From insolvency law to tax on motor spare parts, here are key court orders

A weekly selection of key court orders

Ironing out creases in insolvency law

Complex issues arising from insolvency proceedings have resulted in a series of judgments by the Supreme Court in recent weeks. In one of them last week, it upheld the order of the National Company Law Appellate Tribunal (NCLAT) in the appeal, K Sasidhar vs Indian Overseas Bank, and stated the tribunal had justly concluded that the resolution plan of the concerned corporate debtor had not been approved by the requisite percentage of voting share of the financial creditors; and in the absence of any alternative resolution plan presented within the statutory period of 270 days, the inevitable sequel was to initiate the liquidation process under Section 33 of the Insolvency and Bankruptcy Code. In another judgment, in the case, Vijay Kumar vs Standard Chartered Bank, the court set aside the NCLAT order and ruled that suspended board of directors of a company undergoing insolvency proceedings and its operational creditors must be given all the documents of the resolution plan so that they might meaningfully participate in meetings held by the committee of creditors. In yet another order, in the case, Brilliant Alloy Ltd vs S Rajagopal, the court permitted the withdrawal of Corporate Insolvency Resolution Process (CIRP) even after the Resolution Professional issued an invitation for expression of interest from resolution applicants to submit resolution plans. In the case, Shashi Prakash vs NEPC Micon, the court emphasised that the jurisdiction of the civil court is completely barred in matters which are now in the dominion of the NCLT.

Directors could come under ESI Act

Directors of a company who are receiving remuneration for the discharge of duties entrusted to them come within the meaning of “employee” as defined in the Employees' State Insurance Act, the Supreme Court ruled last week in its judgment in the case, ESI Corporation vs Venus Alloy Ltd. Allowing the appeal of the corporation, it indicated that even the managing director of a company could be covered by the Act depending upon his work and remuneration. The ESI court and the Madhya Pradesh High Court had ruled against the corporation’s demand for contribution from the firm, stating that directors are not employees. In this case, directors of the firm were receiving Rs 3,000 per month for the discharge of duties assigned to them. The corporation successfully argued that the amount given to them was ‘wage’ as defined in the ESI Act and the high court judgment was set aside.

Mutation does not confer ownership

Mutation of a piece of land in the revenue records does not create or extinguish the title over such land nor it has any presumptive value on the title. “It only enables the person in whose favour mutation is ordered to pay the land revenue in question,” the Supreme Court clarified in its judgment in the case, Smt Bhimabai vs Arthur Impex Co. While dismissing the appeal against the order of the Bombay High Court, the apex court stated that since civil suits in relation to the land in question were pending in the courts between the parties, it would not embark upon any factual inquiries into the question as to whether the entries were properly made or not and at whose instance they were made. It is more so when they neither decide the title nor extinguish the title of the parties.

SC to review tax on motor spare parts

A two-judge Bench of the Supreme Court last week referred to a larger Bench the question whether sales tax is payable in respect of the free replacement of defective parts in motor vehicles, during the period of warranty. Earlier, the court had held that tax was payable. Tribunals and high courts have taken various stands on this issue. Now the Supreme Court has doubted the correctness of its earlier judgment, based on which the courts below were passing orders. It wanted to settle the law in the appeals of manufacturers and a large number of dealers led by Tata Motors vs Dy Commissioner of Commercial Taxes. The order summarised the problem thus: In the case of warranty for the supply of free spare parts once the replacement is made, and the defective part is returned to the manufacturer, would tax be payable based on a credit note, which may be issued for that purpose. The price of the car is inclusive of the cost of the spare parts, which is supplied free. If there is no consideration for these replaced parts, can sales tax levied at all? 

Cancellation of licences held illegal

The Delhi High Court last week quashed the order passed by the controller general under the Offshore Areas Mineral (Development and Regulation) Act, whereby he cancelled all exploration licences granted to several mining companies. The cancellation was justified by the Ministry of Mines on the ground that some blocks were overlapping with the onshore area, and thus prohibited under the Coastal Regulation Zone (CRZ) rules. In this batch of petitions led by Standard Metalloys Ltd vs Union of India, the firms argued that they were not given an opportunity to present their case and the CRZ argument was an “eyewash”. The court rejected the argument of the authorities regarding the overlapping of CRZ area, after examining the rules. Moreover, they had already examined the issue while executing the exploration licences in favour of the firms. The judgment said: “The issue of overlapping of some blocks is nothing but an afterthought and the reasons have been manufactured to somehow cancel the grants so that the same can be re-allocated/re-granted.” The court directed the controller general to execute the exploration licences in favour of the companies within a month.

Tea Board loses claim over Darjeeling tag

The Tea Board of India last week lost a nine-year-old dispute over the use of the word ‘Darjeeling’ by ITC Ltd, which has a ‘Darjeeling Lounge’ in Kolkata’s Sonar Bangla hotel. The board claimed that the use of the place name violated the Trade Marks Act and the Geographical Indications of Goods Act and confused the public. It has guaranteed that Darjeeling tea is 100 per cent originated from Darjeeling district of West Bengal. The Calcutta High Court rejected the board’s prayer for a permanent bar against the hotel using the word. The judgment listed 20 questions to be considered, and in a detailed judgment, decided all against the board on the ground that it has not produced adequate evidence to prove its allegations. Further, the court imposed a cost of Rs 1 lakh on the board for raising a “frivolous” issue. ITC then requested the court to donate the amount to the high court legal aid committee.