SC restarts 20-year-old arbitration

In a dispute in which arbitration proceedings had not commenced for two decades, the Supreme Court has ruled that the court has the power to appoint an arbitrator against the terms of the contract. In this case, North-Eastern Railway vs Tripple Engineering Works, the railway terminated the contract in 1994 and a panel of arbitrators was appointed in 1996 to decide on the disputes. But little had happened since then. When the contractor company moved the Patna high court, it appointed a retired chief justice of the Sikkim high court as arbitrator.

This was challenged by the railway in the Supreme Court, arguing that according to the General Conditions of Contract, a judge could not be an arbitrator. The Supreme Court rejected the contention and upheld the high court's action in view of the peculiar facts of the case. "In a situation where the procedure and process under the Arbitration and Conciliation Act has been rendered futile, the power of the court to depart from the agreed terms of appointment of arbitrators must be acknowledged in the light of the several earlier decisions," the judgment said.

Illegal auction sale set aside

The Supreme Court last week asked the Orissa Financial Corporation to return the money to the purchaser of a property bought in auction conducted by the corporation against law. It allowed the corporation to recover the cost from its officers who acted against the rule laid down in the State Financial Corporation Act.

According to the rule, if a borrower defaults, the loan cannot be recovered from third parties like guarantors. In this case, Subhransu Sekhar Padhi vs Gunamani Swain, a person bought a truck with loan from the corporation but he defaulted. Since the vehicle could not be traced, the corporation seized the property of his father-in-law who mortgaged his property for the loan. When it was auctioned, the wife and children moved the court against the sale. The court set aside the sale invoking Section 29 of the Act. It said that the auction purchaser who parted with his money to buy the property was a "victim of an illegal procedure adopted by the corporation."

Prevention of unjust enrichment 

Emphasising its stand on the issue of unjust enrichment, the Supreme Court has stated that a company would not be entitled to claim refund of tax illegally collected by the state unless the firm establishes that it had not passed on the tax liability directly or indirectly to consumers. The principle was reiterated in a large batch of cases, led by Deccan Cements vs Assistant Director of Mines. The company in this case was in the business of manufacture and sale of cement. It secured mining leases of limestone and dolomite.

These minerals were exigible to two imposts under the Telengana Area Act and the Andhra Pradesh Mineral Rights Act. These laws were challenged by various companies and it reached the Supreme Court two times. Ultimately, the law was found to be unconstitutional and the court ordered refund of the tax collected. However, the Andhra Pradesh High Court ruled that the companies were not automatically entitled to refund. They must show that they had not passed on the tax liability to consumers. Against that order, the companies appealed to the Supreme Court. It dismissed all of them and told them to show before the authorities that they had not passed on the burden to the consumers.

Quarry lease of precious stones quashed

The Supreme Court last week dismissed the appeal of Vivek Exports, which was granted a 20-year quarrying lease for ornamental stones, though its lease had been quashed by the high court of Karnataka. The judgment stated that "in case where a lease has been quashed by the court for whatever reason, granting renewal of such a quashed lease is impermissible and may amount to fraud on the power of renewal exercised by the state government."

The issue of lease was challenged by a rival firm, when its application for quarrying in the same area was rejected by the Karnataka government. The government order granting several leases was quashed by the high court. Though the challenge to the government order was made by this firm after nine years, the delay in moving the court was pardoned as it came to know about the government sanction only through a right to information petition.

Order to release Belgian chocolates 

The Delhi High Court last week directed the Commissioner of Customs to release about 4,000 kg of the famous Guylian chocolates imported from Belgium and lying in the warehouse since January this year, after complying with certain directions. The Food Safety and Standards Authority of India had found two defects in the 16 varieties of these imported chocolates. Packages of eight varieties had no label indicating the date of manufacturing, expiry date and other related information about the product.

Another objection was that vegetable oil was used as the filling in eight other varieties. These allegations were contested by the importer in a writ petition, United Distributors Incorporation vs Union of India. The high court stated that since the goods were perishable, the commissioner must release them after proper labelling, "with utmost expedience". The objection about vegetable oil was found to be unsustainable as it has been permitted in other cases.

Tax case straddling continents 

The revenue authorities have just lost an appeal against the ruling of the Authority for Advance Ruling (AAR) in one of the most complex cases involving capital gains tax in sale of shares of companies across the globe. Shorn of details, AAR had held that the capital gains arising out of the sale of shares of an Indian company, Copal Research India Ltd, sold by a company incorporated in Mauritius (Copal Research Ltd) to a Cyprus company (M/s Moody's Group Cyprus Ltd) and sale of shares of a US company (Exevo Inc) sold by the Mauritius Company (Copal Market Research Ltd) to another US company (Moody's Analytics, Inc) were not liable to tax in India in the hands of the seller companies. Consequently, the purchasing companies had no obligation to withhold tax. This view was upheld by the Delhi High Court in its judgment, Director of Income Tax vs Moody's Analytics, USA.