From GST rules to 'muddled' awards, key court orders from last week

Gujarat HC has laid down 16 guidelines in the matter of Integrated GST applicable to importers and distributors and also asked the government to amend two provisions in the GST Act

Blacklisting must not be endless

Normally, blacklisting of a company has a finite life span, for a few years. But an “indefinite directive” is worse than blacklisting and illegal, the Supreme Court stated in its judgment in Daffodills Pharmaceuticals vs State of UP. In this case, the pharma company and 56 others bid for a contract to supply medicines to hospitals in the state in 2015. It was disqualified because one of its directors was under CBI lens for maintaining fictitious accounts for personal benefits. However, the company argued that he had resigned in 2012 and was no longer connected with it. It also argued before the Allahabad High Court that it was not given an opportunity to present its case. The high court dismissed the petition, upholding the ban. But the Supreme Court stated that the high court erred as the indefinite ban could not be legally sustained and the company was not heard before passing the drastic order.

Neutrality of arbitrators 
 

The neutrality of arbitrators has again become a point of discord, even after the Arbitration and Conciliation Act was amended in 2015 to remove doubts. Certain executives of the disputing parties were barred from acting as arbitrators. They cannot even nominate arbitrators in the dispute. However, the Ministry of Railways modified the General Conditions of Contract (GCC) to waive the statutory conditions in certain cases. This was opposed by one of the railway contractors in the case Central Organisation vs ECI-SPIC-SMO-MCML (JV). The Allahabad High Court appointed an independent arbitrator, rejecting the railways’ nomination of its officers. The Railways appealed to the Supreme Court. It set aside the high court judgment and asked the contractor to choose arbitrators from the panel of names provided by the Railways. According to the Supreme Court, the agreement expressly referred to the modified GCC, which provided for Railway officers to act as arbitrators. Therefore, the agreement should be followed, the judgment said.

SC disapproves ‘muddled’ awards
 

The Supreme Court has emphasised the need for a “reasoned award rather than one which is muddled in form which inevitably leads to wastage of time and resources of the parties”. These observations were made in its judgment in Dyna Technologies vs Crompton Greaves, in which the latter was asked to pay the opposite party ~30 lakh to end the dispute which had lasted a quarter-century. Crompton Greaves terminated the contract with Dyna for building an aquaculture unit, leading to arbitration. The award was partly upheld by the Madras High Court, which noted that the award did not contain reasons. In the appeal, the Supreme Court stated that though the arbitrator is not bound to give a detailed judgment, the award must be “proper, intelligible and adequate.” Unless clarity, the award cannot be enforced, the court pointed out.

Insured must know reason for repudiation
 

If a general insurance company repudiates a claim, it should cite the reason for denial in the letter to the insured person. The insurer cannot raise a new ground for repudiation before the National Consumer Commission when a complaint is filed. The Supreme Court stated so in its judgment in Saurashtra Chemicals vs National Insurance. The company was declared sick for a while and stocks were lying in the godown. When it was reopened, it was found that there was a fire which destroyed some stocks. The company sought compensation according to the fire policy. It was repudiated on the ground that the fire was because of fermentation or natural heating which is not covered under the policy. However, delay in filing the claim was not mentioned. When the company sued the insurer, it raised a new argument that the claim was filed beyond the stipulated period of 15 days. The commission accepted the contention and dismissed the claim. Allowing the appeal, the Supreme Court asserted that “an insurance company cannot travel beyond the grounds mentioned in the letter of repudiation. If the insurer has not taken delay in intimation as a specific ground in the letter of repudiation, it cannot do so at the stage of hearing of the consumer complaint before the National Commission”. 

Role of official liquidator vis-à-vis RP
 

There was a conflict in the roles of the official liquidator appointed by the company judge of the Calcutta High Court and the Resolution Professional (RP) appointed by the National Company Law Tribunal (NCLT) in the case Avani Projects vs Official Liquidator. Some creditors moved the company judge invoking the provisions of the Companies Act (Section 433-e) and he appointed a liquidator. Another group of creditors later invoked the Insolvency and Bankruptcy Code before the NCLT. It appointed an RP. The orders of the judge and the NCLT created a legal Catch-22 which the high court resolved in a judicious manner. It directed that the court can hear the winding-up petition, but not before the NCLT decides on the resolution plan. If only the resolution plan is rejected, the winding-up petition can be taken up by the company judge. The liquidator shall render all assistance to the RP. The high court also observed that the NCLT “ought to have been more cautious while passing orders directing the liquidator to hand over the books of the company or directing his personal presence.” 

Court’s call for tweaking GST rules
 

The Gujarat High Court has laid down 16 guidelines in the matter of Integrated GST applicable to importers and distributors and also asked the government to amend two provisions in the GST Act. The complaint of the dealers was that the authorities were arbitrarily exercising their power under Sections 129 and 130 of the GST Act. The former deals with seizure/detention of goods. The latter grants power to the authorities to confiscate goods, suspected to be evading the levy. In this judgment, Synergy Fertichem vs State, the grievance of the importer of ceramic paints from Spain was that the shipment was seized during transport and they were perishable. In the long judgment, the court granted interim relief to the dealers and observed that “we expect the GST Authorities to ensure that no undue harassment is caused to the assessees. The GST Authorities should try to understand the various provisions of the Act as well as the Rules in the best possible manner for the purpose of smooth execution and implementation of the law”. It asked the government to amend the two provisions to reconcile them and clarify the position. The court further suggested the formation of dispute resolution committees in all the states and union territories for speedy settlement of such disputes.