Comparative Advertising & Disparagement : Delhi High Court

Justice Prathiba M. Singh, Delhi High Court

Justice Prathiba M. Singh of the Delhi High Court has recently in Zydus Wellness Products Ltd. v. Dabur India Ltd. (Neutral Citation: 2022/DHC/005793) has examined the law of disparagement in relation to comparative advertising. The Court has examined the leading authorities on the subject and has held that the intent and storyline of the advertisement has to be seen along with the intention to denigrate the product of a competitor. The relevant excerpts from the judgment are reproduced hereunder:

34. The term 'comparative advertising' has been defined in Article 2 of the Advertising Directive of the EEC as "any advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor". This definition has been affirmed and relied upon by a ld. Single Judge of this Court in Havells India Ltd. v. Amritanshu Khaitan MIPR 2015(1) 0295. In the case of Godrej Sara Lee Ltd. v. Reckitt Benckiser (I) Ltd. 2006 (36) PTC 307 (Del.) a ld. Single Judge of this Court has defined comparative advertising as an advertisement where a party advertises its goods or services by comparing them with the goods and services of another party. This is generally done by either projecting that the advertiser's product is of the same or superior quality to that of the compared product or by denigrating the quality of the compared product.

35. Thus, there has to be either express or implied reference to a competitor or its goods or a product category. A mere fleeting allusion to some unidentifiable product or product category cannot constitute `comparative advertising'. For an advertisement to be classified as comparative advertisement, there ought to be some attributes of a product which are depicted in the commercial such as the container, coloured packaging, mark, logo identifying the Plaintiff's product directly or indirectly. Even if such elements are absent, for the Plaintiff to claim generic disparagement, there ought to be some indicators of identification of the product category at least.

36. In the case at hand, the glass which is shown in the hand of the mother giving the generic orange drink is not identifiable in any manner with the Plaintiff or even with an orange energy drink. It could even be an orange soft drink, orange crush, orange squash, orange mocktail, orange juice, etc., Even on careful repeated watching of the impugned TVC by the Court, it is not clear as to what is the drink being stirred in the glass. It seems to be an orange-coloured drink which is put into a transparent glass and nothing more. However, in the conversation between the mothers after the race finishes, the category of the generic product being depicted has some reference when one of the mothers asks "Both of them drank the same orange glucose then how did your daughter win so easily?" Thus, the impugned TVC identifies 'orange glucose' as the product category towards which the advertisement in question is directed. Therefore, the impugned TVC can be classified as 'comparative advertising' to the broad orange glucose product category.

37. In view of this finding, the next question that needs to be probed by the Court is whether the impugned advertisement is disparaging in nature. For the purpose of examining disparagement, comparative advertising can be categorised in the following categories:

i. Where there is a direct comparison with a competitor's product. ii. Where there is a comparison with a specific product which can be deciphered due to some references such as a similar mark, a similar logo, similar packaging, similar container, etc. iii. Comparison with a product of related category with no direct reference.

iv. Where there is a general comparison without an identified product category as a whole.

38. Numerous decisions relating to comparative advertising and disparagement have been cited by the parties. Broad principles have been laid down repeatedly in these decisions. Principles of comparative advertising laid down in these decisions would have to be applied depending upon the category of comparative advertising in which a particular case would fall.

39. Disparagement is an act of belittling someone's goods or services with a remark that is misleading. The law relating to disparaging advertisements is now well settled. It is open for a person to exaggerate and highlight the qualities and features of his own goods, but it is not open for a person to belittle and disparage the goods of another. There is a plethora of judgments which have been cited before this Court by ld. Sr. Counsels for both the parties. In the case of Pepsi Co. v. Hindustan Coca Cola 2003 (27) PTC 305 (Del.) a ld. Division Bench of this Court held that the following factors are required to be considered while deciding the question of disparagement: i. Intent of the commercial; ii. Manner of the commercial; iii. Story line of the commercial and the message sought to be conveyed by the commercial.

40. In Dabur India v. Colortek Meghalaya (2010)167 DLT 278 (DB) the said principles were amplified/ restated by another ld. Division Bench of this Court in the following terms:

i. The intent of the advertisement - this can be understood from its story line and the message sought to be conveyed. ii. The overall effect of the advertisement - does it promote the advertiser's product or does it disparage or denigrate a rival product?

In this context it must be kept in mind that while promoting its product, the advertiser may, while comparing it with a rival or a competing product, make an unfavourable comparison but that might not necessarily affect the story line and message of the advertised product or have that as its overall effect. iii. The manner of advertising - is the comparison by and large truthful or does it falsely denigrate or disparage a rival product? While truthful disparagement is permissible, untruthful disparagement is not permissible.

41. It is on the basis of the above principles that this Court needs to ascertain whether the impugned TVC is disparaging or not. Generic disparagement is recognised as disparagement under the law, however, in almost all cases where generic disparagement has been held to be objectionable there has been some reference or some usage or depiction which has clearly led to the conclusion that it is the aggrieved party's product or the entire product category is being referred to. For example:

• In one of the earliest decisions recognising generic disparagement, Karamchand Appliances Pvt. Ltd. v. Sh. Adhikari Brothers and Ors. 2005 (31) PTC 1 (Del) in the impugned advertisement, the 'All Out Pluggy' device was clearly identifiable. • In Dabur India v. Colgate Palmolive India Ltd. MANU/DE/0657/2004 the advertisement in question explicitly identified the product category 'Lal Dant Manjan' powder. • In Dabur India Limited v. Emami Limited 2004 (75) DRJ 356, the impugned advertisement identified the product 'Chayawanprash' and asks the viewers to "FORGET Chayawanprash IN SUMMERS, EAT Amritprash INSTEAD".

• In Godrej Consumer Products Limited v. Initiative Media Advertising 2012 Vol. 114(4) Bom. LR 2652 in the advertisement, the label / device was clearly recognisable and identifiable as belonging to the Plaintiff therein.

• In Hindustan Unilever Limited v. Gujarat Co-operative Milk Marketing Federation Ltd. MANU/MH/1197/2017 the product, 'Frozen Dessert' was identified in the advertisement. • In Dabur India v. Emami Ltd. 2004 (75) DRJ 356 the entire class of Chayawanprash was identified in the advertisement.

42. It is usual for advertisers and companies marketing and selling products to portray their products as being superior. In the process of depicting superiority, a generic comparison ought to be permitted and creativity cannot be stifled. A television commercial is not to be analysed in a hyper critical manner. A commercial would have to be viewed as a whole from the view of an ordinary consumer or viewer. The message being portrayed in the commercial would have to be seen and if the message is not derogatory, no objection can be raised.

43. In the opinion of the Court, cases where there is a direct comparison and denigration of the competitor's product would fall in a completely different category as against those cases where there are allusions or indirect references. Allegations of disparagement in cases where comparison is alleged with an unrelated category as a whole is also objectionable. However, in the case of generic comparison with a product of related / same category without any direct reference to any competitor, the freedom for advertisers would be greater than those cases falling in other categories. This is because in order to portray a particular product as being superior or better than existing products, a generic comparison highlighting the strength of its own product without launching a negative campaign against its competitors ought to be permissible failing which the strength of the advertisement could itself be considerably diluted. The purpose of advertising any product is for marketing the attributes of that product. Such attributes could be unilateral or relative in a generic manner. It cannot be said that every generic comparison would be referencing to the market leader which would, in the opinion of the Court, be curtailing freedom of advertising to a considerable extent. Mere allusions, in the absence of a decipherable comparison would not be sufficient to make out a case of generic disparagement. An advertiser ought to have the freedom to make advertisements with generic comparison highlighting the features of its own product and if the same is done without an allusion to any market leader, objection cannot be raised unless representation being made is absolutely false or misleading.

44. Viewed from this perspective, the following decisions of the ld. Division Benches of this Court are relevant in the present factual matrix: I. In Dabur India Ltd. v. Colortek Meghalaya Pvt. Ltd. and Ors. (supra), the products concerned were 'GOOD KNIGHT NATURALS' and 'ODOMOS'. There was no overt or direct reference to 'ODOMOS' in the entire commercial. The content of the commercial showed that the competing product was causing rashes, allergy and was sticky, which was a serious depiction. However, the ld. Division Bench held that there was nothing in the advertisement to suggest that the commercial denigrated the products of the Appellant therein. The observation of the ld. Division Bench are as under:

"5. The submission of the Appellant is that its product Odomos is an extremely popular mosquito repellant cream and it enjoys over 80% of the market share all over the country and in some parts of the country it enjoys a 100% market share. The sales of the Appellant's product run into crores of rupees and the advertisement and promotion expenses also run into crores of rupees.

6. It is averred that the commercial of the Respondents' product was telecast on a news channel on 8th October, 2009. We are told that it has appeared on several occasions thereafter. According to the Appellant, the commercial disparages its product and, therefore, the Respondent should be injuncted from further telecasting it. It is submitted that even though there is no direct or overt reference to the Appellant's product, since the Appellant's product enjoys a huge market share, the commercial is obviously targeting it. Serious objection was taken to the suggestion in the commercial that the Appellant's product causes rashes, allergy and is sticky.

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18. On balance, and by way of a conclusion, we feel that notwithstanding the impact that a telecast may have, since commercial speech is protected and an advertisement is commercial speech, an advertiser must be given enough room to play around in (the grey areas) in the advertisement brought out by it. A plaintiff (such as the Appellant before us) ought not to be hyper- sensitive as brought out in Dabur India. This is because market forces, the economic climate, the nature and quality of a product would ultimately be the deciding factors for a consumer to make a choice. It is possible that aggressive or catchy advertising may cause a partial or temporary damage to the plaintiff, but ultimately the consumer would be the final adjudicator to decide what is best for him or her.

19. Having said this, we are of the opinion after having gone through the commercial not only in its text (as reproduced above) but also having watched it on a DVD that there is absolutely nothing to suggest that the product of the Appellant is targeted either overtly or covertly. There is also nothing to suggest that the commercial denigrates or disparages the Appellant's product either overtly or covertly. There is also no hint whatsoever of any malice involved in the commercial in respect of the Appellant's product - indeed, there is no requirement of showing malice.

20. Learned Counsel for the Appellant submitted before us that since his client has over 80% of the market share in the country and a 100% market share in some States, the obvious target of the commercial is the product of the Appellant. In our opinion, this argument cannot be accepted.

The sub-text of this argument is an intention to create a monopoly in the market or to entrench a monopoly that the Appellant claims it already has. If this argument were to be accepted, then no other mosquito repellant cream manufacturer would be able to advertise its product, because in doing so, it would necessarily mean that the Appellant's product is being targeted. All that we are required to ascertain is whether the commercial denigrates the Appellant's product or not. There is nothing in the commercial to suggest a negative content or that there is a disparagement of the Appellant's product. The commercial merely gives the virtues of the product of the Respondents, namely, that it has certain ingredients which perhaps no other mosquito repellant cream has, such as tulsi, lavender and milk protein. While comparing its product with any other product, any advertiser would naturally highlight its positive points but this cannot be negatively construed to mean that there is a disparagement of a rival product. That being so, whether the Appellant's product is targeted or not becomes irrelevant.

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23. Finally, we may mention that Reckitt and Colman of India Ltd. v. M.P. Ramchandran and Anr. 1999 (19) PTC 741 was referred to for the following propositions relating to comparative advertising:

(a) A tradesman is entitled to declare his goods to be best in the world, even though the declaration is untrue.

(b) He can also say that his goods are better than his competitors', even though such statement is untrue.

(c) For the purpose of saying that his goods are the best in the world or his goods are better than his competitors' he can even compare the advantages of his goods over the goods of others.

(d) He however, cannot, while saying that his goods are better than his competitors', say that his competitors' goods are bad. If he says so, he really slanders the goods of his competitors. In other words, he defames his competitors and their goods, which is not permissible.

(e) If there is no defamation to the goods or to the manufacturer of such goods no action lies, but if there is such defamation an action lies and if an action lies for recovery of damages for defamation, then the Court is also competent to grant an order of injunction restraining repetition of such defamation.

These propositions have been accepted by learned Single Judges of this Court in several cases, but in view of the law laid down by the Supreme Court in Tata Press that false, misleading, unfair or deceptive advertising is not protected commercial speech, we are of the opinion that propositions (a) and (b) above and the first part of proposition (c) are not good law. While hyped-up advertising may be permissible, it cannot transgress the grey areas of permissible assertion, and if does so, the advertiser must have some reasonable factual basis for the assertion made. It is not possible, therefore, for anybody to make an off-the-cuff or unsubstantiated claim that his goods are the best in the world or falsely state that his goods are better than that of a rival."

II. In Colgate Palmolive Company and Ors. v. Hindustan Unilever Ltd.

(supra) the competing products were 'COLGATE' & 'PEPSODENT'. In this case, the commercial clearly depicted 'COLGATE' and made a direct comparison with 'PEPSODENT'. Customer's imagination was not needed to see as to in what manner the comparison was being made with what product in the said case. 'PEPSODENT' claimed to have 130% germ attack power in comparison with 'COLGATE'. This was held to be not merely hyperbole and relying upon Lakhanpal National v. M.R.T.P Commission (1989) 3 SCC 251 it was held that the same was an unfair trade practice. The observation of the ld. Division Bench is as under:

"58. In our view, even if, we assume that the representation that Pepsodent is more effective in combating germs, 4 hours after brushing, in comparison with Colgate ST, is correct even then, prima facie, the advertisement would be disparaging as it also conveys the message that Colgate is ineffective and lacks the requisite quality to maintain oral hygiene and combat tooth decay and its usage, as depicted by the Colgate child, would result in the user ending up with a tooth related ailment. As explained in Dabur India Ltd. v. Colortek Meghalaya Pvt. Ltd. & Anr.

(supra) a trader cannot, while saying that his goods are better than his competitors', say that his competitors' goods are bad. If he says so, he really slanders the goods of his competitors. In other words, he defames his competitors and their goods, which is not permissible. In our view, this is precisely what the impugned print advertisement conveys by its advertisement theme and the visual story."

III. The most recent decision of the ld. Division Bench of this Court in Reckitt Benckiser (India) Pvt. Ltd. v. Hindustan Unilever Limited (supra) dealt with a case where toilet cleaners 'HARPIC' and 'DOMEX' were being compared in an advertisement. A perusal of the storyboard in the said case would show that there was a direct reference to 'HARPIC' product and it was suggested that 'HARPIC' does not address the problem of bad odour. The actual 'HARPIC' product was also shown in the said commercial. The commercial also depicted a child who is expressing displeasure by asking "Toilet se badbu nahi aayengi?" to enquire about the bad odour which would emanate if 'HARPIC' is used. In the said decision, the ld. Division Bench has held as under:

"33. On a plain viewing, it is clear that the message sent by the advertiser is that Harpic does not address the problem of bad odour. The astonished expression of the child and his gesture of holding his nose while asking the question whether the toilet will not stink and the mother of the child getting concerned and worried, sends out a clear message that if you use Harpic, the toilet will continue to stink because the mother, who is otherwise regularly using Harpic, has not been able to address the problem of foul odour persisting in their toilet. The latter part of the impugned TVC-1 then shows a toilet bowl with discolouration possibly reflecting bad odour and the voice over saying "Kyoki toilet ki badbu se ladne ke lie DOMEX me hai fresh guard technology". The remaining part of the impugned TVC-1 is about the product Domex and its quality to combat bad odour for a longer period of time.

34. The impugned TVC-1 not only projects a message that Domex fights odour for a longer period of time, it also sends a clear message that Harpic does not address the problem of foul smell that emanates from toilets. The manner in which the impugned TVC-1 is structured, first, sends a message that Harpic only cleans without addressing the problem of bad odour and thereafter, sends the message that whoever chooses Harpic would have to live with their toilets smelling foul. This is a message that disparages Reckitt's product and, in our view, cannot be permitted.

35. The finding of the learned Single Judge that the impugned TVC-1 does not denigrate Reckitt's product is erroneous and cannot be sustained. The latitude available in advertising is wide but does not extend to denigrating the product of one's competitor.

36. By an order dated 01.12.2021 passed by this Court, HUL was restrained from airing the impugned TVC-1. We make the said order absolute. The same shall continue till disposal of the suit."

The facts in Reckitt Benckiser (India) Pvt. Ltd. v. Hindustan Unilever Limited (supra) are clearly distinguishable from the facts the present case as there is no direct comparison with the Plaintiff's product in the case at hand. No image of the Plaintiff's product has been used and the qualities being attributed to 'HARPIC' are also completely derogatory in the said case. Moreover, nowhere in the impugned TVC the Plaintiff's or for that reason any product is being adversely commented upon as was the scenario before the ld. Division Bench. In the impugned TVC, only the features of the Defendant's product are highlighted. Even the ld. Division Bench in Reckitt Benckiser (India) Pvt. Ltd. v. Hindustan Unilever Limited (supra) has highlighted the difference between embellishing one's own product and calling the competitor's products as bad or inferior. The relevant portion of the said judgment reads as under:

24. In a comparative advertisement, it is open for an advertiser to embellish the qualities of its products and its claims but it is not open for him to claim that the goods of his competitors are bad, undesirable or inferior. As an illustration, in a comparative advertisement, it is open for an advertiser to say his goods are of a good quality but it is not open for an advertiser to send a message that the quality of the goods of his competitor is bad. As observed by the Chancery Division in the case of De Beers Abrasive Products Ltd. and Others v. International General Electric Co. of New York Ltd. and Another, it is open for a person to claim that he is the best seller in the world or a best seller in the street but it is not open for him to denigrate the services of another. Thus, it is not open for an advertiser to say "my goods are better than X's, because X's are absolutely rubbish". Puffery and Hyperbole to some extent have an element of untruthfulness. If a tailoring shop claims that he provides the best tailored suits in the city, the same may be untruthful. However, it is apparent to anyone who reads or hears this statement that it is puffery. Such statements or taglines are neither held out nor understood as a representation of unimpeachable fact.

It is obvious that the person availing services from the tailoring shop, as mentioned above, cannot maintain an action of misrepresentation. However, when it comes to statements made by an advertiser in respect of the goods of his competitors and other persons, the latitude available to an advertiser is restricted. Whilst it is open for the tailoring shop to state that it provides the best tailored suit in the city; it is not open for it to advertise that the other tailoring shops in the street lack the necessary skill and their suits are ill tailored.

25. A comparative advertisement would always involve the statement that the goods of the advertiser are better in some aspects than that of the competitor. But there is line that an advertiser cannot cross. He cannot disparage or defame the goods of his competitor.

26. There may be cases where certain features of an advertiser's product may be demonstrably better than the features of his competitor. In such cases, it is permissible for an advertiser to advertise and highlight these features. The message must clearly be to highlight the superior features of his product while ensuring that the product of his competitor is not disparaged or defamed.

45. An analysis of the above three Division Bench judgments of this Court shows that in the case of a commercial which has no direct or overt reference to a competitor's product, there cannot be a presumption that the product of the Plaintiff is being targeted. The ld. Division Bench observes in Dabur India Ltd. v Colortek (supra) that where there is no overt or covert reference, merely on the basis of market share it cannot be presumed that the advertisement is directed towards the market leader. In the opinion of this Court, the reasoning and rationale in Dabur India Ltd. v. Colortek (Supra) fully applies to the facts of the present case. In fact, in Dabur India Ltd. v. Colortek (Supra) the allegation of qualities being attributed to the competitor's product of causing rashes, allergy and stickiness were far more derogatory than the portrayal in the impugned TVC.

46. Applying the ratio of the judgments discussed above, this Court is of the view that the impugned TVC merely highlights the qualities of the Defendant's product and it does not disparage any orange glucose powder drink. Disparagement cannot be a far-fetched inference. In the impugned commercial, the mother asks a probing question as to how when her daughter drank the same orange glucose, the other lady's daughter won the race. This is being interpreted by the Plaintiff as a comparison as it leads to an inference that 'DABUR GLUCOPLUS-C ORANGE' is more effective, hence, superior and the other products including the Plaintiff's product are ineffective, hence, inferior - thus disparaging. The Plaintiff's case is that the gestures of disappointment and frustration on the face of the mother whose daughter lost the race is sufficient to infer disparagement. This, in the opinion of the Court, is far-fetched. It would not be proper for the Court to flip the coin to conclude - 'mine is better' as 'yours is bad'. The comparison being made in the impugned TVC might be unfavourable to the Plaintiff, but it cannot be held to be disparaging. The intent and the overall effect of the advertisement in question seems to be to promote the Defendant's product and not to denigrate the Plaintiff's or any other manufacturer's product.

47. The next argument of the Plaintiff that there is a serious misrepresentation of fact also does not hold ground. The admitted position is that the Defendant's product does have 25% more glucose than the  Plaintiff's product. The impugned advertisement is by and large truthful and there is no falsity involved. Therefore, there is no serious misrepresentation of fact on part of the Defendant in the impugned TVC. The argument of the Plaintiff that more glucose does not translate into higher energy also does not hold ground for two reasons. First, the storyboard of the advertisement merely shows "25% more glucose in every sip". This is not misrepresentative considering the contents of the Defendant's drink. Second, as far as the claims of 'instant energy' is concerned, the Plaintiff's own product packaging, and its advertisements which have been placed on record, show that the Plaintiff's own stand is that glucose gives instant energy. The Plaintiff cannot take a different stand for its own product and Defendant's product. Moreover, the storyboard shows that in the impugned TVC it has been said "this has 25% more glucose than your glucose powder, which gives more instant energy + 2 times micronutrients", however, it was brought to the attention of the Court that the impugned TVC, which is Bengali, does not use the phrase 'gives more instant energy' and merely claims that it 'gives instant energy'. Thus, the overall message sought to be conveyed by the Defendant vide the impugned TVC is that its product has 25% more glucose which gives instant energy.

48. In the absence of any disparaging uttering, still or image in the impugned TVC, this Court is unable to arrive at a conclusion merely on the basis of the market share of the Plaintiff that the Plaintiff's product is being disparaged or there is any generic disparagement. The impugned TVC when viewed from the perspective of an ordinary viewer does not give the impression of denigration or disparagement but one where the Defendant's product is being self-promoted. Moreover, the intelligence of an ordinary viewer also ought not to be ignored while judging such commercials. The ld. Division Bench in Dabur India v. Colortek (supra) has pointed out that market forces, nature and quality of the products would ultimately be the deciding factors for a consumer to make a choice. It cannot be ignored that the consumers are cognizant of the fact that advertisements are one sided commentary put out by the manufacturers and sellers for the promotion of their own products and are inherently biased in nature. While deciding a disparagement suit, the overall impact of the commercial has to be considered and in the absence of any derogatory remarks, mere use of some expressions cannot lead to an injunction.

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?

Order Refusing to condone delay under Section 34 of the Arbitration & Conciliation Act, 1996 would be Appealable under Section 37 (1) (c) of the Act

A 3 Judge Bench of the Supreme Court recently in Chintels India Ltd. v. Bhayana Builders P. Ltd. [CA No. 4028 of 2020] has examined the legal question whether an appeal under section 37(1)(c) of the Arbitration Act, 1996 would be maintainable against an order refusing to condone delay in filing an application under section 34 of the Arbitration Act, 1996 to set aside an award. Answering the question of law in the affirmative, the Bench held as under:

5. Having heard learned counsel for the parties, it is important to first set out section 37 of the Arbitration Act, 1996 which is as follows:

“37. Appealable orders.—(1) Notwithstanding anything contained in any other law for the time being in force, an appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:—

(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award under section 34.

(2) Appeal shall also lie to a court from an order of the arbitral tribunal—

(a) accepting the plea referred to in sub-section (2) or sub- section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or takeaway any right to appeal to the Supreme Court.”

6. Since we are directly concerned with section 37(1)(c), it is important to advert to the language of section 34 as well. Section 34(1) reads as follows:

“34. Application for setting aside arbitral award.— (1) Recourse to a Court against an arbitral award may be made  only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).”

7. Section 34(2) and (2A) then sets out the grounds on which an arbitral award may be set aside. Section 34(3), which again is material for decision of the question raised in this appeal, reads as follows:

“(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.”

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.