From arbitration to automatic blacklisting, here are the key court orders

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No fetters on sale of industrial plot

The Supreme Court last week ruled that the conditions for allotment of industrial plots do not stay once they are sold to entrepreneurs who paid full consideration. In this case, state-owned Andhra Pradesh Industrial Infrastructure Corporation allotted plots to a larger number of transporters and executed sale deeds in their favour. They were supposed to start their units within two years. But there was a delay in starting the industries, allegedly because the state corporation did not provide infrastructures like road, electricity and water. The corporation, however, threatened to cancel the transfer because of the delay. Under pressure, it offered to revive the sale on payment of additional 50 per cent of the market value of the plots. This was challenged by the buyers in the High Court. It held that once the sale deeds are executed, the conditions of allotment could not be invoked. The buyers became absolute owners of the property once they paid the consideration. The corporation appealed to the Supreme Court. It upheld the view of the High Court. The judgment stated that the sale deed did not contain the condition of completing the constructions within two years. The terms of allotment were not valid after the buyers acquired absolute marketable rights to the property.

SC says its arbitration ruling was wrong

A three-judge bench of the Supreme Court has declared that its 2011 decision rendered on arbitration law was wrong. There was disagreement between two judges of a bench over whether the state law on arbitration will prevail over the Arbitration and Conciliation Act, 1996. One judge took the view that the state law will apply because the 1996 Act had made an exception to other laws inconsistent with it. But the other judge wrote that the 1996 Act will rule in spite of state laws. Therefore, the issue was referred to a three-judge bench. This bench, in the case Madhya Pradesh Rural Road Development Authority vs L G Chaudhury Engineers and Contractors, ruled that the Madhya Pradesh law of 1983 on arbitration will apply. There was a large batch of appeals and cross-appeals by contracting firms over the issue and all of them will follow the new judgment. If arbitration award has already been passed without objection over jurisdiction, the arbitration decision will be followed. Otherwise, the aggrieved parties can start the proceedings again.

Rights of auction purchaser upheld

The Supreme Court has set aside the judgment of the Patna High Court and allowed the appeal of the auction purchaser who bought the assets of Deepak Electro Casting Ltd. The High Court had quashed the sale on the ground that the borrower company had not been given time till the last date to pay the dues under a one-time settlement plan. The High Court also felt that the amount fetched in the auction was low and doubted the bona fides of the auction. However, the Supreme Court, in its judgment, TSR Financial Services Ltd vs Central Bank of India, stated the borrower had in fact not been able to match the price offered by the auction purchaser. On the other hand, the purchaser had paid part of the amount in 2005 but had not been able to enjoy the benefit due to interim orders of the High Court which barred it from developing the property. 

Solar energy firm gets back project

The Supreme Court has dismissed the appeal of Madhya Pradesh Power Management Company, which had terminated its power purchase agreement with Renew Clean Energy Ltd alleging delay in completing a solar project. The High Court and the Supreme Court held that the termination of the contract was wrong in the facts of the case. The solar company, chosen from among 100 bidders, was given a large area to start the project. However, the place was occupied by squatters and the project team was physically attacked whenever it visited the site. Therefore, the solar energy firm sought a different site which was given. This process took time and there was a dispute over the alleged delay in starting the project. The Power Management Company terminated the contract and imposed a penalty of ~119,554,200 on Renew Clean Energy. The solar energy firm moved the High Court against the termination and other adverse actions. The High Court set aside the termination, calling it "arbitrary". On appeal, the Supreme Court upheld that order but asked the solar energy firm to pay the penalty.

Bank rapped for harrying commoners

The Delhi High Court has decried public sector Central Bank of India for "acting maliciously and dishonestly to harass common citizens of this country". The observation came in its judgment, Care Finance Ltd vs Central Bank in which the parties had settled the dispute before the Lok Adalat. The loan was paid in full and final settlement. However, the bank did not release the mortgaged property of the firm and raised more demands. The firm paid them under protest and then sued the bank for its return. The trial court dismissed the suit. The firm appealed to the High Court. It set aside the trial court judgment and directed the bank to return the extra amount received under protest with 14 per cent interest. It also ordered the nationalised bank, which raised "frivolous defences for contesting the suit", to pay entire litigation costs as claimed by the firm.

'Automatic blacklisting' is illegal

A condition in the tender document, which gives a government corporation the right to "automatically blacklist a party without giving an opportunity for a hearing" is not valid as it violates the principles of natural justice. The Delhi High Court stated so in its judgment, Atlanta Ltd vs Union of India. In this case, the National Highway Authority of India had invited tenders for a six-lane project. Atlanta successfully bid for it and gave bank guarantee from a cooperative bank, but the NHAI terminated the contract as it wanted one from a nationalised or scheduled bank. According to the terms of the contract, such termination would automatically blacklist the firm from other government contracts for two years. The firm challenged the rule as arbitrary and unreasonable. The court agreed with it and stated that such "threshold debarment" would result in losses to private parties. Termination of the contract could be for varied reasons. The affected party should be heard in each case before taking "automatic and unilateral" action. Its fundamental right to trade also would be hit. The wide "disbarment" condition granting power to the NHAI to blacklist firms was also disproportionate, the judgment said.