India: Monthly News Updates - February 2023

01.02.2023

A writ petition was filed under Article 226 of the Constitution of India, 1950 (Constitution) questioning the jurisdiction of the Deputy Excise and Taxation Commissioner (ST)-cum Revisional Authority for reopening proceedings in a suo moto revisional power conferred under Section 34 of Haryana Value Added Tax Act, 2003 (VAT Act). The Punjab & Haryana High Court dismissed the petition declining interference, on the ground of availability of an alternative remedy of appeal under Section 33 of VAT Act. The Hon'ble Court held that there can be no presumption that the appellate authority would not be able to grant relief sought in the writ petition. An appeal by special leave against High Court's judgment was preferred before the Supreme Court of India.

While answering the issue, the Apex Court noted that High Courts in the past have held writ petitions to be "not maintainable" merely because the alternative remedy provided by the relevant statutes has not been pursued by the parties, desirous of invoking writ jurisdiction.

The Supreme Court made it clear that the availability of alternative remedy does not operate as an absolute bar to the "maintainability" of a writ petition. The Apex Court reiterated that "entertainability" and "maintainability" of a writ petition are two different concepts. "Maintainability" goes to the root of the matter and if any objections are found to be of substance, the courts would be rendered incapable of adjudicating; whereas, "entertainability" is within the realm of discretion of High Courts. Hence, dismissal of writ petition by a High Court for availability of an alternative remedy without examining whether an exceptional case has been made out for such entertainment, would be improper.

The Supreme Court ultimately held that the High Court by dismissing the writ petition committed a manifest error of law as a jurisdictional issue was raised questioning the very competence of the Revisional Authority to exercise suo moto power. It being a pure question of law, the plea raised in the writ petition deserved a considered view and ought not to have been thrown out at the threshold.

M/s Godrej Sara Lee Ltd. v. The Excise and Taxation Officer-Cum-Assessing Authority & Ors., Civil Appeal No. 5393 of 2010

[Supreme Court of India]

01.02.2023

The Respondent had advanced money to the Appellants for the purpose of making investments. However, it was alleged that the appellants under the guise of making investment took the money and made wrongful use of it. Upon being confronted the Accused/ Appellant issued cheques to the Respondent No. 2 which got dishonored upon presentation. Respondent No.2 filed a private complaint under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) wherein the Trial Court convicted the Appellants.

During the revision before the High Court, the parties entered into an MoU to settle their disputes wherein it was agreed that in case the dispute is not settled amicably, it must first be referred to a sole arbitrator. Another clause in the MoU stated that the Respondent No. 2 would file a compromise petition before the High Court. However, the compromise petition was never filed and, on this ground, the High Court dismissed the petition, confirming the conviction of the appellants. The instant appeals were filed against the judgement of the Hyderabad High Court convicting the appellants for offences under Section 138 NI Act.

The Hon'ble Supreme Court while placing reliance on M/S Meters and Instruments Private Limited & Anr. Vs Kanchan Mehta, held that the offence embodied under Section 138 qualifies as a civil wrong and has been specifically made compoundable by the amendment act of 2002. In the present case, the parties had entered into a scheme of compromise and agreed to compounding of the offence to avoid the process of litigation. Holding that when the parties had agreed to subject themselves to the compounding of the offence, the High Court could not have imposed its' will and confirmed the conviction. Consequently, the Apex Court set aside the conviction and allowed the appeal.

B.V. Seshaiah v. The State of Telangana & B. Vamsi Krishna v. State of Telangana,

Criminal Appeals arising out of Special Leave Petition (Crl) No.7099/2018) & arising out of Special Leave Petition (Crl) No.7100/2018

[Supreme Court of India]

07.02.2023

A complaint was filed by the ED under Section 45 read with Section 44 of the Prevention of Money Laundering Act, 2002 (PMLA) and summoning order was passed by the Court of Special Judge, Anti-Corruption, Ghaziabad in the said complaint.

A writ was filed by the Petitioner, under Article 32 of the Constitution of India, challenging the jurisdiction of a special court in Ghaziabad under PMLA to take cognizance of the complaint filed by ED as against himself for alleged violations in relation to monies collected through crowdfunding for COVID relief.

On the limited question of territorial jurisdiction, it was argued that an offence punishable under the PMLA would be triable only by special court constituted for the area in which the offence has allegedly been committed. Heavy reliance was placed on the case of Vijay Madanlal Choudhary v. Union of India in which the Apex Court held that the trial of the offence of money laundering would proceed before the regional special court and, in the event that the scheduled offence is triable by special court under a special enactment elsewhere, both the trials need to proceed independently.

On behalf of ED, it was argued that a complaint of money laundering should follow the complaint in respect of the scheduled offence (registered at Ghaziabad), and therefore the ECIR had to be lodged in a court, within whose jurisdiction the scheduled offence had become triable.

Disputing the contention that the territorial jurisdiction would be determined by the location where the proceeds of crime have been held, the court held that the places where the accused concealed, came into possession, acquired, or used the proceeds of crime and where they projected or claimed the proceeds as untainted property, would all be areas in which the offence of money laundering has taken place. Further, Section 44(1)(a) and Section 44(1)(c) PMLA conferred a special court with the power to try even the scheduled offence. The court clarified that even if another court had taken cognizance of the scheduled offence, on an application by concerned authority, the concerned court would 'commit' the same to the special court trying the offence of money laundering.

Rana Ayyub v. Directorate of Enforcement through its Assistant Director, Writ Petition (Criminal) No. 12 of 2023

[Supreme Court of India]

21.02.2023

The Appellant and respondent had entered into a contract for commissioning and trial operation of boilers, following which certain disputes arose between the parties. Accordingly, the respondent invoked arbitration and the learned Arbitrator commenced proceedings. The said proceedings were subsequently adjourned sine die in view of initiation of CIRP proceedings against the Appellant. The respondent filed its Statement of Claim before the arbitrator and the appellant moved an application under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) on the ground that no pending proceedings can be continued once the petition against the respondent was admitted by the NCLT and requested that the arbitral proceedings be adjourned sine die till the continuation of Resolution Process by the adjudicating authority.

The appellant submitted its claims in Form B under Section 7 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 under various heads for the total sum to be adjusted as set off from the total amount payable to it by respondent. The respondent filed an application under Section 31(6) read with Section 17 of the Arbitration & Conciliation Act, 1996 (AC Act) for allowing an interim award in terms of the admitted amount stated as set off in Form B before IRP.

The appellant contested the application and denied having admitted any liability and asserted that the pleadings in respect of set-off as mentioned in Form B before the IRP, were a defence given to it by the statute itself and unless and until the set-off is adjudicated, it does not become binding upon the parties. It cannot be treated as an admission on which an interim Award may be allowed.

The arbitrator allowed the application and granted an interim award for certain sum, recording that powers under Section 19(6) of the Arbitration and Conciliation Act, 1996 ("AC Act") to determine the admissibility, reliance, materiality and weight of any evidence and its jurisdiction to pass interim orders under Section 17(3) of the AC Act. A reference was made to Section 2(c) of the AC Act which defines "Award" to include "interim award".

The interim award was challenged by the appellant under Section 34 of the Act on the ground that the admissions made before the IRP cannot be treated as admission in the arbitral proceedings under Order XII Rule 6 of Civil Procedure Code, 1908 (CPC). The District Judge dismissed the petition on the ground of it being without merit.

Aggrieved by the dismissal of the Objections under Section 34 of the AC Act, the appellant preferred an appeal before the Delhi High Court under Section 37(1) (c) of the AC Act. The Delhi High Court ruled that the Arbitral tribunal has power under Section 31(6) of the AC Act to pass an interim award based on the admissions made by a party before the IRP as admissions under Order XII Rule 6 of CPC, is couched in widest terms to permit considering admissions made in pleadings or "otherwise". The set-off not only arises in the same business transactions between the parties but also has been made in the proceedings relating to the claims/counter-claims filed by the parties against each other. The appellant's admission of set-off amount in Form B is not couched with any clarification, explanation, or any denial. The admissions are unequivocal and have rightly formed the basis of the interim Award.

Bharat Heavy Electricals Ltd. v. M/s. Zillion Infraprojects Pvt. Ltd., 2023/DHC/001214

[Delhi High Court]

27.02.2023

The Corporate Debtor (CD) was a company promoted by Mr. Vijay Mallya. The CD availed Inter Corporate Deposit (ICD) from Zuari Fertilizers & Chemicals Ltd. (later merged with Zuari Agro Chemicals Ltd. – ZACL). The CD entered into a settlement agreement with ZACL and Mangalore Chemicals and Fertilizers Ltd., as per which the CD was obliged to repay certain sums along with interest being outstanding ICD. The Financial Creditor (FC) entered into an agreement with ZACL to discharge the entire liability of the CD, entering into the shoes of ZACL by way of right of subrogation for Recovery of Dues from the CD.

The FC filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking initiation of CIRP against the CD over a default. The shareholders of the CD filed an application seeking intervention in Section 7 petition and initiated CIRP against the CD. On the same day, the intervention application was dismissed.

The shareholders filed an appeal before NCLAT challenging the dismissal order and argued that the FC was attempting to grab the CD whose investment in form of shares in other companies have been valued more than Rs. 1000 crores. The FC was acting on behalf of Mr. Mallya and trying to take over the company at his behest. The petition under Section 7 was a collusive act of the FC and CD, who in guise of assignment along with the alleged default, got admitted into CIRP solely to defraud various stakeholders.

NCLAT observed that when a Section 7 petition is filed against a CD, and debt and default are established by the adjudicating authority, there is no law permitting the shareholder of the CD to challenge the latter's admission into CIRP. The bench held that the shareholders of the CD do not have any locus to challenge the admission of CD into CIRP and accordingly, dismissed the appeal.

Nirej Vadakkedathu Paul v. Sunstar Hotels and Estates Pvt. Ltd., Company Appeal (AT) (CH) (Ins.) No. 142 of 2022

[NCLAT Chennai]