From default to land acquisition, a weekly selection of key court orders

Special laws override Arbitration Act

The Supreme Court has ruled that in the case of National Highways Authority of India (NHAI), the central government has the exclusive right to appoint the arbitrator if a dispute arises, and not one according to the Arbitration and Conciliation Act 1996. This exceptional case arises because of Section 3G(5) of the National Highways Act 1956. The question arose when NHAI acquired the land belonging to Sayedabad Tea Company in Darjeeling. According to the special law favouring NHAI, if there is a dispute over compensation, the arbitrator appointed by the central government will decide the issue. In this case, the tea company disputed the amount and asked the government to appoint an arbitrator. But the government did not respond. Therefore, the company moved an application before the Calcutta High Court invoking the provisions of the Arbitration Act to appoint an arbitrator. Then the government rushed to appoint an arbitrator. The high court ruled that since the Arbitration Act has already been invoked, the government cannot appoint an arbitrator. This was followed by the recusal of the arbitrator and legal imbroglio lasting 12 years over which law would apply. The Supreme Court has ended the controversy stating that a special law like the National Highways Act will override a general law like the Arbitration Act. This principle was applied earlier in the case of the Electricity Act when a similar question arose over arbitrator.

Director can nominate arbitrator

The Delhi High Court has stated that though courts have appointed independent arbitrators when there is a conflict of interest, the Arbitration Act has not done away with the “unilateral right” of a party to appoint an arbitrator. The law only prohibits an ineligible person to act as arbitrator. The court was dealing with the case, Kadimi International vs Emaar MGF Land Ltd in which an arbitration clause became the centre of the dispute. It said a sole arbitrator shall be nominated by anyone of the directors of the company. When an arbitrator was chosen by a director of one of the parties, the rival opposed it as he would not be impartial. It was argued that after an amendment to the Act in 2015, certain persons connected with the disputing parties have been made ineligible. It further contended that since the director of a company cannot himself act as an arbitrator, any appointment made by him would also be void. But the high court asserted that Parliament has not taken away a contracting party’s right to make an appointment altogether. It only barred an ineligible person to be an arbitrator.

Stay orders freeze land acquisition

When a court orders a stay in a land acquisition case, the acquisition of all pockets of land should be suspended. Even if one landowner gets a stay order for his/her pocket of land, the acquisition in that whole area cannot proceed further. The authorities have to hold back proceedings. Stating so, the Supreme Court last week set aside the judgment of the Bombay High Court which had quashed the land acquisition in Aurangabad area. The landowners in this appeal, State of Maharashtra vs Moti Ratan Estate, had argued that the acquisition had lapsed as the award was not published within two years as stipulated in the old Land Acquisition Act. The high court agreed with them. However, on appeal by the state, the Supreme Court stated that the period of stay should be excluded from the two-year period and then the award was within time. 

Wrong way to calculate compensation

Calculation of compensation for road deaths should be based on the age of the victim, and not on the age of the dependants. There may be many dependants of the deceased, whose ages would vary. Therefore, the age of the dependents would have no relevance, the Supreme Court explained in its judgment, Sunita Tokas vs New India Assurance. In this case, a 21-year-old youth died in an accident while riding pillion. The Delhi High Court awarded ~9 lakh based on the age of the victim’s mother. She appealed to the Supreme Court. It enhanced the award to ~11.39 lakh based on the age of the son. He was a trained swimmer who had won several state-level competitions. Therefore, he had great potential for the future, which the tribunal and the high court overlooked. The Supreme Court recalculated the compensation considering all aspects of the case and asked the insurer to pay the amount with 7 per cent interest.

Alternative remedies for defaulter

The question whether a defaulting company can move a high court straightaway without approaching the debt recovery tribunal (DRT) has again cropped in the Gujarat High Court in the case, G A Industries vs Bank of Baroda. The MSME had taken a loan from the bank, which it could not return because of the demonetisation and the implementation of GST. The bank declared the account as non-performing and tried to take possession of the assets of the company under the Securitisation (Sarfaesi) Act. The DRT rejected the opposition of the firm. It approached the high court and argued that the action of the bank was in violation of the RBI guidelines on the revival of MSMEs and therefore, there was no need to approach the DRT. The bank cited Supreme Court judgments which criticised high courts for hearing writ petitions in debt matters. The high court, after analysing the facts of the case, allowed the writ petition observing that a “justice-oriented approach ought to have been adopted by the tribunal and even assuming for the sake of argument the firm has an alternative remedy, in my discretion of exercise of jurisdiction, I deem it fit to set aside the order of the tribunal”. The case was remanded to the DRT.

Prosecution of directors quashed

The Calcutta High Court last week quashed the prosecution of directors of a company for not depositing the contribution of employees’ provident fund. In this case, Malhati Tea & Industries Ltd vs State Of West Bengal, criminal action under the Indian Penal Code was taken against a number of directors of the tea company. Quashing the prosecution ordered by the district judge of Jaipalguri, the high court stated that the term 'employer' in the code did not include the director of a company. It is the company which is the employer, and not its directors either singly or collectively. “Continuance of criminal proceedings against the directors would be an abuse of the process of the court,” the court said.

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