<b>Brief case:</b> Interim order can go beyond arbitration

A weekly selection of key court orders

Interim order can go beyond arbitration

The Supreme Court has held that an interim order made before, during or even after an award by an arbitrator will continue in force till the award is enforced. Interpreting Section 9 of the Arbitration and Conciliation Act, the court stated so in the appeal of UltraTech Cement Ltd against the judgment of the Rajasthan High Court which had ruled in favour of the state Vidyut Utpadan Nigam Ltd. In this case, the two parties signed an agreement by which UltraTech was allowed to take away fly ash free for five years and thereafter at the rate fixed by the Nigam. After a few years, the Nigam invited tenders for sale of fly ash. The cement company moved the civil court seeking a restraint. The judge allowed it. But the Rajasthan High Court set it aside. The cement company moved the Supreme Court, pointing out that arbitration was pending and therefore the rate should not be changed. The court passed an interim order restricting the sale of fly ash. After the award, the question arose whether the interim order survived. The court ruled that the interim order lasted till the enforcement of the arbitral award as prescribed in law.

Capital gains tax demand quashed

If land is acquired compulsorily, the owner is not obliged to pay capital gains tax on the compensation paid to him, the Supreme Court held in the case, Balakrishnan vs Union of India. The court set aside the Kerala High Court judgment which held the opposite view. The government took over 27 acres of paddy field in 2006 for extending the Techno Park in south Kerala. The owner contested the compensation amount, but later agreed to sell it at a given price to avoid long litigation. Then the revenue department entered the scene and demanded capital gains tax on the amount. It argued that the transaction was sale and not compulsory acquisition exempted under Section 10(37) of the Income Tax Act. The high court agreed. The land owner appealed. The Supreme Court noted that the owner had objected to the compensation and later “succumbed to the government” only to avoid litigation and to salvage whatever the amount was offered. All procedures under the Land Acquisition Act had been gone through. Therefore it was not a sale but compulsory acquisition exempted from capital gains tax.

Foreign vessels coming for repairs

The Supreme Court has ruled that a foreign vessel arriving in an Indian port for repairs cannot be imposed duty under the Customs Act as it is not “utilised” within the territorial waters. “Mere repair of a vessel is not putting the vessel to use in India and would not result in home consumption,” stated the judgment in the case Commissioner of Customs vs Aban Loyd Chiles Offshore Ltd. “Repairs were carried on the vessel and not to utilise the vessel. It would not amount to utilisation or operation of the vessel/rig in India. Thus, it cannot be said that the vessel was imported into India,” the judgment said while dismissing the appeal against the order of the tribunal. In this case, a foreign rig was brought to Mumbai port twice and left the port after repairs. The authorities demanded Rs 28 crore as duty with threat of penalty and confiscation. The tribunal held the Customs authorities’ action illegal, and that view was upheld by the Supreme Court.  

Taxmen feud over payment to ‘mafia’

The alleged payments made by developers to the “land mafia” became a bone of contention between the Commissioner of Income Tax and the IT Settlement Commissioner and the Bombay High Court last week upheld the order of the Settlement Commissioner. The commissioner of Income Tax argued that the property developers had paid amounts to the mafia and the Settlement Commissioner had not taken that into account while allowing the settlement applications of the developers.  The Commissioner of Income Tax pointed out the reference to land mafia in the commissioner’s order to contend that they were illegal payments which were ignored by the Settlement Commissioner. Therefore the settlement order was wrong on this and other counts. The developers submitted that payments to the so-called mafia was not for illegal activity but only for “protection of men and property”.  The high court rejected all contentions of the Commissioner of Income Tax. Its judgment clarified that “what has to be seen is not the person to whom the amount has been paid but the reasons for making the payment. If the payment is made for illegal purposes, then the payment is to be disallowed. The disallowance is on account of the purpose for which the payment is made and not upon the person to whom the payment is made. Therefore even if the payment is made to an alleged criminal, to do legal work, it is allowable. The disallowance is not person-specific but expenditure-specific; i.e. the expenditure must be prohibited by law or must be an offence.” 

Co-ops fall under RTI Act

The Bombay High Court ruled last week that cooperative banks in Maharashtra are covered by the Right to Information Act, rejecting the objection of Jalgaon Jilha Urban Co-op Banks Association. Financial institutions under the umbrella of the association argued that co-ops were not public authorities as defined in the Act; they didn’t receive state aid, nor were they under a state authority. Banking laws prevented divulgence of confidential information. Rejecting the contention, the high court stated that such arguments were put forward by the Reserve Bank of India and the Supreme Court had rejected all of them last year in a detailed judgment. Co-ops are not private bodies and the authorities under co-op law have pervasive control over those statutory bodies, which can even get state subsidies.

Borrowers told to move DRT

The Gujarat High Court last week stated that it would not entertain petitions by borrowers against creditors as there are alternative remedies available to them from the Debt Recovery Tribunal (DRT). In this case, Om Shiv Lumbers Ltd vs Corporation Bank, the company alleged that the bank wrongly declared its loan as a non-performing asset and the e-auction of property was illegal. The bank denied the charges and asserted that the high court should not hear the complaint as the debt recovery laws have specified different forums to adjudicate such issues. The high court agreed with the bank and dismissed the petition.