SC asks CLB to fast-track old case

A weekly selection of key court orders

Setting a record of sorts in litigation, two groups of shareholders in a tourism resort company have filed 80 cases against each other in the Company Law Board (CLB), the Delhi High Court and the Supreme Court. It prompted the apex court to wax eloquent on the virtues of mediation. The Supreme Court stated in this case, Vikram Bakshi vs Sonia Khosla, that the sponsors of the company aimed at synergy to "make one plus one as 11 and not two, but ended up where one minus one is not only reduced to zero but became negative." The project has also become defunct. The CLB had passed a status quo order seven years ago, and the Supreme Court continued it and asked the CLB to end the dispute in six months. Meanwhile, the judgment observed that such differences in companies arise day in and day out, but in this case, one petition in the CLB assumed "unprecedented, monstrous proportions". The Court said that mediation is the best solution for all parties. "Via mediation the parties will become partners in the solution rather than partners in the problems," the Court stated. "While providing satisfaction to the litigants, it also solves the problem of delay in our system and further contributes towards economic, commercial and financial growth and development of the country," the judgment stated.

IT dispute from princely era
The Supreme Court has also settled 17 income tax appeals going back to 1970 and involving five trust deeds executed by the former ruler of Gondal, Gujarat - three in the US and two in the UK. The late ruler was including whole of his income from the trusts in his returns. However, his son took the stand that these incomes were not to be included either for income tax purposes or for wealth tax purposes. He maintained that the earlier assessments were wrong. He approached the settlement commission which ruled that these settlements (deeds) were in the nature of 'specific trusts' and therefore, rightly included in the total income of the settler. The dispute travelled through several appellate forums, and ultimately the Supreme Court decided that the trusts were discretionary and not specific. The terms of the deeds left discretion to the trustees to disburse benefits to the beneficiaries. A 'discretionary trust' is one which gives beneficiary no right to any part of the income of the trust property, but vests it in the trustees. "The beneficiary has no more than a hope that the discretion will be exercised in his favour," the judgment said while dismissing the all appeals of the revenue authorities, titled Commissioner of wealth tax vs Estate of late HMM of Gondal.

Public sector firms must act fairly

The Supreme Court has ticked off Bharat Petroleum Corporation Ltd (BPCL) for acting unfairly in terminating the fuel dealership of a partnership firm. The partners had differences among themselves and the corporation did not approve of the reconstitution of the firm. The dispute was taken to the Allahabad high court, which made a financial arrangement. BPCL was not satisfied with it and appealed to the Supreme Court. The apex court upheld the high court arrangement and stated that the action of BPCL in terminating the dealership was not justifiable. The Supreme Court stated in its judgment in the case, BPCL vs B M Motors, that "the arrangement arrived at between the partners may not have been disclosed to the corporation, but such non-disclosure should not be allowed to result in termination of the agency... The corporation would in such a case be expected as a public sector entity, to act fairly and objectively to prevent one party taking undeserved advantage over the other on technical or procedural grounds. There is no gain saying that while considering reconstitution of the partnership the corporation shall be free to stipulate conditions that would protect its business interest, goodwill and reputation among its consumers."

Order to release confiscated fertiliser
The Bombay High Court last week ordered release of a consignment of fertiliser imported by Tata Chemicals Ltd but confiscated by the Collector of Raigad under the Essential Commodities Act. A preliminary analysis of the product found that it was not of standard quality. But when the company sought another test by the regional fertiliser control lab, it was found to be 'standard'. The authorities nevertheless proceeded to auction the stock. The company moved the high court and it quashed the order of the authorities. The high court stated that according to directions of the Ministry of Agriculture, the report received from the referee lab superseded the report of the first.

Lacuna in arbitration law
The Delhi High Court has held that the relevant date for determination of the rate of exchange in executing an international arbitration award is the date on which the award becomes a final decree of the court, after determining all objections. The high court also pointed out that there is a lacuna in the Arbitration and Conciliation Act, 1996 regarding the interest due during the litigation. The Delhi High Court cited a Bombay High Court observation in a similar case, and pointed out that this lacuna operated to the disadvantage of the successful party in the claim. It would be put to great loss due to delay and "it would put a premium to dishonest objections to the award which are meant to delay execution without risk of incurring charges." In view of the legal position, the Delhi High Court did not order interest to the successful party in this case, Progetto Grano SA vs Shri Lal Mahal Ltd. The Italian firm was aggrieved by the alleged low quality of food grains exported by the Indian firm. The dispute was arbitrated by the Grain and Feed Trade Association in London. Two awards were passed against the Indian firm which challenged them in the high court without success.

Court can appoint arbitration panel
When one of the parties to an arbitration agreement does not name its nominee for the arbitral tribunal, the Chief Justice of a high court or his nominee can appoint the nominee and even name the presiding arbitrator, the Calcutta high court stated in its judgment, Rashmi Metaliks vs West Bengal Minerals Development & Trading Corp Ltd. In this case, the government company opposed arbitration on several grounds, but the high court ruled that those issues shall be decided by the tribunal. The dispute was over a 2008 agreement to set up an integrated steel and power plant in the state. When disputes cropped up, the private company sought arbitration, but the government company was not agreeable. The former moved the high court which set up a three-member tribunal.