From blacklisting norms to row over foreign award, here’re top court orders | Business Standard Column

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A selection of key court orders

SC: Follow norms before blacklisting

Government companies hold most of the contracts and they are also the ones that have a tendency to blacklist firms liberally. This is disastrous for the contractors. They also suffer a domino effect when other public sector units and even private employers keep them away. The Supreme Court (SC) recently criticised Food Corporation of India for blacklisting a firm without following set procedures. It was given a contract for recruiting employees for the corporation. The agency conducted a written test. The question papers reportedly leaked and the Bhopal police arrested some 50 persons. FCI issued show cause notice to which the firm replied that the “leaked” questions were not the ones set by it. However, FCI abruptly terminated the contract and blacklisted it for five years. It resulted in five other government units blacklisting the firm and withholding dues. The Madhya Pradesh high court dismissed it writ petition. The SC allowed its appeal (UMC Technologies Ltd vs FCI), stating that the show cause did not propose blacklisting, which was an essential condition before blacklisting. As a state entity, FCI has a greater duty to follow procedures.

Permanent ban is illegal

In another case of blacklisting, a veterinary drug manufacturer wrongly labelled a product by an inadvertent error, which was not serious. The UP Animal Husbandry Department blacklisted the firm indefinitely. The firm moved the high court and lost. In appeal, it argued before the SC that the Rajasthan government did not give it supply contract because of the permanent blacklisting. The SC allowed its appeal (Vetindia Pharma vs UP) stating that blacklisting should not last more than three years; otherwise it would be death knell for the company.

Row over challenge to foreign award

In the continuing controversy over enforcement of foreign awards in this country, the SC last week set aside the Bombay High Court judgment which had held that a challenge to a foreign award is maintainable here. In this case, disputes arose over the termination of a contract for a polymers plant between an Italian firm, NOY Vallesina and Jindal Drugs Ltd. The ICC arbitral tribunal in Paris held in favour of the foreign firm. When Jindal challenged it in the Bombay High Court, a single judge ruled the petition was not maintainable under the Arbitration Act. On appeal, the division bench held otherwise, leading to the appeal, which was allowed by the SC.

Financial creditor gets suit shifted

The SC has ruled that a financial creditor can seek the transfer of winding up proceedings before a company court to the National Company Law Tribunal (NCLT). The object of the Insolvency and Bankruptcy Code (IBC) is to resolve issues speedily. By allowing parallel proceedings in the high court and the NCLT, “the entire object of IBC will be thrown to the winds”. The SC stated so while allowing an appeal against the decision of the Allahabad High Court in the case, Kaledonia Jute vs Axis Nirman Industries. In this case, the high court had already passed a winding up order and the official liquidator was in charge of the failed company. Then another creditor approached NCLT seeking its dues and approached the high court for transfer of the case to the tribunal. The high court rejected its plea. The creditor appealed to the SC, which transferred the winding up proceedings to the NCLT. The judgment said: “The proceedings for winding up of a company are actually proceedings to which the entire body of creditors is a party. The proceeding might have been initiated by one or more creditors, but by a deeming fiction the petition is treated as a joint petition. The official liquidator acts for and on behalf of the entire body of creditors.”

Official absolved along with company

A food adulteration case against Hindustan Unilever over a tin of Dalda vanaspati ghee dragged on for three decades in various courts and ultimately the Nominated Officer of the company was acquitted by the SC last month. The criminal case shuttled between the trial court, the sessions court, the Madhya Pradesh High Court and the SC several times. Meanwhile, the Food Safety and Standards Act replaced the Food Adulteration Act in 2006, complicating matters further. The high court acquitted the company, but convicted the officer. On appeal, the SC held that “in the absence of the company, the Nominated Person cannot be convicted or vice versa”. Since the company was not convicted, it will be unfair to the officer who has been facing trial for more than last 30 years, the judgment said.

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