Arbitration among partners

LEGAL DIGEST

The Supreme Court last week laid down a few principles regarding arbitration among partners in a firm, in the Ravi Prakash vs Chandra Prakash case. It stated that the legal representatives are entitled to invoke the arbitration clause in the partnership deed where the right to sue for rendition of accounts survived on them.

The authority of the arbitrator is not revoked by the death of the party who appointed him. The court further ruled that on the dissolution of the firm, the arbitration clause does not come to an end.

Therefore, if a dispute had risen during the lifetime of a deceased partner, his legal representatives would be entitled to take proceedings under the Arbitration Act, 1940. The judgement of the Allahabad High Court in this case, which ran contrary to these principles, was quashed by the Supreme Court.

Sugar mill's plea dismissed

The Supreme Court has dismissed the appeal of Balrampur Chini Mills Ltd against the order of the Allahabad High Court in its dispute with Bajaj Hindustan Sugar & Industries Ltd. The company moved the appeal on a technical point, but the main grievance is that Bajaj Hindustan is setting up a sugar mill at Itai Maida, which is within 15 km of its own proposed unit at Kalu Bankat.

According to an industry ministry notification, new sugar factories, when established, would have to maintain a minimum distance of 15 km from an existing sugar mill. According to Balrampur Mills, the setting up of the mill would be in violation of this rule. The Supreme Court sent the matter to the civil court for re-examination.

Sales tax on auction by banks

The Supreme Court has dismissed the appeal of Federal Bank Ltd and ruled that banks in Kerala are liable to pay sales tax on earnings from auction of pledged goods, even though the transaction is not a part of the main business activity.

The banks had challenged the validity of Section 2 (VII) (g) of the Kerala General Sales Tax Act, 1963. It had contended that a scheduled bank was not a dealer and auction of goods pledged by borrowers was not 'sale' of goods.

However, the Bench observed that though transactions of sale of pledged articles was not part of the main business activity, it would fall within incidental or ancillary to the business.

Delay in road construction

The Supreme Court has dismissed the appeal of the Arunachal Pradesh government in its dispute with Damani Construction over the construction of road bridges. The work was to be completed within two years but it was delayed, allegedly due to deviation from the original scope of the work and delay in the approval of designs.

These factors gave rise to disputes which were referred to an arbitrator. He gave an award in favour of the construction company. The government filed a review, which was rejected. It moved the court after a delay of six months.

The district judge condoned the delay of six months in moving the court. On appeal, the high court stated that the district judge was wrong. The government then appealed to the Supreme Court, which upheld the high court view.

Compensation for Dishonoured cheque

The Supreme Court last week asked a partner in a firm to pay a compensation of Rs 7 lakh to another for issuing a cheque that was dishonoured. According to the details of the P Suresh Kumar vs R Shankar case, the partnership ran into rough weather and one partner intended to prosecute another.

However, after a compromise, one partner agreed to pay Rs 7 lakh to the other. But it was dishonoured, which started another round of dispute. The magistrate fined the drawer of the cheque Rs 7,05,000 out of which Rs 7 lakh would be compensation and the rest would go to the government.

On appeal, the district judge reduced the sentence to Rs 5,000 alone. The high court upheld this ruling. On appeal, the Supreme Court asked him to pay Rs 7 lakh as compensation to his estranged partner, with no fine.

Cancellation of allotment of plots

The Supreme Court has ruled that an industrial development corporation cannot cancel the allotment of plots unilaterally without following procedures, after the allottee had invested in the land. In the judgement in the Sunil Pannalal vs CIDCO case, the court stated that public policy would not be a good justification for such action.

In fact, the cancellation itself would be against public policy. The Bombay High Court had earlier dismissed the petition of the allottee, who was given a commercial plot in Panvel, Navi Mumbai, on lease for 60 years for a premium of about Rs 2 crore.

Automated X-ray spectrometer

The Supreme Court last week set aside the ruling of CEGAT in a case under the Customs Act between Sterlite Industries (India) Ltd and the Chennai Customs authorities, and asked the tribunal to reconsider the case of the importing company.

The question involved was whether the fully automated sequential X-ray spectrometer was an apparatus based on the use of X-ray, as claimed by the department, or an apparatus for physical or chemical analysis.

The rate of duty will differ according to this classification. The court remitted the case to the tribunal because the latter had not considered the data given in the catalogue about the actual use and function of the goods.

Collection, levy distinct things

Collection and levy are distinct things and collection is not an essential facet of levy, the Supreme Court observed in its judgement in the M/s Peekay Re-rolling Mills (P) Ltd vs Assistant Commissioner case, delivered last week.

"It is true that collection of a tax may sometimes be indicative of a lawful levy of tax, but it does not logically follow that absence of collection means absence of liability," the judgement explained, allowing the appeal of the company against the Kerala High Court ruling.

The steel re-rolling unit bought ingots from manufacturing units within the state, which were exempt from payment of sales tax. The revenue authorities demanded tax on the raw materials consumed in the manufacture, though they were originally exempted.

The Kerala High Court held that it was legal to levy purchase tax and stressed that levy included collection of tax as well and not mere imposition. The Supreme Court rejected this theory and emphasised that it would violate the condition of single-stage tax under Section 15 of the Central Sales Tax.

Notice issued to Goa govt

The Supreme Court has issued notice to the Goa government on a petition moved by Competent Automobiles Company Ltd against a Bombay High Court order that barred it from going ahead with its proposed five-star hotel and beach resort.

The company proposes to build 'Goa Sheraton Resort' in the state. The court also issued notices to Goa Foundation, the Panchayat of Candolim, Goa Coastal Zone Management Authority, the Chief Town Planner and the Ministry of Environment and Forests, asking them to file replies within three weeks.

According to the company, the blanket ban order passed by the high court would prevent authorities from giving clearances. The high court had restrained authorities from granting new licences for any type of construction in the Coastal Regulation Zone-III till the survey and inquiry was completed.

Besides, it had also directed the state government to frame a policy in relation to open plots in the zone that could be utilised for construction of hotels and beach resorts.

According to the counsels, Competent Automobiles had purchased land for Rs 11 crore for setting up a five-star hotel. It had also signed an MoU with Starwood Hotels and Resorts Worldwide Inc for the project, they added.

The petition also said the MoU signed with Starwood would be in jeopardy as it stipulates a time period for completing the project, failing which it could be cancelled. It all started when Goa Foundation, an NGO, had filed a public interest litigation in the high court alleging gross violation of the CRZ Notification of February 1991.

No interim relief to PTC

The Supreme Court has refused to give any interim relief to PTC India Ltd, the country's largest power trader, on a plea challenging the cancellation of a contract by a Gujarat government-owned electricity firm. PTC had challenged the Gujarat High Court's order that refused it any interim relief on its petition against the Gujarat Urja Vikas Nigam Ltd's (GUVNL) decision to cancel the Letter of Intent issued to the company and instead award the contract to Adani Enterprises Ltd.

The Supreme Court directed the high court to expedite the hearing in the matter and dispose of the petition within six months. According to PTC, GUVNL violated the norms of transparent bidding process and favoured Adani Enterprises Ltd. PTC also said that GUVNL was aware that it was waiting to execute the power purchase agreement and furnish the enhanced bank guarantee.

It had already provided a bank guarantee of Rs 22 crore, the company said. Therefore, GUVNL's decision to cancel the LoI on the ground that the enhanced bank guarantee was not furnished "was merely a pretext to snatch the award from its hands and enter into clandestine negotiations" with Adani.

Dunlop Executive Staff Pension Fund

Two Supreme Court judges have failed to agree on the appeal against the judgement of the Calcutta High Court on the dispute over the Dunlop Executive Staff Pension Fund. They have therefore referred the matter to the Chief Justice to set up a larger Bench to solve the questions, including the interpretation of Section 34 of the Indian Trusts Act.

According to Markandey Katju, the interest of every beneficiary under the trust has been taken care of. Therefore, the money lying with the trust should be returned to Dunlop India Ltd immediately. He set aside the high court judgement which took an opposite view. But Justice S B Sinha, the other judge on the Bench, dismissed the petition asserting the view of the high court.

According to him, three suits over the trust fund were pending. It was not correct to state that all the beneficiaries of the trust had been paid off. Further, the power of the company to make rectification of the terms and conditions of the trust vis-à-vis the power of the trustees to revoke the same with retrospective effect is a matter which is pending consideration in a court of law. No final opinion can be rendered on that question at present, Justice Sinha observed.

Voluntary retirement scheme

The Supreme Court has dismissed the appeal of Andhra Pradesh Cooperative Oil Seeds Growers Federation Ltd against the judgement of the high court in cases involving its voluntary retirement scheme. Only those employees were retained who came within the cadre strength determined in accordance with the norms enunciated by the federation, while the remaining employees were offered the benefit of VRS.

Several employees challenged their inclusion in the list of surplus employees whose services were to be discontinued. Their contention centred on the inter se seniority.

Upholding the orders in individual cases, the Supreme Court observed: "The only rule which could be safely applied to determine the seniority was to reckon the seniority by reference to the length of service. As a necessary corollary, the date of initial appointment in the federation was decisive in determining seniority. Thus, seniority must be determined by reference to the date of initial appointment and not by reference to the dates of promotion."

Labour dispute in cooperative bank

In relation to a multi-state cooperative bank carrying on business in more than one state, which government "" the central or the state "" is empowered to refer a labour dispute to the tribunal under the Industrial Disputes Act? A three-judge Bench headed by the Chief Justice ruled that it would be the state government.

The decision was made in an appeal case, Bharat Cooperative Bank (Mumbai) Ltd vs Cooperative Bank Employees Union. The bank was originally registered under the Maharashtra State Cooperative Societies Act. Since the bank opened branches in other states too, it got itself registered under the Multi-State Cooperative Societies Act.

It is also governed by the Banking Regulation Act. The dispute started when 11 employees were transferred from one place to another. They invoked the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act.

The bank argued that since it was in the banking business, it was the central government which could refer the dispute to the industrial court and not the state government. The division bench of the Bombay High Court ruled that the appropriate government would be the state government. The bank appealed to the Supreme Court. It dismissed the appeal.

HM seeks police help amid workers' stir

Hindustan Motors on Wednesday moved the Calcutta High Court seeking intervention to ensure smooth running of its plant at Uttarpara following agitation by a section of workers. The company filed a writ petition before the court seeking police assistance to allow easy entry and exit of employees at its factory, located nearly 30 km from Kolkata.