Brief case: DRT to hear auction buyer's plea

A weekly selection of key court orders

The Supreme Court last week ruled if there is a dispute between the buyer at the auction of a mortgaged property and the secured creditor, it should be resolved by the debt recovery tribunal (DRT) and not by a high court.  In this case, Agarwal Tracom Ltd vs Punjab National Bank, India Iron & Steel Corporation took a loan from the bank which it did not return. Therefore the bank invoked the securitisation (Sarfaesi) Act and auctioned it. The assets were given to the highest bidder which agreed to pay the price to the bank in instalments. But the bidder also defaulted, leading to another round of litigation in the tribunal. It prevented the buyer from removing materials from the factory premises. The bank forfeited the amount. The buyer approached the Delhi High Court against the forfeiture. It dismissed the appeal stating there was an alternative remedy for the buyer under the securitisation Act and he should not invoke the writ jurisdiction of the high court. On appeal, this view was upheld by the Supreme Court. It allowed the buyer time to approach the tribunal once again.

Cutting down multiple tiers of scrutiny

“The propensity of government departments and public authorities to keep litigating through different tiers of judicial scrutiny is one of the reasons for docket explosion. The Income Tax (I-T) Department is one of the major litigants,” the Supreme Court observed while dismissing an appeal of the revenue authorities. The judgment stated that “the government, being a litigant in well over 50 per cent of the cases, has to take a lead in not being a compulsive litigant”. The court was dealing with the case, Director of I-T vs SRMB Dairy Farming Ltd in which the implementation of a 2011 circular to reduce the tiers of appeals was the subject matter. According to the circular, appeals should not be filed before high courts where the tax impact was less than ~10 lakh. The limit put in 2000 was ~4 lakh. This was meant to speed up adjudication, according to the National Litigation Policy.  However, there was ambiguity in the interpretation of the circular: Whether it would apply to pending matters. Setting at rest the difference in views, the apex court declared it would apply to pending matters subject to two minor caveats. Commenting on the “multiple tiers of scrutiny” the court pointed out there are two departmental instances of scrutiny, at the level of the assessing officer and the Commissioner of Income Tax (Appeals), and thereafter an independent judicial scrutiny at the Income Tax Appellate Tribunal followed by the high courts and the Supreme Court.

Insurer can’t raise negligence issue

The Supreme Court has ruled that an insurance company cannot raise the defence of negligence against a road accident victim when the Motor Vehicles Act provides a structured formula for computing compensation irrespective of negligence. Section 163A of the Act has introduced the second schedule to calculate the compensation. It is meant to speed up payment of compensation without going into the fault of the owner/driver or the victim of the accident. The judges had differed on the question whether the insurer could raise the question of negligence on the part of the victim. Therefore that question was referred to a three-judge bench. This bench, in the case United India Insurance Co vs Sunil Kumar, settled the law. The judgment asserted that the formula was introduced to cut short long delay in arriving at the amount of compensation. If insurers are allowed to raise the issue of negligence, it would defeat the object of the beneficial legislation, the court said. However, insurers can raise the question of negligence in applications moved under other provisions of the Act.

Tax benefit for advance deposit

The Supreme Court dismissed two appeals of income tax authorities in the cases of Modipon Ltd and Paharpur Cooling Towers Ltd and ruled that the advance deposit of central excise duty constituted actual payment of duty within the meaning of Section 43B of the Central Excise Act and, therefore, the firms were entitled to the benefit of deduction of those amounts. It upheld the view of the Delhi High Court that the purpose of introduction of Section 43B was to plug a loophole in the statute which permitted deductions on an accrual basis without the requisite obligation to deposit the tax. Resultantly, on the basis of mere book entries an assessee was entitled to claim deduction without actually paying the tax. Having regard to the object behind the enactment of Section 43B, the legislative intent would be achieved by giving benefit of deduction to an assessee upon advance deposit of duty, the judgment said.

I-T appeal against society dismissed

The Rajasthan High Court last week dismissed the appeal of the Commissioner of Income Tax and ruled that Emmanuel Bible Institute Samiti of Kota was a charitable and religious society entitled to claim benefit from income tax. It upheld the view of the income tax appellate tribunal that the expenses incurred by the Samiti related to both religious as well as charitable activities and were for the purpose for which the society was established. The money was spent on children’s education covering all communities. The expenses incurred were for religious purposes and according to the memorandum of association. Therefore the expenses could not be disallowed for the purpose of exemption under Section 11 of the Income Tax Act, according to the high court..   

Firm not liable for dealer’s stickers

The directors of a manufacturing company cannot be held criminally responsible if the dealers paste stickers over the MRP and other statutory declarations at their end, the Bombay High Court declared last week in the case, Asian Paints vs Inspector of Legal Metrology. The inspector seized some 30 tins from a Beed dealer with stickers covering details of the contents and price. He issued a notice to the director of the company. The company challenged it in the high court arguing that it was not responsible for the dealer’s fault. The authorities contended that according to Section 62 of the Standards of Weights and Measurement Act, if the person who commits offence is a company, “every person who, at the time of offence was committed, was in charge of and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty”. Rejecting the contention, the court observed that “if that view is accepted, no manufacturer will be able to manufacture the goods as he would be facing litigations all over the country for the mistakes not committed by him".