From arbitration clause to IT Act, here are the key court orders

Arbitration clause goes after compromise

Once two disputing companies settle their differences and sign a compromise agreement, neither can invoke an arbitration clause that existed in an earlier contract, the Supreme Court ruled last week while setting aside the judgment of the Gauhati High Court. In this case, Zenith Drugs & Allied Agencies vs Nicholas Piramal India, the high court had referred the disputes between the two to arbitration. The original agreement with an arbitration clause was between Zenith, a clearing agency, and Rhone Poulene, which later merged with Piramal. Disputes arose between the two and the contract was cancelled. Later there was a compromise. Still, disputes erupted and the matter was taken to a civil court and the high court. The Supreme Court observed that once a compromise is signed, the previous agreement does not exist. The previous arbitration clause cannot be read into the terms of the compromise as it is a new agreement.

Venue of arbitration only at place named

When an arbitration contract specifies the jurisdiction of the court at a particular place, only such court will have the jurisdiction to deal with the matter because the parties intended to exclude all other courts. In one case, Brahmani River Pellets vs Kamachi Industries, the parties had agreed that the “venue” of arbitration shall be at Bhubaneswar. When disputes arose, one party moved the Madras High Court for the appointment of an arbitrator. It appointed a former judge of the high court as the sole arbitrator. Its view was that mere designation of “seat” by parties did not oust the jurisdiction of other courts. It further stated that in the absence of any express clause excluding the jurisdiction of other courts, both the Madras High Court and the Orissa High Court will have jurisdiction over the arbitration proceedings. On appeal, the Supreme Court set aside that ruling, observing that the intention of the parties was to exclude all other courts. The contract might not have used expressions like “exclusive jurisdiction”, “only”, “exclusive”, “alone”, but that did not make any difference, the Supreme Court said and asked the parties to go before the Orissa High Court, if advised.

Amalgamated company cannot be taxed

The Supreme Court has upheld the judgment of the Delhi High Court in the case, CIT vs Maruti Suzuki India. The high court had agreed with the decision of the Income Tax Appellate Tribunal. The tribunal had held that the assessment made in the name of Suzuki Powertrain India was a nullity since it had been amalgamated into Maruti Suzuki India and was not in existence. The Supreme Court dismissed the appeal of the Commissioner of Income Tax. Its judgment asserted that the legal question raised in this case had already been settled. It observed: “Despite the fact that the assessing officer was informed of the amalgamating company having ceased to exist as a result of the approved scheme of amalgamation, the notice was issued only in its name. The basis on which jurisdiction was invoked was fundamentally at odds with the legal principle that the amalgamating entity ceases to exist upon the approved scheme of amalgamation.”  The judgment stressed that there should be certainty in matters of tax. Otherwise, “it will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable,” the judgment emphasised.

Charity dries up after change in IT Act

Donations to charitable trusts to claim deductions from total income dry up when the government changes rules. Trusts cannot challenge the new rule; it is the donors who have the locus to oppose the withdrawal of the tax benefit, the Supreme Court stated in its judgment, Prashanti Medical Services & Research Foundation vs Union of India. Prashanti charitable trust received donations for three years to build a hospital. Though it received a substantial amount in the first two years, a change in rule in the last year almost dried up donations. The trust challenged the changed rule under Section 35AC of the Income Tax Act in the Gujarat High Court. It dismissed the petition. Its appeal was also dismissed by the Supreme Court observing that other trusts getting donations had not approached the court nor the donors who are the real aggrieved persons, who despite paying donations were not allowed to claim the deduction. Moreover, there was no question of equity or promissory estoppel in tax matters, the judgment asserted. 

Niggardly towards lifetime disability

The Supreme Court last week criticised the Calcutta High Court for dismissing the appeal of a woman without giving reasons. She had appealed on behalf of her 10-year-old son who suffered a permanent disability of 70 per cent in a road accident. The motor accident compensation tribunal awarded Rs 2 lakh to him. The mother appealed to the high court against the miserly amount. But the high court summarily dismissed it. Allowing her appeal, Rupa Roy vs New India Assurance, the Supreme Court observed that “in the absence of any discussion and reasoning, we are at a loss to know as to what persuaded the high court to dismiss the appeal". It stated that in view of permanent disability and the expense and agony involved in looking after the boy, it would be “just and proper” to raise the compensation to Rs 10 lakh with 6 per cent interest.

Right to wage till retrenched

An employer cannot dispute his liability to pay wages because of the sickness of the unit or pendency of a BIFR rehabilitation scheme. The proceeding for the recovery of wages under the UP Timely Payment of Wages Act cannot be stopped on those pleas. The Allahabad High Court stated so in its judgment, Modi Rubber vs State.  The company was not functioning after a strike in 2001. Later, there were two settlements with one group of workers. The labour commissioner issued a recovery order in favour of workers. The company challenged it in the high court, arguing that it was before BIFR. Dismissing the petition, the court stated that “the employer cannot dispute its liability because of the sickness of the unit. The relationship between master and servant continues until employee is retrenched or terminated. The workers who are not signatories to the settlements can enforce recovery.”