From arbitration to pre-deposit rule, here're the key court orders

A weekly selection of key court orders

Pager is dead, long live the litigation

The last beep from a pager was heard about six years ago and India was one of the first countries in the world to witness a total wipeout of the radio paging industry. But one hair-splitting question has lingered in the courts since 2002 involving customs duty of Rs 96 lakh on the import of spare parts. The Supreme Court has sent the dispute back to the Karnataka High Court, after keeping it in its files for eight years. 

The Supreme Court judgment in Commissioner of Customs vs Motorola India tells the story of tax litigation which can last decades over a relatively small amount. To reduce litigation, the government had hiked the threshold limit for filing appeals in the Supreme Court to Rs 1 crore. In this case, Motorola imported parts of pagers, which were duty-free under the 1975 tariff rules. Later it stopped manufacturing pagers as they were obsolete. The revenue intelligence found that the extra parts were kept by the company and, therefore, the department imposed duty and penalty with 24 per cent interest. 

The company moved the tribunal, which quashed the demand. The department appealed to the high court, which ruled that the dispute could be decided only by the Supreme Court. The latter ruled that the high court had the power to decide the issue. Analysing Sections 130 and 130E of the Customs Act, the judgment said: “The appeals do not involve any question of law of general public importance. The question is purely inter-se between the parties and is required to be adjudicated upon the facts available.” The court did not “expedite the hearing”, which it usually does in stale cases.

NCLAT ruling on time bar set aside

The Supreme Court has reiterated that a claim for payment under the Insolvency and Bankruptcy Code (IBC) should be made within three years of it becoming due. It set aside the rulings of the National Company Law Tribunal (NCLT) and the appellate tribunal in Vashdeo Bhojwani vs Abhyudaya Co-operative Bank Ltd in which the tribunal maintained that debt is a continuing liability and it could not be time-barred. In this case, a person took a loan from the co-operative bank but did not repay. The loan was declared a non-performing asset (NPA).

A recovery certificate was also issued in 2001. The bank then filed a petition in 2017 invoking Section 7 of the IBC before the NCLT. It admitted the petition. The appeal against it was dismissed by the NCLAT. The matter was taken to the Supreme Court. It ruled that the Limitation Act applied to the IBC proceedings. “The right to sue”, the judgment underlined, accrued when default occurred. If the default occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, except in circumstances provided in the law.

Limitation in arbitration applications

A firm that seeks arbitration in a dispute with an opposite party must make its demand within a reasonable time. Or it should show ‘sufficient cause’ justifying the delay or that it was due to ‘undue hardship’. In the Supreme Court judgment, Geo Miller Ltd vs Rajasthan Vidyut Nigam, the dispute arose in 1983 when the old Arbitration Act 1940 prevailed and the arbitration petition was moved in 2002, when the 1996 Act was in force. The firm justified the delay arguing that correspondence over the payments due was continuing in the meantime and therefore, the delay could be condoned. The court rejected the contention, stating that “sleeping over its right for 14 years will not constitute a case of ‘undue hardship’ justifying extension of time limit… The entire dispute seemed concocted to pursue a monetary claim.”

Landowner-developer row over arbitration

The Supreme Court has set aside the judgment of the Telangana High Court and referred the dispute between developers and landowners to arbitration. In this case, Avinash Hitech City 2 Society vs Boddu Manikya Malini, landowners had signed 17 development agreements and later registered three societies of their own under the state law, which were granted co-developer status in respect of the SEZ Project. Later, disputes arose over the sharing of the benefits. One party moved the district judge for arbitration, but their plea was rejected. The high court also dismissed the appeal. However, the Supreme Court analysed the terms of the agreement and found that the dispute was fit to be referred to arbitration.

DRT cannot waive pre-deposit rule

The Delhi High Court has stated that the debt recovery appellate tribunal (DRAT) has no discretion to waive the pre-deposit condition in the Recovery of Debts and Bankruptcy (RDB) Act or in the Securitisation (Sarfaesi) Act. Both laws make it mandatory for a person who appeals to deposit 50 per cent of the amount of debt due.

The high court, in its judgment, Hassad Food Company vs Reliance Asset Reconstruction Co, explained that while under the RDB Act the amount of debt is that determined by the DRAT, under the Sarfaesi Act it could be 50 per cent of the amount of debt as claimed by the secured creditors or determined by the DRAT, whichever is less. In either case, the DRAT has to follow the rules. In this case, the food company, being part of the Sovereign Wealth Fund of the State of Qatar, filed the writ petition challenging an order passed by the DRAT declining to waive the requirement of pre-deposit.

Though the company pleaded that it was a victim of fraud in complex transactions, the high court insisted that there is an absolute bar on the tribunal to entertain an appeal without pre-deposit.

One debt, one consolidated application

The Calcutta High Court last week ruled that a borrower need not file separate applications for each notice sent by the secured creditor regarding one debt. In the judgment, Ramsay Exim & Technology vs ICICI Bank, the bank had insisted on separate applications and the DRT approved of it. Commenting on it, the court stated if that argument is accepted, borrowers have to file several different applications under the Sarfaesi Act before different tribunals for the same debt, each time paying court fees specified for one debt. “Such proposition, ipso facto, is absurd, since for the same grievance, the borrower cannot be expected to deposit fees several times over,” the judgment asserted while setting aside the DRT order. Fees have to be paid based on the debt alone, not on the number of notices or assets.