From Rel Insurance to pay for loss to IBC process, here’re key court orders | Business Standard Column

Secured creditor can choose remedy

The Supreme Court ruled last week that a secured creditor has a right to file a winding-up petition even after it obtained a decree from the Debts Recovery Tribunal and a recovery certificate based on it. The judgment in the appeal, Swaraj Infrastructure Ltd vs Kotak Mahindra Bank, upheld the Bombay High Court ruling and dismissed all petitions challenging it. The Supreme Court clarified that a harassed secured creditor can elect his remedy against debtor companies. It is not ‘blowing hot and cold’ as alleged by the debtor companies, the judgment remarked, adding that “when secured creditors are driven from pillar to post to recover what is legitimately due to them, in attempting to avail of more than one remedy at the same time, they do not ‘blow hot and cold’, but they blow hot and hotter.” The court has to decide the issue by balancing the interest of creditors with a debtor company which will soon go in the red since a winding-up petition is admitted against it. It is not open for defaulters to resist a winding-up petition, which is otherwise maintainable without there being any bona fide defence to the same, the court explained.

IBC action not stalled by winding up

Proceedings under the Insolvency and Bankruptcy Code can continue against a corporate debtor even if a winding up petition is pending in a high court against it. They are independent of each other, the Supreme Court stated in its judgment in the case, Forech India Ltd vs Edelweiss Asset Reconstruction Co Ltd. The dispute arose as a winding-up petition, moved by an operational creditor before the code came into force was pending before the Delhi High Court. A financial creditor had gone to the National Company Law Tribunal (NCLT) against the same debtor. The operational creditor opposed it but the tribunal dismissed the challenge resulting in the appeal. The financial creditor argued that parallel proceedings cannot be permitted and the IBC process should continue. The conflict of jurisdiction arose in the context of various amendments made to the Companies (Court) Rules and change in Section 434 of the Companies Act. The court allowed the NCLT proceedings to go on as it is an independent proceeding. It granted liberty to the operational creditor to transfer the winding up proceeding to the tribunal.

Essential terms cannot be condoned

If an essential condition in a tender is not complied with, the employer has no power to condone it and accept another offer even if it is the lowest, the Supreme Court asserted in its judgment in the case, Vidarbha Irrigation Development Corporation vs M/s Anoj Kumar. There might be subsidiary or ancillary conditions and essential conditions in a tender. Though the former may be condoned by the employer, the latter must be strictly complied with and no material deviation can be ignored. In this case, the contractor selected for a canal project was supposed to give a bank guarantee for 40 months. But initially, he gave it only for six months, and later added 34 months. The irrigation corporation condoned the deviation. A rival contractor moved the court and succeeded in displacing the contractor who defaulted in the bank guarantee schedule. “Any such condonation, as has been done in the present case, would amount to perversity in the understanding or appreciation of the terms of the tender conditions, which must be interfered with by a constitutional court,” the judgment asserted.

Buying property does not end tenancy

When a landlord agrees to sell his property to his tenant, the tenancy does not end automatically, the Supreme Court ruled last week in its judgment, Dr H K Sharma vs Shri Ram Lal. In this case, the house was rented out in 1985 and the landlord agreed to sell it to the tenant in 1993. Part of the consideration was also paid. The tenant did not pay the rent thereafter, arguing that after the agreement to sell, their relationship changed to seller and buyer under the Transfer of Property Act. Though the rent control authorities agreed with him the Uttarakhand High Court ruled that the tenancy continued. The Supreme Court upheld this view and observed that if they really intended to surrender their tenancy rights while entering into an agreement to sell the house, it would have made necessary provision to that effect by providing a specific clause in the agreement.

Reliance Insurance to pay for loss

The Supreme Court last week set aside the judgment of the National Consumer Commission and directed Reliance General Insurance Co to pay Rs 41.90 lakh to the owner of a hydraulic excavator that was destroyed in a fire. The vehicle was bought for Rs 51.74 lakh and insured for Rs 46.56 lakh. The surveyor of the insurer assessed the loss at Rs 25.24 lakh. Disputing the computation, the owner moved the West Bengal consumer commission. It ordered the insurer to pay Rs 41.90 lakh. Reliance appealed to the National Consumer Commission, which reduced the compensation to Rs 34.17 lakh setting the depreciation at 32 per cent, assuming that the life of the equipment would be 10 years. On appeal by the owner, the Supreme Court restored the order of the state commission, upholding its assessment of loss. The judgment emphasised that when the parties had arrived at a figure with eyes open, it is not to any of them to dispute it and contend that the real value was different from what was declared.

Nomination basis in contract unfair

The Calcutta High Court has quashed a government contract granted to a public sector coal company on ‘nomination basis’, observing that the decision was arbitrary, unfair and unconstitutional. The judgment in the case, International Commerce Ltd vs Union of India, emphasised that “contracts granted are public contracts. Every decision to confer any largesse, contracts or benefits by the State or its instrumentalities or agencies must be based upon a sound, transparent and perceptible policy. Such policy must be in the public domain. It cannot grant contracts on whims or caprice”. The court further commented that “award of tender through public tender is the norm. It is not the only method. Any deviation from such norm must be based upon sound and discernable policy available in the public domain.” The judgment also recalled the recommendations of the Central Vigilance Commission which had gone into the fairness of selecting government entities on a nomination basis. Its reports have spoken against that method, but the government corporations have circumvented them, inviting several adverse judgments.

via From Rel Insurance to pay for loss to IBC process, here’re key court orders | Business Standard Column

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