SC to the rescue of directors

A weekly selection of key court orders

Turning civil disputes into criminal offences against directors of a company has two perceived advantages: The prosecution is supposed to move faster and the harassment caused to them could lead to a lucrative settlement. But the Supreme Court has come to the rescue of such directors in distress in two sets of judgments in recent days. Last week, in the judgment, Vesa Holdings Ltd vs state of Kerala, the court stated that a given set of facts might make out a civil wrong as well as a criminal offence. If an aggrieved person takes the criminal court choice, the complaint must specifically make out a criminal offence. In this case, a consultant offered to negotiate the payment default of the firm with the Industrial Investment Bank of India. However, he did not get the payment and it became a matter of dispute. He moved the criminal court, which summoned the directors. They appealed to the Kerala High Court without success. But the Supreme Court quashed the complaint stating that it did not disclose any offence at all. In the other judgment, Sharad Kumar vs Sangita Rane, the latter bought a vehicle from an Indore company. When she examined the voucher, the engine number in it differed from that of the vehicle delivered. It was found that the vehicle had met with an accident in transit and the engine was changed midway. She filed a criminal complaint of cheating against the managing director. The magistrate issued summons. The MD moved the Madhya Pradesh High Court, which dismissed the appeal. But the apex court quashed the prosecution stating that the allegations were vague and that too against the company only. There was nothing to implicate the MD to fasten vicarious liability on him.

HC order on aircraft release set aside
The Supreme Court last week set aside the order of the Delhi High Court releasing eight aircraft of Kingfisher Airlines detained at Delhi and Mumbai airports for non-payment of dues in 2013. The airport authorities had detained the aircraft as the airline defaulted to the tune of Rs 10 crore. The owners of the aircraft, a California leasing company, challenged the action in the high court. It ordered the release of the aircraft on payment of parking charges. Delhi International Airport Ltd (DIAL) appealed against the order to the Supreme Court. It held that the high court was wrong. In the judgment, DIAL vs International Lease Finance Corporation, the apex court stated that the release was ordered on the basis of the minutes of a meeting held by DIAL and other administrative authorities. But the court ruled that the minutes of a meeting of the authorities could not override statutory regulations. According to the Business Rules governing administration, a decision of this type should have been sanctioned by the concerned minister. Moreover, in this case, stakes of different departments headed by different ministries are involved. Therefore, the decision should have been taken by the concerned committee of the Cabinet. The concurrence of the finance department was necessary. "It cannot be finalised merely at the level of officers of civil aviation or the Central Board of Excise and Customs," the judgment said.

Educational institutions get tax relief

Supreme Court has reaffirmed its stand that where an educational institution carried on the activity of education primarily, the fact that it made a surplus did not mean that its purpose was to make profit. The court stated so while allowing the tax appeal case, Queen's Education Society vs CIT, setting aside the ruling of the Uttarakhand High Court. The test in such cases is the "predominant object" - the purpose of education should not be submerged by a profit-making motive. If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not cease to be one existing solely for educational purposes, the judgment said while interpreting section 10 of the Income Tax Act.

Compensation formula for larger bench
While computing compensation for road accident deaths, one of the factors to be taken into account is the future prospects of the victims. If the deceased person was employed on salary which increases with age and experience in the government or a private firm, it is easy to calculate the loss of financial prospects. But if the person is self-employed, it is difficult to guess how much more - or less - he would have made in the later part of his life. This dilemma has split Supreme Court judges in various judgments. Last week, this issue was referred to a larger bench in the case, Shashikala vs Gangalakshamma, because two judges differed in their views. Chief Justice has to constitute a larger bench to decide the principle to be followed when the victim is self-employed. Meanwhile, the judges unanimously raised the compensation in this case for the widow and children to Rs 19 lakh. The tribunal had awarded Rs 8 lakh, which was raised by the Karnataka High Court to Rs 15 lakh. In another case, Surti Gupta vs United India Insurance, the apex court raised the amount from Rs 6.30 lakh awarded by the Punjab and Haryana High Court to Rs 11 lakh, observing that the courts below had gone wrong in their calculation on several heads.

LIC officers not 'workmen'
Development officers of LIC Corporation are not 'workmen' as defined in the Industrial Disputes Act and therefore they cannot invoke the benefits of the law, the Supreme Court stated while setting aside the judgment of the Allahabad High Court in the case, Chauharya Tripathi vs LIC. The labour court has no jurisdiction to deal with their complaints. In this case, several development officers were punished with reduction of salary by three steps. When they moved the labour court, it ordered their restitution and payment of arrears. LIC appealed to the high court in vain. But the apex court asserted that they were not entitled to the benefits of the Industrial Disputes Act, and an earlier judgment of the court to the contrary was a mistake.

Puff is alright in ad campaigns
The Delhi High Court last week rejected the application of Havells India Ltd for a permanent injunction against a rival manufacturer of LED bulbs on the ground that the advertisement campaign of the latter disparaged its product. It was claimed by the manufacturers of Eveready LED bulbs that their product was cheaper and brighter than Havells'. The court held that it was comparative advertising with a little puff, which was permissible in commercial speech.