The auction purchaser of a defaulting debtor’s property has 15 days to pay the full amount from the date of receiving confirmation of the sale from the secured creditors. The date is counted from the receipt of information, and not from the date of the auction, the Supreme Court clarified in its judgment in the case Rakesh Birani vs Prem Narain. The debt recovery tribunal, its appellate tribunal and the Allahabad High Court had asserted that the 15-day period should be counted from the date of the auction. The Supreme Court ruled that all of them were wrong on this point. In this case, the purchaser deposited 25 per cent of the price when he was declared the winner in the auction. After receiving the communication from the secured creditor, he paid the rest. The owner who was the principal borrower challenged the sale on the ground that the 75 per cent was paid after the 15-day deadline stipulated in the Security Interest (Enforcement) Rules 2002. When all the courts below went against the purchaser, he moved the Supreme Court and succeeded in getting the sale upheld.
Award not to hit third-party rights
The Supreme Court has reiterated that an arbitration tribunal has no jurisdiction to affect the rights of third-party secured creditors while determining disputes pending before it. The court stated so in its judgment, State Bank of India vs Ericsson India Ltd. In this case, a dispute was being arbitrated between unsecured creditors and debtors. The arbitrators passed an order restraining the claimants from alienating any of the assets without its consent. That order was confirmed by the High Court. SBI, a secured creditor, appealed to the Supreme Court arguing that it was not a party in the arbitration and its statutory rights against assets could not be deprived of by the arbitration tribunal. The appeal was allowed.
Govt cannot remove arbitrator
The Supreme Court has struck down a provision in the Bihar Public Works Contracts Arbitration Tribunal Act, 2008, as unconstitutional. According to the Act, the chairman and members of the arbitration tribunal shall hold their office at the “pleasure” of the state government. In the judgment, State of Bihar vs Brahmaputra Infrastructure Ltd, the court declared that the provision was inconsistent with the constitutional scheme, especially Article 14 which prohibited arbitrariness. The tribunal exercised quasi-judicial functions. “Any termination of service of such member by a party to the dispute would interfere with the impartiality and independence expected from such member,” the judgment said, adding that “it is manifestly arbitrary and contrary to rule of law.”
SC remedy to speed up arbitration
Despite several efforts to speed up the arbitration process, it still drags for long. This led a company to move the Supreme Court seeking a timeline to conclude the proceedings. Essel Infra Projects Ltd submitted that it took more than five years to get an award under the Madhya Pradesh arbitration law. The apex court did not pass a mandatory order but made a few suggestions like more benches to deal with the issue and approaching the high court chief justice if necessary. “Having regard to the object of the legislation, which is to provide a speedy resolution mechanism, the state must monitor timelines so that arbitration proceedings do not take unduly long time. One or two years may be taken as reasonable time,” it said.
Caution on re-opening tax assessment
Re-assessment of income on the basis that the assessing officer has a "reason to believe" that the income chargeable has escaped assessment must be interpreted strictly, not liberally, the Supreme Court stated last week in the judgment, ITO vs TechSpan India. Otherwise, it would confer arbitrary powers on the assessing officer. There must be tangible material to re-open an assessment which had already examined the facts and law earlier; not a mere change of opinion. In this case, the company was developing software for export and also was engaged in human development resources. The show cause notice was based on the allegation that the company had not maintained separate books of accounts on its two activities. Though the earlier assessment considered these factors and settled it, a new show cause notice was issued to it under Section 148 for re-opening the assessment. The company moved the Delhi High Court which quashed the notice as the issue was considered in the first assessment. On appeal, the Supreme Court upheld the High Court view.
Hotel chains spar over trade name
In a dispute over the trademark, the Delhi High Court last week imposed costs on a hotel firm for abuse of legal
process and frivolous and mala fide nature of its application seeking an injunction against the opposite party. The court ordered payment of Rs 200,000 as fine, half of which will go to bharatkeveer.gov.in. It is the official website for contributing to the welfare of families of the bravehearts who laid down their lives for the country. In this case, Country Inn Ltd vs Country Inns & Suites, the former company in the business of running hotels and restaurants sued the opposite party for infringement of its trademark. The latter countered with similar allegations. It also moved an application to cancel the registration of the name ‘Country Inn’ and stay of the trial before the Intellectual Property Appellate Board. The High Court rejected the application stating that its claim was made after a delay of seven years, showing that it had abandoned its claim for the trademark and it was intended to stall the trial.