Publishing a defaulters' photos in ads is illegal

Brief case: A weekly selection of key court orders

A secured-creditor bank cannot publish the photographs of directors and guarantors of a defaulting company in a routine manner for pressurising them to repay the loan. The Sarfaesi Act and related rules do not authorise creditors to do so, said the Calcutta High Court, while severely indicting Punjab National Bank (PNB) for grossly abusing its powers, and violating its own rules. In this case, Metsil Exports Ltd vs PNB, the firm took a loan but failed to repay it. The bank issued a demand notice, to which the firm filed objections. However, the bank went ahead and published the demand notice along with photographs of directors and guarantors in two prominent Kolkata daily newspapers. The firm and one of the directors objected to it as violation of their right to live with dignity (Art 21 of the Constitution). They demanded compensation. The bank chairman defended the action arguing that she had “reason to believe” that the firm would not pay. It was further argued that the high courts of Bombay, Madhya Pradesh, Madras, Chhattisgarh and Gujarat had held that banks could publish photographs of defaulters. Rejecting PNB’s pleas, the Calcutta High Court stated that the photos were published at the demand notice stage itself when the firm had filed objections. The firm and directors have not been declared “wilful defaulters”; so their photos cannot be published in a “routine manner”. The bank itself in a circular had instructed that photos should not be published in such circumstances. The high court directed PNB to publish an apology in the same newspapers in view of the “gross abuse of authority”. The demand for compensation was rejected but the bank shall pay costs.

Service tax on police duty? 

The Rajasthan government and the Union of India had a unique dispute in the Supreme Court over the demand of service tax by the central government for the security provided by the state police to banks and other institutions. The state government argued that providing additional police force to the institutions, at various events and character verification and other work related to law and order was sovereign function and therefore exempt from the levy.  It had moved different forums against the demand of the assessing officer, but had lost there. It even moved the Customs, Excise and Service Tax Appellate Tribunal, where the dispute is pending. The central government argued in the Supreme Court that the state government cannot move the Supreme Court while the tribunal is seized of the matter. A party cannot invoke two remedies on the same cause of action, it was contended.  The judgement agreed: “After choosing one particular remedy the plaintiff cannot avail the other remedy as well, in respect of the same relief founded on the same cause of action.” However, the court allowed the state government to put forward its objections before the tribunal. The court invoked the “doctrine of election” by which a person must choose only one forum. The court has explained this doctrine earlier and commented that an action at law is not a gamble or a  game of chess.  A litigant cannot change and choose its stand to suit its convenience. 

Norms for trial judge’s discretion

The Supreme Court last week set aside the judgement of the Bombay High Court and allowed the appeal of IDBI Trusteeship Services Ltd against Hubtown Ltd. IDBI was a debenture trustee and it wanted to enforce its rights arising out of an unconditional corporate guarantee executed by Hubtown. The dispute involved investments from a Dutch company in construction projects and there were questions whether foreign exchange management Act and foreign direct investment policies were violated.  However, the dispute was stuck on the issue of trial court’s discretion conferred by Order 37 of the Civil Procedure Code.  The Supreme Court laid down six principles to sort it out and avoid arbitrariness. It asked the trial judge to proceed with the suit expeditiously, after Hubtown deposits Rs 418 crore in the high court or gives security for that amount.  

Vicarious liability of directors

The Gujarat High Court has stated that when a company is arraigned as an offender, vicarious liability of the directors cannot be imputed automatically, in the absence of any statutory provision as in the Negotiable Instruments Act when cheques bounce. When charges are filed against directors there must be prima facie and cogent evidence. Otherwise, the high court can quash the first information report. The Gujarat High Court did so in the case, D C Mehta vs the State of Gujarat. Two executives of Deepak Nitrate were accused of conspiracy with officials of Kribhco, a government corporation, for supply of ammonia at huge discount causing heavy loss to the latter. The central bureau of investigation filed an FIR in 1997 alleging conspiracy and corruption. The trial has not started even after nearly two decades. The executives moved the high court arguing  that they were not public servants coming within the Prevention of Corruption Act and their names did not figure in the first information report. Examining the allegations, the high court stated that “to continue them as accused persons in the trial of the case amounts to abuse of process of law with respect to them”. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. The high court thus quashed the FIR and orders of the CBI special court against them.

Perils of e-tender

The Karnataka High Court has directed the Bangalore Metropolitan Transport Corporation to consider the bid submitted on e-tender mode by Scania Commercial Vehicles India Ltd and evaluate it in comparison with the other bids received.  The corporation had invited bids for supply of 150 AC buses and 350 non-AC buses. Scania, Volvo, JBM and Ashok Leyland were among the bidders. Scania had some problem with encryption of digital signature leading to delay of 1 minute 55:876 seconds in submitting its bid. Since its bid was rejected on this count, it moved the high court. The arguments were highly technical and the court admitted that it had no expertise to go into them. It observed that Scania “was not seeking to join the race mid-way without reaching the starting point. It has been at the starting point and has run the race but has not reached the finishing line on time due to certain discrepancies for which the reasons are many which cannot be investigated in these proceedings.” The court stated that it would be in public interest to allow the manufacturer to bid as it was a well-known firm, it would increase competition and the objection was not on merit but on technical default.