The Supreme Court last week gave thumbs up to settlement of disputes against litigation among business family members when it ended three-decade row in the case, Rajni Sanghi vs Western Indian State Motors Ltd. The court ruled that if the parties settled their differences amicably, their agreement shall prevail though there were other proceedings like arbitration. Even if there is an arbitration award, which has not been made into a decree of the court, the family arrangement will override it. This was a case of partition of business among four branches of a family whose head died in 1961. Differences cropped up in the 1980s and there was litigation in three high courts with complicated questions of fact and law. There was also an arbitration award which was not made decree of the court. Meanwhile, the parties filed settlement deeds before the Bombay and Rajasthan high courts. The disputes continued over technical details. Ultimately, the Supreme Court upheld the settlement arrived at by the various family branches. "An award will acquire the status of a decree only when it is made a rule of the court after rejection of all objections," the judgment emphasised. It also reiterated that once there is an agreement by elders, "junior members of the family are bound by the decisions of Karta in matters of family business unless it can be proved that he acted fraudulently or for immoral purposes." Ignoring this traditional Hindu law has put unnecessary burden not only on the larger family but also on the courts, the judgment observed.
Development breaching promises
"A procrastinated legal tussle spanning over three decades has spiralled up the judicial tiers to the Supreme Court seeking a quietus to the issue of adequate reparation of the land owners consequent upon the compulsory acquisition of their lands for the Indian Army for its field firing range in 1981," the court prefaced its judgment last week in the case, Rukmani Devi vs Jaipur Development Authority. Possession of the village land was taken in 1983. The land owners' grievance was that they did not get the promised grant of 15 per cent developed residential land in lieu of compensation promised by the urban development authority and the Rajasthan government. Allowing the appeals of the land owners, the court asked the authorities to allot the promised developed land to the oustees within six weeks. In the 120-page judgment, the court reiterated that right to property was a human right and rebuked the state for its "failure to discharge an obligatory duty defined by public policy without any justification in the context of the sacrosanct content of human rights in the Constitution." It said that there was "an inexcusable failure of the state to discharge its solemn constitutional obligation, the live purpose for its existence."
No court intervention to trade union rivalry
The Supreme Court last week refused to interfere in the long-standing rivalry between two trade unions of Force Motors Ltd (earlier Bajaj Tempo Ltd) stating that the decision of the Bombay High Court should be adhered to in the facts of the case. The rivalry started in 2003 when Poona Employees Union sought recognition under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act and the existing union, Bhartiya Kamgar Sena, resisted it. The Poona union claimed that there was an exodus of members of the rival union to it and thus it had 85 per cent of the workers. The company maintained that the Poona union had less than 30 per cent of the workers as members, which was the mandatory requirement under law. Moreover, the company alleged that the new union had not maintained any records to support the claim. When the matter was taken to the industrial court it appointed an investigator. After his report, the industrial court accepted the contention of the Poona union. The high court reversed its decision, leading to the special leave petition in 2010. After five years, the Supreme Court has now stated that its extraordinary powers under Article 136 should be invoked only in rare cases of miscarriage of justice and not in a case like this. "In the interest of industrial orderliness, stability, peace and overall well-being as well, we find no persuasive reason to intervene at this distant point of time," the judgment concluded.
Ruling on business expenditure
Interest paid by a company on borrowings from banks to advance money to its own subsidiary is 'business expenditure' on which tax deduction can be claimed, the Supreme Court has ruled in its judgment, Hero Cycles Ltd vs CIT. In this case, the company which was the promoter of Hero Fibres Ltd, took loans and paid interest on it. The money was paid to the sister concern due to business expediency in view of an undertaking given to financial institutions that it would provide additional margin to meet working capital for meeting any cash losses. When the company claimed deduction on it as business expenditure, the revenue authorities denied it. The company moved the Punjab and Haryana High Court but it dismissed the appeal maintaining that when loans were taken from banks at which interest was paid for purposes of business, the interest component could not be claimed as business expenditure. The company moved the Supreme Court. Allowing its appeal, the apex court gave a wider meaning to the phrase business expenditure. The judgment explained that the advance given to the sister concern was imperative. "The revenue authorities cannot put themselves in the arm chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure. The authorities cannot decide how a prudent businessman would act," the judgment said.
Penalty for PF default discretionary
The Calcutta High Court has ruled that the power of the provident fund commissioner to impose penalty on employers who delay their contribution is limited by certain considerations. Sections 14A and 32A of the Provident Fund Act grant the authorities the power to recover penalty not exceeding the amount of arrears and specify the rate of penalty. But the authorities have the discretion to reduce it. The argument of the authorities that they cannot reduce the penalty was rejected by the high court in the case, Topcon International Ltd vs RPF Commissioner. The authorities can take into consideration factors like frequency of the delays, the number of days delayed, power cuts, non-realisation of debts by the employer, the delay on the part of the authorities to claim damages and whether the company has been declared sick. The court clarified that though the authorities could reduce the amount of penalty or damages, that discretion could not be used to waive it altogether. Before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard.
