Examining the Constitutionality of the Scheme of Appointing Heirs of Retired Employees

Compassionate appointments are subject to various conditions and are granted as exceptions. Further, the applications for the same have to be filed as per the applicable rules. Time and again, courts have ruled that discrimination in granting compassionate appointments on grounds of marriage, divorce, remarriage, etc. is unconstitutional. In a recent judgment, the Supreme Court has held that appointment of heirs of retiring and/or superannuating employees is violative of Articles 14 and 15 of the Constitution.

 The Central Government and the State Governments have schemes in place providing for compassionate appointments. When a government servant dies while in service (i.e., before retirement) or retires on medical grounds, his or her dependant family member can make an application to the concerned authority to gain employment on compassionate grounds. However, the application has to be filed within the stipulated time and the prescribed eligibility criteria have to be fulfilled before the appointment can be granted. For instance, the government servant’s family should require immediate financial support for reasons such as medical treatment, re-payment of a home loan to avoid dispossession, etc. It is pertinent to note that different states have their own rules and regulations, hence, the criteria, procedure, and other aspects vary from state to state.

Courts across the country including the apex court have made some relevant observations about compassionate appointments in the past while analyzing various facets and allowances under the scheme. The Supreme Court in The State of Maharashtra Vs. Madhuri Maruti Vidhate reiterated that “compassionate appointment is an exception to the general rule of appointment in the public services” and held that a married daughter cannot be held to have been dependent on her deceased mother after assessing the financial situation of her family.

The Allahabad High Court in Smt. Santoshi Vs. State of UP & Ors., held that a widow appointed on compassionate grounds cannot be removed from service on account of her remarriage which is a personal choice and a fundamental right under Article 21 of the Constitution.

The Rajasthan High Court in Smt. Shobha Devi Vs. Jodhpur Vidhyut Vitran Nigam Ltd. & Anr. held that a daughter of a deceased government servant is eligible for compassionate appointment irrespective of whether she is married, single, divorced, or widowed, and discrimination on said grounds is violative of Articles 14, 15, and 16 of the Constitution. The court remarked that “the perception of the daughter, after marriage no longer being a part of her father’s household and becoming an exclusive part of her husband’s household, is an outdated view and mindset”.

And recently, the Supreme Court in Ahmednagar Mahanagar Palika Vs. Ahmednagar Mahanagar Palika Kamgar Union [CA No.5944 of 2022 (2022 SCC OnLine SC 1154)] held that the appointment of heirs of retiring and/or superannuating employees is violative of Articles 14 and 15 of the Constitution. Accordingly, the court set aside the judgment of the Bombay High Court and the award passed by the Industrial Court directing the Ahmednagar Mahanagar Palika to make such appointments.

The division bench of Justice MR Shah and Justice BV Nagarathna observed that such appointments have to be provided after due assessment of various factors including the financial standing of the deceased employee’s family, etc. Also, it was stated that appointments made on compassionate grounds are not “automatic” and are provided only in exceptional circumstances.

The case traces back to the year 1979 when the Union formed by the employees of Ahmednagar Municipal Council raised an industrial dispute regarding the grant of employment to the employees’ legal heirs. Several demands were raised by said Union, one of which pertained to giving appointments to heirs of employees on their retirement. Consequently, it was agreed by the Municipal Council and later, decided by the Industrial Court through an order dated 30th March 1981 that if the employees in the Class-IV category die before retirement, become invalid or retire, then their heirs have to be provided with a compassionate appointment.

Then, the Ahmednagar Municipal Council was reconstituted as the Ahmednagar Mahanagar Palika in 2003, thereby bringing its employees within the ambit of the schemes of the State Government. After the reconstitution, two more complaints were filed by the Union in 2005, seeking employment for heirs of retired employees. Accepting the Union’s contentions, the Industrial Court passed awards dated 16th September 2016 and 21st September 2016 directing the Ahmednagar Mahanagar Palika to comply with its judgment dated 30th March 1981.

Aggrieved by the decision of the Industrial Court, the Municipal Corporation (Mahanagar Palika) filed writ petitions before the Bombay High Court, which were dismissed. Subsequently, appeals were filed before the Supreme Court.

The main issue was whether the heirs of the employees of Ahmednagar Mahanagar Palika were eligible for compassionate appointment upon the employees’ retirement and/or superannuation.

After hearing the parties, the Supreme Court specified that upon due conversion of the Municipal Council into a Municipal Corporation, the award passed by the Industrial Court in 1981, was no longer applicable and the employees of the Municipal Corporation were governed by the scheme framed by the State Government “at par with the government employees”. The respondent’s contentions were dismissed since the State Government’s scheme on compassionate appointments did not include retirement and/or superannuation as grounds for appointing employees’ legal heirs.

Further, it was asserted that such an appointment is contrary to the very object of compassionate appointments and also infringes upon the right to equality guaranteed under Article 14 of the Constitution. The court added that if such appointments were provided, then “those who are the outsiders shall never get an opportunity to get an appointment though they may be more meritorious and/or well educated and/or more qualified.”

Compassionate appointments are provided by the government to ensure that the government servant’s dependant family members do not become destitute. Due to the nature of the appointment, it is subject to certain conditions and is provided as an exception. In a catena of cases, courts have emphasized the importance of considering the financial position of the family to determine the applicant’s eligibility and have also held that discrimination in granting compassionate appointments on grounds of marriage, divorce, remarriage, etc. is unconstitutional. Hence, the applications have to be viewed holistically in deciding whether a compassionate appointment can be granted or not.

Image Credits:

Photo by Sora Shimazaki: https://www.pexels.com/photo/ethnic-businessman-shaking-hand-of-applicant-in-office-5668859/

Compassionate appointments are provided by the government to ensure that the government servant’s dependant family members do not become destitute. Due to the nature of the appointment, it is subject to certain conditions and is provided as an exception. In a catena of cases, courts have emphasized the importance of considering the financial position of the family to determine the applicant’s eligibility and have also held that discrimination in granting compassionate appointments on grounds of marriage, divorce, remarriage, etc. is unconstitutional. Hence, the applications have to be viewed holistically in deciding whether a compassionate appointment can be granted or not.

Related Posts

POST A COMMENT

Mapping the Role of the Judiciary in Upholding the Expansive Eloquence of Article 21

According to Justice Field in the renowned case “Munn v. Illinois,” the term “life” refers to more than just animal existence and encompasses both the physical and qualitative aspects of life. In addition to freedom from arrest, detention, and unjust or improper confinement, the term “personal liberty” also refers to the rights and privileges necessary for achieving happiness in a free society.

Fundamental rights are protected under the charter of rights in the Constitution of India. Article 21 (“said Article”) is a fundamental right which is included in Part-III of Indian Constitution and one of the most important rights that the Constitution guarantees. The said Article of the Constitution of India provides “Protection of Life and Personal Liberty – No person shall be deprived of his life or personal liberty except according to procedure established by law.” This implies that this right has been provided against the State only. State here includes not just the government, but also, government departments, local bodies, the Legislatures, etc. 

This right is available to all citizens as well as non-citizens alike. It talks about equality before the law, freedom of speech and expression, religious and cultural freedom, etc. It is the most organic and progressive provision in our living Constitution. 

The said Article can only be claimed when a person is deprived of his ‘life or ‘personal liberty’ by the ‘State’ as defined in Article 12.  The said Article provides two rights: 1) Right to life and 2) Right to personal liberty. It prohibits the deprivation of the above rights except according to a procedure established by law.

The said Article is not an absolute right. The State can impose restrictions on the right to life and liberty, but it should be fair, reasonable and just, and as per the procedure established by law. During a national emergency, the six freedoms under Right to Freedom are automatically suspended. By contrast, Article 21 – the Right to Life and Personal Liberty cannot be suspended according to the original Constitution. 

 

Interpretation of Article 21

 

Indian Judiciary or the Supreme Court (SC) is the protector of the fundamental rights of Indian citizens and the guardian of the Indian constitution because it has been given the power to protect, safeguard and uphold the Constitution and its various components. Judicial intervention has ensured that the scope of Article 21 is not narrow and restricted. It has been widened by several landmark judgements.

A few important cases concerned with the Said Article are stated hereunder:

It started with the famous case of A.K Gopalan vs. State of Madras [AIR 1950 SC 27]. Until the 1950s, Article 21 had a bit of a narrow scope. In this case, SC’s narrow interpretation of Article 21 led to some serious implications. SC said that Article 21 is available only against arbitrary executive action and not legislative arbitrariness. It is because of the expression ‘procedure established by the law’ in Article 21, which is different from the expression American ‘due process of law’. Hence, the validity of a law that has prescribed a procedure cannot be questioned because the law is unreasonable, or unjust.

The Supreme Court took the view that the right to life in Article 21 would not include the right to livelihood. In Re Sant Ram [AIR 1960 SC 932], a case arose before the Maneka Gandhi case, where the Supreme Court ruled that the right to livelihood would not fall within the expression ‘life’ in Article 21. The Court said curtly on 7th April, 1960:

“The Right to livelihood would be included in the freedoms enumerated in Article 19, or even in Article 16, in a limited sense. But the language of Article 21 cannot be pressed into aid of the argument that the word ‘life’ in Article 21 includes ‘livelihood’ also.”

In the case of Maneka Gandhi vs. Union of India [AIR 1978 SC 597], the Supreme Court overruled its judgment of the Gopalan Case by taking a wider interpretation of Article 21 on 25th January, 1978. The SC said that Articles 19 and 21 are not watertight compartments. The idea of personal liberty in Article 21 has a wide scope including many rights, some of which are embodied under Article 19, thus giving them ‘additional protection’. The SC gave a new dimension to Article 21 and held that the right to live is not merely a physical right but includes within its ambit the right to live with human dignity.

Elaborating the same view that the right to life would include the right to live with human dignity in Francis Coralie Mullin vs. The Administrator, Union Territory of Delhi & Ors [AIR 1981 SC 746], the SC held on 13th January, 1981 that the right to life is not merely animal existence. It means something more than just physical survival. With this interpretation given to the Said Article, the door was made open for various kinds of rights which will have to be read into the Right to live with human dignity. The SC also observed:

“The right to live includes the right to live with human dignity and all that goes along with it, viz., the bare necessities of life such as adequate nutrition, clothing and shelter over the head and facilities for reading writing and expressing oneself in diverse forms, freely moving about and mixing and mingling with fellow human beings and must include the right to basic necessities the basic necessities of life and also the right to carry on functions and activities as constitute the bare minimum expression of human self.”

Justice P. Bhagwati had said that Article 21 ‘embodies a constitutional value of supreme importance in a democratic society’. Further, Justice Iyer characterised Article 21 as ‘the procedural Magna Carta protective of life and liberty’.

In another case Olga Tellis & Ors vs. Bombay Municipal Corporation & Ors [1986 AIR 180, 1985 SCR Supl. (2) 51]  was a 1985 case in the Supreme Court of India popularly known as the ‘Pavement Dwellers Case’, a five-judge bench of the SC on 10th July, 1985 ruled that the word ‘life’ in Article 21 includes the ‘right to livelihood’ also and that the right to livelihood is borne out of the right to life. It said so as no person can live without the means of living, that is, the means of livelihood. The Court further observed:

“The sweep of the right to life conferred by Art.21 is wide and far-reaching. It does not mean, merely that life cannot be extinguished or taken away as, for example, by the imposition and execution of death sentence, except according to procedure established by law. That is but one aspect of the right to life. An equally important facet of the right to life is the right to livelihood because no person can live without the means of livelihood.”

In another case of Subhash Kumar vs. State of Bihar [AIR 1991 SC 420], the SC on 9th January, 1991 held that the right to life guaranteed by Article 21 of the Constitution includes the rights to pollution free water and free air for full enjoyment of life. Through this case, the SC recognized the right to a wholesome environment as part of the fundamental right to life.

In Unni Krishnan J.P. & Ors vs. State of Andhra Pradesh & Ors (AIR 1993 SC 217), the SC on 4th February, 1993 upheld the expanded interpretation of the right to life and observed that Article 21 is the heart of Fundamental Rights, and it has extended the Scope of the Said Article by observing that the life includes education, as well as the right to education, flows from the right to life. The 86th Constitutional Amendment in 2002, provided the Right to Education as a fundamental right in Part-III of the Constitution. It inserted Article 21A which made the Right to Education a fundamental right for children between 6-14 years. It provided for a follow-up legislation Right to Education Act 2009. Article 21A states that the State shall provide free and compulsory education to all children of 6 to 14 years in such manner as the State may by law determine.

In Chameli Singh vs. State of UP [1995 Supp (6) SCR 827], a three-judge bench of the Supreme Court on 15th December, 1995 had considered and held that the right to shelter is a fundamental right available to every citizen. And the same was read into Article 21 of the Constitution. Thus, ‘right to shelter’ was considered encompassing the right to life, making the latter more meaningful. The Court advanced:

“Shelter for a human being, therefore, is not mere protection of his life and limb. It is however where he has opportunities to grow physically, mentally, intellectually and spiritually. Right to shelter, therefore, includes adequate living space, safe and decent structure, clean and decent surroundings, sufficient light, pure air and water, electricity, sanitation and other civic amenities like roads etc. so as to have easy access to his daily avocation. The right to shelter, therefore, does not mean a mere right to a roof over one’s head but right to all the infrastructure necessary to enable them to live and develop as a human being.”

In a historic ruling in the case of Murli S. Deora v. Union of India & Ors (AIR 2002 SC 40), SC found that the fundamental right guaranteed by Article 21 of the Indian Constitution provides that no one shall be deprived of his life without due process of law. SC ordered ban on smoking in public places after considering the harm that smoking causes to both smokers and passive smokers. The SC ruled that passive smokers’ right to life is violated when they smoke in public settings. The Supreme Court, seeing the gravity of the situation and the harmful effects of smoking on smokers and passive smokers, issued an order prohibiting smoking in public areas. It not only outlawed smoking in public places, but it also declared that the right to a healthy environment is a fundamental right guaranteed by Article 21 of the Indian Constitution.

In Suchita Srivastava & Anr v. Chandigarh Administration [AIR (2009) 9 SCC 1], the appellant, a “mentally retarded woman,” contested the High Court of Punjab & Haryana’s decision to terminate her pregnancy against her will. Subject to a few exceptions, the MTP Act requires consent for a pregnancy termination. The case raised previously unanswered issues regarding a mentally retarded person’s reproductive right. The most contentious abortion-related issues are currently the subject of numerous discussions as a result of the Apex Court’s decision. The SC, by its Order dated 28th August, 2009, overturned the decision of the Punjab & Haryana High Court, and held that the right to reproductive choice flows from the right to liberty under Article 21 of the Constitution. It was stated that taking away a woman’s choice regarding her own body would amount to infringement of her right to privacy. It further distinguished between mental illness and mental retardation and considered that the woman’s mental retardation did not take away her right to make a decision regarding her reproductive choices. As a result, it held that a termination of her pregnancy without her consent could not be ordered.

The Hon’ble Apex Court has recently categorically recognized in the case of Budhadev Karmaskar v. State of West Bengal and Others (AIR 2011 SC 2636) popularly known as the sex workers case, that the basic protection of human decency and dignity under Article 21 of the  Constitution of India extends to sex workers and their children, who bearing the brunt of  social stigma attached to their work,  are  removed to the fringes of society, deprived of their right to live with dignity and opportunities to provide the same to their children. To emphasise and elaborate on the purview of the right to life under Article 21, reference has been made to the Court’s earlier  rulings.

In Ramlila Maidan Incident Dt. 4/5.6.2011 vs. Home Secretary, Union of India & Ors [(2012) 5 SCC 1], Right to Sleep has been acknowledged as a fundamental right under the Said Article. Right to Sleep is a fundamental right, says SC. In his concurring judgment, Justice Chauhan wrote: An individual is entitled to sleep as comfortably and as freely as he breathes. Sleep is essential for a human being to maintain the delicate balance of health necessary for its very existence and survival.

The Right to Property was removed as a fundamental right in 1978, and the Right to Privacy has been recently added. Right to Privacy is a Fundamental Right. Justice K.S. Puttaswamy (Retd.) vs. UOI & Ors [AIR 2017 SC 4161, (2017) 10 SCC 1], also known as ‘Aadhar Judgment’ is the most recent landmark judgment of the Said Article. Decided by nine bench judges on 26th September, 2018, they unanimously recognized the Right to Privacy as a fundamental right of every individual guaranteed by the Constitution, within the Said Article. 

In Common Cause (A Regd. Society) Vs. Union of India & Anr [AIR 2018 SC 1665], a five-judge Constitution Bench on 9th March, 2018 upheld the legality of passive euthanasia by allowing patients to withdraw medical support if they enter an irreversible state of coma. The ruling was written by Chief Justice Dipak Mishra. According to  SC, the right to die with dignity is a fundamental right.

Shakti Vahini v. Union of India & Ors [2018 (7) SCC 192] is a landmark case when it comes to the matter of Honour killing. In this case, the right to select one’s life partner was decided and was held that any attempt by Khap Panchayats or any other assembly to scuttle or preventing two consenting adults from marrying is absolutely ‘illegal’ and laid down preventive, remedial and punitive measures in this regard.SC recently ruled that the freedom to select one’s life partner is a fundamental right protected by Article 21 and by an Order dated 27th March, 2018 laid down guidelines that need to be implemented by the government to eradicate and/or curb the practice of Honour killing in India. Honour killing is the homicide of a member of a family by other members, due to the perpetrators having the belief that the victim violated the principles of a community or a religion and that the victim has brought shame or dishonour upon the family. Assertion of choice is an in-segregable facet of liberty and dignity.

 

Conclusion 

‘Life’ under Article 21 of the Constitution is not merely the physical act of breathing. It does not connote mere animal existence or continued drudgery through life. It has a much wider meaning including the right to live with human dignity, right to livelihood, right to pollution-free air, right to education, right to shelter, right to sleep, right to privacy, etc. The right to life is fundamental to our very existence, without which we cannot live as human beings and includes all those aspects of life, which make a person’s life meaningful, complete, and worth living. It is the only Article in the Constitution that has received the broadest possible interpretation.

Image Credits: Photo by Sora Shimazaki 

‘Life’ under Article 21 of the Constitution is not merely the physical act of breathing. It does not connote mere animal existence or continued drudgery through life. It has a much wider meaning including the right to live with human dignity, right to livelihood, right to pollution-free air, right to education, right to shelter, right to sleep, right to privacy, etc.

Related Posts

POST A COMMENT

Turning a Corner With Live Streaming of Constitutional Matters

On September 27, 2022, India’s Supreme Court began to live-stream hearings of all matters taken up by its constitutional benches, making them fully accessible to the public in real-time. This follows a decision that was first taken in September 2018. Although the pandemic caused a delay in the implementation of this decision, it is noteworthy that this decision reportedly had the support of all judges (including CJIs). This speaks to the judiciary’s willingness to adapt to change and play its role in strengthening India’s democratic traditions and enhancing the efficiency of its justice delivery system, which bears a disproportionately huge burden given India’s demography.

By and large, courtroom proceedings around the world are not permitted to be legally recorded, let alone broadcast. This decision by India’s highest court of law makes us one of the few countries (if not the only one) where certain types of hearings are now open to audiences worldwide. I believe this is a good move that has a number of benefits, although given the increasingly digital world we live in, there are also some downside risks.

Benefits

A key malaise that has long beset India’s justice delivery system is the tendency of lawyers of one or both parties to seek frequent adjournments as a matter of routine strategy. While this may be legitimate in some cases (e.g., awaiting evidence, unavailability of witnesses, etc.), it is also blatantly used as a tactic to cover for lack of preparation, to buy time, or simply delay justice delivery. Not for nothing has the Indian judiciary been accused of abetting “taareekh pe taareekh” (moving from one date of hearing to another with no substantive progress towards a verdict).

Allowing the public to view proceedings will help ordinary citizens understand the process better, and thus build more confidence in the judiciary. With the performance and reputations of at least some advocates under public glare, we can expect that they will be better prepared to argue matters. Advocates on Record (AOR) will expect to be fully briefed in time, forcing lawyers advising the parties to do their homework thoroughly. All this will hopefully contribute to reducing the pendency of cases because neither party (or their lawyers) will want to be seen as the ones responsible for delaying justice delivery.

The decision to live-stream matters being heard by constitutional benches will have other benefits as well. Many clients who are part of multi-party matters, class action suits or public interest litigations don’t always get updated with accurate information about what transpired. Livestreaming provides access to clients who are not in a position to physically attend the hearing; they can issue new instructions to their lawyers if necessary. This is important because matters that are typically heard by constitutional benches are those that have far-reaching implications for Indian society and the country.

Law students and young professionals at the start of their careers can learn courtcraft by watching experienced advocates/senior advocates and judges in action (how they question advocates to identify irrelevant arguments, time-wasting tactics, etc.). This will be of particular advantage to aspiring lawyers from outside the National Capital Region, for whom traveling to Delhi or interning with Supreme Court advocates is not affordable or otherwise possible.

The Down-sides

However, in the increasingly digital world we live in, such live-streaming also has some potential risks. Social media can be misused to post partial or incorrect information, and this can trigger law and order risks. Social media may be used by vested interests to malign advocates or members of the judiciary, which can vitiate not just the proceedings, but also public perception. There is also the risk of hackers, who can disrupt the streaming in various ways.

Open dialogue, transparency and fairness are basic tenets of a healthy democracy. This major step taken by India’s Supreme Court has the potential to improve India by enhancing the citizenry’s understanding of and appreciation for the rule of law. It can also raise the standards of the next generation of lawyers. Constitutional benches take up weighty matters of national importance, so I hope this step toward ushering in greater transparency will help fill the dangerous cracks that have emerged in our pluralistic country’s social fabric over the last 75 years.

By and large, courtroom proceedings around the world are not permitted to be legally recorded, let alone broadcast. This decision by India’s highest court of law makes us one of the few countries (if not the only one) where certain types of hearings are now open to audiences worldwide.

Related Posts

POST A COMMENT

Scope of Enquiry Under Section 11 of the Arbitration and Conciliation Act, 1996

In the recent case of M/S. Emaar India Ltd v. Tarun Aggarwal Projects LLP & Anr[1]., the Hon’ble Supreme Court has held and reaffirmed its earlier view that under a Section 11 petition in the Arbitration and Conciliation Act, 1996, the Court can determine whether or not a dispute is arbitrable by conducting a preliminary inquiry.

Brief Facts

 

The case concerns Tarun Aggarwal Projects LLP & ANR (Respondents) who entered into a collaboration agreement with Emaar India Ltd. (Appellant) for the development of residential colonies located in Gurugram, Sector 62 and 65. Both parties entered into an agreement on May 7, 2009. After this, both parties signed an Addendum Agreement on April 19, 2011. Soon a dispute arose between the parties and the Respondents stated that the Appellant had not followed the obligation specified under the Addendum Agreement. Thereafter, a legal notice was issued on behalf of the Respondents on December 11, 2019, demanding the physical possession of 5 plots measuring 2160 sq. yds. and claiming a sum of Rs. 10 crores for the losses/damages suffered by them. The Respondents contended that the dispute is arbitrable in nature as mentioned under clause 37 of the Addendum Agreement. Hence, they appointed an arbitrator who was a former judge of the Hon’ble High Court. The Appellant refused the appointment of the arbitrator following which a petition under Section 11 was filed by the Respondents before the Hon’ble High Court of Delhi.

At this stage, it would be important to refer to Clauses 36 and 37 of the Addendum Agreement, which read as follows:

Dispute Resolution & Jurisdiction

  1. “In case of any conflict or difference arising between the parties or in case the either party refused or neglects to perform its part of the obligations under this Addendum Collaboration Agreement, inter­alia as mentioned in Clauses 3, 6 & 9 hereinabove, then the other party shall have every right to get this agreement specifically enforced through the appropriate court of law”.
  2. Save & except clause 36 hereinabove mentioned, all or any dispute arising out of or touching upon or in relation to the terms of this Agreement including the interpretation and validity thereof, and the respective rights and obligations of the parties, shall be settled through under the provisions of Arbitration & Conciliation Act, 1996 wherein both the parties shall be entitled to appoint one Arbitrator each and the Arbitrators so appoint shall appoint a third Arbitrator or rank of Retired Judge of any High Court. The arbitration proceedings shall be governed by the provisions of Arbitration and Conciliation Act, 1996 or any statutory amendments/modification thereto for the time being in force. The arbitration proceedings shall be held at Delhi.”

Before the Hon’ble High Court, it was contended by the Appellant that the dispute relates to the breach of clauses 3, 6 and 9.  Therefore, it is only the Court which has the jurisdiction to entertain the dispute as per the terms of Clause 36 of the Addendum Agreement. The invocation of arbitration by the Respondents which was contended by the Appellant was thus not in alignment with the agreed terms. Alternatively, in the prayer, the Appellant suggested the nomination of their arbitrator. The Hon’ble High Court examined clauses 36 and 37 of the Addendum Agreement and held that conjoint reading of both the Clauses makes it clear that a party does have a right to seek enforcement of agreement before the Court of law, but it does not bar settlement of disputes through Arbitration and Conciliation Act, 1996. Moreover, Clause 37 also suggests how arbitration proceedings shall be conducted. On this ground, the Hon’ble High Court proceeded with the appointment of the third arbitrator. Aggrieved by the order of the Hon’ble High Court, the Appellant approached the Hon’ble Supreme Court.

 

Observations of the Supreme Court 

 

The seminal issue before the Hon’ble Supreme Court was whether the Hon’ble High Court has made a justified decision to appoint an arbitrator under Sec. 11(5) and 11(6) of the Arbitration Act without having a preliminary inquiry under Sec. 11 to decide the arbitrability of the dispute.

The Hon’ble Supreme Court looked at both clauses and determined that on a bare reading of Clause 36 of the Agreement, it is apparent that in the event of any dispute as mentioned in Clauses 3, 6 and 9, the other party shall have a right to get the Agreement specifically enforced through the appropriate court of law. As per Clause 37, save and except Clause 36, all or any dispute arising out of or touching upon or in relation to the terms of the addendum agreement shall be settled under the provisions of the Arbitration and Conciliation Act, 1996. Thus, with respect to any dispute as mentioned in Clauses 3, 6 & 9, such disputes are not arbitrable at all.

The Hon’ble Supreme court also cited Vidya Drolia and Ors. v. Durga Trading Corporation[2] and held that it is incumbent upon Courts to hold a preliminary enquiry under a Section 11 petition filed under the Arbitration and Conciliation Act, 1996. The Hon’ble Supreme Court noted that the Hon’ble High Court had erred in its decision and the matter was remitted back to the Hon’ble High Court to decide the petition and pass an appropriate order after having the preliminary inquiry on arbitrability of the dispute. The Hon’ble Supreme Court held that the objective of prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage.

 

Conclusion

 

It is important to note that under Section 11 of the Arbitration and Conciliation Act, 1996, the Courts will do a preliminary enquiry as to the arbitrability of the disputes. The law in this regard has been settled by the Hon’ble Supreme Court. The purpose of such an enquiry is limited to pruning of matters which would not fall in the category of arbitrable matters. The Supreme Court had in the case of Vidya Drolia and Others v Durga Trading Corporation  laid down a four-pronged test to determine when the subject matter of a dispute in an arbitration agreement is not arbitrable:

  • When the cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam arising from rights in rem.
  • When the cause of action and subject matter of the dispute affects third party rights; has erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;
  • When the cause of action and subject matter of the dispute relates to an inalienable sovereign and public interest functions of the State, hence mutual adjudication would be unenforceable;
  • When the subject matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s)

References:

[1] 2022 SCC OnLine SC 1328.

[2] (2021) 2 SCC 1.

Image Credit: Photo by EKATERINA BOLOVTSOVA

The Hon’ble Supreme Court held that the objective of prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage.

Related Posts

POST A COMMENT

The Liquidator – A Demigod Under the Insolvency and Bankruptcy Code, 2016?

Recently on August 28, 2022, a three-judge bench of the Supreme Court of India delivered a judgement in R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Others[1], interpreting the provisions of IBC concerning the powers of the liquidator vis-à-vis mode of sale of assets by the liquidator. This watershed judgement reaffirms the powers available to the liquidator to decide the best mode of sale for maximising the value of assets of the CD.

Under the Insolvency and Bankruptcy Code, 2016 (“IBC”), an order for liquidation is passed by an Adjudicating Authority, i.e., the National Company Law Tribunal (“NCLT”), when the corporate insolvency resolution process (“CIRP”) of a corporate debtor (“CD”) fails.

Liquidation is initiated when the NCLT[1]:

  • Does not receive a resolution plan during CIRP.
  • Rejects the resolution plan submitted under Section 31 of the IBC.
  • Passes an order for liquidation based on the approval of Committee of Creditors (“CoC”).
  • Passes an order for liquidation resulting from an application made by an aggrieved person for violation of the resolution plan.

The liquidator is appointed vide the liquidation order passed by the NCLT, and ordinarily, the resolution professional appointed for conducting the CIRP will be appointed as the liquidator. A liquidator, on his appointment, gets the powers of the board of directors, key managerial personnel, and the partners of the corporate debtor[2]. Among other things, a liquidator can verify the claims of all the creditors, can take into his custody or control all the assets, property, effects, and actionable claims of the corporate debtor, etc.[3] While a resolution professional acts under the instructions of the CoC during a CIRP, the liquidator is not bound by the opinion or advice provided by the stakeholders’ consultation committee[4] (“SCC”) during the liquidation process of a CD. As a result, under the scheme of the IBC, the liquidator has been given broad powers to ensure that the liquidation of a corporate debtor’s assets can be carried out with minimal disruption in order to maximise the realisation from such assets.

Facts in Brief:

The CD in R.K. Industries (Unit-II) LLP[6] was ordered to be liquidated vide order of NCLT dated April 25, 2019. Following that, the liquidator held 5 (five) e-auctions, the first 4 (four) of which failed auctions were for the sale of consolidated assets of the CD, and the fifth one offered sale of the assets on a stand-alone basis; however, the majority of assets did not attract any interest in the fifth e-auction. Under the circumstances, an application was made to the NCLT for conducting a private sale which was granted and the “Swiss Challenge Process”[7] was adopted for the sale of certain assets of the CD (Dahej material) through a private sale. The first Swiss Challenge Process was unsuccessful, and so a second one was conducted wherein the appellant submitted the bid, an earnest money deposit, and an affidavit stating that it will be bound by the terms of the Swiss Challenge Process[8].

The terms of the Swiss Challenge Process (Anchor Bid Document), inter alia, were:

“e. It is clarified that issuance of the Process Document does not create any kind of binding obligation on the part of the Liquidator or ABG to effectuate the sale of the assets of ABG.”

xxx xxx xxx

“x. The Liquidator reserves the right to cancel, abandon or reject a Bidder/Successful Bidder at any time during the process, and the Liquidator also reserves the right to disqualify a Successful Bidder, in case of any irregularities found such as ineligibility under the I & B Code.”

xxx xxx xxx

“y. Liquidator of ABGSL, reserves the right to suspend/abandon/cancel/extend or modify the process terms and/or documents and/or reject or disqualify any Bidder at any stage of process without assigning any reason and without any notice liability of whatsoever nature.”   

While the second Swiss Challenge Process was being challenged before the NCLT, Welspun Steel Resources Private Limited (Respondent No. 7) submitted a bid much higher than the appellant for the purchase of both the Dahej Material and the land (Shipyard). SCC was of the view that a composite sale of the Dahej Material and the Shipyard would be more beneficial than the sale of the Dahej Material alone. When the hearing for the application filed by the appellant was taken up, NCLT passed an order on August 16, 2021, permitting the liquidator to go in for Private Sale of all the assets of the Corporate Debtor and complete the entire sale process in consultation with the SCC within a period of three weeks. The liquidator was also directed to permit all the parties before the NCLT to participate in the bidding process.

The order of the NCLT was challenged before the National Company Law Appellate Tribunal (“NCLAT”) and the NCLAT held that the second Swiss Challenge Process would stand cancelled, and that the private sale process should be undertaken in accordance with the directions contained in NCLAT’s judgment and as per relevant legal provisions.

Aggrieved by NCLAT’s judgement, the appellant in R.K. Industries (Unit-II) LLP[9] filed a limited appeal with regard to the directions issued in the penultimate paragraphs of NCLAT’s judgement of restarting the process of private sale after issuing an open notice to all prospective buyers instead of confining the same to the parties who had earlier participated in the process.

Issues:

The Supreme Court framed the following issues[10]:

  1. Whether the liquidator was justified in discontinuing the Second Swiss Challenge Process for the sale of a part of the assets of the CD, wherein the appellant was declared an anchor bidder, and opting for a private sale process through direct negotiations in respect of the composite assets of the Corporate Debtor?

If so, was the NCLAT justified in directing the liquidator to restart the entire process of Private Sale after issuing an open notice to prospective buyers instead of confining the process to those parties who had participated in the process earlier?

Holding of the Supreme Court:

The Supreme Court expounded the following holdings on the aforementioned issues:

  • On a conjoint reading of various provisions of the IBC and Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”), the liquidator is authorised to sell the immovable and movable property of CD in liquidation through a public auction or a private contract, either collectively, or in a piecemeal manner.
  • The liquidator can apply to the NCLT for appropriate orders and directions considered necessary for the liquidation of the CD.
  • The liquidator is permitted to consult with the stakeholders who are entitled to a distribution of the sale proceeds. However, the proviso to Section 35(2) of the IBC makes it clear that the opinion of the stakeholders will not be binding on the liquidator. Though the advice offered is not binding on the liquidator, he must give reasons in writing for acting against such advice.
  • Regulation 33 of the Liquidation Regulations is couched in a language that shows that ample latitude has been given to the liquidator, who may “ordinarily” sell the assets through auction, thereby meaning that, in peculiar facts and circumstances, the liquidator may directly go in for a private sale.
  • The liquidator can approach the NCLT in terms of Section 35(1)(n), IBC read with Regulation 33(2) of the Liquidation Regulations to seek permission to sell the assets of the CD through Private Sale.
  • The issuance of the Anchor Bid Document does not create any binding obligations on the liquidator to proceed with the sale of the assets of the CD; the Anchor Bid Document does not constitute an offer, a commitment or an assurance of the Liquidator. It is a well-settled principle that in matters relating to commercial transactions, tenders, etc., the scope of judicial review is fairly limited, and the court ought to refrain from substituting its decisions for those of the tendering agency.
  • The Swiss Challenge Process is just another method of private participation that has been recognised by this Court for its transparency. Ultimately, the IBC has left it to the discretion of the liquidator to explore the best possible method for selling the assets of the CD in liquidation, which includes a private sale through direct negotiations with the object of maximising the value of the assets offered for sale.
  • IBC enjoins the liquidator to sell the immovable and movable assets of the CD in a manner that would result in maximisation of value, lead to a higher and quicker recovery for the stakeholders, cut short the delay, and afford a guaranteed timeline for completion of the process.
  • IBC empowers the liquidator to take an independent decision for the sale of the assets of the CD in liquidation.

Based on the above observations and holding, the Supreme Court ruled in R.K. Industries (Unit-II) LLP[11] that there was good reason for the liquidator to have halted the Second Swiss Challenge Process midstream and approached the NCLT armed with an offer of Rs. 675 crores received from Welspun, who had shown interest in the composite sale of the Dahej assets. The Supreme Court added that the Appellant was not able to demonstrate that the decision of the liquidator to discontinue the Second Swiss Challenge Process and go in for a private sale through direct negotiations with prospective bidders was a mala fide exercise.

The Supreme Court went on to state that from a reference to the Anchor Bid Document, it was apparent and explicit that even if the public auction had been completed and the respondent was the highest bidder, no right had accrued to him till the confirmation letter had been issued to him. The Court added that the decision taken by the liquidator cannot be treated as arbitrary, capricious, or unreasonable for interference by the Supreme Court and that it is a purely commercial decision centred on the best interest of the stakeholders. The stakeholders have unanimously endorsed the view of the liquidator, and thus it was not for this Court to undertake a further scrutiny of the desirability or the reasonableness of the said decision or substitute its own views for those of the liquidator.

As a result, the impugned NCLAT[12] judgment was quashed and set aside to the extent that it modified the NCLT[13] order and directed restraining of the private sale process. The Supreme Court also ruled that the liquidator should proceed with the private sale of the CD’s composite assets without further delay and conclude it as soon as possible. All the eligible bidders who have made Earnest Money Deposits would be entitled to participate in the negotiations to be conducted by the liquidator for privately selling the consolidated assets of the CD. The Supreme Court concluded that the liquidator must bring the process of private negotiations to a logical conclusion and close it within four weeks of its order.

Conclusion

The wide amplitude of the liquidator’s powers to determine the mode of sale has been fortified in R.K. Industries (Unit-II) LLP. This decision of the Supreme Court has also been followed recently in Sauria Corporation vs. Kohinoor Pulp & Paper Private Limited[14], wherein the NCLT stated that “it is the Liquidator who has to take a call on what mode of sale is in the best interest of maximization of the value of the assets. He may not be bound by the recommendations or advice of the Stakeholder’ Consultation Committee, however, in exercising the process of consultation, if something better transpires, he can take that into consideration.”

R.K. Industries (Unit-II) LLP’s decision has made it lucid that a liquidator is armed with powers to determine the mode, method and manner of sale of assets in liquidation and is not bound by the advice of stakeholders. Also, the Supreme Court is attempting to exercise minimal judicial intervention in matters pertaining to the IBC and has historically allowed the CoC and liquidators to exercise their commercial wisdom in matters relating to CIRP and liquidation of a CD. However, it is pertinent to note, the judiciary has also made it crystal clear that it will intervene in cases where the decision(s) of the CoC or the liquidator, among other things, are tainted with arbitrariness, capriciousness, or are unreasonable. R.K. Industries (Unit-II) LLP is yet another step to ensure that the process under the IBC is conducted efficiently and in a time-bound manner to ensure that the stakeholders get maximum value from assets under liquidation.

[1] 2022 SCC OnLine SC 1124.

[1] Section 33 of IBC.

[2] Section 34(2) of IBC.

[3] Section 35 of IBC.

[4] Constituted under Regulation 31A of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

[5] 2022 SCC OnLine SC 1124.

[6] R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Others, 2022 SCC OnLine SC 1124.

[7] A Swiss Challenge is a method of bidding, often used in public projects, in which an interested party initiates a proposal for a contract or the bid for a project. The government then puts the details of the project out in the public and invites proposals from others interested in executing it. On the receipt of these bids, the original contractor gets an opportunity to match the best bid (Aarati Krishnan, All you wanted to know about…Swiss Challenge The Hindu BusinessLine (2018), https://www.thehindubusinessline.com/opinion/columns/slate/all-you-wanted-to-know-about-swiss-challenge/article24194034.ece (last visited Sep 19, 2022)).

[8] R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Others, 2022 SCC OnLine SC 1124, para 2 and 3.

[9] R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Others, 2022 SCC OnLine SC 1124.

[10] R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Others, 2022 SCC OnLine SC 1124, para 27.

[11] R.K. Industries (Unit-II) LLP vs. H.R. Commercials Private Limited and Others, 2022 SCC OnLine SC 1124, para 54.   

[12] Order dated 10 December, 2021 in IA No. 273 of 2021.

[13] Order dated 16 August, 2021.

[14] Order dated August 31, 2022 in I.A (IB) No. 892/KB/2022 in C.P. (IB) No. 511/KB/2018, National Company Law Tribunal – Kolkata Bench-I.

The decision has made it lucid that a liquidator is armed with powers to determine the mode, method and manner of sale of assets in liquidation and is not bound by the advice of stakeholders. Also, the Supreme Court is attempting to exercise minimal judicial intervention in matters pertaining to the IBC and has historically allowed the CoC and liquidators to exercise their commercial wisdom in matters relating to CIRP and liquidation of a CD. 

Related Posts

POST A COMMENT

Preserving Equality in Online Education

The silver bullet of technology has not only managed to pierce sectors like finance, law, healthcare, etc. but also the predominantly conservative sector of education. Pandemic was the catalyst for steering a range of investments and innovation in the online learning space. Not surprisingly, the industry is set to grow by $2.28 billion during 2022-2026, progressing at a CAGR of 19.50% during the forecast period.[1]

The rapid adoption and need of online education platforms have inspired pedagogical approaches to make tech-based education more engaging and interactive. It is anticipated that integration of blockchain, gamification, artificial intelligence, immersive technologies, learning analytics, etc. will make the online learning experience more adaptative and personalised to the needs of each individual student.

While the world of virtual education may have opened lucrative avenues, its impact dwells differently on students, teachers, schools, parents, and the industry as a whole. 

 

Supreme Court’s View on Online Education

During the pandemic, schools switched to the digital medium, and as such, the right to education was virtually denied to children belonging to the disadvantaged group (DG) or economically weaker section (EWS). The Supreme Court, headed by a three-judge bench of Justices D.Y. Chandrachud, Vikram Nath and B.V. Nagarathna in October 2021, stated that the digital divide, against the backdrop of the COVID pandemic, has produced “stark consequences.”

The top court was hearing a plea by the Action Committee on Unaided Recognised Private Schools in connection with the access to technology by children who are attending online classes and the funding needed for the same. It was a petition filed by the private school managements challenging the Delhi High Court order of September 2020 directing them to provide their 25% quota of EWS/DG students online facilities free of charge. The High Court had said that the schools could get themselves reimbursed from the government.

The Delhi government appealed to the Supreme Court against the High Court’s order, saying it had no resources to reimburse the school for the online gadgets. Though the Supreme Court had stayed the High Court order in February 2021, the bench led by Justice Chandrachud said both the Centre and states like Delhi could not bow out of their responsibilities towards young children.

The court observed that the disparity exposed by online classes had been heart-rending. The technology gap caused by online classes defeated the fundamental right of every poor child to study in mainstream schools. The court also ruled that the right to education for little children hinged on who could afford gadgets for online classes and who could not. Many students had to take temporary breaks, and in the worst case, drop out, due to a lack of resources to access the internet, for online education as their families could not afford them. Moreover, the risk of the children, who dropped out of school, being drawn into child labour or child trafficking was high. The needs of young children, who are the future of the country, cannot be ignored, it said. Though schools were gradually opening due to the receding curve of the pandemic, the need to provide adequate computer-based equipment and access to online facilities for children is of utmost importance.

The needs of young children who represent the future of the nation cannot simply be ignored. A solution must be devised at all levels of Government – State and Centre to ensure that adequate facilities are made available to children across social strata so that access to education is not denied to those who lack resources. Otherwise, the entire purpose of the Right to Education Act, allowing EWS students to learn alongside mainstream students even in unaided schools, will be defeated.

The court further held that Article 21A (the right to free and compulsory education for children aged between 6 and 14) must be a reality. It directed the Delhi government to develop a plan to help children in the EWS category and added that the Centre and State governments should jointly work to develop a realistic and lasting solution to ensure children are not denied education due to lack of resources. The said bench further said: “It is necessary for the Delhi government to come with a plan to uphold the salutary objective of the RTE Act. Centre to also coordinate with state governments and share concurrent responsibilities for the purposes of funding.”

It also appreciated the Delhi High Court’s order directing the Delhi government to provide computer-based equipment and an internet package free of cost to EWS children in private and government schools. The Bench asked the Delhi Government to come out with a plan to effectuate the ‘salutary object’ upheld in the High Court’s decision. The court said the Centre should join in the consultations. The issues raised in the present proceedings will not only cover unaided schools but also government and aided schools. The Bench issued notice in the private school’s management petition and ordered it to be tagged with the pending Delhi Government petition.

 

Guidelines for Digital Education

COVID 19 accelerated the adoption of technology and brought about a dynamic shift in the sector. However, it was also realised that technology may improve the quality of dissemination of education; but it can never replace the classroom teaching and learning experience. While adopting the blended and hybrid model of education, a balance needs to be struck in learning and taking advantage of technology, and helping children become socially and emotionally healthy individuals and responsible citizens.

Bearing that in mind, Pragyata Guidelines for Digital Education were released by the Ministry of Human Resource Development’s Department of School Education and Literacy. At the beginning of the academic year 2021-22, the school education department informed all the schools to follow these guidelines while conducting online classes. According to the guidelines, the maximum screen time per day for kindergarten/preschool students has been limited to 45 minutes. However, for classes 1 to 5, schools can conduct two sessions of 1.5 hours per day for not more than 5 days in a week. For classes 6 to 8, screen time has been limited to 2 hours and for classes 9 to 12, limited to a maximum of 3 hours per day.

 

The Two Sides of Online Learning

Online classes offer a comfortable learning environment for students and offer tremendous growth opportunities, but it does instil a sense of isolation. Students, especially those belonging to younger age groups, thrive in a socially simulated environment. However, given the set-up of online classes, children fail to develop the ability to identify social norms and etiquettes. Further, online classes also limit the time and attention teachers can extend to their students. As a consequence, students that require extra attention and guidance fail to perform well. Also, online education may be accessible, but it is not affordable. Virtual learning requires expensive gadgets like computers, laptops, tablets, or smartphones. Hence, students in the economically weaker sections are left behind.

On the plus side, exhaustion and added costs of commuting are avoided in online education. In addition, online learning platforms offers a variety of courses and programmes that empower students to explore opportunities outside the realm of their curriculum. Moreover, since it is not possible for teachers to constantly monitor the activities of all students, online classes instil a sense of responsibility and self-discipline in them as they are made to realise that their actions and negligence will have a long-term impact on their future.

Mapping and understanding the positives and negatives of online education will enable educational institutes and the ed-tech industry to pioneer strategies for more efficient delivery of education. At the same time, the legislature must take a pro-active stance in ensuring that the fundamental right to education is protected in all manner and forms without any compromise on the well-being of learners.

References:

[1] https://www.businesswire.com/news/home/20220429005261/en/2.28-Bn-Online-Education-Market-in-India-2022-2026-Popularity-of-Big-Data-and-Learning-Analytics-and-the-Inclusion-of-Gamification-to-Lead-to-Demand—ResearchAndMarkets.com

During the pandemic, schools switched to the digital medium, and as such, the right to education was virtually denied to children belonging to the disadvantaged group (DG) or economically weaker section (EWS). The Supreme Court, headed by a three-judge bench of Justices D.Y. Chandrachud, Vikram Nath and B.V. Nagarathna in October 2021, stated that the digital divide, against the backdrop of the COVID pandemic, has produced “stark consequences.”

Related Posts

POST A COMMENT

Validity of an Arbitration Clause: No Strait-Jacket Formula

On September 7, 2022, the Hon’ble Supreme Court issued a significant ruling in the case of Babanrao Rajaram Pund v. Samarth Builders & Developers[1], holding that no strait jacket formula can be made under the Arbitration and Conciliation Act, 1996, to determine the particulars of an arbitration clause. It further held that an arbitration clause must be treated as final and binding even if specific words like “final” or “binding” are not used in such a clause.

Babanrao Rajaram Pund v. Samarth Builders & Developers

The case related to one Babanrao (the Appellant), who was the owner of a property situated in Aurangabad. The Appellant intended to build residential and commercial complexes on this property. Samarth Builders & Developers (Respondent No. 1), a company specialising in the building of homes and commercial buildings, learned of the Appellant’s intention to build such a residential and commercial complex and approached him. A “Development Agreement” (DA) was subsequently signed by the Appellant and Respondent No.1. The Appellant, thereafter, signed a General Power of Attorney (GPA) in favour of Respondent No. 1.  Respondent No. 2, in the civil appeal was the partner of Respondent No. 1.

According to the DA, Respondent No.1 had to build “Amay Apartments” on the property within 15 months. However, this deadline could have been extended with the payment of a penalty. Respondent No. 1 accepted the conditions of the DA and stated that he would build 45 percent of the constructed space before or on the deadline of the 15-month period, retaining the other 55 percent of the developed section for himself.

Respondent No.1 was, however, unable to finish the work within the allotted time. Aggrieved by this act, the Appellant gave notice to terminate the DA and to cancel the GPA. On 11.07.2016 the cancellation of the agreement and GPA were also publicised in a newspaper by the Appellant. Since, Respondent No.1 did not respond to the notice of the Appellant issued under Clause 18 of the DA, which carried an arbitration clause, the Appellant was constrained to approach the High Court.

Clause 18 of the DA reads as follows:

“18. All the disputes or differences arising between the parties hereto as to the interpretation of this Agreement or any covenants or conditions thereof or as to the rights, duties, or liabilities of any part hereunder or as to any act, matter, or thing arising out of or relating to or under this Agreement (even though the Agreement may have been terminated), the same shall be referred to arbitration by a sole arbitrator mutually appointed, failing which, two arbitrators, one to be appointed by each party to the dispute or difference, and these two Arbitrators will appoint a third Arbitrator and the Arbitration shall be governed by the Arbitration and Conciliation Act, 1996 or any re-enactment thereof.”

The Arbitration Clause

Before the Hon’ble High Court of Bombay, the Appellant had filed an application pursuant to Section 11 of the Arbitration Act, 1996, after receiving no response from the Respondents. The Respondents claimed that clause 18 of the DA could not be enforced because it lacked the precise phrase “to be bound by the decision of the Arbitral Tribunal.” The Hon’ble High Court ruled in favour of the Respondents and determined that the clause lacked necessary components of a legitimate arbitration agreement and did not expressly specify that the arbitrator’s ruling would be binding. Aggrieved by the order of the High Court, a Special Leave Petition was filed by the Appellant before the Hon’ble Supreme Court.

The Issue Before the Hon’ble Supreme Court

If an arbitration clause lacks specific language like “binding” or “final,” should it still be considered a valid agreement for the purpose of invoking powers under Sec. 11 of the Arbitration and Conciliation Act, 1996?

While analysing the issue, the Hon’ble Supreme Court made it clear that there is no precise form of an arbitration clause, and that Section 7 of the Arbitration Act of 1996 does not provide a specific form of arbitration agreement. The Hon’ble Supreme Court critically analysed Clause 18 of the DA and concluded that the terms of the agreement were clear. It made it clear that the term “disputes shall be” referred to arbitration, meant that the reference to arbitration was clear in the DA. Additionally, it was also observed that the contract contained clear instructions for choosing a third arbitrator and that the parties would be subject to the Arbitration and Conciliation Act, 1996. The Hon’ble Supreme Court further opined that the requirement and purpose of the parties to be bound by the arbitral tribunal are mandated by Clause 18 of the DA. The arbitral clause was held to be not invalidated by the omission of the phrases “final” and “binding.” The decision of the Hon’ble High Court of Judicature of Bombay was thus set aside by the Hon’ble Supreme Court and a sole arbitrator was appointed to resolve the dispute.

Key Takeaway

Though, the decision by the Hon’ble Supreme Court gives considerable breathing room for an arbitration clause, it is imperative to consider that an insufficiently written arbitration clause does hinder the process of arbitration. The only solution in such a scenario is to fix the deficiency in the arbitral clause. The parties must ensure that the arbitration agreement is well drafted so that there are no errors and the intention of the parties to refer the dispute to arbitration can be easily inferred. This will also ensure that the parties will not be forced to approach the courts to determine the validity of the clause.

References: 

[1] 2022 SCC OnLine SC 1165.

The only solution in such a scenario is to fix the deficiency in the arbitral clause. The parties must ensure that the arbitration agreement is well drafted so that there are no errors and the intention of the parties to refer the dispute to arbitration can be easily inferred. 

Related Posts

POST A COMMENT

Rectifying the Parallel Regime of RERA & WB-HIRA

The Supreme Court issued an important verdict on May 4, 2021, when it declared that the West Bengal Housing Industry Regulatory Act, 2017 (WB-HIRA) is “repugnant” to the Parliamentary law of Real Estate (Regulation and Development) Act, 2016 (RERA). The state law created a “parallel regime” and encroached upon the identical Central law RERA, 2016, enacted the year before, and was in direct conflict with the central legislation by lacking necessary safeguards to protect consumers.

Background

The Bench of Justices D. Y. Chandrachud and M. R. Shah in Writ Petition (C) No. 116 of 2019 [Forum for People’s Collective Efforts (FPCE) & Anr. vs. State of West Bengal & Anr.], in its 190-page judgment, struck down as unconstitutional West Bengal State law WB-HIRA meant to protect home buyers, enacted in 2017, a year after the Centre passed the RERA, stating that if Parliament had passed legislation, it was not open for states to enact similar statute.

Before Parliament enacted the RERA in 2016, state legislatures had enacted several laws to regulate the relationship between promoters and purchasers of real estate. Before the WB-HIRA, one of the laws the state legislature had enacted was the West Bengal (Regulation of Promotion of Construction and Transfer by Promoters) Act, 1993 (the “WB 1993 Act”). Upon receiving the assent of the President, the Act was published in the Calcutta Gazette, Extraordinary on March 9, 1994.

In the State of West Bengal, the Real Estate (Regulation and Development) Bill, 2016 (the “RERA Bill 2016”) was introduced and draft rules under the RERA were framed on August 18, 2016, but no further progress was made in that regard. On August 16, 2017, the motion to pass the WB-HIRA Bill was adopted in the State Legislative Assembly. The Housing Industry Regulatory Authority was established under Section 20 of the West Bengal Housing Industry Regulatory Act, 2017 to regulate and promote the housing sector, to ensure the sale of plots, apartments or buildings, as the case may be, or sale of real estate projects in an efficient and transparent manner, to protect the interests of consumers in the real estate sector and to establish a mechanism for speedy dispute redressal and for matters connected therewith or incidental thereto. The State enactment received the assent of the Governor of West Bengal and was published in the Official Gazette on October 17, 2017, and came into effect from June 1, 2018.

The WB-HIRA repealed the WB 1993 Act. The remaining provisions of WB-HIRA were enforced by a notification dated March 29, 2018, issued by the Governor of the State of West Bengal in exercise of the power conferred by sub-section (3) of section 1 of WB-HIRA. Thereafter, on June 8, 2018, the State of West Bengal framed rules under WB-HIRA.

Because the Supreme Court declared the provisions of WB-HIRA to be invalid and struck them down in the current judgment, there will be no revival of the provisions of the WB 1993 Act, which were repealed upon the enactment of WB-HIRA, because the provisions of the WB 1993 Act are repugnant to the corresponding provisions of the RERA, which were impliedly repealed upon the enactment of the RERA in 2016.

The State Legislature has encroached upon the legislative authority of Parliament and this exercise conducted by the State Legislature is unconstitutional. The valuable safeguards introduced by Parliament in the public interest and certain remedies created by Parliament were absent in WB-HIRA.

Inconsistencies with RERA

RERA is a complete and exhaustive code which regulates the contractual relationship between a builder/promoter and a buyer/consumer in the real estate sector and provides remedial measures. RERA regulates the rights and obligations between promoters and buyers of real estate, in addition to the provisions of the Indian Contract Act, 1872. The enactment, in ensuring the actual transfer of property to the buyer, furthers the objects of the Transfer of Property Act, 1882. It provides for the enforcement of contracts through remedial measures that are in addition to the remedies provided in the Consumer Protection Act, 1986 and its successor legislation of 2019. RERA, in other words, is a special statute governing the real estate sector, encompassing rights and obligations found in different central enactments.

WB-HIRA covers the identical field of regulating the contractual behaviour of promoters and buyers in real estate projects. The State law is a ‘copy and paste’ replica of the central legislation (except for certain provisions which are inconsistent with RERA) and covers the field which is occupied by the central enactment. WB-HIRA is a “virtual replica” of the Central Law. A significant and even overwhelmingly large part of WB-HIRA overlaps with the provisions of RERA, but it does not complement the central law by fortifying the rights, obligations, and remedies.

The important provisions of WB-HIRA which are inconsistent with RERA are mentioned herein below:

  1. Force majeure events – The RERA restricts force majeure events to fire, cyclone, drought, flood, war, earthquake, or any other natural calamity that hinders the development of the projects, while WB-HIRA includes “any other circumstances as may be prescribed” as an added eventuality.
  2. Planning Area – The RERA specifies that only the projects that fall within the planning areas are subject to the RERA. According to Section 2 (zh) of the RERA, a “planning area” is a planning area or a development area, a local planning area, a regional development plan area, any other area specified as such by the appropriate government or any competent authority, while the WB-HIRA does not define the term “planning area”.
  3. Garage Area – RERA defines a garage as being ‘a place within a project having a roof and walls on three sides for parking any vehicle. It does not include uncovered parking spaces such as open parking areas. On the other hand, WB-HIRA has no such restrictions in defining garage or parking spaces and only mentions spaces as sanctioned by the competent authority.
  4. Compounding of Offences – If any person is found to have violated the RERA, they can be punished under the provision in the Code of Criminal Procedure, 1973 while WB-HIRA does not have provision for the compounding of offences.

Apart from the above, the subject of the provisions of the state enactment is identical, the content is identical. In essence and substance, WB-HIRA has enacted a parallel mechanism and parallel regime which the RERA already entails. In other words, the State legislature has enacted legislation on the same subject matter as the central enactment. Not only is the subject matter identical, but the statutory provisions of WB-HIRA are nearly identical to those of RERA.

WB-HIRA, since its enforcement in the State of West Bengal, would have been applied to building projects and implemented by the authorities constituted under the law in the state. In order to avoid uncertainty and disruption in respect of actions taken in the past, recourse to the jurisdiction of this Court under Article 142 was necessary. The Court, as such, exercised its extraordinary powers under Article 142 and gave effect to its judgment striking down the provisions of WB-HIRA prospective. The Court directed that the striking down of WB-HIRA will not affect the registrations, sanctions, and permissions previously granted under the legislation prior to the date of this judgment.

Down the Road

After the repeal of the WB-HIRA, the Government of West Bengal, Housing Department, by its Notification dated July 27, 2021, framed the West Bengal Real Estate (Regulation and Development) Rules, 2021, and the rules will come into force from the date of their publication in the Official Gazette. Thereafter, by another Notification dated July 29, 2021, the Government of West Bengal, Housing Department established an Authority known as the West Bengal Real Estate Regulatory Authority with immediate effect to exercise the powers conferred on it and to perform the functions assigned to it under the RERA throughout the State of West Bengal. With a further notification dated July 30, 2021, the Government of West Bengal, Housing Department, established an Appellate Tribunal known as the West Bengal Real Estate Appellate Tribunal with immediate effect. It is a sad plight that though the authorities have been established by several notifications dated July 29, 2021 and July 30, 2021, respectively, the positions of Chairperson, Members of the Regulatory Authority, Judicial Member, and Administrative Member of the Appellate Authority are still vacant. By a notice dated July 7, 2022, the Search Committee constituted under the West Bengal Real Estate (Regulation and Development) Rules, 2021, invited eligible and willing persons for the above-mentioned position.

A time-bound and proper implementation of the real estate regulatory law RERA in the state is required. Lack of implementation of RERA has left home buyers in the lurch as neither new complaints can be filed against builders nor existing complaints already filed before the erstwhile WB-HIRA can be continued and home buyers are being subjected to even more ruthless exploitation by builders since there is no mechanism in the state at present for redressal of home buyers’ grievances.

WB-HIRA is a “virtual replica” of the Central Law. A significant and even overwhelmingly large part of WB-HIRA overlaps with the provisions of RERA, but it does not complement the central law by fortifying the rights, obligations, and remedies.

Related Posts

POST A COMMENT

Thinking through Timelines: Acceptance of Rent Amounts to Waiver of Termination of Lease?

On June 24, 2022, the Supreme Court of India while deciding the matter of Sri K.M. Manjunath Vs. Sri Erappa G,[i] held that mere acceptance of rent by landlord after the expiry of lease would not amount to waiver of termination of lease.

Background

 

The dispute in this matter arose in connection with unregistered lease agreements for the lease of shop premises at Banaswadi Main Road, Bengaluru. Pursuant to the expiry of the last lease deed executed between the parties, the respondent-lessor filed a suit for ejectment before the Small Causes Court against the petitioner-lessee to obtain vacant possession of the shop premises. The Small Causes Court dismissed the suit for ejectment on the grounds that the suit was not maintainable as there was no valid termination of tenancy under section 106 of the Transfer of Property Act, 1882 (“ToP Act”) (detailed hereinbelow).

Aggrieved by the aforesaid dismissal, the respondent-lessor preferred a revision petition before the Karnataka High Court (“High Court”). Upon appreciation of the evidence on record, which inter alia consisted of unregistered lease agreements executed between the parties during the period of 1989 to 1995, the High Court noted that the duration of the lease agreements could be inferred to be for a period of 11 (eleven) months each, and thus the lease granted thereunder stood terminated by efflux of time. Hence, the petitioner-lessee was not entitled to notice under section 106 of the ToP Act. The High Court thus set aside the judgement of the Small Causes Court.

The petitioner-lessee thereafter filed a special leave petition (“Special Leave Petition”) before the Supreme Court challenging the judgment and final order of the High Court.

 

Applicable Provisions and Contentions

 

The primary contention in the matter was the applicability of section 106 of the ToP Act, which provides that where there is no written contract for the lease of immovable property, not being leased for agricultural or manufacturing purposes, the period of the lease shall be deemed to be from month to month and terminable by 15 (fifteen) days’ notice. The contention of the petitioner-lessee before the Small Causes Court was that no valid notice was served by the respondent-lessor as per this provision. On the basis of the aforesaid, the Small Causes Court ruled in favour of the petitioner-lessee. However, based on the aforementioned evidence evaluation, the High Court determined that the lease in this case stood determined by virtue of section 111(a) of the ToP Act, which provides that a lease may come to an end by efflux of time limited therein.

The Supreme Court, in the Special Leave Petition, took note of the contention of the petitioner-lessee that after the expiry of the period of the last lease agreement, the petitioner-lessee was continuing as a tenant in sufferance and had paid the rent till the date of the filing of the suit for ejectment.

 

Verdict

 

Considering the above provisions and contentions, the Supreme Court appreciated the reiteration of the High Court, based on the precedents relied upon by the High Court, that mere acceptance of the rent does not amount to a waiver of the termination of the tenancy. The Supreme Court, however, granted the request of the petitioner-lessee for a grant of time to vacate the shop premises by allotting a period of 6 (six) months from the date of its judgement to hand over the possession of the shop premises to the respondent-lessor. The aforesaid extension was granted subject to the petitioner-lessee submitting an undertaking on affidavit to pay the arrears of rent at the rate of INR 1400/- (Indian Rupees One Thousand Four Hundred only) per month for the arrears pending from the year 2017 (as determined by the High Court) and extending to the aforesaid period of 6 (six) months.

Accordingly, the Supreme Court upheld the decision of the High Court and dismissed the Special Leave Petition for being devoid of merit.

 

The Takeaway

 

The reaffirmation of the Supreme Court on non-waiver of termination in this matter reinforces the significance of capturing the duration of the lease in crystal clear terms in lease agreements. Detailing timelines for termination and notice period is just as important. As seen in the facts of the discussed case, the absence of such agreed timelines can further complicate disputes arising between the parties. Hence, customising such timelines on a case-specific basis is critical, while adopting timelines based merely on common practice is best avoided.

References: 

[i]Petition For Special Leave To Appeal (C) NO.10700 OF 2022 filed before the Supreme Court Of India, Civil Original Jurisdiction.

Image Credits: Photo by  Tierra Mallorca on Unsplash

The reaffirmation of the Supreme Court on non-waiver of termination in this matter reinforces the significance of capturing the duration of the lease in crystal clear terms in lease agreements. Detailing timelines for termination and notice period is just as important. 

Related Posts

POST A COMMENT

Delhi High Court Suspends CGPDTM Notice Fixing the IP Applications Cut-off Date

  • 13 May, 2020
  • Sripriya Padmanabhan
  • Shyam Sundar

The Hon’ble Delhi High Court has suspended the operation of a public notice issued by the Controller General of Patents, Designs and Trademarks (CGPDTM) that had fixed the cut-off date (18.05.2020) for completion of various acts/proceedings, filings, payment of fees and other deadlines that had fallen due during this lockdown. The public notice was found to be contrary to the Supreme Court order which extended the period of limitation applicable to all proceedings before all Courts and Tribunals with effect from 15th March 2020 till further orders.

 

Keeping in mind the extraordinary situation prevailing in the Country attributable to the lockdown announced by the Government, causing difficulties to litigants/advocates in filing their petitions/suits/applications/appeals/or other proceedings, etc. within the limitation period, the Hon’ble Supreme Court had Suo Motu registered a case numbered as Suo Motu Writ Petition (Civil) Nos. 3/2020 titled Re: Cognisance for Extension of Limitation.  

Invoking its plenary power conferred by the Constitution under Articles 141 & 142, the Bench comprising of Hon’ble Chief Justice S.A. Bobde, Hon’ble Justice L. Nageswara Rao & Hon’ble Justice Surya Kant passed the Order dated 23rd March 2020 extending the period of limitation applicable to all proceedings before all Courts and Tribunals governed by general law or special laws whether condonable or not with effect from 15th March 2020 till further orders.

The CGPDTM had issued a Public Notice dated 4th May 2020 informing applicants/registrants and/or its agents/advocates that the due-dates with respect to timelines/periods prescribed under the IP Acts and Rules, falling due during the lockdown, to complete various acts/proceedings, filing of any reply/document, payment of fees, etc. in the matter of any Intellectual Property (IP) applications, shall be 18th May 2020, since the lockdown period from 25th March 2020 to 3rd May 2020 was further extended by two weeks, i.e., till 17th May 2020.

Aggrieved by this public notice, a writ petition (W.P.(C) No.3059/2020) was filed before the Delhi High Court on 06.05.2020 by the Intellectual Property Attorneys Association (IPAA) challenging the said notice. The petitioners submitted that the public notice issued by the CGPDTM is a blatant disregard to the order of Hon’ble Supreme Court dated 23rd March 2020, and specifically conferred the following arguments:  

  1. The order of extension of limitation is applicable to all proceedings irrespective of whether it was governed by general laws or special laws and would be in force with effect from 15th March 2020, as opposed to 25th March 2020 as mentioned in the public notice.
  1. The said extension of limitation shall be in effect until further orders. Hence, the cut-off due-date of 18th May 2020, fixed by the CGPDTM in the public notice, for the completion of various acts/proceedings, filings, payment of fees, etc. in the matters of any IP applications, is also contrary to the Supreme Court order. 
  1. The said due date of 18th May 2020 would also pose difficulties to litigants/advocates to obtain necessary documents/files and file them as per the prescribed procedures, since the lockdown would only be lifted on 17th May 2020.

The Hon’ble Delhi High Court, taking into consideration the Supreme Court Order dated 23.03.2020 and the arguments of the petitioners, passed an Order dated 11th May 2020, holding that no Court, Tribunal, or Authority can act contrary to the order of the Supreme Court. Further, as per Article 144 of the Constitution, all authorities whether civil or judicial, located in the territory of India are required to act in aid of the orders passed by the Supreme Court. The Court also agreed that the period of limitation would stand effective from 15th March 2020 and not from 25th March 2020 as provided in the public notice. 

The Hon’ble Delhi High Court hence rightly held that order of Hon’ble Supreme Court was binding on the CGPDTM and disposed of the petition by suspending the operation of the public notice dated 4th May 2020.

The Hon’ble Delhi High Court has suspended the operation of a public notice issued by the Controller General of Patents, Designs and Trademarks (CGPDTM) that had fixed the cut-off date (18.05.2020) for completion of various acts/proceedings, filings, payment of fees and other deadlines that had fallen due during this lockdown. The public notice was found to be contrary to the Supreme Court order which extended the period of limitation applicable to all proceedings before all Courts and Tribunals with effect from 15th March 2020 till further orders.

Image Credits: Photo by samer daboul from Pexels

The Hon’ble Delhi High Court, taking into consideration the Supreme Court Order dated 23.03.2020 and the arguments of the petitioners, passed an Order dated 11th May 2020, holding that no Court, Tribunal or Authority can act contrary to the order of the Supreme Court. Further, as per Article 144 of the Constitution, all authorities whether civil or judicial, located in the territory of India are required to act in aid of the orders passed by the Supreme Court. The Court also agreed that the period of limitation would stand effective from 15th March 2020 and not from 25th March 2020 as provided in the public notice. 

Related Posts

POST A COMMENT