Bar on right to redemption of mortgage invalid, says SC

The Supreme Court ruled last week that a mortgagor can file suits for redemption so long as the mortgage subsists. Dismissal of an earlier suit for redemption would not bar the mortgagor from filing a second such suit, the court held in the case, L K Trust vs EDC Ltd. In this case, Falcon Retreat Ltd took a loan from the Goa Government-owned investment company, EDC Ltd by mortgaging its property for a hotel project. It also took loans from State Bank of India. Though 80 per cent of the project was completed, due to global recession, the company could not repay the loan. EDC then took steps to auction the property. The trust was a contender and entered into an agreement with EDC. However, Falcon offered a better deal. The trust claimed that EDC must act according to the agreement, while Falcon argued that it was ready to redeem the mortgage. The case travelled twice to the Bombay high court and the Supreme Court. The apex court ruled that Falcon had a right to redemption till the mortgage existed and dismissed the claim of the trust. It said: “A mortgage being a security for debt, the right of redemption continues although the mortgagor fails to pay the debt at the due date. Any provision inserted to prevent, evade or hamper redemption is void.”

L & T appeal in bid for patrol vessels dismissed
The Supreme Court has upheld the Delhi high court ruling and dismissed the appeal of Larsen & Toubro in its lost bid for fast patrol vessels for the Indian Coast Guard. The government sent request for proposal to several parties, and L & T claimed its bid was the lowest. However, in its commercial and technical bids, it declared its intention to claim the benefit of ‘foreign exchange rate variation benefit’, without specifying which currency was the basis of the foreign exchange component. The contract negotiation committee concluded that the offer was non-responsive. The company withdrew the first offer and made another bid without referring to the benefit. However, the committee again rejected the offer and selected another bidder. The company moved the high court against the selection, which was dismissed. The high court strongly deprecated the practice of submitting a foreign currency rate card with the rates of various currencies, without specifying the currency in respect of which the foreign exchange rate was to be considered. The high court also stated that the entire exercise was mala fide and imposed costs on the company. Upholding the high court decision, the Supreme Court affirmed that “in the absence of compliance with the terms and conditions relating to firm and fixed price offer, the company stood excluded from consideration.

” CIT appeal against Nestle dismissed
The Delhi high court last week dismissed the appeal of the Commissioner of Income Tax in a dispute over the deduction claimed by Nestle India Ltd in respect of remuneration/royalty paid by it to other subsidiaries and holding companies. The assessing officer disallowed the claim and the tax appellate tribunal held that the revenue authorities were wrong, leading to the appeal. The company, which makes food products and beverages, had debited a huge amount on account royalty payable to two overseas companies, namely Nestec S.A. and Societe Des Produits Nestle S.A., Switzerland. These payments were claimed as business expenditure on account of technical assistance rendered by the two companies to the Indian company. The authorities felt that the deduction was excessive. The high court upheld the ruling of the tribunal, which stated that the revenue authorities have not specified as to how much ordinary profit was supposed to be and the basis of its determination, before treating royalty payment as excessive and unreasonable.

Learner’s licence not valid to claim compensation
An insurance company would not be liable for payment of compensation in a motor vehicle accident if the driver had been transporting passengers on a learner’s licence, the Delhi High Court held in the case, New India Assurance Ltd vs Manjit singh. However, the company has to pay the decreed amount to the claimants first and then recover it from the driver and owner of the offending vehicle, the judgment said. In this case, a woman died when an auto rickshaw turned turtle due to rash and negligent driving. One of the issues raised was whether the insurance company would be absolved from the liability to pay. The company argued that the driver and owner had violated the terms of the insurance policy by allowing the vehicle to be driven by one without proper and valid licence. The high court ruled that transporting passengers on a learner’s licence, without being accompanied by a licensed driver, would be violation of the insurance policy and the insurer was not liable to pay the compensation amount.