litigation newsletter july 2019 | series 25 · umang realtech ltd. & ors.4, held that...
TRANSCRIPT
KING STUBB & KASIVA
ADVOCATES & ATTORNEYS LEXZONE YOUR LEGAL THOUGHT
LITIGATION NEWSLETTER JULY 2019 | Series 25.3
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Rejection of Plaint as a whole or not at all
Suit in respect of different properties can be filed in any of the courts having jurisdiction if cause of action is the same
Builders Cannot Charge Exorbitant Interest on Delayed Payment
Writ Petition Maintainable Against Private Body, if Discharging a Public Duty
Jurisdiction of Chief Judicial Magistrate to Entertain Application Under Section 14 Of The SARFAESI Act
Assesses before filing writ petitions in the High Court Invoking Article 226 of the Constitution of India have to exhaust the remedies provided under the IT Act
Tests to Find Out Whether Contract Labourers are Direct Employees by Supreme Court
SUPREME COURT OF INDIA
Rejection of Plaint as a whole or not at all
- Shrusti Jena Maharathy, Associate
A Division bench of the Supreme Court in the case of
Madhav Prasad Aggarwal v. Axis bank Ltd. & Anr.1
reiterated in respect of rejection of plaint in exercise of
powers under order 7 rule 11(d) of Code of Civil
Procedure, 1908 that powers is limited to rejection of the
plaint as a whole or not at all.
The plaintiff filed a civil suit against the Orbit Corporation
Limited. The Bank filed a notice of motion under the Code
of Civil Procedure, 1908 of order 7 rule 11(d) on the
ground that the particular suit against it, would be barred
by the provisions of Section 34 of The Securitization and
Reconstruction of Financial Assets Act, 2002. Hence Single
Judge Bench dismissed the Notice of Motion but the
division Bench of the High Court allowed it. Plaintiff
aggrieved by the decision approached the Supreme Court
through the Special Leave Petition quoting the Judgment
of Sejal Gas Limited v. Navilan Merchants Private Limited2
thereby contending that the plaint cannot be rejected only
1 SLP (C) No.31579 of 2018)
against one of the defendant(s) but, it could be rejected as
a whole.
The Division Bench observed that the plaint can and must
be rejected in exercise of powers under Order 7 Rule 11(d)
of CPC on account of non-compliance of mandatory
requirements or being replete with any institutional
deficiency at the time of presentation of the plaint,
ascribable to clauses (a) to (f) of Rule 11 of Order 7 of CPC.
In other words, the plaint as presented must proceed as a
whole or can be rejected as a whole but not in part.
Thereby accepting the contention of plaintiff and setting
aside the order of the Division Bench of the High Court and
held that the power is
limited to rejection of the plaint as a whole or not at all.
Suit in respect of different properties can be filed in
any of the courts having jurisdiction if cause of action
is the same
-Bhavana Peela, Associate
The Supreme Court in the case of Shivnarayan V. Maniklal
and others3 expanded the definition of Section 17 under
the Civil Procedure Code 1908, to include cases arising out
of same cause of action in respect of more than one
property situated in different jurisdictions.
The case arose out of a suit seeking partition of joint family
properties after setting aside certain documents of
conveyance. The suit was instituted in a civil court at
Indore. However, properties situated at Mumbai were also
scheduled in the plaint. The trial court struck off the
properties in Mumbai scheduled in the plaint stating the
reason that they were outside the court's territorial
jurisdiction. This was challenged in the High Court by the
plaintiff. The High Court turned down the challenge saying
that Section 17 of CPC cannot be applied to a scenario of
more than one property located in different jurisdictions.
This led the plaintiff to approach the Supreme Court.
The bench noted that the suit was arising out of different
causes of actions pertaining to different documents
executed by different defendants. The plaint encompasses
2 6 (2018) 11 SCC 780 3 MANU/SC/0150/2019
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different causes of action with different set of defendants.
The cause of action relating to Indore property and
Bombay property were entirely different with different set
of defendants. The suit filed by the plaintiff for Indore
property as well as Bombay property was based on
different causes of action and could not have been
clubbed together. The suit as framed with regard to
Bombay property was clearly not maintainable in Indore
Courts. Therefore, the appeal was dismissed, affirming the
findings of the High Court and trial court, but on a different
reasoning.
NATIONAL CONSUMER DISPUTES REDRESSAL
COMMISSION
Builders Cannot Charge Exorbitant Interest on Delayed
Payment
- Anshu Singh, Associate
NCDRC on 03/06/2019 in the case of Amit Soni & Ors. Vs.
Umang Realtech Ltd. & Ors.4, held that provisions in
Builder- Buyer agreement that bind home-buyers with
contractual terms to protect the interests of the company
at the cost of the buyers are one sided, unfair and
unreasonable as per Section 2(r) of the Consumer
Protection Act, 1986.
The buyer was promised possession of the flat by Dec
2015 and had paid around ₹83 Lakhs to the builder in
different instalments. As the builder failed to deliver the
project even four years after the promised date, buyer
filed a complaint under Section 21(a)(i) of the Consumer
Protection Act, 1986 for the refund of entire amount
collected towards the consideration of the house along
with interest of 18% on the amount paid by the
complainant. Counsel for the Opposite party contended
that as per clause 7.9 of the ‘Apartment Buyers’
agreement if there is any delay regarding construction and
possession of the house, the company shall be liable to pay
only Rs. 5/- per square foot of the apartment per month
as penalty.
The National Commission held that forcing home-buyers
to pay interest in the range of 18% per annum for delay in
4 Consumer Case No. 2524 of 2017
payment of instalment while the builders themselves pay
a paltry 1.5-2% for delay in project amounts to unfair trade
practice by real estate companies since it gives a one sided
advantage to seller over the buyer. Commission also said
that a term of a contract will not be final and binding if it
is shown that the flat purchasers had no option but to sign
on the dotted line on a contract framed by the builder.
The National Commission through the judgment made it
clear that builders had to return the money to the buyer
on the same interest of what they are charging for any
delayed payments.
HIGH COURTS
Writ Petition Maintainable Against Private Body, if
Discharging a Public Duty
- Simran Tandon, Associate
In the case of Jasmine Ebenezer Arthur versus HDFC ERGO
General Insurance Company Limited & Ors.5 High Court of
Madras allowed a writ petition seeking a direction to a
private insurance company to honour an insurance claim
in respect of Health Insurance Policy availed by her
husband. The petitioner and her husband applied for a
Home Loan which was sanctioned to them. Also the
Petitioner’s husband was advised to avail insurance
coverage for the Home Loan stating that the said
insurance policy, inter alia, covers Critical Illness Diagnosis
as well. He took the policy by paying a premium. On the
fateful day, when the Petitioner's husband was proceeding
to his office he suffered from cardiac arrest and he went
through ventricular fibrillation and he died. The Petitioner
filed a claim petition. The Petitioner’s claim was
repudiated on the ground that the cause of death of her
husband was not covered under 'Major Medical Illness”.
Aggrieved by such repudiation, the petitioner lodged a
complaint with the grievance cell which did not yield any
positive response. Hence, she filed a complaint with the
Insurance Ombudsman, Chennai, which was dismissed
vide Award.
5 W.P. No. 22234 of 2016
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The Court held that today, in the modern world, there are
numerous socioeconomic activities to be performed by
the State. This resulted in sharing some of the obligations
to the other bodies, while retaining certain level of control
over them. This gave a motivation to the public and private
bodies to acquire major concerns and started exercising
monopoly power over its activities, which are close to
State functions. By allowing these governmental functions
to the private bodies, the fundamental rights of the
citizens are being strained. Therefore, to protect the rights
from the clutches of the Legislature, Executive, public and
private agencies, the Courts have to extend their power
under Article 226 of the Constitution of India, which is
usefully extracted hereunder:
A reading of Article 226 makes it clear that it can be
invoked not only for infringement of fundamental rights,
but also for any other purpose. The question before the
High Court was to determine whether the private bodies
performing public duties can be brought within the
purview of judicial review. The Court observed that if a
private body is brought within the purview of Article 12,
then it will be subject to constitutional limitations. As
happened in this case, lack of effective control has made
the private bodies acquire more power similar to public
authorities. The public monopoly power is replaced by
private monopoly power. Hence, it becomes necessary
that the private bodies should be made accountable to
judiciary within the judicial review. If any private body has
a public duty imposed on it, the Court has jurisdiction to
entertain the writ petition.
Jurisdiction of Chief Judicial Magistrate to Entertain
Application Under Section 14 Of The SARFAESI Act
- Gaurav Singh Gaur, Associate
The Hon’ble Kerala High Court in its recent judgment
dated 27-06-2019 in K.O. Anto and Anr. v. State of Kerala
and Anr.6 held that a Chief Judicial Magistrate can
entertain an application under Section 14 of the SARFAESI
Act.
6 OP(Crl) No.283 of 2019 7 2008 (3) KHC 935
The Petitioners challenged the maintainability of the
application by Respondent under Section 14 of
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act).
Petitioners also challenged the sustainability of the
consequential order passed on the same date by the
learned Magistrate, appointing an Advocate
Commissioner to take delivery of the Secured Assets.
The Hon’ble High Court observed that a division bench of
the Hon’ble Court in Muhammed Ashraf and another v.
Union of India and Ors.7, had emphatically decided on the
subject-matter and opined that the powers of the Chief
Judicial Magistrate in non-metropolitan areas and the
Chief Metropolitan Magistrate in metropolitan areas are
one and the same.
Furthermore, placing reliance on Authorised Officer, SBT
and Anr. v. Mathew K.C.8, which in turn referred an earlier
decision in Punjab National Bank v. O.C. Krishnan and
Ors.9, it was held that the DRT Act has been enacted with
an object to provide a special procedure for recovery of
debts due to the banks and the financial institutions. There
is a hierarchy of appeal provided in the Act, and this fast-
track procedure cannot be allowed to be derailed either
by taking recourse to proceedings under Articles 226 and
227 of the Constitution or by filing a civil suit, which is
expressly barred. Even though a provision under an Act
cannot expressly oust the jurisdiction of the Court under
Articles 226 and 227 of the Constitution, nevertheless,
when there is an alternative remedy available, judicial
prudence demands that the Court refrains from exercising
its jurisdiction under the said constitutional provisions.
Having considered the entire facts on the touchstone of
the provisions of the statute and the binding precedents,
the Hon’ble High Court was of the considered view that
the orders passed by the learned ACJM do not suffer from
any perversity or jurisdictional error warranting
interference by High Court in exercise of its supervisory
powers under Article 227 of the Constitution of India.
8 2018 (1) KLT 784 9 (2001) 6 SCC 569
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Recently in a similar appeal challenging the order passed
by ACJM, Ernakulam, the Supreme Court’s Vacation Bench
noted that the Calcutta, Bombay and Madras High Courts
have taken view that the Chief Judicial Magistrate has no
powers to entertain applications under Section 14 of
SARFAESI Act, whereas Kerala, Andhra Pradesh and
Allahabad High Courts have leaned towards a diametrically
opposed viewpoint that the Chief Judicial Magistrate
indeed has jurisdiction to entertain application under
Section 14 of SARFAESI Act.
All such similar cases before the Apex Court, arising out of
the same subject-matter were clubbed and are expected
to be heard and resolved soon by the Apex Court.
Assesses before filing writ petitions in the High Court
Invoking Article 226 of the Constitution of India have to
exhaust the remedies provided under the IT Act
- Ram Bharathwaj, Associate
The Hon’ble Madras High Court on 25.06.2019, dismissed
the Writ Petitions filed by Cognizant Technology Solution
Private Limited (Cognizant) and two of its foreign
shareholders – Cognizant (Mauritius)Limited and New
Jersey-based Cognizant Technology Solutions Corporation
over Tax disputes relating to the buy-back of shares.
In the present case the dispute at hand emanated from
the buyback of shares by Cognizant from its foreign
shareholders. The petitioners submitted that the
subsidiary company had decided to buy back the shares
since it had substantial cash surplus in 2013, for which
there was no immediate requirement in the company.
Consequently, Cognizant identified buy-back of shares
under section 77A of the Companies Act, 1956.
The Value of the Shares determined by using the
Discounted Free Cash Flow (DCF) method is at Rs.
23,915.10 per share. However, the Income Tax(IT)
authorities subsequently estimated the price per share at
Rs. 8,512, based on a Fair Market Value estimation, citing
11UA of the Rules of Income Tax Act, 1961 (IT Act). A
show-cause notice was eventually Issued in December
10 M/s Bharat Heavy Electricals Ltd. vs. Mahendra Prasad Jakhmola, Civil Appeal Nos. 1799-1800 OF 2019 (Arising out of SLP (C) Nos. 33747-33748 of 2014)
2017 as to why the excess consideration over the said
value should not be assessed to tax under Section 56(1) of
the IT Act. On December 31, the IT authorities also passed
their draft assessment order based on this valuation.
This prompted the two shareholders to approach the High
Court Invoking Article 226 Writ Jurisdiction. The
Petitioners contended that passage of the draft
assessment order involved a violation of the principles of
natural justice and that the draft order was passed in
contravening Section 92CA (4) of the IT Act.
The Court, however did not delve too deeply into the
merits of the case on the grounds of availability of an
effective alternate remedy of filing statutory appeals
before the authorities concerned i.e. the alternate
grievance redressal forums prescribed in the Income Tax
Act itself. Noting that the Income Tax Act provided for a
Dispute Resolution Panel(DRP) under Sub-section 6 of
Section 144C of the IT Act, consisting of experts in the
field. The Court, therefore, dismissed the writ petitions
and directed the petitioners to approach the Dispute
Resolution Panel within two weeks.
CASE ANALYSIS
Tests to Find Out Whether Contract Labourers are Direct
Employees: Supreme Court
-Deiya Goswami, Associate
The dispute arises as to the termination of 64 employees
by M/s Bharat Heavy Electricals Ltd.10 by the reference
notification dated 24.04.1990 issued under the Contract
Labour (Regulation and Abolition) Act, 1970 and was
referred to the Labour Court at Haridwar, by an award
dated on 01.11.2009 the Labour Court held that based on
documentary evidence in the form of gate passes, the
workmen, who were otherwise employed by a contractor,
were directly employed by the appellant and all 64
workers were entitled to be reinstated with immediate
effect but without back wages. From this Labour Award, a
review petition was filed by the appellant. On 18.05.2011,
this review was dismissed by the Labour Court. From this
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Labour Award, a review petition was filed by the appellant
i.e. BHEL. On 18.05.2011, this review petition was
dismissed by the Labour Court. A writ petition was filed,
being W.P. No. 1021/2011, against the aforesaid orders.
This writ petition was dismissed by the first impugned
order dated 24.04.2014 in which the High Court recorded
that “undisputedly” all petitioners, i.e., workmen, were
performing the duties which were identical with those of
regular employees. Therefore, it can be said that they
were under the command, control, and management of
BHEL and, concomitantly, the contractor has absolutely no
control over the workmen in performing such duties. It
was, therefore, held that the alleged contract with the
contractor was “sham” and, consequently, the Labour
Court Award was correct in law and was upheld. Against
this order, a special leave petition was filed before the
Supreme Court and was disposed of by the Supreme
Court. The appellant then filed a review petition before
the High Court and was disposed of accordingly. Further,
an Appeal (Civil) has filed before division bench of the
Supreme Court.
Issue Raised: - Whether Contract Labourer is a Direct
Employee according to the UP Industrial Disputes Act,
1947?
Analysis:- The Court in order to decide the dispute relied
on the test laid down by the Supreme Court in General
Manager, (OSD), Bengal Nagpur Cotton Mills,
Rajnandgaon v. Bharat Lala and Another11, which is as
follows:
“Two of the well-recognized tests to find out whether the
contract labourers are the direct employees of the
principal employer are: (i) whether the principal employer
pays the salary instead of the contractor; and (ii) whether
the principal employer controls and supervises the work
of the employee.”
Further, to explain the expression "control and
supervision" in the context of contract labour was
explained by this Court in International Airport Authority
11 (2011) 1 SCC 635
of India v. International Air Cargo Workers' Union12 as
follows:
"If the contract is for supply of labour, necessarily, the
labour supplied by the contractor will work under the
directions, supervision and control of the principal
employer but that would not make the worker a direct
employee of the principal employer, if the salary is paid by
a contractor, if the right to regulate the employment is
with the contractor, and the ultimate supervision and
control lies with the contractor.
The principal employer only controls and directs the work
to be done by a contract labour, when such labour is
assigned/allotted/sent to him. But it is the contractor as
employer, who chooses whether the worker is to be
assigned/ allotted to the principal employer or used
otherwise. In short, worker being the employee of the
contractor, the ultimate supervision and control lies with
the contractor as he decides where the employee will
work and how long he will work and subject to what
conditions. Only when the contractor assigns/sends the
worker to work under the principal employer, the worker
works under the supervision and control of the principal
employer but that is secondary control. The primary
control is with the contractor".
It was held that test No. 1 is not met as the contractor pays
the workmen their wages. Secondly, the principal
employer cannot be said to control and supervise the work
of the employee merely because he directs the workmen
of the contractor 'what to do' after the contractor assigns/
allots the employee to the principal employer. Supervision
and control of the principal employer is secondary in
nature, as such control is exercised only after such
workman has been assigned to the principal employer to
do a particular work. Therefore, the bench held that the
workers were not direct employees.
Conclusion: -The approach taken by the Apex Court is
based on the applied tests set by judicial by precedents for
determining whether a contract labourer is a direct
12 (2009) 13 SCC 374
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employee in order to qualify as under the definition of
“employees”.
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