Seat / Venue of Arbitration not a determinative factor in attracting jurisdiction of a Writ Court: Delhi High Court

The Delhi High Court in Durgapur Freight Terminal P. Ltd. v. Union of India has recently held that an arbitration clause providing for seat / venue would not be a determinate factor for conferring jurisdiction on a writ court, if the court otherwise does not have jurisdiction in the traditional sense. The bench analysed the provisions of Article 226 of the Constitution of India, 1950 and also the concept of forum convenience, to hold that the courts at Delhi would not have jurisdiction as no part of cause of action has arisen in Delhi. The relevant observations of the bench, as as under:

11. In the writ petition, the petitioners have claimed jurisdiction of this Court in the following terms:-

"59. The present petition is maintainable before this Hon'ble Court inasmuch as the concerned respondents viz. respondent nos. 1 to 4 who took the decisions impugned are located within the territorial jurisdiction of this Hon'ble Court. Moreover the essential part of cause of action viz. decisions leading to the acts and/or omission including non- consideration of the petitioner's representation dated December 28, 2022 have taken place within the territorial jurisdiction of this Hon'ble Court."

12. Before proceeding further, it is deemed apposite to advert to clauses (1) and (2) of Article 226 of the Constitution of India, which read as under:-

"226. Power of High Courts to issue certain writs.--(1) Notwithstanding anything in Article 32, every High Court shall have power, throughout the territories in relation to which it exercises jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within those territories directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of them, for the enforcement of any of the rights conferred by Part III and for any other purpose. 

(2) The power conferred by clause (1) to issue directions, orders or writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories."

13. A reading of Clauses (1) and (2) of Article 226 of the Constitution of India would show that a High Court has territorial jurisdiction to issue writs under two situations: one, where the person/authority to whom the writ is to be issued is situated within the territory over which the High Court exercises jurisdiction, and two, where the cause of action, wholly or in part, arises for issuance of a writ within such territory. For the sake of convenience, the first may be referred to as 'jurisdiction by virtue of situs' and the other as 'jurisdiction by virtue of cause of action'.

14. In the instant case, the petitioners have claimed jurisdiction of this Court under both clauses of Article 226 of the Constitution of India. The tests to determine whether this Court has jurisdiction under these Clauses are well-defined. While before exercising jurisdiction by virtue of situs, this Court is required to arrive at a positive finding that the authority/person to whom the writ has to be issued lies within the territory over which the Court exercises jurisdiction; in order to exercise jurisdiction by virtue of cause of action, the Court shall be of the opinion that cause of action, wholly or in part, has arisen within the jurisdiction over which it exercises jurisdiction.

15. The Supreme Court in Utpal Kumar Basu and Others (Supra) has observed that the question as to whether the High Court has territorial jurisdiction to entertain a writ petition has to be decided on the basis of facts pleaded in the petition, the truth or otherwise thereof being immaterial. Relevant excerpt from the decision is extracted hereunder:-

"6. ...Therefore, in determining the objection of lack of territorial jurisdiction the court must take all the facts pleaded in support of the cause of action into consideration albeit without embarking upon an enquiry as to the correctness or otherwise of the said facts. In other words the question whether a High Court has territorial jurisdiction to entertain a writ petition must be answered on the basis of the averments made in the petition, the truth or otherwise whereof being immaterial. To put it differently, the question of territorial jurisdiction must be decided on the facts pleaded in the petition. Therefore, the question whether in the instant case the Calcutta High Court had jurisdiction to entertain and decide the writ petition in question even on the facts alleged must depend upon whether the averments made in paragraphs 5, 7, 18, 22, 26 and 43 are sufficient in law to establish that a part of the cause of action had arisen within the jurisdiction of the Calcutta High Court."

16. The scope of Article 226(2) of the Constitution of India came to be analysed in depth in Kusum Ingots & Alloys Ltd. v. Union of India and Another reported as (2004) 6 SCC 254, where the Supreme Court observed thus:-

"9. Although in view of Section 141 of the Code of Civil Procedure the provisions thereof would not apply to writ proceedings, the phraseology used in Section 20(c) of the Code of Civil Procedure and clause (2) of Article 226, being in pari materia, the decisions of this Court rendered on interpretation of Section 20(c) CPC shall apply to the writ proceedings also. Before proceeding to discuss the matter further it may be pointed out that the entire bundle of facts pleaded need not constitute a cause of action as what is necessary to be proved before the petitioner can obtain a decree is the material facts. The expression material facts is also known as integral facts.

Grant of Pre-Publication Injunction : Principles Discussed

Justice Varma

Justice Yashwant Varma recently in Sushil Ansal v. Endemol India P. Ltd. & Ors. [2023/DHC/000205] had occasion to examine the law in relation to grant of pre-publication injunction in relation to a web series concerning the Uphaar tragedy. While considering various Indian and international precedents on the subject, Justice Varma rejected the plea of Sushil Ansal to injunct the publication of the web series. The operative part of the decision reads as under:

18. At the outset, it would be apposite to recall the fundamental precepts which govern the grant of ad interim injunctive relief. Apart from the often repeated trinity test of prima facie case, balance of convenience and irreparable injury, courts are also bound to weigh in consideration whether the issuance of the injunction would cause greater harm and perpetuate injustice, the time when the plaintiff first derived knowledge of the offending material, whether the plaintiff, if not having acquiesced, remained inert or failed to take proactive action for protection of its rights and whether it has approached the Court in good faith. These aspects assume greater significance when what is sought is a pre-publication or broadcast injunction.

19. A pre-publication or broadcast injunction would essentially be sought at a stage when the offending material is either unavailable to be comprehensively reviewed and assessed or where it is alleged that there is a grave, imminent and immediate possibility of violation of rights. In such a situation the following factors would clearly be entitled to be accorded primacy- the promptitude with which the plaintiff approaches the Court, its obligation to establish, at least prima facie, that the impending publication/broadcast is completely divorced from the truth, replete with falsehood, or evidences an imminent vilification of the individual.

20. If the Court finds that the plaintiff has either failed to initiate action with promptitude or approached the court at the first available opportunity, that would be a circumstance which would weigh heavily against the grant of an ad interim injunction. Further, if the court were to find that the material which is likely to be broadcast or published already exists in the public domain and has existed as such for a considerable period of time without an objection having been raised, that too would detract from the right of the plaintiff to seek ad interim injunctive relief.

21. On a more fundamental plane, the Court would also take into consideration the imperatives of striking a balance between the aspects of freedom of speech and expression, the dissemination of information amongst the public at large on the one hand and the injury likely to be caused to the individual. It is in the above context that courts have formulated the ―high pedestal‖ test when it comes to the grant of a pre-publication or broadcast injunction. Courts have deliberately formulated the high threshold test because the injunction would essentially be sought at a stage when the offending material is either not available to be evaluated and examined or where it is impracticable to arrive at even a prima facie conclusion whether the content is defamatory or libelous. Courts at that stage are essentially left to grapple at straws, called to base their decisions on unsubstantiated and unproven allegations and essentially asked to issue a restraint on the assumption that what would be published or broadcast would be defamatory, slanderous or amounting to libel. Such a tenuous approach cannot possibly be countenanced when a court of law is called upon to grant injunctive or equitable relief.

Non Est Filing and Condonation of Delay in challenge to Arbitral Awards : Delhi High Court answers

The Division Bench of the Delhi High Court in Oil and Natural Gas Corporation Ltd. v. Joint Venture of M/s Sai Rama Engineering Enterprises (SREE) & Megha Engineering & Infrastructure Ltd. (MEIL) has answered as to what would constitute a non est filing vis-a-vis a petition under S. 34 of the Arbitration & Conciliation Act, 1996 ("Act"). 

The Division Bench was called upon to examine the validity of a judgment rendered by a Single Judge, where the Petition filed under S. 34 of the Act was termed as a non est filing and the plea for condonation of delay in filing the Petition was rejected. While disagreeing with the view of the Single Judge, the Division Bench has held as under:

The Impugned Judgement

13. The learned Single Judge whilst analysing the matter, observed that the following three crucial issues arose for consideration.

"a) Whether the petition is filed within the statutory period of 3 months prescribed under section 34 (3) of the Act.

b) In the alternate; whether the petition was filed within the extended period of 30 days under the Proviso.

c) Whether the filing in the first or the second instance is a 'non est' filing."

14. The learned Single Judge relied on the decision in Union of India v Popular Construction Co.: 2001 (8) SCC 470, wherein the Supreme Court of India held that the legislative intent in providing a strict and non-flexible limitation period should not be defeated by condoning the delay, without "sufficient cause". The court noted that in Simplex Infrastructure Limited v. Union of India: 2019 (2) SCC 455, which cites Union of India v. Popular Construction Co. (supra), the Supreme Court had emphasized the importance of limitation in filing an application under Section 34 of the A&C Act.

15. The learned Single Judge found that the period of delay in filing the application to set aside the impugned award under Section 34 of the A&C Act was beyond the period of thirty days that could be condoned in terms of the proviso to Section 34(3) of the A&C Act. The Court, thus, held that it had no jurisdiction to condone the delay. The said conclusion of the learned Single Judge is premised on the finding that the application filed by the appellant prior to 25.02.2019, was not proper and did not qualify to be considered as an application under Section 34 of the A&C Act. According to the learned Single Judge, the filings done on 20.02.2019 or on 22.02.2019 could not be considered as valid and were required to be treated as non est. Reasons and Conclusion

16. The only questions that fall for consideration of this Court are whether the filings done by the appellant prior to 25.02.2019 are required to be considered as non est; and if not, whether the delay in filing the petition ought to be condoned.

17. At the outset, it is relevant to state that there is no cavil with the proposition that this Court does not have the jurisdiction to condone the delay in filing of the application to set aside an arbitral award beyond the period of thirty days, as specified under the proviso to Section 34(3) of the A&C Act. As noted above, the impugned judgement is premised on the basis that the appellant had failed to file any such application within the period of three months and a further thirty days, from the receipt of the impugned award.

18. The appellant states that it received the impugned award on 23.10.2018. Therefore, the period of three months available to the appellant to assail the impugned award expired on 23.01.2019. The further period of thirty days - being the period that could be condoned by the Court - expired on 22.02.2019. It was the appellant's case that it had filed the petition on 23.01.2019, within the specified period of limitation.

19. As a matter of fact, the appellant had uploaded certain documents on 23.01.2019 at 03:45 p.m. The Registry of this Court had acknowledged the said filing by an e-mail sent at 03:49 p.m. on 23.01.2019. The appellant claims that it was subsequently discovered that an incorrect file had been electronically uploaded on 23.01.2019. The file that was uploaded related to a case captioned "Reliance Infrastructure v. Aravali Power Co. Pvt. Ltd.". Thus, it is not in dispute that the said filing cannot be considered as filing of an application under Section 34 of the A&C Act, assailing the impugned award. Admittedly, no such application was filed on 23.01.2019.

20. The appellant, thereafter, uploaded another file at 3.10. p.m on 04.02.2019. The record indicates that this filing was also not an application under Section 34 of the A&C Act, seeking to set aside the impugned award. Admittedly, the application filed on 04.02.2019 was one under Section 14 of the A&C Act and related to another dispute, which had no bearing on the appellant's challenge to the impugned award. The said application under Section 14 of the A&C Act was defective. The defects were cured and that application under Section 14 of the A&C Act was registered as OMP(T)(COMM) 15/2019. The said application was, thereafter, disposed of by an order dated 14.02.2019. Thus, undisputedly, the appellant had not filed any application under Section 34 of the A&C Act to set aside the impugned award on 04.02.2019.

21. The appellant filed an application assailing the impugned award for the first time on 20.02.2019 at 11:39 a.m. The application and other documents uploaded on the said date, comprised of 6,313 pages. The said filing was acknowledged by the Registry of this Court by an e-mail sent at 11.40 a.m. on 20.02.2019.

22. The said application was defective and this was communicated by the Registry of this Court to the appellant on 21.02.2019. The soft copy of the application, as filed by the appellant on 20.02.2019, has been retrieved and placed on record by the Registry of this Court. The appellant had uploaded two files on 20.02.2019. The first comprised of an Index running into ten pages. The said Index was dated 19.02.2019 and was signed by the advocate of the appellant. The second file uploaded was a comprehensive file, which included an Index, an application under Section 34 of the A&C Act, statement of truth, affidavits supporting the application, other applications, impugned award, and documents. The file uploaded comprised of 6,313 pages. The Index was duly singed on behalf of the appellant by one Sudhir Kumar, DGM (Mech.) Onshore Engineering, ONGC, as well as the appellant's advocate. Both, the authorised representative of the appellant as well as the appellant's advocate had also signed other documents such as the urgent application and the memo of parties. The application under Section 34 of the A&C Act was signed on each page by the authorised representative of the appellant. The said petition clearly set out the grounds on which the impugned award is assailed. It is material to note that the said petition was also accompanied by an affidavit, which was signed by the deponent and also duly verified. However, the said affidavit was not attested. The authorised representative had also filed a duly signed statement of truth by way of an affidavit. However, the said affidavit was not attested. It was also accompanied by a vakalatnama, which was signed by the authorised representative of the appellant.

23. The aforesaid filing was found to be defective, inter alia, because the affidavits and the statement of truth by way of an affidavit were not attested and the vakalatnama was not stamped. In addition to the aforesaid defects, there were other minor defects, which were duly notified to the appellant.

24. The appellant re-filed the application on 22.02.2019. However, the filing done on that date is of no consequence. It comprised of only ten pages of Index.

25. The appellant again re-filed the application on 23.02.2019. Some of the defects were cured. The affidavits were attested and the date of 20.02.2019 was stamped on the affidavits. However, the body of the affidavits continued to reflect that they were affirmed on 19.02.2019. The vakalatnama was also stamped. However, this filing was also marked as defective as there were various other defects. The application was returned for re-filing.

26. The appellant cured all defects and re-filed the petition on 25.02.2019.

27. The learned Single Judge found that the period of delay in filing the application under Section 34 of the A&C Act was beyond the period of thirty days that could be condoned in terms of the proviso to Section 34(3) of the A&C Act. The Court, thus, held that it had no jurisdiction to condone the delay. The conclusion of the learned Single Judge is premised on the finding that prior to 25.02.2019, the appellant had not filed a proper application, which could qualify to be considered as an application under Section 34 of the A&C Act. The Court held that the filings done on 20.02.2019 or on 22.02.2019 were required to be treated as non est. 

28. At this stage, it is relevant to refer to the reasons that persuaded the learned Single Judge to hold that the applications filed on 20.02.2019 and on 23.02.2019, were non est. Paragraph 43, 44, 45 and 46 of the impugned judgement reads as under:-

"43. The common thread that runs in the aforesaid judgments is that 'non-est' filing cannot stop limitation and cannot be a ground to condone delay. Thus, for a petition, filed, under Section 34 of the Act to be termed as a 'properly' filed petition must fulfill certain basic parameters such as:

a) Each page of the Petition as well as the last page should be signed by the party and the Advocate;

b) Vakalatnama should be signed by the party and the Advocate and the signatures of the party must be identified by the Advocate;

c) Statement of Truth/Affidavit should be signed by the party and attested by the Oath Commissioner;

44. This in my view is the minimum threshold that should be crossed before the petition is filed and can be treated as a petition in the eyes of law. The rationale behind insisting on these fundamental compliances to be observed while filing a petition, is not far to seek. Vakalatnama is an authority which authorizes an Advocate to act on behalf of a party as a power of attorney and to carry out certain acts on his behalf.

Therefore, the vakalatnama is the first step and a precursor to the preparation of a petition. The Statement of Truth accompanying a petition or an application is sworn by the deponent who states on oath that the contents of the accompanying petition have been drafted under his instructions and are true and correct to his knowledge or belief. Surely, this affidavit must be signed after the petition is made and the attestation must also be done on the affidavit when the petition is filed. This is also a requirement under the Commercial Courts Act, 2015. The petition needs to be signed by the Advocate as well as the party before the same is filed as this would indicate that both have read the petition and there is authenticity attached to the pages filed in the Registry. If these basic documents are not annexed or the signatures as required are absent, one can only term the documents which are filed as a 'bunch of papers' and not a petition.

45. In several cases, of course, the defects may only be perfunctory and may not affect the filing of the petition, e.g. the documents may be illegible or the margins may not be as per the required standards etc. These defects are certainly curable and if the petition is filed with such like defects, it cannot be termed as a non-est petition.

46. Examined in the light of the above-mentioned judgments and the provisions of Section 34(3) of the Act, the filing of the petition on 20.02.2019 was a non-est filing and cannot stop limitation as clearly even the affidavits were not signed and not attested besides a few other objections."

29. We may, at this stage, point out a factual error, although it is not of much relevance. The applications under Section 34 of the A&C Act filed on 20.02.2019 and 23.02.2019 were accompanied by signed affidavits. However, the affidavits supporting the application filed on 20.02.2019 were not attested. Then the finding that the affidavits accompanying the application filed on 20.02.2019 was not signed is erroneous.

30. We concur with the learned Single Judge that certain defects are curable and do not render the application as non est. However, the nature of certain defects is such that it would not be apposite to consider the defective application as an application under Section 34 of the A&C Act, to set aside an arbitral award. Undisputedly, every improper filling is not non est.

31. We are unable to concur with the view that the minimum threshold requirement for an application to be considered as an application under Section 34 of the A&C Act is that, each page of the application should be signed by the party, as well as the advocate; the vakalatnama should be signed by the party and the advocate; and it must be accompanied by a statement of truth. And, in the absence of any of these requirements, the filing must be considered as non est. It is essential to understand that for an application to be considered as non est, the Court must come to the conclusion that it cannot be considered as an application for setting aside the arbitral award.

32. It is material to note that Section 34 of the A&C Act does not specify any particular procedure for filing an application to set aside the arbitral award. However, it does set out the grounds on which such an application can be made. Thus, the first and foremost requirement for an application under Section 34 of the A&C Act is that it should set out the grounds on which the applicant seeks setting aside of the arbitral award. It is also necessary that the application be accompanied by a copy of the award as without a copy of the award, which is challenged, it would be impossible to appreciate the grounds to set aside the award. In addition to the above, the application must state the name of the parties and the bare facts in the context of which the applicants seek setting aside of the arbitral award.

33. It is also necessary that the application be signed by the party or its authorised representative. The affixing of signatures signify that the applicant is making the application. In the absence of such signatures, it would be difficult to accept that the application is moved by the applicant.

34. In addition to the above, other material requirements are such as, the application is to be supported by an affidavit and a statement of truth by virtue of Order XI, Section 1 of the Commercial Courts Act, 2015. It is also necessary that the filing be accompanied by a duly executed vakalatnama. This would be necessary for an advocate to move the application before the court. Although these requirements are material and necessary, we are unable to accept that in absence of these requirements, the application is required to be treated as non est. The application to set aside an award does not cease to be an application merely because the applicant has not complied with certain procedural requirements.

35. It is well settled that filing an affidavit in support of an application is a procedural requirement. The statement of truth by way of an affidavit is also a procedural matter. As stated above, it would be necessary to comply with these procedural requirements. Failure to do so would render an application under Section 34 of the A&C Act to be defective but it would not render it non est. 

36. In Vidyawati Gupta & Ors. v. Bhakti Hari Nayak & Ors.: (2006) 2 SCC 777, the Supreme Court set aside the order of the Division Bench of the Calcutta High Court treating the suit instituted as non est for want of compliance with the requirements of Order 6 Rule 15(4) of the Code of Civil Procedure, 1908, which requires a person verifying the pleadings to furnish an affidavit in support of the pleadings. The Supreme Court after noting various decisions held as under :-

"49. In this regard we are inclined to agree with the consistent view of the three Chartered High Courts in the different decisions cited by Mr Mitra that the requirements of Order 6 and Order 7 of the Code, being procedural in nature, any omission in respect thereof will not render the plaint invalid and that such defect or omission will not only be curable but will also date back to the presentation of the plaint. We are also of the view that the reference to the provisions of the Code in Rule 1 of Chapter 7 of the Original Side Rules cannot be interpreted to limit the scope of such reference to only the provisions of the Code as were existing on the date of such incorporation. It was clearly the intention of the High Court when it framed the Original Side Rules that the plaint should be in conformity with the provisions of Order 6 and Order 7 of the Code. By necessary implication reference will also have to be made to Section 26 and Order 4 of the Code which, along with Order 6 and Order 7, concerns the institution of suits. We are ad idem with Mr Pradip Ghosh (sic) on this score. The provisions of sub-rule (3) of Rule 1 Order 4 of the Code, upon which the Division Bench of the Calcutta High Court had placed strong reliance, will also have to be read and understood in that context. The expression "duly"

used in sub-rule (3) of Rule 1 Order 4 of the Code implies that the plaint must be filed in accordance with law. In our view, as has been repeatedly expressed by this Court in various decisions, rules of procedure are made to further the cause of justice and not to prove a hindrance thereto. Both in Khayumsab [(2006) 1 SCC 46 : JT (2005) 10 SC 1] and Kailash [(2005) 4 SCC 480] although dealing with the amended provisions of Order 8 Rule 1 of the Code, this Court gave expression to the salubrious principle that procedural enactments ought not to be construed in a manner which would prevent the Court from meeting the ends of justice in different situations.

50. The intention of the legislature in bringing about the various amendments in the Code with effect from 1- 7-2002 were aimed at eliminating the procedural delays in the disposal of civil matters. The amendments effected to Section 26, Order 4 and Order 6 Rule 15, are also geared to achieve such object, but being procedural in nature, they are directory in nature and non-compliance therewith would not automatically render the plaint non est, as has been held by the Division Bench of the Calcutta High Court.

51. In our view, such a stand would be too pedantic and would be contrary to the accepted principles involving interpretation of statutes. Except for the objection taken that the plaint had not been accompanied by an affidavit in support of the pleadings, it is nobody's case that the plaint had not been otherwise verified in keeping with the unamended provisions of the Code and Rule 1 of Chapter 7 of the Original Side Rules. In fact, as has been submitted at the Bar, the plaint was accepted, after due scrutiny and duly registered and only during the hearing of the appeal was such an objection raised.

54. We have, therefore, no hesitation in holding that the Division Bench of the Calcutta High Court took a view which is neither supported by the provisions of the Original Side Rules or the Code nor by the various decisions of this Court on the subject. The views expressed by the Calcutta High Court, being contrary to the established legal position, must give way and are hereby set aside."

37. It is, thus, necessary to bear in mind the distinction between the procedural requirements that can be cured and those defects that are so fundamental that the application cannot be considered as an application under Section 34 of the A&C Act, at all.

38. In the facts of the present case, the application filed on 23.01.2019 was not an application assailing the impugned award. That filing was clearly non est. Similarly, as the application filed on 04.02.2019 also related to another matter, which could not be considered as an application assailing the impugned award. The filing on 22.02.2019 was only 10 pages of an Index. This too could not be construed as an application; however, the application filed on 20.02.2019 and 23.02.2019 cannot be construed to be non est.

39. The defects as noted by the Registry in the filing log relating to the application filed on 20.02.2019 reads as under: -

"TOTAL 6313 PAGES FILED. CAVEAT REPORT BE OBTAINED. COURT FEE BE PAID. AFFIDAVITS NOT ATTESTED NOT SIGNED. PLEASE CORRECT THE BOOKMARKING. VOLUMNS OF DOUCMENTS BE MADE. IN ADDITION TO THE E-FILING, IT IS MANDANTORY TO FILE HARD COPIES OF THE FRESH MATTERS FILED UNDER SECTION 9, 11 AND 34 OF THE ARB. ACT. 1996 WITH EFFECT FROM 22.10.2018. ORIENTATION OF DOCUMENTS BE CORRECT. PLEASE CORRECT THE BOOKMAKRING. ALL INDEXES BE PAGINATED."

40. It is relevant to note that the affidavits accompanying the application filed on 20.02.2019 were signed but not attested and to that extent, the defects as pointed out are not accurate. It is clear from the above, that none of the defects are fundamental as to render the application as non est in the eyes of law. All the defects, as pointed out, are curable defects. It is settled law that any defect in an affidavit supporting pleadings can be cured. It is seen from the record that the filing was also accompanied by an executed vakalatnama, however, the same was not stamped. It is also settled law that filing of a court fee is necessary, however, the defect in not filing the court fee along with the application can be cured. In view of above, we are unable to accept that the application, as filed on 20.02.2019 or thereafter on 23.02.2019, was non est.

41. We may also add that in given cases there may be a multitude of defects. Each of the defects considered separately may be insufficient to render the filing as non est. However, if these defects are considered cumulatively, it may lead to the conclusion that the filing is non est. In order to consider the question whether a filing is non est, the court must address the question whether the application, as filed, is intelligible, its filing has been authorised; it is accompanied by an award; and the contents set out the material particulars including the names of the parties and the grounds for impugning the award.

42. In the given facts, the first question - whether the application filed on 20.02.2019 and 23.02.2019 can be considered as non est - is answered in the negative.

Mere Participation in Arbitral Proceedings before an Ineligible Arbitrator would not constitute a Waiver of right to object to the Ineligibility : Delhi High Court Rules

The Division Bench of the Delhi High Court in Govind Singh v. M/s Satya Group P. Ltd. [Neutral Citation 2023/DHC/000081] has delivered a recent judgment examining the law relating to the validity of an award passed by an ineligible arbitrator. The Bench further held that mere participation by a party in the arbitral proceedings would not constitute a waiver of their rights to object to the ineligibility of the arbitrator. The observations of the Bench, are as under:

7. The principal question that falls for consideration for this Court is whether the impugned award is liable to be set aside on the ground that the learned Arbitrator was ineligible to be appointed as an arbitrator. The learned Commercial Court had found that the learned Arbitrator had complied with the provisions of Section 12 of the A&C Act by making the necessary disclosures before accepting his appointment as the Sole Arbitrator. The appellant had not challenged the said appointment and therefore, the learned Arbitrator’s appointment was in accordance with the provisions of the A&C Act. 

8. It is apparent that the learned Commercial Court failed to address the crucial question – whether the learned Arbitrator was ineligible for being appointed as an arbitrator. It is the petitioner’s case that the learned Arbitrator was unilaterally appointed by the Managing Director of the respondent company, which was not permissible. He was ineligible to act as an arbitrator and therefore, the impugned award was liable to be set aside. 

9. Ms. Kaadambari, learned counsel appearing for the respondent, earnestly contended that the learned Arbitrator had been appointed at the instance of the appellant. She contended that the appellant had neither raised any objections to the appointment of the Arbitrator nor challenged his appointment during the course of the proceedings and therefore, was precluded from doing so after the impugned award was rendered. She also referred to the decision of the learned Single Judge of this Court in Kanodia Infratech Limited v. Dalmia Cement (Bharat) Limited: (2021) 284 DLT 722; and on the strength of the said decision contended that it is not open for the appellant to raise the question regarding the applicability of Section 12(5) of the A&C Act after the arbitral award has been delivered. 

10. The appellant contends that he has raised an objection regarding the unilateral appointment of the Arbitrator. He also contends that the manner in which the proceedings were conducted, violated the principles of natural justice and indicated that respondent no.2 was biased in favour of the respondent company. Needless to state that the learned counsel appearing for the respondent company disputes the said contention. 

11. The appellant invoked the Arbitration Agreement (Arbitration Clause in the Builder Buyer Agreement dated 30.06.2014) by a notice dated 13.01.2018. The said notice was a common notice issued by the appellant and one Sh. Sumit Singh, raising disputes in respect of the respective agreements entered into by them. The said notice is clumsily worded; however, it expressly called upon the respondent company to take note that the appellant was willing for his concerns to be addressed by an arbitrator. The appellant had, in the said notice, raised various allegations against the respondent company. 

12. Thereafter, the Managing Director of the respondent company addressed a letter to respondent no.2 referring to the Arbitration Agreement (Arbitration Clause) between the parties and indicating his desire to appoint respondent no.2 as the Sole Arbitrator to adjudicate the disputes that had arisen between the parties in respect of the Buyer Agreement. Respondent no.2, a practicing advocate, accepted the appointment and declared that there were no circumstances that gave rise to any justifiable doubts as to his independence or impartiality. 

13. For the purpose of addressing the principal question involved in this appeal, it would be apposite to proceed on the facts as admitted. Admittedly, respondent no.2 was appointed unilaterally by the Managing Director of the respondent company. It is also conceded that there was no agreement in writing after the disputes had arisen, whereby the parties had concurred on appointing respondent no.2 as the Sole Arbitrator to adjudicate the disputes between the parties. 

14. In TRF Ltd. v. Energo Engineering Projects Ltd.: 2017 8 SCC 377, the Supreme Court had authoritatively held that a person who is ineligible to act as an arbitrator is also ineligible to be appointed as an arbitrator. It is important to note that the controversy before the Supreme Court was addressed in the context of Section 12(5) of the A&C Act. The relevant extract of the said decision, which clearly indicates the above, is set out below:- 

“50. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned Senior Counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned Senior Counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by nor impartiality operation of law, is he still eligible to nominate an arbitrator. At the cost of repetition, we may state that when there are two parties, one may nominate an arbitrator and the other may appoint another. That is altogether a different situation. If there is a clause requiring the parties to nominate their respective arbitrator, their authority to nominate cannot be questioned. What really in that circumstance can be called in question is the procedural compliance and the eligibility of their arbitrator depending upon the norms provided under the Act and the Schedules appended thereto. But, here is a case where the Managing Director is the "named sole arbitrator" and he has also been conferred with the power to nominate one who can be the arbitrator in his place. Thus, there is subtle distinction. In this regard, our attention has been drawn to a two-Judge Bench decision in State of Orissa v. Commr. of Land Records & Settlement, In the said case, the question arose, can the Board of Revenue revise the order passed by its delegate. Dwelling upon the said proposition, the Court held: (SCC p. 173, para 25) 

“25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an "officer", an order passed by such an officer was an order passed by the State Government itself and "not an order passed by any officer under this Act" within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revisions by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of that State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate.” (emphasis in original) 

53. The aforesaid authorities have been commended to us to establish the proposition that if the nomination of an arbitrator by an ineligible arbitrator is allowed, it would tantamount to carrying on the proceeding of arbitration by himself. According to the learned counsel for the appellant, ineligibility strikes at the root of his power to arbitrate or get it arbitrated upon by a nominee. 54 In such a context, the fulcrum of the controversy would be, can an ineligible arbitrator, like the Managing Director, nominate an arbitrator, who may be otherwise eligible and a respectable person. As stated earlier, we are neither concerned with the objectivity nor the individual respectability. We are only concerned with the authority or the power of the Managing Director. By our analysis, we are obligated to arrive at the conclusion that once the arbitrator has become ineligible by operation of law, he cannot nominate another as an arbitrator. The arbitrator becomes ineligible as per prescription contained in Section 12/5) of the Act. It is inconceivable in law that person who is statutorily ineligible can nominate a person. Needless to say, once the infrastructure collapses, the superstructure is bound to collapse. One cannot have a building without the plinth. Or to put it differently, once the identity of the Managing Director as the sole arbitrator is lost, the power to nominate someone else as an arbitrator is obliterated. Therefore, the view expressed by the High Court is not sustainable and we say so.” 

15. In Perkins Eastman Architects DPC & Ors. v. HSCC (India) Ltd.: (2020) 20 SCC 760, the Supreme Court referred to the earlier decision in TRF Ltd. v. Energo Engineering Projects Ltd. (supra) and held that in the cases where the arbitration clause provided that the party or its official would appoint an arbitrator, the element of ineligibility would also extend to the persons so appointed. The relevant extract of the said decision reads as under:- “21. But, in our view that has to be the logical deduction from TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court was concerned with the issue, “whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator” The ineligibility referred to therein, was as a result of operation of law, in that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and that such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator. The next sentences in the paragraph, further show that cases where both the parties could nominate respective arbitrators of their choice were found to be completely a different situation. The reason is clear that whatever advantage a party may derive by nominating an arbitrator of its choice would get counter-balanced by equal power with the other party. But, in a case where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Naturally, the person who has an interest in the outcome or decision of the dispute must not have the power to appoint a sole arbitrator. That has to be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) and recognised by the decision of this Court in TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72]” “28. In TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , the Managing Director of the respondent had nominated a former Judge of this Court as sole arbitrator in terms of the aforesaid Clause 33(d), after which the appellant had preferred an application under Section 11(5) read with Section 11(6) of the Act. The plea was rejected by the High Court and the appeal therefrom on the issue whether the Managing Director could nominate an arbitrator was decided in favour of the appellant as stated hereinabove. As regards the issue about fresh appointment, this Court remanded the matter to the High Court for fresh consideration as is discernible from para 55 of the judgment. In the light of these authorities there is no hindrance in entertaining the instant application preferred by the applicants.” 

16. It is important to note that the Supreme Court also held that in the cases where the arbitrator appointed by a party is ineligible to be appointed as an arbitrator, the counter-party is not precluded from approaching the court for appointment of an arbitrator under Section 11 of the A&C Act. 

17. Following the aforesaid decision of the Supreme Court in Perkins Eastman Architects DPC & Ors. v. HSCC (India) Ltd. (supra), a learned Single Judge of this Court in Proddatur Cable TV Digi Services v. Citi Cable Network Limited: (2020) 267 DLT 51 held that it would be impermissible for a party to unilaterally appoint an arbitrator. In terms of Section 12(5) of the A&C Act read with the Seventh Schedule of the A&C Act, an employee would be ineligible to act as an arbitrator by virtue of the law as explained by the Supreme Court in TRF Ltd. v. Energo Engineering Projects Ltd. (supra) and Perkins Eastman Architects DPC & Ors. v. HSCC (India) Ltd. (supra). Such ineligibility would also extend to a person appointed by such officials who are otherwise ineligible to act as arbitrators. 

18. In view of the law as noted above, the learned Arbitrator unilaterally appointed by the respondent company was ineligible to act as an arbitrator under Section 12(5) of the A&C Act. 

19. The contention that the appellant by its conduct has waived its right to object to the appointment of the learned Arbitrator is also without merit. The question whether a party can, by its conduct, waive its right under Section 12(5) of the A&C Act is no longer res integra. The Supreme Court in the case of Bharat Broadband Network Limited v. United Telecoms Limited: (2019) 5 SCC 755 had explained that any waiver under Section 12(5) of the A&C Act would be valid only if it is by an express agreement in writing. There is no scope for imputing any implied waiver of the rights under Section 12(5) of the A&C Act by conduct or otherwise. The relevant extract of the said decision reads as under:- “20. This then brings us to the applicability of the proviso to Section 12(5) on the facts of this case. Unlike Section 4 of the Act which deals with deemed waiver of the right to object by conduct, the proviso to Section 12(5) will only apply if subsequent to disputes having arisen between the parties, the parties waive the applicability of sub-section (5) of Section 12 by an express agreement in writing. For this reason, the argument based on the analogy of Section 7 of the Act must also be rejected. Section 7 deals with arbitration agreements that must be in writing, and then explains that such agreements may be contained in documents which provide a record of such agreements. On the other hand, Section 12(5) refers to an "express agreement in writing". The expression "express agreement in writing" refers to an agreement made in words as opposed to an agreement which is to be inferred by conduct. Here, Section 9 of the Contract Act, 1872 becomes important. It states: “9. Promises, express and implied. -Insofar as the proposal or acceptance of any promise is made in words, the promise is said to be express. Insofar as such proposal or acceptance is made otherwise than in words, the promise is said to be implied." It is thus necessary that there be an "express" agreement in writing. This agreement must be an agreement by which both parties, with full knowledge of the fact that Shri Khan is ineligible to be appointed as an arbitrator, still go ahead and say that they have full faith and confidence in him to continue as such..." 

20. Thus, it is not necessary to examine the question whether the appellant had raised an objection to the appointment of the learned Arbitrator. Even if it is assumed that the appellant had participated in the arbitral proceedings without raising any objection to the appointment of the learned Arbitrator, it is not open to hold that he had waived his right under Section 12(5) of the A&C Act. Although it is not material, the record does indicate that the appellant had objected to the appointment of respondent no.2 as an arbitrator. 

21. In view of the above, the remaining question to be addressed is whether an arbitral award rendered by a person who is ineligible to act as an arbitrator is valid or binding on the parties. Clearly, the answer must be in the negative. The arbitral award rendered by a person who is ineligible to act as an arbitrator cannot be considered as an arbitral award. The ineligibility of the arbitrator goes to the root of his jurisdiction. Plainly an arbitral award rendered by the arbitral tribunal which lacks the inherent jurisdiction cannot be considered as valid. In the aforesaid view, the impugned award is liable to be set aside as being wholly without jurisdiction. 

22. In Kanodia Infratech Limited v. Dalmia Cement (Bharat) Limited: (2021) 284 DLT 722 the learned Single Judge of this Court had declined to interfere with the arbitral award, which was challenged on the ground that the arbitrator was ineligible to act as an arbitrator, on the ground that the parties had participated in the arbitral proceedings. The learned Single Judge had observed that the decision of the Supreme Court in Bharat Broadband Network Limited v. United Telecoms Limited (supra) was not applicable as the said matter had travelled to the Supreme Court against the decision of this Court, rejecting the petition under Section 14 and 15 of the A&C Act. 

23. We are unable to agree that the decision in Bharat Broadband Network Limited v. United Telecoms Limited (supra) can be distinguished on the aforesaid ground. The said decision had authoritatively held that in terms of the proviso of Section 12(5) of the A&C Act, the ineligibility of an arbitrator under Section 12(5) of the A&C Act could be waived only by an express agreement in writing and cannot be inferred by the conduct of the parties. Thus, the fact that the parties had participated before the arbitral tribunal cannot be construed as a waiver of their rights to object to the ineligibility of the arbitrator(s). We are unable to accept that while such a right could be exercised prior to the delivery of the award, it would cease thereafter. If the arbitrator is ineligible to act as an arbitrator, the arbitral award rendered by the arbitral tribunal would be without jurisdiction.

Contract of Personal Service : Not Enforceable in law being in Restraint of Trade : Delhi High Court Rules

Justice Amit Bansal
Delhi High Court

Justice Amit Bansal recently [in Global Music Junction P. Ltd. v. Annapurna Films P. Ltd. - Neutral Citation No. 2023/DHC/000064] delivered a judgment examining the law relating to restraint of trade under S. 27 of the Indian Contract Act, 1872. The Court was examining the claim of a Plaintiff who was seeking restraint on an artist from breaching exclusivity clauses in the agreements signed between the parties. The Court held that such clauses in agreements would tantamount to a restraint of trade and would fall foul of S. 27 of the Indian Contract Act, 1872. The relevant findings of the Court are as under:

15. Before proceeding further, I wish to analyse the legal position with regard to enforcement of negative covenants in contracts of personal service and grant of interim injunction.

16. At the outset, a reference may be made to Section 27 of the Indian Contract Act, 1872:

"27. Agreement in restraint of trade void.--Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. 

Exception 1.--Saving of agreement not to carry on business of which goodwill is sold.--One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein:

Provided that such limits appear to the Court reasonable, regard being had to the nature of the business."

17. Senior counsel appearing on behalf of the plaintiff company has extensively relied upon the judgment of the Supreme Court in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., (1967) 2 SCR 378, in support of his submission that reasonable restrictions can be imposed for the protection of the covenantee during the period of the contract. Attention of the Court has been drawn to the reference made to the judgment of Warner Brothers Pictures v. Nelson, (1937) 1 KB 209, in Niranjan Shankar Golikari (supra), where a film artist despite entering into a contract to render her exclusive service to the plaintiff during the period of the contract, entered into a contract with a third person in breach of the provisions of the contract and in these circumstances an injunction was granted.

18. The dicta of Niranjan Shankar Golikari (supra) is contained in paragraph 17, which is set out below:

"17. The result of the above discussion is that considerations against restrictive covenants are different in cases where the restriction is to apply during the period after the termination of the contract than those in cases where it is to operate during the period of the contract. Negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of trade and therefore do not fall under Section 27 of the Contract Act. A negative covenant that the employee would not engage himself in a trade or business or would not get himself employed by any other master for whom he would perform similar or substantially similar duties is not therefore a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one- sided as in the case of W.H. Milsted & Son Ltd. Both the trial court and the High Court have found, and in our view, rightly, that the negative covenant in the present case restricted as it is to the period of employment and to work similar or substantially similar to the one carried on by the appellant when he was in the employ of the respondent Company was reasonable and necessary for the protection of the company's interests and not such as the court would refuse to enforce. There is therefore no validity in the contention that the negative covenant contained in clause 17 amounted to a restraint of trade and therefore against public policy."

19. In Niranjan Shankar Golikari (supra), since the employee was still in employment of the respondent company, the grant of injunction was upheld by the Supreme Court. However, in the present case, the situation is entirely different as the contract has been terminated by the Artist. What needs to be examined is if the said termination by the Artist was valid or not.

Disputes falling within the ambit of SARFAESI Act are per se non arbitrable : Delhi High Court Rules

Justice Yashwant Varma, Delhi High Court  

Justice Yashwant Varma has recently in a batch of petitions under S. 9 of the Arbitration & Conciliation Act, 1996, titled Fermina Developers P. Ltd. v. Indiabulls Housing Finance Ltd. - Neutral Citation No. 2022/DHC/005642, held that disputes falling within the ambit of the Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act") would be intrinsically non arbitrable in view of the various decisions rendered in this regard. While examining the entire gamut of judicial precedent on the subject, the Court held as under:

10. In order to appreciate the issues which arise, it would be apposite to briefly notice the provisions of the Recovery of Debts and Bankruptcy Act, 19937 and SARFAESI in order to ascertain the extent to which they bar the jurisdiction of a civil court. The RDB Act confers jurisdiction and authority on tribunals constituted thereunder in terms of Section 17 of the RDB Act, which reads thus: - “17. Jurisdiction, powers and authority of Tribunals. (1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. (1A) Without prejudice to sub-section (1),- (a) the Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain and decide applications under Part III of Insolvency and Bankruptcy Code, 2016. (b) the Tribunal shall have circuit sittings in all district headquarters. (2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act. (2A) Without prejudice to sub-section (2), the Appellate Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain appeals against the order made by the Adjudicating Authority under Part III of the Insolvency and Bankruptcy Code, 2016.”

11. The bar of jurisdiction which stands engrafted in terms of Section 18 of the RDB Act and ousts the jurisdiction of all courts reads thus: - “18. Bar of Jurisdiction. – On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in section 17: Provided that any proceedings in relation to the recovery of debts due to any multi-State co-operative bank pending before the date of commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 under the Multi-State Co-operative Societies Act, 2002 (39 of 2002) shall be continued and nothing contained in this section shall, after such commencement, apply to such proceedings."

Judgment / Award Debtor not entitled to deduct TDS on Awarded Amount : Delhi High Court Rules

Justice Vibhu Bakhru
Judge, Delhi High Court

The Delhi High Court recently in Voith Hydro Ltd. & Ors. v. NTPC Ltd. [OMP (ENF.) (COMM.) 64/2018] decided an interesting question as to whether a judgment / award debtor is entitled to deduct TDS on the amount awarded by an arbitral tribunal, and whether the deposit of such amounts with the Income Tax Authorities constituted a discharge of their debts under the award. While holding that no tax is to be deducted on the awarded amounts, the Court held as under:

"24. As is apparent from the above, the following three principal questions fall for consideration before this Court:

(i) Whether there is any binding agreement between the parties whereby they have agreed that the amounts awarded in foreign currency would be computed at the exchange rate as prevalent on 15.09.2017? If not, the exchange rate to be applied for discharge of the amounts awarded in foreign currency.

(ii) Whether it was open for NTPC to deduct TDS on the awarded amounts and whether the deduction of the said amount and deposit of the same with the Income Tax Authorities constitutes a discharge of the amounts awarded to the aforesaid extent?

(iii) Whether Voith is entitled to charges for extending the Bank Guarantees, as claimed?

Retrospective Operation of the Benami Laws : The Confusion Remains!

Author : Saurabh Seth

The Benami Transactions (Prohibition) Act, 1988 (“Original Act”) was enacted in the year 1988 with the object of prohibiting benami transactions. A benami transaction in simple terms refers to a transaction where a person actually purchasing a property does not do so in his own name, and does so in the name of another person, who is merely a ‘name lender’ or a ‘benamidar’. Such person who pays consideration is commonly referred to as the ‘beneficial owner’.

The Original Act contained a mere 9 sections, including the power of acquisition of such benami property by an appropriate authority and also powers to prosecute offenders. Although the Original Act empowered the Central government to make rules under Section 8, no such rules were ever framed. Therefore, the Original Act was widely regarded as a “toothless” legislation, which though empowered the state to confiscate properties, was rarely used and most importantly, no procedure, rules or mechanism was prescribed to give effect to the provisions of the Original Act.

With the change of dispensation in Parliament, the then Finance Minister, Late Mr. Arun Jaitley, sought to “give teeth to” this “toothless” legislation by introducing the Benami Transactions (Prohibition) Amendment Act, 2016. The amendment was passed into law and came into force on 01.11.2016. The amended legislation was re-christened as the Prohibition of Benami Property Transactions Act, 1988 (“New Act”) and sought to amend the Original Act by adding as many as 72 sections and proper Rules for the effective implementation of the New Act.

But why did the government opt for amending the Original Act instead of enacting a fresh legislation? The reason is not far to see, and was explained by Late Mr. Jaitley in parliament in answer to a question where he categorically stated that:

“Anybody will know that a law can be made retrospective, but under Article 20 of the Constitution of India, penal laws cannot be made retrospective. The simple answer to the question why we did not bring a new law is that a new law would have meant giving immunity to everybody from the penal provisions during the period 1988 to 2016 and giving a 28 years immunity would not have been in larger public interest, particularly if large amounts of unaccounted and black money have been used to transact those transactions” 

But the question which arises is whether such a course is legally permissible? Can the legislature do something indirectly which it could not have done directly? The answer in my view is that such a course could not have adopted, especially given the strict provisions of the New Act, which have the effect of not only depriving a person of his property but also of initiation of criminal prosecution against a person found guilty under the New Act.

The Hon’ble Supreme Court has repeatedly held that amendment to a statute can be implemented retrospectively, however such retrospective amendment cannot defeat the substantive rights of a party. It is well recognized that generally amendments to procedural laws may be retrospective, but when substantive rights of parties are affected, can such laws be implemented retrospectively?

The New Act was notified vide Notification No. 98/2016 dated 25.10.2016, which appointed the 1st day of November, 2016 as the date on which the provisions shall come into force.

Section 1(3) remains untouched

Interestingly, the New Act keeps Section 1(3) of the Original Act untouched, which provided that:

“(3) The provisions of sections 3, 5 and 8 shall come into force at once, and the remaining provisions of this Act shall be deemed to have come into force on the 19th day of May, 1988.”

The aforesaid date of 19.05.1988 relates to the coming into force of the Presidential Ordinance whereas the date of 05.09.1988 relates to the date when the Original Act was brought into force. It is for this reason that Section 1(3) reads that Sections 3, 5 and 8 shall come into force at once.

In the New Act, Section 1(3) has been retained in its original form even though there are substantial amendments to Section 3, 5 and 8. The said provision creates an anomalous situation with the use of the words “shall come into force at once”. What date does this relate to is something that requires deep consideration particularly in view of the substantive amendments brought about to the aforesaid sections. A literal reading of the words “shall come into force at once” lends credence to the interpretation that the amendments to the said Section shall be effective only post 01.11.2016, thus making the provision prospective in its operation.

Substantive amendments in the New Act

Substantive changes have been made to various provisions of the Original Act, and there is no doubt that such amendments are not mere procedural amendments. In fact, substantive changes affecting the vital rights of persons have been made to the New Act, thus warranting a prospective operation. Some of these substantive changes are:

• Section 2(9) of the New Act expands the definition of “Benami Transaction” and brings within its fold certain transactions, which were hitherto not considered Benami. This certainly qualifies as a substantive change of the scope and operation of the New Act.
• Section 3 of the New Act seeks to make a distinction between transactions entered into prior to the New Act, by providing for a lesser punishment under Section 3(2) for past acts and a higher punishment under Chapter VII of the New Act for acts done after 01.11.2016. Such cases are covered by Section 3(3) of the New Act. This also leads us to the inevitable conclusion that the applicability of the new regime and punishment thereunder is only prospective.
• Section 5 read with Chapter IV of the New Act provide for attachment, adjudication and confiscation of the properties under the New Act. Under the Original Act, though the provision for confiscation was present, however, the same was to be undertaken in terms of the procedure and rules prescribed. It is an admitted position that no rules were ever framed or brought into force for the said purpose.
• Thus even though the substantive provision for confiscation was present under the Original Act, the absence of rules framed thereunder would certainly militate against the prescription of the detailed procedure now laid down [and rules framed] under the New Act. This, some may argue, is directly contrary to Article 20 of the Constitution of India, 1950 as Section 5 (without rules) of the Original Act was the “law in force” for transactions prior to 01.11.2016.
• Even Chapter IV of the New Act tends to disturb various vested rights of persons, as it gives the Initiating Officer under the New Act the power to provisionally attach properties even before adjudication proceedings.
• Various levels of the adjudication have been introduced under the New Act, which never existed earlier. Though these changes may be termed as “procedural”, the fact remains that creating layers of appeals, which were non existent earlier, certainly represents substantive amendment affecting vested rights of parties.
• Chapter VII of the New Act prescribes penalties, which were non existent under the Original Act. These penalties cannot by any stretch of imagination be applied retrospectively, and any such misadventure would fall foul of Article 20 of the Constitution of India, 1950.

Interpretation by the High Courts

The question of whether the amendments brought about in the form of the New Act are to be applied prospectively or retrospectively have vexed various High Courts throughout the Country. So far there is unanimity of judicial opinion [barring one] that the provisions of the New Act are to be applied prospectively. Some of these decisions are being noted hereunder:

1. Joseph Isharat v. Rozy Nishikant Gaikwad 2017 (5) ABR 706, where the Bombay High Court held:

“7. What is crucial here is, in the first place, whether the change effected by the legislature in the Benami Act is a matter of procedure or is it a matter of substantial rights between the parties. If it is merely a procedural law, then, of course, procedure applicable as on the date of hearing may be relevant. If, on the other hand, it is a matter of substantive rights, then prima facie it will only have a prospective application unless the amended law speaks in a language “which expressly or by clear intention, takes in even pending matters.”. Short of such intendment, the law shall be applied prospectively and not retrospectively.

“8. As held by the Supreme Court in the case of R. Rajagopal Reddy vs. Padmini Chandrasekharan, Section 4 of the Benami Act, or for that matter, the Benami Act as a whole, creates substantive rights in favour of benamidars and destroys substantive rights of real owners who are parties to such transaction and for whom new liabilities are created…These observations clearly hold the field even as regards the present amendment to the Benami Act. The amendments introduced by the Legislature affect substantive rights of the parties and must be applied prospectively.”

[Note: SLP [C] No. 12328 of 2017 against this judgment was dismissed by the Hon’ble Supreme Court by its order dated 28.04.2017]

2. Mangathai Ammal [Died] through LRs & Ors. Vs. Rajeshwari & Ors. [2019 SCC OnLine SC 717] dated 09.05.2019, where Hon’ble Supreme Court observed:

“12. It is required to be noted that the benami transaction came to be amended in the year 2016. As per Section 3 of the Benami Transaction [Prohibition] Act 1988, there was a presumption that the transaction made in the name of the wife and children is for their benefit. By Benami Amendment Act, 2016, Section 3 [2] of the Benami Transaction Act, 1988 the statutory presumption, which was rebuttable, has been omitted. It is the case on behalf of the respondents that therefore in view of omission of Section 3[2] of the Benami Transaction Act, the plea of statutory transaction that the purchase made in the name of wife or children is for their benefit would not be available in the present case. Aforesaid cannot be accepted. As held by this Court in the case of Binapani Paul [supra] the Benami Transaction Act would not be applicable retrospectively?”

3. Niharika Jain V. Union of India & Ors. 2019 SCC On Line Raj 1640, dated 12.07.2019, wherein the Rajasthan High Court observed:

“93. … this Court has no hesitation to hold that the Benami Amendment Act, 2016, amending the Principal Benami Act, 1988, enacted w.e.f. 1st November, 2016, i.e. the date determined by the Central Government in its wisdom for its enforcement; cannot have retrospective effect.

94. It is made clear that this Court has neither examined nor commented upon merits of the writ applications but has considered only the larger question of retrospective applicability of the Benami Amendment Act, 2016 amending the original Benami Act of 1988. Thus, the authority concerned would examine each case on its own merits keeping in view the fact that amended provisions introduced and the amendments enacted and made enforceable w.e.f. 1st November, 2016; would be prospective and not retrospective.”

4. M/s Ganpati Delcom Private Limited v. Union of India & Anr. (APO no. 8 of 2019 with WP no. 687 of 2017, decision dated 12.12.2019), wherein the Hon’ble Calcutta High Court held as under:

“In Canbank Financial Services Ltd vs Custodian & Others reported in (2004) 8 SCC 355 the Supreme Court specifically held in paragraph 67 that the said Act of 1988 had not been made workable as no rules under Section 8 of the said Act for acquisition of benami property had been framed. These two cases were also cited by Mr. Khaitan. Section 6(c) of the General Clauses Act, 1897 is most important. It lays down that repeal of an enactment, which necessarily includes an amendment, would not affect “any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed”, unless a different intention is expressed by the legislature. Without question, the omission on the part of the government to frame rules under Section 8 of the 1988 Act rendered it a dead letter and wholly inoperative. Assuming that the appellant had entered into a benami transaction in 2011, no action could be taken by the Central government, in the absence of enabling procedural rules. It is well within the right of the appellant to contend that the Central government had waived its rights. It could also contend that no criminal action could be initiated on the ground of limitation. Now, these rights which had accrued to the appellant could not, in the absence of an express provision be extinguished by the amending Act of 2016. In other words, applying the definition of benami property and benami transaction the Central government could not, on the basis of the 2016 amendment allege contravention and start the prosecution in respect of a transaction in 2011.”

[Note: The Hon’ble Supreme Court in SLP (C) No. 2784 of 2020 has stayed the said the above judgment. The SLP remains pending.]

Contrary view of Chhattisgarh High Court

5. Tulsiram & Manki Bai V. ACIT (Benami Prohibition) & Ors. (W. P. No. 3819/2019), dated 15.11.2019, wherein the Chhattisgarh High Court held:

“20. … It can also not to be said that provisions of the Amended Act of 2016 could not have been made applicable in respect of properties, which were acquired prior to 01.11.2016. The whole Act of 1988 as it stands today inclusive of the amended provisions brought into force from 01.11.2016 onwards applies irrespective of the period of purchase of the alleged Benami property. Amended Act of 2016 does not have an existence by itself. Without the provisions of the Act of 1988, the amended provisions of 2016 has no relevance and the amended Provisions are only laying down the proceedings to be adopted in a proceeding drawn under the Act of 1988 and the penalties to be imposed in each of the cases taking into consideration the period of purchase of Benami property.”

Conclusion:

The amendments made by way of the New Act, in my view, are clearly substantive and not procedural in nature, and hence cannot be applied retrospectively. The New Act expands the scope of the law, casts a negative burden / onus on a person to prove that a property is not “benami property”, creates disabilities such as immediate attachment and subsequent confiscation and most importantly attracts criminal action. All these aspects lead to the inescapable conclusion that the New Act cannot and should not be applied retrospectively.

The golden words of the Hon’ble Supreme Court in Commissioner of Income Tax (Central)- I, New Delhi vs. Vatika Township Private Limited (2015) 1 SCC 1 that “The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of the day in force and not tomorrow’s backward adjustment to it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset”, are clearly applicable to the present situation.

The views taken by the various High Courts as highlighted above correctly lay down this position of law, and now all eyes will be on the Hon’ble Supreme Court to take a final view on this issue – once and for all. Till then the confusion remains!

Saurabh Seth, the author, is a practicing advocate in the Delhi High Court. The views expressed are personal to the author.