SC harmonises debt recovery laws

Brief case: A weekly selection of key court orders

The Supreme Court ruled last week that the Debt Recovery Tribunal (DRT) constituted under the DRT Act has jurisdiction to entertain an appeal arising from the SARFAESI Act even if the amount involved is less than Rs 10 lakh. This explanation became necessary because there was some grey area in the DRT Act and the SARFAESI Act regarding loans below Rs 10 lakh. In this case, State Bank of Patiala vs Mukesh Jain, the loan was below Rs 10 lakh. The DRT Act says it has jurisdiction for suits only above Rs 10 lakh; otherwise the bank should move the civil court. But, SARFAESI Act bars any role to the civil court. Therefore, the court had to harmonise the provisions.  The Supreme Court did so and allowed the appeal of the bank, against the ruling of the Delhi High Court.

 
Auction of property set aside
 
The Supreme Court last week set aside the auction sale of a property of a defaulting borrower by a creditor bank because the bank showed “undue haste” in selling it. “The creditor bank could have waited for some time when the proceedings were pending before the debt recovery tribunal as well as the Calcutta High Court before conducting the auction and confirming the sale,” the court stated in the judgement, Oasis Dealcom Ltd vs Khazana Dealcomm Ltd. It added that the high court and the appellate tribunal had set aside the sale because of irregularities committed in holding the auction. The court directed the bank to refund the payment received from the auction purchaser with interest and allow the borrowers to repay the amount due. If they fail to do so, the bank can conduct auction but this time following procedures like public notice in two local newspapers.

 

ONGC’s blacklisting quashed
 
The Bombay High Court has quashed the order of ONGC blacklisting JK Surface Coatings Ltd for three years and allowed it to participate in future tenders/bids floated by the government oil corporation. The private company specialises in corrosion resistant coating  for offshore industries and claims to be the only one such in this country. According to it, the irregularities alleged by ONGC are in the realm of contractual disputes and did not warrant a ban on it. The High Court stated that though private companies can blacklist one another, a government  entity must follow the principles of natural justice and proportionality. If these principles are violated, the court can intervene. The judgEment underlined that “merely due to some contractual disputes, a banning order would be too harsh.” In this case, the high court expressed surprise that the firm was not told that the show cause notice was to ban it from tenders and it was not given an opportunity to explain its position before taking the extreme step. This caused prejudice to the firm and the facts led to the conclusion that the order was merely to keep it out of future tenders.

 
Power firm liable for bad upkeep
 
Though the Public Liability Insurance Act was passed following mass disasters like the Bhopal gas leak, this is hardly invoked because of lack of awareness and meagre compensation provided in the law. In a rare case, the Madhya Pradesh High Court ruled that the electricity distribution company is liable for the deaths and injuries caused by bad maintenance of high tension wires. The parent of an eight-year-old boy, who was electrocuted when a bus carrying a marriage party came into contact with live wire loosely hanging on the road, invoked the law and received Rs 25,000 as damages. The company opposed even this small sum arguing that the motor vehicle accident tribunal had already awarded Rs 1.8 lakh and therefore the parent was not entitled to further payment. The high court rejected the argument and stated that the victim was entitled to both amounts. It further held that electricity was a “hazardous substance” according to the law. So the company handling it had a duty to keep it out of danger to the people. If there is an accident and injury, compensation must be paid without apportioning blame, because it is a “no-fault” liability. It is not for the victim to show that the company had been at fault; the burden to  prove that electricity was properly handled was with the distribution company, the High Court stated last week in the case, Chairman vs Ujyar Singh.

 
SBI not accountable to pay purchase tax
 
The Supreme Court last week ruled that State Bank of India and its branches are  not liable to levy purchase tax  for accepting Exim Scrips (export import license), dismissing the appeal against the judgement of the Calcutta High Court. The question was whether SBI which are registered dealers under the Bengal Finance (Sales Tax) Act would be liable to levy of purchase tax for accepting the scrips on payment of premium of 20 per cent of the face value in compliance with the direction of Reserve Bank of India. The revenue authorities as well as the taxation tribunal had held against the SBI but the high court had ruled in favour of the bank and quashed the show cause notices. The Supreme Court upheld the high court view in its judgement, Commercial Tax Officer vs SBI.

 
Foreign award confirmed
 
The Delhi High Court last week dismissed an application moved by Dalmia Bharat (Cement) Ltd opposing an international arbitration award against it in its dispute with Swiss corporation, Xstrata Coal Marketing AG. In the contract,  Xstrata had agreed to supply and Dalmia had agreed to purchase 120,000 tonnes of South African steam coal. The contract included an arbitration clause which stated that proceedings would be held in London according to the laws of England. Disputes did arise following a cyclonic storm in he cement plant in Karnataka and proceedings were held under the arbitration rules of the London Court of International Arbitration. The award was challenged in the Delhi High Court raising several objections, one of them being that it was “opposed to public policy”. Rejecting the contentions, the judgement stated that the grounds on which the enforcement of a foreign award may be refused are very limited. The question whether the award contravenes the fundamental policy of Indian law would not entail a review of the disputes. “The ground that a foreign award is against the interests of India is no longer available to refuse enforcement of an arbitral award,” the judgement said.