRs could not be attached and the bank could not be directed to deposit the amount thereof in the court.
24. Mulla on CPC 16th Edition Volume 3, pages 2694-2695 with reference to Anglo-Baltic and Mediterranean Bank Vs Barber & Co. (1924) 2 KB 410 comments that where a judgment is recovered against a company which is in voluntary liquidation, the invariable practice of the courts is to stay execution of the judgment unless there are very exceptional reasons for exercising its discretion otherwise; it further comments that even in execution of a decree against a judgment debtor company in liquidation, a debt due by a third party to the company cannot be attached and paid to the decree holder for the reason that the said debt being general assets of the company is divisible amongst the creditors pari passu. Reference therein is also made to Gauhati Bank Vs Ganpatlal Thakur (1956) Assam 301 in which case a claim under Section 153 (2) of the Companies Act had been sanctioned with respect to the garnishee bank and whereunder the amount owed by the bank to the judgment debtor was payable in installments; the decree holder was
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held to be bound by the said scheme and not held entitled to the amount in lumpsum or immediately.
25. From the aforesaid also, it follows that the objection of the respondent No.3 is to be prima facie adjudicated. It also follows that if the respondent No.3 as per the law governing it is not liable to make payment, it cannot be directed to deposit the amount in the court.
26. I have no doubt in my mind that in the circumstances aforesaid an order of deposit by the respondent no.3 of the monies, and which order is opposed by the respondent No.3, would be coercive and would be in the nature of execution, distress or the like against respondent No.3 which is a sick company. Such an order is prohibited by Section 22 (supra). The Supreme Court recently in M.D. Bhoruka Textiles Ltd Vs Kashmiri Rice Industries 2009 92 SCL 335 (SC) has also held that SICA is a special statute and overrides other acts. The words “or the like” in Section 22 are to be construed on the basis of ejusdem generis principle. Accordingly, those words may be taken to be referring to any proceeding for attachment or even for injunction or restraint against a sick company. An order directing respondent no.3 to deposit the monies in the court will be in the nature of order of recovery of money from respondent no.3 and which is not permissible.
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27. In the circumstances, the relief claimed of directing respondent No.3 to deposit money in this court is also found to be barred by Section 22, SICA, 1985.
28. The petition is dismissed, however, with no orders as to costs.
RAJIV SAHAI ENDLAW
JUDGE
JULY 15, 2009
M/PP
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whether the proceedings before the Consumer Forum should remain stayed involving similar issues pending before High Court

Issue: whether the proceedings before the Consumer Forum should remain stayed and await the decision of the outcome of the proceedings involving similar issues pending before this High Court

Title:
M/S HINDUSTAN MOTORS LTD. versus AMARDEEP SINGH WIRK & ORS.

L.P.A. No. 204 of 2009 & CM No. 6638/2009 Date of Decision: 14th May, 2009

existence of parallel or other adjudicatory Forums cannot take away or exclude jurisdiction created under the Consumer Protection Act.

The Supreme Court in the case of Secretary, Thirumurugan Co-operative Agricultural Credit Society vs. M. Lalitha & Ors. (2004) 1 SCC 305, held that having due regard to the scheme of the Consumer Protection Act and the purpose sought to be achieved to protect the interest of the consumers better, its provisions are to be interpreted broadly, positively and purposefully to give meaning to additional/extended jurisdiction, particularly when Section 3 seeks to provide remedy under the Act in addition to other remedies provided under other Acts unless there is a clear bar.

who can be said to be persons “in-charge of, and was responsible to the company for the business of the company”

CRIMINAL APPEAL NOS.1130-31 OF 2003 K.K. Ahuja Vs. V.K. Vora & Anr.

Issue: who can be said to be persons “in-charge of, and was responsible to the company for the business of the company” referredto in section 141of the Negotiable Instruments Act, 1881

Having regard to section 141, when a cheque issued by a company (incorporated under the Companies Act, 1956) is dishonoured, in addition to the company, the following persons are deemed to be guilty of the offence and shall be liable to be proceeded against and punished :
(i) every person who at the time the offence was committed, was in charge of and was responsible to the company for the conduct of the business of the company;
(ii) any Director, Manager, Secretary or other officer of the company with whose consent and connivance, the offence under section 138 has been committed; and
(iii) any Director, Manager, Secretary or other officer of the company whose negligence resulted in the offence under section 138 of the Act, being committed by the company.

While liability of persons in the first category arises under sub-section (1) of Section 141, the liability of persons mentioned in categories (ii) and (iii) arises under sub-section (2). The scheme of the Act, therefore is, that a person who is responsible to the company for the conduct of the business of the company and who is in charge of business of the company is vicariously liable by reason only of his fulfilling the requirements of subsection (1).
But if the person responsible to the company for the conduct of business of the company, was not in charge of the conduct of the business of the company, then he can be made liable only if the offence was committed with his consent or connivance or as a result of his negligence.

Madras HC: tax planning as opposed to tax evasion has legal sanction

The Madras High Court has ruled that tax planning as opposed to tax evasion has legal sanction, and if a dealer plans his transactions in such a manner that he pays less tax, it is not open to the revenue to subject him to a conscience audit or moral assessment. The power to lift the veil has to be exercised with great care and caution.

Justice V Ramasubramanian on Friday allowing petitions by a registered dealer, challenging the orders of assessment passed by the Assistant Commissioner, Coimbatore, under the Central Sales Tax Act for assessment years 2001-02, 2002-03 and 2003-04.

Associated Cement Companies Limited, Coimbatore, claimed that the cement manufactured at Madukkarai was dispatched as stock transfer to its warehouses and depots in Kerala, Karnataka and Puducherry.

Thereafter, it was sold in the respective states after paying local sales tax there. The company claimed exemption on the turnover relating to branch/stock transfer.

Suspecting the petitioner’s claim, the Assistant Commissioner (AC) issued pre-assessment notices stating that the company was moving goods to states from the factory site itself to reach the ultimate buyers there.

The company filed Form ‘F’ declarations with proof of payment of taxes in other states. The AC passed orders for the assessment years on the ground that the petitioner had failed to file the other statements and records as stipulated in Central Sales Tax (Tamil Nadu) Rules.

Aggrieved, the present petitions were filed.

Setting aside the assessment orders, Mr Justice Ramasubramanian said the dealer had a factory in Tamil Nadu and claimed exemption in the state on stock transfer made to his branches in other states.

Another dealer having a factory in another state may make similar claim in that state on the basis of the stock transferred to a branch in Tamil Nadu and the tax paid here.

While the state was deprived of revenue in the former situation, it benefited in the latter. Justice Ramasubramanian said the AC had erred in arriving at an ad hoc conclusion without an inquiry under the Act that the transactions were inter-state sales, merely on account of the goods not getting unloaded at Palakkad but proceeding further in its journey to the buyer’s place.

The Judge remitted the matter back to the AC for an inquiry after which the official should complete assessment and pass an order.

Details of the case are:
W.P.Nos.4709 to 4711 of 2009 And M.P.Nos.1,1 and 1 of 2009

Associated Cement Companies Ltd vs. The Assistant Commissioner (CT)(FAC)& ors.

Execution- simple objection -flagrant violation of the eviction decree

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6954 OF 2003

Sardar Estates -vs- Atma Ram Properties (P) Ltd


ORDER

This appeal furnishes a typical instance of a widespread malady which has infected the judicial system in the country, namely, the flagrant abuse of the process of the Court.


The respondent, which is the owner and landlord of premises no.13/46, Scindia House, Connaught Circus, New Delhi filed an eviction petition against the appellant, who is the tenant, before the Rent Controller, Delhi in 1981. That petition was decreed on 12.5.1993 on the ground of subletting. The appellant filed an appeal before the Rent Control Tribunal which was dismissed on 22.9.1998. Thereafter he filed a second appeal which was dismissed by the Delhi High Court on 31.1.2000. Against that order he filed an SLP in this Court which was dismissed as withdrawn by order dated 8.12.2000. He then filed a Review Petition before the Delhi High Court which was dismissed on 9.2.2001. Against that order the appellant filed another SLP in this Court which was dismissed on 9.4.2001. By that order he was directed to vacate the premises and handed over physical possession to the landlord on or before 31.10.2001 subject to the usual undertaking to be filed within four weeks. However, the appellant did not file the undertaking.


In execution proceedings the appellant filed an objection on 16.3.2001 which was rejected by the Executing Court on 14.9.2001. Against the order dated 14.9.2001 the appellant filed an appeal which was dismissed as withdrawn on 1.11.2001. He filed a fresh objection on 8.11.2001 before the Executing Court which was rejected on 5.7.2002. Against that order he filed a First Appeal before the Rent Control Tribunal which was dismissed on 20.7.2002. Against the order of the Rent Control Tribunal he filed a Second Appeal before the Delhi High Court which was dismissed on 10.9.2002 by the impugned judgment. Thereafter he filed the present appeal before us.

It was submitted before us by the learned counsel for the appellant that the eviction decree was in respect of the second floor of the property in question, and possession of the second floor had been handed over to the landlord in pursuance of the eviction decree, but the third floor was an independent premises for which no order of eviction had been passed.


The High Court has dealt with this aspect and has observed that some unauthorized construction had been made by the appellant on the open area above the second floor of premises no.13/46, Scindia House, New Delhi and this unauthorized construction cannot be said to be an independent flat.

Before the Rent Control Tribunal it had been submitted by the appellant that the premises which is still in his possession is flat no.14A which is not a part of premises no.13/46, Scindia House, New Delhi. However, this plea had been negatived by the order of the Rent Control Tribunal dated 20.7.2002 after a detailed discussion. It was observed in the said order that flat no.14A is a part of the tenanted premises and not a separate accommodation. The High Court in the impugned judgment has observed that this is a question of fact and cannot be gone into in Second Appeal. We agree with this view taken by the High Court.

It is evident that frivolous objections have been filed in the execution case which is an abuse of the process of the Court and a flagrant violation of the eviction decree against the appellant against which Appeals had been rejected and even SLP in this Court was dismissed.

It is evident that after the first round of litigation was over the tenant started a second round of litigation on frivolous grounds which were a flagrant abuse of the Court. This is a practice which has become widespread, and which the Court cannot approve off, otherwise no judgment will ever attain finality.

Hence, we dismiss this appeal and impose a cost of Rs.10,000/- (Rupees Ten Thousand only) on the appellant which shall be paid to the respondent within two months from today. The appellant shall also hand over the premises in question, which is in his possession, to the landlord within three months from today failing which he will be evicted by police force.

...............................J.
(Markandey Katju)


...............................J.
(H.L. Dattu)
New Delhi;
April 30, 2009

all the ingredients of commission of an offence U/s 138 NI Act must be satisfied.

CRIMINAL APPEAL NO. 913 OF 2009 [Arising out of SLP (Crl.) No. 8059 of 2007]
Raj Kumar Khurana Versus State of (NCT of Delhi) and Anr.

Whether return of a cheque by the bank on the ground that it was reported lost by the drawer would attract the penal provisions contained in Section 138 of the Negotiable Instruments Act, 1881 (for short “the Act”)

A bare perusal of the section 138 of N. I. Act would clearly go to show that by reason thereof a legal fiction has been created. A legal fiction, as is well known, although is required to be given full effect, has its own limitations. It cannot be taken recourse to for any purpose other than the one mentioned in the statute itself.

The court must be satisfied that all the ingredients of commission of an offence under the said provision have been complied with.

The parameters for invoking the provisions of Section 138 of the Act, thus, being limited, we are of the opinion that refusal on the part of the bank to honour the cheque would not bring the matter within the mischief of the provisions of Section 138 of the Act.

Indian Domestic Arbitration: A practical approach

Arbitration is a method of adjudication of dispute(s) / difference(s) between the parties by non-judicial process wherein arbitrator(s)/umpire(s) is appointed by the parties themselves under a contract whereby the parties agree for adjudication of such dispute(s)/difference(s) by way of arbitration proceedings

In India, laws/rules that govern the arbitration process are laid down in Arbitration and Conciliation Act, 1996. But the act itself does not give any right to any party unless parties have entered into an arbitration agreement/contract for adjudication of dispute(s)/difference(s) by way of arbitration. Section 2(1) (b) of the act says that an arbitration agreement means an agreement referred to in section 7. Section 7(1) further states that an arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The act does not prescribe any formal form for arbitration agreement. It says that “an arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement” like any other agreement- Section 7(2). But an arbitration agreement shall be in writing - Section 7(3). Here the term “writing” has special meaning that has been clarified in sub-section 4 of section 7 i.e.-
(4) An arbitration agreement is in writing if it is contained in
a) a document signed by the parties;
b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

“Other means of telecommunication” indicates that a record of the agreement by exchanging e-mails may also be taken into account since as per the Law Encyclopedia (applicable to United States law) telecommunication means the transmission of words, sounds, images, or data in the form of electronic or electromagnetic signals or impulses. Section 7 (5) further clarifies that the reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

Section 2(1) (a) of the act says that arbitration means any arbitration whether or not administered by permanent arbitral institution. Thus it is clear from the definition that the act recognizes every type of arbitration whether it is institutional or non-institutional. Institutional arbitration means an arbitration process conducted by an institute; whether it is permanent or not; for adjudication of dispute(s) / difference(s) between the parties following rules of proceeding already framed by the parties themselves, failing which its own rules after obtaining the consent of the parties to such rules at a preliminary meeting in arbitration proceeding. Non-institutional arbitration means an arbitration process conducted by a arbitral tribunal other than institute for adjudication of dispute(s) / difference(s) between the parties following rules of proceeding already framed by the parties themselves, failing which its own rules after obtaining the consent of the parties in this regard at a preliminary meeting in arbitration proceeding.

Section 2(1) (h) party means a party to an arbitration agreement. This definition is not an expressed one. It is an implied definition as it has not been clarified who can be a party to an arbitration agreement. Here the term “party” covers a living person competent to enter into an agreement/contract and juristic person as well since juristic person may also be a party to an agreement/contract after fulfilling the certain legal formalities. Thus here party means a person competent to enter into a contract as per Indian Contract Act.

Section 2 (1) (e) of the act defines arbitral tribunal. It says “Arbitral tribunal means a sole arbitrator or a panel of arbitrators.” Where arbitral tribunal is a panel of arbitrators; “the parties are free to determine the number of arbitrators, provided that such number shall not be an even number”-Section 10(1) of the act. Failing the determination of number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator- Section 10 (2) of the act.

To be an arbitrator, no formal qualification has been prescribed in the act. Even nationality is also no bar. Parties have been given full authority to determine the qualification of the arbitrator. Section 11 (1) of the act says that a person of any nationality may be an arbitrator, unless otherwise agreed by the parties. It is the parties who have to determine the qualification of the arbitrator keeping in mind the nature of the dispute(s)/difference(s) that has arisen or may arise between them. Parties may agree upon the qualification at very initial stage when they enter into an arbitration contract/clause or after dispute(s)/difference(s) arose if earlier has not been agreed. It will be beneficial for the parties themselves to determine the qualification otherwise decision of the arbitrator i.e. arbitral award may be set aside where the adjudication of such dispute(s) / difference(s) requires a person having a technical knowledge.

Appointment of arbitrator: Priority has been given to the procedure framed by the parties for appointing the arbitrator(s). Section 11(2) of the act says that the parties are free to agree on a procedure for appointing the arbitrator(s). Where a party (ies) fails to act as required under that procedure, appointment of arbitrator(s) can be secured by taking recourse to “other means” if arbitration agreement/clause provides such “other means” for securing the appointment of arbitrator(s) Section 11(6)(a). The term “other means” has not been define anywhere in the act. In case arbitration agreement does not provide such “other means” for securing the appointment, aggrieved party (ies) may request the Chief Justice or any person or institution designated by him to take the necessary measure for securing the appointment Section 11(6)(a). Where, under an appointment procedure agreed upon by the parties, the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or a person, including an institution, fails to perform any function entrusted him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment Section 11(6)(b) & (c).

Section 11(5) provides both the procedure and limitation period if the parties have not agreed on a procedure for appointing the arbitrator(s) in arbitration with a sole arbitrator. It says that if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice of any person or institution designated by him.

Section 11(3) provides only procedure with three arbitrators if the parties have not agreed on a procedure for appointing the arbitrator(s). It says that each party shall appoint one arbitrator, and the two appointed arbitrators, shall appoint the third arbitrator who shall act as the presiding arbitrator. Further Section 11(4) provides a limitation period for such appointment. It clarifies that if a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made upon request of a party, by the chief justice or any person or institution designated by him.

Section 11(7) provides that a decision of the Chief Justice or the person or institution designated by him is final on the matter entrusted by sub section (4) or sub section (5) or sub section (6) of Section 11 whereas sub section (10) of it clarifies that the Chief Justice may make such scheme as he may deem appropriate for dealing with such matters.

The Chief Justice or the person or institution designated by him, in appointing arbitrator, shall have due regaled to (a) qualifications required of the arbitrator by the agreement of the parties and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator Section 11(8).

What will happen if more than one request has been made under sub section (4) or subsection (5) or sub section (6)to the Chief Justices of different High Courts or their designates ? Section 11(11) answer it. It says that the Chief Justice or his designate to whom the request has been first made under the relevant sub section shall alone be competent to decide on the request.

Section 11(12) (b) clarify the term “Chief Justice”. It says Where the matters referred to in sub sections (4 ), (5 ), (7 ), (8 ), and (10 ) arise in any other arbitration, the reference to Chief Justice in those sub sections shall he construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub section (1 ) of section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief justice of that High Court.

Primary Duties of arbitrator: Sec.2 (d)” "arbitral tribunal" means a sole arbitrator or a panel of arbitrators.” When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing [to the concern authority only] any circumstances likely to give rise to justifiable doubts as to his independence or impartiality: Section 12(1).

MODE OF COMMUNICATION: Arbitrator should inform the parties to arbitration agreement about his appointment as an arbitrator. Procedure for written communication is given in section 3 of the act. It gives freedom to parties to agree upon any procedure for written communication during the arbitration proceedings what they feel proper and speedy for adjudication of their dispute(s)/difference even through e-mails but mode of communication must provide a record of such communication. Failing any agreed communication procedure any written communication is deemed to have been received if it is delivered to the addressee personally or at his place of business, habitual residence or mailing address: Section 3(1)(a)

If none of the places of business, habitual residence or mailing address can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last known place of business, habitual residence or mailing address by registered letter or by any other means which provides a record of the attempt to deliver it Section 3(1)(b). No substitute mode of service such as publication etc required.

The communication is deemed to have been received on the day it is so delivered Section 3(2).

Section 3(3) indicates that arbitrator is not a judicial authority so arbitration proceeding is not a judicial proceeding. It says “This section does not apply to written communications in respect of proceedings of any judicial authority” but it applies in arbitration proceedings. It confirms that arbitrator is not a judicial authority.

Duties of arbitrator: A & C Act 1996 imposes tremendous responsibilities upon Arbitral Tribunal to act in such a way that don’t give any rise to his independence or impartiality. When parties appear before the arbitrator in response of the notice, the arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub section (1) of section 12 unless they have already been informed of them by him: Section 12(2).

Grounds for challenge for appointment of arbitrator: If a party becomes aware about circumstances that give rise to justifiable doubts as to arbitrator’s independence or impartiality, or missing of the qualifications agreed to by the parties as mentioned in section 12(3), the party has only recourse to it is, to challenge the appointment of arbitrator(s) before arbitrator itself.

A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reason, of which he becomes aware after the appointment has been made: Section 12(4)

Procedure for challenging an arbitrator: The parties are free to agree on a procedure for challenging an arbitrator: Section 13(1)

Failing any agreement on a procedure for challenging the arbitrator, a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal: Section 13(2)

Unless the arbitrator challenged under sub section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge: Section 13(3)

If a challenge under any procedure agreed upon by the parties or under the procedure under sub section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award: Section 13(4)

Power and duties of arbitrator: A & C Act 1996 imposes mandatory obligations on Arbitral Tribunal to follow and give due respect to the contents of the arbitration agreement. Whatever has been written in the arbitration agreement regarding procedure to be followed, documents to be used as evidence, mode of communications to be used, place of arbitration, language etc in arbitration proceedings, arbitral tribunal is bound to follow the contents of the arbitration agreement. The parties (in arbitration proceedings) shall be treated with equality and each party shall be given a full opportunity to present his case Sec 18.

The whole purpose of enacting the A & C Act 1996 is to remove technical difficulties; faced by the parties in the court proceedings, from arbitration proceedings. That is why sec 19(1) says that the arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. The parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings Sec19 (2) but failing any agreement in this effect, the arbitral tribunal may conduct the proceedings in the manner it considers appropriate Sec19 (3).This power of the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence Sec 19(4). The tribunal should give reasons regarding the determination of admissibility, relevancy, materiality and weight of any evidence.

Section 16 of the act gives full competency to arbitral tribunal to rule on its own jurisdiction. ). But this competency is subject to courts’ supervision.

“Section 16-Competence of arbitral tribunal to rule on its jurisdiction.-
(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,----
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall he raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.”

Though the arbitral tribunal has been empowered to order interim measures but this power is subject to arbitration agreement. Section 17 says:
“17.Interim measures ordered by arbitral tribunal.-
(1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute.

(2) the arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1)”

Thus from above discussion, one can easily understood that there is no codified rules that govern arbitration proceedings except mentioned in arbitration agreement/clause if any. It is, therefore, one should be very careful before entering into any arbitration agreement/ clause in any walk of life.

Summoning the arbitrator

Union Of India VS. Orient Engg. & Commercial Co. Ltd. & Anr.

Respondent No. 1 filed, under Order XVI Rules 1 and 2 read with s. 151, C.P.C., a list of witnesses to be summoned including the Arbitrator who made an award in a matter between the appellant and the respondent No. 1. The Registrar of the High Court in the routine course granted summons without satisfying himself as to the sufficiency of cause to summon the arbitrator as required under Order XVI Rule 3, C.P.C. An objection petition u/s. 151, C.P.C. filed before the learned Judge of the High Court against the orders of the Registrar was dismissed.

Allowing the appeal, the Court,

HELD : (1) It is not right that every one who is included in the witness list is automatically summoned, but the true rule is that if grounds are made out for summoning a witness, he will be called. The court must realise that its process should be used sparingly and after careful deliberation if the arbitrator should be brought into the witness box. If a party has a case of mala fides and makes out prima facie that it is not a frivolous charge or has other reasonably relevant matters to be brought out, the court may, in given circumstances, exercise its power to summon even an arbitrator because nobody is beyond the reach of truth or trial by court.

(2)Courts should bear in mind the reason behind s. 121 of the Evidence Act when invited to issue summons to an arbitrator. It will be very embarrassing and in many cases objectionable if every quasi-judicial authority or tribunal were put to the necessity of getting into the witness box and testify as to what weighed in his mind in reaching his verdict. The slightest attempt to get to the materials of his decision, to get back to, his mind and to examine him as to why and how he arrived at a particular decision should be immediately and ruthlessly excluded as unreasonable. When an arbitrator has given an award, if grounds justifying his being called as a witness are affirmatively made out, the court may exercise its powers-otherwise not.

In the instant case the court has not approached the question from the proper perspective and on the materials on record, there is no justification for the examination of the arbitrator.
Khub Lal v. Bishambhar Sahai A.I.R. 1925 Allahabad 103, approved.

[The Court left open to the High Court to issue-necessary Process on a fresh application stating why he wants to examine the arbitrator, if and when made by the respondent.]

Minority share holders can be throne out

In a far-reaching decision, a division bench of the Bombay High Court has endorsed a special resolution of a company to reduce the share capital of a company on the basis of the identity of the person holding the shares. Majority shareholders can now throw out minority shareholders by effect a reduction of the capital held by minority shareholders alone.

Normally a reduction of capital is effected uniformly across all shareholders – not in a manner that picks and chooses specific shareholders who would cease to be shareholders. Since the proposed resolution sought to throw out minority shareholders alone as a consequence of the proposed reduction, a single judge had ruled that the proposal was inequitable. The division bench dealt with an appeal against the judgement of the single judge.

The provisions of Sections 100 to 105 of the Companies Act, 1956 (“the Act”) deal with reduction of capital. If a company’s Articles of Association permit reduction, the company could pass a special resolution (75 per cent vote by shareholders present and voting at a general meeting) approving reduction of capital, and then seek a court’s approval to effect the reduction.

The law entitles creditors to object to the proposal under certain conditions – logical, because shareholders normally stand last in queue when a company is wound up, and a reduction puts them ahead of the creditors.

There are other provisions in the Act based on which a shareholder could be taken out of a company. The provisions Sections 391-394 of the Act entail propounding of a scheme of arrangement or compromise whereby rights and obligations of shareholders and creditors could be altered, adjusted and modified in an extraordinary or unusual manner. Such sche-mes of arrangement too are subject to sanction of the high court, and once approved would bind the world at large including those dissenting to the scheme. Section 395 expressly deals with having to buy out dissenting minority shareholders who do not agree to a scheme approved by the majority.

However, in the instant case, the company’s proposal to reduce capital was in effect a proposal to squeeze-out the shareholders other than the promoters and divest them of shareholding.

The promoters were able to comfortably pass the special resolution. In lieu of the reduction, such shareholders would of course be paid money in terms of a fair value to be computed, but these shareholders would lose their right to hold shares although they were not willing sellers.

The division bench has ruled that the “special resolution which proposes to wipe out a class of shareholders after paying them just compensation” is not unfair or inequitable.

“In our opinion, once it is established that non-promoter shareholders are being paid fair value of their shares, at no point of time it is even suggested by them that the amount that is being paid is any way less,” the court observed. That an overwhelming majority of the non-promoter shareholders voted in favour of the resolution too weighed with the court, which held that “the court will not be justified in withholding its sanction to the resolution.”

The judgement opens up several interesting possibilities and propositions in relation to shareholder rights in India. The company in question was not a listed company – it had already been delisted.

Listed companies would require stock exchange approval for reduction of capital under the listing agreement, and it is unlikely that stock exchanges would approve such a transaction. However, for an unlisted company, regardless of whether a company is a public company or a private company, shareholders rights can be impacted severely.

Private equity investors holding small stakes without serious rights could easily be thrown out by management using such resolutions. In family-run companies, a segment of the family that holds a minority stake could get thrown by the rest of the family. All that one would need is a special resolution.

The core business issue involved here is not about whe-ther the price paid for the shares would be fair, but whether an owner of shares in India has a vested right to keep his property, or whether other shareholders can force him to divest his property.

For details judgment mail me at minturaj@gmail.com

Whether the appellants can directly approach this Court under Article 136 of the Constitution, against the orders of the District Court,

these appeals give rise to the following two questions:

(i) Whether the appellants can directly approach this Court under
Article 136 of the Constitution, against the orders of the District
Court, without approaching the High Court?

(ii) Even if the answer to the first question is in the negative, whether
leave having been granted by this Court, these appeals should be
considered and decided on merits?

Re: Question No. (i):

We therefore reiterate that though the existence of an alternative remedy by itself will not take away the jurisdiction of this Court under Article 136, this Court would not grant leave and entertain appeals against orders/judgments/decrees of the district court or courts sub-ordinate thereto, if remedy by way of appeal or revision to the High Court or other court or forum is available.

Re: Question No. (ii)

It is now well settled that the discretionary power vested in this Court under article 136 continues even after granting leave. Therefore, on hearing an appeal by special leave, this Court may refuse to go into merits, or even if it goes into merits, merely declare the law and refuse to interfere if interests of justice and/or facts of the case do not call for interference. If this Court finds that leave ought not to have been granted and that no prejudice will be caused, it may reject the appeal by special leave, reserving liberty to the appellant to pursue the alternative remedy before the High Court or other appropriate forum. In extreme cases, this Court may even revoke the leave already granted.

Proof of travel not required for claiming LTA: SC

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.993 OF 2005
COMMISSIONER OF INCOME TAX & ANR. ...APPELLANT (S)
VERSUS
M/S LARSEN & TOUBRO LTD. ...RESPONDENT(S)
WITH
CIVIL APPEAL NO. 992 OF 2005
O R D E R
A short question which arises for determination in these Civil Appeal(s) is –
whether the assessee(s) was under statutory obligation under Income Tax Act, 1961, and/or
the Rules to collect evidence to show that its employee(s) had actually utilized the amount(s)
paid towards Leave Travel Concession(s)/Conveyance Allowance?

It may be noted that the beneficiary of exemption under Section 10(5) is an
individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under Section 192 to collect and examine the supporting evidence to the Declaration to be submitted by an employee(s).
For the above reasons there is no merit in the Civil Appeals and the same are
dismissed with no order as to costs.
....................J.
[ S.H. KAPADIA ]
New Delhi, ....................J
January 21, 2009 [ AFTAB ALAM ]

beyond the reference

If the arbitrator decides a dispute which is beyond the scope of his reference or beyond the subject-matter of the reference or he makes the award disregarding the terms of reference or the arbitration agreement or terms of the contract, it would be a jurisdictional error beyond the scope of reference; he cannot clothe himself to decide conclusively that dispute as it is an error of jurisdiction which requires to be ultimately decided by the Court.

Beyond the scope of reference

If the arbitrator decides a dispute which is beyond the scope of his reference or beyond the subject matter of the reference or he makes the award disregarding the terms of reference or the arbitration agreement or terms of the contract, it would jurisdictional error beyond the scope of reference, he cannot clothe himself to decide conclusively that dispute as it is an error of jurisdiction which requires to be ultimately decided by the court

territorial jurisdiction issue

Both the appellant Board, having its base and operation at Jaipur and the respondent Company, having its registered office and manufacturing unit at Calcutta entered into an agreement having following clause:
"30.....The contract shall for all purposes be construed according to the laws of India and subject to jurisdiction of only at Jaipur in Rajasthan Courts only..........."
Somehow the disputes arose between the parties. The respondent company approcached the Hon'ble High Court at Calcutta. Somehow matter came before Hon'ble Supreme Court. Hon'ble Court referring its earlier judgments confirm the view expressed in Hanil Era Textiles Ltd. v. Puromatic Filters (P) Ltd. [(2004) 4 SCC 671], it was held by this Court that where two or more courts have jurisdiction under the Code, it is permissible to have an agreement between the parties restricting the place of suing to any one of them and if such restriction is placed in the agreement, the same cannot be said to be contrary to public policy and does not contravene Section 28 of the Contract Act. It was however, made clear that such restriction cannot be made and the parties cannot by agreement confer jurisdiction on a court which otherwise it does not possess under the Code.

the matter in respect of which the respondent sought reference to arbitration was "excepted matter" in terms of

the following principlesrelating to "Excepting matters" as under :- "1. These appeals by the grant of Special Leave pertains to the effect of the usual `excepted clause' vis-`-vis the arbitration clause in a Government contract. While it is true and as has been contended, that the authorization of the arbitrators to arbitrate, flows from the agreement but the High Court in the judgment impugned thought it fit to direct adjudication of `excepted matters' in the agreement itself by the arbitrators and hence these appeals before this Court. 2. At the outset, it is pertinent to note that in the usual Government contracts, the reference to which would be made immediately hereafter, there is exclusion of some matters from the purview of arbitration and a senior officer of the Department usually is given the authority and power to adjudicate the same. The clause itself records that the decision of the senior officer, being the adjudicator, shall be final and binding between the parties - this is what popularly known as `excepted matters' in a Government or Governmental agencies' contract. 3. `Excepted matters' obviously, as the parties agreed, do not require any further adjudication since the agreement itself provides a named adjudicator - concurrence to the same obviously is presumed by reason of the unequivocal acceptance of the terms of the contract by 11 the parties and this is where the courts have found our lacking in its jurisdiction to entertain an application for reference to arbitration as regards the disputes arising therefrom and it has been the consistent view that in the event the claims arising within the ambit of excepted matters, question of assumption of jurisdiction of any arbitrator either with or without the intervention of the court would not arise; the parties themselves have decided to have the same adjudicated by a particular officer in regard to these matters; what are these exceptions however are questions of fact and usually mentioned in the contract documents and forms part of the agreement as such there is no ambiguity in the matter of adjudication of these specialized matters and termed in the agreement as the excepted matters....."

REQUIREMENT OF rule 4 order 37 cpc

Where on an application, more than one among the specified reliefs
may be granted by the Court all such reliefs must be claimed in one application. It
is not permissible to claim such reliefs in successive petitions as it would be
contrary to the letter and spirit of the provision. That is why where an application
under Rule 4 of Order 37 is filed to set aside a decree either because the defendant
did not appear in response to summons and limitation expired, or having appeared,
did not apply for leave to defend the suit in the prescribed period, the Court is
empowered to grant leave to defendant to appear to the summons and to defend the
suit in the same application. It is, therefore, not enough for the defendant to show
special circumstances which prevented him from appearing or applying for leave
to defend, he has also to show by affidavit or otherwise, facts which would entitle
him leave to defend the suit. In this respect, Rule 4 of Order 37 is different from
Rule 13 of Order 9.”





Indeed, an application under Order 37 Rule 4 CPC differs vis-a- vis an
application under Order 9 Rule 13 CPC for the reason an application under Order
37 Rule 4 CPC is a composite application determination whereof, if in favour of
the applicant, results in not only the ex-parte decree being set aside but leave to
defend being granted to the party concerned. It is for this reason law requires that
the defendant, in addition to show special circumstances which prevented him/her
from appearing, must additionally disclose facts entitling him/her to obtain leave to
defend.

Service of notice/summons U/O 37 CPC

O. 37 CPC specifically provides that in a suit under O. 37 CPC, the plaintiff shall together with the summons under Rule 2, serve the defendant with a copy of the plaint and annexure thereto. Thus where only summons have been affixed without affixing copy of the plaint and annexures thereto, the service is not in accordance with the provisions of O. 37 Rule 3 (1) CPC and this would be a sufficient ground to set aside the decree. The same view is taken by another bench of this Court in the case of New Bank of India Vs. M/s Master Steel Marketing Co.-1995 III AD (Delhi) 957. It was a case of the substituted service. It was held that where only copy of summons was published without publishing copy of the plaint and annexures there to, the service was not in accordance with law.

ORDER 37 RULE 3 (4 & 5) of C P C.

The question as to whether leave to defend a suit can be granted or not is within the discretionary powers of the High Court and it does not appear to us that such discretion has been exercised erroneously or with any irregularity which warrants interference by this Court.


it is now well established as a principle of law that even if a wrong order is passed by a Court having jurisdiction to pass an order in such cases, the revisional Court will not interfere with such an order unless a jurisdictional error is pointed out and established by the person who questions such order.

In the instant case, the High Court did not lack jurisdiction to pass an order with regard to the subject matter of dispute, though the order itself may be incorrect. There is, therefore, little scope for this Court to interfere with.

Whether quashing of FIR/criminal proceedings/complaint be allowed

The question whether a F I R under Sections 420/468/471/34/120-B IPC can be quashed either under Section 482 of the Code of Criminal Procedure or under Article 226 of the Constitution, when the accused and the complainant have compromised and settled the matter between themselves ?


We, accordingly, allow the appeal and set aside the order of the High Court and quash the criminal proceedings pending before Court.

MODE OF SERVICE

Admittedly, notice under Section 138B of theNegotiable Instruments Act was sent to therespondents through registered post and under acertificate of posting on their correct address of therespondents. The High Court had quashedproceeding on the ground that although noticethrough registered post and also under certificate ofposting were sent by the appellant/ complainant tothe respondents but because of the endorsement ofthe postal peon, the service could not be said tohave been effected. In our view, the High Court wasnot justified in holding that service of notice couldnot be found to be valid. In K.Bhaskaran vs.Sankaran Vaidhyan Balan & Anr. [1999 (7) SCC510], it has been held that the context of section138B of the Negotiable Instruments Act invites aliberal interpretation favouring the person who hasthe statutory obligation to give notice under the Actbecause he must be presumed to be the loser in thetransaction and provision itself has been made in 3 his interest and if a strict interpretation is asked forthat would give a handle to the trickster chequedrawer. It is also well settled that once notice hasbeen sent by registered post with acknowledgmentdue in a correct address, it must be presumed thatthe service has been made effective. We do not findfrom the endorsement of the postal peon that thepostal peon was at all examined. In V. Raja Kumarivs. P. Subbarama Naidu & Anr. [2004 (8) SCC 774],again this Court reiterated the same principle andheld that the statutory notice under Sections 138and 142 of the Negotiable Instruments Act, 1881sent to the correct address of the drawer butreturning with the endorsement must be presumedto be served to the drawer and the burden to showthat the accused drawee had managed to get anincorrect postal endorsement letter on thecomplainant and affixed thereof have to beconsidered during trial on the background facts ofthe case.

arbitration clause

This appeal is directed against the Judgment and order for appointment of an Arbitrator on the ground that no Arbitration Clause was in existence between the parties.

It was held by the learned Addl. District Judge, that since the photocopy of the proposed agreement bears the signature of only the appellant and not that of the PGI, it could not be held that an arbitration agreement was executed between the parties and since there was no signature of the PGI on the said agreement, which was sent after signature of the appellant, remained only as an offer.

We may reiterate that in this case admittedly the documents which are on record apparently show supply of the material by the appellant to the PGI and acceptance thereof by the PGI in pursuance of the tender enquiry by them wherein tender of the appellant containing the arbitration clause was admittedly accepted by the PGI. Accordingly, we hold that arbitration agreement did exist and, therefore, dispute between the parties would be referred to an
Arbitrator for decision.

Therefore, considering the above aspects of the matter in this case, we must come to this conclusion that although no formal agreement was executed, the ender documents indicating certain conditions of contract contained an arbitration clause. It is also an admitted position that the appellant gave his tender offer which was accepted and the appellant acted upon it.

Insurance — whether a dispute raised by an insured, after giving a full and final discharge voucher to the insurer, can be referred to arbitration

When a contract contains an arbitration clause and any dispute in respect of the said contract is referred to arbitration without the intervention of the court, the Arbitral Tribunal can decide the following questions affecting its jurisdiction: (a) whether there is an arbitration agreement; (b) whether the arbitration agreement is valid; (c) whether the contract in which the arbitration clause is found is null and void and if so whether the invalidity extends to the Arbitration clause also.

It follows therefore that if the respondent before the Arbitral Tribunal contends that the contract has been discharged by reason of the claimant accepting payment made by the respondent in full and final settlement, and if the claimant counters it by contending that the discharge voucher was extracted from him by practicing fraud, undue influence, or coercion, the arbitral tribunal will have to decide whether the discharge of contract was vitiated by any circumstance which rendered the discharge voidable at the instance of the claimant. If the arbitral tribunal comes to the conclusion that there was a valid discharge by voluntary execution of a discharge voucher, it will refuse to examine the claim on merits, and reject the claim as not maintainable.

In what circumstances, a court will refuse to refer a dispute relating toquantum to arbitration, when the contract specifically provides forreference of disputes and differences relating to the quantum toarbitration?

a three Judge Bench of this Court culled out the following general principles as to when arbitration agreements operate and when they do not operate:

maintenance under Section 125 of the Code

Three questions arise for our consideration;

(i) whether interim maintenance could be awarded in absence of specific express provision in the Code;

(ii) whether the applicant-wife and her daughter are entitled to maintenance from the date of the order passed by the Family Court or from the date of application made by them under Section 125 of the Code; and

(iii) what could be the amount of maintenance which could be awarded by the
Court.

This appeal is filed against the order passed by

On the contentions raised, the following questions arise for our consideration : (i) Whether informed consent of a patient is necessary for surgical procedure involving removal of reproductive organs? If so what is the nature of such consent ?
(ii) When a patient consults a medical practitioner, whether consent given for diagnostic surgery, can be construed as consent for performing additional or further surgical procedure -- either as conservative treatment or as radical treatment -- without the specific consent for such additional or further surgery.
(iii) Whether there was consent by the appellant, for the abdominal hysterectomy and Bilateral Salpingo-oopherectomy (for short AH-BSO) performed by the respondent?
(iv) Whether the respondent had falsely invented a case that appellant was suffering from endometriosis to explain the unauthorized and unwarranted removal of uterus and ovaries, and whether such radical surgery was either to cover-up negligence in conducting diagnostic laparoscopy or to claim a higher fee ?
(v) Even if appellant was suffering from endometriosis, the respondent ought to have resorted to conservative treatment/surgery instead of performing radical surgery ?
(vi) Whether the Respondent is guilty of the tortious act of negligence/battery amounting to deficiency in service, and consequently liable to pay damages to the appellant

principles for grant or refusal to grant of injunction to restrain enforcement of a Bank Guarantee or a Letter of Credit

From the discussions made hereinabove relating to the principles for grant or refusal to grant of injunction to restrain enforcement of a Bank Guarantee or a Letter of Credit, we find that the following principles should be noted in the matter of injunction to restrain the encashment of a Bank Guarantee or a Letter of Credit :-
(i) While dealing with an application for injunction in the course of commercial dealings, and when an unconditional Bank Guarantee or Letter of Credit is given or accepted, the Beneficiary is entitled to realize such a Bank Guarantee or a Letter of Credit in terms thereof irrespective of any pending disputes relating to the terms of the contract.
(ii) The Bank giving such guarantee is bound to honour it as per its terms irrespective of any dispute raised by its customer.
(iii) The Courts should be slow in granting an order of injunction to restrain the realization of a Bank Guarantee or a Letter of Credit.
(iv) Since a Bank Guarantee or a Letter of Credit is an independent and a separate contract and is absolute in nature, the existence of any dispute between the parties to the contract is not a ground for issuing an order of injunction to restrain enforcement of Bank Guarantees or Letters of Credit.(v) Fraud of an egregious nature which would vitiate the very foundation of such a Bank Guarantee or Letter of Credit and the beneficiary seeks to take advantage of the situation.
(vi) Allowing encashment of an unconditional Bank Guarantee or a Letter of Credit would result in irretrievable harm or injustice to one of the parties concerned.

definition of Misconduct

CASE NO.: Appeal (civil) 6835 of 2000

PETITIONER:
Institute of Chartered Financial Analysts of India & Ors

RESPONDENT:
Council of the Institute of Chartered Accountants of India & Ors

DATE OF JUDGMENT: 16/05/2007
………………………………………………………….
Somewhere in this matter is held:
We are herein concerned with the term 'misconduct'. The word
'misconduct' which in generic sense would mean, as held in Probodh Kumar
Bhowmick v. University of Calcutta and Ors. 1994 (2) C.L.J. 456 is as
under:

"Misconduct, inter alia, envisages breach of discipline,
although it would not be possible to lay down
exhaustively as to what would constitute conduct and
indiscipline, which, however, wide enough to include
wrongful omission or commission whether done or
omitted to be done intentionally or unintentionally. It
means, 'improper behaviour; intentional wrong doing on
deliberate violation of a rule of standard or behaviour':

Misconduct is a transgression of some established and
definite rule of action, where no discretion is left except
what necessity may demand; it is a violation of definite
law a forbidden act. It differs from carelessness.
Misconduct even if it is an offence under the Indian
Penal Code is equally a misconduct."

[See also State of Punjab and Others v. Ram Singh Ex. Constable - AIR
1992 SC 2188 : (1992) 4 SCC 54 and B.C. Chaturvedi v. Union of India
(1995) 6 SCC 749].

Interpretation of law is the job of the superior court. An opinion of an
expert is not beyond the pale of judicial review. It would certainly not be so
when the statutory authority transgresses its jurisdiction. A decision taken in
excess of jurisdiction would render the same a nullity. [See Vasu Dev Singh
& Ors. v. Union of India & Ors. 2006 (11) SCALE 108]

If a notification issued under a statute is a law within the meaning of
Article 13(3)(a) of the Constitution, the same is liable to be struck down if it
is contrary to any of the fundamental rights guaranteed under the
Constitution of India. [See Indian Express Newspapers (Bombay) Private
Ltd. and Others v. Union of India and Others, (1985) 1 SCC 641]. In our
opinion the notification dated 03.08.1989 issued by respondent No.1 violates
Articles 14 and 19 (1) (g) of the Constitution and is hereby quashed.

What constitutes a reasonable notice by an arbitrator

For constituting a reasonable opportunity, the following conditions are required to be observed :

1. Each party must have notice that the hearing is to take place.
2. Each party must have a reasonable opportunity to be present at the hearing, together with his advisers and witnesses.
3. Each party must have the opportunity to be present throughout the hearing
4. Each party must have a reasonable opportunity to present evidence and argument in support of his own case.
5. Each party must have a reasonable opportunity to test his opponent's case by cross-examining his witnesses, presenting rebutting evidence and addressing oral argument.
6. The hearing must, unless the contrary is expressly agreed, be the occasion on which the parties present the whole of their evidence and argument.

Indian nationals should not be permitted to derogate from Indian law

Determination of nationality of the parties plays a crucial role in the matter of appointment of an arbitrator. A company incorporated in India can only have Indian nationality for the purpose of the Act. It cannot be said that a company incorporated in India does not have an Indian nationality. Hence, where both parties have Indian nationalities, then the arbitration between such parties cannot be said to be an international commercial arbitration.

Section 28 of the 1996 Act is imperative in character in view of Section 2(6) thereof, which excludes the same from those provisions which parties derogate from (if so provided by the Act). The intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country

a provision made in the agreement for referring the disputes to arbitration is not an effective substitute for a criminal prosecution when the dispute

What are the ingredients which constitute a criminal breach of trust to enable an aggrieved party to launch criminal proceedings against the accused? What is the effect of an arbitration clause in an Agreement when criminal proceedings have been initiated against the other parties to the Agreement?
Answer:
In Trisuns Chemical Industry vs. Rajesh Agarwal dealing with the effect of existence of arbitration clause in the Agreement on criminal prosecution on the ground that civil proceedings are also maintainable, the Supreme Court has held that quashing of FIR or a complaint exercising power under Section 482 CrPC should be limited to a very extreme exception; merely because an act has a civil profile is not enough to stop action on the criminal side. It was further held that a provision made in the agreement for referring the disputes to arbitration is not an effective substitute for a criminal prosecution when the disputed act constitutes a criminal offence.

the expression accidental falling of a passenger from a train carrying passengers

In our opinion, if we adopt a restrictive meaning to the expression accidental falling of a passenger from a train carrying passengers in Section 123(c) of the Railways Act, we will be depriving a large number of railway passengers from getting compensation in railway accidents. It is well known that in our country there are crores of people who travel by railway trains since everybody cannot afford traveling by air or in a private car. By giving a restrictive and narrow meaning to the expression we will be depriving a large number of victims of train accidents (particularly poor and middle class people) from getting compensation under the Railways Act. Hence, in our opinion, the expression accidental falling of a passenger from a train carrying passengers includes accidents when a bona fide passenger i.e. a passenger traveling with a valid ticket or pass is trying to enter into a railway train and falls down during the process. In other words, a purposive, and not literal, interpretation should be given to the expression.

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OIL & NATURAL GAS CORPORATION LTD. v. SAW PIPES LTD

The Court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

In the result, it is held that:-
A. (1) The Court can set aside the arbitral award under Section 34(2) of the Act if the party making the application furnishes proof that:-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
2) The Court may set aside the award:-

(i) (a) if the composition of the arbitral tribunal was not in accordance with the agreement of the parties,

(b) failing such agreement, the composition of the arbitral tribunal was not in accordance with Part-I of the Act.
(ii) if the arbitral procedure was not in accordance with:-
(a) the agreement of the parties, or (b) failing such agreement, the arbitral procedure was not in accordance with Part-I of the Act.
However, exception for setting aside the award on the ground of composition of arbitral tribunal or illegality of arbitral procedure is that the agreement should not be in conflict with the provisions of Part-I of the Act from which parties cannot derogate.
(c) If the award passed by the arbitral tribunal is in contravention of
provisions of the Act or any other substantive law governing the parties or is against the terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:-
(a) fundamental policy of Indian law; (b) the interest of India; or
(c) justice or morality, or (d) if it is patently illegal.
(4) It could be challenged:-
(a) as provided under Section 13(5); and (b) Section 16(6) of the Act.
B. (1) The impugned award requires to be set aside mainly on the grounds:-
(i) there is specific stipulation in the agreement that the time and date of delivery of the goods was the essence of the contract;
(ii) in case of failure to deliver the goods within the period fixed for such delivery in the schedule, ONGC was entitled to recover from the contractor liquidated damages as agreed;
(iii) it was also explicitly understood that the agreed liquidated damages were genuine pre-estimate of damages;
(iv) on the request of the respondent to extend the time limit for supply of goods, ONGC informed specifically that time was extended but stipulated liquidated damages as agreed would be recovered;
(v) liquidated damages for delay in supply of goods were to be recovered by paying authorities from the bills for payment of cost of material supplied by the contractor;
(vi) there is nothing on record to suggest that stipulation for recovering liquidated damages was by way of penalty or that the said sum was in any way unreasonable.
(vii) In certain contracts, it is impossible to assess the damages or prove the same. Such situation is taken care by Sections 73 and 74 of the Contract Act and in the present case by specific terms of the contract

service of notice

Modifying the decree of the High Court, this Court, HELD:

1. Where the findings by the Court of facts are vitiated by non-consideration of relevant evidence or by an essentially erroneous approach to the matter, the High Court is not precluded from recording proper findings. [572-H]

1.1 The notices issued by the respondent to the appellant containing the averments that he was ready and willing to perform the contract which were not actually served on the appellant because of his refusal to accept them must be presumed to have been served as contemplated by Section 27 of the General Clauses Act..Therefore the High Court was right in relying upon the averments in the notices which could be treated as part to the plaint

The court should approve the award with the desire to support it

The court should approve the award with the desire to support it, if that is reasonably possible rather than to destroy it, by calling it illegal. This court has very limited jurisdiction to interfere with the reasoned award. Only when the award is based upon a proposition of law which is unjustified in law, the error of law must appear from the award itself or from any document or note incorporated in it or appended to it. It is not permissible to travel beyond and consider material not incorporated in or
appended to the award.

Electricity Act, 2003 will prevail over Section 11 of the Arbitration and Conciliation Act, 1996

We make it clear that it is only with regard to the authority which can adjudicate or arbitrate disputes that the Electricity Act, 2003 will prevail over Section 11 of the Arbitration and Conciliation Act, 1996. However, as regards, the procedure to be followed by the State Commission (or the arbitrator nominated by it) and other matters related to arbitration (other than appointment of the arbitrator) the Arbitration and Conciliation Act, 1996 will apply (except if there is a conflicting provision in the Act of 2003). In other words, Section 86(1)(f) is only restricted to the authority which is to adjudicate or arbitrate between licensees and generating companies. Procedural and other matters relating to such proceedings will of course be governed by Arbitration and Conciliation Act, 1996, unless there is a conflicting provision in the Act of 2003.

Result of participation in a proceedings without showing protest or objection

State Bank of India vs. Ram Das : (2003) 12 SCC 474

It is an established view of law that where a party despite knowledge of the defect in the jurisdiction or bias or malice of an arbitrator participated in the proceedings without any kind of objection, by his conduct it disentitles itself from raising such a question in the subsequent proceedings. What we find is that the appellant despite numerous opportunities made available to it, although it was aware of the defect in the award of the umpire, at no stage made out any case of bias against the umpire. We, therefore, find that the appellant cannot be permitted to raise the question of bias for the first time before this Court.

Union of India vs. S. Vinodh Kumar : (2007) 8 SCC100 has held :-

It is also well settled that those candidates who had taken part in the selection process knowing fully well procedure laid down therein were not entitled to the same.

automatic suspension of the execution of the award

But then we noticed from the mandatory language of section 34 of the 1996 Act, that an award, when challenged under section 34 within the time stipulated therein, becomes unexecutable. There is no discretion left with the court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible. On facts of this case, there being no exceptional situation which would compel us to ignore such statutory provision, and to use our jurisdiction under Article 142, we restrain ourselves from passing any such order, as prayed for by the applicant.
However, we do notice that this automatic suspension of the execution of the award, the moment an application challenging the said award is filed under section 34 of the Act leaving no discretion in the court to put the parties on terms, in our opinion, defeats the very objective of the alternate dispute resolution system to which arbitration belongs. We do find that there is a recommendation made by the concerned Ministry to the Parliament to amend section 34 with a proposal to empower the civil court to pass suitable interim orders in such cases. In view of the urgency of such amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in law

Limitation act applicable to A & C Act 1996

AC Act is no doubt, a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto. AC Act does not prescribe the period of limitation, for various proceedings under that Act, except where it intends to prescribe a period different from what is prescribed in the Limitation Act. On the other hand, Section 43 makes the provisions of Limitation Act, 1963 applicable to Proceedings - both in court and in arbitration - under the AC Act. There is also no express exclusion of application of any provision of the Limitation Act to proceedings under AC Act, but there are some specific departures from the general provisions of Limitation Act, as for example, the proviso to section 34(3) and sub-sections (2) to (4) of section 43 of the AC Act. Where the Schedule to the Limitation Act prescribes a period of limitation for appeals or applications to any court, and the special or local law provides for filing of appeals and applications to the court, but does not prescribe any period of limitation in regard to such appeals or applications, the period of limitation prescribed in the Schedule to the Limitation Act will apply to such appeals or applications and consequently the provisions of sections 4 to 24 will also apply. Where the special or local law prescribes for any appeal or application, a period of limitation different from the period prescribed by the Schedule to the Limitation Act, then the provisions of section 29(2) will be attracted. In that event, the provisions of section 3 of Limitation Act will apply, as if the period of limitation prescribed under the special law was the period prescribed by the Schedule to Limitation Act, and for the purpose of determining any period of limitation prescribed for the appeal or application by the special law, the provisions contained in sections 4 to 24 will apply to the extent to which they are not expressly excluded by such special law. The object of section 29(2) is to ensure that the principles contained in sections 4 to 24 of Limitation Act apply to suits, appeals and applications filed in a court under special or local laws also, even if it prescribes a period of limitation different from what is prescribed in the Limitation Act, except to the extent of express exclusion of the application of any or all of those provisions.

judgment on Section 141of N. I. Act

In S.M.S Pharmaceuticals [(2005)8
SCC 89], a three Judge Bench of this Court examined
the scope and ambit of Section 141 of the Act and the 6
liability created with respect to the Directors and other
persons responsible for the affairs of the company.
Three questions were posed:
"(a) Whether for purposes of Section 141 of the Negotiable Instruments Act, 1881, it is sufficient if the substance of the allegation read as a whole fulfill the requirements of the said section and it is not necessary to specifically state in the complaint that the person accused was in charge of, or responsible for, the conduct of the business of the company.

(b) Whether a director of a company would be deemed to be in charge of, and responsible to, the company for conduct of the business of the company and, therefore, deemed to be guilty of the offence unless he proves to the contrary.
(c) Even if it is held that specific averments are necessary, whether in the absence of such averments the signatory of the cheque and or the managing directors or joint managing director who admittedly would be in charge of the company and responsible to the company for conduct of its business could be proceeded against."

The above questions were answered in the following terms: 7
(a) It is necessary to specifically aver in a complaint under Section 141 that at the time offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averments is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
(b) The answer to the question posed in sub-para (b) has to be in the negative. Merely being a director of a company is not sufficient to make the person liable under section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for the conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.
(c) The answer to Question ( C ) has to be in the affirmative. The question notes that the managing director or joint managing director would be admittedly in charge of the company and responsible to the company for the conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act. By virtue of the office they hold as managing director or joint managing director, these persons are in charge of and responsible for the conduct of business of the company. Therefore, 8
they get covered under Section 141. So far as the signatory of a cheque which is dishonoured is concerned, he is clearly responsible for the incriminating act and will be covered under sub-section (2) of Section 141."

International arbitration

Whenever in an interpretation clause, the word "means" is used the same must be given a restrictive meaning

disputes relating to specific performance of a contract can be referred to arbitration

Ms.Ruma Pal,J. observed: .....merely because the sections of the SpecificRelief Act confer discretion on courts to grant specificperformance of a contract does nto means that parties cannotagree that the discretion will be exercised by a forum oftheir choice. If the converse were true, then whenever arelief is dependent upon the exercise of discretion of acourt by statute e.g. the grant of interest or costs,parties chould be precluded from referring the dispute toarbitration.
We agree with this reasoning. We hold on Point 3 that disputes relating to specific performance of a contract can be referred to arbitration and Section 34(2)(b)(i) is not attracted

restrictive/negative covenants

The result of the above discussion is that considerations against restrictive covenants are different in cases where the restriction is to apply during the period after the termination of the contract than those in cases where it is to operate during the period of the contract. Negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of trade and therefore do not fall under section 27 of the Contract Act. A negative covenant that the employee would not engage himself in a trade or business or would not get himself employed by any other master for whom he would perform similar or substantially similar duties is not therefore a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one sided as in the case of W.H. Milsted and Son Ltd.(3).

JUDGMENT ON LIMITATION

Section 14 of the Limitation Act deals with exclusion of time of proceeding bona fide in a court without jurisdiction. On analysis of the said Section, it becomes evident that the following conditions must be satisfied before Section 14 can be pressed into service:
(1) Both the prior and subsequent proceedings are civil proceedings prosecuted by the same party;
(2) The prior proceeding had been prosecuted with due diligence and in good faith;
(3) The failure of the prior proceeding was due to defect of jurisdiction or other cause of like nature;
(4) The earlier proceeding and the latter proceeding must relate to the same matter in issue and;(5) Both the proceedings are in a court.

To attract the provisions of Section 14 of the Limitation Act, five conditions enumerated in the earlier part of this Judgment have to co-exist. There is no manner of doubt that the section deserves to be construed liberally. Due diligence and caution are essentially pre-requisites for attracting Section 14. Due diligence cannot be measured by any absolute standards. Due diligence is a measure of prudence or activity expected from and ordinarily exercised by a reasonable and prudent person under the particular circumstances.
The definition of good faith as found in Section 2(h) of the Limitation Act would indicate that nothing shall be deemed to be in good faith which is not done with due care and attention