Brief case: Clarifications on IBC, fresh auction with clear terms, and more | Business Standard Column–09.01.2018

More clarifications on bankruptcy code
In yet another major clarification on the Insolvency and Bankruptcy Code, the Supreme Court has ruled that a lawyer on behalf of the operational creditor can issue a demand notice of an unpaid debt. This was in consonance with the provisions of the code and the Advocates Act, the court stated while setting aside the decision of the National Company Law Appellate Tribunal. The court also held that the tribunal was wrong in dismissing an application to initiate insolvency proceedings for non-compliance of Section 9 (3) (c) of the code.
The tribunal had held that the procedure laid down was mandatory. Setting aside that view, the Supreme Court stated that the provision was not mandatory for initiating proceedings.  The court made these declarations in three appeals, the leading one being Macquarie Bank vs Shilpi Cable Technologies. Section 9 deals with an application for initiation of corporate insolvency resolution process by an operational creditor. It states that the application shall be accompanied by a copy of the certificate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor.
Fresh auction with clear terms 
The Supreme Court ordered fresh auction of a consignment of metallurgical (met) coke lying at Vishakhapatnam port because of confusion about the bid: Whether the reserve price was inclusive of taxes and other charges or exclusive of them. In this case, LMJ International vs Dankuni Steels, the Andhra Pradesh high court appointed a special officer to sell met coke by public auction. The floor price was fixed at Rs 13,000 per metric tonne. The highest offer was Rs 14,000. However, other parties objected to it, arguing that the winning offer was inclusive of the charges and taxes while the public notice excluded them. The high court ruled that it was inclusive of the charges and therefore the highest bidder would get it. One bidder appealed to the Supreme Court. It set aside the high court ruling. It observed that the public notice was not clear on the point. However, other bids showed that the offers were exclusive of the charges. The high court was wrong in declaring that the highest offer was inclusive of the charges. If the charges are excluded, the bid would be lower than the floor price. Therefore, the court directed the special officer to get the valuation done according to the present price of coke and issue a public notice clarifying that the reserve price would be exclusive of other charges and taxes.
Arbitration route not to be a shortcut
Resolving the difference of opinion between two Benches of the Supreme Court, a five-judge Constitution Bench has ruled that in an arbitration case, the superior court is not expected to assume jurisdiction in all matters just because it is a higher court. It might have appointed an arbitrator, but it does not have the sole jurisdiction to deal with applications and hear contentions. The parties should approach the civil court to raise their objections. Otherwise the right to appeal will be taken away. “Solely because a superior court appoints the arbitrator or issues directions or has retained some control over the arbitrator by requiring him to file the award in that court, it cannot be regarded as a court of first instance,” the unanimous judgment stated in the case, State of Jharkhand vs Hindustan Construction Co. “This court cannot curtail the right of a litigant to prefer an appeal by stating that the doors are open to this court and to consider it as if it is an original court. Original jurisdiction in this court has to be vested in law,” the judgment added. In the case of arbitration, the application to enforce an award should be filed in a civil court.

Driver without licence gets damages 

A person who is injured in a road accident cannot be held guilty of negligently causing the accident merely because he could not produce his driving licence. Not having a driving licence is a crime; but it should not lead to the conclusion that he was negligently driving his vehicle. They are two different things. The award of compensation should not be reduced assuming that the injured person had no licence, the Supreme Court stated in the case, Dinesh Kumar vs National Insurance Co. In this case, a youth riding a bike was hit by a mini lorry and he suffered a spinal injury. The motor accident claims tribunal took into account the fact that he could not produce his driving licence and reduced 40 per cent of the compensation. The Karnataka High Court also did the same. The Supreme Court ruled that the courts were wrong.
Tax on sponsored events
The Delhi High Court has dismissed the petitions of the Fashion Design Council of India and several event management companies challenging the state government’s demand of entertainment tax on sponsored fashion shows and other events organised by them. A similar plea of the Board of Control for Cricket in India, which conducts matches, also was dismissed. Their argument was that the sponsorship amounts received by them are for the purpose of organising the events and in no manner can they be classified as “payment for admission” which could be taxed. Dismissing their petitions against a notification under the Delhi Entertainment and Betting Tax Act, introduced with retrospect effect, the court stated that the organisers of sponsored entertainment events cannot be allowed to escape their liability to pay taxes simply because instead of receiving money in cash by selling tickets, they are receiving it in the form of services, benefits and/or goods.
No local tax on ads on railway property 
The Bombay High Court has ruled that municipal authorities or local authorities cannot demand tax on commercial hoardings set up on railway properties. Western Railway and a number of advertising agencies had challenged the demand for tax by the Municipal Corporation of Greater Mumbai invoking powers under the Municipal Corporation Act. The court ordered that the railway administration or its agents would not be liable to pay any tax to the corporation in respect of any advertisement made on any part of the railways, unless a notification to that effect is issued by the central government. Noting the complaint of the municipal authorities that haphazard and overcrowded advertisements of various types such as sky signs were a health hazard, the court directed the railways to formulate a policy within six months to protect the safety of the public. The railway undertook to frame such a policy in consultation with the municipal authorities.

via Brief case: Clarifications on IBC, fresh auction with clear terms, and more | Business Standard Column

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