From arbitration to electricity theft cases, here are the key court orders

A weekly selection of key court orders

Pre-deposit demand for arbitration illegal

A condition in a notice of tender demanding a pre-deposit of 10 per cent of the claim for invoking arbitration is illegal and arbitrary, the Supreme Court ruled last week in its judgment, Icomm Tele Ltd vs Punjab State Water Supply Board.  Such a condition will discourage parties from taking the route of an alternative dispute resolution process. The judgment of the Punjab & Haryana High Court which took a contrary view was struck down. In this case, the board invited tenders for augmentation of the water supply and sewerage system in the state. Icomm was selected. When disputes arose, the terms of the contract were challenged. According to the board, the party invoking arbitration shall  “deposit at call” 10 per cent of the claim to avoid frivolous demands. The Supreme Court stated that 10 per cent of a huge contract will amount to a large sum. It will deter an aggrieved party from invoking arbitration.  It would act as a ‘clog’ according to the law of contract, while the arbitration law is meant to de-clog the courts burdened with huge arrears. “Any requirement to deposit would certainly amount to a clog on this process. Also, it is easy to visualise that often a deposit of 10 per cent of a huge claim would be even greater than court fees that may be charged for filing a suit in a civil court.”  The judgment pointed out that if there are frivolous claims, the arbitrator or the court can impose a deterrent penalty on the guilty party.

Tax demand against dissolved firms

A claim of income tax will not become infructuous even if a company’s name has been struck off by the Registrar of Companies, according to the Supreme Court. The Companies Act and the Income Tax Act deal with such situations and those provisions should be followed. The Rajasthan High Court had dismissed the appeal of the Commissioner of Income Tax against the order of the appellate tribunal in the case of Gopal Shri Scrips Ltd. The high court had ruled that nothing survived in the case as the company was dissolved. Reversing that judgment, the Supreme Court stressed that the method prescribed in the two Acts should be adhered to in this case. The Supreme Court asked the high court to reconsider the appeal.

NCLAT must hear party before order

The Supreme Court has set aside the order of the National Company Law Appellate Tribunal, New Delhi (NCLAT), in an insolvency case as it had not followed the rule of granting the opposite party an opportunity of presenting its case.  In this case,  Jai Balaji Industries Ltd vs State Bank of India, the appellate tribunal had asked the NCLT, Kolkata, to admit an application moved by the bank against the company. The latter appealed to the Supreme Court arguing that the appellate tribunal’s order was passed without hearing it. The bank defended the order contending that it had given an advanced copy of the appeal and documents to the company. The court rejected that contention stating that though the bank had served an advanced copy of the appeal on the company, it could not be treated as service of notice as stipulated under Rule 48 of the NCLAT Rules. The appeal and other documents shall be served along with the notice on the other side. An advanced copy would not fulfil the requirement of natural justice, the judgment emphasised, while remanding the matter to NCLAT.

Compounding in electricity theft cases

Criminal proceedings in cases of theft of electricity have to be separately dealt with even if there is a settlement between the supplier and the consumer. The Electricity Act provides for compounding of the offence of theft under Section 152 but that proceeding must be gone through even after the settlement, the Supreme Court stated in its judgment in Mukesh Chand vs State of Delhi. The power distributor, BSES, found that there was theft of electricity by an industrial unit and therefore, slapped a bill for ~3.5 lakh on it. Since it did not pay the amount, a criminal case was filed against it. Later the matter was settled in a Lok Adalat and he paid ~1.6 lakh according to the agreement. He then moved the Delhi High Court for quashing the prosecution as he had paid the amount according to the settlement. The high court dismissed his petition. On appeal, the Supreme Court set aside the high court order and asked it to decide his case according to the provision for compounding of offences in the Electricity Act.

Wrong order, but no recovery from staff

An employer who wins a case against an employee cannot recover from the employee the amount already paid during the litigation, even if it is substantial.  The Supreme Court stated so in the appeal, Dilip Mani vs M/s Siel Ltd. In this case, the employee challenged his termination before the industrial tribunal in Uttar Pradesh. The tribunal ordered his reinstatement with back wages in 1998. The firm appealed to the Allahabad High Court arguing that he had not completed one year of employment. The high court accepted it and held the tribunal was wrong in 2007. The employee appealed to the Supreme Court. It declined to examine the facts of the case and dismissed the appeal last week. During the litigation, the employer had paid dues according to the order of the tribunal. The Supreme Court ruled that though the tribunal order was wrong, the employer had no right now to recover the amount already paid to the “delinquent workman”.

Diagnosis of delays in commercial courts

The Delhi High Court last week lamented that cases in commercial courts are unnecessarily being delayed because of the lax attitude of lawyers. The judgment in the case, Vifor International  Ltd vs Suven Life Sciences Ltd, starts with a long narration of the maladies affecting commercial suits. Parliament passed the Commercial Courts Act, 2015, intending to speed up disposal of suits. But a series of lawyer-made obstacles are put before the court tending to make the legislation “a mere piece of paper”.  The judgment listed a series of hurdles which delayed disposal of suits.   For instance, petitions are not drafted precisely, spelling out the basis of the claim or defence. These lead to unnecessary pleas being raised later and irrelevant issues being framed and evidence led in them.  Lawyers should prepare a blueprint in the beginning. It is often found that parties and counsels themselves, owing to lack of attention, do not understand their own claim/defence. Such conduct leads to a plethora of applications being filed to make up the lacunae.