From tax sops to liquor prohibition, key court orders from last week

Parent company stands outside arbitration

A foreign group of companies cannot be made a party to a domestic commercial arbitration merely because its Indian constituent had a contract with a company here. If the foreign company was neither a signatory to the arbitration agreement nor did it have any causal connection with the process of negotiations or execution, it cannot be dragged to the arbitration. The Supreme Court stated so in its judgment in Reckitt Benckiser (India) Ltd vs Reynders Label Printing India Ltd. There was an agreement between the two Indian firms under which the label company agreed to print materials for export to the US for the pharmaceutical firm. Disputes arose between the firms and Reckitt Benckiser moved the court to appoint a sole arbitrator. It argued that the Belgium parent firm was a party to the agreement on the basis of correspondence between the two parties and foreign personnel involved in the process. Therefore, it should be impleaded. The court did not agree; it pointed out that the agreement was only between the Indian companies, though the latter belonged to a Belgium conglomerate. It would be domestic arbitration and not international arbitration. The court refused to make the Belgium parent company party to the arbitration in India. It appointed a retired high court judge as sole arbitrator for domestic arbitration in New Delhi following the conditions of the Arbitration and Conciliation Act.

Tax sops after state reorganisation
 

Creation of new states is usually followed by litigation over tax liabilities of industrial units in the new territories. It happened when Andhra Pradesh was carved out of the erstwhile Madras state and Jharkhand from Bihar. Telangana is in the line. Last week, the Supreme Court dealt with a batch of appeals moved by the Madhya Pradesh and the Chhattisgarh governments involving sales tax exemption for units which have invested more than Rs 100 crore. They have fallen in two states now. The units argued that the exemption promised by MP should continue as the Reorganisation Act had not withdrawn it. The two governments argued that trade between the two territories should be treated as inter-state sales and not intra-state trade. The high court agreed with the industries. The governments appealed to the Supreme Court and it allowed the appeals. In the judgment in State of MP vs Lafarge Dealers Association, the court stated that “whenever a new state is created, there would be difficulties and issues would arise but these have to be dealt within the parameters of the constitutional provisions and the law". 

Cheque issuer convicted without hearing
 

The Supreme Court has set aside the judgment of the Madras High Court which convicted a person accused of issuing a cheque that bounced. The drawer was acquitted by the trial court, but the payee appealed to the high court. The accused did not appear in the high court. However, it reversed the acquittal without hearing him, or issuing a second notice, or appointing a lawyer for him or referring his case to the legal aid committee.  In this case, Christopher Raj vs K Vijayakumar, a post-dated cheque was issued in 2001 and it was presented to the bank after three years. It was also the case of the accused person that the validity period of the cheque had expired. The Supreme Court asked the high court to re-examine these issues.

Mayhem caused by unlicensed drivers
 

When a fatal road accident occurs due to drivers who hold no valid licence, the principle followed by motor vehicles tribunals and courts is to ask insurance companies to pay the compensation immediately and then recover the amount from the guilty drivers and their employers. This is called ‘pay and recover’ principle. This was applied by the Supreme Court in the case, Parminder Singh vs New India Assurance Co. In this case, Parminder was driving a cabinet minister of Punjab when a truck rashly hit another truck, which led to a mishap in which the minister in the car died and the driver suffered permanent disability. Parminder had to undergo five serious surgeries but suffered 100 per cent disability. When he moved the tribunal for compensation, the insurance company argued that the offending drivers of the trucks had no licence and it was not liable to pay compensation. The plea was rejected and it was directed to pay Rs 10.44 lakh to the driver. On appeal, the high court awarded Rs 21 lakh. On further appeal to the Supreme Court, it further raised the compensation to Rs 50 lakh, rejecting the computation of the courts below.

Prohibition spooks private cars in Bihar  
 

Consuming liquor in a private car in a public place is an offence in Bihar, the Supreme Court has ruled in its judgment in Satvinder Singh vs  State of Bihar. In this case, a few Rotarians were travelling from Giridih, Jharkhand, to Patna, Bihar, to attend a meeting of Rotary Club. Their vehicle was stopped for a routine check-up at Rajauli in Bihar by an excise inspector.  No liquor was found in the vehicle, but the Rotarians were subjected to breath analyser test which found that they had consumed liquor in the car. They were arrested and remained in custody for two days. The magistrate took cognizance of the first information report. The Rotarians moved the Patna High Court to quash the prosecution but failed. They appealed to the Supreme Court. Their argument was that their car was not a public place. The court rejected it by pointing out that after an amendment to the Bihar Excise Act in 2016, the word 'place' included a vehicle in 'public place' or a public road. The court asked the magistrate to dispose of the case according to the law interpreted by it. 

L&T stumped by letterhead mix-up
 

A wrong letterhead used for sending a demand notice to a defaulting borrower cost L &T Housing Finance Ltd another round of litigation in the debt recovery tribunal. In this case, Trishul Developers vs L&T Housing Finance, the developer borrowed Rs 20 crore, which it allegedly failed to repay. A possession notice was issued to it by L&T Finance Ltd, instead of Housing Finance Ltd. The appellate tribunal condoned it as a technical error. But on appeal, the Karnataka High Court stated that the Security (SARFAESI) Act should be construed strictly. The housing arm of L&T was the secured creditor and only it can send the demand notice. The high court quashed both the demand notice and the possession notice.