From agricultural debts to service tax, here are the key court orders

Consumer complaints outside arbitration

The Supreme Court has upheld the ruling of the National Consumer Commission that consumer disputes cannot be referred to arbitration. Some consumers had moved the commission against builders, alleging deficiency in services and unfair trade practices. The builders argued that after the 1995 amendment to the Arbitration and Conciliation Act, widening its scope, consumer forums cannot hear such complaints and they should be referred to arbitration according to the agreement between the parties. The commission rejected the contention in a large batch of cases titled Aftab Singh vs Emmaar MGF and asserted that the Consumer Protection Act is a special social legislation to protect consumer rights. The rights of consumers are among a number of issues that are not arbitrable, even if the consumer had signed a document with an arbitration clause. Though the ruling was made in the context of builders, it applies to other cases as well, as the judgment states that “the disputes which are to be adjudicated and governed by statutory enactments established for the specific public purpose to subserve a particular public policy are not arbitrable".


Borrowers shifted after company merger

If a non-banking financial company merges with another company, the borrowers of the former become the borrowers of the new company. The new company can invoke the provisions of the Securitisation  (‘Sarfaesi’) Act against the borrowers if they default in repayment of loans. The Supreme Court stated so while setting aside the judgment of the Andhra Pradesh High Court in the appeal case, Indiabulls Housing Finance Ltd vs Deccan Chronicle Holdings. When the housing company invoked the Sarfaesi provisions, the borrowers moved the High Court. It set aside the Sarfaesi proceedings to take over the mortgaged assets. Indiabulls appealed to the Supreme Court. Allowing the appeal, the court stated that the housing finance company that took over the assets and liabilities of the merged company could invoke the Sarfaesi Act. Even if the merged company had earlier invoked the Arbitration Act, the Sarfaesi proceedings are valid. The Arbitration Act is a general law and action under it would not foreclose that taken under a special law like the Sarfaesi Act, which is meant to provide a speedier remedy for secured creditors.


When arbitrators give conflicting views

Though courts normally do not interfere in the award of arbitral tribunals, if there are conflicting interpretations of a clause by different tribunals, it is a reason to exercise judicial review, the Supreme Court stated in the judgment, National Highway Authority of India vs ProgressivMVR. In this case, several contractors were given road projects in which there was a common price adjustment formula. When differences surface, the dispute resolution board rejected the argument of one contractor. But the arbitral tribunal found in favour of the contractor. Moreover, in disputes raised by other contractors over the same term of the contract, the arbitrators gave conflicting verdicts. Therefore, the Supreme Court took upon itself to decide the issue and observed that the awards in favour of the contractors were contrary to the contractual terms regarding price escalation.


Remedy for agricultural debts

The Supreme Court has upheld the constitutionality of Section 21A of the Banking Regulation Act which keeps courts away from examining complaints that the rate of interest is excessive. In this judgment, Jayant Verma vs Union of India, a person pleaded for the abolition of this provision in view of rural indebtedness and a large number of suicides by farmers allegedly because of usurious interest rates. The court, however, ruled that if there are debt relief laws in the states which deal with agricultural indebtedness, the central law will not apply.


Free goods not in service tax net

The Supreme Court has dismissed the appeal of the Commissioner of Service Tax and ruled that if goods and materials are provided free for construction of an industrial complex, they should not be included in the computation of the gross amount charged by the service provider for valuation of taxable service. In this case, Commissioner vs Bhayana Builders, the contractors received materials from the recipient of the service. According to the revenue authorities, they should be included while calculating the gross revenue for levying service tax. Different benches had given conflicting judgments on this question. The matter was referred to a larger bench of the Service Tax Appellate Tribunal. It decided in favour of the assessees by holding that the value of such materials supplied free could not be added for evaluation of service tax. The revenue authorities appealed to the Supreme Court against that ruling without success.


IT registration cannot be cancelled

The Commissioner of Income Tax cannot cancel the registration of a charitable institution once it is granted, the Supreme Court ruled in its judgment, Industrial Infrastructure Development Corporation vs CIT.  The state government corporation got registration in 1999 under Section 12A of the Income Tax Act on the ground that it was engaged in public utility services, which were in the nature of charitable purpose as defined in the Act. In 2002, the registration was withdrawn. The corporation moved the Income Tax Appellate Tribunal, which set aside the order of the CIT. However, the Madhya Pradesh High Court restored the order of the CIT. On appeal, the Supreme Court quashed the High Court order. It held that the CIT had no power to cancel or withdraw the registration granted under Section 12A. It noted that the law has been amended since to grant the power to the CIT.


Firm of jobless youth is ‘consumer’

A partnership firm started by unemployed graduates for self-employment can move the consumer courts for compensation for losses suffered due to bad machinery sold to them, the Supreme Court ruled in the judgment, Paramount Digital Color Lab vs Agfa India Ltd.  The youths believed the sales talk of Agfa executives and bought photographic software from them. However, it gave continuous trouble which was not rectified. They moved the consumer forum where the company argued that they were not consumers as they were doing business. The National Consumer Commission agreed with the argument. The youths appealed to the Supreme Court. It allowed the appeal observing that the goods were bought not for making large-scale profit-making activity but for earning a livelihood by means of self-employment.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel