India: DMD Advocates' Newsletter - November 2018

It gives us immense pleasure to circulate the first edition of DMD Advocates' Newsletter.

In this edition, we have covered the recent judgements of the Supreme Court of India in relation to the following:

  • Validity of Aadhaar
  • Constitutional validity of GST (Compensation To States) Act, 2017
  • Applicability of Limitation Act to applications filed under Sections 7 and 9 of the Insolvency and Bankruptcy Code, 2016
  • Obligations on plaintiff for obtaining a decree for specific performance
  • Factors to be considered by Arbitrator while awarding interest
  • Eligibility of resolution applicants at the time of submitting resolution plan and timeline of corporate insolvency resolution process
  • Status of cheque bounce complaint filed by power of attorney

We hope you enjoy reading this edition and find it useful in your area of work.


Supreme Court's verdict on validity of Aadhaar

Justice K.S. Puttaswamy (retd.) and another v Union of India and Others dated 26 September, 2018

The Supreme Court upheld validity of Aadhaar in a 4:1 majority verdict. A five-judge Constitution Bench headed by Chief Justice Dipak Misra and Justices A K Sikri, AM Khanwilkar, D Y Chandrachud and Ashok Bhushan passed the landmark verdict on a batch of petitions challenging the constitutional validity of Aadhaar and its enabling Act. Justice D Y Chandrachud delivered a dissenting opinion.

The key aspects of the judgement are as follows:

  • The requirement under Aadhaar Act to give one's demographic and biometric information and collection of data, its storage and use does not violate fundamental right of privacy and is not unconstitutional.
  • Aadhaar Act does not create an architecture for pervasive surveillance.
  • Aadhaar Act and Regulations provides protection and safety of the data received from individuals.
  • Section 7 of the Aadhaar is constitutional. The provision does not deserve to be struck down on account of denial in some cases of right to claim on account of failure of authentication. Section 7 mandates that individuals should either produce Aadhaar or Aadhaar enrolment number to access social services, subsidies, benefits, etc. whose funds are drawn from the Consolidated Fund of India. The government had issued 139 notifications, all under challenge, mandating Aadhaar for getting services.
  • The State while enlivening right to food, right to shelter etc. envisaged under Article 21 cannot encroach upon the right of privacy of beneficiaries nor former can be given precedence over the latter.
  • Provisions of Section 29 are constitutional. Section 29 (1) places onus on the Unique Identification Authority of India (UIDAI) to ensure that no core biometric information, collected or created under the Act, be shared with anyone for any reason whatsoever; used for any purpose other than generation of Aadhaar numbers and authentication under the Aadhaar Act.
  • The court held Section 29 (3) constitutional, which requires that no identity information available with a requesting entity shall be used for any purpose, other than that specified to the individual.
  • Section 33 was held constitutional as it provides for the use of Aadhaar database for police investigation and was not violative of protection granted under Article 20(3).
  • Section 57, to the extent, which permits use of Aadhaar by the State or any body corporate or person, pursuant to any contract to this effect was held unconstitutional and void. The last phrase in main provision of Section 57, i.e. "or any contract to this effect" was struck down.
  • Section 59 validated all actions related to constitution of UIDAI and appointment of its chairperson and members taken by the Central Government prior to enactment of the Aadhaar Act. Further, the court held that all such actions are deemed to have been taken under the Aadhaar Act.
  • Aadhaar Act has been rightly passed as Money Bill.
  • Section 139AA of the Income-tax Act, 1961 (which mandates linking of Permanent Account Number (PAN) with Aadhaar) does not breach fundamental Right of Privacy. The court further held that Section 139-AA has been enacted to achieve a legitimate state aim and seeks to remove bogus PAN cards by linking with Aadhaar, expose shell companies and thereby curb the menace of black money, money laundering and tax evasion.

Supreme Court upholds constitutional validity of GST (Compensation To States) Act, 2017

Union of India & Another v Mohit Mineral Pvt. Ltd. dated 3 October, 2018

The Supreme Court upheld constitutional validity of the Goods and Services Tax (Compensation To States) Act, 2017.

The key aspects of the judgement are as follows:

  • The Compensation to States Act, 2017 is not beyond the legislative competence of the Parliament.
  • The Compensation to States Act, 2017 is not a colourable legislation. It does not violate and is not against the objective of Constitution (One Hundred and First Amendment) Act, 2016 that contains provisions necessary for the implementation of Goods and Services Tax (GST) Regime.
  • Levying of Compensation to States Cess is an increment to GST which is permissible in law.
  • The Clean Energy Cess and States Compensation Cess were held to be entirely different from each other. In view of the facts of the present case, the court held that the payment of Clean Energy Cess, by the petitioner, was for a different purpose and has no bearing or connection with the States Compensation Cess. The court further promulgated that giving credit or set-off in the payment is legislative policy which had to be reflected in the legislative scheme. Compensation to States Act, 2017 or Rules framed thereunder did not indicate giving of any credit or set-off of the Clean Energy Cess already paid. The claim of the petitioner that he is entitled for set-off in payment of Compensation to States Cess to the extent he had already paid Clean Energy Cess was not accepted by the court.

Limitation Act is applicable to applications filed under Sections 7 and 9 of the Insolvency and Bankruptcy Code, 2016 from the inception of the Code

B.K. Educational Services Private Limited v Parag Gupta and Associates dated 11 October, 2018

A two judge bench of Justices RF Nariman and Navin Sinha held that the Limitation Act, 1963 is applicable to applications filed under Sections 7 & 9 of the Insolvency and Bankruptcy Code, 2016 ('Code') from the inception of the Code.

The court held that "the right to sue" accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, except in those cases where Section 5 of the Limitation Act may be applied to condone the delay in filing such application.

Plaintiff to prove his readiness and willingness to perform his part of the contract throughout to obtain a decree for specific performance

Vijay Kumar & Others. v Om Parkash dated 3 October, 2018

A two judge bench of Justices R. Banumathi and Indira Banerjee restoring a trial court order have reiterated that in order to obtain a decree for specific performance, the plaintiff has to prove his readiness and willingness to perform his part of the contract. Further, the readiness and willingness has to be shown throughout and needs to be established by the plaintiff.

In context of the present case, the court stated that "though the respondent-plaintiff filed the suit for specific performance on 29th April, 2008, the respondent-plaintiff has not shown his capacity to pay the balance sale consideration of Rs.22,00,000 (Rupees Twenty Two Lakhs). In his evidence, the respondent-plaintiff has stated that he has borrowed the amount from his friends and kept the money to pay the balance sale consideration. As rightly pointed out by the Trial Court, the respondent-plaintiff could not produce any document to show that he had the amount of Rs.22,00,000 (Rupees Twenty Two Lakhs) with him on the relevant date; nor was he able to name the friends from whom he raised money or was able to raise the money. Furthermore, as rightly pointed out by the Trial Court, the respondent-plaintiff could have placed on record his Accounts Book, Pass Book or the Statement of Accounts or any other negotiable instrument to establish that he had the money with him at the relevant point of time to perform his part of the contract. We are, therefore, in agreement with the view taken by the Trial Court that the respondent-plaintiff has not been able to prove his readiness and willingness on his part."

Award-debtor cannot be subjected to a penal rate of interest

Vedanta Ltd. v Shenzen Shandong Nuclear Power Construction Co. Ltd. dated 11 October, 2018

A two judge bench of the Supreme Court, comprising Justices RF Nariman and Indu Malhotra observed that the discretion of the arbitrator to award interest must be exercised reasonably. The court recorded factors that an arbitrator must take into consideration while awarding interest including: (i) the 'loss of use' of the principal sum; (ii) the types of sums to which the interest must apply; (iii) the time period over which interest should be awarded; (iv) the internationally prevailing rates of interest; (v) whether simple or compound rate of interest is to be applied; (vi) whether the rate of interest awarded is commercially prudent from an economic stand-point; (vii) the rates of inflation, and (viii) proportionality of the count awarded as interest to the principal sums awarded.

The bench concluded that the award-debtor cannot be subjected to a penal rate of interest, either during the period when he is entitled to exercise the statutory right to challenge the award, before the court of law, or later.

Litigant cannot take contradictory stands in the same case

Suzuki Parasrampuria Suitings Pvt. Ltd. v The Official Liquidator of Mahendra Petrochemicals Ltd. and Ors. dated 8 October, 2018

A three judge bench of Supreme Court comprising of CJI Ranjan Gogoi, Judge Navin Sinha and Judge K.M. Joseph, held that a litigant can take different stands at different times in a case but cannot take contradictory stands in the same case. The bench also reiterated that the recitals in the order sheet with regard to what transpired before the High Court are sacrosanct.

Stage of ineligibility attaches at the time of submission of resolution plan by resolution applicant; 270 days time limit for completion of insolvency resolution process prescribed by the code is mandatory

ArcelorMittal India Private Limited v Satish Kumar Gupta and Ors. dated 4 October, 2018

A two judge bench of Supreme Court comprising Justices Rohinton Fali Nariman and Indu Malhotra has held that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant and not at any anterior stage. The bench also held that the time limit for completion of the insolvency resolution process as laid down in Section 12 is mandatory and cannot be extended beyond 270 days.

The court relied upon its own jurisprudence laid down in Innoventive Industries Ltd. v. ICICI Bank & Anr. (2018) 1 SCC 407 and accordingly observed that the consequence of not adhering to strict timelines as prescribed under the Insolvency and Bankruptcy Code, 2016 ('Code') was liquidation of the corporate debtor. The court further explicitly laid out that the National Company Law Tribunal (NCLT) or any other adjudicating authority cannot intervene until the Resolution Professional (RP) finalizes its' proposals and the Committee of Creditors (CoC) makes a final call on the bids. It is only after the CoC discovers that a resolution plan contravenes section 29A, that the resolution applicant can challenge the order before the NCLT and thereafter, the NCLAT.

Cheque bounce complaint filed by power of attorney maintainable in law

SK. Tamisuddin v Joy Joseph Creado and Ors. dated 25 September, 2018

A three judge bench of the Supreme Court comprising Judges Ranjan Gogoi, Navin Sinha and K.M. Joseph, reiterated that a cheque bounce complaint filed by power of attorney would be maintainable in law. The bench placing reliance on the judgement in A.C. Narayanan v. State of Maharashtra and Another (2015) 12 SCC 203, wherein the Supreme Court had clearly held that a complaint filed by the power of attorney would be maintainable in law.

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DMD Advocates is a leading full-service law firm with expertise in litigation, corporate, taxation, regulatory and intellectual property rights. The firm has a pan-India presence with principal offices in Delhi and Mumbai and associated offices in Bangalore, Chennai, Hyderabad, Cochin and Bhubanes-war.

DISCLAIMER: The views and opinions expressed in this article are those of the author and does not constitute a legal opinion/advice by DMD Advocates. The information provided through this article is not intended to create any attorney-client relationship between DMD Advocates and the reader and, is not meant for advertising the services of DMD Advocates or for soliciting work by DMD Advocates. DMD Advocates does not warrant the accuracy and completeness of this article and, the readers are requested to seek formal legal advice prior to acting upon any information provided in this article. Further, applicable laws and regulations are dynamic and subject to change, clarification and amendment by the relevant authorities, which may impact the contents of this article. This article is the exclusive copyright of DMD Advocates and may not be circulated, reproduced or otherwise used by the intended recipient without our prior permission.

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