SC for review of pricing policy

LEGAL DIGEST

The Supreme Court has asked the government to review within four months the policy of giving price preference to public sector enterprises (PSEs) in the sale of earth-moving equipment.

The judgement was delivered in the case, Caterpillar India Ltd vs Western Coalfields Ltd. Caterpillar argued that the equipment was mostly manufactured by it and Bharat Earth Movers Ltd and the buyers are government coalfields.

Since 1992, price preference was given to PSEs, which was 10 per cent lower than the lowest price. Caterpillar challenged this as arbitrary and affected the legitimate expectation of the parties. It also created a monopoly.

Agreeing with it, the court said that "the increase in the effectiveness of PSEs cannot be done on a uniform policy without examination as to whether such protection is necessary for a particular enterprise. It has to be examined individually as to whether any differential treatment is called for. It is pointed out that there may be no competition left if 10 per cent margin is given."

The court asked the government to consider whether preference should be specific to the units and the amount of margin for providing a level playing field.

'Guarantor to pay up for default'

If a company has been ordered to be wound up, the financial institution can proceed against the guarantor to recover debts, the Supreme Court has ruled in Ram Kripal vs State of UP.

The guarantor challenged the recovery proceedings against him initiated under the UP Public Money's Recovery of Dues Act, arguing that he could not be proceeded against unless the property of the principal debtor was sold.

The state financial corporation argued that the company was wound up and an official liquidator has been appointed. In view of this situation, the court dismissed the appeal of the guarantor stating that it was a classic case where the efforts for recovery has been frustrated on some pretext or the other.

The judgement further clarified that the state finance corporation can act against a debtor-company only so long as there is no order of winding up. The corporation cannot initiate action unilaterally to realise mortgaged properties without the consent of the liquidator.

If he does not give consent, the corporation has to move the company court for appropriate directions to him. In any case, the liquidator cannot act without seeking directions from the company court and under its supervision.

Top court seeks names of arbitrators

The Supreme Court has asked Delta Mechcons India Ltd and Marubeni Corporation to bring their choice of names for the chairmanship of the international arbitration panel which would decide the dispute between them.

Though each party had chosen one arbitrator, they could not decide on the chairman who should be of a nationality different from the nationality of either party. The dispute started over the construction of a thermal power plant in Karimnagar district of Andhra Pradesh.

When the arbitrators could not agree on the presiding arbitrator, Delta approached the International Chamber of Commerce for nomination. It declined to do so.

Therefore, the firm approached the Supreme Court for the appointment, according to the provision of the Arbitration and Conciliation Act. The chairman will be chosen in July by the court from the names proposed by the two companies.

'Firm not different from its partners'

The Supreme Court has dismissed the appeal of a partnership firm challenging the cancellation of a certificate issued to it under the Voluntary Disclosure Scheme of 1997. In this case, Tanna & Modi vs CIT, Mumbai, search and seizure proceedings were conducted against the three partners of the firm.

Later, the firm made voluntary disclosure which was accepted under the scheme and it was granted immunity. Later this was revoked as the assets declared by the firm were earlier discovered during the raid. This action was challenged by the firm. The Bombay high court and the Supreme Court, on appeal, dismissed the petitions. The argument of the firm was that it was different from its partners.

Rejecting it, the Supreme Court observed: "In a case of this nature where fraud is alleged, we cannot be oblivious of the fact that each firm acts through its partner. A firm is a conglomeration of its partners and is not a juristic person. In this case, the disclosure made by the firm relates to the same amount which has been disclosed by the partner. Even the source of income was found to be the same."