Ferodo case: SC upholds Tribunal's view

LEGAL DIGEST

The Supreme Court last week dismissed the appeal of the Commissioner of Customs against the ruling of the customs appellate tribunal which granted customs relief to Ferodo India Ltd, manufacturer of brake liners and brake pads. It has a technical assistance and trade mark agreement T &N International Ltd, UK. The foreign firm claimed to be in possession of certain secret processes and agreed to permit manufacture of brake liners and brake pads by Ferodo.

Under the agreement, it was required to import/buy raw material and capital goods from the UK after paying a licence fee along with royalty, based on the net sales value of licensed products sold. The authorities maintained that technical know-how fees and royalty were related to the imported goods and were a condition of sale for the import and therefore they loaded the CIF value of the imported goods with the proportionate amount of know-how fees and royalty.

However, the tribunal held that the know-how fees and the royalty payments stood related to the brake liners and brake pads to be produced in India and not to the imported goods. This view was upheld by the Supreme Court.

Fallout of Ferodo case

Following the above principle laid down in the Ferdo case, the Supreme Court has decided a few other cases. In WEP Peripherals Ltd vs Commissioner of Customs, for instance, the company was a manufacturer of printers. The integral part of a printer is a shuttle.

There was a technical assistance agreement and it imported shuttles to be used in the manufacture of printers. The question was whether the authorities were entitled to load the royalty/licence fee payment on to the price of the imported goods, viz, the shuttles by taking its peak price. The tribunal held against the company. The Supreme Court set aside its judgment.

Westfort directors' appeal dismissed

The Supreme Court last week dismissed the appeals of erstwhile directors of Westfort Hi-tech Hospital Ltd who had alleged mismanagement and oppression against the management. They were NRIs who had financed the hospital which has begun to make profit. They claimed that because of the chairman's assurance that they would be made directors they contributed more to the share capital.

However, they were retired, leading to the dispute. Though the Company Law Board accepted their arguments, the Kerala High Court rejected them. The Supreme Court upheld the high court verdict.

Rejecting the argument of legitimate expectation on the promise of the chairman, the Supreme Court stated that there was no specific promise that the NRIs would be given directorship permanently. Even otherwise, the same cannot be accepted in view of the mandate of the statute that one-third of the directors have to retire in a year by rotation.

SC: BHEL can recover contributions to ESI scheme from contractors

The Supreme Court has ruled that the principal employer, who engages contractors for specific work, has a right to recover the contributions to the Employees' State Insurance scheme from the contractors or immediate employers.

The court stated so in the judgment, Bharat Heavy Electricals Ltd vs ESI Corporation. The public sector undertaking engages contractors for various purposes. The ESI authorities issued notice to the firm for not contributing its share to the statutory welfare scheme.

BHEL replied that its contractors had the relevant records of employment which would show whether the Act was applicable to the workers or not. The authorities did not accept this view. In the BHEL appeal, the Supreme Court remitted the dispute to the ESI authority for hearing the contractors who will produce the records of employment.

SC: Onus to prove number of days worked in a calendar year on employee

The Supreme Court has emphasised that the onus to prove that a person has worked for 240 days in a calendar year for regularising him in an establishment is on the employee and not on the employer. The court stated so while setting aside the judgment of the Rajasthan High Court in BSNL vs Mahesh Chand.

The telecom corporation terminated a temporary employee leading to an industrial dispute. The tribunal accepted the complaint of the worker and ordered the corporation to reinstate him. The high court upheld it.

On appeal, the Supreme Court stated that the tribunal and the high court were wrong in placing the onus on the employer to show that he was not in continuous employment for 240 in a year, according to the Industrial Disputes Act. The onus was on the employee claiming the right to regularisation.