HC rulings on arbitration to drug prices, here're the key court orders

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NCLT power limited against public authorities

Though Section 238 of the Insolvency and Bankruptcy Code states that the code will override other laws, when properties of public authorities are involved, the National Company Law Tribunal cannot ignore their objections and create fresh interest on them. Public authorities are different from other parties before the tribunal. The Supreme Court ruled so in its judgment in Municipal Corporation of Greater Mumbai vs Abhilash Lal. Unless the corporation approves transactions under its own laws, the tribunal cannot override the objections of the civic authority, according to the court. It set aside the tribunal’s resolution plan, which had ignored the objections of the corporation. The case arose when the corporation granted land for building a hospital and the firm, which undertook it, suffered a financial crunch that led to insolvency proceedings at the instance of Axis Bank. The tribunal drafted a resolution plan, which was objected to by the corporation. Its appeal was rejected by the appellate tribunal. But it succeeded in the Supreme Court. The judgment asserted that “the authorities under the code could not have precluded the control that the corporation undoubtedly has, under law, to deal with its properties and the land in question which undeniably are public properties. The resolution plan would be a serious impediment to the corporation’s independent plans to ensure that public health amenities are developed in the manner it chooses”.

Trust can move consumer forum

The Supreme Court has ruled that a hospital trust buying flats to accommodate its nurses could be called a ‘consumer’ under the Consumer Protection Act. In this case, Lilavati Kirtilal Mehta Medical Trust vs Unique Shanti Developers, the trust bought flats from the developer which were found to be so dilapidated that they could not be repaired. The trust complained to the National Consumer Commission, which dismissed it holding that the Act excluded persons who obtained services for a ‘commercial purpose’. Since providing hostel facility to nurses is directly connected to the commercial purpose of running the hospital, and is consideration for the work done by them in the hospital, the trust would not be a ‘consumer’ as defined in the Act. The trust appealed to the Supreme Court, which set aside the commission’s decision stating that a commercial entity may also be a consumer depending on the facts of the case. “It is not the identity of the person but the purpose for which the transaction is made which is relevant,” the court emphasised. The commission’s stand, if approved, “will open a Pandora’s box wherein the employer as well as the employees will not have any remedy. This would defeat the object of providing a speedy remedy to consumers. Further, setting such a precedent may discourage employers from undertaking to provide any facilities for their employees.”

Price fixation of sustained-release drugs

The Supreme Court has rejected the argument of two pharmaceutical companies that their drugs using “sustained release” and “continuous release” technologies should not be subjected to price fixation norms. TC Healthcare and Modi Mundipharma were earlier exempted from price ceiling as they were categorised as small-scale units under the Drugs (Price Control) Order. Later, by two notifications in 2006 and 2009, they came under price fixation. They challenged the notifications before the Allahabad High Court contending that their products did not fall within the price fixation norms. They also contended that there were no price norms in respect of formulations that used the sustained-release technology or method in the final product for effective dose delivery. The high court rejected their claim. The Supreme Court dismissed their appeal stating that the firms were obliged to follow the pricing norms and ceiling prices fixed by the notifications.

Delhi HC rulings on arbitration set aside

Two judgments of the Delhi High Court in arbitration cases were set aside by the Supreme Court last fortnight. In the case, Wapcos vs Salma Dam JV, the high court had appointed an arbitrator to resolve disputes arising from a dam project in Afghanistan undertaken by the government. Differences arose over rising costs and the agreement was amended several times. The Supreme Court observed that the contractor had given up all his claims and consented to a new arrangement in which he agreed that there would be no arbitration. “Having chosen to adopt that path, it is not open to the contractor to now take recourse to the arbitration process or to resurrect the claim, which has been resolved in terms of the amended agreement,” the judgment said. In the second case, Union of India vs Pradeep Construction, the Supreme Court directed the Railways to appoint an arbitrator in its disputes with two contractors. It observed that “when the agreement specifically provides for the appointment of named arbitrators, it should be complied with. The high court could not have appointed an independent arbitrator.”

Directors of pharma firm to stand trial

The Himachal Pradesh High Court last week dismissed the appeal of two directors of a pharmaceutical company who were facing criminal charges under the Drugs and Cosmetics Act. They contended that they have been arrayed as accused in the complaint without defining or specifying their individual role in the work of the company. Section 34(1) of the Drugs Act provides that if the offence has been committed by a company, every person who was in charge of the conduct of the company, as well as the company, shall be deemed guilty of the offence. A director can prove that the offence was committed without his knowledge and he had exercised due diligence. In this case, Marc Laboratories vs Union of India, the high court held that the inspector’s complaint before the magistrate clearly cited the liability of the directors and they could deny it during the trial.

NCLT rapped for bias against debtor

The Calcutta High Court last week observed that a corporate debtor was given “step-motherly treatment” by the National Company Law Tribunal in the case, Mackeil Ispat vs SBI. The grievance of the corporate debtor was that the tribunal had given more than one month, beyond the prescribed date, to the financial creditor to file documents, whereas it was denied any extension. The court observed that the behaviour “reeked of bias and a partisan approach which should be deprecated”. Allowing the petition, the court directed the tribunal to take the affidavit filed by the corporate debtor and proceed with the matter.



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