Setback for works contractors

Contractors, who undertake government projects, received a setback last week when the Supreme Court barred arbitration if the agreement contains a clause that the chief engineer will decide the issues between the parties. Such a term, which is common in most of the government works contracts, was the focus of 23 appeals. In a typical case from Karnataka, one firm lodged a claim against the government for lack of cooperation on the part of the chief engineer leading to non-completion of a river bridge.

It asked the high court to appoint an arbitrator under the Arbitration and Conciliation Act, but its application was rejected. The court stated that if the firm was not satisfied with the decision of the chief engineer, it should go to a civil court and not take the arbitration route. Therefore, the firm appealed to the Supreme Court, along with 22 others that were in the same plight. All these appeals were decided against the contractors in the leading case, P Dasratharama Reddy vs Govt of Karnataka.

ITO can make roving enquiry on deposits

Several financial institutions that resisted disclosure of details of their customers to income tax authorities, on the ground of confidentiality, have lost their cases in the Supreme Court. The revenue authorities sought information from their customers who have cash transactions or deposits above Rs one lakh for over three years. There was no inquiry or legal proceedings pending against the customers under the Income Tax Act. Therefore, the banks challenged the requisition under Section 133(6), calling it an "unauthorised fishing inquiry". The Kerala High Court, in a typical case, upheld the notice in the case, Kathiroor Service Coop Bank vs CIT. The appeals were dismissed by the Supreme Court stating that the Financial Act 1995 expanded the power of the assessing authorities and now they can gather general particulars of customers in the nature of a survey and store information in computers for checking evasion of tax.

Director's onus when cheque bounces

If a director of a company has to be prosecuted in a cheque bouncing case, the person complaining must specifically allege that the director concerned was in charge of, and responsible to conduct the business of the company. In this case, A K Singhania vs Gujarat State Fertiliser Co, the payee complained against several directors. The magistrate issued process against all of them. Two of them moved the high court to quash their prosecution under the Negotiable Instruments Act. The high court did not quash Singhania's, leading to his appeal in the Supreme Court. Allowing his appeal, the court ruled that he was not in charge of the transaction though he was often consulted in business matters by other directors. That did not make him culpable.

Interest on PF arrears

The Supreme Court has ruled that when the provident fund commissioner demands interest on delayed contribution, the employer has a right to be represented on the computation of dues. In this case, Arcot Textile Mills vs RPFC, the company became sick and was unable to pay the provident fund contribution towards the employees. The authorities demanded interest on belated remittances. The firm wanted to know how the authorities calculated the interest and it alleged that the computation was not given. When it appealed to the Madras High court, it rejected the petition stating that the firm should approach the appellate authority under the Act. The firm approached the Supreme Court, which set aside the high court judgment. The apex court stated when the authorities compute the interest and send a "bald order" to the firm, the affected employer could ask for clarification and it should be given an opportunity to object to the calculation of interest, the Supreme Court said.