Row over choice of arbitrators

One of the initial wrangles in arbitration is over the choice of arbitrators. Two judgments delivered by the Supreme Court in recent days highlighted this hurdle. Since the parties could not agree on the choice of arbitrators, the Supreme Court itself had to name ex-judges in both cases. The first case was Walter Bau AG vs Municipal Corporation of Greater Mumbai.

Disputes arose over a works contract and the foreign firm invoked the arbitration clause. After appointing its arbitrator, it asked the Corporation to name its candidate. Since the latter did not respond, the matter was referred to the International Centre for Alternative Dispute Resolution in India (ICADR). It asked the corporation to choose one from three names furnished to it.

However, the corporation appointed an ex-judge, leading to the appeal by the foreign firm to the Supreme Court. It ruled that choosing a person beyond the panel submitted by ICADR was contrary to the rules. So the court appointed another retired judge of the Bombay High Court as arbitrator for the corporation.

The second case involved China Railway Shisiju Corporation and New Delhi Municipal Council (NDMC). The foreign firm invoked the arbitration clause while the NDMC did not respond. Later it suggested two names instead of one in the arbitration clause, "in view of the sensitivity of the case". The Supreme Court ruled that insisting on two arbitrators was contrary to the contractual terms.

SC upholds transfer levy on lessee firms

The Supreme Court last week set aside the judgment of the Allahabad High Court and allowed the appeal of the Uttar Pradesh State Industrial Development Corporation against several companies, which were granted long-term lease of industrial plots. The corporation found that the companies had changed their shareholders and directors. Some of them were sold to foreign entities.

Therefore, it demanded transfer levy according to the lease deed and guidelines pertaining to reconstitution and transfer. That demand was challenged by four companies, one of them being Monsanto Manufactures Ltd. They filed suits in different civil courts. The courts took the view that a company is a legal entity and change of shareholders did not change its character. They barred the corporation from levying the charges.

The corporation moved the high court, which dismissed its appeal. However, the Supreme Court accepted the corporation's appeal. It went into the transfer deeds of each company and found that they had not only changed hands but also incurred liabilities. Therefore, there was "larger public interest" involved in incorporating rules regarding alteration in capital structure.

"There are many instances where the company takes loan from third parties on the security and land and structure allotted to them in lease keeping in dark the lessor which amounts to incurring liabilities on the property without the knowledge of the lessor." In one case, there was huge amount of debt on the company as it took loan on land . There have been instances in which the lessee gets allotment of huge industrial plots and thereafter sold them for huge gains. "This adversely affects the aims and objectives of corporation i.e. the planned development of industrial area," the judgment emphasised.

Order to allot alternative plot

The Supreme Court has ordered the Delhi State Industrial Development Corporation to allot a plot to Ashok Kumar, who had paid the full amount demanded with interest. The corporation had allotted the plot but cancelled the allotment later alleging delay in payment.

It pleaded that its officer had made a bona fide mistake in accepting the delayed payment. The Supreme Court did not accept this argument and stated that the corporation retained the amount for more than half a decade without returning it to the industrialist, leading him to believe that he would get the plot.

Deliberate delay by public official

If the court is convinced that a government official had delayed filing an appeal to defeat justice, the court would be justified in pardoning the delay and proceeding with the case. In this case, Executive Engineer vs G Arumugam, a person filed a suit against the town panchayat claiming possession of a piece of land. The panchayat claimed that it owned the land.

The civil court rejected the panchayat's claim. It filed its appeal after a delay of 1,373 days, which was barred by the Limitation Act. Its excuse was that the officer who was handling the case earlier was suspended for corruption and he delayed the case. The court was convinced about the reason for the delay and asked the Madras High Court to proceed with the case.

Foreign subsidiaries entitled to benefit

The Delhi High Court last week set aside the decision of the Director General of Foreign Trade (DGFT) denying the benefits of the "Served from India Scheme" (SFIS), as framed under the foreign trade policy, to subsidiaries of foreign companies operating in India.

The Policy Interpretation Committee and DGFT had held that the SFIS is not applicable to subsidiaries of foreign companies. According to DGFT, benefits available under the SFIS are given to create a powerful and a unique 'served from India' brand. The companies, including Nokia Solutions and Networks India and EI Dupont India, disputed that.

According to them, the SFIS is applicable to all "Indian service providers" who fulfil the specified criteria; no distinction can be drawn on the basis of nationality of their constituent shareholders. Accepting this contention, the high court stated that these companies were registered in India under the Companies Act and they cannot be distinguished from other companies in India.