Higher price in re-auction not legal

After accepting the highest offer in an auction by an official liquidator, the company court cannot refuse to confirm the sale because subsequently another person offered a higher amount. The price of the property might have risen in the meantime, but that is no reason to accept a higher bid, the Supreme Court stated in its judgment, Vedica Procon Ltd vs Balleshwar Greens Ltd. The company judge of the Gujarat High Court ordered winding up of Omex Investors Ltd in 1990 and appointed the liquidator. The land was auctioned in open court in which 11 persons participated in the 12 rounds. Vedica offered the highest at Rs 148 crore. It deposited the earnest money and later sought extension of time to deposit the rest. The time was allowed. Meanwhile Balleshwar Greens, the second highest bidder moved the high court offering Rs 160 crore and seeking the recall of the earlier decision. The high court allowed it, leading to the appeal of Vedica in the Supreme Court. Allowing the appeal, the judgment said the court has always maintained that a concluded proceeding cannot be reopened whenever a higher offer is received in respect of the sale of the property of a company in liquidation.

Excise appeal on service tax dismissed

The Supreme Court last week dismissed a large number of appeals moved by the excise authorities and allowed the appeals of construction companies, ruling that service tax could not be levied on indivisible works contracts prior to the introduction, on June 1, 2007, of the Finance Act, 2007 which expressly made such works contracts liable to service tax. All these cases, led by Commissioner of Central Excise vs L & T, arose before the 2007 amendment was made, which introduced the concept of "works contract" as being a separate subject matter of taxation. Works contracts which were indivisible and composite were split so that only labour and service elements of such contracts would be taxed under service tax. The revenue authorities assailed the judgments of various tribunals and high courts which had decided against them. According to them, the various components of works contracts were already split and taxed since 1994. On the other hand, the companies argued that not only was there no such charge pre-2007 but there were no machinery provisions as well to bring indivisible works contracts under the service tax net. The Supreme Court accepted the contentions of the construction companies and over-ruled judgments to the contrary.

'Court leniency leads to arrears'

A court should not take too lenient a view when a company is apparently trying to avoid its obligations regarding payment of debts, the Supreme Court observed while allowing the appeal of Stantech Projects Engg Ltd against the judgment of the Calcutta High Court. "The high court has been inexplicably and unjustifiably considerate," the Supreme Court stated and added: "It is this kind of leniency that results in proliferation and prolongation of litigation, which approach has led to an almost insurmountable pendency of litigation… The defaulting company has abused the judicial process in order to delay the discharge of an acknowledged debt for almost a quarter of a century, in which period it has continued in business." The remarks came in the appeal in which Stantech had filed a winding up petition against Nicco Corporation Ltd alleging that it had failed to repay admitted debts. The high court accepted the submission of Nicco that a junior lawyer had mistakenly made certain concessions and therefore it should not be bound by it. The Supreme Court rejected the prayer and said that in fact the junior had "displayed legal sagacity" in getting the winding-up of the company postponed and obtaining leave to pay the debt in installments "to avoid certain commercial death."

TN loses appeal on spirits levy

The Tamil Nadu lost for a third time in the Supreme Court when the latter dismissed its appeal against the Madras High Court judgment quashing its demand of Rs 1 per bulk litre of industrial alcohol manufactured by the members of the South Indian Sugar Mills Association. The high court had ruled that the state was competent and justified in recovering expenses for ensuring the prevention of illegal diversion of industrial alcohol within the premises of the distilleries themselves. But the court asserted that the levy of fees should be proportionate to the service rendered by the state, like supervising the transit of industrial alcohol from the distilleries to the trader, preventing smuggling and country-side brewing. The court found that the state had not furnished the relevant particulars to establish that the impost indeed had the character of quid pro quo. Agreeing with the high court, the Supreme Court observed that "the state has woefully failed to furnish credible details of expenditure which, according to it, related to administrative or regulatory or service expenses." Administrative charges can be recovered, but nothing over and above them, the court added.

Arbitrator not bound to give reasons

The Supreme Court has dismissed the appeal of Indian Rare Earths Ltd challenging the arbitration award in its dispute with Unique Builders. It stated that the award was given without providing reasons. Therefore "it is not permissible for the court to probe into the mental process of the learned arbitrator." The arbitrator is not bound to give reasons unless it is specified in the contract or there is a statute binding on him or the court orders so. In this case, the dispute over the tax content in payment was decided by arbitration and the builder's demand was drastically reduced by the arbitrator. Therefore, the government company could not challenge the award, the Supreme Court said while upholding the Orissa High Court view.

HC can't hear contractual disputes

A contractual dispute should not be decided by a high court by appointing a commission and going into facts, the Supreme Court stated while setting aside the order of the high court in the judgment, State of Kerala vs M K Jose. In this case, a contract for building a road was not completed on time despite extensions. The contract was terminated and the earnest money was forfeited, leading to the writ petition in the high court. It appointed a commission to go into the disputed facts and allowed the petition of the contractor. The government appealed to the Supreme Court. Allowing the appeal, the Supreme Court observed that "this kind of orders in a contractual matter is ill-conceived. They not only convert the controversy to a disturbing labyrinth, but encourage frivolous litigation." The high court was criticised for allowing a roving enquiry while the contractor was abusing the process of law.