Friday, August 21, 2020

[Cancellation Of Written Instruments] Action Instituted U/s 31 Specific Relief Act Is Arbitrable As It Is Not An Action In Rem: SC

 The Supreme Court has held that an action instituted under section 31 of the Specific Relief Act, 1963 is not an action in rem, but an action in personam, and therefore arbitrable.

In this case, a suit was filed by Deccan Paper Mills Co. Ltd. against Regency Mahavir Property and others, One of the prayers was to set aside some agreements as well. The Court had allowed the application filed by Regency to refer the matter to Arbitration. The High Court also dismissed the writ petition filed by Deccan in this regard. Thus, before the Apex Court in appeal, Deccan contended that since the prayer in the suit is for cancellation of three "written instruments", the proceeding under section being a proceeding in rem, would fall within one of the exceptions made out in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532. The contention was made referring to section 31 of the Specific Relief Act, 1963 and a Division Bench judgment of the High Court of Judicature at Hyderabad for Telangana and Andhra Pradesh in Aliens Developers Pvt. Ltd. v. M. Janardhan Reddy, (2016) 1 ALT 194 (DB) in which it was held that the action under Section 31 is an action in rem and therefore non-arbitrable.

Referring to Muppudathi Pillai v. Krishnaswami Pillai, AIR 1960 Mad 1, the Apex Court bench comprising of Justices RF Nariman, Indira Banerjee and Navin Sinha observed that the expression "any person" in Section 31 does not include a third party, but is restricted to a party to the written instrument or any person who can bind such party. It said:

"The principle behind the section is to protect a party or a person having a derivative title to property from such party from a prospective misuse of an instrument against him. A reading of section 31(1) then shows that when a written instrument is adjudged void or voidable, the Court may then order it to be delivered up to the plaintiff and cancelled – in exactly the same way as a suit for rescission of a contract under section 29. Thus far, it is clear that the action under section 31(1) is strictly an action inter parties or by persons who obtained derivative title from the parties, and is thus in personam. "

Disagreeing with the interpretation made by the Division Bench in Aliens Developers, the court observed that the factum of registration of what is otherwise a private document inter parties does not clothe the document with any higher legal status by virtue of its registration.

An action that is started under section 31(1) cannot be said to be in personam when an unregistered instrument is cancelled and in rem when a registered instrument is cancelled. The suit that is filed for cancellation cannot be in personam only for unregistered instruments by virtue of the fact that the decree for cancellation does not involve its being sent to the registration office – a ministerial action which is subsequent to the decree being passed.

Overruling Alien Developers, the bench dismissed the appeals and further observed:

"The proceeding under section 31 is with reference to specific persons and not with reference to all who may be concerned with the property underlying the instrument, or "all the world". Clearly, the cancellation of the instrument under section 31 is as between the parties to the action and their privies and not against all persons generally, as the instrument that is cancelled is to be delivered to the plaintiff in the cancellation suit. A judgment delivered under section 31 does not bind all persons claiming an interest in the property inconsistent with the judgment, even though pronounced in their absence"


"..The reasoning in the aforesaid judgment would again expose the incongruous result of section 31 of the Specific Relief Act being held to be an in rem provision. When it comes to cancellation of a deed by an executant to the document, such person can approach the Court under section 31, but when it comes to cancellation of a deed by a non-executant, the non-executant must approach the Court under section 34 of the Specific Relief Act, 1963. Cancellation of the very same deed, therefore, by a non-executant would be an action in personam since a suit has to be filed under section 34. However, cancellation of the same deed by an executant of the deed, being under section 31, would somehow convert the suit into a suit being in rem. All these anomalies only highlight the impossibility of holding that an action instituted under section 31 of the Specific Relief Act, 1963 is an action in rem."

Case details
Case no.: CIVIL APPEAL NO. 5147 OF 2016
Case name: DECCAN PAPER MILLS CO. LTD. vs. REGENCY MAHAVIR PROPERTIES & ORS.
Coram: Justices RF Nariman, Indira Banerjee and Navin Sinha
Counsel: Adv Meena Doshi and Sr. Adv Vinay Navre


Source: https://livelaw.in/top-stories/section-31-specific-relief-act-not-action-in-rem-arbitrable-161746

 

Thursday, August 6, 2020

More than one Units/Flats/Apartments_Consumer_NCDRC


Case No.

Complainant

Respondent

CC/975/2017

RAJEEV KUMAR SINGH

JAI PRAKASH ASSOCIATES LTD. & ANR.

 

NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION

NEW DELHI

 

 

CONSUMER CASE NO. 976 OF 2017

 

 

1. RAJEEV KUMAR SINGH

S/o. Shri. K.P. Singh, R/o. D-63, Sector -40,

Noida- 201301

U.P.

...........Complainant(s)

Versus

 

1. JAI PRAKASH ASSOCIATES LTD. & ANR.

Sector - 128,

Noida

Uttar Pradesh - 201 304

2. Jaypee Infratech Limited.,

Sector - 128,

Noida - 201 304

U.P.

...........Opp.Party(s)

 

15. So far as the question of Complainant being or not being a consumer is concerned, this Commission has already taken a view in a number of cases that if the complainant is not in the business of purchase/sale of the plots/flats, he will be treated as a consumer.  This Commission in Aashish Oberai  Vs. Emaar MGF Land Limited, Consumer Case No. 70 of 2015, decided on 14.09.2016, has held as follows:-


“In the case of the purchase of the houses which a builder undertakes to construct for the buyer, the purchase can be said to be for a commercial purpose where it is shown, by producing evidence, that the buyer is engaged in the business of a buying and selling of houses and or plots as a trading activity, with a view to make profits by sale of such houses or plots.  A person cannot be said to have purchased a house for a commercial purpose only by proving that he owns or had purchased more than one houses or plots.  In a given case, separate houses may be purchased by a person for the individual use of his family members.  A person owning a house in a city A may also purchase a house in city B for the purpose of staying in that house during short visits to that city.  A person may buy two or three houses if the requirement of his family cannot be met in one house.  Therefore, it would not be correct to say that in every case where a person owns more than one house, the acquisition of the house is for a commercial purpose”.


It was also observed that:-


“It would be pertinent to note that there is no evidence of the complainant having purchased and then sold any residential property.  Therefore, it would be difficult to say that he was engaged in the business of the buying and selling of the property or that villa in question was booked by him for speculative purposes”.

16. In another case, Kavit Ahuja Vs. Shipra Estate Ltd. & Jai Krishna Estate Developers Pvt. Ltd.,  I(2016) CPJ31(NC), wherein three flats were booked by the complainant, this Commission held the complainant to be a consumer within the meaning of Section 2(1)(d) of the Consumer Protection Act, 1986 and held as follows:-


“In the case of the purchase of houses which the service provider undertakes to construct for the purchaser, the purchase can be said to be for a commercial purpose only where it is shown that the purchaser is engaged in the business of purchasing and selling houses and / or plots on a regular basis, solely with a view to make profit by sale of such houses.  If however, a house to be constructed by the service provider is purchased by him purely as an investment and he is not undertaking the trading of houses on a regular basis and in the normal course of the business profession or services in which he is engaged, it would be difficult to say that he had purchased houses for a commercial purpose.  A person having surplus funds available with him would not like to keep such funds idle and would seek to invest them in such a manner that he gets maximum returns on his investment.  He may invest such funds in a Bank Deposits, Shares, Mutual Funds and Bonds or Debentures etc.  Likewise, he may also invest his surplus funds in purchase of one or more houses, which is/are proposed to be constructed by the service provider, in the hope that he would get better return on his investment by selling the said house(s) on a future date when the market value of such house (s) is higher than the price paid or agreed to be paid by him.  That by itself would not mean that he was engaged in the commerce or business of purchasing and selling the house (s).

7.      Generating profit by way of trading, in my view is altogether different from earning capital gains on account of appreciation in the market value of the property unless it is shown that the person acquiring the property was engaged in such acquisition on a regular basis and it was by way of a business activity.


8.  As observed by the Hon’ble Supreme Court in Laxmi Engineering Works (supra) what is a ‘commercial purpose’ is a question of fact to be decided in the facts of each case and it is not the value of the goods that matters but the purpose for which the goods brought are put to. The same would be equally applicable to for hiring or availing services.

9.  In any case, it is not appropriate to classify such acquisition as a commercial activity merely on the basis of the number of houses purchased by a person, unless it is shown that he was engaged in the business of selling and purchasing of houses on a regular basis. If, for instance, a person has two-three children in his family and he purchased three houses one for each of them, it would be difficult to say that the said houses were purchased by him for a commercial purpose. His intention in such a case is not to make profit at a future date but is to provide residential accommodation to his children on account of the love and affection he has for his children. To take another example, if a person has a house say in Delhi but he has business in other places as well and therefore, purchases one or more houses at other places where he has to live presently in connection with the business carried by him, it would be difficult to say that such acquisition is for commercial purpose.  To give one more example, a person owning a house in a Metropolitan city such as Delhi, or Mumbai, may acquire a house at a hill station or a place, which is less crowded and more peaceful than a Metropolitan city, in my view, it cannot be said that such acquisition would be for commercial purpose.  In yet another case, a person may be owning a house but the accommodation may not be sufficient for him and his family, if he acquires one or more additional houses, it cannot be said that he has acquired them for commercial purpose.  Many more such examples can be given.  Therefore, it cannot be said that merely because of the complainant had agreed to purchase three flats in the same complex the said acquisition was for a commercial purpose”.


17. This Commission, in Rajesh Malhotra & Ors. Vs. Acron Developers & 2 Ors., First Appeal No. 1287 of 2014, decided on 05.11.2015 has held as follows:-


“12.     Therefore, in order to determine whether the goods are purchased for commercial purpose, the basic pre-requisite would be whether the subject goods have been purchased or the services availed of with the prime motive of trading or business activity in them, for the purpose of making profit, which, as held in Laxmi Engineering (supra) is always a question of fact to be decided in the facts and circumstances of each case”.

 

18. On the basis of the above authoritative judgements of this commission, there seems to be no iota of doubt that the Complainant in the present complaint is a consumer.  The judgment relied upon by the Opposite Party in Consumer Complaint No.159/2012 Anil Dutt vs. M/s Business Park Town Planners Ltd. (BPTP) (Supra) relates to a case where 10 units were booked by one consumer and clearly this Commission has observed that a person booking 10 plots cannot be treated as consumer as the plots were booked for commercial purpose.  In Laxmi Engineering Works Vs. P.S.G Industrial Institute (1995) 3 SCC583, Hon’ble Supreme Court has observed that the finding on issue of commercial purpose will depend on facts and circumstances in each case.  In the present case, only two flats were booked by the Complainant and therefore, facts of the two cases are different.  Thus, the judgment of this Commission in Consumer Complaint No.159/2012 Anil Dutt vs. M/s Business Park Town Planners Ltd. (BPTP) (Supra) cannot be applied in the present case.  


Friday, February 28, 2020

LEGAL TERRORISM: Endless adjournments, delays; deny justice; Can it be curbed? http://www.journeyline.in/newsdet.aspx?q=139370


Make any false averment, conceal any fact, raise any plea, produce any false document, deny any genuine document, it will successfully stall the litigation, and in any case, delay the matter endlessly. The other party will be coerced into a settlement which will be profitable for one party and the probability of the court ordering prosecution for perjury is less than that of meeting with an accident while crossing the road.

The Supreme Court in Swaran Singh's case observed as under:

" ...Perjury has also become a way of life in the law courts. A trial Judge knows that the witness is telling a lie and is going back on his previous statement, yet he does not wish to punish him or even file a complaint against him. He is required to sign the complaint himself which deters him from filing the complaint. Perhaps law needs amendment to clause (b) of Section 340 (3) of the Code of Criminal Procedure in this respect as the High Court can direct any officer to file a complaint. To get rid of the evil of perjury, the court should resort to the use of the provisions of law as contained in Chapter XXVI of the Code of Criminal Procedure."

The Court's time and resources are consumed in attending to uncalled for litigation as it is created by clever litigants since they know that current procedures and practices hold an incentive for wrongdoer. At present 90% litigation in the court is created since the movers know the wheel of litigation is endless once struck in this rigmarole and frequent frivolous adjournments without costs are matter of practice so litigation is luxury for certain hardcore litigants and they generate Litigation.

Those involved receive less than full Justice and infact greater number than those involved who suffer injustice because they have less access to justice, infact lack of awareness and confidence in the justice system.

One of the major reasons of frivolous litigation and delay which is a cause of injustice that no adequate realistic costs are imposed by judges which encourages one of the party who is interested in delay only and this has been observed by the Supreme Court of India also in Rameshweri Devi's case where ways and methods have been devised to curb delays.

The parties play foul with court procedure and don't follows the interim orders and procedure since they know the practice in courts and by delaying tactics they get easy adjournment on every date. The parties raise frivolous unwarranted pleas, claims, defences, adopt obstructionist and delaying tactics mainly because the courts don't impose actual or realistic costs including appearance fees of the counsel which union of India is paying Rs. 6500/- Per appearance to their panel counsels and about Rs 10000 to a senior panel counsel.

The unsuccessful party usually remains uncompensated in courts and it operates the main motivating factor for unscrupulous litigants and when wins only nominal cost is awarded which is a source & strength for wrongdoer.

Unless the courts by passing appropriate directions, remove the basic cause for motivation or incentives, uncalled for litigation will flourish. Court time and resources will be consumed for nothing and "Justice will be delayed and denied" and this process to delay justice will remain endless.

Time has come that in case the court wants to deliver justice then the frivolous adjournments will have to be curbed with heavy hand and impose heavy and realistic costs to compensate the lawyer appearing in the case so that he may not be embarrassed for unrealistic adjournments. There are certain lawyers who speak lie just to seek adjournment in order to benefit to their client since they know delay defeats Justice but there are many lawyers who are virtuous and hand working and want to get the judicial system reclaim the lost glory.

Delays hamper achieving justice well in time therefore, to check the delays by impurity in presentation impose cost and compensate the lawyers representing the other side so that his appearance and Party's court visit are properly compensated. This will help to deliver justice quickly and counter the deployment of obstructive tactics. A Judge can't be party to such tactics therefore; the judges must impose realistic cost to compensate the other party appearing in the case. This practice has been fully endorsed by the Supreme Court in latest guide lines. Prolonging litigation is common place because, in practice the courts are reluctant to order actual cost incurred by the other side therefore to check unnecessary delays caused adequate compensation by way of costs should be imposed.

Unfortunately our courts are flooded with such cases where delay is profitable for wrongdoer.

It is a matter of common knowledge that domestic servants, gardeners, watchmen, caretakers or security men employed in premises whose status is nothing more than caretaker or Licence indiscriminately file suits for injunctions not to be dispossess by making all sorts of allegations against true owner or Landlord and even filing forged documents and then blackmail the true owner or Landlord by demanding chunk of money for withdrawing suits "using" the legal system to extort money by this sort of legal terrorism.

It is happening because it is general impression that even if ultimately unauthorized person thrown out of the premises the court would not ordinarily punish the unauthorised person by awarding realistic and actual mesne profit, imposing costs or ordering prosecution to compensate the victim and then it would take years and years to get the own land, house or shop back so one has to settle on table by paying the wrong doer.

It is also a matter of common knowledge that lakhs of flats, houses, shops are kept locked for years because owners are sure that caretaker, License or tenant will not vacate the premises for years together despite expiry of lease period, thus causing wastage of nation's wealth. But this is not the case in Europe or America, as laws and moreover execution of laws is stringent. A lease if violated has serious repercussions there but here even if the lease / rent deed or license expires no one bothers to vacate the premises as the law, procedure tilts in his favour and he can get the premium of his wrong.

In some cases the tenants stake claim for ownership against true owner when under Law Tenant can't challenge the status of landlord or ownership but he knows that hardly the courts have any time to decide such cases and thus they demand chunk of money and Landlord or owners are compelled due to the delayed process of courts to pay the money or forget about their property.

Hardly there is any case where delay tactics are not adopted and prolong the case for years and years. Courts should not become prey of such tactics but must compensate the otherside properly and award costs which should not be less than Rs. 10000/ per adjournment or more for frivolous adjournments. Courts must come heavily against the party who dares to file forged documents and commits perjury such a party must be prosecuted to check the purity of legal system.

It will be difficult to control uncalled, frivolous litigation unless the courts don't control undue adjournments and delay the profit to wrongdoers. Let there be no incentive for frivolous litigation and false adjournments.

The High Court and Administrative Judge must keep periodical monitoring of the proceedings of Lower/ subordinate Courts and incase any Judge who does not check delay his promotion avenues must be stopped and be declared deadwood. All promotions must be based on his quick qualitative disposal and not seniority.

Some classic example which abundantly depicts the picture of law the Civil Litigation moves in our courts and how unscrupulous litigants, can till eternity harass the opposite party, their children by misusing judicial system.

Decided after 8 years despite two High Court directions to decide the case in 6 months.

In one case under J&K Hindu Marriage Act petition was filed for Divorce before matrimonial Court Jammu and mandate of law is to decide the case in 6 months . Has the High Court noticed that why the cases are not being decided in 6 months or 1 year or 2 years but taking atlest 5-6 years or more? Has the Administrative Judge ever expressed displeasure over undue adjournments granted without costs?

The High Court has framed rules on 3-03-2010 which mandate no adjournment shall be granted without exemplary costs. Has the administrative Judge read out the proceedings of files and expressed concern or asked for explanations? High Court orders too may not adhered too in several of such cases if checked, and number of frivolous adjournments granted to the wrongdoer. Similarly the mandate of Law M 138 N.I Act to decide the complaint in 6 months why the complaints are not decided in 6 months or one year and against the law the Court is taking 4-5 years in Jammu even in cheque bounce cases whileas in rest of the country the Magistrates have made it a point to decide it if not within 6 months then atlest in 1 years but in J&K it is strange that the cases continue ad infinitum and the concerned Lawyer who seeks adjournments after adjournments is not even bothered and Magistrate too has no fear of High Court rules, Apex Court verdicts and the statutory law? Let the administrative Judges call for explanations of the concerned Magistrates and ensure the disposal in 6 months of such cases. High Court of J&K has codified rules governing subordinate courts and divided the cases into 4 categories/tracks. The rule framed by High Court of J&K reads: Relevant extract:-

Trial courts and First Appellate Subordinate Courts Rules, 2010 GAD Letter No. GDC-15 / CM/ 2010, dt. 3.3.2010

In exercise of the powers conferred by section 102 of the Constitution of Jammu and Kashmir, section 122 of the Code of Civil Procedure, Samvat 1977 (X of 1977), section 8 of the Jammu and Kashmir State Civil Courts, Act, Samvat 1977 and Clause 26 of the Letters Patents (Jammu and Kashmir) and all other powers enabling it in this behalf, the High Court of Jammu and Kashmir, with the prior approval of the Governor, hereby makes the following Rules, namely:-

DIVISION OF CIVIL SUITS AND APPEALS INTO TRACKS:

1. Based on the nature of dispute, the quantum of evidence to be recorded and the time likely to be taken for the completion of suit, the suits shall be channeled into four tracks; Track 1 May include suits for maintenance divorce and child custody and visitation rights, grant of letters of administration and succession certificate and simple suits for rent or for eviction( upon notice under section 106 of the Transfer of Property Act) Track 2 may include money suits and suits based solely on negotiable instruments. Track 3 may include suits concerning partition and like property disputes, trade marks, copyrights and other intellectual property matters. Track 4 may include any other matter. All effort shall be taken for complete deposal of the suits in Track 1 within a period of 9 months in Track 2 within a period of 12 months and in Tracks 3 and 4 within a period of 24 months from the date of institution of a suit.

Rule 8, 9, and 10 reproduced.


8. Costs

The costs shall invariably follow the event. Where a party succeeds ultimately on one issue or point but loses on a number of other issues or points which were unnecessarily raised, costs shall be appropriately apportioned. Special reasons shall have to be assigned if costs are not being awarded. Costs shall be assessed according to rules in force. If any of the parties has unreasonably protracted the proceedings, the Judge shall consider exercising discretion to impose exemplary costs after taking into account the expense incurred for the purpose of attendance on the adjourned dates.

9. Proceedings for perjury

If the trial court, while delivering the judgment, is of the view that any of the parties or witnesses have willfully and deliberately uttered blatant falsehoods, he shall consider whether it is a fit case where prosecution should be initiated for perjury and order prosecution accordingly.

10. Adjournments

When a suit is listed before a court and any party seeks adjournment, the court shall have to verity whether the party is seeking adjournments due to circumstances beyond the control of the party, as required by clause (b) of the proviso to sub-rule 2 of Rule 1, Order 17 Civil Procedure Code. The court shall impose costs as specified in sub-rule 2 of Rule 1, Order 17 Civil Procedure Code."

A million dollars question arises whether High Court framed rule are meant to violate with impunity or it is a meaningless exercise to frame rules? Let the High Court decide whether the rules are to be framed to violate or implement depends on the will of the High Court itself. To me it appears no rule can be permitted to be violated particularly when it is made practice of the day. There must be an accountability why the rules are being violated and one of the party put to advantageous position to prolong proceedings endlessly.
Adjourning the case is no justice rather it is injustice to other party. It is high time to identify Magistrates/ Subordinate Judges who decide the cases expeditiously with time bound qualitaive Judgments must suitably rewarded by out of turn promotion and elevation to High Court. Seniority is no criterion for elevation, let it be checked and only deserving efficient and having unquestionable reputation amongst the Bar and general public be elevated out of turn to High Court. It will be a great boost for those who work and encourage all other judges to decide cases well within stipulated period.

Bar members too must evaluate performance and laud the role of such Judges and recommend to High Court for out of turn promotion. The Delhi High Court Judges and Chief Justice have taken a drive against some of the Judges whose performance was below average and are thrown out of service. Let the same drive be initiated by J&K High Court Judges and particularly the Administrative Judge to physically examine the files of the Lower Courts once in a week to gear up the justice delivery system.



Friday, January 3, 2020

CLAIMING DAMAGES? DON’T GO UNDER IBC, SAYS NCLT

INTRODUCTION

The National Company Law Tribunal, Mumbai (“NCLT”) in a recent case in TATA Chemicals Limited v/s. Raj Process Equipment’s and Systems Private Limited1 dismissed a petition of Tata Chemicals (“Petitioner”) filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 (“IBC”) and imposed costs of INR 10 lakhs (USD 14,000 approximately) upon the Petitioner, for its attempts to initiate a Corporate Insolvency Resolution Process (“CIRP”) against the corporate debtor on ulterior motives.

FACTUAL MATRIX

The Petitioner had approached Raj Process Equipment’s & Systems Private Ltd. (“Corporate Debtor”) for the designing, building, transporting, erecting and commissioning of certain industrial equipment. A purchase order was raised by the Petitioner for the said equipment, for which the Petitioner made an advance payment of ₹4,40,000 (“Advance Amount”).

The Petitioner argued that despite repeated reminders, Corporate Debtor failed to deliver the equipment on the scheduled delivery date. The Respondent submitted that delays caused were inter alia, due to frequent changes in specifications and rectifications to the drawings suggested by the Petitioner,

The Petitioner proceeded to terminate the purchase order and demanded refund of the Advance Amount, claiming an additional amount of INR 9,15,00,000 /- towards financial loss (“Financial Damages”). Further, the Petitioner claimed interest of INR 70,84,311 /- and INR 34,066/- respectively.

The Petitioner filed the petition under Section 9 of the IBC, claimed that the actual principal amount due is INR 9,19,40,000 (“Principal Amount”).

JUDGMENT

The Claim of Financial Damages does not qualify as Operational debt

The NCLT observed that Section 73 of the Indian Contract Act provides that when a contract has been broken, the party who suffers such breach is entitled to receive, from the party, who has broken the contract, compensation for any loss or damage caused to him and which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Further, when an obligation resembling those created by contract has been incurred and not discharged, the injured party is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it, and had broken his contract, it observed. Accordingly, the NCLT found that in the present case, the Petitioner has raised claims of INR 5,00,000 per day for loss of production, which is not only in nature of consequential damages, but also completely arbitrary and baseless, and which cannot be relied upon in absence of adjudication

Placing reliance in the cases of E-City Media Private Limited vs Sadhrta Retail Limited 2 and in Union of India vs Raman Iron Foundry3 , the NCLT observed that the claim regarding Financial Damages was without any adjudication and therefore not an ‘operational debt’ as defined under the IBC. It held that a claim for damages does not become operational debt until the liability is adjudicated upon and damages are assessed by a competent authority in law.

Petitioner is not an “operational creditor”

The NCLT observed that no goods or services were provided by the Corporate Debtor to the Petitioner and that, in fact, it is the Corporate Debtor who is the vendor to whom the Petitioner hasn’t made payments for goods. Since the Claim of the Petitioner was not based on any goods or services actually supplied, it would not fall under the definition of operational debt. The NCLT thus held that given the circumstances, the Petitioner would not fall under the definition of ‘Operational Creditor’ under the IBC.

Insolvency petition filed with malafide intentions

The court observed that the Principal Amount, as stated in the petition and affidavit, was not even quantified at the time of filing and was 209 times the actual amount advanced by the Petitioner to the Corporate Debtor. This, the NCLT observed, only showed that the petition was filed basis false information.

The Petitioner had also filed an affidavit certifying the contents of the petition. This, the NCLT found, clearly showed that the Petitioner had filed the petition for initiation of CIRP fraudulently and with a malicious intent for any purpose other than for the resolution of insolvency and therefore invoked Section 65 of the IBC.

In light of the above, and without going into the merits, the NCLT held that the Petition has been filed with ulterior motive to get insolvency petition admitted which comes under purview of Section 654 of the IBC, consequently dismissing the Petition and imposing costs of INR 10,00,000 on the Petitioner, to be paid to the “Prime Minister National Relief Fund”.

CONCLUSION

In this judgment, the NCLT has reaffirmed the main purpose of IBC which is the resolution of distressed companies and not to provide parties a weapon to arm twist an entity into succumbing to claims, which may not even have been adjudicated upon. This judgement clarifies that a claim for damages does not become operational debt until the liability is adjudicated upon and damages are assessed by a competent authority. Further, this decision should deter parties from filing petitions without adequately and accurately quantifying their claims.

When it comes to filing a petition under Section 9 of the IBC, parties should be careful to ensure that the claim for operational debt due made therein is undisputed, crystallized, payable and not something which requires further adjudication by a competent authority, or else penalties may be imposed upon them under Section 65 of the IBC.


1 CP 21/I&BP/NCLT/MAH/2018

2 CP No.367 of 2009

3 (1974 AIR 1265, 1974 SCR (3) 556)

4 Section 65. (1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees. (2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees


http://www.nishithdesai.com/information/news-storage/news-details/article/claiming-damages-dont-go-under-ibc-says-nclt.html

Wednesday, December 25, 2019

Economic Duress

Concept of Economic Duress : One party can withhold payment due to other party and can release it only if other party signs "full discharge voucher". Courts will grant relief in such cases. DICITEX FURNISHING LTD case. Supreme Court dtd.13/11/19 in CA No.8550/19

Source: https://www.linkedin.com/feed/update/urn:li:activity:6610072513546416128

Friday, November 29, 2019

Supreme Cour_Consumer Protection Act, 1986 _ services hired or goods purchase by employers for its employees are not commercial



The Hon'ble Supreme Court referring services hired or goods purchase by employers for its employees  in Civil Appeal No. 12322 of 2016 titled as Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Others
decided on 14-11-2019 clarifed at Para 6 thereof:

 ".......As discussed earlier, if in all such cases the third party service-provider disclaims liability before consumer forums on the ground that the hirer of the service is engaged in trade and commerce, it will open a Pandora's box wherein the employer as well as the employees will not have any remedy. This would defeat the object of providing a speedy remedy to consumers, as outlined in the provisions of the 1986 Act. Further, setting such a precedent may discourage employers from undertaking to provide any facilities for their employees. Hence, it is necessary to clarify that the provision of such services would not usually be included in the definition of 'commercial purpose."


Para 7 To summarize from the above discussion, though a straightjacket formula cannot be adopted in every case, the following broad principles can be culled out for determining whether an activity or transaction is 'for a commercial purpose':

(i) The question of whether a transaction is for a commercial purpose would depend upon the facts and circumstances of each case. However, ordinarily, 'commercial purpose' is understood to include manufacturing/industrial activity or business-to-business transactions between commercial entities.

(ii) The purchase of the good or service should have a close and direct nexus with a profit-generating activity.

(iii) The identity of the person making the purchase or the value of the transaction is not conclusive to the question of whether it is for a commercial purpose. It has to be seen whether the dominant intention or dominant purpose for the transaction was to facilitate some kind of profit generation for the purchaser and/or their beneficiary.

(iv) If it is found that the dominant purpose behind purchasing the good or service was for the personal use and consumption of the purchaser and/or their beneficiary, or is otherwise not linked to any commercial activity, the question of whether such a purchase was for the purpose of 'generating livelihood by means of selfemployment' need not be looked into.



Source

https://www.advocatekhoj.com/library/judgments/announcement.php?WID=12244

Thursday, October 24, 2019

Supreme court _ Interest is not a penalty or punishment at all, but it is the normal accretion on capital

14.    I find some force in the argument of the learned counsel for the petitioner that the State Commission has not awarded any interest on the amount of refund on the ground that there was no concluded contract in the matter.  The fact of the matter is that amount remained deposited with the opposite parties for quite sometime and therefore, the complainant is entitled to some interest on the deposited amount as held by Hon’ble Supreme Court in Alok Shanker Pandey Vs. Union of India &Ors., II (2007) CPJ 3 (SC) as follows:-


“9.  It may be mentioned that there is misconception about interest.  Interest is not a penalty or punishment at all, but it is the normal accretion on capital.  For example if A had to pay B a certain amount, say 10 years ago, but he offers that amount to him today, then he has pocketed the interest on the principal amount.  Had A paid that amount to B 10 years ago, B would have invested that amount somewhere and earned interest thereon, but instead of that A has kept that amount with himself and earned interest on it for this period.  Hence equity demands that A should not only pay back the principal amount but also the interest thereon to B.”








NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
NEW DELHI
 
REVISION PETITION NO. 3290 OF 2013
 
(Against the Order dated 23/07/2013 in Appeal No. 971/2010 of the State Commission Maharashtra)
1. YOGESH NANDLAL HEDA
R/O 1466, 'C' WARD, LAXMIPURI, TALUKA-KARVEER,
DISTRICT : KOLHAPUR
MAHARASTRA
...........Petitioner(s)
Versus 
1. M/S. SUBAL CONSTRUCTION & 3 ORS.
ADD: 2104/13, 'E' WARD. RUKMINI NAGAR,
KOLHAPUR
MAHARASTRA
2. SHRI SUNIL BALRAM MAHAJAN,
ADD: 2104/13, 'E' WARD. RUKMINI NAGAR,
KOLHAPUR
MAHARASTRA
3. SHRI SATISH VIJAYKANT MOOG,
R/O BAJAR GATE, BEHIND KOHLAPUR, MUNICIPAL CORPORATION
KOHLAPUR,
MAHARASTRA
4. SHRI CHETAN SUNDARLAL KAJARIA,
R/O PLOT NO-5, ANKIT APARTMENTS, NAGLA APARTMENTS, NAGLA PARK,
KOHLAPUR
MAHARASTRA
...........Respondent(s)

BEFORE: 
 HON'BLE MR. PREM NARAIN,PRESIDING MEMBER



Dated : 23 Oct 2019

Monday, June 3, 2019

Home Loan Against The Security Of The Allotment Latters



City and Industrial Development Corporation of Maharashtra State Ltd., (For short: CIODCO), besides being the Development Authority, has been constructing the apartments and allotting the same to the intending purchasers and, similarly, Maharashtra Housing And Development Authority, (For short: MHADA) with the main objective of providing affordable housing to the public. CIDCO initially issues an allotment letter on payment of EMD and the Agreement for Sale is executed after the payment of the full and final sale consideration with the miscellaneous charges and it grants permission to the allottee to mortgage the apartment to any of the 44 financial institutions, as per the names mentioned therein. Though MHADA is also a wholly owned company of the State Government, it, initially, issues only provisional Offer letter and on the payment of the balance sale consideration and other requirements, it issues the final allotment letter. The Banks, both in public sector and private sector, and the housing finance companies (For short Financial Institutions) have been advancing loans to such allottees for making the payment of the sale consideration etc. to CIDCO or MHADA, as the case may be, to acquire such apartments against the deposit of the allotment letters and the permission to mortgage issued by such bodies. The question arises whether legally enforceable equitable mortgage is created by simply depositing the allotment letter and letter permitting mortgage.
This issue arose in the case of an industrial plot allotted by the Government of Andhra Pradesh with the Industrial Development Area, at NACHARAM (A.P), subsequently, vest with Andhra Pradesh Industrial Infrastructure Corporation ( For short: APIIC), to a Company named United Auto Tractor Ltd., to set up an industrial unit by way of an Order dated 18.7.1972, followed by an unregistered agreement dated 3.8.1972 entered into between the State Government and the said Company, inter-alia, providing that only on the completion and full payment of the entire consideration amount, sale deed shall be executed and registered in the name of the company and till such time, the ownership of the property shall continue to remain with the Government. On the said day, the said Government, through the Director of the Industries, issued a letter to the Company permitting the mortgage of the said land to any scheduled Bank to obtain financial assistance. Accordingly, the said Company availed of a loan from the Syndicate Bank by mortgaging the said land by depositing the said allotment letter-cum-agreement (unregistered) and the permission to mortgage as an equitable mortgage. Since the said Company could not keep up its commitment, the Syndicate Bank filed a Petition in the year 1995 before the Debt Recovery Tribunal, Bangalore, for the recovery of more than Rs.2.5 crores and the Bank intended to enforce it charge on the property. The petition was allowed by the DRT and a Recovery Certificate was issued on 1.7.1997. It resulted into multiplicity of litigation and the Division Bench of Andhra Pradesh High Court took up all the writ petitions for consideration and after hearing all the parties, it held that Syndicate Bank did not act diligently in advancing huge financial assistance to the Company on the strength of a letter of no-objection purported to have been issued by the Director of Industries and it was surprising that Syndicate Bank equated that letter to that of a title deed and, accordingly, advanced monies without taking proper care and caution as the Government merely granted permission by putting the Company in possession of the land and the property always remained with the Government. No sale deed was executed by the Government in favour of the Company and the Company had taken APIIC, as well as the Syndicate Bank, for a ride. In the circumstances the Hon’able High Court held the Proclamation of Sale Notice dated 21.1.1998 issued by the Recovery Officer as ultra virus. It further held that the Letter dated 3.8.1972 by no stretch of imagination could be characterized as a document of title so as to enable the Company to mortgage the same by deposit of title deeds in order to secure financial assistance from the Syndicate Bank.
Aggrieved by the said judgment of Andhra Pradesh High Court, the Syndicate Bank went to the Supreme Court of India by way of various appeals, mainly, being Civil Appeal No.7824 of 2004 (Supreme Court - Daily Orders Syndicate Bank vs Estate Officer And Manager ... on 20 February, 2019 https://indiankanoon.org/doc/85953436/). The matter was listed before Hon’able Mr. Justice S.B. Sinha and Hon’able Mr. Justice Markandey Katju on 30.8.2007. It was pleaded on behalf of Syndicate Bank that a valid equitable mortgage was created by deposit of the allotment/Agreement dated 3.8.72 with the permission letter of the same date from the Director of Industries for the mortgage in favour of the financial institutions and these documents were the documents of title within the meaning of section 58 (f) of the Transfer of Property Act. The learned Solicitor General and Senior Counsel Shri A.K.Ganguli, appearing on behalf of State Government and APIIC, submitted that the Agreement dated 3.8.72 being not registered, no title was conferred on the Company and pursuant whereto, the company had not derived any assignable title. The letter dated 3.8.72 issued by the Director of Industries was not being a document of title, the judgment of the High Court could not be assailed. The main question which arose for consideration of the Hon’able Supreme Court was whether for satisfying the requirements of the said Section 58 (f), it was necessary to deposit documents showing complete or good title and whether all the documents of title to the property w2ere required to be deposited. A ‘fortion’ the question which would arise for consideration is as to whether in all such cases, the property should have been acquired by reason of a registered document.
After weighing various arguments and the case laws cited on behalf of both the parties, the Hon’able Supreme court in this case, reported as CDJ-2007-SC-948 on 30.8.2007 observed that Section 58 of the Transfer of Property Act does not speak of mortgage of an owner’s interest. If any interest in property can be created by reason of a transaction or otherwise which does not require registration, in our opinion, it may not be necessary to have a full title before such a mortgage is created by deposit of title deeds. In a case of this nature where valuable rights is created which may or may not confer an assignable right, the question requires clear determination having regard to the equitable principle in mind and would have far reaching consequences, as a large number of banks and financial institutions advance a huge amount only on the basis of allotment letters. Keeping in view the importance of the questions raised at the Bar, the question require the consideration by a larger bench so that an authoritative pronouncement can be made there upon”.
It is a well known fact that the apartments constructed by the government bodies or the builders in the present day context cannot be acquired without availing of the financial assistance from the financial institutions, who would require security for the same by way of mortgage of the property to be purchased from the amount so advanced. The question arises why the government bodies such as CIDCO or MAHADA cannot just have a fresh look to its terms and conditions inasmuch as CIDCO permits mortgage of the apartment but it contains a rider reading as
“it may please be noted that no lien of whatever nature will be created on the above apartment allotted to you unless you pay in full the sale price and other miscellaneous charges and execute agreement for sale with CIDCO. It is necessary for you to inform your employer/bank/financial institution, as the case may be, to inform to the corporation (CIDCO) the details of the housing loan sanctioned and released so as to enable us to take a note therein in our records.”
On the one hand permission to mortgage is granted and details are sought to take a note in the records, but on the other hand it refuses for the creation of any lien or the charge against the apartment. Is it not contradictory in itself. MAHADA goes a step further inasmuch as it issues only a provisional offer letter and the allotment letter is issued only on the payment of full sale consideration and the compliance of the other requirements. It is disputable that such a provisional offer letter will create any valuable right in the allottee, leaving aside the question of assigning of such a right yet to be determined by larger bench of the Hon’able Supreme Court of India. It would be appropriate that when the matter comes up for determination before the larger bench, the judgment of the Hon’able Supreme Court in the case of H.L.Joshi v/s. R.H.Shah reported as AIR-1975-SC-1470 wherein it has been held that the occupancy rights in a flat in a cooperative housing society are heritable transferable and attachable in an auction sale is brought to its notice.
Be that as it may, till the authoritative pronouncement of the larger bench of the Hon’able Supreme Court of India is available it would be advisable for the financial institutions to advance housing loans against the allotment letters issued by such government bodies on the basis of a collateral security of equal amount to their satisfaction as a stop-gap arrangement, till the sale deed in case of the apartment allotted by such government bodies is executed. Because if the judgment of the larger bench is not on expected lines, all such finance will become clean loans out the purview of SARFAECI Act and the legal action in default cases will add more weight on the existing over-burdened judicial system. Hence, it would be prudent for the financial institution to err on safer side.

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.7824-7828 OF 2004 
SYNDICATE BANK    VERSUS   ESTATE OFFICER AND MANAGER (RECOVERIES) & ORS RESPONDENT(S)