From definition of employee to judges missing the point: Key court orders

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‘Group of companies’ doctrine reiterated

A non­signatory to a contract may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement. It is especially so when the non-signatory entity in the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract. This doctrine of group companies was reiterated by the Supreme Court in its judgment in MTNL vs Canara Bank. The issue arose in this case when MTNL floated 17 per cent bonds in 1992, before the outbreak of the first securities scam. MTNL placed bonds worth Rs 200 crore with Can Bank Financial Services (Canfina) under an MoU. Canara Bank bought such bonds from Canfina, its subsidiary. Disputes later arose between the parties. When arbitration was invoked, Canara Bank argued that the dispute was between the bank and MTNL and Canfina is not a party. Rejecting the contention, the judgment stated that “it will be a futile effort to decide the disputes only between MTNL and Canara Bank in the absence of Canfina, since undisputedly, the original transaction emanated from a transaction between MTNL and Canfina -- the original purchaser of the bonds. The judgment explained: “Since the main object of the arbitral proceedings is to decide the disputes expeditiously and within a time frame, this object can be achieved only when the disputes are resolved as far as possible in one arbitral proceeding. In this case, this object can be achieved only when all the three parties are made party in one proceeding.”

When judges miss substantial questions

It could be unsettling for litigants to know that some judges dismiss appeals after finding no substantial questions of law, whereas others see half a dozen legal issues. Last week, the Supreme Court dealt with an appeal by the Rajasthan government in a mining lease case that went back to 1998. The main issue in this case, State vs Shiv Dayal, was whether the mining land was within a forest area or in a normal revenue area. The miner had succeeded in two courts and had obtained an injunction against the government. The state appealed to the high court. It dismissed the appeal observing that since two courts below had ruled against the state, there were no “substantial questions of law (according to Section 100 of the Civil Procedure Code)” to be decided by the high court. The state appealed to the Supreme Court. It found that there were at least five substantial questions of law involved in the appeal. It even drafted such questions for the benefit of the high court which was asked to decide them. In an income tax appeal involving Nokia India last April, the Supreme Court did the same thing by drafting questions of law, which were missed by the Delhi High Court.

Taxmen can’t act without notice

The Supreme Court last week emphasised that notice to an assessee under Section143(2) of the Income Tax Act is mandatory and even if he had participated in the proceedings, such notice could not be dispensed with by the department. In this case, CIT vs Laxman Das, there was a raid on a stockbroker and his income was reassessed, leading to the dispute. He pointed out that he was not given notice under Section 143(2). The department invoked Section 292BB, which says that if the assessee had participated in the proceedings, no notice was required. The Madhya Pradesh High Court dismissed that stand, leading to the appeal. Dismissing the appeal, the Supreme Court explained that Section 292BB was meant to cure certain defects in the notice and did not dispense with notice altogether.

Definition of employee differs in laws

The Supreme Court last week pointed out that the definitions of an ‘employee’ in the Industrial Disputes Act and the Provident Fund Act are different, and had different purposes. In this case, PF Commissioner vs UP State Warehousing Corporation, the Allahabad High Court had ruled that the workers engaged in loading and unloading at godowns were not ‘employees’ as defined in the Industrial Disputes Act and, therefore, the corporation was not liable to pay the statutory contribution in relation to such workers under the PF Act. Their claim for PF contribution was denied. The corporation’s argument was that loading and unloading of the commodities were done through a contractor. There was no employer-employee relationship. Though this was rejected by the appellate authority, the high court reversed the ruling resulting in the appeal by the authorities. The Supreme Court asked the high court to reconsider the case in the correct legal perspective and applying the PF law.

‘Pay & recover’ doctrine against insurer

Two teenagers who had suffered 55 to 70 per cent disability following a road accident and lost their arms were awarded Rs 6.41 lakh and Rs 7.36 lakh each by the Punjab & Haryana High Court. They appealed to the Supreme Court for higher compensation, which was rejected. The accidents were caused when the two were travelling in goods vehicles against the insurance policy. The insurance company argued it was not liable to pay the amount as there was a violation of the policy. The Supreme Court exercised its special powers under Article 142 of the Constitution “to do complete justice” and asked the insurer to pay the amount first and then recover them from the owner or driver of the offending vehicles (Anu Bhanvara vs IFFCO Tokio General Insurance Co).

Discerning buyers look for house name

Unlike buyers of biscuits or fruit juices off the shelf, consumers of premium lifestyle products, such as perfumes, do not choose them causally. They are influenced by the blends, diffusion, distillation, fragrance and concentration of perfume. A discerning consumer knows there could be various perfumes in the market with names Legend, Flirt, and Gentlemen, but such consumer will first go by the name of the house. The Bombay High Court stated so while dismissing an injunction application by Mesco Ltd against Liberty Shoes. Both sold perfumes named Legend and Flirt. Mesco alleged a trademark violation, claiming they were its brands. Liberty submitted it was selling them online showing the house name and Mesco had no sale in India. Liberty also convinced the court that Legend and Flirt are very common generic names in this industry all over the world and there could be no monopoly on them. Examples are: Victoria's Secret’s "Love to Flirt" and "Pierre Cardin Legend".

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