Brief case: SC recommends changes in IBC rules

A weekly selection of key court orders

The Supreme Court (SC) has recommended amendment of rules pertaining to the Insolvency and Bankruptcy Code (IBC) so as to make it easier for the National Company Law Appellate Tribunal (NCLAT) to grant approvals for settlement among the parties. At present, its inherent power to do so is restricted. As a result, such matters have to be decided by the SC, which has to invoke its extraordinary discretionary powers to stamp the seal of approval on settlements among financial creditor, operational creditor or corporate creditor. This exercise burdens the apex court. Therefore, to speed up the process and enable the tribunal to settle the matter before it without technical hitches, the SC suggested changes in Rule 8 of the Insolvency and Bankruptcy Rules and Rule 11 of the NCLT Rules. While Rule 11 confers NCLAT with powers to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of process, Rule 8 curtails that power. The SC wants to widen the discretion of the NCLAT to avoid unnecessary appeals when the parties have already arrived at a compromise. The suggestion to change the rules was made in the judgment, Uttara Foods & Feeds Ltd vs Mona Pharmachem, where the parties had reached a settlement. While approving the settlement, the court asked its registry to send a copy of the judgment immediately to the Ministry of Law and Justice. 

Caution on selling public property 

In the land-starved city of Mumbai, the settlement of any government land for a housing project has to be by public auction only so as to fetch the best price in the larger public interest, the Supreme Court observed while dismissing the appeal, Jaykrishna Industries vs State of Maharashtra. The 13-year-old dispute was between two contending real estate firms over a prime plot of land in the city. It was alleged by one party which was given the plot for a hotel that the allotment was changed due to political influence applied by its rival on the Mumbai Housing and Area Development Authority. The court confirmed the role of political influence when it wrote that the claim of the rival for settlement of a government property by way of a private largesse, without open advertisement, was completely unfounded in law. “Apparently, the negotiations were done by the board under political influence as evident from the letter of the firm read along with that of one Mohan Rawle, MP,” the apex court said. Since the value of the plot has shot up manifold during the litigation and the land use norms have changed, the authorities will have to go for fresh bids, the judgment said.

Arbitration, debt recovery can run together 

Proceedings under the Sarfaesi Act and arbitration can proceed simultaneously, the Supreme Court stated in its judgment in the case, MD Frozen Foods Exports vs Hero Fincorp Ltd. The same applies to proceedings under the Recovery of Debts due to Banks and Financial Institutions Act, as these laws are complementary and attempts to get back loans from borrowers as fast as possible. “Sarfaesi proceedings are in the nature of enforcement proceedings, while arbitration is an adjudicatory process,” the judgment explained. “In the event that the secured assets are insufficient to satisfy the debts, the secured creditor can proceed against other assets in execution against the debtor.”  There were differences on this point in different high courts. It was held that the contrary view taken by the Andhra Pradesh High Court was wrong. It upheld the stand of the high courts of Odisha, Allahabad and Delhi.

National Insurance to pay for loss 

The Supreme Court has set aside the judgment of the Allahabad High Court in an insurance matter, observing that an arbitration award should not to be lightly interfered with by appellate courts. In this case, Vishnu Bhagwan vs National Insurance Company, jute stocks of a firm in Lucknow was damaged in a fire. The firm invoked the insurance policy but there were differences over the valuation. The two arbitrators gave opposing views. The umpire gave a third view which was rejected by both the district judge and the high court. However, the Supreme Court upheld the umpire’s decision which required no review of facts. 

Dismissal despite acquittal upheld

Even if a criminal court acquits an employee from the charge of theft in the establishment, he can still be dismissed after a domestic probe, the Supreme Court ruled in its judgment in BHEL vs M Mani. They are separate proceedings, the apex court said. In this case, two employees of the public sector undertaking were accused of theft of heavy machinery from the plant in Ranipet, Tamil Nadu. They allegedly made off with the machinery during the night shift, taking it away in an ambulance parked at the gate. The employees were dismissed after a probe. They challenged the dismissal on several grounds before the labour court. It reinstated the employees with continuity of service observing that the management should have waited for the verdict of the magistrate’s court, which was dealing with the theft case. The probe should not have been held till the result of the criminal case was known. Meanwhile, the magistrate’s court acquitted them of the charge. On appeal by the company, the Madras High Court was divided on the issue with the single judge bench quashing the labour court order, and on appeal the division bench approving it. Therefore, the management appealed to the SC. It set aside the judgment of the division bench, observing that the dismissal was not based on the order of the criminal court. It was the result of the independent probe. If the dismissal was as a result of conviction, the situation would have been different and the punishment could have been upheld, the SC clarified.   

‘Golden’ jubilee of confiscation litigation 

Confiscation proceedings in an incident of seizure of gold lasted 50 years, finally coming to an end in the Supreme Court last week, after winding its way through various authorities and the Rajasthan High Court (HC) several times. In June 1965, gold control authorities raided the house of Chaganlal and unearthed 240 kg of gold bars. It was done under the now extinct Defence of India Rules. The collector of Customs imposed a fine of Rs 25 lakh, which later ballooned to Rs 11.04 crore when the litigation travelled through various tribunals and courts. The HC ruled that the fine in lieu of confiscation must represent the value of the gold seized. Meanwhile, Chaganlal had died and his son pursued the case in the name, Gunwantlal vs Union of India. In the end, the confiscation was upheld. The government then wanted interest on the fine; “otherwise it would have the effect of permitting him to profit by litigation”. According to the Attorney General, the current value of the treasure would be nearly Rs 72 crore. The court allowed the son to redeem the gold buried by his father by paying the fine along with 10 per cent interest on it.