Vinay Sharma vs Union Of India on 14 February, 2020 Author: R. Banumathi Bench: R. Banumathi, Ashok Bhushan, A.S. Bopanna REPORTABLE IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION
WRIT PETITION (CRL.) NO.65 OF 2020
VINAY SHARMA ...Petitioner
VERSUS
UNION OF INDIA AND OTHERS ...Respondents
ORDER
R. BANUMATHI, J.
This writ petition has been filed under Article 32 of the Constitution of India by the petitioner-Vinay Sharma – a death-row convict. The petitioner has filed the writ petition challenging the rejection of his mercy petition by the President of India and seeking commutation of his death sentence inter alia on the grounds:- (i) Non-furnishing of relevant materials under RTI Act;
(ii) non-consideration of relevant material; (iii) torture; (iv) mental illness; (v) consideration of irrelevant material by the respondent authorities; and (vi) illegal solitary confinement. Signature Not Verified Digitally signed by
The petitioner is a death-row convict in Nirbhaya’s case which MADHU BALA Date: 2020.02.14 14:21:07 IST Reason:
relates to the gang rape of the victim in the moving bus in Delhi on the night of 16/17.12.2012. The trial court by its judgment dated 10.09.2013 convicted the petitioner and other co-accused in SC No.114 of 2013 under Sections 120-B, 365, 366 read with Section 120-B IPC, 307 read with Section 120-B IPC, 376(2)(g), 377 read with Section 120-B IPC, 302 read with Section 120-B IPC, 395, 397 read with Section 120-B IPC, 201 read with Section 120-B IPC and 412 IPC. The trial court imposed the death sentence on the petitioner and other co-accused by the order dated 13.09.2013. The High Court by its judgment dated 13.03.2014 confirmed the conviction of the petitioner and co-accused and also the death sentence imposed upon them. For awarding death sentence, the trial court and the High Court have recorded detailed reasonings that the incident was gruesome and falling within the category of “rarest of rare cases”. The Supreme Court by its judgment dated 05.05.2017 in Mukesh and Another v. State (NCT of Delhi) and Others (2017) 6 SCC 1 confirmed the conviction and also the death sentence and dismissed the appeal preferred by the petitioner and other co-accused. After referring to various judgments and by elaborate reasonings, the Supreme Court held that there were no extenuating or mitigating circumstances. The review petition was heard at length by the Supreme Court in the open court and the same was considered and dismissed by the order dated 09.07.2018.
On 07.01.2020, learned Sessions Court, Patiala House issued an execution warrant to execute the petitioner on 22.01.2020. On 08.01.2020, petitioner filed a curative petition before the Supreme Court and the same was dismissed on 14.01.2020. After rejection of co-accused Mukesh’s mercy petition, Sessions Court issued a fresh warrant for execution directing that the petitioner and the co- accused to be executed on 01.02.2020. On 10.01.2020, petitioner’s counsel sought for the documents from the Superintendent and after obtaining the documents, the petitioner preferred the mercy petition to the President of India on 29.01.2020. The President of India rejected the mercy petition on 01.02.2020 and the same was communicated to the petitioner in Tihar Central Jail on 01.02.2020.
On 31.01.2020, learned Sessions Judge passed an order postponing the execution of the death warrant. The criminal revision petition filed by the Union of India has been disposed of by the High Court by its order dated 05.02.2020. Challenge in this writ petition is the rejection of mercy petition by the President of India under Article 72 of the Constitution on 01.02.2020.
Contentions:-
5. Dr. A.P. Singh, learned counsel appearing on behalf of petitioner Vinay Sharma challenged the rejection of his mercy petition by the President of India contending that the Lieutenant Governor and Home Minister, NCT of Delhi have not signed the recommendation for rejection of the petitioner’s mercy plea. It was submitted that the relevant materials like the case records, correct medical status report of the petitioner, Social Investigation Report and the nominal roll of the petitioner were not placed before the President of India and the concerned authorities and these documents were kept out of consideration and only irrelevant materials were placed before the President of India which according to the learned counsel, vitiates the order of rejection of mercy petition. As per Dr. A.P. Singh, he approached the respondents authorities that is office of the President of India, Lieutenant Governor, Ministry of Home Affairs and the Department of Home, Govt. of NCT of Delhi under the Right to Information Act, 2005 and filed RTI application requesting for records pertaining to the rejection of the mercy petition of the petitioner; however, the same have not been furnished to nor was there any reply to his application. However, the learned counsel submitted that he was permitted to peruse the relevant file. According to the learned counsel, without access to the records, the petitioner cannot exercise his right under Article 21 of the Constitution and he cannot challenge the order rejecting his mercy petition.
It is the further argument of the learned counsel for the petitioner that petitioner Vinay Sharma was only 19 years old and is not a habitual offender and hails from lower class of society and these aspects could have been considered only by a thorough Social Investigation Report which was not placed before the President of India.
The learned counsel submitted that the petitioner was kept in solitary confinement even while his mercy petition was still pending before the President of India and such illegal confinement was unfair and in violation of Sunil Batra v. Delhi Administration and Others (1978) 4 SCC 494 and this becomes a ground for commutation of death sentence. It was further urged that the petitioner was tortured in the jail not only physically and there were also mental tortures and on number of days, petitioner Vinay Sharma was sent to medical treatment and also for psychological treatment. It is the claim of the learned counsel that the petitioner has been on psychological medication and diagnosed with the adjustment disorder and that as per Delhi Prisons Rules, the petitioner should have been provided with proper care and treatment for mental illness and on the basis of the medical records. It is the claim of the learned counsel that the prisoners with medical illness and mental illness cannot be executed in terms of the UN General Assembly Resolutions as referred to in Shatrughan Chauhan and Another v. Union of India and Others (2014) 3 SCC 1 and other Union Treaties.
Countering the above arguments, Mr. Tushar Mehta, the learned Solicitor General has submitted that all the relevant materials were placed before the concerned authorities and the mercy petition was forwarded to the President of India along with all those documents including the details of the court cases, records of the case, medical record, Social Investigation Report. It was submitted that the mercy petition along with the relevant documents was received by the Ministry of Home Affairs who have perused and with the appropriate note file, thereafter documents were placed before the President of India with a detailed Note File. Insofar as the alleged medical illness/mental illness of the petitioner, learned Solicitor General submitted that the petitioner was regularly checked and the Medical Officer In-Charge, Central Jail Hospital has issued the medical report stating that the petitioner was psychologically well adjusted and his general condition is stable and the medical report of the petitioner has been placed before the President of India. Drawing our attention to the affidavit filed by the Director General (Prisons), Tihar Jail, it was submitted that the petitioner was never placed in solitary confinement and was placed in a single room with iron bars and the petitioner intermittently mingled with other prisoners. The learned Solicitor General submitted that the scope of judicial review of the order passed by the President of India is very limited and the contentions urged on behalf of the petitioner would not fall within the grounds of review as laid down by various judgments of this Court and prayed for dismissal of the writ petition.
In this writ petition filed under Article 32 of the Constitution, the petitioner challenges the order of rejection of his mercy petition by the President of India inter alia on various grounds that the settled principles of consideration of mercy petition have not been followed and that the relevant materials were not placed before the President of India.
As per Article 72 of the Constitution, the President of India shall have the power to grant pardons, reprieves, respites or remissions of punishment or to suspend, remit or commute the sentence of any person convicted of any offence. As per Article 72(1)(c) of the Constitution, the power is inclusive of commutation in cases where the sentence is a sentence of death. Under Article 161 of the Constitution, similar is the power of the Governor to give relief to any person convicted of any offence against any law relating to a matter to which the executive power of the State extends. The disposal of the petitions filed under Articles 72 and 161 of the Constitution requires consideration of various factors i.e. the nature of crime, the manner in which the crime is committed and its impact on the society and that the time consumed in this process cannot be characterised as delay. As held in Devender Pal Singh Bhullar v. State of (NCT of Delhi) (2013) 6 SCC 195 that the disposal of the mercy petitions filed under Articles 72 and 161 of the Constitution of India requires consideration of various factors.
The grounds for judicial review of rejection of mercy petition under Article 72 of the Constitution has been considered in Satpal v. State of Haryana (2000) 5 SCC 170 and the Constitution Bench judgment in Bikas Chatterjee v. Union of India and Others (2004) 7 SCC 634 and Shatrughan Chauhan. After referring to various decisions, the Supreme Court considered the power of the President of India or the Governor of the State under Articles 72 and 161 of the Constitution and observing that the power vested in the President of India under Article 72 and the Governor under Article 161 of the Constitution is a constitutional duty, in Shatrughan Chauhan, it was held as under:-
“14. Both Articles 72 and 161 repose the power of the People in the highest dignitaries i.e. the President or the Governor of a State, as the case may be, and there are no words of limitation indicated in either of the two Articles. The President or the Governor, as the case may be, in exercise of power under Articles 72/161 respectively, may examine the evidence afresh and this exercise of power is clearly independent of the judiciary. This Court, in numerous instances, clarified that the executive is not sitting as a court of appeal, rather the power of President/Governor to grant remission of sentence is an act of grace and humanity in appropriate cases i.e. distinct, absolute and unfettered in its nature.” …….
In concise, the power vested in the President under Article 72 and the Governor under Article 161 of the Constitution is a constitutional duty. As a result, it is neither a matter of grace nor a matter of privilege but is an important constitutional responsibility reposed by the People in the highest authority. The power of pardon is essentially an executive action, which needs to be exercised in the aid of justice and not in defiance of it. Further, it is well settled that the power under Articles 72/161 of the Constitution of India is to be exercised on the aid and advice of the Council of Ministers.”
In a number of decisions, the Supreme Court has taken the consistent view that the executive orders under Articles 72 and 161 of the Constitution should be subject to limited judicial review. In WP(Crl.) D No.3334 of 2020 – similar petition filed by co-accused Mukesh Kumar, we have referred to number of judgments which have elaborately considered the scope of judicial review of the decision of the President of India on a petition under Article 72 of the Constitution of India. It is not necessary to refer to all those decisions referred to in WP(Crl.) D No.3334 of 2020. Suffice to refer to the Epuru Sudhakar and Another v. Govt. of A.P. and Others (2006) 8 SCC 161 and Shatrughan Chauhan. In Epuru Sudhakar, the Court has referred to the various grounds available for limited judicial review under Article 72 of the Constitution, it was held as under:-
“34. The position, therefore, is undeniable that judicial review of the order of the President or the Governor under Article 72 or Article 161, as the case may be, is available and their orders can be impugned on the following grounds:
(a) that the order has been passed without application of mind;
(b) that the order is mala fide;
(c) that the order has been passed on extraneous or wholly irrelevant considerations;
(d) that relevant materials have been kept out of consideration;
(e) that the order suffers from arbitrariness.
Two important aspects were also highlighted by learned amicus curiae; one relating to the desirability of indicating reasons in the order granting pardon/remission while the other was an equally more important question relating to power to withdraw the order of granting pardon/remission, if subsequently, materials are placed to show that certain relevant materials were not considered or certain materials of extensive value were kept out of consideration. According to learned amicus curiae, reasons are to be indicated, in the absence of which the exercise of judicial review will be affected.” 13. In Shatrughan Chauhan, the Supreme Court considered the power of the President or the Governor of the State under Articles 72 and 161 of the Constitution and observing that it is a constitutional duty, held as under:-
“14. Both Articles 72 and 161 repose the power of the People in the highest dignitaries i.e. the President or the Governor of a State, as the case may be, and there are no words of limitation indicated in either of the two Articles. The President or the Governor, as the case may be, in exercise of power under Articles 72/161 respectively, may examine the evidence afresh and this exercise of power is clearly independent of the judiciary. This Court, in numerous instances, clarified that the executive 8 is not sitting as a court of appeal, rather the power of President/Governor to grant remission of sentence is an act of grace and humanity in appropriate cases i.e. distinct, absolute and unfettered in its nature. …….
In concise, the power vested in the President under Article 72 and the Governor under Article 161 of the Constitution is a constitutional duty. As a result, it is neither a matter of grace nor a matter of privilege but is an important constitutional responsibility reposed by the People in the highest authority. The power of pardon is essentially an executive action, which needs to be exercised in the aid of justice and not in defiance of it. Further, it is well settled that the power under Articles 72/161 of the Constitution of India is to be exercised on the aid and advice of the Council of Ministers.”
In the light of the above principles, let us consider the present writ petition and the grounds urged by the petitioner. The petitioner has primarily raised the following grounds to challenge the order of rejection of his mercy petition:- (i) non-furnishing of copy of records pertaining to the rejection of the mercy petition of the petitioner under Right to Information Act, 2005;
(ii) relevant materials were kept out of consideration;
(iii) torture while in custody and consequential illness and mental illness of the petitioner and non-placing of materials pertaining to health condition of the petitioner;
(iv) illegal solitary confinement; and
(v) Bias order was passed with prejudiced mind.
Re. Contention: Records not made available to the petitioner under RTI Act : Learned counsel for the petitioner while seeking to put forth the contention would submit that he had made an application to the office of the President of India, Lieutenant Governor, Ministry of Home Affairs and the Department of Home, Govt. of NCT of Delhi under the Right to Information Act, 2005 seeking copies of certain documents from the file which were relevant in the context of consideration of the mercy petition. However, the same has not been replied to. In that regard, the learned counsel contended that he was permitted to peruse the records and since the copies were not made available, he be permitted to peruse the original file and make his submissions in the court. Insofar as the grievance raised by the learned counsel for the petitioner that he had not been furnished copies under the Right to Information Act, we do not find it appropriate to advert to that aspect of the matter since it is beyond the scope of consideration in a petition of the present nature.
In the writ petition filed under Article 32 of the Constitution of India seeking judicial review of the order of the President passed under Article 72 of the Constitution, the scope is very limited and the Court is called upon to examine:- (i) where the order has been passed without application of mind; (ii) where the order has been passed on extraneous or wholly irrelevant considerations; (iii) that relevant materials have been kept out of consideration; and (iv) the order suffers from arbitrariness.
Insofar as the contention by the learned counsel that the file be made available to him, we are of the opinion that even such a course would not be appropriate. During the course of hearing, we have rejected the request of the learned counsel appearing for the petitioner that he should be permitted to peruse the file and then make the submission on behalf of the petitioner. In any event, we have heard learned counsel for the petitioner exhaustively and the contentions with regard to the alleged discrepancies which is said to have been observed by the learned counsel in the manner in which the file had been processed and has been taken up for consideration. Having taken note of such contention, this Court thought it fit to look into the file to satisfy itself as to whether the procedure as contemplated has been followed. Accordingly, we have adopted that course. In that regard, from the file the learned Solicitor General has referred to the various documents/enclosures forwarded along with the mercy petition, nature of consideration made from the stage of receipt of the mercy petition and an appropriate note put at various stages was referred and the file relating to the same was made available to the Court. The consideration made by us is based on the contents of the file. In any event, as already indicated above, the issue with regard to the nature of documents required not being provided under the Right to Information Act would not arise, keeping in view the definite parameters under which the petition of the present nature is required to be considered. Further, since this Court has examined the file as indicated above, the petitioner cannot make grievance that because of the non-furnishing of the copy of the documents, prejudice is caused to them.
Re. Contention that the Lieutenant Governor, Delhi and Home Minister, Govt. of NCT of Delhi did not sign the relevant file:- Learned counsel for the petitioner submitted that he was permitted to inspect the file and on such inspection, he has noticed that the Lieutenant Governor and Minister (Home), NCT of Delhi did not peruse the file and on the other hand, upon the message sent by an official, they have recommended the rejection of the mercy petition. It was further submitted that on inspection of file, the learned counsel learnt that the relevant file has not been signed by the Minister (Home), NCT of Delhi and the Lieutenant Governor, Delhi. Upon perusal of the file relating to the mercy petition of the petitioner, it is seen that the Minister (Home), NCT of Delhi and Lieutenant Governor, Delhi has perused the relevant file and have signed the note to reject the mercy petition. We do not find any merit in the contention that there was non-application of mind on the part of the Minister (Home), NCT of Delhi and Lieutenant Governor, Delhi.
Re. Contention – Non-placing of relevant materials before the President of India and the relevant materials were kept out of consideration:- Placing reliance upon Shatrughan Chauhan, it was submitted that the power to commute a death sentence is not an act of grace but a constitutional responsibility of the President of India or Governor of a State. It was submitted that all the relevant documents and materials as laid down in Shatrughan Chauhan case and other judgments were not placed before the President of India.
To satisfy ourselves, we have asked the learned Solicitor General to produce the files containing the file relating to Govt. of NCT of Delhi and the office of Lieutenant Governor, Delhi and the file relating to forwarding of the mercy petition of the petitioner from Govt. of NCT of Delhi to Ministry of Home Affairs and file containing the note put up before the President of India. Accordingly, three files pertaining to the petitioner have been produced before us which we have perused. Petitioner Vinay Sharma had earlier filed a mercy petition which was received by the President Secretariat on 04.10.2019. That mercy petition was forwarded by Govt. of NCT of Delhi along with enclosures as stated in the covering letter dated 02.12.2019. The learned Solicitor General submitted that the said mercy petition was specifically withdrawn and the petitioner had filed another mercy petition on 29.01.2020. The said mercy petition was forwarded from the Govt. of NCT of Delhi to Ministry of Home Affairs on 30.01.2020 along with the enclosures stated in the covering letter dated 30.01.2020. It is seen from the covering letter that various documents were placed before the President of India viz. (i) Recommendation of the Govt. of NCT of Delhi in regard to grant of clemency to the petitioner; (ii) Legible and clean copy each of the judgment of Trial Court, High Court and the Supreme Court of India; (iii) Legible and clean copy of records of the case including Police Report; (iv) Nominal roll of the prisoners;
(v) Latest medical report of the prisoner; (vi) Details of the review/curative petitions pending in the Court filed by the accused and other co-accused of the case, if any, along with present status;
(vii) The past criminal history of the prisoner, if any; (viii) Economical condition of the family of the prisoner; and (ix) Any other documents related to the case (Order for execution on 01.02.2020).
Before placing the note file before the President of India, the Ministry of Home Affairs had placed the matter before the Hon’ble Union Minister, Ministry of Home Affairs who applied his mind and by a speaking order, recommended for rejection of the mercy petition. By perusing the note put up before the President of India, we have seen that all the documents enclosed along with mercy petition of the petitioner and the submissions made by him in the mercy petition were taken into consideration. Upon perusal of the Note and the records, the President of India rejected the mercy petition of the petitioner. Taking note of the documents forwarded along with the mercy petition and the note put up by the Ministry of Home Affairs before the President of India, the mercy petition was rejected. We find no merit in the contention that the relevant materials were kept out of consideration of the President of India.
Non-placing of relevant materials – medical status report and the status report as per the mental health of the petitioner:- The learned counsel for the petitioner had taken us through the averments in the petition and submitted that torture, cruelty and inhuman treatment of the petitioner and the physical assault inflicted on him in the prison, the petitioner was suffering from various illness and on complaints of “decreased appetite”, “decreased sleep” and number of other times for “psychiatric review”, “thought disorder” and “weakness”, number of times, he was taken to Central Jail Hospital and the petitioner was given treatment repeatedly for those complaints. It was contended that due to inhuman torture and degrading treatment suffered by the petitioner during his incarceration, the petitioner developed mental illness and caused self-harm to himself on several occasions. It was submitted that the medical record, mental illness and the status report on the mental health of the petitioner were not placed before the President of India. It was contended that in the mercy petition, the petitioner has narrated that the petitioner did not receive adequate health care which would have caused his mental illness and such mental illness and procedural lapses infringe the rights of the petitioner and entitling him for commutation. It was submitted that the medical status report, Social Investigation Report and various other relevant documents were not placed before the President of India and thus, the relevant materials were kept out of consideration of the President of India.
Considering the question as to the relevant documents to be placed before the President of India and after referring to Epuru Sudhakar, in Shatrughan Chauhan, the Supreme Court held as under:-
“24.2. ……. in Epuru Sudhakar v. State of A.P. (2006) 8 SCC 161, this Court held thus:
……..
Two important aspects were also highlighted by learned amicus curiae; one relating to the desirability of indicating reasons in the order granting pardon/remission while the other was an equally more important question relating to power to withdraw the order of granting pardon/remission, if subsequently, materials are placed to show that certain relevant materials were not considered or certain materials of extensive value were kept out of consideration. According to learned amicus curiae, reasons are to be indicated, in the absence of which the exercise of judicial review will be affected.
……. For illustration, on receipt of mercy petition, the Department concerned has to call for all the records/materials connected with the conviction. Calling for piecemeal records instead of all the materials connected with the conviction should be deprecated. When the matter is placed before the President, it is incumbent on the part of the Home Ministry to place all the materials such as judgment of the trial court, High Court and the final court viz. Supreme Court as well as any other relevant material connected with the conviction at once and not call for the documents in piecemeal.”
By perusal of the file produced before us, it is seen that the medical report of the petitioner along with the treatment and his latest medical report dated 30.01.2020 was placed before the concerned authorities which in turn, was placed before the President. As seen from the enclosures in the forwarding letter of the mercy petition dated 30.01.2020, latest medical status report dated 30.01.2020 issued by Dr. Akash Narade, Senior Medical Officer and other medical reports and the treatment given to the petitioner, have been placed before the competent authority which in turn, were forwarded to the President of India. In the medical status report, Dr. Akash Narade has referred to the details of the treatment of the petitioner and certified that the petitioner is psychologically well adjusted and he was being provided with regular therapy sessions by specialized therapists and the general condition of the petitioner is stable. There is no merit in the contention that the medical report of the petitioner has not been placed before the President. 25. The alleged suffering of the petitioner in the prison cannot be a ground for judicial review of the executive order passed under Article 72 of the Constitution of India rejecting petitioner’s mercy petition. As per the settled legal position in Narayan Dutt and Others vs. State of Punjab and Another (2011) 4 SCC 353 and Epuru Sudhakar, exercise of power under Articles 72 and 161 of the Constitution of India is subject to challenge only on the grounds indicated thereon. When the highest constitutional authority, upon perusal of the Note and the various documents placed along with mercy petition, has taken a decision to reject the mercy petition, it cannot be contended that the highest constitutional authority had not applied its mind to the documents.
Learned counsel for the petitioner then urged that the petitioner comes from poor economic and social background and the Social Investigation Report of the mercy petition has not been forwarded along with the mercy petition. This contention again has no force. As seen from the list of enclosures sent along with the mercy petition, it is seen that the economic condition of the family of the petitioner and his Family Economic Status have been enclosed as enclosure “H”. It is to be pointed out that the petitioner had earlier filed a mercy petition in October, 2019 and said mercy petition was forwarded along with enclosures from the NCT of Delhi to Ministry of Home Affairs on 02.12.2019. While forwarding the said mercy petition, Social Investigation Report containing the economic conditions of the family of the petitioner was enclosed as enclosures. While forwarding the mercy petition dated 30.01.2020, the said Social Investigation Report dated 30.11.2019 containing family background of the petitioner and economic status of the family and other details were again forwarded. There is no merit in the contention that the Social Investigation Report was not placed before the President for consideration and the relevant materials were kept out of consideration of the President. Solitary Confinement:-
Learned counsel appearing for the petitioner argued that the petitioner was illegally segregated and put in solitary confinement prior to rejection of his mercy petition in violation of law laid down in Sunil Batra. In the said case, it was held by the Supreme Court that “a person is under sentence of death” only after the mercy petition is rejected by the Governor and the President of India and on further application, there is no stay of execution by the authorities. It is therefore contended that solitary confinement prior to rejection of mercy petition by the President of India is unconstitutional.
According to the petitioner, he has been kept in solitary confinement for a period of one year. This contention is however refuted by the respondents. In the affidavit dated 13.02.2020 filed by the Director General (Prisons), Tihar Jail, it is stated that for security reasons, the petitioner was placed in one ward having multiple single rooms and barracks. It is further stated that during that limited period, the petitioner was kept in one of the single rooms and during such duration, whenever all prisoners came out, the petitioner-convict was also coming out. It is stated that the single room where the petitioner was placed had iron bars open to air and the same cannot be equated with solitary confinement as the petitioner was permitted to come out and mingle with other inmates at regular intervals on daily basis like other prisoners. Further, it has been submitted that such placement of the petitioner in a single room was for limited duration and intermittent period either for security reasons or other reasons in the interest of convict. It is clear from the affidavit filed by the Director General (Prisons) that the petitioner was not kept in solitary confinement; rather he was kept in protective custody which was for the benefit of the petitioner and also for ensuring the security. Considering the averments in the affidavit filed by the Director General (Prisons), the contention of the petitioner that he has been kept in solitary confinement in violation of the principles of Sunil Batra, does not merit acceptance and this cannot be a ground for review of the order rejecting the mercy petition of the petitioner.
Bias Order was passed on irrelevant considerations:-. Another ground argued by the learned counsel for the petitioner is the alleged bias caused to the case of the petitioner because of the statements made by the Ministers in the Delhi Government as well as in the Union Government which have led to pre-judging the outcome of the petitioner’s mercy petition even before it was placed before the President of India for consideration. The petitioner has referred to the various statements made by the Ministers to the effect that the death sentence be awarded to the convicts to contend that such public statements had the effect of influence “aid and advice” tendered by the Council of Ministers of Delhi to the Lieutenant Governor or by Council of Ministers in the Central Government to the President and the order of rejection is vitiated by bias. As discussed earlier, note put up before the President is a detailed one and all the relevant materials were placed before the President and upon consideration of the same, the mercy petition was rejected. The public statements said to have been made by the Ministers, cannot be said to have any bearing on the “aid and advice” tendered by the Council of Ministers of Delhi to the Lieutenant Governor or by Council of Ministers in the Central Government to the President.
The petitioner filed curative petition before the Supreme Court and the same was dismissed on 14.01.2020. The petitioner filed mercy petition on 29.01.2020 and the same was forwarded by NCT of Delhi to the Ministry of Home Affairs on 30.01.2020. The President of India rejected the mercy petition on 01.02.2020 and the same was communicated to the petitioner in Tihar Central Jail on 01.02.2020. As pointed out earlier, the case records, judgments of the trial court, High Court and the Supreme Court, clean copy of records of the case, Nominal Roll of the petitioner, medical report of the petitioner, Social Investigation Report and other relevant documents were forwarded to the Ministry of Home Affairs. The note put up before the President of India is a detailed one and all the relevant materials were placed before the President and upon consideration of same, the mercy petition was rejected. 31. As held by the Constitution Bench in Maru Ram v. Union of India and Others (1981) 1 SCC 107 and referred to Bikas Chatterjee (2004) 7 SCC 634, the Court shall keep in mind that where the power is vested in a very high authority, it must be presumed that the said authority would act carefully after an objective consideration of all the aspects of the matter.
In the result, we do not find any ground for exercise of judicial review of the order of the President of India rejecting the petitioner’s mercy petition and this writ petition is liable to be dismissed. The writ petition is dismissed accordingly.
Vijay Karia vs Prysmian Cavi E Sistemi Srl on 13 February, 2020 Author: Rohinton Fali Nariman Bench: Rohinton Fali Nariman, S. Ravindra Bhat, V. Ramasubramanian REPORTABLE IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1544 OF 2020
(ARISING OUT OF SLP (CIVIL) NO.8304 OF 2019)
VIJAY KARIA & ORS. …Appellants
Versus
PRYSMIAN CAVI E SISTEMI SRL & ORS. …Respondents
WITH
CIVIL APPEAL NO. 1545 OF 2020
(ARISING OUT OF SLP (CIVIL) NO.8435 OF 2019)
JUDGMENT
R.F. Nariman, J.
Leave granted.
The present appeals are filed against the judgment of a Single Judge of the Bombay High Court dated 07.01.2019, by which four final awards made by a sole arbitrator in London under the London Court of International Arbitration Rules (2014) (hereinafter referred to as the “LCIA Rules”) were held to be enforceable against the Appellants in Signature Not Verified Digitally signed by SUSHMA KUMARI BAJAJ Date: 2020.02.13 India.
16:45:42 IST Reason:
3. The brief facts of this case are as follows. The Appellants, i.e. Appellant No.1 Shri Vijay Karia, and Appellants No.2 to 39 (who are represented by Appellant No.1) are individual, non-corporate shareholders of Ravin Cables Limited (hereinafter referred to as “Ravin”). On 19.01.2010, the Appellants and Ravin entered into a Joint Venture Agreement (hereinafter referred to as “JVA”) with Respondent No.1, i.e. Prysmian Cavi E Sistemi SRL – a company registered under the laws of Italy. By this JVA, Respondent No.1 acquired a majority shareholding (51%) of Ravin’s share capital. The material clauses of the JVA are set out hereinbelow:
“8. Purpose and Objectives 8.1 Purpose of the Company and Scope of the Agreement Subsequent to Closing, the Company shall be a joint venture between Prysmian and the Existing Shareholders for the purposes of undertaking and conducting the business of the company, or for such other activities as may be determined by the Shareholders from time to time, subject to the applicable law. The business of the company shall be conducted in the best interests of the Company, and in accordance with sound professional and commercial principles.” “12.6. Chairman and Managing Director 12.6.1 Mr. Karia shall be the Chairman of the Board as well as the Managing Director of the Company until: (i) Expiry of seven (7) years from the Agreement Date; or (ii) The date of which the Existing Shareholders cease to hold in the aggregate at least ten percent (10%) of the share capital of the Company:
Whichever occurs earlier.
It is hereby agreed that Mr. Karia shall not, during such term, be entitled to be removed as a Chairman and Managing Director by the passing of an ordinary resolution at a general meeting of the Company…” “12.6.4. Without prejudice to the aforesaid clause 12.6.3, the Managing Director shall continue to remain responsible for the day to day management of the Company in accordance with the Interim Period Policy adopted by the Board on the Closing Date, until the appointment of the CEO of the Company (“Interim Period”)” “12.6.5 As soon as practicable after the efflux of the Interim Period, a Board shall be convened to resolve upon a new policy, applicable for a period of 6 (six) months thereafter (the “Integration Period”), for the delegation of the powers to the managers of the Company (the “Delegation of Powers Policy”) all powers not delegated to the managers of the Company pursuant to such Delegation of Powers Policy, shall be delegated jointly to the CEO and the Managing Director…” “12.6.6 Provided however, that subject to the overall supervision of the Board, after the efflux of the Integration Period, the Managing Director shall be directly responsible solely for managing the internal audit as well as the strategy and business development of the Company and present to the Board his findings and analysis for final determination by the Board. Accordingly all the powers which are not delegated to the managers of the Company pursuant to the Delegation of Powers Policy, as may be amended by the Board from time to time, shall be delegated to the Managing Director to the extent such powers fall within his duties as aforesaid.
12.6.7 After the Integration Period, the Managing Director may appoint an internal auditor to assist the Managing Director in his responsibility towards the internal audit of the company. This internal auditor shall report directly to the Managing Director and functionally report to the internal audit department of Prysmian S.P.A.” “12.7 Chief Executive Officer 12.7.1 The CEO shall be appointed by and shall directly report to the Board.
12.7.2 Without prejudice to the aforesaid Clause 12.7.1, the CEO shall from the date of its appointment till the efflux of the Integration Period, be responsible for the day to day management of the Company jointly with the Managing Director.
12.7.3 Provided however, that subject to the overall supervision of the Board, after the efflux of the Integration Period, the CEO shall be responsible for the day to day management of the Company excluding solely the internal audit and the strategy and business development of the Company for which the Managing Director shall be responsible. Accordingly all the powers which are not delegated to the managers of the Company pursuant to the Delegation of Powers Policy, as may be amended by the Board from time to time, shall be delegated to the CEO to the extent such powers fall within his duties as aforesaid.” “17. PROCEDURE FOR FAIR MARKET VALUATION 17.1 Notwithstanding anything contained in this Agreement, all references in this Agreement to Fair Market Value shall be the fair market value as determined, applying the definition of EBITDA, Net Financial Indebtedness (NFI) and Net Working Capital (NWC) set forth under Schedule X, by any one of the following four accounting firms settled in India:
(a) KPMG
(b) Ernst & Young;
(c) PriceWaterhouseCoopers;
(d) Deloitte 17.2 The accounting firm shall be chosen from among those indicated under clause 17.1 above by the Party that, according to clauses 23 and 24, is called by the other Party to sell, in whole or in part its share participation in the Company to the other Party; or by the Party that, according to Clauses 11.5 (iv), 16 and 23, calls the other Party to buy, in whole or in part, its share participation in the Company (in either case the “Exiting Party”). If the Exiting Party fails to choose the accounting firm within thirty (30) calendar days from (i) the receipt of the notice by which the other Party has intimated it to sell, in whole or in part, its share participation in the Company to the other Party; or (ii) from the serving of notice to the other Party to buy, in whole or in part, its share participation in the Company, then the accounting firm shall be chosen by the Party (the “Non-Exiting Party”) that called the other Party to sell, in whole or in part, its share participation in the Company to the other Party or was called by the Exiting Party to buy, in whole or in part, the Exiting Party’s share participation in the Company.” “20. Mutual Covenants and Undertakings xxx xxx xxx 20.1.2 The Parties further agree to cooperate and act in good faith, fairness and equity as between themselves.” “21. Business in India 21.1 The Parties agree that neither Prysmian nor Mr. Karia, whether directly or through their Affiliates, shall invest, acquire or participate in the Cable Business in India, save and except through the Company in accordance with this agreement.” “21.5 Further, it is agreed that, within March 31,2011, the Promoters shall either stop or cease to have any interest in any activity they are currently or will be conducting in India, directly or indirectly through any Affiliates, which is in competition with the business of the Company. Such ceased activities shall then not be offered by Mr. Karia to the Company, pursuant to Clause 21.2 for a period of three years from the date of such cessation.
For the sake of clarity, it is agreed that this Clause 21.4 shall apply, without being limited, to the activities carried out by (i) Vijay Industrial Electricals, a company incorporated under the laws of India and having its registered office at 302, Akruti Trade Centre, Third Floor, Road n. 7, MIDC, Marol, Andheri(east) Mumbai-400093 (ii) Special Cable Industries, a company incorporated under the laws of India and having its registered office at A-1/404 GIDC Estate, Ankleshwar 393002.” “23. Event of Default 23.1 If any party(“ Defaulting Party”) is in material breach of any provisions, obligations, covenants, conditions and undertakings under this Agreement , or in the event of insolvency or bankruptcy of the Defaulting Party or if the substantial undertaking or assets of the Defaulting Party is under receivership or any other equivalent status, it shall be considered as an event of default (“Event of Default”).
23.2 In such an event, the other party (“Non Defaulting Party”) may give notice of the same (“Determination Notice”) to the Defaulting Party.
23.3 The Defaulting Party shall have a period of 60(sixty) calendar days from the receipt of the Determination Notice (or Such further period as the Non Defaulting Party may agree in writing) to rectify the Event of Default(“ Rectification Period”). It is hereby clarified that this clause 23.3 is not applicable if the Event of Default is represented by the insolvency or bankruptcy of the defaulting Party in which case the Non Defaulting Party may forthwith serve the EOD Notice to the Defaulting Party.
23.4 If upon expiry of the Rectification Period, the Event of Default has not been so rectified the Non Defaulting Party may require the Defaulting Party by written notice(“EOD Notice”) to either (i) sell to the Non Defaulting Party or such other Person as may be nominated by the Non Defaulting Party, all , but not less than all, the Shares held by the Defaulting Party (“Defaulting Party Shares”) at the 10% (ten percent) discount to the Fair Market Value(“ Discounted Price”) or (ii) buy from the Non Defaulting Party all, but not less than all, the Shares held by the Non Defaulting Party at 10% (ten percent) over the Fair Market Value(“Premium Price”). The Defaulting Party shall be then under the obligation to either (I) sell all, but not less than all, its Shares in the Company within 30 (thirty) calendar days of the EOD Notice or (II) buy all, but not less than all, the Non Defaulting Party Shares in the Company within 30(thirty) calendar days of the EOD Notice, as the case may be.
23.5 It is hereby agreed that:
23.5.1 If Prysmian is the Defaulting Party, then Mr. Karia only( and not the Existing Shareholders) will be entitled to either(a) buy all(but not less than all) Prysmian Shares at the Discounted Price or (b) sell to Prysmian all (but not less than all its own shares) and those of the Existing Shareholders at the Premium Price.
23.5.2 If Mr. Karia or any of the Existing Shareholders is the Defaulting Party, then Prysmian will be entitled to either (a) buy all ( but not less than all) the Shares held by Mr. Karia and Existing Shareholders at the Discounted Price or (b) sell to Mr. Karia all ( but not less than all) its own shares at the Premium Price. For sake of clarity, the Parties agree that for the purpose of this Clause 23.5 any reference to Mr. Karia Shares, Prysmian Shares and Existing Shareholders Share shall be deemed to include any Shares transferred to any or their respective Affiliates pursuant to the provisions of Clause 10.4 above.” “27. ARBITRATION 27.1 Dispute Resolution 27.1.1 The Parties agree to use all reasonable efforts to resolve any dispute under, or in relation to this Agreement quickly and amicably to achieve timely and full performance of the terms of this Agreement. 27.1.2 Any dispute, controversy or claim arising out of or relating to or in connection with this Agreement including a dispute as to the validity or existence of the Agreement or the arbitration agreement, or any breach or alleged breach thereof, shall be settled exclusively by arbitration under the Rules of Arbitration of the London Court of International Arbitration (“LCIA”) as amended from time to time.
27.1.3 The arbitral tribunal (“Tribunal”) shall consist of one (1) arbitrator, to be appointed by the LCIA. The arbitrator shall be from a neutral nationality, i.e. from a nationality and origin other than any of the Parties. 27.1.4 The seat of the arbitration shall be London, United Kingdom.
27.1.5 The language to be used in the arbitration shall be English.
27.1.6 The law applicable and governing the arbitration agreement (proper law of the arbitration agreement) and in all respects including the conduct of the proceedings shall be English Law. If the Institution above named ceases to exist or is unable for any reason to administer the arbitration proceedings then the arbitration shall be conducted in accordance with the (English) Arbitration ACT 1996 as amended from time to time or any statute that may replace the said Act.
27.1.7 Parties expressly agree that Part I of the (Indian) Arbitration and Conciliation Act, 1996 (as amended from time to time and any statutory enactment thereof) shall have no application to the arbitration agreement or the conduct of arbitration or to the setting aside of any award made there under, and the provisions of Part I ) including the provisions of section 9 of the Arbitration and Conciliation Act, 1996 is hereby expressly excluded….
27.1.9 The arbitration award (the “Award”) shall be final and binding on the Parties.
27.1.10 The courts of London (United Kingdom) shall have exclusive jurisdiction in respect of all matters arising in connection with the arbitration and Existing Shareholders submits to the jurisdiction of the said courts. Provided however that the Award may be enforced in any appropriate jurisdiction. If to be enforced in India the Award shall be a foreign award to which the legislative provisions incorporated in the applicable Indian Act to give effect to the New York Convention on foreign arbitral awards 1958 ( the New York Convention) shall apply(currently Part II of the (Indian) Arbitration and Conciliation Act 1996)…”
By a separate ‘Control Premium Agreement’ of the same date, Respondent No.1 paid €5 million to the Appellants as ‘control premium’ for the acquisition of the share capital of Ravin.
On 10.08.2010, pursuant to clause 12 of the JVA – as the interim period of six months under the JVA had come to an end – one Mr. Luigi Sarogni was appointed as CEO of Ravin by Respondent No.1. Until the expiry of the ‘integration period’, Ravin was to be jointly managed by the said CEO and the Managing Director for another period of six months. Factually, however, we are informed that the said ‘integration period’ carried on beyond December 2010 and continued until September 2011.
In April 2011, Mr. Giancarlo Esposito was designated by Respondent No.1 as the H.R. Director of Ravin. On 15.09.2011, the Board of Directors of Ravin conferred exclusive powers of the day to day management of the company on the CEO so appointed by Respondent No.1. It is the case of Respondent No.1 that the appointed CEO was thwarted in jointly managing the company during this ‘integration period’, as a result of which, in November 2011, one Ms. Cinzia Farise was appointed as CEO in the place of Mr. Sarogni by the Board of Directors. Since the Board Resolution of 01.11.2011 conferred on Ms. Farise the power to employ and lay-off permanent staff, she imposed a temporary freeze and check on new hiring without her approval, which was alleged to be breached by the Appellants.
Later, from December 2011 till February 2012, Ms. Farise sought to convene a board-meeting to finalise one Mr. Brunetti’s appointment as CFO of Ravin, which was assented to by the Respondent’s Directors, but not signed by the Appellant’s Directors. Things reached a head on 31.01.2012 when the employees of the company went on a strike at Ravin’s Akruti office. By February 2012, the Appellants and Respondent No.1 were at loggerheads, as a result of which Respondent No.1 issued a request for arbitration in terms of clause 27 of the JVA, claiming that the Appellants had committed ‘material breaches’ of the JVA, inter alia, by ousting Respondent No.1 from the control of Ravin altogether. On 26.03.2012, the Appellants responded to the request for arbitration and included several counter claims. Each party claimed that the other had committed material breaches, as a result of which the successful party in the arbitration would be entitled under the JVA to buy out the other party at a 10% premium or discount (as the case may be). Given the fact that the JVA required service of a ‘Determination Notice’ which alleged material breaches, such notice was served by Respondent No.1 on the Appellants on 26.03.2012.
Sixty days from this date, called a ‘Rectification Period’ under the JVA, notice was given by the Respondent No.1 to the Appellants to remedy/rectify the alleged breaches. Further time even beyond the sixty days, i.e. until 06.07.2012 was given, but according to Respondent No.1, none of the breaches were remedied. As a result, on 06.06.2012, the LCIA appointed a sole arbitrator – one Mr. David Joseph QC – to adjudicate the dispute between the parties.
An early skirmish was contained in a letter dated 07.06.2012, alleging that the learned arbitrator was conflicted, as he had been engaged as counsel by Respondent’s advocates, Bharucha and Partners, in another unconnected matter. However, on 08.06.2012, Bharucha and Partners wrote a letter making it clear there was no such conflict. The sole arbitrator also denied any such conflict. The LCIA Registry informed the Appellants that they could challenge the appointment of the sole arbitrator under the LCIA Rules if they so desired. The Appellants, however, gave up the right to any such challenge. As a result, on 04.07.2012, Respondent No.1 filed its Statement of Claim before the learned sole arbitrator. On 09.09.2012, the Appellants then filed their statement of defence and counter claims. On 28.09.2012, Respondent No.1 filed its rejoinder and opposition to the counter claim.
Meanwhile, various procedural orders were passed by the learned arbitrator for production of documents etc. A hearing then took place in December 2012 on questions relating to the construction of various clauses of the JVA and jurisdictional issues raised by Respondent No.1 in respect of certain counter claims of the Appellants. Deciding these issues, by what was called the ‘First Partial Final Award’ dated 15.02.2013, the sole arbitrator delineated the scope of the first award stating that it was restricted only to issues of interpretation of the JVA and questions of jurisdiction, and not to the merits of either the claims or counter claims made. In particular, the sole arbitrator construed clause 21.1 of the JVA as follows:
“82. This then brings directly into question the scope and meaning of the words used in Clause 21.1 when each of the Claimant and the First Respondent agreed that it would not directly or through its Affiliates “invest, acquire or participate in the Cable Business in India save through the Company in accordance with this Agreement”.
The Tribunal concludes that these words themselves do not prohibit the Claimant from selling cables directly in India. Such direct sales might still amount to a breach of Clause 8 or indeed Clause 20 of the JVA, but direct sales as a stand-alone activity is not an investment, acquisition or participation in the Cable Business in India. 84. It seems to the Tribunal that each of these expressions connotes different forms of long term engagement, arrangement or commitment involving either an injection or exchange of capital or know how on the part of the investor, acquirer or participator in the sphere of the activities identified by the compendious definition of Cable Business in India.
A person who concludes a contract of sale of goods to another counter-party is not in accordance with ordinary parlance investing, acquiring or participating in the Cable Business in India.
Therefore, the Tribunal concludes that on a true construction of the JVA simply by applying the ordinary meaning of the words deployed together with the contractual definition, the Respondents do not succeed in their primary submission namely that the conclusion of one or more contracts of sales of cables directly in India by the Claimant itself or through its subsidiaries constituted the investment, acquisition or participation in the Cable Business in India contrary to the terms of Clause 21.1 of the JVA.
xxx xxx xxx
In summary therefore contracts of sale for cables within the definition of Cable Business concluded directly by the Claimant or its affiliates and otherwise than through Ravin do not of itself constitute a breach of Clause 21.1.
The conclusion of a series of such contracts might, however, depending on the facts, constitute a breach of Clause 8 or Clause 20 of the JVA. Yet further, the Tribunal does not rule out the possibility of the Respondents alleging and proving some kind of investment or participation which consist of some kind of long term contractual arrangement itself involving sale, export, import or distribution. Nothing stated herein, however, in any way decides or considers the materiality of any such allegation or the consequences of any such breach even if proven.” 9. Insofar as the parent company of Respondent No.1 (one Prysmian SA) had made a global acquisition of the ‘Draka Group’ in February/March 2011, which included – as one out of 60 companies belonging to the Draka Group – one ‘Associated Cables Private Limited’ (hereinafter referred to as “ACPL”), which was an Indian Company doing business in India, the learned arbitrator held:
“108. The Tribunal is once more careful to make it clear that these pleaded allegations have not been proved yet. The proof of these allegations is left to be explored at the substantive merits hearing. Nevertheless, on the basis of the parties’ respective pleaded cases, the Tribunal concludes that on a true construction of Clause 21, the wider acquisition by Prysmian Spa of Draka, which in turn holds a 60% shareholding in ACPL, is capable of amounting to an acquisition in the Cable Business in India through an Affiliate of the Claimant in circumstances where it is not disputed that Prysmian Spa is another person which Controls the Claimant. Equally, the continued carrying on of business in India through ACPL is capable of amounting to the participation in the Cable Business in India through an Affiliate of the Claimant; namely through another person, ACPL. Although there has not been any proof of this question, there would at least appear to be some evidence on which the Respondents might contend that ACPL is Controlled by the same person, namely Prysmian Spa, who directly or indirectly Controls the Claimant so as to come within the parameters of sub-paragraph (c) of the definition of Affiliate.”
The learned arbitrator then construed clause 23, which speaks of ‘material breaches’ by the parties, as follows:
“132. The Tribunal’s conclusions are as follows:
1) Clauses 23.1 and 23.2 do require the giving of a Determination Notice of an Event of Default by the Non Defaulting Party, if indeed the Non Defaulting Party wishes to make complaint, and if, ultimately, the Non Defaulting Party wishes to invoke the provisions of Clauses 23.4 and 23.7, even in circumstances where the Non Defaulting Party contends that the material breach is irremediable;
2) Clause 23.3 does require the Non Defaulting Party to give the Defaulting Party a period of 60 days, the Rectification Period, to rectify the Event of Default even in a case where the Non Defaulting Party alleges that the Event of Default is irremediable. The only exception to this in Clause 23.3 is with respect to what might be called events of insolvency, which amount to Events of Default;
3) Excluding the cases of insolvency events, which are expressly exempted, the service of a written EOD Notice pursuant to Clause 23.4 must be upon the expiry of the Rectification Period;
4) Adapting one of the principal hypothetical examples given by the Claimant’s counsel in the course of its submissions, if a Non Defaulting Party gives a Determination Notice to the Defaulting Party identifying material breach (1) but the Defaulting Party has in fact concealed material breach (2) and in any event does not rectify one or both, then the Non Defaulting Party when it gives its EOD Notice under Clause 23.4 and then subsequently seeks to justify its EOD Notice in arbitration can rely upon both the un- rectified material breach (i) and/or material breach (2) if it is subsequently discovered. This is because a concealed, but subsequently discovered, Event of Default which has not been rectified at the end of the Rectification Period is still an un-rectified Event of Default for the purpose of Clause 23.4;
5) Equally, if a Defaulting Party has not rectified a concealed Event of Default at the end of a Rectification Period, then, it is a matter which can be relied upon by the Non Defaulting Party under Clause 23.7, so to give rise to the deprivation or alteration of rights set out therein;
6) An Event of Default is defined as a material breach of any provisions, obligations, covenants, conditions, and undertakings. The definition of an Event of Default is not conditional upon the giving of a Determination Notice. The consequences, however, under Clause 23 do depend upon the giving of a Determination Notice and expiry of a Rectification Period;
7) Notwithstanding the provisions of Clause 23 and Clause 23.4, in particular with regard to Events of Default and Determination Notice, the Non Defaulting Party in addition possesses all the rights to damages and performance expressed in Clause 23.6;
8) It remains open for argument, and the Tribunal makes no decisions as to whether a party can give a Determination Notice to the other party, if in fact at the time of the giving of the notice, the party giving the notice is itself in material breach. This question was raised by the Tribunal in the course of oral submissions, but has not been fully addressed by the parties, and, indeed, is probably best addressed at the full merits hearing.”
Insofar as the arbitrator’s ruling on jurisdiction was concerned, it was held that a dispute regarding the right to register the ‘Ravin’ trademark falls outside the scope of the arbitration clause under the JVA. He further held that the trademark licence agreements contained arbitration clauses which provided for disputes to be referred to arbitration in Milan, Italy under Italian law, and this being the case, any dispute in relation to these agreements would be outside the ken of the arbitration clause contained in the JVA.
The ‘Second Partial Final Award’ dated 19.12.2013 then dealt with which of the parties materially breached the terms and conditions of the JVA. The claims, in this respect, made by Respondent No.1, were disposed of as follows:
“199. The Tribunal’s findings and conclusions in relation to the particulars of the Claimant’s allegations of material breach are set out below. The Tribunal finds that: 1) The Respondents interfered with the proper and effective functioning of the CEO by refusing to implement and/or by preventing the implementation of the Board of Directors’ resolution empowering the CEO to operate Ravin’s bank accounts in material breach of JVA Clauses 12 and/or 8 and/or 20.1.2; 2) in refusing to pass resolutions, whether at a Board meeting or by circulation, to appoint the Claimant’s nominee as the CFO of Ravin the Respondents were not in material breach of the JVA; 3) the Respondents employed Ms. Mathure and created a false record with regard thereto in material breach of JVA Clauses 12 and /or 8 and/or 20.1.2; 4) the Respondents denied the HR Director and the CEO full and unconditional access to the HR and payroll data systems of Ravin in material breach of JVA Clauses 12 and/or 8 and/or 20.1.2; 5) the Respondents refused to report to the or attend management meetings convened by the CEO in material breach of JVA Clauses 12 and /or 8 and/or 20.1.2;
6) when the incidents of 12 and 13 January 2012 and 4 February 2012 are considered in isolation there is insufficient evidence to conclude that there has been a material breach by the Respondents. When the incidents are considered together and set in their proper context the Tribunal concludes that they form part of a pattern of the Respondent’s conduct which constituted a material breach of the JVA. As such, there is a material breach in relation to the Claimant’s combined allegations that the Respondents incited staff to surround, sequester, heckle, humiliate and threaten Mr Esposito and Mr Kamdar on those dates;
7) the Respondents encouraged and failed to prevent Company employees from going on strike on 31 January 2012 and the Respondents encouraged and incited indiscipline and breach of Company policies and procedures by supporting Mr Dhall in his insubordination and defiance of direct orders of Mr Esposito and Ms Farise in material breach of JVA Clauses 12 and/or 8 and/or 20.1.2;
8) see (7) above;
9) the Respondents were not in breach of the JVA by refusing to convene a Board meeting at short notice;
10) Mr Karia’s letters to the FRRO were hand- delivered on 29 February 2012 and therefore cannot be considered in relation to the events constituting material breach as alleged in the Request dated 27 February 2012. Nevertheless, the Tribunal finds that the letters to the FRRO are consistent with Mr Karia’s modus operandi and support the Tribunal’s other findings of material breach.
(4) Rectification of the Events of Default found to have been committed by the Respondents
The Claimant submits that none of the alleged material breaches were rectifiable and, in any event, by the end of the Rectification Period, i.e. 27 April 2012, and by the end of the extended period for rectification, i.e. 6 July 2012, the Respondents had not rectified any of their breaches. On the contrary, the Claimant submits that during the period between 28 February 2012 and 6 July 2012, the Respondents continued to breach the JVA by conduct which was calculated to destroy the relationship of trust and confidence between the parties and completely remove or render redundant any element of Claimant control over Ravin. As stated above, however, these post-Request breaches are not the subject of this Award (see, inter alia, Claimant’s CS §§730-737).
The Respondents do not contend that they rectified any of the alleged breaches of the JVA by 6 July 2012.
The Tribunal concludes that, in relation to the material breaches committed by the Respondents, the Respondents failed to rectify those breaches within the extended period for rectification, i.e. by 6 July 2012.”
So far as the counter claims of the Appellants were concerned, the arbitrator dealt with the effect of Prysmian SA acquiring ACPL, which was a competing business of Ravin [through Prysmian’s acquisition of the Draka group, of which ACPL was a subsidiary]. The sole arbitrator first dealt with the reaction of Shri Karia on the Draka takeover together with Shri Karia’s evidence as follows:
“233. The Tribunal finds the many changes to the story of Mr Karia in this regard to be of considerable significance. In truth, Mr Karia did know as long back as July 2009 of the ACPL/Draka connection. When the merger between Draka and Prysmian was announced Mr Karia did understand that Prysmian had acquired a controlling stake in ACPL as he fully accepted in cross examination. Mr Karia had that knowledge in November 2010. Nevertheless, Mr Karia did not complain of any material breach to the JVA under Clause 21. The Tribunal further accepts the truth of the evidence given by Ms Farise that first of all when Mr Karia heard of her appointment to the ACPL Board some time in late 2011 possibly December, Mr Karia did not complain but congratulated her ( §18,EI/5/28). This fits in with his earlier congratulatory email to Mr Battista. Nevertheless by the time one gets to February 2012 Mr Karia had completely changed his tune and saw Ms Farise’s appointment to the ACPL as a device, an excuse, to try to derail her carrying on as CEO on the Ravin Board and thus further his campaign not to cede day to day control of Ravin to the Claimant. The Tribunal accepts the evidence given by the Claimant witnesses on this. Mr Karia has changed his tune. The Tribunal rejects the veracity of the story originally being told by Mr Karia as not only inconsistent with the documents before the Tribunal but also mutually inconsistent with his evidence in cross-examination.
The Tribunal has spent some time analysing this material because Mr Karia’s contemporaneous reaction is highly instructive in determining whether this is really to be analysed as a serious or material breach with serious adverse effect or rather as a pretext, an excuse. The Tribunal concludes it is the latter not the former. The Respondents somewhat bravely in their Closing Submissions assert that the Tribunal is not allowed to have regard to this material because the Claimant has not pleaded waiver or affirmation. This submission is completely rejected. As is clear from the authorities referred to above whether a breach is material or not is determined by reference to all the relevant facts and this will include a parties’ reaction to the events at the time.
xxx xxx xxx 237. The Tribunal ultimately concluded that the Respondent did not adduce any credible evidence of actual serious adverse impact.
It is true that there was some evidence (albeit mainly dating back to 2008-2009) of occasional instances of both companies tendering for the same business. Yet there was no reliable evidence that business had been lost from Ravin to ACPL post the Draka acquisition, or that there had been any diversion of business from Ravin to ACPL or that there had been any targeting of Ravin’s business by ACPL or indeed vice versa.
In the end the two companies operate in a very different space. ACPL is a small specialist cable business with a turnover of € 7-7.5m per annum. This is approximately 10% of that of Ravin. ACPL operates principally in the area of instrumentation cables. Ravin operates principally in the area of power and control cables. Yet further, a large part of the small turnover of ACPL constitutes exports from ACPL to its Omani shareholder. This renders the notion of serious adverse harm by reference to ACPL’s turnover even more remote.
The contemporaneous management documents at Ravin did not show that Ravin considered ACPL as one of its competitors or indeed operating in the same space. When Mr. Karia was asked about this in cross examination, he said that when a company examines its competitors it does not make a list down to the 50 th or 60th competitor (Day 9, p.82). This gives an eloquent indication of how far down the list Ravin would have considered ACPL.
Equally, the fact that a list of company names was identified and relied upon by the respondent to show that Ravin and ACPL sell cables to some of the same companies is stretching a point beyond where it can naturally go. This does not yield an answer of material breach. The evidence adduced by the Respondents is not of a quality which would enable the Tribunal to conclude that a breach had been committed with serious adverse effect.
The Tribunal further makes mention of the assistance it received from two distinguished experts of long standing participation in the market; Messrs Honavar and Hargopal. The Tribunal did get some benefit from this evidence in the clear explanation of different types of cables together with samples and this explanation was also helpfully provided in part by Mr. Karia himself. Nevertheless, once more this evidence somewhat missed the point. It is not enough to establish material breach to identify certain types of cables produced and sold by each company. There was no reliable analysis advanced by the Respondents’ evidence of serious adverse effect either on Ravin today or likely in the future.
Finally, the Tribunal for completeness makes it clear that it completely rejects the further allegation that ACPL had been acquired in bad faith by the Claimant with a view to destroying value in Ravin or that it has since pursued the operations of ACPL with that aim in view.
There is quite simply no credible evidence to support such an allegation and indeed the Tribunal is of the view that it is an allegation which should not have been advanced.”
So far as the counter claim dealing with direct sales in India which competed with the business of Ravin, and agency/distribution agreements, the arbitrator held as follows:
“252. Essentially the Respondents have not established that the Agency Agreements on which they place reliance, involved such an arrangement, commitment or engagement as stated in the First Partial Award. Indeed the Respondents have not even addressed the requirement identified in paragraph 84 of the First Partial Final Award but instead focused on the length or duration of the relationship and whether or not each relationship was exclusive or non- exclusive. This is not sufficient. For the avoidance of doubt the Tribunal concludes that there was no satisfactory basis on which it could be concluded that these Agency Agreements involved an injection or exchange of capital or know how on the part of the investor, acquirer or participator. They are best analysed as classic sales distribution/agency agreements pursuant to which an agent receives a sales commission in return for the promotion and conclusion of identified types of sales in India. xxx xxx xxx
Making every conceivable allowance in favour of the Respondents, the Tribunal concludes that the Respondents (perhaps for understandable reasons following the First Partial Final Award) have tried to alter their case and now advance a case that the fact of direct sales amounts to a material breach of Clauses 8 and 20 of the JVA. That was not advanced in the Determination Notice or in its pleaded case and is not open to the respondents.
(I) No material breach in any event.
Yet further, even ignoring the limitations of the Determination Notice and pleadings, the Tribunal yet further concludes that the Respondents have not in any event succeeded in showing material breach of Clauses 8 or 20 on the facts of the case.
The Tribunal concludes that the Respondents’ analysis is too simplistic to be of any real utility in analysing the issue.
The Respondents start by referring to a total 644m of sales which were made directly into India by various Prysmian affiliates.
Those sales, however, were for all practical purposes made up of sales of telecom cables, industrial special cables, automotive cables, network and component and services. Ravin did not manufacture those types of cables. Indeed over 85% of the sales came from two affiliates manufacturing telecom cables, which Ravin did not manufacture and had no experience in selling either. Indeed the Tribunal accepts the evidence of Ms Farise and Mr. Koch and Mr. Karve on this issue (see, inter alia, §§5-8, E(I)/10/56-57, §23, E(I)/26/206, §23, E(I)/26/207, §§18-
E(I)/23/184-186, 11 December 2012 hearing, pp. 134-140, §46, E(I)/17/92, Day 2, pp. 83-86, §18 of, E(I)/24/189).This renders the whole argument of diversion of sales or breach of good faith by virtue of these direct sales somewhat academic.
Indeed these figures illustrate exactly why the Respondents placed so much emphasis on their argument that the mere fact of sales was a breach irrespective of anything else. This was once more how it was put by Mr. Salve SC in his oral closing argument (Day 10, pp. 183-185) the Tribunal has, however, found against the Respondents on this point.
The Tribunal concludes that the Respondents have not shown any material breach on the part of the Claimant in the development of Ravin’s business in accordance with clause 8 or any breach of the good faith obligations under Clause 20 with respect to direct sales.”
So far as the breach of confidentiality by Respondent No.1 was concerned, the counter claim of the Appellants was rejected thus:
“284. Ms. Farise was quite clear in her First Witness Statement of 20 July 2012 (E(I)/5/29) at paragraph 22 (j) – (I) that she was a non-executive director at ACPL, that she was quite aware of her responsibilities to both companies and did not at any time pass on confidential or other information to ACPL from Ravin or from ACPL to Ravin.
The Respondents did not cross examine Ms Farise on this important evidence. It is accepted by the Tribunal.
The Respondents instead in their Closing Submissions do not address the question of evidence of actual breach but instead try to build up a case of surmise or inference. The Respondents rely upon the fact that Prysmian referred to ACPL and Ravin as part of “Prysmian India”. They also rely upon the fact that they contend that the appointment of Ms Farise to ACPL was covertly carried out. The first point leads nowhere. It is not evidence of breach of the JVA. The second point is in any event rejected by the Tribunal. As has been referred to above in the context of the analysis of the Claimant’s allegations of material breach, the Tribunal finds that Ms. Farise did inform Mr. Karia of her appointment at ACPL. In the first instance Mr. Karia congratulated her and only objected later as the power struggle grew and this was used as a weapon in order to try to have Ms. Farise excluded from the Ravin Board.”
So far as multiple acts of alleged mismanagement by Respondent No.1 in breach of clauses 8 and 20 of the JVA were concerned, the learned sole arbitrator dealt with this as follows:
“290. The remaining allegations can be seen as essentially the flip side of the Claimant’s allegations of material breach directed at the Respondents. Three examples will suffice for present purposes: i. the strike orchestrated by the Respondents in response to the suspension of Mr. Dhall; ii. the attendance or non-attendance of Claimant nominees at the Akruti offices; iii. the circumstances surrounding the appointment of the CEO and CFO of Ravin.
Given the findings made by the Tribunal in favour of the claimant’s allegations of material breach it naturally follows that the Respondents do not succeed in these allegations of mismanagement.
The Respondents were themselves in material breach with regard to the whole conduct surrounding Mr. Dhall’s appointment of Ms. Mathure and the so called authorisation form. The Claimant was not in material breach in suspending Mr. Dhall. Far from it.
The Respondents, however, were plainly in material breach by their reaction to this suspension effectively leading to a one day strike.
The question of the attendance of Claimant nominees at the Akruti office is another chapter of the saga in which the Respondents do not emerge without serious criticism. As is clear from this Award the Respondents engendered a toxic atmosphere at Akruti in January 2012 (even in its fire stricken state) and such was the situation at the ground that it was not really possible for Claimant nominees to attend without fear of their own safety.
Lastly, the circumstances surrounding the appointment of the CEO and CFO does not give rise to any conceivable material breach on the part of the Claimant. The claimant was entitled to nominate a CFO and the CEO. They did so. The Respondents did not oppose the appointment of Ms Farise.
Nevertheless they did obstruct her at every turn once she was appointed because it became apparent that she intended pursuant to the JVA to take day to day control of Ravin and the Respondents did not wish this to happen. As regards Mr. Brunetti, the CFO, the Respondents did veto his appointment. This was not a material breach on their part as it was their right to do so under Schedule IX to the JVA. Nevertheless it cannot be said to be a material breach by the Claimant. That is unsustainable.”
Holding thus, the learned sole arbitrator concluded that none of the counter claims were made out, as a result of which they were all dismissed.
The Third Partial Final Award was delivered on 14.01.2015. Prior to this award, on 23.06.2014, the Karias, through their legal counsel, informed the tribunal that they would no longer be represented by M/s Nishith Desai Associates. This was the prelude to Shri Vijay Karia writing to the LCIA Court on 28.09.2014, a few days before the hearing fixed before the arbitrator, seeking revocation of the appointment of the arbitrator, on the ground of alleged lack of impartiality or independence. At the hearing fixed on 1 st-2nd October 2014, Shri Vijay Karia did not appear. On 10.10.2014, the LCIA Court communicated to the tribunal that it had dismissed the challenge made to the arbitrator on the ground that the said application was made out of time under the provisions of the LCIA Rules. The award then went on to address some of the written submissions dated 02.06.2014 of Shri Vijay Karia.
The learned arbitrator explained how he was not ‘functus officio’ with respect to the relief sought. He further went on to state that he could not now review the Second Partial Final Award as he had no jurisdiction to do so, and made it clear that he did not go beyond the claims submitted by the claimant to him, or beyond the scope of the JVA. The award also recorded the fact that the present Appellants did not take the necessary steps to appoint a valuer, as a result of which KPMG refused to go ahead with the valuation. As Deloitte was the only other valuer, Deloitte was then requested to go ahead with the valuation. The Third Partial Final Award then declared as follows:
“1. The Respondents are the Defaulting Party under clause 23.7 of the JVA;
2. All rights of whatsoever nature conferred on the Respondents and specifically Mr. Karia under the JVA have ceased to be effective;
Any reference in the JVA to any rights of the Respondents and specifically Mr. Karia including the requirement of consent or approval of Respondents and specifically Mr. Karia stand omitted;
The Respondents are prohibited from exercising or attempting to exercise any rights under the JVA including in particular any representation on the Board of the Company;
The date for the assessment of the Discounted Price be 30 September 2014 and that this date be substituted for the finding in paragraph 335(4) of the Second Partial Final Award, which date and finding the parties agreed would be remitted back to the Tribunal for further consideration;
The Tribunal reserves the matters set out in paragraph 31 above, which includes the costs of the arbitration.
Notwithstanding paragraph 6 above, the Tribunal records the further costs of the arbitration (other than the legal or other costs incurred by the parties themselves and other than those costs recorded in the Second Partial Final Award) up to the date of this Award, which have been determined by the LCIA Court, pursuant to Article 28.1 of the applicable (1998) Rules, to be as follows: LCIA’S administration charge £6,353.33 Tribunal’s fees £29,800.00 Total further costs of the arbitration £36,153.33
The Tribunal’s previous Procedural Orders and Interim Relief as amended by Procedural Order No.12 are to continue in effect until further Order.”
By the Final Award dated 11.04.2017, the learned sole arbitrator dealt with why and how Deloitte was appointed as the valuer of the shares; why Ravin’s 49% stake in ‘Power Plus’ was excluded for purposes of valuation as clause 17.1 of the JVA and the formula stated in Schedule X would have to be strictly followed; and as to what then is the fair market value of the shares of the Appellants in Ravin that was to be bought out by the Respondent No. 1.
Ultimately, the final relief granted by the said award was as follows:
“FINDS, HOLDS, ORDERS AND DECLARES as follows: 1) The Respondents do transfer to the Claimant 10,252,275 shares held by them to the Claimant the Discounted Price of INR 63.9 per share aggregating to INR 655,200,000. 2) The Third Respondent, Mr. Karia (who holds Power of Attorney executed by each Existing shareholder) do forthwith and without delay execute the requisite transfer forms for transfer of 10,252,275 shares in favour of the Claimant. 3) The Third Respondent and the Twelfth Respondent, Mr. Piyush Karia, who purport to be and continue to act as director of the Company, do forthwith and without delay: a) Convene and hold a meeting of the Board of Directors of the Company not later than 21 days after the date of this Final Award limited to noting and registering the transfer of 10,252,275 shares from the Respondents in favour of the Claimant; b) Table before that meeting the executed transfer forms; c) Vote in favour of the resolution / motion to register the transfer of the 10,252,275 shares in favour and in the name of the Claimant; and
d) On registration of the transfer of the shares as aforesaid to resign from the Board of the Company as Chairman and Managing Director and as Executive Director of the Company respectively.
4) Each of the Respondents and particularly the Third and Twelfth Respondents, Mr. Karia and Mr. Piyush Karia, are restrained from acting themselves or through servants or agents, from:
a) Claiming or attempting to exercise or exercising any rights whatsoever under the JVA in relation to the Company including but not limited to representation on the Board of the Company or their consent or approval being required in any matter relating to the Company whether at the Board of the Company or at meetings of the shareholders of the Company.
b) Claiming or attempting to claim, or representing or attempting to represent, the Company in any matter and in any manner whatsoever.
c) Using or attempting to use any assets, properties or facilities of the Company including but not limited to the Company’s offices and communication facilities.
5) The third and Twelfth Respondents, Mr. Karia and Mr. Piyush Karia, themselves or through servants or agents are restrained from acting, or claiming or holding themselves out to be the Chairman or Managing Director and as Executive Director, respectively, or directors of the Company (except for the limited purpose as set out in (3)(above)).
6) The Respondents jointly and severally do pay to the Claimant the legal and sundry disbursements costs of and relating to this Arbitration in the sum of US$2,317,199.82.
7) The Respondents are to bear and, insofar as not already paid, to reimburse the Claimant the total costs of the Arbitration as determined by the LCIA Court pursuant to Article 28.1 of the LCIA Rules, which are £ 283,043.71.
8) All other claims of the Claimant and Respondents are dismissed.”
It is important to note that no challenge was made to the aforesaid award under the English Arbitration Law, though available. It is only when the aforesaid award was brought to India for recognition and enforcement that objections to the said award were made under Section 48 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Arbitration Act”).
The learned single Judge, in the impugned judgment, recorded the arguments of both parties, dealt with the allegation of bias against the arbitrator and all other objections raised by the Appellants to the award, but finally found that the award must be recognised and enforced as the objections do not fall within any of the neat legal pigeonholes contained in Section 48 of the Arbitration Act.
As Section 50 of the Arbitration Act does not provide an appeal when a foreign award is recognised and enforced by a judgment of a learned Single Judge of a High Court, the Appellants have appealed against the said judgment under Article 136 of the Constitution of India. 24. Before referring to the wide ranging arguments on both sides, it is important to emphasise that, unlike Section 37 of the Arbitration Act, which is contained in Part I of the said Act, and which provides an appeal against either setting aside or refusing to set aside a ‘domestic’ arbitration award, the legislative policy so far as recognition and enforcement of foreign awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award but not the other way around (i.e. an order recognising and enforcing an award). This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act and which have been rejected. This is in consonance with the fact that India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (hereinafter referred to as “New York Convention”) and intends –
through this legislation – to ensure that a person who belongs to a Convention country, and who, in most cases, has gone through a challenge procedure to the said award in the country of its origin, must then be able to get such award recognised and enforced in India as soon as possible. This is so that such person may enjoy the fruits of an award which has been challenged and which challenge has been turned down in the country of its origin, subject to grounds to resist enforcement being made out under Section 48 of the Arbitration Act.
Bearing this in mind, it is important to remember that the Supreme Court’s jurisdiction under Article 136 should not be used to circumvent the legislative policy so contained. We are saying this because this matter has been argued for several days before us as if it was a first appeal from a judgment recognising and enforcing a foreign award.
Given the restricted parameters of Article 136, it is important to note that in cases like the present – where no appeal is granted against a judgment which recognises and enforces a foreign award – this Court should be very slow in interfering with such judgments, and should entertain an appeal only with a view to settle the law if some new or unique point is raised which has not been answered by the Supreme Court before, so that the Supreme Court judgment may then be used to guide the course of future litigation in this regard. Also, it would only be in a very exceptional case of a blatant disregard of Section 48 of the Arbitration Act that the Supreme Court would interfere with a judgment which recognises and enforces a foreign award however inelegantly drafted the judgment may be. With these prefatory remarks we may now go on to the submissions of counsel.
Dr. Abhishek Manu Singhvi, Senior Advocate, led the charge so far as the Appellants are concerned. Ably assisted by Shri Nakul Dewan on the law, the learned Senior Advocates argued a large number of points which they sought to put into three legal pigeonholes, namely, the pigeonhole contained in Section 48(1)(b) of the Arbitration Act, and that the foreign award would be contrary to the ‘public policy of India’ [as under Section 48(2)(b) of the Arbitration Act] in two respects: (1) that it would be in contravention of the fundamental policy of Indian law; and (2) that in several respects it would violate the most basic notions of justice.
Dr. Singhvi’s arguments were as follows:
(1)That the arbitral tribunal entirely failed to deal with the Appellants’ counter claim pertaining to the incorporation of one Jaguar Communication Consultancy Services Private Limited (hereinafter referred to as “Jaguar”), which would show that, in material breach of the non-compete provisions of the JVA, this company was set up in India by Respondent No.1 to do business in the manufacture and sale of cables, in competition with the joint venture company, i.e. Ravin. (2)That the tribunal failed to make a determination on the Appellants’ counter claim that Respondent No.1’s efforts to oust the Appellant No.1 and his family from Ravin amounted to a breach of the JVA. (3)That the tribunal failed to make any determination on the Appellants’ counter claim that Respondent No.1 made a surreptitious attempt to register the Ravin trademark in its own name, which would be a breach of the material clauses of the JVA.
(4)That the tribunal has acted contrary to the admissions made by expert witnesses of both parties, both of whom stated that ACPL
a company acquired by the parent of Respondent No.1 – was in competition with Ravin, and that this would therefore vitiate the award. In addition, since the most material evidence with regard to the acquisition of ACPL was ignored by the tribunal, this would also vitiate the award. Insofar as ACPL was concerned, Respondent No.1’s failure to produce documents that were with ACPL ought to have led to an adverse inference being drawn against Respondent No.1, which was not done by the learned arbitrator.
(5)The tribunal was perverse in considering the issue of material breach in that it applied the maxim de minimus non curat lex to ACPL, being a small specialist cable business. (6)That a perverse interpretation of the JVA was given by the learned arbitrator in the First Partial Final Award of clause 21.1, stating that it only prohibited long-term arrangements and engagements, which was a condition added by the arbitrator himself into the said clause.
(7)So far as direct sales of Respondent No.1 in India were concerned, the tribunal ignored material evidence and admissions of Respondent No.1.
(8)That the tribunal’s analysis of the contemporaneous conduct of the parties was both selective and perverse, that the consideration of the evidence of key witnesses was also selective and perverse.
(9)That Deloitte was a conflicted valuer and should not have been appointed at all. The valuer adopted a course for valuation that is contrary to both parties’ position, in that, Ravin’s 49% shareholding in Power Plus which had been valued by another valuer ‘BDO’ at INR 563 crores was completely ignored. What is very important is that the tribunal had acted contrary to the parties’ submissions in arriving at the valuation date, as the said date should have been the date closest to the date of the actual sale of shares, instead of which, a 2017 award took a date of September 2014 which date in any case expired by the end of December 2014.
(10) That the ruling contained in the First and Second Partial Final Awards regarding interpretation of clause 21 of the JVA were inconsistent and irreconcilable.
(11) That a private communication had been made of the outcome of the arbitration by the tribunal two months prior to the award, published through an agent of Respondent No.1, one M/s Gilbert Tweed Associates, which would show that Respondent No.1 knew that the Second Partial Final Award would be in its favour. The mere undertaking to terminate the engagement of M/s Key2People as the agent, who in turn had employed M/s Gilbert Tweed Associates, and an apology made by Respondent’s counsel, ought not to have been held to have been sufficient to condone this lapse by the learned sole arbitrator.
(12) That the award is in contravention of the Foreign Exchange Management Act, 1999 (hereinafter referred to as “FEMA”) in that it directed the sale of shares of Ravin at a 10% discount, which would be in the teeth of rule 21(2)(b)(iii) of the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 (hereinafter referred to as “the Non-Debt Instrument Rules”).
Shri Nakul Dewan cited a large number of judgments largely from Singapore, Hong Kong and the U.K. to buttress his submission that an award which fails to deal with or make any determination on the claim of a party ought to be set aside on the ground contained in Section 48(2)(b) of the Arbitration Act, as it would be in breach of the audi alteram partem principle, and also on the ground that it would shock the conscience of the court, being contrary to a basic notion of justice in this country. He also argued that where an award is directly contrary to admitted facts, it would be perverse, and hence liable to be set side.
Also, where a party is unable to present its case on account of the opposite party’s wilful failure to produce documents ordered, and the tribunal’s failure to draw an adverse inference therefrom, on most material aspects of the case, would render such award unenforceable.
He also cited judgments on awards which treat parties unequally in that they adopt disparate thresholds for determining material breach, as a result of which an award read as a whole would be vulnerable on account of egregious bias. Also, a private communication of the outcome of the arbitration by the tribunal to one party to the exclusion of another would fatally undermine the independence and impartiality of the arbitration process, rendering the award vulnerable on the ground of bias.
Both Dr. Singhvi and Mr. Nakul Dewan, after setting out all the aforesaid grounds and case law supporting such grounds, have attacked the impugned High Court judgment, stating that a large number of these points were not answered by the High Court at all, and when answered would show that even where there was bias, perversity and breach of natural justice, all these grounds were merely brushed aside, and therefore no real determination of all the points argued before the High Court was at all undertaken by the learned Single Judge. As a ‘without prejudice’ argument, Dr. Singhvi exhorted us to modify the impugned award, in case he were to fail on all other arguments, to state that the valuation date of 30.09.2014 ought at least to be the date of the judgment delivered in this case, as otherwise the sale of the Karia block of shares in Ravin would be at a tremendous undervalue. This he exhorted us to do under Article 142 of the Constitution of India.
Shri Kapil Sibal, learned senior advocate appearing on behalf of the Respondent No.1, read to us in copious detail each of the four awards delivered by the arbitral tribunal. He argued that each and every aspect of the matter that was argued on both sides was considered in detail in each of the said awards. He stressed the fact that though available, no challenge was ever made in the courts in England to the four awards. He defended the judgment of the learned Single Judge of the High Court and said that if the awards were read, it would be clear that the arbitrator adopted an extremely balanced approach, despite extreme provocation from Shri Vijay Karia, who only started alleging bias when he realized that the ‘Second Partial Final Award’ relating to who was in material breach, would be decided against him. Despite this, the learned arbitrator dispassionately considered every single claim and counter-claim made by the parties. This being the case, none of the grounds mentioned in Section 48 of the Arbitration Act would be available in the form of objections to such well-reasoned and balanced awards. In particular, Shri Sibal stressed that since the decision of this Court in Renusagar Power Plant Co. Ltd. v. General Electric Co. (1994) Supp (1) SCC 644, any interference on the merits of the decision of the arbitral tribunal would be outside the ken of Section 48 of the Arbitration Act. Shri Sibal stressed the fact that Dr. Singhvi had argued this matter as if it was a first appeal on merits, and that each and every ground taken, if properly viewed, was really to invite this Court to interfere on the merits of the awards, which would be clearly outside the grounds contained in Section 48 of the Arbitration Act.
Shri Sibal stressed the fact that the central point of this case was as to who was in material breach of the provisions of the JVA. Once the learned arbitrator held that it was the Appellants and not the Respondent No.1 who materially breached the terms of the JVA, in that post the integration period, the appointed CEO, who was to be in-
charge of the day to day affairs of Ravin, was never allowed to take over such charge, would make it clear that this most material breach committed by the Appellants on facts, as held by the learned arbitrator, could not be interfered with given the parameters of the Court’s jurisdiction under Section 48 of the Arbitration Act. Once this was so, everything else followed, as a result of which it was the Respondent No.1 who was to buy-out the Appellants’ 49% stake in Ravin at a price arrived at by a well-known independent valuer, Deloitte, at a date that was correctly fixed by the arbitral tribunal. This being the heart of the case, all the contentions of Dr. Singhvi raising objections to the four awards in question must fall, as every argument, though dressed up as arguments falling within three grounds under Section 48, are really arguments addressing the merits of the case. Without prejudice to this central argument, Shri Sibal took up every single point that was argued and answered each point. So far as the Jaguar Communication Consultancy Services Private Limited point was concerned, Shri Sibal stated that at no point did the Appellant amend its counter-claim to include such argument, which was in fact raised orally as an afterthought at the fag end of the proceedings. Secondly, as Shri Sibal’s case of ouster was accepted by the arbitral tribunal, the claim of the Appellants that it was really the other way around was specifically addressed by the learned arbitrator and dismissed, inter alia on the ground that ouster was not at all pleaded by the Appellants.
So far as the Ravin trademark is concerned, it is clear that the Appellant’s own counsel made it clear that he would not be pressing the point – the point being as to whether it was at all open to go into registration of trademark of Ravin under separate license agreements which had separate arbitration clauses for arbitration in Italy. This was argued by both sides and dealt with by the arbitrator as a jurisdictional issue which was turned down by the arbitrator stating that the registration of the Ravin trademark was an issue which would be outside the JVA and hence not arbitrable. So far as ACPL was concerned, the learned arbitrator made it clear that Shri Vijay Karia knew all along that ACPL would come to Respondent No.1 as a result of the ‘Draka acquisition’ and never objected, but in fact congratulated the Respondent No.1 on making such acquisition. That ACPL was in a competing business was taken much later as an afterthought, Shri Vijay Karia admitting in cross-examination that ACPL’s business was so small that it could be disregarded altogether. Also, Shri Sibal adverted to a Procedural Order made by the learned arbitrator, in which it was stated that since ACPL was not a party to the arbitration, the Appellants could approach the Court in England to get a direction that ACPL produce the documents asked for by them. This was never done. Further, Shri Sibal made it clear that ACPL was not a subsidiary of Respondent No.1, but was an indirect subsidiary of Respondent No.1’s parent company, consequent upon the ‘Draka acquisition’, with a separate Board of Directors; and being a different person in law and fact, who is not a party to the arbitral proceedings, the learned arbitrator’s Procedural Order, which was never challenged and never followed, was a complete answer to the contention that an adverse inference ought to be drawn. So far as the interpretation of the JVA was concerned, Shri Sibal made it clear that it was interpreted fairly, given the fact that there was no challenge to any part of the First Partial Final Award, except the interpretation given to Clause 21.1, which was an interpretation given by the learned arbitrator keeping in mind the commercial background and commercial efficacy doctrine.
According to Shri Sibal, not only was it a possible interpretation, it was also a correct interpretation. So far as the direct sales of Respondent No.1 in India were concerned, the tribunal took into account all the material evidence and dismissed, after a full hearing, the counter-claim of the Appellants in this behalf. When it came to the Final Award, Shri Sibal pointed out that on facts Deloitte was appointed by consent long after the valuer that was chosen by lots finally stated its inability to conduct the valuation due to the Appellants dragging their feet in this behalf. Secondly, such valuation was conducted strictly as per the formula contained in the JVA, which was Clause 17.1 read with Schedule X of the JVA. He was at pains to point out that though Power Plus Company LLC (hereinafter referred to as “Power Plus”) was mentioned specifically in the JVA, yet nothing about Power Plus was mentioned in the formula for valuation. Shri Sibal also refuted any so called inconsistencies in the awards, stating that given the interpretation of the JVA by the arbitrator in the First Partial Final Award, all the awards that followed were in accord with the interpretation so given. He also stated that the arbitrator considered material breach with an even hand and arrived at the obvious conclusion on facts that since the CEO was never allowed to function, it was the Appellants and not the Respondent No.1 who had materially breached the terms of the JVA. Shri Sibal then went into the bogey raised re M/s Gilbert Tweed Associates. He maintained that the Respondent No.1 had no idea as to who M/s Gilbert Tweed Associates was and came to know that the agent, M/s Key2People, who was employed by the Respondent No.1, had in turn employed M/s Gilbert Tweed Associates, who published an advertisement to employ certain persons. From this, to jump to and try to make out a ground that the arbitrator was biased is a huge leap not warranted either in fact or law.
Shri Sibal then argued that the award, in that it directed a sale of shares at a 10% discount, did not in any manner contravene the Foreign Exchange Management Act, 1999 and Rules thereunder. He took us through the relevant Rules and argued that unlike the Foreign Exchange Regulation Act, 1973 (hereinafter referred to as “FERA”), FEMA did not contain Section 47 of FERA which voided agreements that were made contrary to FERA. According to him, the FEMA regime is a permissive regime and any violation of the Rules could be monitored by the Reserve Bank of India by way of a direction of the sale of the shares without the discount, if at all. In any case, the Appellants would be estopped from taking this plea, having entered into a solemn agreement with the Respondent No.1 which they cannot go against. In any case, at worst, a violation of the Rules made under FEMA, by which shares would be sold not at market price but at something lower, contrary to the Rules, would also amount to a mere violation of law, which is far removed from a violation of any fundamental policy of Indian law, as foreign exchange is coming into the country and not going out therefrom.
Shri K.V. Viswanathan, learned senior advocate appearing on behalf of the Respondent No. 1, also supported the submissions made by Shri Sibal. In particular, he dealt with the judgments cited by Shri Nakul Dewan and cited judgments of his own to show that the parameters contained in Section 48 of the Arbitration Act for resisting enforcement of foreign awards are extremely narrow, and the Court can in no circumstance go into the merits of a foreign award. He was at pains to point out that as a full hearing had been given and every opportunity extended by the learned arbitrator to both parties, no ground relatable to breach of natural justice or any prejudice as a result was made out on the facts. He then made it clear that public policy must be understood in the narrow sense as understood and exposited by Renusagar (supra) and the later decisions of this Court. There was also nothing in the awards that would shock the conscience of the Court to attract the most basic notions of justice exception contained in Section 48.
Enforcement of Foreign Awards under Section 48 33. Having heard learned counsel on both sides, it is important to first set out the relevant parts of Section 48 of the Arbitration Act. Section 48 reads as follows:
“48.Conditions for enforcement of foreign awards. —(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that — xxx xxx xxx (b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; xxx xxx xxx (2) Enforcement of an arbitral award may also be refused if the court finds that— (a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or (b) the enforcement of the award would be contrary to the public policy of India. Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,— (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.” 34. One of the first judgments which construed pari materia provisions in the Foreign Awards Act, 1961 was the celebrated judgment in Renusagar (supra). This judgment was given pride of place in the recent judgment of Ssangyong Engineering & Construction Co.
Ltd. v. National Highways Authority of India (NHAI) Civil Appeal No. 4779 of 2019, in which this court referred to Renusagar (supra) as follows:
“33. In Renusagar (supra), this Court dealt with a challenge to a foreign award under Section 7 of the Foreign Awards (Recognition and Enforcement) Act, 1961 [“Foreign Awards Act”]. The Foreign Awards Act has since been repealed by the 1996 Act. However, considering that Section 7 of the Foreign Awards Act contained grounds which were borrowed from Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 [“New York Convention”], which is almost in the same terms as Sections 34 and 48 of the 1996 Act, the said judgment is of great importance in understanding the parameters of judicial review when it comes to either foreign awards or international commercial arbitrations being held in India, the grounds for challenge/refusal of enforcement under Sections 34 and 48, respectively, being the same. After referring to the New York Convention, this Court delineated the scope of enquiry of grounds under Sections 34/48 (equivalent to the grounds under Section 7 of the Foreign Awards Act, which was considered by the Court), and held: “34. Under the Geneva Convention of 1927, in order to obtain recognition or enforcement of a foreign arbitral award, the requirements of clauses (a) to (e) of Article I had to be fulfilled and in Article II, it was prescribed that even if the conditions laid down in Article I were fulfilled recognition and enforcement of the award would be refused if the Court was satisfied in respect of matters mentioned in clauses (a), (b) and (c). The principles which apply to recognition and enforcement of foreign awards are in substance, similar to those adopted by the English courts at common law. (See: Dicey & Morris, The Conflict of Laws, 11th Edn., Vol. I, p. 578). It was, however, felt that the Geneva Convention suffered from certain defects which hampered the speedy settlement of disputes through arbitration. The New York Convention seeks to remedy the said defects by providing for a much more simple and effective method of obtaining recognition and enforcement of foreign awards. Under the New York Convention the party against whom the award is sought to be enforced can object to recognition and enforcement of the foreign award on grounds set out in sub-clauses (a) to (e) of clause (1) of Article V and the court can, on its own motion, refuse recognition and enforcement of a foreign award for two additional reasons set out in sub-clauses (a) and (b) of clause (2) of Article V. None of the grounds set out in sub-clauses ( a ) to ( e) of clause (1) and sub- clauses ( a ) and ( b) of clause (2) of Article V postulates a challenge to the award on merits.
Albert Jan van den Berg in his treatise The New York Arbitration Convention of 1958 :
Towards a Uniform Judicial Interpretation, has expressed the view:
“It is a generally accepted interpretation of the Convention that the court before which the enforcement of the foreign award is sought may not review the merits of the award. The main reason is that the exhaustive list of grounds for refusal of enforcement enumerated in Article V does not include a mistake in fact or law by the arbitrator. Furthermore, under the Convention the task of the enforcement judge is a limited one. The control exercised by him is limited to verifying whether an objection of a respondent on the basis of the grounds for refusal of Article V(1) is justified and whether the enforcement of the award would violate the public policy of the law of his country. This limitation must be seen in the light of the principle of international commercial arbitration that a national court should not interfere with the substance of the arbitration.” (p. 269)
Similarly Alan Redfern and Martin Hunter have said:
“The New York Convention does not permit any review on the merits of an award to which the Convention applies and, in this respect, therefore, differs from the provisions of some systems of national law governing the challenge of an award, where an appeal to the courts on points of law may be permitted.” (Redfern & Hunter, Law and Practice of International Commercial Arbitration, 2nd Edn., p. 461.)
In our opinion, therefore, in proceedings for enforcement of a foreign award under the Foreign Awards Act, 1961, the scope of enquiry before the court in which award is sought to be enforced is limited to grounds mentioned in Section 7 of the Act and does not enable a party to the said proceedings to impeach the award on merits.
xxx xxx xxx
This would imply that the defence of public policy which is permissible under Section 7(1)
(b)(ii) should be construed narrowly. In this context, it would also be of relevance to mention that under Article I(e) of the Geneva Convention Act of 1927, it is permissible to raise objection to the enforcement of arbitral award on the ground that the recognition or enforcement of the award is contrary to the public policy or to the principles of the law of the country in which it is sought to be relied upon. To the same effect is the provision in Section 7(1) of the Protocol & Convention Act of 1837 which requires that the enforcement of the foreign award must not be contrary to the public policy or the law of India. Since the expression “public policy” covers the field not covered by the words “and the law of India” which follow the said expression, contravention of law alone will not attract the bar of public policy and something more than contravention of law is required.
Article V(2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression “public policy” in Article V(2) (b) of the New York Convention and Section 7(1)(b)
(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article I(c) of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This would mean that “public policy” in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression “public policy” in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria, it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.” (emphasis supplied)
The judgment of Shri Lal Mahal Ltd. v. Progetto Grano SPA (2014) 2 SCC 433 is important in that it made it clear that the Renusagar (supra) position would continue to apply to cases which arose under Section 48(2)(b), the wider meaning given “to public policy of India” in the domestic sphere not being applicable. In doing so it overruled the judgment in Phulchand Exports Ltd. v. O.O.O Patriot (2011) 10 SCC 300 as follows:
“28. We are not persuaded to accept the submission of Mr Rohinton F. Nariman that the expression “public policy of India” in Section 48(2)(b) is an expression of wider import than the “public policy” in Section 7(1)(b) (ii) of the Foreign Awards Act. We have no hesitation in holding that Renusagar [Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] must apply for the purposes of Section 48(2)(b) of the 1996 Act. Insofar as the proceeding for setting aside an award under Section 34 is concerned, the principles laid down in Saw Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] would govern the scope of such proceedings.
We accordingly hold that enforcement of foreign award would be refused under Section 48(2)(b) only if such enforcement would be contrary to (1) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality. The wider meaning given to the expression “public policy of India” occurring in Section 34(2)(b)(ii) in Saw Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] is not applicable where objection is raised to the enforcement of the foreign award under Section 48(2)
(b).
It is true that in Phulchand Exports [Phulchand Exports Ltd. v. O.O.O. Patriot, (2011) 10 SCC 300 : (2012) 1 SCC (Civ) 131] a two-Judge Bench of this Court speaking through one of us (R.M. Lodha, J.) accepted the submission made on behalf of the appellant therein that the meaning given to the expression “public policy of India” in Section 34 in Saw Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] must be applied to the same expression occurring in Section 48(2)(b) of the 1996 Act. However, in what we have discussed above it must be held that the statement in para 16 of the Report that the expression “public policy of India used in Section 48(2)(b) has to be given a wider meaning and the award could be set aside, if it is patently illegal” does not lay down correct law and is overruled.
xxx xxx xxx
Moreover, Section 48 of the 1996 Act does not give an opportunity to have a “second look” at the foreign award in the award enforcement stage. The scope of inquiry under Section 48 does not permit review of the foreign award on merits. Procedural defects (like taking into consideration inadmissible evidence or ignoring/rejecting the evidence which may be of binding nature) in the course of foreign arbitration do not lead necessarily to excuse an award from enforcement on the ground of public policy.
In what we have discussed above, even if it be assumed that the Board of Appeal erred in relying upon the report obtained by the buyers from Crepin which was inconsistent with the terms on which the parties had contracted in the contract dated 12-5-1994 and wrongly rejected the report of the contractual agency, in our view, such errors would not bar the enforceability of the appeal awards passed by the Board of Appeal.”
In LMJ International Ltd. v. Sleepwell Industries (2019) 5 SCC 302, an ex-parte award was passed in London which was sought to be executed by the Respondents in the High Court of Calcutta. The learned Single Judge of the High Court passed a common order in the execution cases rejecting objections taken regarding the maintainability of the applications. Against this, a review petition was rejected by the High Court and so were Special Leave Petitions before this Court. What was argued before this Court was that grounds as to maintainability had been taken, as a result of which grounds under Section 48 of the Arbitration Act were not actually argued as objections before the Single Judge. This plea of the appellant was rejected by this Court, given the object of Section 48 of the Act. Since the appellant “might and “ought” to have taken these grounds, before the learned Single Judge these grounds were barred by an application of doctrine of constructive res judicata as follows:
“17. Be that as it may, the grounds urged by the petitioner in the earlier round regarding the maintainability of the execution case could not have been considered in isolation and dehors the issue of enforceability of the subject foreign awards. For, the same was intrinsically linked to the question of enforceability of the subject foreign awards. In any case, all contentions available to the petitioner in that regard could and ought to have been raised specifically and, if raised, could have been examined by the Court at that stage itself. We are of the considered opinion that the scheme of Section 48 of the Act does not envisage piecemeal consideration of the issue of maintainability of the execution case concerning the foreign awards, in the first place; and then the issue of enforceability thereof. Whereas, keeping in mind the legislative intent of speedy disposal of arbitration proceedings and limited interference by the courts, the Court is expected to consider both these aspects simultaneously at the threshold. Taking any other view would result in encouraging successive and multiple round of proceedings for the execution of foreign awards. We cannot countenance such a situation keeping in mind the avowed object of the Arbitration and Conciliation Act, 1996, in particular, while dealing with the enforcement of foreign awards. For, the scope of interference has been consciously constricted by the legislature in relation to the execution of foreign awards. Therefore, the subject application filed by the petitioner deserves to be rejected, being barred by constructive res judicata, as has been justly observed by the High Court in the impugned judgment. xxx xxx xxx
Suffice it to observe that the Arbitral Tribunal has considered all aspects of the matter and even if it has committed any error, the same could, at best, be a matter for correction by way of appeal to be resorted to on grounds as may be permissible under the English law, by which the subject arbitration proceedings are governed. We may not be understood to have expressed any opinion on the correctness of those issues.”
At this stage it is important to advert to amendments that were made by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the “2015 Amendment Act”). Section 48 was amended to delete the ground of “contrary to the interest of India”. Also, what was important was to reiterate the Renusagar (supra) position, that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute (vide Explanation 2 to Section 48(2)).
It will be noticed that in the context of challenge to domestic awards, Section 34 of the Arbitration Act differentiates between international commercial arbitrations held in India and other arbitrations held in India. So far as “the public policy of India” ground is concerned, both Sections 34 and 48 are now identical, so that in an international commercial arbitration conducted in India, the ground of challenge relating to “public policy of India” would be the same as the ground of resisting enforcement of a foreign award in India. Why it is important to advert to this feature of the 2015 Amendment Act is that all grounds relating to patent illegality appearing on the face of the award are outside the scope of interference with international commercial arbitration awards made in India and foreign awards whose enforcement is resisted in India. In this respect, it is important to advert to paragraphs 30 and 43 of Ssangyong (supra) as follows:
“30. What is important to note is that a decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders (supra), while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. xxx xxx xxx
We therefore hold, following the aforesaid authorities, that in the guise of misinterpretation of the contract, and consequent “errors of jurisdiction”, it is not possible to state that the arbitral award would be beyond the scope of submission to arbitration if otherwise the aforesaid misinterpretation (which would include going beyond the terms of the contract), could be said to have been fairly comprehended as “disputes” within the arbitration agreement, or which were referred to the decision of the arbitrators as understood by the authorities above. If an arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of “patent illegality”, which, as we have seen, would not apply to international commercial arbitrations that are decided under Part II of the 1996 Act. To bring in by the backdoor grounds relatable to Section 28(3) of the 1996 Act to be matters beyond the scope of submission to arbitration under Section 34(2)
(a)(iv) would not be permissible as this ground must be construed narrowly and so construed, must refer only to matters which are beyond the arbitration agreement or beyond the reference to the arbitral tribunal.” This statement of the law applies equally to Section 48 of the Arbitration Act.
39. Indeed, this approach has commended itself in other jurisdictions as well. Thus, in Sui Southern Gas Co. Ltd. v. Habibullah Coastal Power Co. (2010) SGHC 62, the Singapore High Court, after setting out the legislative policy of the Model Law that the ‘public policy’ exception is to be narrowly viewed and that an arbitral award that shocks the conscience alone would be set aside, went on to hold:
“48. It is clear, therefore, that in order for SSGC to have succeeded on the public policy argument, it had to cross a very high threshold and demonstrate egregious circumstances such as corruption, bribery or fraud, which would violate the most basic notions of morality and justice. Nothing of the sort had been pleaded or proved by SSGC, and its ambiguous contention that the Award was “perverse” or “irrational” could not, of itself, amount to a breach of public policy.” General approach to enforcement and recognition of Foreign Awards
The USA was a late signatory to the New York Convention, acceding to the Convention only in 1970. However, in an early judgment of the U.S Court of Appeals, Second Circuit, namely Parsons & Whittemore Overseas Co. v. Societe Generale De L’Industrie Du Papier 508 F.2d 969 (1974), the Court in a succinct paragraph pointed out the change made by the New York Convention when compared with the older Geneva Convention of 1927 as follows:
“In 1958 the Convention was adopted by 26 of the 45 states participating in the United Nations Conference on Commercial Arbitration held in New York. For the signatory state, the New York Convention superseded the Geneva Convention of 1927, 92 League of Nations Treaty Ser. 302.The 1958 Convention’s basic thrust was to liberalize procedures for enforcing foreign arbitral awards: While the Geneva Convention placed the burden of proof on the party seeking enforcement of a foreign arbitral award and did not circumscribe the range of available defences to those enumerated in the convention, the 1958 Convention clearly shifted the burden of proof to the party defending against enforcement and limited his defenses to seven set forth in Article V. See Contini, International Commercial Arbitration, 8 Am.J.Comp.L. 283, 299 (1959). Not a signatory to any prior multilateral agreement on enforcement of arbitral awards, the United States declined to sign the 1958 Convention at the outset. The United States ultimately acceded to the Convention, however, in 1970, (1970) 3 U.S.T. 2517, T.I.A.S. No. 6997, and implemented its accession with 9 U.S.C. 201-208. Under 9 U.S.C. 208, the existing Federal Arbitration Act, 9 U.S.C. 1-14, applies to the enforcement of foreign awards except to the extent to which the latter may conflict with the Convention. See generally, Comment, International Commercial Arbitration under the United Nations Convention and the Amended Federal Arbitration Statute, 47 Wash.L.Rev. 441 (1972).” The Court then went on to hold: “Perhaps more probative, however, are the inferences to be drawn from the history of the Convention as a whole. The general pro-enforcement bias informing the Convention and explaining its supersession of the Geneva Convention points toward a narrow reading of the public policy defense. An expansive construction of this defense would vitiate the Convention’s basic effort to remove preexisting obstacles to enforcement. See Straus, Arbitration of Disputes between Multinational Corporations, in New Strategies for Peaceful Resolution of International Business Disputes 114-15 (1971); Digest of Proceedings of International Business Disputes Conference, April 14, 1971, in id. at 191 (remarks of Professor W. Reese). Additionally, considerations of reciprocity— considerations given express recognition in the Convention itself — counsel courts to invoke the public policy defense with caution lest foreign courts frequently accept it as a defense to enforcement of arbitral awards rendered in the United States. We conclude, therefore, that the Convention’s public policy defense should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum state’s most basic notions of morality and justice. xxx xxx xxx Although the Convention recognizes that an award may not be enforced where predicated on a subject matter outside the arbitrator’s jurisdiction, it does not sanction second-guessing the arbitrator’s construction of the parties’ agreement. The appellant’s attempt to invoke this defense, however, calls upon the court to ignore this limitation on its decision-making powers and usurp the arbitrator’s role. The district court took a proper view of its own jurisdiction in refusing to grant relief on this ground.” (emphasis supplied)
This judgment was followed in Compagnie des Bauxites de Guinee v. Hammermills Inc. (1992) WL 122712 where the US District Court, District of Colombia followed Parsons (supra) as follows: “The principal purpose of the Convention and its implementation by Congress was to “remove pre- existing obstacles to enforcement” of foreign arbitration awards. Parsons & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier, 508 F.2d 969, 973 (2d Cir.1974). To facilitate this policy, which applies with special force in the field of international commerce, see Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 625 (1985), the courts have developed a “general pro- enforcement bias,” Parsons & Whittemore Overseas Co., 508 F.2d at 973, under which the burden of proof rests on the party challenging the arbitration award, Dworkin Cosell Interair Courier Servs., Inc. v. Avraham, 728 F.Supp. 156, 158 (S.D.N.Y.1989); Overseas Private Invest. Corp. v. Anaconda Co., 418 F.Supp. 107, 110 (D.D.C.1976), and the grounds for refusing to recognize arbitral awards are narrowly construed, Parsons & Whittemore Overseas Co., 508 F.2d at 976–77. xxx xxx xxx The few courts to address this provision of the Convention have concluded that the provision “essentially sanctions the application of the forum state’s standards of due process.” See Parsons & Whittemore Overseas Co., 508 F.2d at 975; Geotech Lizenz AG v. Evergreen Systems, Inc., 697 F.Supp. 1248, 1263 (E.D.N.Y.1988) (citing Parsons & Whittemore Overseas Co.). Due process requires notice “reasonably calculated, under all the circumstances, to apprise interested persons of the pendency of the action and afford them an opportunity to present their objections.” Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950).”
In Certain Underwriters at Lloyd’s London v. BCS Ins. Co. 239 F.Supp.2d 812 (2003), the US District Court, N.D Illinois referred to the Federal Arbitration Act and went on to hold that the review of a panel decision is “grudgingly narrow”. (See paragraphs 2 and 3). 43. In Karaha Bodas Co., L.L.C v. Perusahaan Pertambagan Minyak 364 F.3d 274 (2004), the United States Court of Appeals for the 5 th Circuit analysed the New York Convention thus:
“The New York Convention provides a carefully structured framework for the review and enforcement of international arbitral awards. Only a court in a country with primary jurisdiction over an arbitral award may annul that award. Courts in other countries have secondary jurisdiction; a court in a country with secondary jurisdiction is limited to deciding whether the award may be enforced in that country. The Convention “mandates very different regimes for the review of arbitral awards (1) in the countries in which, or under the law of which, the award was made, and (2) in other countries where recognition and enforcement are sought.” Under the Convention, “the country in which, or under the arbitration law of which, an award was made” is said to have primary jurisdiction over the arbitration award. All other signatory states are secondary jurisdictions, in which parties can only contest whether that state should enforce the arbitral award. It is clear that the district court had secondary jurisdiction and considered only whether to enforce the Award in the United States. Article V enumerates specific grounds on which a court with secondary jurisdiction may refuse enforcement. In contrast to the limited authority of secondary-jurisdiction courts to review an arbitral award, courts of primary jurisdiction, usually the courts of the country of the arbitral situs, have much broader discretion to set aside an award. While courts of a primary jurisdiction country may apply their own domestic law in evaluating a request to annul or set aside an arbitral award, courts in countries of secondary jurisdiction may refuse enforcement only on the grounds specified in Article V. The New York Convention and the implementing legislation, Chapter 2 of the Federal Arbitration Act (“FAA”), provide that a secondary jurisdiction court must enforce an arbitration award unless it finds one of the grounds for refusal or deferral of recognition or enforcement specified in the Convention. The Court may not refuse to enforce an arbitral award solely on the ground that the arbitrator may have made a mistake of law or fact. “Absent extraordinary circumstances, a confirming court is not to reconsider an arbitrator’s findings.” The party defending against enforcement of the arbitral award bears the burden of proof. Defences to enforcement under the New York Convention are construed narrowly “to encourage the recognition and enforcement of commercial arbitration agreements in international contracts…”” (emphasis supplied)
Likewise, in Admart AG v. Stephen and Mary Birch Foundation Inc. 457 F.3d 302 (2006), the U.S Court of Appeals, 3 rd Circuit, after setting out Article V of the New York Convention, held as follows:
“To carry out the policy favoring enforcement of foreign arbitral awards, courts have strictly applied the Article V defenses and generally view them narrowly. See China Minmetals, 334 F.3d at 283. In Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc., 126 F.3d 15 (2d Cir.1997), the court emphasized the limited power of review granted to district courts under the Convention. The court examined the distinction between awards rendered in the same nation as the site of the arbitral proceeding and those rendered in a foreign country. The court concluded that more flexibility was available when the arbitration site and the site of the confirmation proceeding were within the same jurisdiction. Id. at 22–23. However, “the [C]onvention is equally clear that when an action for enforcement is brought in a foreign state, the state may refuse to enforce the award only on the grounds explicitly set forth in Article V of the Convention.” Id. at 23. xxx xxx xxx In the same vein, in Parsons & Whittemore Overseas Co., Inc. v. Societe Generale de L’Industrie du Papier (RAKTA), 508 F.2d 969 (2d Cir.1974), the Court of Appeals reviewed the grounds for refusal contained in the Convention and said that the public policy defense is available “only where enforcement would violate the forum state’s most basic notions of morality and justice.” Id. at 974. Similarly, the court noted that an award cannot be enforced under the Convention where it is “predicated on a subject matter outside the arbitrator’s jurisdiction,” but the Convention does not “sanction second-guessing the arbitrator’s construction of the parties’ agreement.” Id. at 977.”
The U.S cases show that given the “pro-enforcement bias” of the New York Convention, which has been adopted in Section 48 of the Arbitration Act, 1996 – the burden of proof on parties seeking enforcement has now been placed on parties objecting to enforcement and not the other way around; in the guise of public policy of the country involved, foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties;
the challenge procedure in the primary jurisdiction gives more leeway to Courts to interfere with an award than the narrow restrictive grounds contained in the New York Convention when a foreign award’s enforcement is resisted.
Discretion of the Court to Enforce Foreign Awards
Thus far, it is clear that enforcement of a foreign award may under Section 48 of the Arbitration Act be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The said grounds are watertight – no ground outside Section 48 can be looked at. Also, the expression used in Section 48 is “may”. Shri Viswanathan has argued that “may” would vest a discretion in a Court enforcing a foreign award to enforce such award despite the fact that one or more grounds may have been made out to resist enforcement. For this purpose, he relied upon Sections 45 to 47, which contain the word “shall” in contradistinction to the word “may”. He also relied upon Article V of the New York Convention which also uses the word “may”.
Gary Born in International Commercial Arbitration, Vol. II (2009) puts it thus:
“No Obligation under New York Convention to Deny Recognition of Awards Nothing in the New York Convention requires a Contracting State ever to deny recognition to an arbitral award. The Convention requires only that Contracting States recognize awards (and arbitration agreements) in specified circumstances. Nothing in Article V, nor the basic structure and purpose of the Convention, imposes the opposite obligation not to recognize an award (or arbitration agreement). Article III of the Convention requires Contracting States to recognize arbitral awards made abroad, subject to procedural requirements no more onerous than those for domestic awards, provided that the minimal proof requirements of Article IV are satisfied. Articles V(I) and V(2) then provide exceptions to this affirmative obligation, beginning with the prefatory statement that “[r]ecognition and enforcement of the awards may be refused” in certain circumstances. The most significant aspect of this provision is its structure, which is to establish an affirmative obligation to recognize arbitral awards, subject to specified exceptions – but not to establish an affirmative obligation to deny recognition. Critically, the Article V(I) exceptions are just that: exceptions to an affirmative obligation, and not affirmative obligations in their own right.
Although the matter can be debated, the text of Article V supports this structural conclusion. The English language text of Article V is unmistakably permissive, providing that Contracting States “may” refuse recognition of an award; the Russian and Chinese versions of the Convention are identical in meaning. The Spanish version of Article V also indicates that recognition may be denied, without indicating that it must be. The only exception is the French text, which has been relied on by some authorities as supposedly establishing an obligation to deny recognition to awards that have been annulled in the arbitral seat. In fact, the better view appears to be that the French text is ambiguous, assuming that awards falling within one of Article V’s exceptions would not be enforced, but not affirmatively requiring this result.
This is also consistent with Article VII of the Convention, which provides that the Convention shall not “deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon.” This provision expresses a fundamental objective of the Convention – which was to facilitate, not limit, the circumstances in which international arbitral awards could be recognized. Indeed, there is not a hint in the drafting history of the Convention of any intention to prevent Contracting States from recognizing foreign awards under provisions of local law that are more liberal than Article V.” 48. Redfern and Hunter on International Arbitration, 6th Edn. (2015) states:
“11.59 Fourthly, even if grounds for refusal of recognition and enforcement of an award are proved to exist, the enforcing court is not obliged to refuse enforcement. The opening lines of Article V(1) and (2) of the Convention say that enforcement ‘may’ be refused; they do not say that it ‘must’ be refused. The language is permissive, not mandatory. The same is true of the Model Law.”
Likewise, Albert Jan van den Berg’s The New York Arbitration Convention of 1958 (1981) states:
“It is to be noted that the opening lines of both the first and the second paragraph of Article V employ a permissive rather than mandatory language: enforcement “may be” refused. For the first paragraph it means that even if a party against whom the award is invoked proves the existence of one of the grounds for refusal of enforcement, the court still has a certain discretion to overrule the defence and to grant the enforcement of the award. Such overruling would be appropriate, for example, in the case where the respondent can be deemed to be estopped from invoking the ground for refusal.”
Russel on Arbitration, Sweet & Maxwell (24th Edn., 2015) states:
“8-033 Opposing enforcement of a New York Convention Award As stated above, subject to production of the required documents the court has no discretion but to recognise and enforce a New York Convention award unless the party opposing enforcement proves one or more of the grounds specified in s.103 of the Arbitration Act 1996. These grounds of refusal are exhaustive, and if none of the grounds is present the award will be enforced. Much has been written about these grounds and a detailed analysis of their international application is beyond the scope of this book but they will be treated summarily in this chapter. The onus of proving the existence of a ground rests upon the party opposing enforcement, but that may not be the end of the matter. There is an important public policy in the enforcement of awards and the courts should only refuse to enforce an award under s.103 in a clear case.
xxx xxx xxx 8-035 Discretion The court also has a discretion to allow enforcement even in circumstances where one or more of the grounds are made out. This discretion is not to be exercised arbitrarily however because the word “may” in s.103(2) is intended to refer to the corresponding word in the New York Convention. In any event the discretion is a very narrow one. If one or more of the grounds in s.103(2) is made out, the strong presumption is that the award will not be enforced. The discretion to enforce notwithstanding will not be exercised where the award in question was subject to a fundamental or structural defect. The discretion may however be available where “despite the original existence of one or more of the listed circumstances, the right to rely on them had been lost by, for example, another agreement or estoppel”, Or where there are circumstances “which might on some recognisable legal principles affect the prima facie right to have an award set aside arising in cases listed in s.103(2).”
An interesting judgment of the U.K. Supreme Court is reported as Dallah Real Estate and Tourism Holding Co. v. The Ministry of Religious Affairs, Government of Pakistan (2010) UKSC 46. In this judgment – given the resistance to a foreign award in the U.K – the discretion of a Court to enforce such award, even if grounds to resist the award have been made out, was set out thus:
“Per Lord Mance: Discretion
Dallah has a fall-back argument, which has also failed in both courts below. It is that s.103(2) of the 1996 Act and Article V(1) of the New York Convention state that “Recognition and enforcement of the award may be refused” if the person against whom such is sought proves (or furnishes proof of) one of the specified matters. So, Miss Heilbron submits, it is open to a court which finds that there was no agreement to arbitrate to hold that an award made in purported pursuance of the non-existent agreement should nonetheless be enforced. In Dardana Ltd v Yukos Oil Company [2002] 1 All ER (Comm) 819 I suggested that the word “may” could not have a purely discretionary force and must in this context have been designed to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima facie right to have enforcement or recognition refused (paras 8 and 18). I also suggested as possible examples of such circumstances another agreement or estoppel.
S.103(2) and Article V in fact cover a wide spectrum of potential objections to enforcement or recognition, in relation to some of which it might be easier to invoke such discretion as the word “may” contains than it could be in any case where the objection is that there was never any applicable arbitration agreement between the parties to the award. Article II of the Convention and ss.100(2) and 102(1) of the 1996 Act serve to underline the (in any event obviously fundamental) requirement that there should be a valid and existing arbitration agreement behind an award sought to be enforced or recognised. Absent some fresh circumstance such as another agreement or an estoppel, it would be a remarkable state of affairs if the word “may” enabled a court to enforce or recognise an award which it found to have been made without jurisdiction, under whatever law it held ought to be recognised and applied to determine that issue.
The factors relied upon by Dallah in support of its suggestion that a discretion should be exercised to enforce the present award amount for the most part to repetition of Dallah’s arguments for saying that there was an arbitration agreement binding on the Government, or that an English court should do no more than consider whether there was a plausible or reasonably supportable basis for its case or for the tribunal’s conclusion that it had jurisdiction. But Dallah has lost on such points, and it is impossible to re- deploy them here. The application of s.103(2) and Article V(1) must be approached on the basis that there was no arbitration agreement binding on the Government and that the tribunal acted without jurisdiction. General complaints that the Government did not behave well, unrelated to any known legal principle, are equally unavailing in a context where the Government has proved that it was not party to any arbitration agreement. There is here no scope for reliance upon any discretion to refuse enforcement which the word “may” may perhaps in some other contexts provide.
xxx xxx xxx Per Lord Collins:
Discretion
The court before which recognition or enforcement is sought has a discretion to recognise or enforce even if the party resisting recognition or enforcement has proved that there was no valid arbitration agreement. This is apparent from the difference in wording between the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 and the New York Convention. The Geneva Convention provided (article 1) that, to obtain recognition or enforcement, it was necessary that the award had been made in pursuance of a submission to arbitration which was valid under the law applicable thereto, and contained (article 2) mandatory grounds (“shall be refused”) for refusal of recognition and enforcement, including the ground that it contained decisions on matters beyond the scope of the submission to arbitration. Article V(1)(a) of the New York Convention (and section 103(2)(b) of the 1996 Act) provides: “Recognition and enforcement of the award may be refused …” See also van den Berg, p 265; Paulsson, May or Must Under the New York Convention: An Exercise in Syntax and Linguistics (1998) 14 Arb Int
227.
Since section 103(2)(b) gives effect to an international convention, the discretion should be applied in a way which gives effect to the principles behind the Convention. One example suggested by van den Berg, op cit, p 265, is where the party resisting enforcement is estopped from challenge, which was adopted by Mance LJ in Dardana Ltd v Yukos Oil Co [2002] 2 Lloyd’s Rep 326, para 8. But, as Mance LJ emphasised at para 18, there is no arbitrary discretion: the use of the word “may” was designed to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima facie right to have an award set aside arising in the cases listed in section 103(2). See also Kanoria v Guinness [2006] 1 Lloyd’s Rep 701, para 25 per Lord Phillips CJ. Another possible example would be where there has been no prejudice to the party resisting enforcement: China Agribusiness Development Corpn v Balli Trading [1998] 2 Lloyd’s Rep 76. But it is not easy to see how that could apply to a case where a party had not acceded to an arbitration agreement.
There may, of course, in theory be cases where the English court would refuse to apply a foreign law which makes the arbitration agreement invalid where the foreign law outrages its sense of justice or decency (Scarman J’s phrase in In the Estate of Fuld, decd (No
3) [1968] P 675, 698), for example where it is discriminatory or arbitrary. The application of public policy in the New York Convention (article V(2)(b)) and the 1996 Act (section 103(3)) is limited to the non- recognition or enforcement of foreign awards. But the combination of (a) the use of public policy to refuse to recognise the application of the foreign law and (b) the discretion to recognise or enforce an award even if the arbitration agreement is invalid under the applicable law could be used to avoid the application of a foreign law which is contrary to the court’s sense of justice. xxx xxx xxx
In the United States the courts have refused to enforce awards which have been set aside in the State in which the award was made, on the basis that the award does not exist to be enforced if it has been lawfully set aside by a competent authority in that State: Baker Marine (Nigeria) Ltd v Chevron (Nigeria) Ltd, 191 F 3d 194 (2d Cir 1999); TermoRio SA ESP v Electranta SP, 487 F 3d 928 (DC Cir 2007). But an Egyptian award which had been set aside by the Egyptian court was enforced because the parties had agreed that the award would not be the subject of recourse to the local courts: Chromalloy Aeroservices v Arab Republic of Egypt, 939 F Supp 907 (DDC 1996). That decision was based both on the discretion in the New York Convention, article V(1) and on the power under article VII(1) (see Karaha Bodas Co v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F 3d 357, 367 (5th Cir 2003)) and whether it was correctly decided was left open in TermoRio SA ESP v Electranta SP, ante, at p 937.
The power to enforce notwithstanding that the award has been set aside in the country of origin does not, of course, arise in this case. The only basis which Dallah puts forward for the exercise of discretion in its favour is the Government’s failure to resort to the French court to set aside the award. But Moore-Bick LJ was plainly right in the present case (at para 61) to say that the failure by the resisting party to take steps to challenge the jurisdiction of the tribunal in the courts of the seat would rarely, if ever, be a ground for exercising the discretion in enforcing an award made without jurisdiction. There is certainly no basis for exercising the discretion in this case.”
A learned single judge of the Delhi High Court in Cruz City 1 Mauritius Holdings v. Unitech Limited (2017) 239 DLT 649, adverted to this issue and held:
“28. Whilst this court accepts the contention that the use of the word “may” as used in the context of Section 48 of the Act does not confer an absolute discretion on the courts, it is not possible to accept that the word “may” should be read as “shall” and the court is compelled to refuse enforcement, if any of the grounds under Section 48 are established. First of all, the plain meaning of the word “may” is not “shall”; it is used to imply discretion and connote an option as opposed to compulsion.
In re, Nichols v. Baker: 59 LJ Ch 661, Cotton L.J. observed that ‘“May’ can never mean must, so long as the English language retains its meaning; but it gives a power and then it may be a question, in what cases, when any authority or body has a power given it by the word ‘may’, it becomes its duty to exercise that power”.
In Official Liquidator v. Dharti Dhan (P) Ltd.: (1977) 2 SCC 166 the Supreme Court had explained that in certain cases where the legal and factual context in which the discretionary power is to be exercised is specified, it is also annexed with a duty to exercise it in that manner. Keeping the aforesaid in mind, there can be no cavil that since Section 48 of the Act enables the court to refuse enforcement of a foreign award on certain grounds, this court would be required to do so; however, if there are good reasons founded on settled principles of law, the court is not precluded from declining the same. The word “may” in Section 48(1) and (2) of the Act must be interpreted as used in a sense so as not to fetter the courts to refuse enforcement of a foreign award even if the grounds as set out in Section 48 are established, provided there is sufficient reason to do so. Viewed from this perspective, the considerations that this court may bear while examining grounds as set out under Section 48(1) (enacted to give effect to Article V(1) of the New York convention) may be materially different from the consideration that this court may bear while examining the issue of declining enforcement of a foreign award on the ground of public policy (Section 48(2) of the Act). Whereas the grounds as set out under Section 48(1) essentially concern the structural integrity of the arbitral process and inter party rights therefore considerations such as the conduct of parties, balancing of the inter se rights etc are of material significance but such considerations may not be of any significant relevance in considering whether enforcing the award contravenes the public policy of India.
It is necessary to bear in mind that Section 48 of the Act is a statutory expression of Article V of the New York Convention and is similarly worded. The object of Article V of the New York Convention is to enable the signatory States to retain the discretion to refuse enforcement of a foreign award on specified grounds and none other; it does not compel the member States to decline enforcement of foreign awards. Article V of the convention thus sets out the maximum leeway available to member States to refuse enforcement of a foreign award. This view has also been accepted by courts in the United States. In Chromalloy Aeroservices. v. The Arab Republic of Egypt: 939 F. Supp. 907 (DDC 1996), an Egyptian award, which was set aside by an Egyptian court, was enforced notwithstanding Article V(1)(e) of the New York Convention.
The principle that courts may enforce a foreign award notwithstanding that one or more of the specified grounds have been established, is also accepted in the United Kingdom. (See: China Agribusiness Development Corporation v. Balli Trading: [1998] 2 Lloyd’s Rep 76).
xxx xxx xxx
The grounds as set out in Section 48 of the Act for refusing enforcement of the award encompass a wide spectrum of acts and factors as they are set in broad terms. While in some cases, it may be imperative to refuse the enforcement of the award while in some other, it may be manifestly unjust to do so. Section 48 is enacted to give effect to Article V of the New York Convention, which enables member States to retain some sovereign control over enforcement of foreign awards in their territory. The ground that enforcement of an award opposed to the national public policy would be declined perhaps provides the strongest expression of a Sovereign’s reservation that its executive power shall not be used to enforce a foreign award which is in conflict with its policy. The other grounds mainly relate to the structural integrity of the arbitral process with focus on inter party rights.
In terms of Sub-section (1) of Section 48 of the Act, the Court can refuse enforcement of a foreign award only if the party resisting the enforcement furnishes proof to establish the grounds as set out in Section 48(1) of the Act. However, the court may refuse enforcement of a foreign award notwithstanding that a party resisting the enforcement has not provided any/sufficient proof of contravention of public policy. In such cases, the Court is not precluded from examining the question of public policy suo motu and would refuse to enforce the foreign award that is found to offend the public policy of India. The approach of the court while examining whether to refuse enforcement of a foreign award would also depend on the nature of the defence established.
Even where public policy considerations are to be weighed, it is not difficult to visualise a situation where both permitting as well as declining enforcement would fall foul of the public policy. Thus, even in cases where it is found that the enforcement of the award may not conform to public policy, the courts may evaluate and strike a balance whether it would be more offensive to public policy to refuse enforcement of the foreign award – considering that the parties ought to be held bound by the decision of the forum chosen by them and there is finality to the litigation – or to enforce the same; whether declining to enforce a foreign award would be more debilitating to the cause of justice, than to enforce it. In such cases, the court would be compelled to evaluate the nature, extent and other nuances of the public policy involved and adopt a course which is less pernicious.
xxx xxx xxx
Thus, whilst there is no absolute or open discretion to reject the request for declining to enforce a foreign award, it cannot be accepted that it is totally absent. The width of the discretion is narrow and limited, but if sufficient grounds are established, the court is not precluded from rejecting the request for declining enforcement of a foreign award.”
When the grounds for resisting enforcement of a foreign award under Section 48 are seen, they may be classified into three groups – grounds which affect the jurisdiction of the arbitration proceedings; grounds which affect party interest alone; and grounds which go to the public policy of India, as explained by Explanation 1 to Section 48(2).
Where a ground to resist enforcement is made out, by which the very jurisdiction of the tribunal is questioned – such as the arbitration agreement itself not being valid under the law to which the parties have subjected it, or where the subject matter of difference is not capable of settlement by arbitration under the law of India, it is obvious that there can be no discretion in these matters. Enforcement of a foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion to be exercised to enforce such award if the scales are tilted in its favour.
On the other hand, where the grounds taken to resist enforcement can be said to be linked to party interest alone, for example, that a party has been unable to present its case before the arbitrator, and which ground is capable of waiver or abandonment, or, the ground being made out, no prejudice has been caused to the party on such ground being made out, a Court may well enforce a foreign award, even if such ground is made out. When it comes to the “public policy of India” ground, again, there would be no discretion in enforcing an award which is induced by fraud or corruption, or which violates the fundamental policy of Indian law, or is in conflict with the most basic notions of morality or justice. It can thus be seen that the expression “may” in Section 48 can, depending upon the context, mean “shall” or as connoting that a residual discretion remains in the Court to enforce a foreign award, despite grounds for its resistance having been made out. What is clear is that the width of this discretion is limited to the circumstances pointed out hereinabove, in which case a balancing act may be performed by the Court enforcing a foreign award.
The Natural Justice Ground under Section 48
Shri Sibal has argued that the expression “or was otherwise unable to present his case” occurring in Section 48(1)(b) of the Act must be read along with the words preceding it noscitur a sociis, and, given the fact that the grounds for resistance of enforcement have to be construed narrowly in the case of ambiguity, this expression cannot possibly go beyond the hearing before the arbitrator and to the award rendered by the arbitrator. Shri Nakul Dewan, on the other hand, argued that the expression “unable to present his case” was co-terminus with breach of natural justice which went to not only the hearing before the arbitrator, but also to the award, in that, if the arbitrator were not to give a finding on a material issue or were not to decide a claim or counter-claim, this would breach the broader requirements of the audi alteram partem rule of natural justice and would, therefore, be covered by Section 48(1)(b) of the Act. 56. This Court in Ssangyong (supra) has dealt with this aspect of Section 48 as follows:
“37. Under the rubric of a party being otherwise unable to present its case, the standard textbooks on the subject have stated that where materials are taken behind the back of the parties by the Tribunal, on which the parties have had no opportunity to comment, the ground under Section 34(2)(a)(iii) would be made out. In New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards – Commentary, edited by Dr. Reinmar Wolff (C.H. Beck, Hart, Nomos Publishing, 2012), it is stated: “4. Right to Comment According to the principle of due process, the tribunal must grant the parties an opportunity to comment on all factual and legal circumstances that may be relevant to the arbitrators’ decision-making. a) Right to Comment on Evidence and Arguments Submitted by the Other Party As part of their right to comment, the parties must be given an opportunity to opine on the evidence and arguments introduced in the proceedings by the other party. The right to comment on the counterparty’s submissions is regarded as a fundamental tenet of adversarial proceedings. However, in accordance with the general requirement of causality, the denial of an opportunity to comment on a particular piece of evidence or argument is not prejudicial, unless the tribunal relied on this piece of evidence or argument in making its decision. In order to ensure that the parties can exercise their right to comment effectively, the arbitral tribunal must grant them access to the evidence and arguments submitted by the other side. Affording a party the opportunity to make submissions or to give its view without also informing it of the opposing side’s claims and arguments typically constitutes a violation of due process, unless specific non-disclosure rules apply (e.g., such disclosure would constitute a violation of trade secrets or applicable legal privileges).
In practice, national courts have afforded arbitral tribunals considerable leeway in setting and adjusting the procedures by which parties respond to one another’s submissions and evidence, reasoning that there were “several ways of conducting arbitral proceedings.” Accordingly, absent any specific agreement by the parties, the arbitral tribunal has wide discretion in arranging the parties’ right to comment, permitting or excluding the introduction of new claims, and determining which party may have the final word.
b) Right to Comment on Evidence Known to or Determined by the Tribunal The parties’ right to comment also extends to facts that have not been introduced in the proceedings by the parties, but that the tribunal has raised sua sponte, provided it was entitled to do so. For instance, if the tribunal gained “out of court knowledge” of circumstances (e.g., through its own investigations), it may only rest its decision on those circumstances if it informed both parties in advance and afforded them the opportunity to comment thereon. The same rule applies to cases where an arbitrator intends to base the award on his or her own expert knowledge, unless the arbitrator was appointed for his or her special expertise or knowledge (e.g., in quality arbitration). Similarly, a tribunal must give the parties an opportunity to comment on facts of common knowledge if it intends to base its decision on those facts, unless the parties should have known that those facts could be decisive for the final award.”(emphasis in original) In Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International, 1999) [“Fouchard”] it is stated:
“In some rare cases, recognition or enforcement of an award has been refused on the grounds of a breach of due process. One example is the award made in a quality arbitration where the defendant was never informed of the identity of the arbitrators hearing the dispute [Danish buyer v German (F.R.) seller, IV Y.B. Comm. Arb. 258 (1979) (Oberlandesgericht Cologne)]. It also occurred in a case where various documents were submitted by one party to the arbitral tribunal but not to the other party [G.W.I. Kersten & Co. B.V. v. Société Commerciale Raoul Duval et Co., XIX Y.B. Comm. Arb. 708 (Amsterdam Court of Appeals) (1992)], in another case where the defendant was not given the opportunity to comment on the report produced by the expert appointed by the tribunal [Paklito Inv. Ltd. v. Klockner East Asia Ltd., XIX Y.B. Comm. Arb. 664, 671 (Supreme Court of Hong Kong) (1994)], and again where the arbitral tribunal criticized a party for having employed a method of presenting evidence which the tribunal itself had suggested [Iran Aircraft Indus. v Avco Corp., 980 F.2d 141 (2nd Cir. 1992)].”(at p. 987) Gary Born (supra) states:
“German courts have adopted similar reasoning, holding that the right to be heard entails two related sets of rights: (a) a party is entitled to present its position on disputed issues of fact and law, to be informed about the position of the other parties and to a decision based on evidence or materials known to the parties [See, e.g., Judgment of 5 July 2011, 34 SCH 09/11, II(5)(c)(bb) (Oberlandesgericht Munchen)]; and (b) a party is entitled to a decision by the arbitral tribunal that takes its position into account insofar as relevant [See, e.g., Judgment of 5 October 2009, 34 Sch 12/09 (Oberlandesgericht Munchen)]. Other authorities provide comparable formulations of the content of the right to be heard [See, e.g., Slaney v. Int’l Amateur Athletic Foundation, 244 F.3d 580, 592 (7th Cir. 2001) (at p. 3225) Similarly, in Redfern and Hunter (supra):
“11.73. The national court at the place of enforcement thus has a limited role. Its function is not to decide whether or not the award is correct, as a matter of fact and law. Its function is simply to decide whether there has been a fair hearing. One mistake in the course of the proceedings may be sufficient to lead the court to conclude that there was a denial of justice. For example, in a case to which reference has already been made, a US corporation, which had been told that there was no need to submit detailed invoices, had its claim rejected by the Iran-US Claims Tribunal, for failure to submit detailed invoices! The US court, rightly it is suggested, refused to enforce the award against the US company [Iran Aircraft Ind v Avco Corp. 980 F.2d. 141 (2nd Cir. 1992)]. In different circumstances, a German court held that an award that was motivated by arguments that had not been raised by the parties or the tribunal during the arbitral proceedings, and thus on which the parties had not had an opportunity to comment, violated due process and the right to be heard [See the decision of the Stuttgart Court of Appeal dated 6 October 2001 referred to in Liebscher, The Healthy Award, Challenge in International Commercial Arbitration (Kluwer law International, 2003), 406]. Similarly, in Kanoria v Guinness, [2006] EWCA Civ. 222, the English Court of Appeal decided that the respondent had not been afforded the chance to present its case when critical legal arguments were made by the claimant at the hearing, which the respondent could not attend due to a serious illness. In the circumstances, the court decided that ‘this is an extreme case of potential injustice’ and resolved not to enforce the arbitral award.
11.74. Examples of unsuccessful ‘due process’ defences to enforcement are, however, more numerous. In Minmetals Germany v Ferco Steel, [1999] CLC 647, the losing respondent in an arbitration in China opposed enforcement in England on the grounds that the award was founded on evidence that the arbitral tribunal had obtained through its own investigation. An English court rejected this defence on the basis that the respondent was eventually given an opportunity to ask for the disclosure of evidence at issue and comment on it, but declined to do so. The court held that the due process defence to enforcement was not intended to accommodate circumstances in which a party had failed to take advantage of an opportunity duly accorded to it.”
This Court’s judgment in Sohan Lal Gupta v. Asha Devi Gupta (2003) 7 SCC 492, lays down the ingredients of a fair hearing as follows:
“23. For constituting a reasonable opportunity, the following conditions are required to be observed:
Each party must have notice that the hearing is to take place.
Each party must have a reasonable opportunity to be present at the hearing, together with his advisers and witnesses. 3. Each party must have the opportunity to be present throughout the hearing.
Each party must have a reasonable opportunity to present evidence and argument in support of his own case.
Each party must have a reasonable opportunity to test his opponent’s case by cross-examining his witnesses, presenting rebutting evidence and addressing oral argument.
The hearing must, unless the contrary is expressly agreed, be the occasion on which the parties present the whole of their evidence and argument.”
A recent Delhi High Court judgment in Glencore International AG v.
Dalmia Cement (Bharat) Limited 2017 SCC OnLine Del 8932 puts it thus:
“25. The inability to present a case as contemplated under section 48(1)(b) of the Act (which is pari materia to Article V(I)(b) of the New York Convention) must be such so as to render the proceedings violative of the due process and principles of natural justice. It is rudimentary that for a fair decision each party must have full and equal opportunity to present their respective cases and this includes due notice of proceedings. In the event a party opposing the enforcement of a foreign award is able to present sufficient proof of such infirmity in the arbitral proceedings, the courts may decline to enforce the foreign award.
A clear distinction needs to be drawn between cases where a party is unable to present its case, rendering the arbitral award susceptible to challenge as falling foul of the minimal standards of due process/natural justice and cases where the arbitral tribunal does not accept the case sought to be set up by a party. The latter case, obviously, does not give rise to a ground as mentioned in section 48(1)(b) of the Act, even if the decision of the arbitral tribunal is erroneous.”
The English judgments advocate applying the test of a person being prevented from presenting its case by matters outside his control. This was done in Minmetals Germany GmbH v. Ferco Steel Ltd. (1999) C.L.C. 647 as follows:
“In my judgment, the inability to present a case to arbitrators within s.103(2)(c) contemplates at least that the enforcee has been prevented from presenting his case by matters outside his control. This will normally cover the case where the procedure adopted has been operated in a manner contrary to the rules of natural justice. Where, however, the enforcee has, due to matters within his control, not provided himself with the means of taking advantage of an opportunity given to him to present his case, he does not in my judgment, bring himself within that exception to enforcement under the convention. In the present case that is what has happened”
Likewise, in Ajay Kanoria v. Tony Guinness (2006) EWCA Civ 222 the Court of Appeal in England referred to Minmetals (supra) with approval as follows:
“23. There is not much authority on the meaning of section 103(2)(c) of the 1996 Act. In Minmetals Germany GmbH v Ferco Steel Ltd [1999] 1 All ER (Comm) 315 , 326, Colman J observed: “In my judgment, the inability to present a case to arbitrators within section 103(2)(c) contemplates at least that the enforcee has been prevented from presenting his case by matters outside his control. This will normally cover the case where the procedure adopted has been operated in a manner contrary to the rules of natural justice.””
An application of this test is found in Jorf Lasfar Energy Co. v. AMCI Export Corp. 2008 WL 1228930, where the U.S District Court, W.D.
Pennsylvania decided that if a party fails to obey procedural orders given by the arbitrator, it must suffer the consequences. If evidence is excluded because it is not submitted in accordance with a procedural order, a party cannot purposefully ignore the procedural directives of the decision-making body and then successfully claim that the procedures were unfair or violative of due process. Likewise, in Dongwoo Mann+Hummel Co. Ltd. v. Mann+Hummel GmbH (2008) SGHC 275, the Singapore High Court held:
“145. A deliberate refusal to comply with a discovery order is not per se a contravention of public policy because the adversarial procedure in arbitration admits of the possible sanction of an adverse inference being drawn against the party that does not produce the document in question in compliance with an order. The tribunal will of course consider all the relevant facts and circumstances, and the submissions by the parties before the tribunal decides whether or not to draw an adverse inference for the non- production. Dongwoo also had the liberty to apply to the High Court to compel production of the documents under s 13 and 14 of the IAA, if it was not content with merely arguing on the question of adverse inference and if it desperately needed the production by M+H of those documents for its inspection so that it could properly argue the point on drawing an adverse inference. However, Dongwoo chose not to do so.
Further, the present case was not one where a party hides even the existence of the damning document and then dishonestly denies its very existence so that the opposing party does not even have the chance to submit that an adverse inference ought to be drawn for non-production. M+H in fact disclosed the existence of the documents but gave reasons why it could not disclose them. Here, Dongwoo had the full opportunity to submit that an adverse inference ought to be drawn, but it failed to persuade the tribunal to draw the adverse inference. The tribunal examined the other evidence before it, considered the submissions of the parties and rightfully exercised its fact finding and decision making powers not to draw the adverse inference as it was entitled to do so. It would appear to me that the tribunal was doing nothing more than exercising its normal fact finding powers to determine whether or not an adverse inference ought to be drawn.”
Other English judgments deal with the expression “unable to present his case” as a breach of a facet of natural justice at the hearing stage only. Thus, in Gbangbola v. Smith and Sheriff 1998 3 All ER 730, the Court held:
“A tribunal does not act fairly and impartially if it does not give a party an opportunity of dealing with arguments which have not been advanced by either party. It is not suggested by the claimant contractor that either of the two points mentioned in the arbitrator’s letter was raised by it in the arbitration as being influential on the overall burden and determination of costs. Unless such an opportunity is given there is danger that the final result will not be determined fairly against the party who would be ordered to pay the costs. That is indeed the position as regards both the first and second points.” Likewise, in Bahman Irvani v. Ali Irvani 1999 WL 1142456, the Court found: “181. …Nor was it satisfactory that Mr Amin’s questions were only replied to with the award, instead of being dealt with in advance of the award so that comment could be advanced.”
Another facet of “unable to present his case” was stated in Van Der Giessen-De-Noord Shipbuilding Division B.V. v. Imtech Marine & Offshore B.V. (2008) EWHC 2904 (Comm). The UK Court held: “In those circumstances it has breached its duty of fairness by ignoring the agreed position of the parties that a claim under this head should not include the cabling for the HVAC equipment. In “double-counting” in this respect, the Tribunal has awarded Imtech more than it asked for, or could reasonably ask for. GN submits that the double-counting is probably a very significant part of the €1,000,000 awarded, on the basis that the Tribunal had previously awarded a larger amount under the HVAC claim (Claim 1, VTC 1). Whatever the size of the double-counting may be, it is unlikely to be minimal. I am satisfied that GN has been caused substantial injustice by having, on the face of the Award, to pay more than it should to Imtech for extra work.” This finding was given pursuant to Section 68 of the Arbitration Act, 1996 (U.K) by which a “serious irregularity” would lead to the award being set aside or remitted or being declared to be of no effect in whole or in part. 64. In Malicorp Limited v. Government of Arab Republic of Egypt (2015) EWHC 361 (Comm), the U.K Court held that the Government of Egypt had no warning of the manner in which the award was made.
The Court held:
“41. In these circumstances I have no doubt whatsoever that the award of damages under article 142 must have been a complete surprise to Egypt. So, too, must have been the basis upon which such an award was made – apportioning to the Republic 10% responsibility for the relevant mistake, and allowing as the major part of the award a substantial sum for loss of profit. It would have been astonishing, if there had been any suggestion that this was in contemplation, that Egypt would fail to protest that the tribunal ought to make a finding on its case on fraud rather than allocate responsibility on the footing of a good faith mistake on the part of Malicorp. It would similarly have been astonishing, if there had been any suggestion that damages in place of reinstatement were contemplated, that Egypt would fail to protest that such damages could not properly incorporate an element for loss of profit. There were undoubtedly strong arguments for Egypt to advance in these respects among others. The notion that, in the absence of any mention of these matters, Egypt could and should have anticipated the basis of proceeding adopted in the Cairo award, is to my mind manifestly repugnant to elementary principles of fairness.
The failure of the tribunal to ensure that Egypt had warning of these matters can only constitute a serious breach of natural justice. In so far as I have any discretion to enforce the award despite that breach, I decline to do so: the breach is too serious, and the consequences for Egypt are too grave. It is suggested that the hearing be reconvened so that Mr Soliman can give evidence and be cross-examined. I decline to take this course: for the reasons given above, Mr Soliman’s statement cannot assist Malicorp.” 65. The judgments from the Singapore Courts are also instructive. In Soh Beng Tee & Co. v. Fairmount Development Pte Ltd. (2007) SGCA 28, the Court fleshed out what was meant by “fair hearing” for the purposes of Section 48(1)(a)(vii) of the Arbitration Act, 2002 (Singapore) as follows:
“59. These cases must be read in the context of the current judicial climate which dictates that courts should not without good reason interfere with the arbitral process, whether domestic or international. It is incontrovertible that international practice has now radically shifted in favour of respecting and preserving the autonomy of the arbitral process in contrast to the earlier practice of enthusiastic curial intervention: see, for instance, Arbitration Act 1996 ([27] supra) at p 1 on the English position; and Robert Morgan, The Arbitration Ordinance of Hong Kong: A Commentary (Butterworths Asia, 1997) on the position in Hong Kong, which also essentially reflects the English practice. As rightly observed in Weldon Plant Ltd v The Commission for the New Towns [2001] 1 All ER (Comm) 264 (“Weldon”) at [22], “[a]n award should be read supportively … [and] given a reading which is likely to uphold it rather than to destroy it”. Similarly, in Vee Networks Ltd v Econet Wireless International Ltd [2005] 1 Lloyd’s Rep 192, the court, at [90], held: Above all it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused. To do so would be an entirely inappropriate inroad into the autonomy of the arbitral process. xxx xxx xxx
The foregoing survey of case law and principles may be further condensed into the following core principles: (a) Parties to arbitration have, in general, a right to be heard effectively on every issue that may be relevant to the resolution of a dispute. The overriding concern, as Goff LJ aptly noted in The Vimeira ([45] supra), is fairness. The best rule of thumb to adopt is to treat the parties equally and allow them reasonable opportunities to present their cases as well as to respond. An arbitrator should not base his decision(s) on matters not submitted or argued before him. In other words, an arbitrator should not make bricks without straw. Arbitrators who exercise unreasonable initiative without the parties’ involvement may attract serious and sustainable challenges.
(b) Fairness, however, is a multidimensional concept and it would also be unfair to the successful party if it were deprived of the fruits of its labour as a result of a dissatisfied party raising a multitude of arid technical challenges after an arbitral award has been made. The courts are not a stage where a dissatisfied party can have a second bite of the cherry.
(c) Indeed, the latter conception of fairness justifies a policy of minimal curial intervention, which has become common as a matter of international practice. To elaborate, minimal curial intervention is underpinned by two principal considerations. First, there is a need to recognise the autonomy of the arbitral process by encouraging finality, so that its advantage as an efficient alternative dispute resolution process is not undermined. Second, having opted for arbitration, parties must be taken to have acknowledged and accepted the attendant risks of having only a very limited right of recourse to the courts. It would be neither appropriate nor consonant for a dissatisfied party to seek the assistance of the court to intervene on the basis that the court is discharging an appellate function, save in the very limited circumstances that have been statutorily condoned. Generally speaking, a court will not intervene merely because it might have resolved the various controversies in play differently.
(d) The delicate balance between ensuring the integrity of the arbitral process and ensuring that the rules of natural justice are complied with in the arbitral process is preserved by strictly adhering to only the narrow scope and basis for challenging an arbitral award that has been expressly acknowledged under the Act and the IAA. In so far as the right to be heard is concerned, the failure of an arbitrator to refer every point for decision to the parties for submissions is not invariably a valid ground for challenge. Only in instances such as where the impugned decision reveals a dramatic departure from the submissions, or involves an arbitrator receiving extraneous evidence, or adopts a view wholly at odds with the established evidence adduced by the parties, or arrives at a conclusion unequivocally rejected by the parties as being trivial or irrelevant, might it be appropriate for a court to intervene. In short, there must be a real basis for alleging that the arbitrator has conducted the arbitral process either irrationally or capriciously. To echo the language employed in Rotoaira ([55] supra), the overriding burden on the applicant is to show that a reasonable litigant in his shoes could not have foreseen the possibility of reasoning of the type revealed in the award. It is only in these very limited circumstances that the arbitrator’s decision might be considered unfair.
(e) It is almost invariably the case that parties propose diametrically opposite solutions to resolve a dispute. They may expect the arbitrator to select one of these alternative positions. The arbitrator, however, is not bound to adopt an either/or approach. He is perfectly entitled to embrace a middle path (even without apprising the parties of his provisional thinking or analysis) so long as it is based on evidence that is before him. Similarly, an arbitrator is entitled – indeed, it is his obligation – to come to his own conclusions or inferences from the primary facts placed before him. In this context, he is not expected to inexorably accept the conclusions being urged upon him by the parties. Neither is he expected to consult the parties on his thinking process before finalising his award unless it involves a dramatic departure from what has been presented to him.
(f) Each case should be decided within its own factual matrix. It must always be borne in mind that it is not the function of the court to assiduously comb an arbitral award microscopically in attempting to determine if there was any blame or fault in the arbitral process; rather, an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied.” (emphasis supplied)
In JVL Agro Industries Ltd v. Agritrade International Pte Ltd.
(2016) SGHC 126, the Court held that the natural justice provision contained in Section 24(b) of the International Arbitration Act (Singapore) was breached when new points are taken up by the arbitrator, i.e. points not argued by either party, which formed the basis of the award. Since these new points were not put to the parties, natural justice was said to be breached in the facts of that case.
Likewise, in G.D. Midea Air Conditioning Equipment Co. v. Tornado Consumer Goods Ltd. (2017) SGHC 193, the Court found:
“65. A party seeking to set aside an arbitral award under Art 34(2)(a)(ii) of the Model Law or s 24(b) of the IAA must establish (a) which rule of natural justice was breached; (b) how that rule was breached; (c) in what way the breach was connected to the making of the award; and (d) how the breach prejudiced the party’s rights: Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [29]. 66. The crux of Midea’s case was that the Tribunal’s finding on cl 4.2 breached the fair hearing rule because Midea was denied a full opportunity to present its case. As stated earlier (see [62] above), the issue of a breach of cl 4.2 did not arise in the Arbitration; the Tribunal made its finding on cl 4.2 without giving notice to the parties. The Tribunal’s breach was clearly connected to the making of the Award as its finding on cl 4.2 was the basis upon which the impugned findings in the Award (including the finding that Midea was not entitled to terminate the MBA) were made. I agreed with Midea that the Tribunal’s finding on cl 4.2 was in breach of the rules of natural justice.”
A Hong Kong Judgment reported as Hebei Import & Export Corporation v. Polytek Engineering Company Ltd. (1992) 2 HKC 205, found that the tribunal in the course of proceedings received communications from only one party, in the absence of the other, the other party being kept in the dark as to what those communications were. On this point, therefore it was held:
“On the other hand, we think it is quite clear that the defendant did not have the opportunity of hearing what was presented to the Chief Arbitrator by the plaintiff’s employees during the inspection of the equipment and hence was not able to present its side of the case before the experts prepared their report. This was to some extent mitigated by the provision of a copy of the experts’ report and the chance to comment on it. But neither the reply from the Tribunal or the report mentioned what transpired during the briefing session. In the peculiar circumstances of this case, we think that the Tribunal should have held further hearings with regard to the matters which had arisen from the inspection and the experts’ report. There was no request or consent that an oral hearing could be omitted. In our view, the defendant has a legitimate complaint that there was a breach of Art 32 of the Arbitration rules and Art 45 of the PRC Arbitration Law. It can be said that the defendant did not have a proper opportunity to present its case to the Tribunal after the inspection and the compilation of the experts’ report.”
Shri Nakul Dewan, however, relied upon a number of judgments to buttress his submission that failure to deal with material issues would fall within Section 48(1)(b) of the Arbitration Act, as a result of which a foreign award could not be enforced. He cited Ascot Commodities NV v. Olam International Ltd. 2001 WL 1560709, for this proposition.
This judgment was delivered keeping in mind Section 68 of the Arbitration Act, 1996 (U.K), which states as follows:
“68. Challenging the award: serious irregularity. (1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award. A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3). (2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant— xxx xxx xxx
(d)failure by the tribunal to deal with all the issues that were put to it;” It was in this context that the Court held:
“Has the Board dealt with all essential issues? GAFTA findings are habitually brief. Many would regard that as a virtue. It is certainly not an irregularity. Nor is it incumbent on arbitrators to deal with every argument on every point raised. But an award should deal, however concisely, with all essential issues. One of the heads of serious irregularity recognised in section 68(2)(d) is “Failure by the tribunal to deal with all the issues that were put to it”. The central point raised by Ascot on its appeal was that if the bills of lading were pledged as security, as appears on the face of the October 1998 contract, Olam’s loss was not to be approached in the same way as if they were beneficial owners of the cargo. The point has, with respect, not been addressed…Since the whole process of arbitration is intended as a way of determining points at issue, it is more likely to be a matter of serious irregularity if on a central matter a finding is made on a basis which does not reflect the case which the party complaining reasonably thought he was meeting, or a finding is ambiguous, or an important issue is not addressed, than if the complaints go simply to procedural matters. Mr Young submitted that Ascot’s real complaint is that its arguments were not accepted and that this cannot be an irregularity. He noted that there has been no application for permission to appeal. He also submitted that if the terseness of the Board’s findings made it legitimate for Ascot to have requested further reasons, they could have asked for them but have not done so.
On a fair reading of the award it seems to me that this is not case in which the tribunal has directed itself to, and rejected, the central issue argued by Ascot but has, in truth, missed it…But if an award, as delivered, fails to contain a finding on a central issue, it would be odd to ask for reasons for something which is not there.”
Likewise, in Zebra Industries v. Wah Tong Paper Products Group Ltd. (2012) HKCU 1308, the Hong Kong Statute, namely, Section 23(2) of Old Arbitration Ordinance (Cap 391), enabled an award to be set aside on the ground of error of law. In this context, it was held:
“44. In light of Zebra’s above submissions, the question of law that arises is whether the arbitrator was wrong in law in failing to take into account of the Venture Capital Clauses in determining Zebra’s claim for damages. xxx xxx xxx
In my view, properly looked at, a claim on damages for breach of the Agreement based on and by reference to the Venture Capital Clauses had been put forward by Zebra in the SD. xxx xxx xxx
In the circumstances, I think the arbitrator has also committed an error of law in failing to consider and address this part of Zebra’s claim for consequential damages, if any, for the loss of chance in securing a venture capital fund investment and the listing of the company.
I would therefore also remit this part of the Award to the arbitrator for his reconsideration. These issues for reconsideration are closely tied with the assessment of the relevant parts of the evidence on the alleged loss of chance, if any, and should best be dealt with by the arbitrator. In doing so, the arbitrator should take into account of the Venture Capital Clauses to consider and decide this part of Zebra’s claim for consequential damages as mentioned in paragraph 42 above.”
In A v. B (2015) 3 HKLRD 586, the Court held:
“33. It is fundamental to concepts of fairness, due process and justice, as recognized in Hong Kong, that key and material issues raised for determination, either by a court or the arbitral tribunal, should be considered and dealt with fairly. An award should be reasoned, to the extent of being reasonably sufficient and understandable by the parties (ie within the confines set out in R v F [2012] 5 HKLRD 278). Under Article 33(2) of the Model Law, the award should state the reasons upon which it is based. Having carefully considered the Award, I have to agree that the parties are entitled to query whether the Limitation Defence had been considered at all by the Arbitrator, and if rejected by the Arbitrator after due consideration, why it was rejected. The process of arbitration is intended as a way of determining disputes and points at issue, and I agree with the sentiments expressed by the court in Ascot Commodities NV v Olam International Ltd [2002] CLC 277 and in Van der Giessen-de Noord Shipbuilding Division BV v Imtech Marine and Off shore BV [2009] 1 Lloyd’s Rep 273 that it is a serious irregularity and a denial of due process which causes substantial injustice and unfairness to the parties, if an important issue, which the parties are entitled to expect to be addressed, is not in fact addressed.
Even if the Arbitrator finds in favor of B on all its claims of A’s inability and failure to deliver the Products in compliance with the Relevant Standards and conforming to the contractual specifications, and A’s failure to develop the Products pursuant to its contractual obligations, B’s action against A and its claims for remedies in the Arbitration will fail, if the Limitation Defence succeeds. The Limitation Defence is a material point and issue which could have rendered the Award materially different, and the failure to consider it, or to explain the dismissal of the Limitation Defence, results in unfairness to A, as well as a real risk of injustice and prejudice to its case. Based on what was set out in the Reasons for the Award and the materials before the Tribunal, it cannot be said that it is plain and obvious, or beyond any doubt, that the Award would have been the same, if the Limitation Defence had been considered (Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd [2011] 1 HKLRD 707; Paklito Investment Ltd v Kolckner East Asia Ltd [1993] 2 HKLR 49). This is not a case in which different defences are raised, any one of which would have defeated the claims made, such that the failure to deal with any one of the other defences would not have made any difference to the award.
For the above reasons, I consider that there is sufficient injustice arising out of the Award, in its current form, which cannot be overlooked by the Court’s conscience, and that enforcement of the Award would offend our notions of justice.” This finding was given under Article 34(2)(b) of the UNCITRAL Model Law on International Commercial Arbitration, 1985 which states as follows:
“Article 34. Application for setting aside as exclusive recourse against arbitral award
An arbitral award may be set aside by the court specified in article 6 only if: (b) the court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or (ii) the award is in conflict with the public policy of this State.”
Shri Dewan strongly relied upon judgments from Singapore in support of the proposition that non-consideration of material issues would amount to a breach of natural justice and, therefore, would fit within the ground mentioned in Section 48(1)(b). In Front Row Investment Holdings v. Daimler South East Asia (2010) SGHC 80, the Singapore High Court decided whether there was a breach of natural justice in connection with the making of the award by which the rights of any party has been prejudiced under Section 48(1)(a)(vii) of the Arbitration Act, 2002 (Singapore). It referred to breach of natural justice if an award was set aside on a basis not raised or contemplated by the parties since the affected party would have been deprived of its opportunity to be heard. It then held that the corollary of this would be that an arbitral tribunal will be in the breach of natural justice if in the course of reaching its decision it disregarded the submissions and arguments made by the parties on the issues without considering the merits thereof. For this, it relied upon three Australian cases and an earlier judgment which considered these three cases. The Court then concluded:
“53. As I have concluded earlier, an arbitrator’s failure to consider material arguments or submissions is a breach of natural justice. In the present case, the Arbitrator had dismissed Front Row’s counterclaim without considering the grounds of its counterclaim in full because he was under the misapprehension that Front Row had abandoned its reliance on the Representation. Had he not been mistaken, he would have had to decide whether or not the Representation was false. A decision that there had been a misrepresentation in regard thereto would have resulted in an award in favour of Front Row, assuming the other ingredients for a successful claim (viz, “reliance” and “detriment”) were satisfied. It was not for me to delve further into the question whether Front Row’s reliance upon the Representation would have succeeded but for the arbitrator’s misrepresentation. It sufficed that the Arbitrator failed to consider such a material ground. That alone was sufficient prejudice to Front Row. 54. In the result, I allowed Front Row’s application and ordered that the part of the Award dealing with Front Row’s counterclaim and with costs of the Arbitration be set aside as a whole. I further ordered that the part of the Award so set aside be tried afresh by a newly appointed arbitrator. Finally, I also ordered that the costs of and incidental to Front Row’s application be paid by Daimler to Front Row.”
In TMM Division Maritime SA v. Pacific Richfield Marine Pte Ltd. (2013) SGHC 186, the Singapore High Court referred to Section 24(b) of the International Arbitration Act (Singapore), which requires an award to be set aside if the rules of natural justice are breached. In arriving at its conclusion under the caption “General Principles of Curial Scrutiny”, the Court held “However, it does not follow, and neither do I accept, that this process always entails sifting through the entire record of the arbitral proceedings with a fine-tooth comb.” (See paragraph 42). The Court also held, “the Court should not nit-pick at the award. Infelicities are to be expected and are generally irrelevant to the merits of any challenges” (See paragraph 45). The Court went on to hold that the high standard of cogent reasons required by the judiciary should not be applied to arbitration awards (See paragraph
102). The Court then outlined what standards could be applied to arbitral awards as follows:
“103. The Singapore Court of Appeal’s decision in Thong Ah Fat v Public Prosecutor [2012] 1 SLR 676 (“Thong Ah Fat”) which sets out the scope and content of the court’s duty to give reasons offers, in my view, an instructive parallel. I note in passing that Professor Jeffrey Waincymer suggests that it is unhelpful to define the content of arbitrators’ duty to give reasons by reference to judicial standards: Waincymer at para 16.9.3. In support of his view, he referred to the High Court of Australia decision of Westport Insurance Corporation & Ors v Gordian Runoff Limited [2011] HCA 37 where Kiefel J stated (at [168]–[169]) that there is nothing in the relevant Australian legislation, the Commercial Arbitration Act 1984, which stipulates that the standard for giving reasons in arbitration should be the same as the judicial standard. The same is true of the IAA but as the court in Thong Ah Fat held (at [19]), the general duty of a judicial body to explain its decision is ineluctably “a function of due process, and therefore of justice”. While there are structural differences between a court and an arbitral tribunal, it cannot be gainsaid that arbitrations are subject to the same ideals of due process and justice. It bears mentioning that Kiefel J concluded that the requirement to give a reasoned award cannot be devoid of content and for that reason, he was content to adopt Donaldson LJ’s statement in Bremer (see [101] above).
Therefore, in my view, the standards applicable to judges are assistive indicia to arbitrators. While the rules of natural justice must be applied rigorously in arbitrations as they are in court litigation, the practical realities of the arbitral ecosystem such as promptness and price are also important (see Soh Beng Tee at [63]). On this note, the following are clear from Thong Ah Fat:
(a) The standard of explanation required in every case must correspond to the requirements of the case. Costs and delays are relevant factors to consider when determining the extent to which reasons and explanations are to be set out in detail: at [29]–[30].
(b) In “very clear cases” with specific and straightforward factual or legal issues, the court may even dispense with reasons. Its conclusion will be sufficient because the reasons behind the conclusion are a matter of necessary inference: at [32].
(c) Decisions or findings which do not bear directly on the substance of the dispute or affect the final resolution of the parties’ rights may not require detailed reasoning. As a rule of thumb, the more profound the consequences of a specific decision, the greater the necessity for detailed reasoning: at [33].
(d) There should be a summary of all the key relevant evidence but not all the detailed evidence needs to be referred to: at [34].
(e) The parties’ opposing stance and the judge’s findings of fact on the material issues should be set out. However, the judge does not have to make an explicit ruling on each and every factual issue: at [35]– [36].
(f) The decision should demonstrate an examination of the relevant evidence and the facts found with a view to explaining the final outcome on each material issue: at [36].”
In AKN & Anr. v. ALC & Ors. (2015) SGCA 18, the Singapore High Court, again in considering the natural justice requirement contained in Section 24(b) of the International Arbitration Act (Singapore), held as follows:
“38. In particular, there is no right of appeal from arbitral awards. That is not to say that the courts can never intervene. However, the grounds for curial intervention are narrowly circumscribed, and generally concern process failures that are unfair and prejudice the parties or instances where the arbitral tribunal has made a decision that is beyond the scope of the arbitration agreement. It follows that, from the courts’ perspective, the parties to an arbitration do not have a right to a “correct” decision from the arbitral tribunal that can be vindicated by the courts. Instead, they only have a right to a decision that is within the ambit of their consent to have their dispute arbitrated, and that is arrived at following a fair process.” (emphasis supplied) It then dealt with failure to consider important issues as follows: “46. To fail to consider an important issue that has been pleaded in an arbitration is a breach of natural justice because in such a case, the arbitrator would not have brought his mind to bear on an important aspect of the dispute before him. Consideration of the pleaded issues is an essential feature of the rule of natural justice that is encapsulated in the Latin adage, audi alteram partem (see also Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [43], citing Gas & Fuel Corporation of Victoria v Wood Hall Ltd & Leonard Pipeline Contractors Ltd [1978] VR 385 at 386). Front Row is useful in so far as it demonstrates what must be shown to make out a breach of natural justice on the basis that the arbitrator failed to consider an important pleaded issue. It will usually be a matter of inference rather than of explicit indication that the arbitrator wholly missed one or more important pleaded issues. However, the inference – that the arbitrator indeed failed to consider an important pleaded issue – if it is to be drawn at all, must be shown to be clear and virtually inescapable. If the facts are also consistent with the arbitrator simply having misunderstood the aggrieved party’s case, or having been mistaken as to the law, or having chosen not to deal with a point pleaded by the aggrieved party because he thought it unnecessary (notwithstanding that this view may have been formed based on a misunderstanding of the aggrieved party’s case), then the inference that the arbitrator did not apply his mind at all to the dispute before him (or to an important aspect of that dispute) and so acted in breach of natural justice should not be drawn. 47. Front Row was recently considered in AQU v AQV [2015] SGHC 26 (“AQU”), where the High Court judge distilled the very principles which we have just enunciated above (see AQU at [30]–[35]). The judge in AQU also considered the High Court decision of TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 (“TMM”), and reiterated the proposition that no party to an arbitration had a right to expect the arbitral tribunal to accept its arguments, regardless of how strong and credible it perceived those arguments to be (see AQU at [35], citing TMM at [94]). This principle is important because it points to an important distinction between, on the one hand, an arbitral tribunal’s decision to reject an argument (whether implicitly or otherwise, whether rightly or wrongly, and whether or not as a result of its failure to comprehend the argument and so to appreciate its merits), and, on the other hand, the arbitral tribunal’s failure to even consider that argument. Only the latter amounts to a breach of natural justice; the former is an error of law, not a breach of natural justice. xxx xxx xxx
With respect, poor reasoning on the part of an arbitral tribunal is not a ground to set aside an arbitral award; even a misunderstanding of the arguments put forward by a party is not such a ground. As noted by this court in BLC at [86], the court “is not required to carry out a hypercritical or excessively syntactical analysis of what the arbitrator has written” when considering whether an arbitral award should be set aside for breach of natural justice. Neither should it approach an arbitral award with a “meticulous legal eye endeavouring to pick holes, inconsistencies and faults … with the objective of upsetting or frustrating the process of arbitration” (likewise at [86] of BLC). Taking these considerations into account, we find no breach of natural justice as there is no basis for concluding that the Tribunal did not consider the Liquidator’s Primary Argument. Accordingly, we answer Appeal Issue 1 affirmatively.” (emphasis supplied) 74. In BAZ v. BBA & Ors. (2018) SGHC 275, again with reference to Section 24(b) of the International Arbitration Act (Singapore), the Court approached the issue of natural justice as follows:
“133. It is well established that to succeed in a claim under s 24(b) of the IAA, the claimant needs to establish the following four elements (see Soh Beng Tee at [29]; AKN v ALC 2015 at [48]): (a) which rule of natural justice was breached; (b) how it was breached; (c) in what way the breach was connected to the making of the award; and (d) how the breach prejudiced its rights.
The failure to consider an important issue that has been pleaded in an arbitration is a breach of natural justice because in such a case, the arbitrator would not have brought his mind to bear on an important aspect of the dispute before him (AKN v ALC 2015 at [46]). It will usually be a matter of inference rather than of explicit indication that the arbitrator wholly missed one or more important pleaded issues. However, this inference must be shown to be “clear and virtually inescapable” (AKN v ALC 2015 at [46]). The Court of Appeal cautioned against arguments dressed up to appear as breaches of natural justice: if the facts are also consistent with the arbitrator simply having misunderstood the aggrieved party’s case, or having been mistaken as to the law, or having chosen not to deal with a point pleaded by the aggrieved party because he thought it unnecessary, then the inference that the arbitrator did not apply his mind at all to the dispute before him or to an important aspect of that dispute and so acted in breach of natural justice should not be drawn. xxx xxx xxx
Although the Majority did not comment on the legal basis for the application of a discount rate, it does not mean that it did not consider the issue. A tribunal does not have to give responses on all submissions made (SEF Construction Pte Ltd v Skoy Connected Pte Ltd [2010] 1 SLR 733 at [60]). xxx xxx xxx
The legal area concerning the enforcement and setting aside of awards is governed by statute, namely the Arbitration Act (Cap 10, 2002 Rev Ed) and the IAA. As such, the conceptual framework outlined in UKM can be helpful to navigate public policy considerations in arbitration, even though the subject matter of the public policies that can be raised under Art 34(2)(b)(ii) of the Model Law and Art V(2)(b) of the New York Convention may include both socio-economic policies and legal policies. When a challenge on the ground of public policy is brought, the outline draws attention to the importance of conducting a forensic exercise to identify whether the alleged public policy exists, and the criteria influencing the identification as explained in UKM are applicable. The balancing exercise in the context of arbitration is between the policy of enforcing arbitral awards – as encapsulated in s 19B(1) of the IAA which states that awards are “final and binding on the parties” and the judicial policy of minimal curial intervention – and the alleged public policy which the award purportedly violates. This balance is generally in favour of the policy of enforcing arbitral awards, and only tilts in favour of the countervailing public policy where the violation of that policy would “shock the conscience” or would be contrary to “the forum’s most basic notion of morality and justice”. In determining whether the balance tilts towards the countervailing public policy, it is important to consider both the subject nature of the public policy, the degree of violation of that public policy and the consequences of the violation.”
In Campos Brothers Farms v. Matru Bhumi Supply Chain Pvt. Ltd.
(2019) 261 DLT 201, the Delhi High Court had to consider the enforcement of a foreign award. The arbitrator in the aforesaid case did not give any finding on maintainability of the arbitration proceedings, which was argued before her. In this fact circumstance, the Delhi High Court held:
“55. In any case, the respondent nos. 1 and 2 had also made submissions on merit before the Arbitrator. Though the learned counsel for the petitioner submitted that the same were rightly excluded from consideration by the Arbitrator as the Arbitrator had never sought for the same, the Award does not reflect any such reason given by the Arbitrator for excluding them from consideration. The Arbitrator does not record a finding that she has intentionally ignored such submissions as they were filed belatedly or beyond what was permitted. In fact, as noted above, as per the Arbitrator no submission was filed by the respondents by 13.06.2016, which is factually incorrect.
In exercise of powers under Section 48 of the Act, this Court cannot consider the submissions made by the respondent nos. 1 and 2 in their e-mail dated 13.06.2016 on merit as if it is a Court of Original Jurisdiction and find out whether such submission of the respondent nos. 1 and 2 had any merit or not. Once it is found that the Arbitrator has ignored the submissions of a party in totality, whatever be the merit of the submissions, in my opinion, such Award cannot be enforced being in violation of the Principles of Natural Justice and contrary to the public policy of India as stated in sub-Section 2(b) read with Explanation 1(iii) of Section 48 of the Act. xxx xxx xxx
It may be correct that the Arbitrator, upon considering evidence led before it by the parties, comes to a conclusion that in the given facts the transaction, though under different Contracts, is one or that the corporate veil deserves to be lifted, however, for arriving at such a finding the Arbitrator has to give reasons for the same. This Court, in exercise of its power under Section 48 and 49 of the Act, cannot supplant such reasons by considering the claims and defence of the parties on merit. Whether the request of the respondent no. 1 to the petitioner to make shipments in the name of respondent no. 2 under Contracts that had been executed between the petitioner and respondent no. 1, would entitle the petitioner to file a consolidated statement of claim against respondent nos. 1 and 2 or not, was an issue to be determined by the Arbitrator and reasons for such determination were to be given in the Award. From a reading of the Award it seems that the Arbitrator was neither alive to the issue whether such claims against different Contracts can be consolidated as one, nor was she alive to the fact that joint and several liability cannot be fastened on respondent nos. 1 and 2 without lifting the corporate veil and giving reasons for the same. The Award in question clearly qualifies as a non speaking Award.
xxx xxx xxx
In any case, as noted above, if the arbitrator had considered this issue giving reasons therefore, this Court may not have the power under Section 48 of the Act to test the validity of such reasons, however, the present is the case where the arbitrator has not only not given any reasons for her conclusion but infact, the Award indicates that the Arbitrator is not even alive to such an issue.” Thus, the ground on which the award was set aside for failure to consider a material issue relating to maintainability of the arbitral proceedings was pigeon-holed not under Section 48(1)(b), but under the “public policy of India” ground, stating that such a thing would violate the most basic notion of justice.
Given the fact that the object of Section 48 is to enforce foreign awards subject to certain well-defined narrow exceptions, the expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties. Read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered, as has been held in Ssangyong (supra). A good working test for determining whether a party has been unable to present his case is to see whether factors outside the party’s control have combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an argument which goes to the root of the case or findings based on evidence which go behind the back of the party and which results in a denial of justice to the prejudice of the party; or additional or new evidence is taken which forms the basis of the award on which a party has been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award liable to be set aside on the ground that a party has been unable to present his case. This must, of course, be with the caveat that such breach be clearly made out on the facts of a given case, and that awards must always be read supportively with an inclination to uphold rather than destroy, given the minimal interference possible with foreign awards under Section 48.
All the cases cited by Mr. Nakul Dewan are judgments based on the language of the particular statute reflected in each of them – for example, Section 68 of the Arbitration Act, 1996 (U.K), Section 23(2) of the Hong Kong Old Arbitration Ordinance (Cap 391), Section 24(b) of the International Arbitration Act (Singapore) and Section 48(1)(a)(vii) of the Arbitration Act, 2002 (Singapore), all of which are differently worded from Section 48(1)(b). Each of these statutes deal with a breach of natural justice which, as we have seen, is a wider expression than the expression “unable to present his case”. Thus, it is not possible to hold that failure to consider a material issue would fall within the rubric of Section 48(1)(b).
Having said this, however, if a foreign award fails to determine a material issue which goes to the root of the matter or fails to decide a claim or counter-claim in its entirety, the award may shock the conscience of the Court and may be set aside, as was done by the Delhi High Court in Campos (supra) on the ground of violation of the public policy of India, in that it would then offend a most basic notion of justice in this country1. It must always be remembered that poor 1 In Sssangyong (supra), this Court cautioned that this ground would only be attracted with the following caveat:
“48. However, when it comes to the public policy of India argument based upon “most basic notions of justice”, it is clear that this ground can be attracted only in very reasoning, by which a material issue or claim is rejected, can never fall in this class of cases. Also, issues that the tribunal considered essential and has addressed must be given their due weight – it often happens that the tribunal considers a particular issue as essential and answers it, which by implication would mean that the other issue or issues raised have been implicitly rejected. For example, two parties may both allege that the other is in breach. A finding that one party is in breach, without expressly stating that the other party is not in breach, would amount to a decision on both a claim and a counter-
claim, as to which party is in breach. Similarly, after hearing the parties, a certain sum may be awarded as damages and an issue as to interest may not be answered at all. This again may, on the facts of a given case, amount to an implied rejection of the claim for interest.
The important point to be considered is that the foreign award must be read as a whole, fairly, and without nit-picking. If read as a whole, the said award has addressed the basic issues raised by the parties and has, in substance, decided the claims and counter-claims of the parties, enforcement must follow.
exceptional circumstances when the conscience of the Court is shocked by infraction of fundamental notions or principles of justice… However, we repeat that this ground is available only in very exceptional circumstances, such as the fact situation in the present case. Under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits of the dispute which, as we have seen, is contrary to the ethos of Section 34 of the 1996 Act, as has been noted earlier in this judgment.” Violation of FEMA Rules
It has been argued by the Appellants, based on the Non-Debt Instrument Rules, that a foreign award by which shares have to be purchased at a discounted value, would violate the aforesaid Rules, and therefore, would amount to a violation of the fundamental policy of Indian law. Resultantly, the Appellants contended that as a result of this, the award in the present case would not be enforceable in India.
The relevant provisions of the aforesaid rules are set out hereinbelow:
“2. Definitions: xxx xxx xxx (ac) “investment” means to subscribe, acquire, hold or transfer any security or unit issued by a person resident in India; Explanation:- (i) Investment shall include to acquire, hold or transfer depository receipts issued outside India, the underlying of which is a security issued by a person resident in India; (ii) for the purpose of LLP, investment shall mean capital contribution or acquisition or transfer of profit shares; xxx xxx xxx
Restriction on investment in India by a person resident outside India.- Save as otherwise provided in the Act or rules or regulations made thereunder, no person resident outside India shall make any investment in India : Provided that an investment made in accordance with the Act or the rules or the regulations made thereunder and held on the date of commencement of these rules shall be deemed to have been made under these rules and shall accordingly be governed by these rules: Provided further that the Reserve Bank may, on an application made to it and for sufficient reasons and in consultation with the Central Government, permit a person resident outside India to make any investment in India subject to such conditions as may be considered necessary.
xxx xxx xxx
Transfer of equity instruments of an Indian company by or to a person resident outside India.- A person resident outside India holding equity instruments of an Indian company or units in accordance with these rules or a person resident in India, may transfer such equity instruments or units so held by him in compliance with the conditions, if any, specified in the Schedules of these rules and subject to the terms and conditions prescribed hereunder: (3) A person resident in India holding equity instruments of an Indian company or units, may transfer the same to a person resident outside India by way of sale, subject to the adherence to entry routes, sectoral caps or investment limits, pricing guidelines and other attendant conditions as applicable for investment by a person resident outside India and documentation and reporting requirements for such transfers as may be specified by the Reserve Bank in consultation with the Central Government from time to time;
xxx xxx xxx
Pricing guidelines – (1) The pricing guidelines specified in these rules shall not be applicable for any transfer by way of sale done in accordance with Securities and Exchange Board of India regulations where the pricing is specified by Securities and Exchange Board of India.
(2) Unless otherwise prescribed in these rules, the price of equity instruments of an Indian company, – xxx xxx xxx
(b) transferred from a person resident in India to a person resident outside India shall not be less than,- xxx xxx xxx
(iii) the valuation of equity instruments done as per any internationally accepted pricing methodology for valuation on an arm’s length basis duly certified by a Chartered Accountant or a Merchant Banker registered with the Securities and Exchange Board of India or a practising Cost Accountant, in case of an unlisted Indian company.”
Based on the aforesaid Rules, the Appellants have argued that the transfer of shares from the Karias, who are persons resident in India, to the Respondent No.1, who is a person resident outside India, cannot be less than the valuation of such shares as done by a duly certified Chartered Accountant, Merchant Banker or Cost Accountant, and, as the sale of such shares at a discount of 10% would violate Rule 21(2)(b)(iii), the fundamental policy of Indian law contained in the aforesaid Rules would be breached; as a result of which the award cannot be enforced.
Before answering this question, it is important to first advert to the decision of the Delhi High Court in Cruz (supra). The learned Single Judge was faced with a similar problem of a foreign award violating the provisions of FEMA. In an exhaustive analysis, the learned Single Judge referred to Renusagar (supra) and then held:
“97.It plainly follows from the above that a contravention of a provision of law is insufficient to invoke the defence of public policy when it comes to enforcement of a foreign award. Contravention of any provision of an enactment is not synonymous to contravention of fundamental policy of Indian law. The expression fundamental Policy of Indian law refers to the principles and the legislative policy on which Indian Statutes and laws are founded. The expression “fundamental policy” connotes the basic and substratal rationale, values and principles which form the bedrock of laws in our country.
It is necessary to bear in mind that a foreign award may be based on foreign law, which may be at variance with a corresponding Indian statute. And, if the expression “fundamental policy of Indian law” is considered as a reference to a provision of the Indian statue, as is sought to be contended on behalf of Unitech, the basic purpose of the New York Convention to enforce foreign awards would stand frustrated. One of the principal objective of the New York Convention is to ensure enforcement of awards notwithstanding that the awards are not rendered in conformity to the national laws. Thus, the objections to enforcement on the ground of public policy must be such that offend the core values of a member State’s national policy and which it cannot be expected to compromise. The expression “fundamental policy of law” must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy and not a provision of any enactment. xxx xxx xxx
Although, this contention appears attractive, however, fails to take into account that there has been a material change in the fundamental policy of exchange control as enacted under FERA and as now contemplated under FEMA. FERA was enacted at the time when the India’s economy was a closed economy and the accent was to conserve foreign exchange by effectively prohibiting transactions in foreign exchange unless permitted. As pointed out by the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. (supra), the object of FERA was to ensure that the nation does not lose foreign exchange essential for economic survival of the nation. With the liberalization and opening of India’s economy it was felt that FERA must be repealed. FERA was enacted to replace the Foreign Exchange Regulation Act, 1947 which was originally enacted as a temporary measure. The Statement of Objects and Reasons of FERA indicate that FERA was enacted as the RBI had suggested and Government had agreed on the need for regulating, among other matters, the entry of foreign capital in the form of branches and concerns with substantial non- resident interest in them, the employment of foreigners in India etc. xxx xxx xxx
The contention that enforcement of the Award against Unitech must be refused on the ground that it violates any one or the other provision of FEMA, cannot be accepted; but, any remittance of the money recovered from Unitech in enforcement of the Award would necessarily require compliance of regulatory provisions and/or permissions.”
This reasoning commends itself to us. First and foremost, FEMA –
unlike FERA – refers to the nation’s policy of managing foreign exchange instead of policing foreign exchange, the policeman being the Reserve Bank of India under FERA. It is important to remember that Section 47 of FERA no longer exists in FEMA, so that transactions that violate FEMA cannot be held to be void. Also, if a particular act violates any provision of FEMA or the Rules framed thereunder, permission of the Reserve Bank of India may be obtained post-facto if such violation can be condoned. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in law. This being the case, a rectifiable breach under FEMA can never be held to be a violation of the fundamental policy of Indian law. Even assuming that Rule 21 of the Non-Debt Instrument Rules requires that shares be sold by a resident of India to a non-resident at a sum which shall not be less than the market value of the shares, and a foreign award directs that such shares be sold at a sum less than the market value, the Reserve Bank of India may choose to step in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach. Further, even if the Reserve Bank of India were to take action under FEMA, the non-enforcement of a foreign award on the ground of violation of a FEMA Regulation or Rule would not arise as the award does not become void on that count. The fundamental policy of Indian law, as has been held in Renusagar (supra), must amount to a breach of some legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised. “Fundamental Policy” refers to the core values of India’s public policy as a nation, which may find expression not only in statutes but also time-honoured, hallowed principles which are followed by the Courts. Judged from this point of view, it is clear that resistance to the enforcement of a foreign award cannot be made on this ground.
The Appellants, however, relied upon certain observations in Dropti Devi v. Union of India (2012) 7 SCC 499. In that case, a challenge was made to the constitutional validity of Section 3 of Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (hereinafter referred to as “COFEPOSA”), stating that by reason of the new legal regime articulated in FEMA, in replacement of FERA, the said provision has become unconstitutional in the changed situation.
This submission was repelled by this Court stating:
“66. It is true that provisions of FERA and FEMA differ in some respects, particularly in respect of penalties. It is also true that FEMA does not have provision for prosecution and punishment like Section 56 of FERA and its enforcement for default is through civil imprisonment. However, insofar as conservation and/or augmentation of foreign exchange is concerned, the restrictions in FEMA continue to be as rigorous as they were in FERA. FEMA continues with the regime of rigorous control of foreign exchange and dealing in the foreign exchange is permitted only through authorised person. While its aim is to promote the orderly development and maintenance of foreign exchange markets in India, the Government’s control in matters of foreign exchange has not been diluted. The conservation and augmentation of foreign exchange continues to be as important as it was under FERA. The restrictions on the dealings in foreign exchange continue to be as rigorous in FEMA as they were in FERA and the control of the Government over foreign exchange continues to be as complete and full as it was in FERA. 67. The importance of foreign exchange in the development of a country needs no emphasis. FEMA regulates the foreign exchange. The conservation and augmentation of foreign exchange continue to be its important theme. Although contravention of its provisions is not regarded as a criminal offence, yet it is an illegal activity jeopardising the very economic fabric of the country. For violation of foreign exchange regulations, penalty can be levied and its non- compliance results in civil imprisonment of the defaulter. The whole intent and idea behind Cofeposa is to prevent violation of foreign exchange regulations or smuggling activities which have serious and deleterious effect on national economy.” It is important to note that this Court recognized that FEMA, unlike FERA, does not have any provision for prosecution and punishment like that contained in Section 56 of FERA. The observations as to conservation and/or augmentation of foreign exchange, so far as FEMA is concerned, were made in the context of preventive detention of persons who violate foreign exchange regulations. The Court was careful to note that any illegal activity which jeopardises the economic fabric of the country, which includes smuggling activities relating to foreign exchange, are a serious menace to the nation and can be dealt with effectively, inter alia, through the mechanism of preventive detention. From this to contend that any violation of any FEMA Rule would make such violation an illegal activity does not follow. In fact, even if the reasoning contained in this judgment is torn out of its specific context and applied to this case, there being no alleged smuggling activity which involves depletion of foreign exchange, as against foreign exchange coming into the country as a result of sale of shares in an Indian company to a foreign company, it does not follow that such violation, even if proved, would breach the fundamental policy of Indian law.
Challenge to Enforcement of the Foreign Award in this case on facts
Dr. Singhvi and Shri Dewan arguing for the Appellants have raised fourteen submissions, all of which fall under Section 48(1)(b) read with Explanation 1 (ii) and (iii) to Section 48(2)(b) of the Arbitration Act, taken either cumulatively as grounds of objection or separately, depending upon the nature of the ground argued. We now deal with each of these grounds seriatim.
I. The Tribunal failed to deal with the Appellants’ counter-claim pertaining to the incorporation of Jaguar Communication Consultancy Services Private Limited.
According to the Appellants, this ground of objection – i.e. the incorporation of Jaguar – was pleaded by them as a “concealed breach”, which became known to them only at a much later stage of the arbitral proceedings. Despite the tribunal specifically ruling in the First Partial Final Award that a non-defaulting party could rely on a “concealed breach” and treat the same as an unrectified event of default under clause 23.4 of the JVA, the submission made by the Appellant in this behalf was ignored in its entirety. This was countered by Respondent No.1 by stating that there was no “concealed breach” at all, inasmuch as, as early as 05.10.2012, the Appellant had filed a request calling upon the Respondent to produce documents which included the list of clients, employees and disclosure of business activities of Jaguar. These documents were called for in order to buttress the case of the Appellant that the Respondent was in breach of clause 21.1 of the JVA, and to ascertain whether the employees of Jaguar were passing on Ravin’s confidential information to Jaguar. In response to this request, on 12.10.2012, the Respondent stated that no case of breach of clause 21.1 of the JVA had been pleaded; that Jaguar does not have any business of producing cables; and that it had been set up for the sole purpose of hiring office premises. The Memorandum of Association and the Articles of Association of Jaguar were also handed over to the Appellants. What was stressed is that at no time after 12.10.2012 did the Appellants seek the leave of the tribunal to amend their counter-claim.
It must be remembered that the First Partial Final Award was made only on 15.02.2013. When the Respondent No.1 made its oral submissions and filed written closing submissions on 19.07.2013, the Appellants did not plead any case of breach due to Jaguar. It was only at the fag end, i.e. in the Appellants’ Responsive Closing Submissions, filed on 20.08.2013, that the tribunal was invited to rule on this breach.
Obviously, by this time, the Respondent did not have any opportunity to controvert this case put up for the first time by the Appellants. Since this case had been put up for the first time at the fag end of the proceedings, before passing of the Second Partial Final Award dated 19.12.2013, the arbitrator cannot be faulted for not dealing with this case. In the Second Partial Final Award, the tribunal also recorded that the Appellants’ case on clause 21.1 was limited to the acquisition of ACPL and direct sales into India. The argument of the Appellant, made at the fag end of the proceedings, that since the Respondent held 99.99 % shares of Jaguar, which is in a similar cable business as Ravin, as evidenced by the Memorandum and Articles of Association of Jaguar, is a case that has never been pleaded. This being the case, it is obvious that the arbitrator was within his jurisdiction not to deal with this so-called counter-claim at all. This objection, therefore, does not fall within any of the grounds mentioned in Section 48 and must, therefore, be rejected.
II. The Tribunal failed to make a determination on the Appellants’ counter-claim concerning ouster of the Appellants
According to the Appellants, the tribunal failed to make a determination on the Appellants’ counter-claim that the Respondent’s efforts to oust Appellant No.1 and his family from Ravin amounted to a breach of the JVA. In answer to this submission, the tribunal, in the Second Partial Final Award, expressly set out the following:
“6. Further, the parties both identify different catalysts for the breakdown of the JVA relationship. In short, the Respondents submitted that, as far as they were concerned, during the tenure of Mr Sarogni their relationship with the Claimant was good and both parties were working together to make Ravin a more successful company. The swing point came and the trouble started brewing when Ms Farise was sent out to head the affairs of Ravin with the single agenda to take control of Ravin and oust the Karias. The Respondents’ overall case theory therefore focuses on a clash of personalities combined with the acquisition of ACPL and the Claimant’s overriding intention to create a situation where the Karias appeared to be in breach so that the Claimant could buy the Respondents out for a lower price.
The Claimant submitted that whilst relations had not been good from the time of the JVA onwards, matters took a turn for the worse after 15 September 2011, when the Integration Period came to an end. The Claimant contends that up until this point Mr Karia had been able to maintain a large degree of control over the Company, both because of the arrangements in the Integration Period and the fact that Mr Sarogni had been absent from India for long periods of time. The end of the Integration Period was followed shortly after by a change of CEO. Pursuant to the Board Resolution of 1 November 2011, Ms Farise was appointed CEO of Ravin (H16/3381) and came to India with the legitimate intent to actually take over the day to day management of Ravin. Indeed, the Claimant does not shy away from the fact that Ms Farise did intend to take control of Ravin, despite the Respondents’ own particular interpretation of this event and motive. The Claimant’s overall case theory therefore focuses not so much on any clash of personalities per se, but on the date when power and control under the terms of the JVA was to shift decisively away from Mr Karia. It is the Claimant’s case that Mr Karia was simply not willing to abide by such provisions and wished to remain in day to day control of Ravin and prevent the Claimant from exercising such control. In other words there is a straightforward division between the parties’ rival position. Neither party suggested that both versions could in essence be correct. The Tribunal therefore has to make findings as to where the evidence lies and which version fits the facts as found.” This case was answered in great detail, finding that it was the Appellants and not the Respondent No.1 who materially breached the JVA. Given this position, the tribunal finally held:
“291. Given the findings made by the Tribunal in favour of the Claimant’s allegations of material breach it naturally follows that the Respondents do not succeed in these allegations of mismanagement
The Respondents were themselves in material breach with regard to the whole conduct surrounding Mr Dhall’s appointment of Ms Mathure and the so called authorisation form. The Claimant was not in material breach in suspending Mr Dhall. Far from it. The Respondents, however, were plainly in material breach by their reaction to this suspension effectively leading to a one day strike.
The question of the attendance of Claimant nominees at the Akruti office is another chapter of the saga in which the Respondents do not emerge without serious criticism. As is clear from this Award the Respondents engendered a toxic atmosphere at Akruti in January 2012 (even in its fire stricken state) and such was the situation at the ground that it was not really possible for Claimant nominees to attend without fear of their own safety.
Lastly, the circumstances surrounding the appointment of the CEO and CFO does not give rise to any conceivable material breach on the part of the Claimant. The Claimant was entitled to nominate a CFO and the CEO. They did so. The Respondents did not oppose the appointment of Ms Farise.
Nevertheless they did obstruct her at every turn once she was appointed because it became apparent that she intended pursuant to the JVA to take day to day control of Ravin and the Respondents did not wish this to happen. As regards Mr Brunetti, the CFO, the Respondents did veto his appointment. This was not a material breach on their part as it was their right to do so under Schedule IX to the JVA. Nevertheless it cannot be said to be a material breach by the Claimant. That is unsustainable.
CONCLUSION
The Respondents have not succeeded in establishing any material breach of the JVA committed by the Claimant.”
This being the case, it would be wholly incorrect to state that the tribunal has failed to make a determination on the Appellants’ counter-claim that the Respondent’s efforts to oust Appellant No. 1 and his family amounted to a breach of the JVA. While considering the case of the Appellants and the cross-case of the Respondent, the tribunal has adverted to pleadings, evidence and has given detailed findings as to why the Appellants are in material breach of the JVA, as a result of which the Respondent cannot be said to be in material breach of the JVA. This being the case, it cannot be said that this material issue has not been answered by the Second Partial Final Award. This ground, therefore, also does not fall within any of the stated pigeon-holes under Section 48. III. The Tribunal failed to make a determination on the Appellants’ counter-claim concerning registration of the Ravin Trademark
Dr. Singhvi then argued that the tribunal failed to make any determination on the Appellants’ counter-claim that the Respondent No.1’s surreptitious attempts to register the Ravin trademark in its own name was a material breach of the JVA. When the First Partial Final Award is perused, it becomes clear that what was argued before the arbitrator, and therefore answered by the arbitrator, is whether the tribunal had jurisdiction to go into the Trademark License Agreement.
The First Partial Final Award records:
“IX. Tribunal’s ruling on jurisdiction
Finally, there were before the Tribunal three short points on the scope of the jurisdiction of the Tribunal under the arbitration agreement in the JVA.
Sensibly, the parties only made very brief submissions on these points. At one point, it seemed that the Respondents’ accepted that the Tribunal did not have the jurisdiction which it contended for, but instead was inviting the Claimant to agree upon an expansion of the Tribunal’s jurisdiction in order to avoid any possibility of multiplicity of proceedings under different agreements.
In the end, however, the Respondents’ counsel did invite the Tribunal to rule upon these short points. The three points were as follows: 1) Whether under Clause 27.1 of the JVA the Tribunal has jurisdiction to decide who has the right to register the Ravin trademark. 2) Whether the Tribunal has jurisdiction to decide alleged breaches of the Trademark License Agreement.
3) Whether the Tribunal has jurisdiction to decide alleged breaches of the Technical Assistance Agreement.
The Tribunal concludes that it does not have jurisdiction in respect of any of these three matters.
The ownership of the Ravin trademark and the right to register the same is not a dispute arising out of, relating to, or in connection with the JVA. There is no provision in the JVA permitting the parties to the JVA to change the name of Ravin Cables to a new name incorporating the word Prysmian – see Clause
There is also a provision for Ravin to enter into a trademark licence agreement in the form of Schedule 5, but that agreement deals with the licence by Prysmian and not the Ravin trademark.
Quite simply a dispute regarding the right to register the Ravin trademark falls outside of the scope of the arbitration clause.
This makes it unnecessary for the Tribunal to consider further the interesting and difficult questions of the arbitrability of such disputes, even if they were held to fall within the scope of the arbitration agreement. The Tribunal makes no finding on this point, it not having been argued, but observes that it is by no means a foregone conclusion that such disputes would under English law be arbitrable.
Further, the disputes respectively under the Trademark License Agreement (in the form of Schedule 5) and the Technical Assistance Agreement (in the form of Schedule 6) fall outside the jurisdiction of the Tribunal.
It is common ground that the parties did enter into a Trademark License Agreement in the form of Schedule 5 and the Technical Assistance Agreement in the form of Schedule 6. 143. Equally, it is common ground that these agreements made provision for disputes to be referred to arbitration in Milan, ltaly under Italian law. There is no warrant to construe the arbitration agreement in the JVA as somehow trespassing upon the arbitration agreement contained in two agreements, which the parties agreed to enter into and, in fact, did enter into with these separate dispute resolution provisions. Disputes under or concerning the Trademark License Agreement and Technical Assistance Agreement are to be resolved in accordance with the dispute resolution provisions under those agreements. The Tribunal observes that, if there had been a dispute under Clause 9 of the JVA as to whether in fact the covenant to enter into those two further agreements had been complied with, then this would be a dispute under the JVA agreement. Nevertheless, this is not the case being advanced by the Respondents in their pleaded case.”
We have gone through the transcript of the hearings on both 12 th and 13th December, 2012 before the arbitrator which clearly show that no argument was ever made by the Appellants before the tribunal that the Respondent had surreptitiously attempted to register the Ravin Trademark in its own name, and therefore was in breach of the competition clauses of the JVA. We are thus satisfied that this argument again appears to be an afterthought which has no foundation in the submissions made before the learned arbitrator. This submission does not again fall within any of the grounds referred to under Section 48.
IV. The Tribunal acted contrary to the Parties’ expert witnesses and ignored critical evidence with regard to the acquisition of ACPL 92. Dr. Singhvi argued that the tribunal acted contrary to the admissions of the parties’ expert witnesses and ignored critical evidence with regard to the acquisition of ACPL. Further, since the Respondent failed to produce the relevant documents regarding the competing business carried out by ACPL, an adverse inference ought to be drawn against the Respondent No.1, which the Appellants allege the learned arbitrator failed to do.
The learned arbitrator indicated his approach in the Second Partial Final Award as follows:
“23. Whilst therefore the parties’ detailed submissions have set the parameters for the Tribunal’s decisions and have assisted the Tribunal in reaching its conclusions on the individual particulars of alleged material breach, it has simply not been possible and nor is it desirable for the Tribunal to undertake an exhaustive analysis of each sub-argument and each piece of evidence referred to. Instead, in disposing of this dispute the Tribunal will focus, in large part, on the heart of the rival contentions with respect to the dispute as a whole and the individual allegations in the rival Determination Notices. This requires the detailed submissions to be substantially stripped back to reveal the essential complaint being made, which can then be assessed against the terms of the JVA and the rival theories.
In respect of the rival theories, the Tribunal has not lost sight of the broader case theories which frame the disputed events and allegations. The veracity of the individual and collective allegations arising from the crucial period between November 2011 and March 2012 can and indeed must be tested by reference to the parties’ rival theories and should not necessarily be isolated and examined in the abstract.”
The tribunal then went into the acquisition of ACPL in some detail, from paragraphs 216 to 244 of the Second Partial Final Award, and held that Mr. Karia’s contemporaneous reaction to the acquisition of Draka, which led to an indirect acquisition of 60 subsidiaries, one of which was ACPL, was that he was very happy that the Respondent No. 1 had so expanded its business. Several congratulatory emails are referred to by the arbitrator. Further, the arbitrator found that Mr. Karia’s statements in cross-examination showed that he had knowledge of this acquisition way back in November 2010 but never complained of material breach of the JVA. The arbitrator also examined evidence as to serious actual loss or harm, finding no such credible evidence, except occasional instances of both companies tendering for the same business. It was held that there was no reliable evidence that the Ravin’s business had been lost post the ‘Draka acquisition’ or that there had been any diversion of business from Ravin to ACPL or vice versa. The arbitrator then held that ACPL is a small specialist cable business and operates principally in the area of instrumentation cables, which is not the area in which Ravin operates.
The learned arbitrator also adverted to the evidence of the expert witnesses in arriving at this conclusion. It also made a reference to Mr. Karia’s cross-examination, stating that Mr. Karia himself considered ACPL to be the 50th or 60th competitor given its small business. The finding, therefore, was that the acquisition of ACPL did not in any manner amount to a serious material breach of the JVA.
Insofar as the failure to produce documents by Respondent No.1 with regard to its subsidiary ACPL is concerned, it must be remembered that ACPL is not a direct subsidiary of Respondent No. 1, being an indirect subsidiary of Respondent No.1’s parent company consequent upon the acquisition of Draka. It has an independent Board of Directors. Above all, ACPL was not a party to these arbitral proceedings. The tribunal therefore made Procedural Order No. 5 dated 27.11.2012 in which it specifically recorded that if the Appellants wish to pursue their request for disclosure of further documents qua ACPL, they must approach the Courts to do so, as it was not within the arbitrator’s power to direct a person who is not party to the proceedings to produce documents. At no stage did the Appellants act in compliance of this Procedural Order and approach an English Court to direct ACPL to produce documents within its possession. This being so, as has been held hereinabove, a party cannot complain of breach of natural justice when it was within the control of such party to approach a U.K Court for production of such documents. This not having been done, it is clear that no adverse inference, as has been argued, could have been drawn by the learned arbitrator. This ground also, therefore, does not fall within any of the grounds argued before us under Section 48.
V. Perverse Interpretation of the JVA
According to Dr. Singhvi, the tribunal’s interpretation of clause 21 of the JVA is perverse. As has been held, referring to some of the judgments quoted hereinabove, in particular Shri Lal Mahal (supra), the interpretation of an agreement by an arbitrator being perverse is not a ground that can be made out under any of the grounds contained in Section 48(1)(b). Without therefore getting into whether the tribunal’s interpretation is balanced, correct or even plausible, this ground is rejected.
VI. The Tribunal ignored critical evidence with regard to the issue of agency agreements and Direct Sales
Dr. Singhvi argued that the tribunal ignored admissions of the Respondent and other critical evidence with regard to the issue of agency agreements and direct sales. The Second Partial Final Award deals with this issue and the issue regarding agreements with agents in great detail from paragraph 245 to paragraph 279. As many as five reasons are given, after examining the evidence, for rejecting the plea that agency or distribution agreements were entered into in violation of the JVA. Further, so far as direct sales into India were concerned, after considering the pleadings and the evidence, the tribunal found that the Appellants altered their case from their pleaded case and now advanced a case that the fact of direct sales amounts to a material breach of clauses 8 and 20 of the JVA, contrary to what was stated in their determination notice. Even otherwise, the tribunal found that there was no material breach for the following reason:
“277. Those sales, however, were for all practical purposes made up of sales of telecom cables, industrial special cables, automotive cables, network and component and services. Ravin did not manufacture those types of cables. Indeed over 85% of the sales came from two affiliates manufacturing telecom cables, which Ravin did not manufacture and had no experience in selling either. Indeed the Tribunal accepts the evidence of Ms Farise and Mr Koch and Mr Karve on this issue (see, inter alia, §§5-8, E(I)/10/56-57, §23, E(I)/26/206, §23, E(I)/26/207, §§18- 32. E(I)/23/184- 186, 11 December 2012 hearing, pp.134-140, §46, E(I)/17/92, Day 2, pp.83-86, §18 of, E(l)/24/189). This renders the whole argument of diversion of sales or breach of good faith by virtue of these direct sales somewhat academic.
Indeed these figures illustrate exactly why the Respondents placed so much emphasis on their argument that the mere fact of sales was a breach irrespective of anything else. This was once more how it was put by Mr Salve SC in his oral closing argument (Day 10, pp. 183-185) The Tribunal has, however, found against the Respondents on this point.”
Having perused the Award in this behalf, it cannot be said that the tribunal has in any manner ignored admissions or other critical evidence with regard to the issue of direct sales. In any case, if at all, this ground goes to alleged perversity of the award, which as has been held by us hereinabove, is outside the ken of Section 48.
VII. The Tribunal adopted disparate thresholds in determining material breach
Dr. Singhvi has then argued that the tribunal adopted disparate thresholds for determining material breach between the Appellant and the Respondent. Again, all the allegations made under this ground go to perversity of the award, which is outside the ken of Section 48. That apart, the tribunal indicates in paragraphs 104 to 106 of the Second Partial Final Award, that no disparate thresholds in determining material breach was adopted as follows:
“(3) Tribunal’s conclusions on the Events of Default relied upon by the Claimant
The Tribunal has in mind the test for establishment of material breach as identified in paragraphs 37-47 above. The Claimant has particularised a number of different aspects of the conduct of the Respondents concentrating on the time frame from November 2011 to February 2012. Each of the Claimant and the Respondents have advanced detailed evidence and submissions on each of these particulars as addressed above. Nevertheless the breaches cannot be treated in complete isolation. In many instance the breaches can be seen as forming part of a pattern of alleged conduct involving the same witnesses and questions of their credibility as regards the rival evidence and rival “case theories.” This does not mean to say that the allegations all stand or fall together but a finding in relation to the credibility of the story advanced by one side or other in relation to one allegation does impact on the credibility of other parts of the story.
Therefore before turning to the individual allegations it is necessary to say something about the chief witnesses on each side and their credibility and demeanour, having reviewed and considered carefully once more the evidence advanced.
The Tribunal has no hesitation in reaching the conclusion that the chief witnesses called by the Claimant were truthful, honest and whilst faced with a difficult and tense situation in India continued to try to resolve matters in accordance with the provisions of the JVA.” VIII. The Tribunal’s selective consideration of contemporaneous evidence
Dr. Singhvi then argued that the tribunal’s analysis of contemporaneous conduct is selective and perverse. Without going into any further details in this ground, this argument must be rejected out of hand, as not falling within the parameters of Section 48. Equally, the tribunal’s consideration of evidence of key witnesses being selective and perverse, must be rejected on the same ground.
IX. The Tribunal appointed a conflicted valuer
Dr. Singhvi then contended that the tribunal appointed a conflicted valuer, which prevented the Appellants from participating in the valuation exercise. This has been dealt with in the Final Award dated 11.04.2017 by the learned arbitrator as follows: “II. Deloitte Valuation Report and the Respondents’ Challenge to Deloitte
It is important at this stage to record one specific matter here which is referred to and set out in the Claimant’s submissions (see paragraph 24 and Annexure E thereto at pages 170-172) and not contradicted by the Respondents in its submissions. On 14 October 2014 (Annexure E p. 171), Mr Karia on behalf of the Respondents sent an email to the Claimant in response to the Claimant’s request dated 14 October 2014 (Annexure E p.170) that the Respondents do cause the Company in a timely fashion to execute the Engagement letter for Deloitte. On 14 October 2014 (Annexure E p.171), Mr Karia for the Respondents objected to the engagement of Deloitte contending that they were conflicted out of acting as Valuer. This was a remarkable stance to take. On 30 April 2013 the Respondents, via an email sent by their solicitors, had confirmed that the Respondents were agreeable to Deloitte or KPMG acting as independent Valuers under the JVA. The Tribunal noted and recorded this in the Preamble to Procedural Order No 12, albeit referring to the date as 30 April 2014. There had been no material change in circumstance since April 2013 or Procedural Order No 12, to justify this change of position. The Tribunal concludes that the Respondents took this position in an attempt to hinder, delay and frustrate the valuation exercise and consequent transfer of shares. The Respondents advanced a series of points in their email. Each was answered in the Claimant’s solicitors’ email dated 15 October 2014 (see Annexure E p.170 to the Claimant’s submissions). In summary, the Respondent was not in a position following Procedural Order No 12 and its prior agreement to Deloitte subsequently to withhold its agreement to or not to object to the appointment of Deloitte. It had been ordered following the Respondents’ indication of agreement or non-objection to Deloitte.
The Respondents had not previously sought to identify any matters which disentitled Deloitte from acting but instead had agreed to their name being put forward to the Tribunal for appointment. Furthermore, the matters identified did not in any event impugn Deloitte’s independence or ability to act as Valuer in accordance with the provisions of the JVA. The fact that Deloitte had been approached by the Respondents to conduct an independent valuation but had declined to act because of the impending role for the Company as Valuer only serves to underline not undermine their independence. Also, the fact that the Respondents had asked Deloitte earlier in the arbitration to undertake some computer forensic exercise was not relied upon by the Respondents nor did it impugn their independence. Finally, the Respondents refer to Deloitte having acted as auditor of Power Plus Cable Company LLC (“Power Plus”) a company incorporated in the UAE and based in Dubai in which Ravin holds a 49% shareholding, This is not the same entity as the Company, and did not impugn Deloitte’s independence and did not prohibit them under the terms of Clause 17.3 of the JVA from being appointed. Clause 17.3 only applied to a prohibition on the statutory auditor of the Parties to the JVA acting as Valuer. It is not suggested that Deloitte was the statutory auditor of Ravin. Power Plus was not a Party to the JVA. Further, Clause 17.1 of the JVA expressly identified Deloitte as a suitable independent party to be appointed as Valuer. In any event, Deloitte’s role as auditor of Power Plus was known to the Respondents and having agreed not to object to Deloitte in their 30 April 2013 email it was no longer open to the Respondents to advance this point. There was no breach of the JVA but even if there had been it was waived by the Respondents.
Thus following this exchange, Deloitte were in due course engaged albeit through the default mechanisms provided for in Procedural Order No 12.” We are satisfied that the learned arbitrator has considered this point in some detail and dismissed it. This objection again does not fall under any of the grounds mentioned in Section 48. X. Valuation ignores Ravin’s stake in Power Plus
Dr. Singhvi then argued that the valuation made by Deloitte ignored a stake of 49% of Ravin in a company called Power Plus, which stake has been valued by the Appellants’ valuer (one BDO) at INR 563 crores. Considering that this aspect was not taken into account by Deloitte, the valuation report ought not to have been accepted by the learned arbitrator, also being contrary to the position taken by both parties. This submission was dealt with by the learned arbitrator in great detail in paragraph 19 of the Final Award dated 11.04.2017. Among other things, the learned arbitrator referred to clause 17 of the JVA and stated that the said clause together with the formula prescribed therein was followed by Deloitte. Since this was done, Deloitte cannot possibly be faulted and cannot further be asked to take into account the stake of Ravin in Power Plus, as that would go outside the JVA. This again is a matter for the arbitrator to determine.
This again is a ground wholly outside grounds that can attract challenge to foreign awards under Section 48.
XI. Valuation Date
Dr. Singhvi then argued that the tribunal acted contrary to the parties’ submissions in arriving at a valuation date of 30.09.2014, much later on the date of the Final Award which is 11.04.2017, as the parties had agreed that this date ought to be the date closest to the date of actual sale of share and would be valid only until 31.12.2014.
The learned arbitrator dealt with this objection in the Final Award dated 11.04.2017 as follows:
“D. Valuation date
The Respondents also complain that whilst Procedural Order No 12 provided for a valuation date of 30 September 2014, Deloitte instead used data as at 31 July 2014. Respondents also complained that since the Report was only issued in November 2015, the valuation was out of date.
The Tribunal is unable to accept the validity of this criticism for the following reasons: 1) Deloitte records that it did request data from the Company up to 30 September 2014, but this data was not provided to Deloite. The Tribunal has earlier in this Award recited the facts from which the Tribunal has reached the conclusion that the Company’s lack of cooperation with Deloitte was effectively controlled and directed by the Respondent. This was most notably the case with regard to the Company’s failure to issue the Engagement Letter to Deloitte following Procedural Order No 12. The Tribunal therefore concludes that it is not open to the Respondents to complain of the lack of further data being proved to Deloitte. It was the Respondents who were in control of the provision or non-provision of that data. 2) The Tribunal also concludes that the Respondents are not entitled to complain of the delay in the production of the Deloitte Valuation Report since that delay was materially contributed to by reason of the Respondents’ complaint with regard to Deloitte’s involvement which is made to the LCIA. It is notable that the Respondents have not in their submission denied that they made such a complaint to the LCIA and have not contradicted the Claimant’s submission that this complaint materially contributed to the delay in the production of the Deloitte Report.
3) Furthermore, the Respondents are not entitled to complain that Deloitte has used a valuation date of 30 September 2014. This was the valuation date agreed to and requested by the Respondents. Furthermore, as is recorded in the Recital to Procedural Order No 12 prior to the hearing in October 2014 leading to the making of the order of the valuation date, the Respondents expressly accepted that the question of the Valuation date was a matter properly within the jurisdiction of and for the determination of the Tribunal. The Tribunal then made an order for the valuation as requested by the Respondents.” Having found that the delay in the valuation report was attributable largely to the Appellants and that therefore the agreed date of 30.09.2014 is the correct date, we find nothing in the award which can be said to even remotely shock our conscience. This ground is also therefore rejected. Dr. Singhvi’s fervent plea to exercise our power under Article 142 of the Constitution of India, so as to shift the valuation date from 30.09.2014 to the date of our judgment must also be rejected given the learned arbitrator’s finding. Quite apart from this, nothing in Section 48 of the Arbitration Act would permit an enforcing court to add to or subtract from a foreign award that must either be enforced or rejected by reason of any of the grounds under Section 48 being made out to resist enforcement of such foreign award. This Court’s power under Article 142 ought not to be used to circumvent the legislative policy contained in Section 48 of the Arbitration Act.
XII. Inconsistent Awards
Dr. Singhvi then argued that the tribunal’s ruling in the First and Second Partial Final Award, with regard to the interpretation of clause 21, is inconsistent and irreconcilable. Apart from the fact that we do not find anything in the said two awards with regard to clause 21 being inconsistent and irreconcilable, this ground again does not, in any manner, shock our conscience and is therefore rejected.
XIII. Violation of FEMA and the Rules thereunder
Dr. Singhvi then argued that in ordering the sale of shares at a 10% discount of the fair market value arrived at by Deloitte, FEMA and the Rules made thereunder would be breached, resulting in the award being contrary to the public policy of India, in that it would be against the fundamental policy of the Indian law. As pointed out hereinabove, for the reasons given in paragraphs 79 to 84 of this judgment, this ground again is bereft of any merit. In fact, the learned arbitrator awarded INR 63.90 per share as per the Deloitte valuation, which was contractually binding under clause 17 of the JVA. Therefore, the lower valuation of INR 16.88 per share as in the M/s Kalyaniwalla & Mistry valuation report dated 04.03.2016 was not accepted.
XIV. Bias of the Tribunal 106. Lastly, Dr. Singhvi argued that the learned arbitrator was clearly biased in that the outcome of the Second Partial Final Award was clear to the Respondent No.1, inasmuch as its agent, one M/s Gilbert Tweed Associates, sent out an advertisement for recruiting employees for Ravin, two months before the Second Partial Final Award, thereby showing that this agent was clear as to the outcome of the proceedings. This was strongly refuted by the Respondent, stating that at no time had Gilbert Tweed Associates been retained by them. As a matter of fact, an agency called M/s Key2People was engaged by Respondent No.1 to identify potential candidates who could be recruited for the company in due course. M/s Key2People, in turn, appointed M/s Gilbert Tweed Associates. In any case, the Respondent undertook to terminate the engagement of M/s Key2People by its email of 28.10.2013. The allegation of bias thus made was clearly a desperate afterthought. The contention that the arbitrator was otherwise biased was dealt with in the Final Award as follows:
“16. The Respondents have also made a repeated reference to an allegation that the Tribunal lacked independence and that the Respondents have lost faith in the Tribunal continuing to give an impartial determination of the matters which remain in dispute.
These allegations have already been raised by the Respondents and rejected by the LCIA Court. Furthermore, the Respondents have not sought to invoke any procedure in the English Court, which is the court of the seat with supervisory jurisdiction. If the Respondents wished to challenge the ruling of the LCIA Court and challenge the further involvement of the Tribunal in the process, the Respondents had to bring a challenge within the strict time limits provided for in the English Arbitration Act 1996, but they have not done so. It is regretted that the Respondents continued to advance this unfounded and unparticularised allegation. The Tribunal has in the past pointed out the distinction between independence and impartiality on the one hand and on the other the role of an arbitrator who has to decide between rival arguments, diametrically opposed and irreconcilable positions adopted before it and direct clash of evidence before it and then apply such findings to the disputes before it. It is an inherent and an inevitable part of the arbitral process that where parties, as indeed has been the case in this arbitration, have taken radically opposing positions on the evidence and the law that multiple decisions will have to be made that will ultimately disappoint one of the parties. This has been exactly such a dispute. It has, however, been a distinct feature of this process that the Respondents have not only voiced their disappointment but have not complied with the orders of the Tribunal to protect the Parties’ rights during the course of the Arbitration and not complied with the terms of the JVA as has been found and determined by the Tribunal in its prior Awards. In a dispute such as the present where it has been necessary to render a series of Awards, it is necessary for the Tribunal to apply the prior findings in any subsequent Award.”
107.Having answered each of the submissions of Dr. Singhvi on behalf of the Appellants, we cannot help but be left with a feeling that the Appellants are indulging in a speculative litigation with the fond hope that by flinging mud on a foreign arbitral award, some of the mud so flung would stick. We have no doubt whatsoever that all the pleas taken by the Appellants are, in reality, pleas going to the unfairness of the conclusions reached by the award, which is plainly a foray into the merits of the matter, and which is plainly proscribed by Section 48 of the Arbitration Act read with the New York Convention. We have read, in detail, the four awards passed by the learned sole arbitrator and are satisfied that he has exhaustively discussed the evidence and arrived at detailed findings for each of the issues, claims and counter-claims, and finally accepted the Respondent’s case and rejected the Appellants’. Given the fact that our jurisdiction under Article 136 of the Constitution is itself limited, and given the fact that this Court’s time has unnecessarily been taken by a case which has already been dealt with by four exhaustive awards on merits and also by the impugned judgment of the Bombay High Court, we dismiss these appeals with costs of INR 50 lakhs, to be paid by the Appellant to Respondent No.1 within 4 weeks from today.
K.Sivaraman vs P.Sathishkumar on 13 February, 2020 Author: Hon’Ble Dr. Chandrachud Bench: Hon’Ble Dr. Chandrachud, Ajay Rastogi REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 9046 of 2019
(Arising out of SLP (C) No 18110 of 2019)
K Sivaraman & Ors .... Appellants
Versus
P Sathishkumar & Anr ....Respondents
JUDGMENT
Dr Dhananjaya Y Chandrachud, J 1 This appeal arises from a judgment of a Division Bench of the Madurai Bench of the Madras High Court dated 1 June 2017. In an appeal arising from a decision of the Deputy Commissioner for Employee‘s Compensation, the High Court enhanced the compensation payable under the Employee‘s Compensation Act 1923 1 from Rs 4,33,060 to Rs 8,86,120. The High Court has awarded interest at the rate of 12% per annum from the date of the accident.
Signature Not Verified In the present proceedings which have been instituted under Article 136 of the Digitally signed by SANJAY KUMAR Date: 2020.02.13 Constitution, notice was issued on 26 July 2019. Since the appellants were 12:36:17 IST Reason:
―1923 Act‖ represented by the first appellant in person, this Court, by its order dated 26 July 2019, directed that an amicus curiae be nominated by the Supreme Court Legal Services Committee. Accordingly, Mr S Mahendran, learned counsel, has been nominated as the amicus curiae, whom we have heard in support of the appeal. 3 The appellants are the father, mother, sister and brother of Dinesh Kumar, who died in the course of an accident on 31 January 2008. On the date of the incident, the deceased was 26 years of age and was engaged as a driver of a trailor lorry. While the vehicle was being driven on NH 12 in Kota, Rajasthan, a truck bearing registration No MH 19 Z 1696 came from the opposite direction and dashed against the trailor, resulting in the death of Dinesh Kumar. At the time of the accident, the deceased was in the employment of the first respondent. A claim under the 1923 Act was lodged before the Deputy Commissioner for Employee‘s Compensation, Madurai on 29 April 2013. On 26 March 2014, the claim was allowed by an award in the amount of Rs 4,33,060. The Deputy Commissioner had proceeded ex parte. The appellants filed an appeal2 before the Madras High Court for enhancement of the compensation. 4 The High Court, by its judgment dated 23 November 2015, remanded the proceedings to the Deputy Commissioner for determination afresh. While remanding the proceedings, the High Court noted that though the appellants had filed a salary certificate as Exhibit P5 to establish that the monthly income of the deceased was Rs 32,000, no witness was examined on behalf of the employer to prove the salary certificate. However, acceding to the request of the appellants that they should be furnished with an opportunity to examine the employer‘s witness in support of Exhibit CMA (MD) 344 of 2014 P5, the High Court considered it in the interests of justice to remand the proceedings. 5 On remand, the Commissioner for Workmen‘s Compensation, Madurai, by an order dated 4 March 2016, maintained the award of compensation in the amount of Rs 4,33,060. Before the Commissioner, on remand, the appellants examined PW2, the owner of the vehicle which was being driven by the deceased. During the course of his evidence, he stated as follows:
―I am the 1st respondent in this case under W.C. Case No.74/2011 is under tail in this court is known to me. I received summons 3 times from the court. For the last two summons, as my own lorries were working in the other states and I also have to go there, I was unable to come and adduce witness for the court summon. The accident platform trailor lorry TN 28 AB 1933 belongs to Sathishkumar. The deceased Dinesh Kumar S/o Sivaraman worked as a driver. In 2008, (31.1.2008) when going to Pandicheri to Rajasthan Sironi before Kotta town the opposite coming tarras lorry dashed face to face and caused accident. As soon as the accident occurred in the same occurrence place Dineshkumar died. Before accident he worked for about 3 years. He was having proper driving license. He was having license for driving heavy vehicles. The Ex.P.5 monthly pay certificate was issued by me. In it, for deceased Dinesh Kumar I was paying Rs 32,000 per month (including food expenses) but pay of Rs 25,000. The vehicle involved in the accident has been properly insured with 2nd respondent company of M/s Reliance General Insurance Company. At the time of accident, the insurance was in current.‖ 6 The Commissioner, however, proceeded on the basis that in terms of the notification issued under Section 4(1B) of the 1923 Act, whatever be the monthly pay received by a person, the jurisdiction of the adjudicating authority was subject to a ceiling of Rs 4,000 per month in computing the monthly wages of the employee. Taking the monthly salary at Rs 4,000, the Commissioner applied a multiplicand of 215.28 in terms of Schedule IV (the deceased being 26 years of age) and arrived at a figure of Rs 4,30,560 to which an additional amount of Rs 2,500 was added towards funeral expenses. A total award in the amount of Rs 4,33,060 was decreed as the compensation payable to the appellants.
7 In an appeal filed before the High Court, the Division Bench took note of the fact that in pursuance of the order of remand, the salary of deceased employee had been proved to be Rs 32,000 per month. The High Court noticed that though the accident had taken place on 31 January 2008, the petition for compensation had been lodged on 28 January 2011 and was decided by the Commissioner on 4 March 2016. 8 In the meantime, a notification was issued by the Central Government on 31 May 2010 in the following terms:
―S.O.1258(E) – In exercise of the powers conferred by sub- section (1B) of Section 4 of the Employee’s Compensation Act, 1923, (g of 1923), the Central Government hereby specified, for the purpose of Sub-Section (1) of the said section, the following amount as monthly wages, with effect from the date of publication of this notification in the official gazette, namely – Eight thousand rupees.‖ 9 The High Court was of the view that having due regard to the fact that the legislation in question is a social welfare legislation, the enhanced income of Rs 8,000 per month should form the basis of the computation. Thus, applying the multiplicand in terms of Schedule IV, the High Court enhanced the compensation to Rs 8,86,120. 10 In appeal before this Court, the learned amicus curiae urged that both the Commissioner and the High Court have erred – the Commissioner having adopted a figure of Rs 4,000 per month and the High Court, Rs 8,000 per month. The learned amicus curiae submitted that in terms of the provisions of Section 4(1)(a) of the 1923 Act, where death has resulted from injury, the compensation payable is an amount equal to fifty per cent of the monthly wages of the deceased employee multiplied by the relevant factor. The relevant factor is specified in Schedule IV and for the deceased who was 26 years old on the date of the accident, the multiplicand would be 215.28. The learned amicus curiae submitted that under sub-section (1B) of Section 4, the Central Government is empowered to issue a notification specifying, for the purposes of sub-section (1), the monthly wages in relation to an employee as it may consider necessary. However, it was submitted that the notification does not impose a cap or ceiling on the monthly wages which form the basis of calculating the compensation due and payable. Where the actual wages of an employee are proved to be in excess of the amount which is specified in the notification, there is no bar in adopting the monthly wages so proved in terms of Section 4(1)(a). The learned counsel buttressed this submission by adverting to Act 45 of 2009, which took effect from 18 January 2010 and deleted the deeming provision in Explanation II to Section
Moreover, it was urged by the learned amicus curiae that the method of calculating wages is specified in Section 5. It was urged that clause (a) of Section 5 will be attracted to the present case where the employee was, during a continuous period of not less than twelve months immediately preceding the accident, in the service of the employer.
11 The learned amicus curiae, at a belated stage, sought to distinguish the judgments of this Court in Pratap Narain Singh Deo v Srinivas Sabata4 (―Pratap ―Explanation II – Where the monthly wages of a workman exceed four thousand rupees, his monthly wages for the purposes of clause(a) and clause(b) shall be deemed to be four thousand rupees only.‖ (1976) 1 SCC 289 Narain Singh‖) and Kerala State Electricity Board v Valsala K5 (―Valsala‖) in which it was held that the date relevant for the determination of compensation payable under the 1923 Act is the date of the accident and that the benefit of an amendment enhancing the amount of compensation shall not apply to accidents that take place prior to its coming into force. To support this, the amicus curiae relied on the judgments of this Court in New India Assurance Company Ltd. v Neelakandan (―Neelakandan‖),6 and National Insurance Co Ltd. v Mubasir Ahmed7 (―Mubasir Ahmed‖).
12 Section 4(1)(a) of the Act contains the following provision:
―4. Amount of compensation.—(1) Subject to the provisions of this Act, the amount of compensation shall be as follows, namely:— (a) where death results an amount equal to fifty per cent of the monthly wages of the deceased from the injury employee multiplied by the relevant factor; or an amount of one lakh and twenty thousand rupees, whichever is more;‖ 13 The proviso to the above provision stipulates that the Central Government may, by notification in the Official Gazette, from time to time, enhance the amount of compensation mentioned in clauses (a) and (b). Clause (b) deals with a case involving permanent total disablement resulting from the injury. The expression ―relevant factor‖ is defined in Explanation I to be the factor specified in Schedule IV. Prior to Act 45 of (1999) 8 SCC 254 Civil Appeal Nos. 16904-09 of 1996 (2007) 2 SCC 349 2009, Section 4 contained Explanation II, which was in the following terms: ―Explanation II – Where the monthly wages of a workman exceed four thousand rupees, his monthly wages for the purposes of clause(a) and clause(b) shall be deemed to be four thousand rupees only.‖ 14 By Act 45 of 2009, which came into force on 18 January 2010, Explanation II came to be deleted. Sub-section (1B) was introduced in Section 4 to read as follows: ―(1-B) The Central Government may, by notification in the Official Gazette, specify, for the purposes of sub-section (1), such monthly wages in relation to an employee as it may consider necessary.‖ 15 The question before this Court is whether the benefit of Act 45 of 2009 deleting the deeming provision in Explanation II which capped the monthly wages of an employee at Rs 4,000 would also apply to accidents which took place prior to the coming into force of its provisions i.e. 18 January 2010 and where final adjudication is pending. In assessing whether the Act 45 of 2009 applies retrospectively, it is necessary to analyze the relevant precedents of this Court. In Pratap Narain Singh, the first respondent was in the employment of the appellant and suffered injuries which arose out of and in the course of employment. It was contended that the Commissioner committed an error of law in imposing a penalty on the appellant under Section 4A(3) of the 1923 Act as the compensation payable had not fallen due until it was ‗settled‘ by the Commissioner under Section 19 of the 1923 Act. Section 4A reads: ―4A. Compensation to be paid when due and penalty for default.- (1) Compensation under section 4 shall be paid as soon as it falls due. (2) In cases where the employer does not accept the liability for compensation to the extent claimed, he shall be bound to make provisional payment based on the extent of liability which he accepts, and, such payment shall be deposited with the Commissioner or made to the employee, as the case may be, without prejudice to the right of the employee to make any further claim. (3) Where any employer is in default in paying the compensation due under the Act within one month from the date it fell due, the Commissioner shall –
(a) Direct that the employer shall, in addition to the amount of the arrears, pay simple interest thereon at the rate of twelve percent per annum or at such higher rate not exceeding the maximum of the lending rates of any scheduled bank as may be specified by the Central Government, by notification in the Official Gazette, on the amount due; and
(b) If, in his opinion, there is no justification for the delay, direct that the employer shall, in addition to the amount of arrears and interest thereon, pay a further sum not exceeding fifty per cent of such amount by way of penalty…‖ 16 In terms of Section 4A(1), compensation under Section 4 is payable ―as soon as it falls due.‖ Section 4A(2) contemplates a situation wherein the employer, though accepting the liability to pay compensation to the injured employee, disputes the quantum of compensation payable. In such cases, sub-section (2) enjoins the employer to make a provisional payment based on the extent of accepted liability by depositing it with the Commissioner or by paying it directly to the employee. Section 4A(3) stipulates that where an employer defaults in paying compensation within one month from the date on which it falls due, the Commissioner is empowered to direct the payment of interest as well as an additional amount as arrears for an unjustifiable delay in making payment. Section 19 of the Act reads:
―19. Reference to Commissioners.- (1) If any question arises in any proceedings under this Act as to the liability of any person to pay compensation (including any question as to whether a person injured is or is not an employee or as to the amount or duration of compensation (including any question as to the nature or extent of disablement), the question shall, in default of agreement be settled by a Commissioner…‖ 17 Section 19 stipulates that any question arising in any proceeding under the Act shall, in the default of an agreement, be settled by the Commissioner. A four judge Bench of this Court rejected the contention urged by the appellant and held that compensation ―falls due‖ on the date of the accident. Consequently, the Commissioner was empowered to impose interest or penalty for the duration prior to the settling of the claim or where there was unjustified delay in making good the payment of compensation. The Court held: ―18…The employer therefore became liable to pay the compensation as soon as the aforesaid personal injury was caused to the workman by the accident which admittedly arose out of and in the course of the employment. It is therefore futile to contend that the compensation did not fall due with after the Commissioner’s order dated May 6, 1969 under section 19. What the section provides is that if any question arises in any proceeding under the Act as to the liability of any person to pay compensation or as to the amount or duration of the compensation it shall, in default of an agreement, be settled by the Commissioner. There is therefore nothing to justify the argument that the employer’s liability to pay compensation under section 3, in respect of the injury, was suspended until after the settlement contemplated by section…
The appellant was thus liable to pay compensation as soon as the aforesaid personal injury was caused to the appellant, and there is no justification for the argument to the contrary. It was the duty of the appellant, under section 4A(1) of the Act, to pay the compensation at the rate provided by section 4 as soon as the personal injury was caused to the respondent. He failed to do so. What is worse, he did not even make a provisional payment under sub-section (2) of section 4 for, as has been stated, he went to the extent of taking the false pleas that the respondent was a casual contractor and that the accident occurred solely because of his negligence. Then there is the further fact that he paid no heed to the respondent’s personal approach for obtaining the compensation. It will be recalled that the respondent was driven to the necessity of making and application to the Commissioner for settling the claim, and even there the appellant raised a frivolous objection as to the jurisdiction of the Commissioner and prevailed on the respondent to file a memorandum of agreement setting the claim for a sum which was so grossly inadequate that it was rejected by the Commissioner. In these facts and circumstances, we have no doubt that the Commissioner was fully justified in making an order for the payment of interest and the penalty.‖ 18 The Court held that though Section 19 empowered the Commissioner to decide claims or objections under the Act, the obligation to pay compensation to an injured employee was not suspended until the Commissioner settled the amount payable in the case of a dispute between the employer and the employee. Section 4A deals with when the obligation for the payment of compensation as required under the 1923 Act arises. For the purposes of Section 4A of the 1923 Act, the obligation to pay compensation arises on the date of the accident. Where an employer disputes the quantum of compensation payable, it is enjoined to make a provisional payment to the Commissioner or the employee pending the settlement of the claim. This is in order to ensure that an employer does not escape its obligation to make good the payment of compensation or unduly delay its payment on frivolous grounds. 19 In Neelakandan, the accident had taken place prior to the coming into force of an amendment to the 1923 Act whereunder the deemed income had been increased from Rs 1000 to Rs 2000. The question before the Court was whether the benefit of the amendment would extend to accidents which took place prior to its coming into force and where the final adjudication of the amount payable was pending. A two judge Bench of this Court held that though the accident in question took place in 1981, the benefit of the amendment would apply to accidents that took place prior to the coming into force of the amendment in the following terms: ―It is not disputed that Section 4 of the Act was amended in 1995 by Amendment Act 30 whereunder the deemed income has been increased from Rs 1000 to Rs 2000. Learned counsel for the Insurance Company has vehemently contended that since the accident took place in the year 1981, the law operating on that date is applicable and as such the workmen are not entitled to the benefit of the amendment. We do not agree with the learned counsel. We are finally determining the right of workmen today. The Act is a special legislation for the benefit of the labour. Keeping in view the scheme of the Act we are of the view that the only interpretation which can be given to the amendment is that is any benefit is conferred on the workmen and the said benefit is available on the date when the case is finally adjudicated, the said benefit should be extended to the workmen. We, therefore, hold that the compensation to be paid to the heirs of the workmen has to be calculated on the basis of the actual wages – Rs 1800 – drawn by them…‖ (Emphasis supplied) 20 The Court noted that the 1923 Act is a social welfare legislation for the benefit of employees. Consequently, taking into account the scheme of the Act, the court must adopt an interpretation which extends a benefit to the employee on the date of the final adjudication of the claim. Where a case is pending final adjudication and an amendment is enacted increasing the amount of compensation payable, the enhanced amount would be applicable in the determination of the quantum of compensation payable. Conspicuous in its absence in the submission advanced by the learned amicus curiae is how a subsequent Bench of this Court dealt with the position of law laid down in Neelakandan. 21 In Valsala, the question before a three judge Bench of this Court was whether an amendment to Section 4 and 4A of the 1923 Act enhancing the amount of compensation and the rate of interest would be applicable to cases where the accident took place prior to the coming into force of the amendment. This Court noted that various High Courts in the country had taken the uniform position that the relevant date for determining the rights and liabilities of the parties is the date of the accident. Relying on the judgment of this Court in Pratap Narain Singh, the Court overruled the judgment in Neelakandan and held that the benefit of an amendment whereunder the compensation payable was increased, would not apply to accidents that took place prior to its coming into force. The Court held:
―4. A two-judge Bench of this Court in New India Assurance Co Ltd. v. V.K. Neelakandan however, took the view that the Workmen‘s Compensation Act being a special legislation for the benefit of the workmen, the benefit as available on the date of adjudication should be extended to the workmen and not the compensation which was payable on the date of the accident. The two-judge Bench in Neelakandan case however, did not take notice of the judgment in Pratap Narain Singh Deo case as it presumably was not brought to the notice of their Lordships. Be that as it may, in view of the categorial law laid down by the larger Bench in Pratap Singh Deo case the view expressed by the two-judge Bench in Neelakandan case is not correct.‖ 22 In the course of the judgment in Valsala, the three judge Bench also affirmed the full judge Bench judgment of the Kerala High Court in Alavi ―to the extent it is in accord with the judgment of the larger bench‖ in Pratap Narain Singh. The Court held:
―5. Our attention has also been drawn to a judgment of the Full Bench of the Kerala High Court in United India Insurance Co. Ltd v. Alavi wherein the Full Bench precisely considered the same question and examined both the above-noted jugdments. It took the view that the injured workman becomes entitled to get compensation the moment he suffers personal injuries of the types contemplated by the provisions of the Workmen‘s Compensation Act and it is the amount of compensation payable on the date of the accident and not the amount of compensation payable on account of the amendment made in 1995, which is relevant. The decision of the Full Bench of the Kerala High Court, to the extent it is on accord with the judgment of the larger Bench of this Court in Pratap Narain Singh Deo v Srinivas Sabata lays down the correct law and we approve it.‖ 23 In Alavi, a full judge Bench of the Kerala High Court was required to adjudicate whether Sections 4 and 4A of the 1923 Act as amended in 1995 enhancing the amount of compensation and rate of interest would be applicable to claims in respect of death and permanent disablement resulting from accidents which occurred prior to 15 September 1995 i.e. the date on which the amended provisions came into force. In all the appeals before the Court, the accident as well as settling of the claims by the Commissioner took place prior to the coming into force of the amending provisions enhancing the quantum of compensation payable. The Court relied on the decision of this Court in Pratap Narain Singh and held that the Amending act enhancing compensation would apply only to accidents that took place after the coming into force of the amendment. The Court held: ―17. Right to claim compensation as well as the obligation to pay the same are created by the statute itself. It is well-settled rule of interpretation that if the law is procedural, there is, no doubt, a presumption that it applies to pending proceedings. If the law is substantive in nature, the normal presumption against retrospectivity still holds good, subject to the principle that the Court must look to the question whether the rights of the parties at the commencements of the proceedings were intended to be modified either expressly or by necessary implication: Neeli v. Narayana Pilla [(1992) 2 K.L.J. 937, 950]. If the amended provisions are given effect to in the matter of awarding enhanced compensation even with regard to the accident which occurred prior to 15 September 1995, and the claim was decided prior to the same date, the law applicable is the unamended provisions of the Workmen‘s Compensation Act, 1923. But if the claim could not be settled prior to 15 September 1995 going by the Division Bench decision in Asokan case (vide supra), those claimants would get the benefit of the Amendment Act. In other words, the benefit would depend on when the case is decided either prior to 15 September 1995 or subsequent. This was never the intention of the Legislature…‖ 24 The question before the Bench in Valsala was clearly whether an amendment to Section 4 and 4A of the 1923 Act enhancing the amount of compensation and the rate of interest would be applicable to cases where the accident took place prior to the coming into force of the amendment. The Bench held that the benefit of an Amending act enhancing the quantum of compensation would not apply to accidents that took place prior to the coming into force of the amendment. Though the learned amicus curiae sought to rely on the two judge Bench judgment of this Court in Mubasir Ahmed, it is sufficient at this stage to note that the subsequent judgment of this Court in Oriental Insurance Company v Siby George8 noted that the judgment in Mubasir Ahmed is contrary to the judgments of this Court in Pratap Narain Singh and Valsala and hence not a binding precedent. 25 The 1923 Act is a social beneficial legislation and its provisions and amendments thereto must be interpreted in a manner so as to not deprive the employees of the benefit of the legislation. The object of enacting the Act was to ameliorate the hardship of economically poor employees who were exposed to risks in work, or occupational hazards by providing a cheaper and quicker machinery for compensating them with pecuniary benefits. The amendments to the 1923 Act have been enacted to further this salient purpose by either streamlining the compensation process or enhancing the amount of compensation payable to the employee. 26 Prior to Act 45 of 2009, by virtue of the deeming provision in Explanation II to Section 4, the monthly wages of an employee were capped at Rs 4000 even where an employee was able to prove the payment of a monthly wage in excess of Rs 4,000. The legislature, in its wisdom and keeping in mind the purpose of the 1923 Act as a social welfare legislation did not enhance the quantum in the deeming provision, but deleted it altogether. The amendment is in furtherance of the salient purpose which underlies the 1923 Act of providing to all employees compensation for accidents which occur in the course of and arising out of employment. The objective of the amendment is to remove a deeming cap on the monthly income of an employee and extend to them compensation on the basis of the actual monthly wages drawn by them. However, there is nothing to indicate that the Legislature intended for the benefit to (2012) 12 SCC 540 extend to accidents that took place prior to the coming into force of the amendment. 27 The learned amicus curiae relied on the judgment of this Court in Commissioner of Income Tax v Vatika Township Private Limited9 to contend that amendments that confer a benefit upon individuals must be given retrospective application. In that case, the question before a Constitution Bench of this Court concerned whether the proviso to Section 113 which was inserted by the Finance Act 2002 applied retrospectively. The scheme for block assessment was introduced in Chapter XIV-B to the Finance Act (w.e.f 1 July 1995) to curb tax evasion and expedite as well as simplify the assessments in such search cases. By virtue of the proviso, a date was specified with reference to which the rate of surcharge is payable upon block assessments. This Court noted that the chapter for block assessment was a self- contained code and that the effect of the proviso was to impose an additional burden on the assessee. Consequently, it was held that the proviso did not operate retrospectively. In the course of the judgment, this Court held:
―30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators’ object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Govt. of India v. Indian Tobacco Assn. [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in Vijay v. State of Maharashtra [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) (2015) 1 SCC 1 confronted with any such situation here.‖ 28 This Court held, in line with settled precedent of this Court, that where (i) a legislation confers a benefit on some persons, (ii) without inflicting a corresponding detriment on some other persons or the public generally and (iii) where the conferral of such benefit appears to be the intention of the legislature, the presumption of prospective application may stand displaced. Though amendments enhancing the compensation payable under the 1923 Act confer a benefit upon employees, a corresponding burden is imposed on employers to pay a higher rate of compensation. It is presumably for this reason that the three judge Bench of this Court in Valsala and the Kerala High Court in Alavi held that the benefit of an amendment enhancing the rate of compensation does not have retrospective application to accidents that took place prior to the coming into force of the amendment. Further, as we have already noted, there is nothing in Act 45 of 2009, either express or implied, to denote an intention of the legislature to confer the benefit of the amendment to accidents that took place prior to its coming into force.
29 We also briefly note the position of law regarding the date relevant for the determination of compensation payable under the Railways Act 198910. Chapter XIII of the 1989 Act titled ‗Liability of Railway Administration for Death and Injury to Passengers due to accidents‘ stipulates an obligation on the railway administration to pay compensation to such extent ―as may be prescribed‖ on the account of untoward accidents. In Rathi Menon v Union of India11, the question before a two judge Bench 1989 Act (2001) 3 SCC 714 of this Court was whether the benefit of an amendment enhancing the rate of compensation can be extended to accidents that took place prior to the coming into force of the amendment. The Court assessed the scheme of the 1989 Act and held that the date relevant for the determination of compensation payable shall be the date of adjudication. Consequently, the benefit of an amendment enhancing compensation would be extended to accidents that took place prior to the coming into force of the amendment. In the course of the judgment, this Court differentiated between the scheme of the 1923 Act and the 1989 Act and addressed the contention raised on the basis of the judgments of this Court in Pratap Narain Singh and Valsala in the following terms:
―…The scheme of the provision under the W.C. Act is materially different from the scheme indicated in Chapter XIII of the Railways Act. In the former, compensation payable is fixed in the Act itself through the schedule incorporated thereto. Section 4 of the W.C. Act shows that such compensation is to be linked with the monthly wages of the workman concerned. It also provides that the liability to pay compensation on the employer would arise not when the Commissioner passes the order but on the date of sustaining the injury itself. A provision is made in Section 4A of W.C. Act that where any employer is in default of paying the compensation due within one month the Commissioner shall direct the employer to pay not only interest but in appropriate cases a penalty ranging up to 50% of the amount payable. The said scheme cannot be equated with the scheme in Chapter XIII of the Railways Act, as the principles involved have differences…‖ Having distinguished the scheme of the 1923 Act and the 1989 Act, the Court held that the judgments in Pratap Narain Singh and Valsala have no bearing on claims under the 1989 Act.
30 Recently, a two judge Bench of this Court in Union of India v Rina Devi12, considered an apparent conflict between the judgments in Rathi Menon and Kalandi Charan Sahoo v General Manager, South-East Central Railway, Bilaspur13 (―Kalandi‖) regarding the date relevant for the determination of compensation under the 1989 Act. It was contended that the judgment in Rathi Menon was premised on the basis that there was no provision for the payment of interest under the 1989 Act and that there would be injustice if compensation is paid at money value prevalent at the time of the accident. It was on this basis that the judgment in Pratap Narain Singh was distinguished. This Court noted that in Thazhathe Purayil Sarabi v Union of India14 (―Thazhathe‖), it was held that under the 1989 Act, a claimant is also entitled to the payment of interest which accrues from the date of the incident. The decision in Thazhathe was subsequently followed by this Court in Kalandi and Mohamadi v Union of India.15 Consequently, this Court held that since interest is now payable under the 1989 Act, the basis of the judgment in Rathi Menon has changed. The Court held:
―15.3…We are of the view that law in the present context should be taken to be that the liability will accrue on the date of the accident and the amount applicable as on that date will be the amount recoverable but the claimant will get interest from the date of accident till the payment at such rate as may be considered just and fair from time to time. In this context, rate of interest applicable in motor accident claim cases can be held to be reasonable and fair. Once concept of interest has been introduced, principles of Workmen Compensation Act can certainly be applied and judgment of 4- Judge Bench in Pratap Narain Singh Deo (supra) will fully apply. Wherever it is found that the revised amount of applicable compensation as on the date of award of the Tribunal is less than the prescribed amount of compensation (2019) 3 SCC 572 (2019) 12 SCC 387 (2009) 7 SCC 372 (2019) 12 SCC 389 as on the date of accident with interest, higher of the two amounts ought to be awarded on the principle of beneficial legislation… 15.4 Accordingly, we conclude that compensation will be payable as applicable on the date of the accident with interest as may be considered reasonable from time to time on the same pattern as in accident claim cases. If the amount so calculated is less than the amount prescribed as on the date of the award of the Tribunal, the claimant will be entitled to higher of the two amounts…The 4-Judge Bench judgment in Pratap Narain Singh Deo (supra) holds the field on the subject and squarely applies to the present situation.‖ (Emphasis supplied) This Court held that compensation under the 1989 Act would be calculated with reference to the date of the accident along with interest payable. However, if the amount calculated is less than the amount prescribed as on the date of the award of the Tribunal under the 1989 Act, the claimant will be entitled to higher of the two amounts. 31 The judgment in Rathi Menon and Rina Devi were both rendered by a Bench of two judges of this Court. In Rina Devi, this Court resolved the apparent conflict between Rathi Menon and Kalandi by taking into account the judgment in Rathi Menon as well as the change in the position of law following the judgment. The position of law under the 1989 Act has thus been brought closer to the judgment of this Court in Pratap Narain Singh which held that the date relevant for the determination of compensation would be the date of the accident. The judgment in Rina Devi was recently followed by this Court in Union of India v Radha Yadav16. 32 It is pertinent to note that no similar position of law for the determination of the higher amount of compensation payable was adopted under the 1923 Act by this Court in Pratap Narain Singh and Valsala. This Court, being a Bench of two judges, is (2019) 3 SCC 410 bound by the categorical position of law laid down in Pratap Narain Singh and Valsala, both being judgments rendered by larger Benches of this Court. Consequently, we hold that the relevant date for the determination of compensation payable is the date of the accident and the benefit of Act 45 of 2009 does not apply to accidents that took place prior to its coming into force. 33 In the present case, the accident occurred on 31 January 2008 i.e. prior to the coming into force of Act 45 of 2009. Consequently, the High Court erred in extending the benefit of Act 45 of 2009 which deleted Explanation II to Section 4 to the present case. The High Court was required to determine the compensation payable on the date of the accident on which date, the deemed cap of Rs 4000 as monthly wages was applicable.
34 Though the accident took place in 2008, the appeal is being decided over 12 years later. We take note of the fact that following the order of remand by the High Court, the employer deposed as PW2 and stated that the deceased had worked in his establishment for about three years. The employer duly proved Exhibit P5 in the course of his evidence which was the monthly pay certificate indicating that the deceased was drawing a monthly wage of Rs 32,000, including expenses towards food. Significantly, no appeal was filed by the respondents against the judgment of the High Court enhancing the compensation. In this view of the matter, we are not inclined to interfere with the award of compensation ordered by the High Court in exercise of the inherent jurisdiction of this Court to do complete justice under Article 142 of the Constitution. Having clarified the law as noted above, the appeal shall stand dismissed.
35 Before concluding the judgment, it would be necessary to note that in the office report dated 14 October 2019 and 18 November 2019, it has been stated that service is complete on the respondents.
36 The total compensation payable to the appellant shall stand quantified at Rs 8,86,120 on which interest shall be payable at 12% per annum from the date of the accident. The liability for the payment of compensation shall be joint and several. The compensation shall be payable to the first and the second appellants jointly and severally by the respondents. The compensation shall be paid over within a period of two months from the receipt of a certified copy of the order. There shall be no order as to costs.
………………………….……………………..J.
[Dr Dhananjaya Y Chandrachud] …..…..…….………..……………….………..J.
Mukesh Kumar vs The State Of Uttarakhand on 7 February, 2020 Author: L. Nageswara Rao Bench: L. Nageswara Rao, Hemant Gupta Non-Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 1226 of 2020
[Arising out of S.L.P. (Civil) No. 23701 of 2019]
Mukesh Kumar & Anr.
.... Appellant(s)
Versus
The State of Uttarakhand & Ors.
…. Respondent(s)
WITH
Civil Appeal No. 1227 of 2020
[Arising out of S.L.P. (Civil) No. 22640 of 2019]
Civil Appeal No. 1228 of 2020
[Arising out of S.L.P. (Civil) No. 25508 of 2019]
Civil Appeal No. 1229 of 2020
JUDGMENT
L. NAGESWARA RAO, J.
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1. The Controversy in the above Appeals pertains to the reservations to Scheduled Castes and Scheduled Tribes in promotions in the posts of Assistant Engineer (Civil) in Public Works Department, Government of Uttarakhand.
The Uttar Pradesh Public Services (Reservation for Scheduled Castes, Scheduled Tribes and Other Backward Classes) Act, 1994 (for short “ the 1994 Act”) provided for reservation in public services and posts in favour of persons belonging to Scheduled Castes, Scheduled Tribes and Other Backward Classes of citizens. Section 3(1) of the said Act stipulated reservation at the stage of direct recruitment. According to Section 3(7) of the 1994 Act, the Government Orders providing reservation for appointment to public posts filled up by promotion which were existing on the date of commencement of the 1994 Act shall continue till they are modified or revoked. After the formation of the State of Uttarakhand in 2001, the Uttar Pradesh Public Services (Scheduled Caste, Scheduled Tribe and Other Backward Caste Reservation) Act, 1994 was made applicable to the State of Uttaranchal by a Notification dated 30.08.2001 with 2 | Page a modification in the percentage of reservations. 21% reservation for Scheduled Castes was modified to 19% and 2% for Scheduled Tribes was increased to 4%. Likewise, 21% reservation provided in the 1994 Act for Other Backward Classes was altered to 14%.
A Division Bench of the High Court of Judicature at Allahabad in Mukund Kumar Shrivastava v. State of U.P.1 upheld the validity of Rule 8-A of the Uttar Pradesh Servants Government Seniority Rules, 1991 (for short “ the Seniority Rules”) which dealt with consequential seniority of persons belonging to Scheduled Castes and Scheduled Tribes. Later, in Prem Kumar Singh v. State of U.P.2, another Division Bench of the High Court of Judicature at Allahabad, Lucknow Bench held that the judgment in Mukund Kumar Shrivastava (supra) is per incuriam and not a binding precedent. In Prem Kumar Singh’s case (supra), the High Court declared Section 3(7) of the 1994 Act and Rule 8-A of the Seniority Rules unconstitutional. While declaring the correctness of the judgments of the 1 (2011) 1 ALL LJ 428 2 (2011) 3 ALL LJ 343 3 | Page High Court, this Court by its judgment in Uttar Pradesh Power Corporation v. Rajesh Kumar3 held that Section 3(7) of the 1994 Act is unconstitutional insofar as it is contrary to the dictum in M. Nagaraj & Ors. v. Union of India & Ors.4
The challenge to Section 3(7) of the 1994 Act, as extended to the State of Uttarakhand, was upheld by the High Court of Uttarakhand in Vinod Prakash Nautiyal & Others v. State of Uttarakhand & Others 5. Relying upon the judgment of this Court in U.P. Power Corporation (supra), the High Court of Uttarakhand declared Section 3(7) of the 1994 Act unconstitutional and directed that no promotion can be given by the State by taking recourse to Section 3(7) of the 1994 Act. The application filed for review of the judgment in Vinod Prakash Nautiyal (supra) was dismissed. By way of implementation of the judgment of the High Court dated 06.07.2011 in Vinod Prakash Nautiyal (supra), a committee was constituted by the Government of 3 (2012) 7 SCC 1 4 (2006) 8 SCC 212 4 | Page Uttarakhand for collection of quantifiable data relating to the backwardness of the reserved communities in the State of Uttarakhand and the inadequacy of their representation in public posts.
On 05.09.2012, the State Government decided that all posts in public services in the State shall be filled up without providing any reservations to Scheduled Castes and Scheduled Tribes. All Government Orders to the contrary were superseded by the proceeding dated 05.09.2012. Mr. Gyan Chand who was working as Assistant Commissioner (Civil), State Tax and belonging to Scheduled Caste Community filed a Writ Petition for quashing the proceeding dated 05.09.2012. The High Court by its judgment dated 01.04.2019 struck down the proceeding dated 05.09.2012 as being contrary to the law declared by this Court in Indra Sawhney v. Union of India & Ors.6 and Jarnail Singh & Ors. v. Lachhmi Narain Gupta & Ors. 7 While referring to the judgments of this Court in M. Nagaraj (supra) and Jarnail Singh (supra), the High Court held that Article 16(4) 6 (1992) Supp.3 SCC 217 7 (2018) 10 SCC 396 5 | Page of the Constitution in an enabling provision. The High Court observed that it is not necessary for the State Government to collect quantifiable data regarding representation of Scheduled Castes and Scheduled Tribes in State services or regarding their backwardness before providing reservation in their favour in promotion posts. The High Court was of the opinion that the judgment in Vinod Prakash Nautiyal (supra) related to the constitutional validity of Section 3(7) of the 1994 Act alone and the Notifications pertaining to reservation in promotion in favour of Scheduled Castes and Scheduled Tribes were not set aside. The Appeals arising out of Civil Appeal @ S.L.P.(Civil) No.25508 of 2019 and Civil Appeal @S.L.P. (Civil) @ Diary No.39572 of 2019 have been filed assailing the judgment of the High Court dated 01.04.2019.
Vinod Kumar and three others belonging to the Scheduled Castes working in the Public Works Department, Government of Uttarakhand filed a Writ Petition in the High Court of Uttarakhand seeking a direction to the Respondent therein to prepare a separate list of eligible candidates as 6 | Page per Rule 5 of the Uttarakhand Promotion by Selection (on posts outside the purview of Public Service Commission) Eligibility Rules, 2003 and to prepare a separate list for each category of eligible candidates of General, Scheduled Castes and Scheduled Tribes for promotion to the post of Assistant Engineer (Civil) in Public Works Department. A further direction to the State Government was sought to hold a departmental promotion committee for promotion to the posts of Assistant Engineers after providing reservation to Scheduled Castes and Scheduled Tribes in accordance with the Government Orders dated 30.08.2001, 31.08.2001 and 17.02.2004 by which reservation was provided in promotion. The Writ Petition was disposed of by the High Court on 15.07.2019 with a direction to the State Government to implement reservations in promotion by promoting only members of Scheduled Castes and Scheduled Tribes in future vacancies to maintain the quota earmarked for the said categories. Civil Appeals @ S.L.P.(Civil) No. 23701 of 2019 and Civil Appeal @ S.L.P. (Civil) No.22640 of 2019 are challenging the judgment dated 15.07.2019.
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7. In the meanwhile, the Respondents in Writ Petition (Civil) No.117 of 2019 i.e. the State of Uttarakhand filed an application for review of the judgment dated 01.04.2019. The High Court realized that it committed an apparent error in its judgment dated 01.04.2019, while deciding the Writ Petition by referring to the judgment of this Court in Jarnail Singh (supra). The High Court clarified that the State Government is obligated to collect quantifiable data regarding inadequacy of representation of the Scheduled Castes and Scheduled Tribes in state services before providing reservation in promotion. The High Court clarified that it is not necessary for the State Government to collect data regarding backwardness of the Scheduled Castes and Scheduled Tribes in the light of the direction of this Court in Jarnail Singh (supra). The High Court also observed that the State is not obligated to provide reservation in promotions to members of Scheduled Castes and Scheduled Tribes as Article 16(4-A) of the Constitution is an enabling provision. However, reservation can be provided by the State Government only after collecting data regarding inadequacy of representation of the Scheduled Castes and 8 | Page Scheduled Tribes in state services. As such, the High Court directed the State Government to collect quantifiable data regarding inadequacy of the representation of the Scheduled Castes and Scheduled Tribes in Government services which would enable the State Government to take a considered decision on providing or not providing reservation. The State Government was directed to take a decision whether to provide reservation or not only after considering the data relating to the adequacy or inadequacy of representation of Scheduled Castes and Scheduled Tribes in the services of the State within a period of four months from the date of receipt of the judgment. Aggrieved by the order dated 15.11.2019 passed in Review Petition in W. P. (S/B) No.117 of 2019, the Civil Appeal @ S.L.P.(Civil) No.27715 of 2019, Civil Appeal @ S.L.P.(Civil) No.28039 of 2019, Civil Appeal @ S.L.P. (Civil) No.27735 of 2019 and Civil Appeal @ S.L.P.(Civil) No. 28947 of 2019 have been filed.
Mr. Ranjit Kumar, learned Senior Counsel appearing for the Appellants in SLP (C) No. 25508 of 2019, Mr. Mukul Rohtagi and Mr. P.S. Narsimha, learned Senior Counsel 9 | Page appearing for the State of Uttarakhand contended that there is no fundamental right to claim reservation in appointments or promotions to public posts. There is no constitutional duty on the part of the State Government to provide reservations. Article 16 (4) and 16 (4-A) are merely enabling provisions. On 15.09.2012, the State of Uttarakhand, after due consideration, decided that there shall be no reservation in promotions. They relied upon the judgment of the High Court of Uttarakhand in Vinod Prakash Nautiyal (supra) by which Section 3 (7) of the 1994 Act was declared unconstitutional. It was submitted by them that the State Government has not brought any law in terms of the judgment of this Court in M. Nagaraj & Ors. (supra). It was urged by the learned Senior Counsel that there is no necessity for collection of any quantifiable data after the Government has taken a decision not to provide reservations. The collection of data, according to them, is required only to justify a decision to provide reservation. It was also submitted by them that according to a judgment of this Court in Suresh Chand Gautam v. State of U.P. 8 no 8 (2016) 11 SCC 113 10 | P a g e direction can be given by the Court to the State Government to collect quantifiable data on the basis of which a decision to provide reservation should be taken. They placed reliance on the judgment of this Court in M. Nagaraj & Ors. (supra) to argue that the State is not bound to make reservations.
On the other hand, Mr. Kapil Sibal, Mr. Dushyant Dave and Mr. Colin Gonsalves, learned Senior Counsel and Dr. K. S. Chauhan, learned counsel, appearing for the reserved category employees submitted that the State cannot refuse to collect quantifiable data regarding the adequacy or inadequacy of representation of the Scheduled Castes and Scheduled Tribes in public services. They submitted that there is an obligation on the State to provide reservations in promotions for upliftment of the members of the Scheduled Castes and Scheduled Tribes as mandated by Article 16 (4) and 16 (4-A) of the Constitution of India. The right to equality of persons belonging to Scheduled Castes and Scheduled Tribes cannot be defeated by the State Government by not discharging its constitutional obligation of implementing Article 16 (4) and 16 (4-A) of the 11 | P a g e Constitution. They urged before this Court that according to the law laid down by this Court, the State has a duty to decide not to provide reservations only after the State is satisfied that the Scheduled Castes and Scheduled Tribes are adequately represented in public posts on the basis of quantifiable data. According to them, Suresh Chand Gautam (supra) was not correctly decided and needs reconsideration. It was also submitted on behalf of the reserved category candidates that a Committee was constituted by the Government of Uttarakhand to collect quantifiable data regarding the adequacy of representation of persons belonging to Scheduled Castes and Schedules Tribes in public posts in accordance with the judgment of this Court in M. Nagaraj (supra). According to the report submitted by the Committee, there is inadequate representation of the Scheduled Castes and Scheduled Tribes in government services in the State of Uttarakhand. The said report was approved by the State Cabinet. It was contended by the learned counsel that the State Government was duty bound to provide reservations on the basis of the data that was collected by the Committee.
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10. The central point that arises for our consideration in these appeals is whether the State Government is bound to make reservations in public posts and whether the decision by the State Government not to provide reservations can be only on the basis of quantifiable data relating to adequacy of representation of persons belonging to Scheduled Castes and Scheduled Tribes.
Article 16 (4) and 16 (4-A) do not confer fundamental right to claim reservations in promotion 9. By relying upon earlier judgments of this Court, it was held in Ajit Singh (II) (supra) that Article 16 (4) and 16 (4-A) are in the nature of enabling provisions, vesting a discretion on the State Government to consider providing reservations, if the circumstances so warrant. It is settled law that the State Government cannot be directed to provide reservations for appointment in public posts10. Similarly, the State is not bound to make reservation for Scheduled Castes and Scheduled Tribes in matters of promotions. However, if they wish to exercise their discretion and make such provision, the State has to collect quantifiable data showing 9 Ajit Singh (II) v. State of Punjab, (1999) 7 SCC 209 10 C.A. Rajendran v. Union of India, (1968) 1 SCR 721 13 | P a g e inadequacy of representation of that class in public services. If the decision of the State Government to provide reservations in promotion is challenged, the State concerned shall have to place before the Court the requisite quantifiable data and satisfy the Court that such reservations became necessary on account of inadequacy of representation of Scheduled Castes and Scheduled Tribes in a particular class or classes of posts without affecting general efficiency of administration as mandated by Article 335 of the Constitution11.
Article 16 (4) and 16 (4-A) empower the State to make reservation in matters of appointment and promotion in favour of the Scheduled Castes and Scheduled Tribes ‘if in the opinion of the State they are not adequately represented in the services of the State’. It is for the State Government to decide whether reservations are required in the matter of appointment and promotions to public posts. The language in clauses (4) and (4-A) of Article 16 is clear, according to which, the inadequacy of representation is a matter within the subjective satisfaction 11 M. Nagaraj (supra) 14 | P a g e of the State. The State can form its own opinion on the basis of the material it has in its possession already or it may gather such material through a Commission/Committee, person or authority. All that is required is that there must be some material on the basis of which the opinion is formed. The Court should show due deference to the opinion of the State which does not, however, mean that the opinion formed is beyond judicial scrutiny altogether. The scope and reach of judicial scrutiny in matters within the subjective satisfaction of the executive are extensively stated in Barium Chemicals v. Company Law Board12, which need not be reiterated13.
On the basis of the settled law of this Court pertaining to the scope of Article 16 (4) and 16 (4-A) of the Constitution, we proceed to determine the correctness of the judgments of the High Court. As noted above, the judgment of the High Court in Writ Petition No.117 of 2019 is to the effect that the proceeding dated 05.09.2012 issued by the Government of Uttarakhand by which it was decided to fill up the promotional posts or vacancies without 12 AIR 1967 SC 295 13 Indra Sawhney v. Union of India (1992) Supp. (3) SCC 217 15 | P a g e providing reservations to Scheduled Castes and Scheduled Tribes was struck down. It was held by the High Court that the notifications that were issued by the Government of Uttarakhand, providing for reservations, continued to operate. A direction was issued by the High Court that reservation in promotion in favour of the Scheduled Castes and Scheduled Tribes can be made by the State Government without having quantifiable data regarding the backwardness of the Scheduled Castes and Schedules Tribes or the adequacy of their representation in the Government services.
The application filed for review of the judgment in Writ Petition No.117 of 2019 was decided by a judgment dated 08.11.2019 by the High Court. Realising the error committed in its judgment dated 01.04.2019, the High Court modified the judgment by holding that according to the decision of this Court in Jarnail Singh v. Lachhmi Narain Gupta14, the State was obligated to collect quantifiable data regarding the inadequacy of representation of the Scheduled Castes and Scheduled Tribes in public services. 14 (2018) 10 SCC 396 16 | P a g e The High Court observed that Article 16 (4) and 16 (4-A) of the Constitution are enabling provisions, and the State Government is not obligated to provide reservations in promotion in favour of members of the Scheduled Castes and Scheduled Tribes. The High Court expressed its opinion that reservation in promotion to public posts can be provided by the State Government only after collecting data regarding the inadequacy of their representation in service. In light of the above, the High Court directed the State Government to collect quantifiable data regarding the adequacy or inadequacy of representation of Scheduled Castes and Scheduled Tribes in state services which would enable the State Government to take a considered decision as to whether or not reservation in promotion should be provided in favour of Scheduled Castes and Scheduled Tribes. The collection of quantifiable data was directed to be completed within four months from the date of receipt of the judgment.
The High Court committed an error by striking down the proceeding dated 05.09.2012 by which a decision was taken not to provide reservation in promotions without 17 | P a g e giving any reasons, except stating that the said decision is contrary to the judgments of this Court in Jarnail Singh and Indra Sawhney (supra). A perusal of the proceeding dated 05.09.2012 would show that the decision taken by the State Government was by way of implementation of the judgment of the High Court of Uttarakhand in Vinod Prakash Nautiyal (supra) by which Section 3(7) of the 1994 Act, relating to the provision of reservation in promotion, was struck down. By its judgment dated 10.07.2012 in Vinod Prakash Nautiyal (supra), the High Court declared Section 3 (7) of the 1994 Act as contrary to the law laid down by this Court in M. Nagaraj (supra). There was a further declaration that no promotion can be given by the State of Uttarakhand by taking recourse to Section 3 (7) of the 1994 Act. However, the State Government was given liberty to bring out another legislation in accordance with the mandate of the Constitution of India, by following the judgment in M. Nagaraj (supra). This Court dismissed the SLP filed against the said judgment. At this juncture, it is relevant to mention that certain notifications were issued after the formation of the State of Uttarakhand by which 18 | P a g e reservation in promotion to public posts as provided in the State of Uttar Pradesh was adapted with certain modifications. As stated above, the Government of Uttarakhand appointed a Committee for collection of quantifiable data pertaining to the adequacy or inadequacy of representation of the members of Scheduled Castes and Scheduled Tribes in public services in the State. The Committee submitted its report, according to which the representation of Scheduled Castes and Scheduled Tribes is inadequate. The State Cabinet approved the recommendation of the Committee on 12.04.2012. Ultimately, the State Government by a proceeding dated 05.09.2012 decided to set aside all previous Government orders relating to reservation in promotions to Government services in the State. As the Government is not bound to provide reservation in promotions, we are of the opinion that there is no justifiable reason for the High Court to have declared the proceeding dated 05.09.2012 as illegal.
The direction that was issued to the State Government to collect quantifiable data pertaining to the adequacy or inadequacy of representation of persons belonging to 19 | P a g e Scheduled Castes and Scheduled Tribes in Government services is the subject matter of challenge in some appeals before us. In view of the law laid down by this Court, there is no doubt that the State Government is not bound to make reservations. There is no fundamental right which inheres in an individual to claim reservation in promotions. No mandamus can be issued by the Court directing the State Government to provide reservations. It is abundantly clear from the judgments of this Court in Indra Sawhney, Ajit Singh (II), M. Nagaraj and Jarnail Singh (supra) that Article 16 (4) and 16 (4-A) are enabling provisions and the collection of quantifiable data showing inadequacy of representation of Scheduled Castes and Scheduled Tribes in public service is a sine qua non for providing reservations in promotions. The data to be collected by the State Government is only to justify reservation to be made in the matter of appointment or promotion to public posts, according to Article 16 (4) and 16 (4-A) of the Constitution. As such, collection of data regarding the inadequate representation of members of the Scheduled Castes and Schedules Tribes, as noted above, is a pre requisite for 20 | P a g e providing reservations, and is not required when the State Government decided not to provide reservations. Not being bound to provide reservations in promotions, the State is not required to justify its decision on the basis of quantifiable data, showing that there is adequate representation of members of the Scheduled Castes and Schedules Tribes in State services. Even if the under- representation of Scheduled Castes and Schedules Tribes in public services is brought to the notice of this Court, no mandamus can be issued by this Court to the State Government to provide reservation in light of the law laid down by this Court in C.A. Rajendran (supra) and Suresh Chand Gautam (supra). Therefore, the direction given by the High Court that the State Government should first collect data regarding the adequacy or inadequacy of representation of Scheduled Castes and Scheduled Tribes in Government services on the basis of which the State Government should take a decision whether or not to provide reservation in promotion is contrary to the law laid down by this Court and is accordingly set aside. Yet another direction given by the High Court in its judgment dated 21 | P a g e 15.07.2019, directing that all future vacancies that are to be filled up by promotion in the posts of Assistant Engineer, should only be from the members of Scheduled Castes and Scheduled Tribes, is wholly unjustifiable and is hence set aside.
The submission made on behalf of the reserved category candidates that the judgment of this Court in Suresh Chand Gautam (supra) needs reconsideration is without substance in view of the findings recorded above. We are in agreement with the decision of this Court in Suresh Chand Gautam (supra) in which it was held that no mandamus can be issued by the Court to the State to collect quantifiable data relating to adequacy of representation of the Scheduled Castes and Scheduled Tribes in public services.
The High Court was not informed about the appointment of a Committee for collection of quantifiable data and the completion of such exercise by the Committee, which was approved by the State Cabinet. However, the State Government took a conscious decision not to provide reservation in promotions. The direction given by the High 22 | P a g e Court to collect quantifiable data, therefore, is wholly unnecessary as the State is already in possession of the said data.
In view of the aforesaid, the impugned judgments of the High Court in Writ Petition (S/B) No.351 of 2019, Writ Petition (S/B) No.117 of 2019 and Review Application No.389 of 2019 in Writ Petition (S/B) No.117 of 2019 are set aside.
Prathvi Raj Chauhan vs Union Of India on 10 February, 2020 Author: Arun Mishra Bench: Arun Mishra, Vineet Saran, S. Ravindra Bhat 1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
WRIT PETITION [C] NO. 1015 OF 2018
PRATHVI RAJ CHAUHAN ….PETITIONER(S)
VERSUS
UNION OF INDIA & ORS. ….RESPONDENTS
WITH
WRIT PETITION [C] NO. 1016 OF 2018
JUDGMENT
ARUN MISHRA, J.
The petitioners have questioned the provisions inserted by way of carving out section 18A of the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989 (Act of 1989). Section 18 as well as section 18A, are reproduced hereunder:
“18. Section 438 of the Code not to apply to persons committing an offence under the Act.—Nothing in section 438 of the Code shall apply in relation to any case involving the arrest of any person on an accusation of having committed an offence under this Act.” “Section 18A. (i) For the purpose of this Act,- Signature Not Verified (a) preliminary enquiry shall be required for registration of a First Digitally signed by JAYANT KUMAR ARORA Date: 2020.02.10 Information Report against any person; or 18:13:23 IST Reason:
(b) the investigating officer shall not require approval for the arrest, if necessary, of any person, against whom an accusation of having committed an offence under this Act has been made, and no procedure other than that provided under this Act or the Code shall apply. (ii) The provisions of section 438 of the Code shall not apply to a case under this Act, notwithstanding any judgment or order or direction of any Court.”
It is submitted that section 18A has been enacted to nullify the judgment of this Court in Dr. Subhash Kashinath Mahajan v. The State of Maharashtra & Anr., (2018) 6 SCC 454, in which following directions were issued:
“83. Our conclusions are as follows: (i) Proceedings in the present case are clear abuse of process of court and are quashed. (ii) There is no absolute bar against grant of anticipatory bail in cases under the Atrocities Act if no prima facie case is made out or where on judicial scrutiny the complaint is found to be prima facie mala fide. We approve the view taken and approach of the Gujarat High Court in Pankaj D. Suthar (supra) and Dr. N.T. Desai (supra) and clarify the judgments of this Court in Balothia (supra) and Manju Devi (supra); (iii) In view of acknowledged abuse of law of arrest in cases under the Atrocities Act, arrest of a public servant can only be after approval of the appointing authority and of a non-public servant after approval by the S.S.P. which may be granted in appropriate cases if considered necessary for reasons recorded. Such reasons must be scrutinised by the Magistrate for permitting further detention. (iv) To avoid false implication of an innocent, a preliminary enquiry may be conducted by the DSP concerned to find out whether the allegations make out a case under the Atrocities Act and that the allegations are not frivolous or motivated. (v) Any violation of directions (iii) and (iv) will be actionable by way of disciplinary action as well as contempt. The above directions are prospective.”
It has been submitted that this Court has noted in Dr. Subhash Kashinath (supra) that the provisions of the Act of 1989 are being misused as such the amendment is arbitrary, unjust, irrational and violative of Article 21 of the Constitution of India. There could not have been any curtailment of the right to obtain anticipatory bail under section 438 Cr.PC. Prior scrutiny and proper investigation are necessary. Most of the safeguards have been provided under the Act of 1989 to prevent undue harassment. This Court has struck down the provision of section 66A of the Information Technology Act on the ground of violation of fundamental rights; on the same anvil, the provisions of section 18A of the Act of 1989 deserve to be struck down.
It is not disputed at the Bar that the provisions in section 18A in the Act of 1989 had been enacted because of the judgment passed by this Court in Dr. Subhash Kashinath’s case (supra), mainly because of direction Nos (iii) to (v) contained in para 83. The Union of India had filed review petitions, and the same have been allowed, and direction Nos (iii) to (v) have been recalled. Thus, in view of the judgment passed in the review petitions, the matter is rendered of academic importance as we had restored the position as prevailed by various judgments that were in vogue before the matter of Dr. Subhash Kashinath (supra) was decided. We are not burdening the decision as facts and reasons have been assigned in detail while deciding review petitions on 1.10.2019 and only certain clarifications are required in view of the provisions carved out in section 18A. There can be protective discrimination, not reverse one. We have dealt with various questions in the review petitions while deciding the same as under:
“36. In the light of the discussion mentioned above of legal principles, we advert to directions issued in paragraph 83. Direction Nos. (iii) and (iv) and consequential direction No. (v) are sought to be reviewed/recalled. Directions contain the following aspects: –
That arrest of a public servant can only be after approval of the appointing authority.
The arrest of a non-public servant after approval by the Senior Superintendent of Police (SSP).
The arrest may be in an appropriate case if considered necessary for reasons to be recorded;
Reasons for arrest must be scrutinised by the Magistrate for permitting further detention;
Preliminary enquiry to be conducted by the Dy. S.P. level officers to find out whether the allegations make out a case and that the allegations are not frivolous or motivated.
Any violation of the directions mentioned above will be actionable by way of disciplinary action as well as contempt.
Before we dilate upon the aforesaid directions, it is necessary to take note of certain aspects. It cannot be disputed that as the members of the Scheduled Castes and Scheduled Tribes have suffered for long; the protective discrimination has been envisaged under Article 15 of the Constitution of India and the provisions of the Act of 1989 to make them equals.
All the offences under the Atrocities Act are cognizable. The impugned directions put the riders on the right to arrest. An accused cannot be arrested in atrocities cases without the concurrence of the higher Authorities or appointing authority as the case may be. As per the existing provisions, the appointing authority has no power to grant or withhold sanction to arrest concerning a public servant.
The National Commission for Scheduled Castes Annual Report 2015-16, has recommended for prompt registration of FIRs thus: “The Commission has noted with concern that instances of procedural lapses are frequent while dealing atrocity cases by both police and civil administration. There are delays in the judicial process of the cases. The Commission, therefore, identified lacunae commonly noticed during police investigation, as also preventive/curable actions the civil administration can take. NCSC recommends the correct and timely application of SC/ST (PoA) Amendment Act, 2015 and Amendment Rules of 2016 as well as the following for improvement:
“8.6.1 Registration of FIRs – The Commission has observed that the police often resort to preliminary investigation upon receiving a complaint in writing before lodging the actual FIRs. As a result, the SC victims have to resort to seeking directions from courts for registration of FIRs u/s 156(3) of Cr.P.C. Hon’ble Supreme Court has also on more than one occasion emphasized about registration of FIR first. This Commission again reemphasizes that the State / UT Governments should enforce prompt registration of FIRs.” (emphasis supplied)
The learned Attorney General pointed out that the statistics considered by the Court in the judgment under review indicate that 9 to 10 percent cases under the Act were found to be false. The percentage of false cases concerning other general crimes such as forgery is comparable, namely 11.51 percent and for kidnapping and abduction, it is 8.85 percent as per NCRB data for the year 2016. The same can be taken care of by the Courts under Section 482, and in case no prima facie case is made out, the Court can always consider grant of anticipatory bail and power of quashing in appropriate cases. For the low conviction rate, he submitted that same is the reflection of the failure of the criminal justice system and not an abuse of law. The witnesses seldom come to support down-trodden class, biased mindset continues, and they are pressurised in several manners, and the complainant also hardly muster the courage.
As to prevailing conditions in various areas of the country, we are compelled to observe that SCs/STs are still making the struggle for equality and for exercising civil rights in various areas of the country. The members of the Scheduled Castes and Scheduled Tribes are still discriminated against in various parts of the country. In spite of reservation, the fruits of development have not reached to them, by and large, they remain unequal and vulnerable section of the society. The classes of Scheduled Castes and Scheduled Tribes have been suffering ignominy and abuse, and they have been outcast socially for the centuries. The efforts for their upliftment should have been percolated down to eradicate their sufferings.
Though, Article 17 of the Constitution prohibits untouchability, whether untouchability has vanished? We have to find the answer to all these pertinent questions in the present prevailing social scenario in different parts of the country. The clear answer is that untouchability though intended to be abolished, has not vanished in the last 70 years. We are still experimenting with ‘tryst with destiny.’ The plight of untouchables is that they are still denied various civil rights; the condition is worse in the villages, remote areas where fruits of development have not percolated down. They cannot enjoy equal civil rights. So far, we have not been able to provide the modern methods of scavenging to Harijans due to lack of resources and proper planning and apathy. Whether he can shake hand with a person of higher class on equal footing? Whether we have been able to reach that level of psyche and human dignity and able to remove discrimination based upon caste? Whether false guise of cleanliness can rescue the situation, how such condition prevails and have not vanished, are we not responsible? The answer can only be found by soul searching. However, one thing is sure that we have not been able to eradicate untouchability in a real sense as envisaged and we have not been able to provide down-trodden class the fundamental civil rights and amenities, frugal comforts of life which make life worth living. More so, for Tribals who are at some places still kept in isolation as we have not been able to provide them even basic amenities, education and frugal comforts of life in spite of spending a considerable amount for the protection, how long this would continue. Whether they have to remain in the status quo and to entertain civilized society? Whether under the guise of protection of the culture, they are deprived of fruits of development, and they face a violation of traditional rights?
In Khadak Singh vs. State of Himachal Pradesh, AIR 1963 SC 1295, this Court has observed that the right to life is not merely an animal’s existence. Under Article 21, the right to life includes the right to live with dignity. Basic human dignity implies that all the persons are treated as equal human in all respects and not treated as an untouchable, downtrodden, and object for exploitation. It also implies that they are not meant to be born for serving the elite class based upon the caste. The caste discrimination had been deep-rooted, so the consistent effort is on to remove it, but still, we have to achieve the real goal. No doubt we have succeeded partially due to individual and collective efforts.
The enjoyment of quality life by the people is the essence of guaranteed right under Article 21 of the Constitution, as observed in Hinch Lal Tiwari v. Kamla Devi, (2001) 6 SCC 496. Right to live with human dignity is included in the right to life as observed in Francis Coralie Mullin v. Union Territory Delhi, Administrator, AIR 1981 SC 746, Olga Tellis v. Bombay Corporation, AIR 1986 SC 180. Gender injustice, pollution, environmental degradation, malnutrition, social ostracism of Dalits are instances of human rights violations as observed by this Court in People’s Union for Civil Liberties v. Union of India, (2005) 2 SCC 436:
“34. The question can also be examined from another angle. The knowledge or experience of a police officer of human rights violation represents only one facet of human rights violation and its protection, namely, arising out of crime. Human rights violations are of various forms which besides police brutality are — gender injustice, pollution, environmental degradation, malnutrition, social ostracism of Dalits, etc. A police officer can claim to have experience of only one facet. That is not the requirement of the section.” (emphasis supplied)
There is right to live with dignity and also right to die with dignity. For violation of human rights under Article 21 grant of compensation is one of the concomitants which has found statutory expression in the provisions of compensation, to be paid in case an offence is committed under the provisions of the Act of 1989. A good reputation is an element of personal security and is protected by the Constitution equally with the right to the enjoyment of life, liberty, and property. Therefore, it has been held to be an essential element of the right to life of a citizen under Article 21 as observed by this Court in Umesh Kumar v. State of Andhra Pradesh, (2013) 10 SCC 591, Kishore Samrite v. State of Uttar Pradesh, (2013) 2 SCC 398 and Subramanian Swamy v. Union of India, (2016) 7 SCC 221. The provisions of the Act of 1989 are, in essence, concomitants covering various facets of Article 21 of the Constitution of India.
They do labour, bonded or forced, in agricultural fields, which is not abrogated in spite of efforts. In certain areas, women are not treated with dignity and honour and are sexually abused in various forms. We see sewer workers dying in due to poisonous gases in chambers. They are like death traps. We have not been able to provide the masks and oxygen cylinders for entering in sewer chambers, we cannot leave them to die like this and avoid tortious liability concerned with officials/machinery, and they are still discriminated within the society in the matter of enjoying their civil rights and cannot live with human dignity.
The Constitution of India provides equality before the law under the provisions contained in Article 14. Article 15(4) of the Constitution carves out an exception for making any special provision for the advancement of any socially and educationally backward classes of citizens or SCs. and STs. Further protection is conferred under Article 15(5) concerning their admission to educational institutions, including private educational institutions, whether aided or unaided by the State, other than the minority educational institutions. Historically disadvantageous groups must be given special protection and help so that they can be uplifted from their poverty and low social status as observed in Kailas & Ors. v. State of Maharashtra, 2011 (1) SCC 793. The legislature has to attempt such incumbents be protected under Article 15(4), to deal with them with more rigorous provisions as compared to provisions of general law available to the others would create inequality which is not permissible/envisaged constitutionally. It would be an action to negate mandatory constitutional provisions not supported by the constitutional scheme; rather, it would be against the mandated constitutional protection. It is not open to the legislature to put members of the Scheduled Castes and Scheduled Tribes in a disadvantageous position vis-à-vis others and in particular to so-called upper castes/general category. Thus, they cannot be discriminated against more so when we have a peep into the background perspective. What legislature cannot do legitimately, cannot be done by the interpretative process by the courts.
The particular law, i.e., Act of 1989, has been enacted and has also been amended in 2016 to make its provisions more effective. Special prosecutors are to be provided for speedy trial of cases. The incentives are also provided for rehabilitation of victims, protection of witnesses and matters connected therewith.
There is no presumption that the members of the Scheduled Castes and Scheduled Tribes may misuse the provisions of law as a class and it is not resorted to by the members of the upper Castes or the members of the elite class. For lodging a false report, it cannot be said that the caste of a person is the cause. It is due to the human failing and not due to the caste factor. Caste is not attributable to such an act. On the other hand, members of the Scheduled Castes and Scheduled Tribes due to backwardness hardly muster the courage to lodge even a first information report, much less, a false one. In case it is found to be false/unsubstantiated, it may be due to the faulty investigation or for other various reasons including human failings irrespective of caste factor. There may be certain cases which may be false that can be a ground for interference by the Court, but the law cannot be changed due to such misuse. In such a situation, it can be taken care in proceeding under section 482 of the Cr.PC.
The data of National Crime Records Bureau, Ministry of Home Affairs, has been pointed out on behalf of Union of India which indicates that more than 47,000 cases were registered in the year 2016 under the Act of 1989. The number is alarming, and it cannot be said that it is due to the outcome of the misuse of the provisions of the Act.
As a matter of fact, members of the Scheduled Castes and Scheduled Tribes have suffered for long, hence, if we cannot provide them protective discrimination beneficial to them, we cannot place them at all at a disadvantageous position that may be causing injury to them by widening inequality and against the very spirit of our Constitution. It would be against the basic human dignity to treat all of them as a liar or as a crook person and cannot look at every complaint by such complainant with a doubt. Eyewitnesses do not come up to speak in their favour. They hardly muster the courage to speak against upper caste, that is why provisions have been made by way of amendment for the protection of witnesses and rehabilitation of victims. All humans are equal including in their frailings. To treat SCs. and STs. as persons who are prone to lodge false reports under the provisions of the Scheduled Castes and Scheduled Tribes Act for taking revenge or otherwise as monetary benefits made available to them in the case of their being subjected to such offence, would be against fundamental human equality. It cannot be presumed that a person of such class would inflict injury upon himself and would lodge a false report only to secure monetary benefits or to take revenge. If presumed so, it would mean adding insult to injury, merely by the fact that person may misuse provisions cannot be a ground to treat class with doubt. It is due to human failings, not due to the caste factor. The monetary benefits are provided in the cases of an acid attack, sexual harassment of SC/ST women, rape, murder, etc. In such cases, FIR is required to be registered promptly.
It is an unfortunate state of affairs that the caste system still prevails in the country and people remain in slums, more particularly, under skyscrapers, and they serve the inhabitants of such buildings.
To treat such incumbents with a rider that a report lodged by an SCs/STs category, would be registered only after a preliminary investigation by Dy. S.P., whereas under Cr.PC a complaint lodged relating to cognizable offence has to be registered forthwith. It would mean a report by upper-caste has to be registered immediately and arrest can be made forthwith, whereas, in case of an offence under the Act of 1989, it would be conditioned one. It would be opposed to the protective discrimination meted out to the members of the Scheduled Castes and Scheduled Tribes as envisaged under the Constitution in Articles 15, 17 and 21 and would tantamount to treating them as unequal, somewhat supportive action as per the mandate of Constitution is required to make them equals. It does not prima facie appear permissible to look them down in any manner. It would also be contrary to the procedure prescribed under the Cr.PC and contrary to the law laid down by this Court in Lalita Kumari (supra).
The guidelines in (iii) and (iv) appear to have been issued in view of the provisions contained in Section 18 of the Act of 1989; whereas adequate safeguards have been provided by a purposive interpretation by this Court in the case of State of M.P. v. R.K. Balothia, (1995) 3 SCC 221. The consistent view of this Court that if prima facie case has not been made out attracting the provisions of SC/ST Act of 1989, in that case, the bar created under section 18 on the grant of anticipatory bail is not attracted. Thus, misuse of the provisions of the Act is intended to be taken care of by the decision above. In Kartar Singh (supra), a Constitution Bench of this Court has laid down that taking away the said right of anticipatory bail would not amount to a violation of Article 21 of the Constitution of India. Thus, prima facie it appears that in the case of misuse of provisions, adequate safeguards are provided in the decision mentioned above.
That apart directions (iii) and (iv) issued may delay the investigation of cases. As per the amendment made in the Rules in the year 2016, a charge sheet has to be filed to enable timely commencement of the prosecution. The directions issued are likely to delay the timely scheme framed under the Act/Rules.
In re: sanction of the appointing authority :
Concerning public servants, the provisions contained in Section 197, Cr.PC provide protection by prohibiting cognizance of the offence without the sanction of the appointing authority and the provision cannot be applied at the stage of the arrest. That would run against the spirit of Section 197, Cr.PC. Section 41, Cr.PC authorises every police officer to carry out an arrest in case of a cognizable offence and the very definition of a cognizable offence in terms of Section 2(c) of Cr.PC is one for which police officer may arrest without warrant.
In case any person apprehends that he may be arrested, harassed and implicated falsely, he can approach the High Court for quashing the FIR under Section 482 as observed in State of Orissa v. Debendra Nath Padhi, (2005) 1 SCC 568.
While issuing guidelines mentioned above approval of appointing authority has been made imperative for the arrest of a public servant under the provisions of the Act in case, he is an accused of having committed an offence under the Act of 1989. Permission of the appointing authority to arrest a public servant is not at all statutorily envisaged; it is encroaching on a field which is reserved for the legislature. The direction amounts to a mandate having legislative colour which is a field not earmarked for the Courts.
The direction is discriminatory and would cause several legal complications. On what basis the appointing authority would grant permission to arrest a public servant? When the investigation is not complete, how it can determine whether public servant is to be arrested or not? Whether it would be appropriate for appointing authority to look into case diary in a case where its sanction for prosecution may not be required in an offence which has not happened in the discharge of official duty. Approaching appointing authority for approval of arrest of a public servant in every case under the Act of 1989 is likely to consume sufficient time. The appointing authority is not supposed to know the ground realities of the offence that has been committed, and arrest sometimes becomes necessary forthwith to ensure further progress of the investigation itself. Often the investigation cannot be completed without the arrest. There may not be any material before the appointing authority for deciding the question of approval. To decide whether a public servant should be arrested or not is not a function of appointing authority, it is wholly extra-statutory. In case appointing authority holds that a public servant is not to be arrested and declines approval, what would happen, as there is no provision for grant of anticipatory bail. It would tantamount to take away functions of Court. To decide whether an accused is entitled to bail under Section 438 in case no prima facie case is made out or under Section 439 is the function of the Court. The direction of appointing authority not to arrest may create conflict with the provisions of Act of 1989 and is without statutory basis.
By the guidelines issued, the anomalous situation may crop up in several cases. In case the appointing authority forms a view that as there is no prima facie case the incumbent is not to be arrested, several complications may arise. For the arrest of an offender, maybe a public servant, it is not the provision of the general law of Cr.PC that permission of the appointing authority is necessary. No such statutory protection provided to a public servant in the matter of arrest under the IPC and the Cr.PC as such it would be discriminatory to impose such rider in the cases under the Act of 1989. Only in the case of discharge of official duties, some offence appears to have been committed, in that case, sanction to prosecute may be required and not otherwise. In case the act is outside the purview of the official discharge of duty, no such sanction is required.
The appointing authority cannot sit over an FIR in case of cognizable, non-bailable offense and investigation made by the Police Officer; this function cannot be conferred upon the appointing authority as it is not envisaged either in the Cr.P.C. or the Act of 1989. Thus, this rider cannot be imposed in respect of the cases under the Act of 1989, may be that provisions of the Act are sometimes misused, exercise of power of approval of arrest by appointing authority is wholly impermissible, impractical besides it encroaches upon the field reserved for the legislature and is repugnant to the provisions of general law as no such rider is envisaged under the general law.
Assuming it is permissible to obtain the permission of appointing authority to arrest accused, would be further worsening the position of the members of the Scheduled Castes and Scheduled Tribes. If they are not to be given special protection, they are not to be further put in a disadvantageous position. The implementation of the condition may discourage and desist them even to approach the Police and would cast a shadow of doubt on all members of the Scheduled Castes and Scheduled Tribes which cannot be said to be constitutionally envisaged. Other castes can misuse the provisions of law; also, it cannot be said that misuse of law takes place by the provisions of Act of 1989. In case the direction is permitted to prevail, days are not far away when writ petition may have to be filed to direct the appointing authority to consider whether accused can be arrested or not and as to the reasons recorded by the appointing authority to permit or deny the arrest. It is not the function of the appointing authority to intermeddle with a criminal investigation. If at the threshold, approval of appointing authority is made necessary for arrest, the very purpose of the Act is likely to be frustrated. Various complications may arise. Investigation cannot be completed within the specified time, nor trial can be completed as envisaged. Act of 1989 delay would be adding to the further plight of the downtrodden class.
In ref: approval of arrest by the SSP in the case of a non-public servant:
Inter alia for the reasons as mentioned earlier, we are of the considered opinion that requiring the approval of SSP before an arrest is not warranted in such a case as that would be discriminatory and against the protective discrimination envisaged under the Act. Apart from that, no such guidelines can prevail, which are legislative. When there is no provision for anticipatory bail, obviously arrest has to be made. Without doubting bona fides of any officer, it cannot be left at the sweet discretion of the incumbent howsoever high. The approval would mean that it can also be ordered that the person is not to be arrested then how the investigation can be completed when the arrest of an incumbent, is necessary, is not understandable. For an arrest of accused such a condition of approval of SSP could not have been made a sine qua non, it may delay the matter in the cases under the Act of 1989.
Requiring the Magistrate to scrutinise the reasons for permitting further detention:
As per guidelines issued by this Court, the public servant can be arrested after approval by appointing authority and that of a non-public servant after the approval of SSP. The reasons so recorded have to be considered by the Magistrate for permitting further detention. In case of approval has not been granted, this exercise has not been undertaken. When the offence is registered under the Act of 1989, the law should take its course no additional fetter sare called for on arrest whether in case of a public servant or non-public servant. Even otherwise, as we have not approved the approval of arrest by appointing authority/S.S.P., the direction to record reasons and scrutiny by Magistrate consequently stands nullified.
The direction has also been issued that the Dy. S.P. should conduct a preliminary inquiry to find out whether allegations make out a case under the Atrocities Act, and that the allegations are not frivolous or motivated. In case a cognisable offence is made out, the FIR has to be outrightly registered, and no preliminary inquiry has to be made as held in Lalita Kumari (supra) by a Constitution Bench. There is no such provision in the Code of Criminal Procedure for preliminary inquiry or under the SC/ST Act, as such direction is impermissible. Moreover, it is ordered to be conducted by the person of the rank of Dy. S.P. The number of Dy. S.P. as per stand of Union of India required for such an exercise of preliminary inquiry is not available. The direction would mean that even if a complaint made out a cognizable offence, an FIR would not be registered until the preliminary inquiry is held. In case a preliminary inquiry concludes that allegations are false or motivated, FIR is not to be registered in such a case how a final report has to be filed in the Court. The direction (iv) cannot survive for the other reasons as it puts the members of the Scheduled Castes and Scheduled Tribes in a disadvantageous position in the matter of procedure vis-a-vis to the complaints lodged by members of upper caste, for later no such preliminary investigation is necessary, in that view of matter it should not be necessary to hold preliminary inquiry for registering an offence under the Atrocities Act of 1989.
The creation of a casteless society is the ultimate aim. We conclude with a pious hope that a day would come, as expected by the framers of the Constitution, when we do not require any such legislation like Act of 1989, and there is no need to provide for any reservation to SCs/STs/OBCs, and only one class of human exist equal in all respects and no caste system or class of SCs/STs or OBCs exist, all citizens are emancipated and become equal as per Constitutional goal.
We do not doubt that directions encroach upon the field reserved for the legislature and against the concept of protective discrimination in favour of down-trodden classes under Article 15(4) of the Constitution and also impermissible within the parameters laid down by this Court for exercise of powers under Article 142 of Constitution of India. Resultantly, we are of the considered opinion that direction Nos.(iii) and
(iv) issued by this Court deserve to be and are hereby recalled and consequently we hold that direction No. (v), also vanishes. The review petition is allowed to the extent mentioned above.”
In State of M.P. & Anr. v. Ram Kishna Balothia & Anr., (1995) 3 SCC 221, this Court has upheld the validity of section 18 of the Act of 1989. This Court has observed:
“6. It is undoubtedly true that Section 438 of the Code of Criminal Procedure, which is available to an accused in respect of offences under the Penal Code, is not available in respect of offences under the said Act. But can this be considered as violative of Article 14? The offences enumerated under the said Act fall into a separate and special class. Article 17 of the Constitution expressly deals with abolition of ‘untouchability’ and forbids its practice in any form. It also provides that enforcement of any disability arising out of ‘untouchability’ shall be an offence punishable in accordance with law. The offences, therefore, which are enumerated under Section 3(1), arise out of the practice of ‘untouchability.’ It is in this context that certain special provisions have been made in the said Act, including the impugned provision under Section 18, which is before us. The exclusion of Section 438 of the Code of Criminal Procedure in connection with offences under the said Act has to be viewed in the context of the prevailing social conditions which give rise to such offences, and the apprehension that perpetrators of such atrocities are likely to threaten and intimidate their victims and prevent or obstruct them in the prosecution of these offenders, if the offenders are allowed to avail of anticipatory bail. In this connection, we may refer to the Statement of Objects and Reasons accompanying the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Bill, 1989, when it was introduced in Parliament. It sets out the circumstances surrounding the enactment of the said Act and points to the evil which the statute sought to remedy. In the Statement of Objects and Reasons, it is stated:
“Despite various measures to improve the socio-economic conditions of the Scheduled Castes and the Scheduled Tribes, they remain vulnerable. They are denied number of civil rights. They are subjected to various offences, indignities, humiliations, and harassment. They have, in several brutal incidents, been deprived of their life and property. Serious crimes are committed against them for various historical, social, and economic reasons.
… When they assert their rights and resist practices of untouchability against them or demand statutory minimum wages or refuse to do any bonded and forced labour, the vested interests try to cow them down and terrorise them. When the Scheduled Castes and the Scheduled Tribes try to preserve their self-respect or honour of their women, they become irritants for the dominant and the mighty. Occupation and cultivation of even the Government allotted land by the Scheduled Castes and Scheduled Tribes is resented, and more often, these people become victims of attacks by the vested interests. Of late, there has been an increase in the disturbing trend of commission of certain atrocities like making the Scheduled Caste persons eat inedible substances like human excreta and attacks on and mass killings of helpless Scheduled Castes and Scheduled Tribes and rape of women belonging to the Scheduled Castes and the Scheduled Tribes…. A special legislation to check and deter crimes against them committed by non-Scheduled Castes and non-Scheduled Tribes has, therefore, become necessary.”
The above statement graphically describes the social conditions which motivated the said legislation. It is pointed out in the above Statement of Objects and Reasons that when members of the Scheduled Castes and Scheduled Tribes assert their rights and demand statutory protection, vested interests try to cow them down and terrorise them. In these circumstances, if anticipatory bail is not made available to persons who commit such offences, such a denial cannot be considered as unreasonable or violative of Article 14, as these offences form a distinct class by themselves and cannot be compared with other offences.
We have next to examine whether Section 18 of the said Act violates, in any manner, Article 21 of the Constitution, which protects the life and personal liberty of every person in this country. Article 21 enshrines the right to live with human dignity, a precious right to which every human being is entitled; those who have been, for centuries, denied this right, more so. We find it difficult to accept the contention that Section 438 of the Code of Criminal Procedure is an integral part of Article 21. In the first place, there was no provision similar to Section 438 in the old Criminal Procedure Code. The Law Commission in its 41st Report recommended introduction of a provision for grant of anticipatory bail. It observed:
“We agree that this would be a useful advantage. Though we must add that it is in very exceptional cases that such power should be exercised.” In the light of this recommendation, Section 438 was incorporated, for the first time, in the Criminal Procedure Code of 1973. Looking to the cautious recommendation of the Law Commission, the power to grant anticipatory bail is conferred only on a Court of Session or the High Court. Also, anticipatory bail cannot be granted as a matter of right. It is essentially a statutory right conferred long after the coming into force of the Constitution. It cannot be considered as an essential ingredient of Article 21 of the Constitution. And its non-application to a certain special category of offences cannot be considered as violative of Article 21.
Of course, the offences enumerated under the present case are very different from those under the Terrorists and Disruptive Activities (Prevention) Act, 1987. However, looking to the historical background relating to the practice of ‘untouchability’ and the social attitudes which lead to the commission of such offences against Scheduled Castes and Scheduled Tribes, there is justification for an apprehension that if the benefit of anticipatory bail is made available to the persons who are alleged to have committed such offences, there is every likelihood of their misusing their liberty while on anticipatory bail to terrorise their victims and to prevent a proper investigation. It is in this context that Section 18 has been incorporated in the said Act. It cannot be considered as in any manner violative of Article 21.
It was submitted before us that while Section 438 is available for graver offences under the Penal Code, it is not available for even “minor offences” under the said Act. This grievance also cannot be justified. The offences which are enumerated under Section 3 are offences which, to say the least, denigrate members of Scheduled Castes and Scheduled Tribes in the eyes of society and prevent them from leading a life of dignity and self-respect. Such offences are committed to humiliate and subjugate members of Scheduled Castes and Scheduled Tribes with a view to keeping them in a state of servitude. These offences constitute a separate class and cannot be compared with offences under the Penal Code.
A similar view of Section 18 of the said Act has been taken by the Full Bench of the Rajasthan High Court in the case of Jai Singh v. Union of India, AIR 1993 Raj 177, and we respectfully agree with its findings.”
This Court in Vilas Pandurang Pawar and Anr. v. State of Maharashtra and Ors., (2012) 8 SCC 795, has observed thus:
“10. The scope of Section 18 of the SC/ST Act read with Section 438 of the Code is such that it creates a specific bar in the grant of anticipatory bail. When an offence is registered against a person under the provisions of the SC/ST Act, no court shall entertain an application for anticipatory bail, unless it prima facie finds that such an offence is not made out. Moreover, while considering the application for bail, scope for appreciation of evidence and other material on record is limited. The court is not expected to indulge in critical analysis of the evidence on record. When a provision has been enacted in the Special Act to protect the persons who belong to the Scheduled Castes and the Scheduled Tribes and a bar has been imposed in granting bail under Section 438 of the Code, the provision in the Special Act cannot be easily brushed aside by elaborate discussion on the evidence.”
This Court in Shakuntla Devi v. Baljinder Singh, (2014) 15 SCC 521, has observed thus:
“4. The High Court has not given any finding in the impugned order that an offence under the aforesaid Act is not made out against the respondent and has granted anticipatory bail, which is contrary to the provisions of Section 18 of the aforesaid Act as well as the aforesaid decision of this Court in Vilas Pandurang Pawar case, (2012) 8 SCC
Hence, without going into the merits of the allegations made against the respondent, we set aside the impugned order of the High Court granting bail to the respondent.”
Concerning the provisions contained in section 18A, suffice it to observe that with respect to preliminary inquiry for registration of FIR, we have already recalled the general directions (iii) and (iv) issued in Dr. Subhash Kashinath’s case (supra). A preliminary inquiry is permissible only in the circumstances as per the law laid down by a Constitution Bench of this Court in Lalita Kumari v. Government of U.P., (2014) 2 SCC 1, shall hold good as explained in the order passed by this Court in the review petitions on 1.10.2019 and the amended provisions of section 18A have to be interpreted accordingly.
The section 18A(i) was inserted owing to the decision of this Court in Dr. Subhash Kashinath (supra), which made it necessary to obtain the approval of the appointing authority concerning a public servant and the SSP in the case of arrest of accused persons. This Court has also recalled that direction on Review Petition (Crl.) No.228 of 2018 decided on 1.10.2019. Thus, the provisions which have been made in section 18A are rendered of academic use as they were enacted to take care of mandate issued in Dr. Subhash Kashinath (supra) which no more prevails. The provisions were already in section 18 of the Act with respect to anticipatory bail.
Concerning the applicability of provisions of section 438 Cr.PC, it shall not apply to the cases under Act of 1989. However, if the complaint does not make out a prima facie case for applicability of the provisions of the Act of 1989, the bar created by section 18 and 18A (i) shall not apply. We have clarified this aspect while deciding the review petitions.
The court can, in exceptional cases, exercise power under section 482 Cr.PC for quashing the cases to prevent misuse of provisions on settled parameters, as already observed while deciding the review petitions. The legal position is clear, and no argument to the contrary has been raised.
The challenge to the provisions has been rendered academic. In view of the aforesaid clarifications, we dispose of the petitions.
…………………………J.
(Arun Mishra) ………………….……..J.
(Vineet Saran) New Delhi;
February 10, 2020.
REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION WRIT PETITION (C) No. 1015 OF 2018
PRATHVI RAJ CHAUHAN …PETITIONER(S)
VERSUS
UNION OF INDIA & OTHERS …RESPONDENT(S)
WITH
WRIT PETITION (C) No. 1016 OF 2018
JUDGMENT
S. RAVINDRA BHAT, J.
I am in agreement with the judgment proposed by Justice Arun Mishra as well as its conclusions that the challenge to the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) (Amendment) Act, 2018 must fail, with the qualifications proposed in the judgment with respect to the inherent power of the court in granting anticipatory bail in cases where prima facie an offence is not made out. I would however, supplement the judgment with my opinion.
The Constitution of India is described variously as a charter of governance of the republic, as a delineation of the powers of the state in its various manifestations vis-à-vis inalienable liberties and a document delimiting the rights and responsibilities of the Union and its constituent states. It is more: it is also a pact between people, about the relationships that they guarantee to each other (apart from the guarantee of liberties vis- à-vis the state) in what was a society riven1 along caste and sectarian divisions. That is why the preambular assurance that the republic would be one which guarantees to its people liberties, dignity, equality of status and opportunity and fraternity.
It is this idea of India, – a promise of oneness of and for, all people, regardless of caste, gender, place of birth, religion and other divisions that Part III articulates in four salient provisions: Article 15, Article 17, Article 23 and Article 24. The idea of fraternity occupying as crucial a place in the scheme of our nation’s consciousness and polity, is one of the lesser explored areas in the constitutional discourse of this court. The fraternity assured by the Preamble is not merely a declaration of a ritual handshake or cordiality between communities that are diverse and have occupied different spaces: it is far more. This idea finds articulation in Article 15. 1 That provision, perhaps even more than Article 14, fleshes out the concept of equality by prohibiting discrimination and discriminatory practices peculiar to Indian society. At the center of this idea, is that all people, regardless of caste backgrounds, should have access to certain amenities, services and goods so necessary for every individual. Article 15 is an important guarantee against discrimination. What is immediately noticeable is that whereas Article 15 (1) enjoins the State (with all its various manifestations, per Article 12) not to discriminate on the proscribed grounds (religion, race, caste, sex (i.e. gender), place of birth or any of them), Article 15 (2) is a wider injunction: it prohibits discrimination or subjection to any disability of anyone on the grounds of religion, caste, race, sex or place of birth in regard to access to shops, places of public entertainment, or public restaurants 1 The relevant parts of Article 15 are extracted below:
“15. Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth (1) The State shall not discriminate against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them (2) No citizen shall, on grounds only of religion, race, caste, sex, place of birth or any of them, be subject to any disability, liability, restriction or condition with regard to (a) access to shops, public restaurants, hotels and places of public entertainment; or (b) the use of wells, tanks, bathing ghats, roads and places of public resort maintained wholly or partly out of State funds or dedicated to the use of the general public…” (3) Nothing in this article shall prevent the State from making any special provision for women and children” (Article 15 (2) (a)). Article 15(2)(b) proscribes the subjection of anyone to any disability on the proscribed grounds (i.e. discrimination on grounds of religion, caste, race, sex or place of birth) with regard to “the use of wells, tanks, bathing ghats, roads and places of public resort maintained wholly or partly out of State funds or dedicated to the use of the general public..”
The making of this provision- and others, in my view, is impelled by the trinity of the preambular vision that the Constitution makers gave to this country. Paeans have been sung about the importance of liberty as a constitutional value: its manifest articulation in the (original) seven “lamps” -i.e. freedoms under Article 19 of the Constitution; the other rights to religion, those of religious denominations, etc. Likewise, the centrality of equality as an important constitutional provision has been emphasized, and its many dimensions have been commented upon. However, the articulation of fraternity as a constitutional value, has lamentably been largely undeveloped. In my opinion, all the three – Liberty, Equality and Fraternity, are intimately linked. The right to equality, sans liberty or fraternity, would be chimerical – as the concept presently known would be reduced to equality among equals, in every manner- a mere husk of the grand vision of the Constitution. Likewise, liberty without equality or fraternity, can well result in the perpetuation of existing inequalities and worse, result in license to indulge in society’s basest practices. It is fraternity, poignantly embedded through the provisions of Part III, which assures true equality, where the state treats all alike, assures the benefits of growth and prosperity to all, with equal liberties to all, and what is more, which guarantees that every citizen treats every other citizen alike.
When the framers of the Constitution began their daunting task, they had before them a formidable duty and a stupendous opportunity: of forging a nation, out of several splintered sovereign states and city states, with the blueprint of an idea of India. What they envisioned was a common charter of governance and equally a charter for the people. The placement of the concept of fraternity, in this context was neither an accident, nor an idealized emulation of the western notion of fraternity, which finds vision in the French and American constitutions and charters of independence. It was a unique and poignant reminder of a society riven with acute inequalities: more specifically, the practice of caste discrimination in its virulent form, where the essential humanity of a large mass of people was denied by society- i.e. untouchability.
The resolve to rid society of these millennial practices, consigning a large segment of humanity to the eternal bondage of the most menial avocations creating inflexible social barriers, was criticized by many sages and saints. Kabir, the great saint poet, for instance, in his composition, remarked:
“If thou thinkest the maker distinguished castes: Birth is according to these penalties for deeds. Born a Sudra, you die a Sudra; It is only in this world of illusion that you assume the sacred thread. If birth from a Brahmin makes you a Brahmin, Why did you not come by another way? If birth from a Turk makes you a Turk, Why were you not circumcised in the womb? … Saith Kabir, renounce family, caste, religion, and nation, And live as one.”
There were several others who spoke, protested, or spoke against the pernicious grip of social inequity due to caste oppression of the weakest and vulnerable segments of society. Guru Nanak, for instance, stated2 “Caste and dynastic pride are condemnable notions, the one master shelters all existence.
Anyone arrogating superiority to himself halt be disillusioned. Saith Nanak:
2 Guru Granth Saheb p.83 superiority shall be determined by God” The Guru Granth Saheb also states that “All creatures are noble, none low, One sole maker has all vessels fashioned;
In all three worlds is manifest the same light…”
The preamble to the Constitution did not originally contain the expression “fraternity”; it was inserted later by the Drafting Committee under the chairmanship of Dr. Ambedkar. While submitting the draft Constitution, he stated, on 21 February, 1948, that the Drafting Committee had added a clause about fraternity in the Preamble even though it was not part of the Objectives Resolution because it felt that “the need for fraternal concord and goodwill in India was never greater than now, and that this particular aim of the new Constitution should be emphasized by special mention in the Preamble”3. Pandit Thakur Das Bhargava expressed a “sense of gratitude to Dr. Ambedkar for having added the word “fraternity” to the Preamble”. Acharya Kripalani also emphasized on this understanding, in his speech on 17 October, 1949:
“Again, I come to the great doctrine of fraternity, which is allied with democracy. It means that we are all sons of the same God, as the religious would say, but as the mystic would say, there is one life pulsating through all of us, or as the Bible says, “We are one of another”. There can be no fraternity without this.”
This court too, has recognized and stressed upon the need to recognize fraternity as one of the beacons which light up the entire Constitution. Justice Thommen, in Indira Sawhney v Union of India4 said this:
“The makers of the Constitution were fully conscious of the unfortunate position of the Scheduled Castes and Scheduled Tribes. To them equality, liberty and fraternity are but a dream; 3 B. Shiva Rao: Framing of India’s Constitution Vol III, page 510 (1968) 4 1992 Supp (3) SCR 454 an ideal guaranteed by the law, but far too distant to reach; far too illusory to touch. These backward people and others in like positions of helplessness are the favoured children of the Constitution. It is for them that ameliorative and remedial measures are adopted to achieve the end of equality. To permit those who are not intended to be so specially protected to compete for reservation is to dilute the protection and defeat the very constitutional aim.”
In Raghunathrao Ganpatrao v. Union of India5 this court held:
“In our considered opinion this argument is misconceived and has no relevance to the facts of the present case. One of the objectives of the Preamble of our Constitution is ‘fraternity assuring the dignity of the individual and the unity and integrity of the nation.’ It will be relevant to cite the explanation given by Dr. Ambedkar for the word ‘fraternity’ explaining that ‘fraternity means a sense of common brotherhood of all Indians.’ In a country like ours with so many disruptive forces of regionalism, communalism and linguism, it is necessary to emphasise and re- emphasise that the unity and integrity of India can be preserved only by a spirit of brotherhood. India has one common citizenship and every citizen should feel that he is Indian first irrespective of other basis. In this view, any measure at bringing about equality should be welcome.”
In a similar vein, the court in Nandini Sundar v. State of Chhatisgarh6 again commented on this aspect and said that “t(T)he Constitution itself, in no uncertain terms, demands that the State shall strive, incessantly and consistently, to promote fraternity amongst all citizens such that dignity of every citizen is protected, nourished and promoted.”
It was to achieve this ideal of fraternity, that the three provisions- Articles 15, 17 and 24 were engrafted. Though Article 17 proscribes the practice of untouchability and pernicious practices associated with it, the Constitution expected Parliament and the 5 1993 (1) SCR 480 6 2011 (7) SCC 457 legislatures to enact effective measures to root it out, as well as all other direct and indirect, (but virulent nevertheless) forms of caste discrimination. Therefore, in my opinion, fraternity is as important a facet of the promise of our freedoms as personal liberty and equality is. The first attempt by Parliament to achieve that end was the enactment of the Untouchability (Offences) Act, 1955. The Act contained a significant provision that where any of the forbidden practices “is committed in relation to a member of a Scheduled Caste” the Court shall presume, unless the contrary is proved, that such act was committed on the ground of “Untouchability”. This implied that the burden of proof lies on the accused and not on the prosecution. The Protection of Civil Rights Act, 1955, followed. This too made provision for prescribing “punishment for the preaching and practice of – “Untouchability” for the enforcement of any disability arising therefrom”. The enforcement of social practices associated with untouchability and disabilities was outlawed and made the subject matter of penalties. After nearly 35 years’ experience, it was felt that the 1955 Act (which was amended in 1976) did not provide sufficient deterrence to social practices, which continued unabated and in a widespread manner, treating members of the scheduled caste and tribe communities in the most discriminatory manner, in most instances, stigmatizing them in public places, virtually denying them the essential humanity which all members of Society are entitled to.
It was to address this gulf between the rights which the Constitution guaranteed to all people, particularly those who continued to remain victims of ostracism and discrimination, that the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989 (hereafter “the Act”) was enacted. Rules under the Act were framed in 1995 to prevent the commission of atrocities against members of Schedules Castes and Tribes, to provide for special courts for the trial of such offences and for the relief and rehabilitation of the victims of such offences and for matters connected therewith or incidental thereto. The Statement of Objects and Reasons appended to the Bill, when moved in the Parliament, observed that despite various measures to improve the socio-economic conditions of Scheduled Castes and Scheduled Tribes, they remained vulnerable. They are denied a number of civil rights and are subjected to various offences, indignities, humiliation and harassment. They have been, in several brutal instances, deprived of their life and property. Serious atrocities were committed against them for various historical, social and economic reasons. The Act, for the first time, puts down the contours of ‘atrocity’ so as to cover the multiple ways through which members of scheduled castes and scheduled tribes have been for centuries humiliated, brutally oppressed, degraded, denied their economic and social rights and relegated to perform the most menial jobs.
The Report on the Prevention of Atrocities against Scheduled Castes 7 vividly described that despite enacting stringent penal measures, atrocities against scheduled caste and scheduled tribe communities continued; even law enforcement mechanisms had shown a lackadaisical approach in the investigation and prosecution of such offences. The report observed that in rural areas, various forms of discrimination and practices stigmatizing members of these communities continued. Parliament too enacted an amendment to the Act in 2015, strengthening its provisions in the light of the instances of socially reprehensive practices that members of scheduled caste and scheduled tribe communities were subjected to. In this background, this court observed in the decision in National Campaign on Dalit Human Rights v. Union of India8 that:
“The ever-increasing number of cases is also an indication to show that there is a total failure on the part of the authorities in complying with the provisions of the Act and the Rules. Placing 7 Published by the National Human Rights Commission (accessed at https://nhrc.nic.in/publications/other-publicationss on 15 December, 2019 at 08:27 hrs) 8 (2017) 2 SCC 432 reliance on the NHRC Report and other reports, the Petitioners sought a mandamus from this Court for effective implementation of the Act and the Rules.
We have carefully examined the material on record and we are of the opinion that there has been a failure on the part of the concerned authorities in complying with the provisions of the Act and Rules. The laudable object with which the Act had been made is defeated by the indifferent attitude of the authorities. It is true that the State Governments are responsible for carrying out the provisions of the Act as contended by the counsel for the Union of India. At the same time, the Central Government has an important role to play in ensuring the compliance of the provisions of the Act. Section 21(4) of the Act provides for a report on the measures taken by the Central Government and State Governments for the effective implementation of the Act to be placed before the Parliament every year. The constitutional goal of equality for all the citizens of this country can be achieved only when the rights of the Scheduled Castes and Scheduled Tribes are protected. The abundant material on record proves that the authorities concerned are guilty of not enforcing the provisions of the Act. The travails of the members of the Scheduled Castes and the Scheduled Tribes continue unabated. We are satisfied that the Central Government and State Governments should be directed to strictly enforce the provisions of the Act and we do so.”
In Subhash Kashinath Mahajan v. State of Maharashtra & Ors 9, a two judge bench of this court held that the exclusion of anticipatory bail provisions of the Code of Criminal Procedure (by Section 18 of the Act) did not constitute an absolute bar for the grant of bail, where it was discernable to the court that the allegations about atrocities or violation of the provisions of the Act were false. It was also held, more crucially, that public servants could be arrested only after approval by the appointing authority (of such public servant) and in other cases, after approval by the Senior Superintendent of Police. It was also directed that cases under the Act could be registered only after a preliminary enquiry into the complaint. These directions were seen to be contrary to the spirit of the 9 2018 (4) SCC 454 Act and received considerable comment in the public domain; the Union of India too moved this court for their review. In the review proceedings, a three judge bench of this court, in Union of India v. State of Maharastra10 recalled and overruled those directions.
In the meanwhile, Parliament enacted the amendment of 2018 11 (by Act No. 27 of 2019), which is the subject matter of challenge in these proceedings. The clear intention of Parliament was to undo the effect of this court’s declaration in Subhash Kashinath Mahajan (supra). The provisions of the amendment expressly override the directions in Subhash Kashinath Mahajan, that a preliminary inquiry within seven days by the Deputy Superintendent of Police concerned, to find out whether the allegations make out a case under the Act, and that arrest in appropriate cases may be made only after approval by the Senior Superintendent of Police. The Parliamentary intent was to allay the concern that this would delay registration of First Information Report (FIR) and would impede strict enforcement of the provision of the Act.
The judgment of Mishra, J has recounted much of the discussion and reiterated the reasoning which led to the recall and review of the decision in Subhash Kashinath Mahajan (supra); I respectfully adopt them. I would only add that any interference with the provisions of the Act, particularly with respect to the amendments precluding preliminary enquiry, or provisions which remove the bar against arrest of public servants 10 2019 (13) SCALE 280 11 The operative part of the amendment, a brief one, reads as follows:
” 2. After section 18 of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989, the following section shall be inserted, namely:— “18A. (1) For the purposes of this Act,— (a) preliminary enquiry shall not be required for registration of a First Information Report against any person; or (b) the investigating officer shall not require approval for the arrest, if necessary, of any person, against whom an accusation of having committed an offence under this Act has been made and no procedure other than that provided under this Act or the Code shall apply. (2) The provisions of section 438 of the Code shall not apply to a case under this Act, notwithstanding any judgment or order or direction of any Court.”. accused of offences punishable under the Act, would not be a positive step. The various reports, recommendations and official data, including those released by the National Crime Records Bureau12, paint a dismal picture. The figures reflected were that for 2014, instances of crimes recorded were 40401; for 2015, the crime instances recorded were 38670 and for 2016, the registered crime incidents were 40801. According to one analysis of the said 2016 report13, 422,799 crimes against scheduled caste communities’ members and 81,332 crimes against scheduled tribe communities’ members were reported between 2006 and 2016.
These facts, in my opinion ought to be kept in mind by courts which have to try and deal with offences under the Act. It is important to keep oneself reminded that while sometimes (perhaps mostly in urban areas) false accusations are made, those are not necessarily reflective of the prevailing and wide spread social prejudices against members of these oppressed classes. Significantly, the amendment of 2016, in the expanded definition of ‘atrocity’, also lists pernicious practices (under Section 3) including forcing the eating of inedible matter, dumping of excreta near the homes or in the neighbourhood of members of such communities and several other forms of humiliation, which members of such scheduled caste communities are subjected to. All these considerations far outweigh the petitioners’ concern that innocent individuals would be subjected to what are described as arbitrary processes of investigation and legal proceedings, without adequate safeguards. The right to a trial with all attendant safeguards are available to those accused of committing offences under the Act; they remain unchanged by the enactment of the amendment.
19. As far as the provision of Section 18A and anticipatory bail is concerned, the judgment of Mishra, J, has stated that in cases where no prima facie materials exist warranting arrest in a complaint, the court has the inherent power to direct a pre-arrest bail.
I would only add a caveat with the observation and emphasize that while considering any application seeking pre-arrest bail, the High Court has to balance the two interests: i.e. that the power is not so used as to convert the jurisdiction into that under Section 438 of the Criminal Procedure Code, but that it is used sparingly and such orders made in very exceptional cases where no prima facie offence is made out as shown in the FIR, and further also that if such orders are not made in those classes of cases, the result would inevitably be a miscarriage of justice or abuse of process of law. I consider such stringent terms, otherwise contrary to the philosophy of bail, absolutely essential, because a liberal use of the power to grant pre-arrest bail would defeat the intention of Parliament.
It is important to reiterate and emphasize that unless provisions of the Act are enforced in their true letter and spirit, with utmost earnestness and dispatch, the dream and ideal of a casteless society will remain only a dream, a mirage. The marginalization of scheduled caste and scheduled tribe communities is an enduring exclusion and is based almost solely on caste identities. It is to address problems of a segmented society, that express provisions of the Constitution which give effect to the idea of fraternity, or bandhutva (बनधध तव) referred to in the Preamble, and statutes like the Act, have been framed. These underline the social – rather collective resolve – of ensuring that all humans are treated as humans, that their innate genius is allowed outlets through equal opportunities and each of them is fearless in the pursuit of her or his dreams. The question which each of us has to address, in everyday life, is can the prevailing situation of exclusion based on caste identity be allowed to persist in a democracy which is committed to equality and the rule of law? If so, till when? And, most importantly, what each one of us can do to foster this feeling of fraternity amongst all sections of the community without reducing the concept (of fraternity) to a ritualistic formality, a tacit acknowledgment, of the “otherness” of each one’s identity.
I am of the opinion that in the light of and subject to the above observations, the petitions have to be and are, accordingly disposed of.
State Of Punjab & Ors vs Rafiq Masih (White Washer) on 18 December, 2014 Bench: Jagdish Singh Khehar, Arun Mishra
"REPORTABLE"
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 11527 OF 2014
(Arising out of SLP(C) No.11684 of 2012)
State of Punjab and others etc. … Appellants
versus
Rafiq Masih (White Washer) etc. … Respondent(s)
WITH
J U D G M E N T
Jagdish Singh Khehar, J.
Leave granted.
All the private respondents in the present bunch of cases, were given monetary benefits, which were in excess of their entitlement. These benefits flowed to them, consequent upon a mistake committed by the concerned competent authority, in determining the emoluments payable to them. The mistake could have occurred on account of a variety of reasons; including the grant of a status, which the concerned employee was not entitled to; or payment of salary in a higher scale, than in consonance of the right of the concerned employee; or because of a wrongful fixation of salary of the employee, consequent upon the upward revision of pay-scales; or for having been granted allowances, for which the concerned employee was not authorized. The long and short of the matter is, that all the private respondents were beneficiaries of a mistake committed by the employer, and on account of the said unintentional mistake, employees were in receipt of monetary benefits, beyond their due.
Another essential factual component in this bunch of cases is, that the respondent-employees were not guilty of furnishing any incorrect information, which had led the concerned competent authority, to commit the mistake of making the higher payment to the employees. The payment of higher dues to the private respondents, in all these cases, was not on account of any misrepresentation made by them, nor was it on account of any fraud committed by them. Any participation of the private respondents, in the mistake committed by the employer, in extending the undeserved monetary benefits to the respondent-employees, is totally ruled out. It would therefore not be incorrect to record, that the private respondents, were as innocent as their employers, in the wrongful determination of their inflated emoluments.
The issue that we have been required to adjudicate is, whether all the private respondents, against whom an order of recovery (of the excess amount) has been made, should be exempted in law, from the reimbursement of the same to the employer. For the applicability of the instant order, and the conclusions recorded by us hereinafter, the ingredients depicted in the foregoing two paragraphs are essentially indispensable.
Merely on account of the fact, that the release of these monetary benefits was based on a mistaken belief at the hands of the employer, and further, because the employees had no role in the determination of the employer, could it be legally feasible, for the private respondents to assert, that they should be exempted from refunding the excess amount received by them? Insofar as the above issue is concerned, it is necessary to keep in mind, that the following reference was made by a Division Bench of two Judges of this Court, for consideration by a larger Bench: “In view of an apparent difference of views expressed on the one hand in Shyam Babu Verma and Ors. vs. Union of India & Ors. (1994) 2 SCC 521 and Sahib Ram Verma vs. State of Haryana (1995) Supp. 1 SCC 18; and on the other hand in Chandi Prasad Uniyal and Ors. vs. State of Uttarakhand & Ors. (2012) 8 SCC 417, we are of the view that the remaining special leave petitions should be placed before a Bench of Three Judges. The Registry is accordingly directed to place the file of the remaining special leave petitions before the Hon’ble the Chief Justice of India for taking instructions for the constitution of a Bench of three Judges, to adjudicate upon the present controversy.”
(emphasis is ours) The aforesaid reference was answered by a Division Bench of three Judges on 8.7.2014. While disposing of the reference, the three-Judge Division Bench, recorded the following observations in paragraph 7: “7. In our considered view, the observations made by the Court not to recover the excess amount paid to the appellant-therein were in exercise of its extra-ordinary powers under Article 142 of the Constitution of India which vest the power in this Court to pass equitable orders in the ends of justice.”
(emphasis is ours) Having recorded the above observations, the reference was answered as under:
“12. Therefore, in our opinion, the decisions of the Court based on different scales of Article 136 and Article 142 of the Constitution of India cannot be best weighed on the same grounds of reasoning and thus in view of the aforesaid discussion, there is no conflict in the views expressed in the first two judgments and the latter judgment.
In that view of the above, we are of the considered opinion that reference was unnecessary. Therefore, without answering the reference, we send back the matters to the Division Bench for its appropriate disposal.”
(emphasis is ours)
In view of the conclusions extracted hereinabove, it will be our endeavour, to lay down the parameters of fact situations, wherein employees, who are beneficiaries of wrongful monetary gains at the hands of the employer, may not be compelled to refund the same. In our considered view, the instant benefit cannot extend to an employee merely on account of the fact, that he was not an accessory to the mistake committed by the employer; or merely because the employee did not furnish any factually incorrect information, on the basis whereof the employer committed the mistake of paying the employee more than what was rightfully due to him; or for that matter, merely because the excessive payment was made to the employee, in absence of any fraud or misrepresentation at the behest of the employee.
Having examined a number of judgments rendered by this Court, we are of the view, that orders passed by the employer seeking recovery of monetary benefits wrongly extended to employees, can only be interfered with, in cases where such recovery would result in a hardship of a nature, which would far outweigh, the equitable balance of the employer’s right to recover. In other words, interference would be called for, only in such cases where, it would be iniquitous to recover the payment made. In order to ascertain the parameters of the above consideration, and the test to be applied, reference needs to be made to situations when this Court exempted employees from such recovery, even in exercise of its jurisdiction under Article 142 of the Constitution of India. Repeated exercise of such power, “for doing complete justice in any cause” would establish that the recovery being effected was iniquitous, and therefore, arbitrary. And accordingly, the interference at the hands of this Court.
As between two parties, if a determination is rendered in favour of the party, which is the weaker of the two, without any serious detriment to the other (which is truly a welfare State), the issue resolved would be in consonance with the concept of justice, which is assured to the citizens of India, even in the preamble of the Constitution of India. The right to recover being pursued by the employer, will have to be compared, with the effect of the recovery on the concerned employee. If the effect of the recovery from the concerned employee would be, more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer to recover the amount, then it would be iniquitous and arbitrary, to effect the recovery. In such a situation, the employee’s right would outbalance, and therefore eclipse, the right of the employer to recover.
The doctrine of equality is a dynamic and evolving concept having many dimensions. The embodiment of the doctrine of equality, can be found in Articles 14 to 18, contained in Part III of the Constitution of India, dealing with “Fundamental Rights”. These Articles of the Constitution, besides assuring equality before the law and equal protection of the laws; also disallow, discrimination with the object of achieving equality, in matters of employment; abolish untouchability, to upgrade the social status of an ostracized section of the society; and extinguish titles, to scale down the status of a section of the society, with such appellations. The embodiment of the doctrine of equality, can also be found in Articles 38, 39, 39A, 43 and 46 contained in Part IV of the Constitution of India, dealing with the “Directive Principles of State Policy”. These Articles of the Constitution of India contain a mandate to the State requiring it to assure a social order providing justice – social, economic and political, by inter alia minimizing monetary inequalities, and by securing the right to adequate means of livelihood, and by providing for adequate wages so as to ensure, an appropriate standard of life, and by promoting economic interests of the weaker sections.
In view of the afore-stated constitutional mandate, equity and good conscience, in the matter of livelihood of the people of this country, has to be the basis of all governmental actions. An action of the State, ordering a recovery from an employee, would be in order, so long as it is not rendered iniquitous to the extent, that the action of recovery would be more unfair, more wrongful, more improper, and more unwarranted, than the corresponding right of the employer, to recover the amount. Or in other words, till such time as the recovery would have a harsh and arbitrary effect on the employee, it would be permissible in law. Orders passed in given situations repeatedly, even in exercise of the power vested in this Court under Article 142 of the Constitution of India, will disclose the parameters of the realm of an action of recovery (of an excess amount paid to an employee) which would breach the obligations of the State, to citizens of this country, and render the action arbitrary, and therefore, violative of the mandate contained in Article 14 of the Constitution of India.
For the above determination, we shall refer to some precedents of this Court wherein the question of recovery of the excess amount paid to employees, came up for consideration, and this Court disallowed the same. These are situations, in which High Courts all over the country, repeatedly and regularly set aside orders of recovery made on the expressed parameters.
(i). Reference may first of all be made to the decision in Syed Abdul Qadir v. State of Bihar, (2009) 3 SCC 475, wherein this Court recorded the following observation in paragraph 58:
“58. The relief against recovery is granted by courts not because of any right in the employees, but in equity, exercising judicial discretion to relieve the employees from the hardship that will be caused if recovery is ordered. But, if in a given case, it is proved that the employee had knowledge that the payment received was in excess of what was due or wrongly paid, or in cases where the error is detected or corrected within a short time of wrong payment, the matter being in the realm of judicial discretion, courts may, on the facts and circumstances of any particular case, order for recovery of the amount paid in excess. See Sahib Ram v. State of Haryana, 1995 Supp. (1) SCC 18, Shyam Babu Verma v. Union of India, (1994) 2 SCC 521, Union of India v. M. Bhaskar, (1996) 4 SCC 416, V. Ganga Ram v. Director, (1997) 6 SCC 139, Col. B.J. Akkara (Retd.) v. Govt. of India, (2006) 11 SCC 709, Purshottam Lal Das v. State of Bihar, (2006) 11 SCC 492, Punjab National Bank v. Manjeet Singh, (2006) 8 SCC 647 and Bihar SEB v. Bijay Bahadur, (2000) 10 SCC 99.”
(emphasis is ours) First and foremost, it is pertinent to note, that this Court in its judgment in Syed Abdul Qadir’s case (supra) recognized, that the issue of recovery revolved on the action being iniquitous. Dealing with the subject of the action being iniquitous, it was sought to be concluded, that when the excess unauthorised payment is detected within a short period of time, it would be open for the employer to recover the same. Conversely, if the payment had been made for a long duration of time, it would be iniquitous to make any recovery. Interference because an action is iniquitous, must really be perceived as, interference because the action is arbitrary. All arbitrary actions are truly, actions in violation of Article 14 of the Constitution of India. The logic of the action in the instant situation, is iniquitous, or arbitrary, or violative of Article 14 of the Constitution of India, because it would be almost impossible for an employee to bear the financial burden, of a refund of payment received wrongfully for a long span of time. It is apparent, that a government employee is primarily dependent on his wages, and if a deduction is to be made from his/her wages, it should not be a deduction which would make it difficult for the employee to provide for the needs of his family. Besides food, clothing and shelter, an employee has to cater, not only to the education needs of those dependent upon him, but also their medical requirements, and a variety of sundry expenses. Based on the above consideration, we are of the view, that if the mistake of making a wrongful payment is detected within five years, it would be open to the employer to recover the same. However, if the payment is made for a period in excess of five years, even though it would be open to the employer to correct the mistake, it would be extremely iniquitous and arbitrary to seek a refund of the payments mistakenly made to the employee. In this context, reference may also be made to the decision rendered by this Court in Shyam Babu Verma v. Union of India (1994) 2 SCC 521, wherein this Court observed as under: “11. Although we have held that the petitioners were entitled only to the pay scale of Rs 330-480 in terms of the recommendations of the Third Pay Commission w.e.f. January 1, 1973 and only after the period of 10 years, they became entitled to the pay scale of Rs 330-560 but as they have received the scale of Rs 330-560 since 1973 due to no fault of theirs and that scale is being reduced in the year 1984 with effect from January 1, 1973, it shall only be just and proper not to recover any excess amount which has already been paid to them. Accordingly, we direct that no steps should be taken to recover or to adjust any excess amount paid to the petitioners due to the fault of the respondents, the petitioners being in no way responsible for the same.”
(emphasis is ours) It is apparent, that in Shyam Babu Verma’s case (supra), the higher pay- scale commenced to be paid erroneously in 1973. The same was sought to be recovered in 1984, i.e., after a period of 11 years. In the aforesaid circumstances, this Court felt that the recovery after several years of the implementation of the pay-scale would not be just and proper. We therefore hereby hold, recovery of excess payments discovered after five years would be iniquitous and arbitrary, and as such, violative of Article 14 of the Constitution of India.
(ii). Examining a similar proposition, this Court in Col. B.J. Akkara v. Government of India, (2006) 11 SCC 709, observed as under: “28. Such relief, restraining back recovery of excess payment, is granted by courts not because of any right in the employees, but in equity, in exercise of judicial discretion to relieve the employees from the hardship that will be caused if recovery is implemented. A government servant, particularly one in the lower rungs of service would spend whatever emoluments he receives for the upkeep of his family. If he receives an excess payment for a long period, he would spend it, genuinely believing that he is entitled to it. As any subsequent action to recover the excess payment will cause undue hardship to him, relief is granted in that behalf. But where the employee had knowledge that the payment received was in excess of what was due or wrongly paid, or where the error is detected or corrected within a short time of wrong payment, courts will not grant relief against recovery. The matter being in the realm of judicial discretion, courts may on the facts and circumstances of any particular case refuse to grant such relief against recovery.”
(emphasis is ours) A perusal of the aforesaid observations made by this Court in Col. B.J. Akkara’s case (supra) reveals a reiteration of the legal position recorded in the earlier judgments rendered by this Court, inasmuch as, it was again affirmed, that the right to recover would be sustainable so long as the same was not iniquitous or arbitrary. In the observation extracted above, this Court also recorded, that recovery from employees in lower rung of service, would result in extreme hardship to them. The apparent explanation for the aforesaid conclusion is, that employees in lower rung of service would spend their entire earnings in the upkeep and welfare of their family, and if such excess payment is allowed to be recovered from them, it would cause them far more hardship, than the reciprocal gains to the employer. We are therefore satisfied in concluding, that such recovery from employees belonging to the lower rungs (i.e., Class-III and Class-IV – sometimes denoted as Group ‘C’ and Group ‘D’) of service, should not be subjected to the ordeal of any recovery, even though they were beneficiaries of receiving higher emoluments, than were due to them. Such recovery would be iniquitous and arbitrary and therefore would also breach the mandate contained in Article 14 of the Constitution of India.
(iii). This Court in Syed Abdul Qadir v. State of Bihar (supra) held as follows:
“59. Undoubtedly, the excess amount that has been paid to the appellant teachers was not because of any misrepresentation or fraud on their part and the appellants also had no knowledge that the amount that was being paid to them was more than what they were entitled to. It would not be out of place to mention here that the Finance Department had, in its counter- affidavit, admitted that it was a bona fide mistake on their part. The excess payment made was the result of wrong interpretation of the Rule that was applicable to them, for which the appellants cannot be held responsible. Rather, the whole confusion was because of inaction, negligence and carelessness of the officials concerned of the Government of Bihar. Learned counsel appearing on behalf of the appellant teachers submitted that majority of the beneficiaries have either retired or are on the verge of it. Keeping in view the peculiar facts and circumstances of the case at hand and to avoid any hardship to the appellant teachers, we are of the view that no recovery of the amount that has been paid in excess to the appellant teachers should be made.”
(emphasis is ours) Premised on the legal proposition considered above, namely, whether on the touchstone of equity and arbitrariness, the extract of the judgment reproduced above, culls out yet another consideration, which would make the process of recovery iniquitous and arbitrary. It is apparent from the conclusions drawn in Syed Abdul Qadir’s case (supra), that recovery of excess payments, made from employees who have retired from service, or are close to their retirement, would entail extremely harsh consequences outweighing the monetary gains by the employer. It cannot be forgotten, that a retired employee or an employee about to retire, is a class apart from those who have sufficient service to their credit, before their retirement. Needless to mention, that at retirement, an employee is past his youth, his needs are far in excess of what they were when he was younger. Despite that, his earnings have substantially dwindled (or would substantially be reduced on his retirement). Keeping the aforesaid circumstances in mind, we are satisfied that recovery would be iniquitous and arbitrary, if it is sought to be made after the date of retirement, or soon before retirement. A period within one year from the date of superannuation, in our considered view, should be accepted as the period during which the recovery should be treated as iniquitous. Therefore, it would be justified to treat an order of recovery, on account of wrongful payment made to an employee, as arbitrary, if the recovery is sought to be made after the employee’s retirement, or within one year of the date of his retirement on superannuation.
(iv). Last of all, reference may be made to the decision in Sahib Ram Verma v. Union of India, (1995) Supp. 1 SCC 18, wherein it was concluded as under:
“4. Mr. Prem Malhotra, learned counsel for the appellant, contended that the previous scale of Rs 220-550 to which the appellant was entitled became Rs 700-1600 since the appellant had been granted that scale of pay in relaxation of the educational qualification. The High Court was, therefore, not right in dismissing the writ petition. We do not find any force in this contention. It is seen that the Government in consultation with the University Grants Commission had revised the pay scale of a Librarian working in the colleges to Rs 700-1600 but they insisted upon the minimum educational qualification of first or second class M.A., M.Sc., M.Com. plus a first or second class B.Lib. Science or a Diploma in Library Science. The relaxation given was only as regards obtaining first or second class in the prescribed educational qualification but not relaxation in the educational qualification itself.
Admittedly the appellant does not possess the required educational qualifications. Under the circumstances the appellant would not be entitled to the relaxation. The Principal erred in granting him the relaxation. Since the date of relaxation the appellant had been paid his salary on the revised scale. However, it is not on account of any misrepresentation made by the appellant that the benefit of the higher pay scale was given to him but by wrong construction made by the Principal for which the appellant cannot be held to be at fault. Under the circumstances the amount paid till date may not be recovered from the appellant. The principle of equal pay for equal work would not apply to the scales prescribed by the University Grants Commission. The appeal is allowed partly without any order as to costs.”
(emphasis is ours) It would be pertinent to mention, that Librarians were equated with Lecturers, for the grant of the pay scale of Rs.700-1600. The above pay parity would extend to Librarians, subject to the condition that they possessed the prescribed minimum educational qualification (first or second class M.A., M.Sc., M.Com. plus a first or second class B.Lib. Science or a Diploma in Library Science, the degree of M.Lib. Science being a preferential qualification). For those Librarians appointed prior to 3.12.1972, the educational qualifications were relaxed. In Sahib Ram Verma’s case (supra), a mistake was committed by wrongly extending to the appellants the revised pay scale, by relaxing the prescribed educational qualifications, even though the concerned appellants were ineligible for the same. The concerned appellants were held not eligible for the higher scale, by applying the principle of “equal pay for equal work”. This Court, in the above circumstances, did not allow the recovery of the excess payment. This was apparently done because this Court felt that the employees were entitled to wages, for the post against which they had discharged their duties. In the above view of the matter, we are of the opinion, that it would be iniquitous and arbitrary for an employer to require an employee to refund the wages of a higher post, against which he had wrongfully been permitted to work, though he should have rightfully been required to work against an inferior post.
It is not possible to postulate all situations of hardship, which would govern employees on the issue of recovery, where payments have mistakenly been made by the employer, in excess of their entitlement. Be that as it may, based on the decisions referred to herein above, we may, as a ready reference, summarise the following few situations, wherein recoveries by the employers, would be impermissible in law:
(i) Recovery from employees belonging to Class-III and Class-IV service (or Group ‘C’ and Group ‘D’ service).
(ii) Recovery from retired employees, or employees who are due to retire within one year, of the order of recovery.
(iii) Recovery from employees, when the excess payment has been made for a period in excess of five years, before the order of recovery is issued.
(iv) Recovery in cases where an employee has wrongfully been required to discharge duties of a higher post, and has been paid accordingly, even though he should have rightfully been required to work against an inferior post.
(v) In any other case, where the Court arrives at the conclusion, that recovery if made from the employee, would be iniquitous or harsh or arbitrary to such an extent, as would far outweigh the equitable balance of the employer’s right to recover.
We are informed by the learned counsel representing the appellant- State of Punjab, that all the cases in this bunch of appeals, would undisputedly fall within the first four categories delineated hereinabove. In the appeals referred to above, therefore, the impugned orders passed by the High Court of Punjab and Haryana (quashing the order of recovery), shall be deemed to have been upheld, for the reasons recorded above.
Shanti Kumar Panda vs Shakutala Devi on 3 November, 2003 Author: R Lahoti Bench: R.C. Lahoti, Ashok Bhan. CASE NO.: Appeal (civil) 10906 of 1996
PETITIONER: Shanti Kumar Panda
RESPONDENT: Shakutala Devi
DATE OF JUDGMENT: 03/11/2003
BENCH: R.C. LAHOTI & ASHOK BHAN.
JUDGMENT: J U D G M E N T R.C. LAHOTI, J.
Shanti Kumar Panda, the appellant before us lodged a complaint with Station Officer, Line Bazar, Jaunpur, whereupon the police filed a report before the Sub-Divisional Magistrate (S.D.M.) Sadar, Jaunpur, who made a preliminary order under Section 145(1) of the Code of Criminal Procedure, 1973 (hereinafter referred to as ‘the Code’, for short) recording his satisfaction that a dispute, likely to cause a breach of the peace, exists concerning the shop, which is the subject matter of dispute (hereinafter referred to as ‘the shop’, for short) between the appellant and one Kamta Prasad (not a party in this appeal) and requiring both of them to attend his court and put in the written statements of their respective claims as respects the fact of actual possession of the shop. The learned S.D.M. also found that the case was one of emergency and therefore he directed the shop to be attached under Section 146(1) of the Code. The preliminary order under Section 145(1) and the order of attachment under Section 146(1) were both made on 16.5.92. Kamta Prasad appeared and stated that he had nothing to do with the shop and the owner of the property, who was also in possession thereof, was one Shakuntala Devi (respondent No.1 herein, hereinafter referred to as ‘the respondent’, for short). Kamta Prasad also submitted that the appellant had deliberately not impleaded the respondent as a party to the proceedings as he was in collusion with the police and wanted to deprive Shakuntala Devi of her lawful possession over the shop. Shakuntala Devi, on becoming aware of the proceedings (obviously on the information provided by Kamta Prasad), moved an application before the learned S.D.M. stating that she was a party interested in the subject matter of dispute and as she was in peaceful possession of the shop, she ought to have been joined as party to the proceedings and as that not done, she prayed for her impleadment and an opportunity of being heard.
The learned S.D.M. kept the application filed by the respondent pending till 6.7.92 when the proceedings were directed to be disposed of by a final order. No opportunity was allowed to the respondent to join in the proceedings and to file her own claims as to the possession of the shop. The learned S.D.M. held that the appellant was in possession over the disputed shop on the date of the passing of the preliminary order as also in the two months prior thereto. Having made that declaration the learned S.D.M. directed that until the rights were determined by the competent court, the shop shall be released in favour of Shanti Kumar Panda, the appellant.
Shakuntala Devi, the respondent and Kamta Prasad both preferred revision petitions against the order of the learned S.D.M. By order dated 27.2.93 the learned Additional Sessions Judge directed the revision to be dismissed by holding that the order of the learned S.D.M. did not suffer from any infirmity. Both these orders were put in issue by the respondent and Kamta Prasad by filing a petition under Article 226 of the Constitution in the High Court which too was dismissed on 6.12.93. One of the reasons which has prevailed with the High Court for dismissing the petition is that the respondent had already approached the Civil Court and the jurisdiction of the Civil Court having been invoked, which was an efficacious alternative remedy available to the respondent, it was not appropriate for the High Court to entertain the writ petition and exercise its jurisdiction under Article 226 of the Constitution.
Soon after the decision by the learned Additional Sessions Judge on 27.2.93, Shakuntala Devi, the respondent, filed civil suit No.283 of 1993 based on title, seeking a permanent preventive injunction against Shanti Kumar Panda, the appellant herein. Kamta Prasad who alone was impleaded by the respondent as the party in the proceedings under Sections 145/146 of the Code was not impleaded as a party in the civil suit filed by the respondent Shakuntala Devi, inasmuch as the impleadment of Kamta Prasad who was not claiming any interest and not even possession over the shop was considered to be unnecessary. The respondent also sought for an ad-interim preventive injunction so as to protect her possession over the shop. By order dated 5.8.95 the learned Civil Judge allowed the application filed by the respondent and directed the appellant to remain restrained from interfering with the possession of the respondent over the shop. The learned Civil Judge also directed a court officer to go at the site of the shop and after opening the locks to put the respondent in possession of the shop. It would be relevant to note some of the observations, pungent to some extent, made by the learned Civil Judge during the course of his order. The learned Civil Judge observed that the proceedings under Sections 145/146 of the Code had proceeded in the absence of the respondent who was not even allowed an opportunity of being heard though she was the real person claiming possession and also title over the shop. The learned Judge said – “She was not even offered the opportunity of being heard. The real fact is that after the death of Smt. Tapesara the anti social elements conspired to grab her house and shop and under that conspiracy the sister of Tapesara, i.e., Shakuntala Plaintiff whose possession was over the disputed house and shop wanted to eject her forcibly and the administration fully helped in evicting the plaintiff from her house and shop..it is clear that the plaintiff was in possession and still she is in possession. Merely by taking advantage of the condition of the plaintiff the Sub-Inspector and the S.D.M. under the proceeding under Section 145 Cr.P.C. got locked the shop and house and the plaintiff is again entitled to live therein. If it is not so any one could take possession of any one’s house in collusion with the administration. The day it is done that day will become a symbol of injustice in the societyThe one who is not a party to the proceeding under Section 145 Cr.P.C. the finding given under Section 145 Cr.P.C. is not binding on him.”
The appellant preferred a miscellaneous appeal. The learned District Judge, vide his order dated 15.11.95, allowed the same and set aside the order dated 5.8.95 passed by the learned Civil Judge. The principal reason which has prevailed with the learned District Judge was that the proceedings under Section 145 of the Code having terminated in favour of Shanti Kumar Panda, the appellant, the trial court was not justified in issuing the order of injunction unless and until the order of the learned S.D.M. was superseded by a decree of the Civil Court and that no injunction can be granted when the disputed property is in custodia legis.
The respondent preferred a petition under Article 227 of the Constitution. The High Court has allowed the petition, set aside the order of the learned District Judge and restored the order passed by the learned Civil Judge. Feeling aggrieved by the order of the High Court this appeal has been preferred by special leave.
Mr. Sunil Gupta, the learned Senior Counsel appearing for the appellant, has forcefully urged, placing reliance on the phraseology employed by the Parliament in drafting Section 145 of the Code, that once an order under Sections 145 and/or 146 of the Code has been passed, finally terminating proceedings thereunder, then it is only a decree for eviction passed by a Civil Court in a suit based on title filed by the party unsuccessful before the learned S.D.M. which would supersede the order passed by the Magistrate, which order continues to remain in operation and ought to be respected not only by the parties thereto but also by the Civil Court. In other words, he submitted that an order of temporary injunction inconsistent with the order of the Magistrate under Sections 145/146 of the Code or superseding it cannot be passed by the Civil Court.
Mr. Jayant Bhushan, the learned Senior Counsel, who initially represented the respondent before being designated as senior advocate, appeared at the time of hearing and submitted that though he was not instructed to appear yet he is available to assist the Court to place the correct legal position in spite of his having given up the brief to the respondent. We appreciate the gesture shown by him. He has adopted a line of reasoning opposite to the one adopted by Mr. Sunil Gupta and has supported the order of the trial court restored by the High Court. The rival submissions made before us raise certain important issues touching the value and efficacy of the final order passed under Sections 145/146 of the Code in the proceedings wherein that order is called in question.
Sections 145 and 146 of the Code, insofar as they are relevant for our purpose are extracted and reproduced hereunder:
“145. Procedure where dispute concerning land or water is likely to cause breach of peace. (1) Whenever an Executive Magistrate is satisfied from a report of a police officer or upon other information that a dispute likely to cause a breach of the peace exists concerning any land or water or the boundaries thereof, within his local jurisdiction, he shall make an order in writing, stating the grounds of his being so satisfied, and requiring the parties concerned in such dispute to attend his Court in person or by pleader, on a specified date and time, and to put in written statements of their respective claims as respects the fact of actual possession of the subject of dispute.
(2) & (3) *** *** (4) The Magistrate shall then, without reference to the merits or the claims of any of the parties to a right to possess the subject of dispute, pursue the statements so put in, hear the parties, receive all such evidence as may be produced by them, take such further evidence, if any, as he thinks necessary, and, if possible, decide whether any and which of the parties was, at the date of the order made by him under sub-section (1), in possession of the subject of dispute :
Provided that, if it appears to the Magistrate that any party has been forcibly and wrongfully dispossessed, within two months next before the date on which the report of a police officer or other information was received by the Magistrate, or after that date and before the date of his order under sub-
section (1), he may treat the party so dispossessed as if that party had been in possession on the date of his order under sub-
section (1).
(5) Nothing in this section shall preclude any party so required to attend, or any other person interested, from showing that no such dispute as aforesaid exists or has existed; and in such case the Magistrate shall cancel his said order, and all further proceedings thereon shall be stayed, but, subject to such cancellation, the order of the Magistrate under sub-section (1) shall be final.
(6) (a) If the Magistrate decides that one of the parties was, or should under the proviso to sub-section (4) be treated as being, in such possession of the said subject, he shall issue an order declaring such party to be entitled to possession thereof until evicted therefrom in due course of law, and forbidding all disturbance of such possession until such eviction; and when he proceeds under the proviso to sub-section (4), may restore to possession the party forcibly and wrongfully dispossessed.
(b) The order made under this sub-section shall be served and published in the manner laid in sub-section (3).”
Power to attach subject of dispute and to appoint receiver. (1) If the Magistrate at any time after making the order under sub-section (1) of Section 145 considers the case to be one of emergency, or if he decides that none of the parties was then in such possession as is referred to in Section 145, or if he is unable to satisfy himself as to which of them was then in such possession of the subject of dispute, he may attach the subject of dispute until a competent Court has determined the rights of the parties thereto with regard to the person entitled to the possession thereof :
Provided that in the event of a receiver being subsequently appointed in relation to the subject of dispute by any Civil Court, the Magistrate
(a) shall order the receiver appointed by him to hand over the possession of the subject of dispute to the receiver appointed by the Civil Court and shall thereafter discharge the receiver appointed by him.
(b) may make such other incidental or consequential orders as may be just.
Possession is nine points in law. One purpose of the enforcement of the laws is to maintain peace and order in society. The disputes relating to property should be settled in a civilized manner by having recourse to law and not by taking the law in own hands by members of society. A dispute relating to any land etc. as defined in sub-section (2) of Section 145 having arisen, causing a likelihood of a breach of the peace, Section 145 of the Code authorizes the Executive Magistrate to take cognizance of the dispute and settle the same by holding an enquiry into possession as distinguished from right to possession or title. The proceedings under Sections 145/146 of the Code have been held to be quasi-civil, quasi-criminal in nature or an executive on police action. The purpose of the provisions is to provide a speedy and summary remedy so as to prevent a breach of the peace by submitting the dispute to the Executive Magistrate for resolution as between the parties disputing the question of possession over the property. The Magistrate having taken cognizance of the dispute would confine himself to ascertaining which of the disputing parties was in possession by reference to the date of the preliminary order or within two months next before the said date, as referred to in proviso to sub- section (4) of Section 145, and maintain the status quo as to possession until the entitlement to possession was determined by a court, having competence to enter into adjudication of civil rights, which an Executive Magistrate cannot. The Executive Magistrate would not take cognizance of the dispute if it is referable only to ownership or right to possession and is not over possession simpliciter; so also the Executive Magistrate would refuse to interfere if there is no likelihood of breach of the peace or if the likelihood of breach of peace though existed at a previous point of time, had ceased to exist by the time he was called upon to pronounce the final order so far as he was concerned.
There is a difference between a case where the subject-matter of dispute is not attached by the Executive Magistrate under Section 146(1) and the case where it is so attached. Under sub-section (1) of Section 145 a preliminary order taking cognizance of the dispute having been passed, the Magistrate would under sub-section (4) decide who was in possession of the disputed property on the date of the passing of the preliminary order. Consistently with such finding, a declaration by Magistrate in favour of such party would follow under sub-section (6) entitling it to retain possession over such property until evicted therefrom in due course of law. And until such eviction all disturbances in its possession shall be forbidden. If any party is found to have been forcibly or wrongfully dispossessed within two months next before the date on which the report of a police officer or other information setting the Magistrate in motion was received by him or between such date and the date of order under sub-section (1), then the party dispossessed has to be fictionally treated as one in possession on the date of preliminary order under sub-section (1). The declaration of entitlement to possession under proviso to sub- section (4) read with sub-section (6) shall be made in favour of such party and the party found to have been so dispossessed forcibly and wrongfully may also be restored into possession. The declaration having been made, it would be for the unsuccessful party to approach the competent court and secure such order as would enable his entering into possession and evicting the party successful in proceedings under Section 145.
What is an eviction “in due course of law” within the meaning of sub-section (6) of Section 145 of the Code? Does it mean a suit or proceedings directing restoration of possession between the parties respectively unsuccessful and successful in proceedings under Section 145 or any order of competent court which though not expressly directing eviction of successful party, has the effect of upholding the possession or entitlement to possession of the unsuccessful party as against the said successful party. In our opinion, which we would buttress by reasons stated shortly hereinafter, ordinarily a party unsuccessful in proceedings under Section 145 ought to sue for recovery of possession seeking a decree or order for restoration of possession. However, a party though unsuccessful in proceedings under Section 145 may still be able to successfully establish before the competent court that it was actually in possession of the property and is entitled to retain the same by making out a strong case demonstrating the finding of the Magistrate to be apparently incorrect.
In a case where attachment has been made under Section 146(1) of the Code, it is not necessary for the unsuccessful party to seek the relief of possession from the court; a mere adjudication of rights would suffice inasmuch as the attached property is held custodia legis by the Magistrate for and on behalf of the party who would be successful from the competent court by establishing his right to possession over the property.
Mr. Sunil Gupta, the learned Senior Counsel for the appellant submitted, reading literally the sub-section (6) of Section 145 of the Code, that declaration of the successful party “to be entitled to possession thereof until evicted therefrom in due course of law, and forbidding all disturbance of such possession until such eviction” means that the Parliament intended to confer a binding efficacy on the Magistrate’s order not only qua the parties to the proceedings but also qua all concerned to respect and abide by the order of the Executive Magistrate and such order and the possession of the successful party protected thereunder shall continue to survive and hold valid and good unless at the final adjudication of civil rights the competent court has directed the party successful in proceedings before the Magistrate to be evicted, whence and whence alone that party shall lose possession and bound to hand over the same to the party successful in the Civil Court.
It is well-settled that a decision by a Criminal Court does not bind the Civil Court while a decision by the Civil Court binds the Criminal Court (See Sarkar on Evidence, Fifteenth Edition, page
845). A decision given under Section 145 of the Code has relevance and is admissible in evidence to show :- (i) that there was a dispute relating to a particular property; (ii) that the dispute was between the particular parties; (iii) that such dispute led to the passing of a preliminary order under Section 145(1) or an attachment under Section 146(1), on the given date, and (iv) that the Magistrate found one of the parties to be in possession or fictional possession of the disputed property on the date of the preliminary order. The reasoning recorded by the Magistrate or other findings arrived at by him have no relevance and are not admissible in evidence before the competent court and the competent court is not bound by the findings arrived at by the Magistrate even on the question of possession through, as between the parties, the order of the Magistrate would be evidence of possession. The finding recorded by the Magistrate does not bind the Court. The competent court has jurisdiction and would be justified in arriving at a finding inconsistent with the one arrived at by the Executive Magistrate even on the question of possession. Sections 145 and 146 only provide for the order of the Executive Magistrate made under any of the two provisions being superseded by and giving way to the order or decree of a competent court. The effect of the Magistrate’s order is that burden is thrown on the unsuccessful party to prove its possession or entitlement to possession before the competent court.
In Bhinka & Ors. Vs. Charan Singh , AIR 1959 SC 960, this Court held that the Magistrate does not purport to decide a party’s title or right to possession of the land but expressly reserves that question to be decided in due course of law. His order is a temporary order irrespective of the rights of the parties, which will have to be agitated and adjudicated upon by a competent forum and in the manner provided by law. The life of the said order is coterminous with the passing of a decree by a Civil Court and the moment a Civil Court makes an order of eviction, it displaces the order of the Criminal Court. The orders under Section 145 of the Code are thus merely police orders and do not decide any question of title.
We would like to clarify that in the case of Bhinka and Ors. (supra) the question what is a competent court, did not arise for determination; nor did the question as to what is the weight and value to be assigned to or what is the efficacy of the order of the Magistrate in a subsequent suit or proceeding initiated before a competent court directly arise for consideration. This we say because it is also well- settled that Sections 145 and 146 nowhere specifically provide for the order of the Magistrate being subject to and superseded by only a decree of ‘Civil Court’. The words ‘competent court’ used in Section 146 (1), in the context in which they have been used, only mean “any court which has jurisdictional competence to decide the question of title or rights to the property or entitlement to possession based on right or title to the property though the court is not necessarily a Civil Court”. The words ‘until evicted therefrom in due course of law’ as occurring in sub-section (6) of Section 145′ mean the eviction of the party successful before the Magistrate, consequent upon the adjudication of title or right to possession by a competent court; that does not necessarily mean a decree of eviction. The party unsuccessful before the Magistrate may dispute the correctness of the finding arrived at by the Magistrate and is at liberty to show before the competent court that it had not dispossessed the successful party or that it is the unsuccessful party and not the successful party who was actually in possession and the finding to the contrary arrived at by the Magistrate was wholly or apparently erroneous and unsustainable in law.
In Jhunamal alias Devandas Vs. State of Madhya Pradesh & Ors. , (1988) 4 SCC 452, this Court has held that a concluded order under Section 145, Cr.P.C., made by the Magistrate of competent jurisdiction should not be set at naught merely because the unsuccessful party has approached the civil Court. An order made under Section 145, Cr.P.C., deals only with the factum of possession of the party as on a particular day. It confers no title to remain in possession of the disputed property. The order is subject to decision of the civil Court. The unsuccessful party therefore must get relief only in the civil Court. He may move the civil court with a properly constituted suit. He may file a suit for declaration and prove a better right to possession. The civil Court has jurisdiction to give a finding different from that which the Magistrate has reached. Here again we may hasten to add that the expression ‘civil court’ used by this Court in Jhunamal’s case (supra) means competent court and not necessarily a civil court as commonly understood.
At what stage may the competent court arrive at a finding inconsistent with the one given by the Magistrate? Is it correct to say that the finding recorded by the Magistrate can be dislodged only at the time of and by passing a final decree terminating the suit? Or, whether the competent court can, depending on the facts and circumstances of a given case, arrive at a finding different from the one recorded by the Magistrate even at the state of interlocutory order such as one of injunction or appointment of receiver during the pendency of the suit?
We have already indicated hereinabove the extent of relevance of an order under Sections 145/146 of the Code in a subsequent civil action between the parties. In a civil action between different parties the finding of a criminal court cannot be treated as binding except to the extent of being evidence of the factum of a particular judgment having been delivered by the particular criminal court on a particular date as already indicated hereinabove. In Anil Behari Ghosh Vs. Smt. Latika Bala Dassi & ors., AIR 1955 SC 566 this Court has held that in a proceeding for revocation of a grant of probate under Section 263 of the Succession Act the previous judgment of the Criminal Court convicting the son of the murder of his father and sentencing him to transportation for life is not admissible in evidence of the fact that the son was the murderer of the testator. That is a question to be decided on evidence. The judgment of the Criminal Court is relevant only to show that there was such trial resulting in such conviction and sentence of the son to transportation for life.
The order of the magistrate under Section 145/146 of the Code is not only an order passed by Criminal Court but is also one based on summary enquiry. The competent Court in any subsequent proceedings is free to arrive at its own findings based on the evidence adduced before it on all the issues arising for decision before it. At the stage of judgment by Civil Court the order of the magistrate shall be of almost no relevance except for the purpose of showing that an enquiry held by the magistrate had resulted into the given declaration being made on a particular date. The competent Court would be free to record its own findings based on the material before it even on the question of possession which may be inconsistent with or contrary to the findings arrived at by the magistrate.
At the stage of passing an interlocutory order such as on an application for the grant of ad interim injunction under Rule 1 or 2 of Order 39 of the CPC, the competent Court shall have to form its opinion on the availability of a prima facie case, the balance of convenience and the irreparable injury __ the three pillars on which rests the foundation of any order of injunction. At that stage material in the shape of affidavits, documents and pleadings is placed before the Court for its consideration. The order of the Executive Magistrate may also be placed before it, who having held an enquiry, though summary in nature, has arrived at a finding on the question of possession which the Code intends to be sustained unless the Court of competent jurisdiction by its judicial order supersedes the finding or the effect of such finding and till then all disturbances in possession of the successful party are intended by the Code to be forbidden. The Civil Court shall also respect such order and will be loath to arrive at an interim arrangement inconsistent with the one made by the Executive Magistrate. However, this is far from holding that the Civil Court does not have jurisdiction to make an order of injunction inconsistent with the order of the Executive Magistrate. The jurisdiction is there but the same shall be exercised not as a rule but as an exception. There may be cases such as one where the order of the Executive Magistrate can be shown to be without jurisdiction, palpably wrong or containing self-contradictory findings. For example, the Magistrate may have made an order treating the party dispossessed beyond two months to be as in possession. There may be cases where in spite of the order made by the Executive Magistrate based on the evidence adduced before it, the competent court, based on the material produced before such Court, may be inclined to hold that prima facie a very strong case for retaining or placing one of the parties in possession of the suit property is made out or where it will be totally unjust or inequitable to continue one party in possession of the property as ordered by the Executive Magistrate. In such exceptional situations, the competent court (which will mostly be a civil court) may have jurisdiction for granting an order of injunction in departure from the findings recorded and the declaration made by the Executive Magistrate under Section 145 of the Code of Criminal Procedure. The order under Section 146 of the Code would not pose a problem of that magnitude. Inasmuch as the property is under attachment and is placed in the hands of a receiver the Civil Court can comfortably examine whether it would be just and expedient to continue with the attachment and with the same receiver or to appoint another receiver or to make some other interim arrangement during the pendency of the civil suit.
For the purpose of legal proceedings initiated before a competent court subsequent to the order of an Executive Magistrate under Sections 145/146 of the Code of Criminal Procedure, the law as to the effect of the order of the Magistrate may be summarized as under:-
(1) The words ‘competent court’ as used in sub-section (1) of Section 146 of the code do not necessarily mean a civil court only. A competent court is one which has the jurisdictional competence to determine the question of title or the rights of the parties with regard to the entitlement as to possession over the property forming subject matter of proceedings before the Executive Magistrate;
(2) A party unsuccessful in an order under Section 145(1) would initiate proceedings in a competent court to establish its entitlement to possession over the disputed property against the successful party. Ordinarily, a relief of recovery of possession would be appropriate to be sought for. In legal proceedings initiated before a competent court consequent upon attachment under Section 146(1) of the Code it is not necessary to seek relief of recovery of possession. As the property is held custodia legis by the Magistrate for and on behalf of the party who would ultimately succeed from the court it would suffice if only determination of the rights with regard to the entitlement to the possession is sought for. Such a suit shall not be bad for not asking for the relief of possession.
(3) A decision by a criminal court does not bind the civil court while a decision by the civil court binds the criminal court. An order passed by the Executive Magistrate in proceedings under Sections 145/146 of the Code is an order by a criminal court and that too based on a summary enquiry. The order is entitled to respect and weight before the competent court at the interlocutory stage. At the stage of final adjudication of rights, which would be on the evidence adduced before the court, the order of the Magistrate is only one out of several pieces of evidence.
(4) The Court will be loath to issue an order of interim injunction or to order an interim arrangement inconsistent with the one made by the Executive Magistrate. However, to say so is merely stating a rule of caution or restraint, on exercise of discretion by Court, dictated by prudence and regard for the urgent/emergent executive orders made within jurisdiction by their makers; and certainly not a tab on power of Court. The Court does have jurisdiction to make an interim order including an order of ad- interim injunction inconsistent with the order of the Executive Magistrate. The jurisdiction is there but the same shall be exercised not as a rule but as an exception. Even at the stage of passing an ad-interim order the party unsuccessful before the Executive Magistrate may on material placed before the Court succeed in making out a strong prima facie case demonstrating the findings of the Executive Magistrate to be without jurisdiction, palpably wrong or self-inconsistent in which or the like cases the Court may, after recording its reasons and satisfaction, make an order inconsistent with, or in departure from, the one made by the Executive Magistrate. The order of the court final or interlocutory, would have the effect of declaring one of the parties entitled to possession and evicting therefrom the party successful before the Executive Magistrate within the meaning of sub-section (6) of Section 145.
In the present case, the trial Court has felt strongly against the police action taken under Section 145(1) of the Code. This can clearly be inferred from the observations contained in the order of the learned Civil Judge. The plaintiff-respondent herein was not allowed in spite of her efforts to participate in the proceedings under Section 145. The party proceeded against by the Executive Magistrate was not interested in contesting the proceedings. The first Appellate Court has not recorded any disagreement with the observations made by the learned Civil Judge but has proceeded on a different reasoning which reasoning has been found to be erroneous by the High Court. The High Court has agreed with the view taken by the learned Civil Judge. We do not think that any case for interference with the order of the High Court is made out.
The appeal is dismissed. No order as to the costs.
Civil Appeal Nos. 1970-1975 of 2009. D/d. 5.2.2020.
D. Raghu And Others – Appellants
Versus
R. Basaveswarudu And Others Etc. – Respondents
With
Civil Appeal Nos. 1976 of 2009.
For the Appellants :- Praveen Agrawal, Abhijit Sengupta, Advocates.
For the Respondents :- K.Radhakrishnan, Sr.Adv., Ms. Sunita Rani Singh for B. Krishna Prasad, P.S.Patwalia, Sr.Adv., Devadatt Kamat, Sr.Adv., Rajesh Inamdar, Javedur Rahman, Aditya Bhat, Ali Asghar Rahim, Rauf Rahim, Sridhar Potaraju, Ms. Shweta Parihar, Ms. Shiwani Tushir, Ms. G.Ushasri, Vishnu Tulasi Menon, T. V. Ratnam, V. N. Raghupathy, Mrs. Anjani Aiyagari, Advocates.
JUDGMENT
K.M. Joseph, J. – Civil Appeal Nos. 1970-1975 of 2009 and Civil Appeal No. 1976 of 2009, having been heard together, and as there are certain common issues, they are being disposed of by the following common Judgment.
2. In Civil Appeal Nos. 1970-1975 of 2009, the controversy revolves around the entitlement to promotion to the post of Inspector of Central Excise. In Civil Appeal No. 1976 of 2009, on the other hand, the controversy relates to the right to be promoted to the post of U.D. Clerk and Tax Assistant in the Central Excise Department. Both these cases arise out of Original Applications (O.A.s) filed before the Central Administrative Tribunal (CAT), Hyderabad and the Orders of the Tribunal in the cases being questioned in a batch of Writ Petitions. As far as Civil Appeal Nos. 1970-1975 of 2009 are concerned, the CAT allowed O.A. 1362 of 2002 and directed the appellants in Civil Appeal Nos. 1970- 1975 of 2009 to be considered for promotion to the post of Inspectors. They were originally recruited as Data Entry Operators (DEOs) Grade ‘A’ and had been working as Data Entry Operators Grade ‘B’ from the year 2000. In short, the appellants, as applicants before the Tribunal, had called in question the legality of Notice dated 05.11.2002 seeking to confine the promotion to the post of Inspector, to category of Tax Assistant, Upper Division (UD) Clerk, Stenographer Grade-II, etc., with certain years of experience, for promotion. Six Writ Petitions came to be filed, including by the Union of India and the official respondents, challenging the said verdict by which the appellants were also directed to be considered. A Division Bench of the High Court proceeded to consider the matter. Justice G. Bikshapathy wrote an opinion allowing the Writ Petitions, setting aside the Order of the Tribunal. The other learned Judge, who constituted the Division Bench, wrote a separate concurring Judgment, and thus, the Writ Petitions came to be allowed. What is found by the High Court is that the Writ Petitioners were having a legal right, under the erstwhile Rules which were made in the year 1979, to be considered for promotion to the vacancies which arose prior to the Rules which came to be made with effect from 07.12.2002 in regard to the post of Inspector. The High Court also found that it was only when the Rules were made in the year 2003 that the restructuring in the Department, to which the Cabinet gave its approval on 19.07.2001, came into effect. Regarding vacancies arising after 07.12.2002, it was left undecided.
3. As far as Civil Appeal No. 1976 of 2009 is concerned, it arises from O.A. 1040 of 2003, again decided by the CAT, Hyderabad.
4. The impugned Order of the High Court reveals that the High Court allowed the Writ Petition filed against the Order of the Tribunal following the Judgment of the High Court in the Writ Petitions which formed the subject matter of the controversy relating to Inspectors and which is the subject matter of Civil Appeal Nos. 1970-1975 of 2009. In other words, following the principle that the vacancies must be filled-up in accordance with the extant Rules, the court found that promotions to the post of U.D. Clerk and Tax Assistant must be effected on the basis of the rights crystal-lized under the 1979 Rules, as amended.
A LOOK AT THE RULES
THE 1979 RULES REGARDING POST OF INSPECTOR
5. In 1979, the Rules known as the Central Excise and Land Customs Department Group ‘C’ Posts Recruitment Rules, 1979, came to be enacted (in short, ‘the 1979 Rules’). The Rules were made under Article 309 of the Constitution of India. In the said Rules, apart from the post of Inspector (Senior Grade)(inter alia) with a scale of pay of L 550-25-750-E.B.-30-900, which is shown as a post to be filled-up by promotion, there is the post of Inspector (Ordinary Grade). It is this post which has generated the controversy in Civil Appeal Nos. 1970-1975 of 2009.
6. The Method of Recruitment is mentioned as follows:
a)75 per cent by Direct Recruitment; b) 25 per cent by Promotion. Column 12, which relates to the Grade from which Feeder Category for promotion is shown as follows:
In case of recruitment by promotion/deputation/transfer grade from which promotion/ deputation/ transfer to be made
12
Promotion: By selection from amongst: (i) Upper Division Clerks with 5 years service. (ii) Upper Division Clerks with 13 years of total service as UDC and Lower Division Clerk taken together subject to the condition that they should have put in a minimum of two years service in the grade of Upper Division Clerks; (iii) Stenographers (Senior Grade) with 2 years service. (iv) Stenographers (Senior Grade) or Steno (Ordinary Grade) with 12 years service as Stenographer/ Upper Division Clerk and Lower Division Clerk if any taken together subject to the condition that they should have put in a minimum of two years service as Stenographer (Ordinary Grade) or Upper Division Clerk. (v) Woman searcher with 7 years service in the grade. (vi) Draftsman with 7 years service in the grade. Note. – Candidates will be required to possess such physical standard and pass such written test and practical tests and confirm to such age limits as may be specified by the Central Board of Excise and Customs from time to time.
THE ELECTRONIC DATA PROCESSING DISCIPLINE (GROUP-E TECHNICAL POST) RECRUITMENT RULES, 1992
7. On 03.04.1992, Rules were made regulating the method of recruitment for Group ‘C’ (Technical Post) in the Electronic Data Processing Discipline of the field formations of the Central Board of Excise and Customs (CBEC). The posts included the post of Data Entry Operator Grade ‘A’, Data Entry Operator Grade ‘B’ and the post of Data Entry Operator Grade ‘C’. Under Rule 5 under the heading “Initial Constitution”, persons appointed on regular basis as Key Punch Operator, Terminal Operator and Lower Division Clerk performing the duties of Terminal Operator before the commencement of these Rules were to be deemed to have been appointed as Data Entry Operator Grade ‘A’ and to rank en-block senior to those appointed after the commencement of these Rules. The post of Data Entry Operator Grade ‘A’ was to be filled-up by Direct Recruitment. The educational qualification was shown as 12th Standard Pass or equivalent. The post of Data Entry Operator Grade ‘B’ was to be filled-up by promotion, failing which, by transfer on deputation. As far as promotion is concerned, Data Entry Operators Grade-A, with six years Regular Service in the Grade, were rendered eligible for being considered for promotion. As far as Data Entry Operators Grade ‘C’ is concerned, again the post was to be filled-up by promotion, failing which, by transfer on deputation, Data Entry Operators Grade ‘B’, with 3 years Regular Service, were declared eligible for being considered for promotion as Data Entry Operator Grade ‘C’. There is also the post of Data Entry Operator Grade ‘D’, to be filled-up by promotion, failing which, by transfer on deputation. Data Entry Operator Grade ‘C’, with four years regular service, was Feeder Category for promotion as Data Entry Operator Grade ‘D’.
THE 1996 AMENDMENT TO THE 1979 RULES
8. On 12.07.1996, the 1979 Rules came to be amended. Under the said amendment, the post of Tax Assistant was included. 1497 posts were shown as the number of posts, subject to variation dependent on workload. The scale of pay was indicated as L 1350-30-1440- 40-1800-E.B.-50-2200. The post was to be filled-up by promotion. The Feeder Category was to be U.D. Clerk, with three years regular service in the Grade, subject to their passing of Departmental Examination, with minimum marks of 40 per cent and above, in each paper.
THE CENTRAL EXCISE AND LAND CUSTOMS DEPARTMENT INSPECTOR (Group ‘C’ POSTS) RECRUITMENT RULES, 2002
9. By Notification dated 29.11.2002, Rules were made in supersession of the 1979 Rules. The Rules are called the Central Excise and Land Customs Department Inspector (Group ‘C’ posts) Recruitment Rules, 2002 (hereinafter referred to as ‘Inspector Rules, 2002’, for short). The Rules were to come into force on the date of publication in the Official Gazette. It is not in dispute that the publication of the Gazette is effected on 07.12.2002.
10. In regard to the post of Inspector (Central Excise), under Column 11, viz., Method of Recruitment, the Rules proclaim that 66.23 per cent is to be filled-up by Direct Recruitment and 33.13 per cent is to be filled-up by promotion. Column 12 is significant and we refer to the same. It reads as follows:
In case of recruitment by promotion/deputation/absorption, grade from which promotion/ deputation/ absorption to be made
12
Promotion: (a) By selection from those candidates working in the following restructured cadres; (i) Tax Assistant with 2 years service as Tax Assistant or 5 years service as Tax Assistant and Upper Division Clerk put together; (ii) Upper Division Clerk or stenographer Grade III with 5 years service; (iii) Upper Division clerk with 13 years of total service as Upper Division Clerk and Lower Division Clerk taken together subject to the condition that they should have put in a minimum of 2 years service in the grade of Upper Division Clerk; (iv) Stenographer Grade II with 2 years service; (v) Stenographer Grade II or Stenographer Grade III with 12 years service as Stenographer or Upper Division Clerk and Lower Division Clerk, if any, taken together subject to the condition that they have completed a minimum of 2 years service as Stenographer Grade III or Upper Division Clerk. (vi) Woman searcher with 7 years service in the grade; (vii) Draftsman with 7 years service in the grade. (b) By selection from those candidates working in the following restructured cadre: (i) Senior Tax Assistant with 2 years regular service in the grade; (ii) Stenographer Grade II with 2 years regular service in the grade; (iii) Women searcher with 7 years service in the grade; (iv) Draftsman with 7 years service in the grade. (c) Failing the method of recruitment specified under Clause (b) above, by selection from those candidates working as Tax Assistant and Stenographer Grade III having not less than 10 years service including the service to be included for this purpose under the provisions of the rules regulating the method of recruitment to the post of Tax Assistant: Note 1 : Promotion under Clause (a) above shall be only operative for a period of two years from the date on which the restructured cadres mentioned under Clause (b) above comes into existence. The service rendered under the new grade in the restructured cadres shall be counted towards considering the eligibility for promotion under Clause (a) above. Note 2 : Candidates shall be required to pass such written test as may be determined by the Central Board of Excise and Customs from time to time. The maximum age of eligibility for the departmental candidates shall be 45 years which shall be relax-able to 47 years in the case of candidates belonging to the Scheduled Castes or Scheduled Tribes category. However, those of the officials who were not considered for such promotion upto the age of 45 to 47 years, as the case may be, shall be granted the benefit of relaxation in age limit upto 50 years in order to enable a fair opportunity of a minimum of two chances. However, those officials who were considered for promotion upto the age limit of 45to 47 years, as the case may be, on two or more occasions and were not found fit for promotion shall not be eligible for this relaxation. Note 3 : Candidates shall be required to pass physical tests and confirm the physical standards as specified in Column 8. Note 4 : The eligible officers under Clause (a), (|b) and 9c) above shall be required to pass through an interview before promotion. Note 5 : Where juniors who have completed their qualifying or eligibility service are being considered for promotion, their seniors would also be considered provided they are not short of the requisite qualifying or eligibility service by more than half of such qualifying or eligibility service or two years, whichever is less and have successfully completed their probation period for promotion to the next higher grade along-with their juniors who have already completed such qualifying or eligibility service.
CORRIGENDUM DATED 2 4 T H APRIL, 2003 TO INSPECTOR RULES, 2002 11. Under the same, in Clause (a) of Column 12, which we have already extracted, for the word “restructured” in third line, it was to be read as “pre-structured”. The result of this amendment is that Clause (a) under Column 12 of the Inspector Rules, 2002, was to be read as by selection of those candidates working in the “pre-structured cadres”.
THE CENTRAL EXCISE AND CUSTOMS DEPARTMENT SENIOR TAX ASSISTANT (GROUP ‘C’ POSTS) RECRUITMENT RULES, 2003(in short S.T.A. Rules, 2003)
12. The Rules made on 16.01.2003, came into force on the date of publication of the Gazette and the publication was effected on 20.01.2003. Rule 5, around which debate ensued before us, reads as follows:
“5. Initial constitution.-(i)All the persons appointed on the regular basis at the time of commencement of these rules to the Grade of Assistant, Tax Assistant, Upper Division Clerk (Special Pay), Data Entry Operator Grade ‘B’ and ‘C’ shall be deemed to have been appointed as Senior Tax Assistants under these rules. The service rendered by them before commencement of these rules shall be taken into account for deciding the eligibility for promotion to the next higher grade. (ii) Assistants(Rs. 5000-8000) and Data Entry Operator Grade ‘C’ (Rs. 5000-8000) are being re-designated as Senior Tax Assistants in the same scale of pay. Therefore, the Assistants and Data Entry Operator Grade ‘C’ shall be placed en-block senior to the other categories. However, their inter-se-placement shall be done according to the date from which they had actually been appointed to these grades on regular basis subject to the condition that their inter se placement in their respective category shall not be altered. (iii) The Data Entry Operator Grade ‘B’ (4500-7000) and Tax Assistants (4500-7000) have been placed in their higher scale of 5000-8000 and they shall be placed below the Assistant and Data Entry Operator Grade ‘C’ and their inter-se placement shall be fixed in accordance with the date of regular appointment to the respective grade subject to the condition that their inter-se placement in respective category shall not be disturbed. (iv) Upper Division Clerk with special pay shall be placed below Assistant, Data Entry Operator Grade ‘C’, Data Entry Operator Grade ‘B’ Tax Assistants. (v) The present employees would be required to pass the required or suitable departmental examination, as specified by the Competent Authority, from time to time, in Computer Application and relevant procedures within two years falling which they would not be eligible for further increments.” THE CENTRAL EXCISE AND CUSTOMS DEPARTMENT TAX ASSISTANT (GROUP ‘C’ POSTS) RECRUITMENT RULES, 2003
13. Lastly, we may notice the Central Excise and Customs Department Tax Assistant (Group ‘C’ Posts) Recruitment Rules, 2003, hereinafter referred to as the 2003, Tax Assistant Rules. Rules are seen to be made on 02.05.2003 and they came into force on their publication in the Official Gazette on 05.05.2003. Rule 4 alone is relevant for our purpose.
“4. Initial Constitution.-(1) The person appointed on regular basis and holding the post of Upper Division Clerk and Data Entry Operator Grade A on the commencement of these rules shall deemed to have been appointed as Tax Assistant under these rules and the service rendered by such persons in the respective posts before commencement of these rules shall be taken into account as regular service rendered on the post of Tax Assistant for the purpose of promotion etc. (2) The person holding the post of Data Entry Operator Grade -A appointed under these rules as Tax Assistant shall, within two years from the date of such appointment as Tax Assistant, pass the Departmental Examination as conducted by the competent authority, falling which he shall not be entitled to get any further increment. (3) Any person, who holds a post of Lower Division Clerk on regular basis and falls within the seniority list as determined by the appointing authority at the commencement of these rules shall, on passing the Departmental Computer Proficiency examination conducted by the appointing authority, be deemed to have been promoted with effect from date of passing such examination on the post of Tax Assistant. (4) The Upper Division Clerks and Data Entry Operator Grade – A shall be placed en-block senior and, their inter se placement shall be fixed in accordance with the date of regular appointment to the respective grade subject to the condition that their inter se placement in the respective grade shall not distributed. (5) Lower Division Clerks shall be placed below Upper Division Clerks and Data Entry Operator Grade – A.” 14. The Method of Recruitment is Direct Recruitment in regard to 90 per cent of the vacancies and 10 per cent posts to be filled-up by promotion. Feeder categories, in regard to promotion, are shown as Lower Division Clerks, Head Hawaldars, who had rendered seven years of service in the Grade on regular basis and who possesses certain qualifications which are mentioned therein.
IN-BETWEEN THE RULES
15. On 11.03.1988, one-third of the posts of U.D. Clerks came to be abolished and a Grade of Tax Assistant came to be created. Tax Assistants also became part of the Feeder Cadre to the post of Inspector, inter alia. On 05.08.1988, Central Board of Excise and Customs (CBEC) clarified, inter alia, that Tax Assistants, with two years’ experience in the Grade or five years’ combined service in U.D. Clerk and Tax Assistant, were to be eligible for promotion. Stenographers, Women Searchers, Draftsmen, etc., were also declared eligible for promotion as Inspector. They are the old Tax Assistants and not to be confused with the Tax Assistants under the 2003 Rules.
16. The next crucial development took place in the following background. The Data Entry Operators performed essentially technical functions and the very concept was linked with the object of bringing about computer-ization in the Department. As noticed the initial constitution consisted of Key Punch Operators, Terminal Operators and Lower Division Clerks performing duties of Terminal Operators, who were deemed to have been appointed as Data Entry Operator Grade ‘A’. The Data Entry Operators began to complain that promotional avenues for Data Entry Operator Grade ‘A’, which is the entry post, was limited to promotions as Data Entry Operators Grade ‘B’, ‘C’ and at the top of the pyramid, Data Entry Operator Grade ‘D’. Persons working in the Ministerial Cadre, including U.D. Clerks, Stenographers, etc., were eligible under the 1979 Rules, for being promoted to the Executive Post, viz., the post of Inspector, inter alia. Data Entry Operators complained that they would stagnate in the post of Data Entry Operator for years without promotion. It would appear that the post of Data Entry Operator Grade ‘D’ is not available in all the Commissioner-ates and only certain Commissioner-ates had the post of Grade ‘D’. It is pursuant to this simmering discontent being noticed apparently that the Union Cabinet decided to go in for cadre restructuring in the Central Excise and Customs Department. Since, much may turn on the purport of the said decision, articulated in letter dated 19.07.2001, we advert to the same:
“I am directed to say that the Central Government has approved the restructuring of Customs & Central Excise Department. As a result of restructuring there has been a change in the number of nomenclature of the various grades/ posts. The revised number and designation of the various posts at different level in Customs and Central Excise Department has been indicated in Annexure – I. 2. All the post at different levels as per Annexure-I stand sanctioned with immediate effect. Wherever there is a reduction in the number of posts at any level, such reduction will be effective after the existing incumbents of the posts are promoted to the higher level or the post fall vacant on account of retirement etc. The number of categories of the post other than those referred to in Annexure ‘I’ have been kept in their existing strengths and in their existing pay scales only. 3. No direct recruitment may be made to various grades for the year 2001-2002 without approval of Ministry/ Department as the Cabinet has approved a one time relaxation for filling of all vacancies by promotion in all Cadres. 4. The formation-wise distribution of post at different levels will be notified separately. 5. The details of the other Posts that have been included in the restructuring have not been proposed to be altered on the scale or strengths are indicated in Annexure -II. 6. The Cadres/ Post which have not been included in the Restructuring Proposal are indicated in Annexure – III. 7. This issue in pursuance to the approval conveyed vide Cabinet Secretariat note No. 28/CM/2001 (1) dated 16.07.2001.
Yours faithfully
Sd/-
(K.C. Jain)
Dy. Secretary to the Govt. of India
ANNEXURE – I
REVISED NUMBER OF POSTS AT DIFFERENT LEVELS IN THE CUSTOMS AND CENTRAL EXCISE DEPARTMENT ON RESTRUCTURING
S.NO.
POST
EXISTING PAY SCALE
POST re-designated AS
PAY SCALE
SANCTIONED STRENGTH
A’ EXEC
1.
Chief Commissioner
22400-24500
Chief Commissioner
22400-24500
47
2.
Commissioner
18400-22400
Commissioner
18400-22400
290
3.
Additional Commissioner
14300-18300
Additional Commissioner
14300-18300
300
4.
Joint Commissioner
12000-16500
Joint Commissioner
12000-16500
276
5.
Deputy Commissioner
10000-15200
Deputy Commissioner
10000-15200
701
6.
Assistant Commissioner
8000-13500
Assistant Commissioner
8000-13500
690
B’ EXEC
7.
SUPDT.CEX/S.I.O/I.O.A.D.D.
6500-10500
SUPDT.
6500-10500
9437
8.
SUPDT. CUS
6500-10500
SUPDT.
6500-10500
2520
9.
Appraiser
6500-10500
Appraiser
6500-10500
809
C’ EXEC
10.
Inspector/PO/Examiner
6500-9000
Inspectors
5500-9000
18053
A’ MIN
11.
CAO
8000-13500
CAO
8000-13500
155
B’ MIN
12.
AO/ACAO/EAO
6500-10500
6500-10500
972
13.
Sr.PA
6500-10500
Sr.PA
6500-10500
14.
Programmer
New
6500-10500
20
15.
Others*
177
C’ MIN
16.
DOS L-I
5500-9000
DOS L-I
5500-9000
631
17.
DOS L-II
5000-8000
DOS L-II
5000-8000
1353
18.
DEO-GR. D
5500-9000
ASTT. PROG
5500-9000
60
19.
SR. TAX Assistant
NEW
5000-8000
3152
20.
TAX ASSISTANT
NEW
4000-6000
5525
21.
LDC
3050-4590
LDC
3050-4590
717
22.
STENO GR. – I
5500-9000
STENO GR.-I
5500-9000
244
23.
STENO GR. – II
5000-8000
STENO GR- II
5000-8000
490
24.
STENO GR.-III
4000-6000
STENO GR.-III
4000-6000
490
25.
OTHERS*
803
C’ EXEC (OTHERS)
26.
DRIVERS – I
4500-7500
DRIVERS-I
4500-7500
414
27.
DRIVERS – II
4000-6000
DRIVERS – II
4000-6000
526
28.
DRIVERS – III
3200-6000
DRIVERS-III
3200-6000
1130
29.
ARMOURER
3200-4900
ASI (Weapon)
3200-4900
51
30.
OTHERS*
55
31.
HAVALDAR
2650-4900
HAVALDAR
2650-4900
4326
32.
SEPOY
2550-3540
SEPOY
2550-3540
9339
33.
OTHERS*
1071
TOTAL
65161
NOTES: 1.The posts in the grade of Supdts. Also include of S.I.O., A.A.D.I.O. of various directorates (S.I. No.). 2.The posts in the grade of inspector also include the post of P.O. and Examiner and intelligence Officer (S.I. No. 10). 3.The post in the grade of A.O. also include the post of A.C.A.O. and E.A.O. (Sl. No. 12). 4.The existing post in the cadres of Asst., Tax Asst., UDC (Sp Pay), DEO Gr. (C) and DEO Gr.(B) have been merged into an re-designated as Sr. Tax Asst. (Sl. No. 19). 2.The posts in the grade of inspector also include the post of P.O. and Examiner and intelligence Officer (S.I. No. 10). 5.The existing posts in the cadres of UDC, DEO(A) and LDC (except 717 posts of LDC for the promotion of Group D) have been merged and re-designated as Tax Asstt. (New) (S.I. No. 20) 6.The cadre of O.S. has been abolished and the post have been merged in the posts of A.O. (Sl. No. 19) 7.Other posts which exists in the department and are not reflected in the above table have been kept in existing strengths in the existing pay scales only. 8.Details of Others posts are given in Annexure II (Sl. No. 15, 25,30 & 33).
Sd…
(K.C.Jain)
Dy. Secretary to Govt. of India”
17. On 10.09.2001, the CBEC directed a freeze on promotion. It reads as follows:
“New Delhi, the 10.09.01
To, All Chief Commissioners/Commissioners of Customs and Central Excise, All Directors Generals/Directors of Customs and Central Excise Narcotics Commissioner, C.B.N. Gwalior Subject: Holding of DPC for promotion to the grade of Group ‘B’ & ‘C’ in C.B.E.C. Department – reg. Sir, I am directed to say that the issue of holding of DPCs in respect of Group ‘B’ & ‘C’ posts as well as making direct recruitment to the various posts pending distribution of posts of various field formations is being undertaken by the Implementation Cell in Pursuant to sanction issued by Board’s letter F.No.A- 11019/72/99-Ad.IV dated 19.07.2001 conveying the approval of the Cabinet to the restructuring of Customs and Central Excise Department has been considered by the Board. 2. It is felt that if the DPCs for group ‘B’ & ‘C’ are conducted by the cadre authorities it may lead to widening of imbalances in promotion prospects or create imbalances. The Board have, therefore, decided that the holding of DPC of group ‘B’ & ‘C’ post may be frozen and no DPC may be held for Group ‘B’ & ‘C’ post till the distribution of posts under various level is completed and instructions are issued by the Board in this regard. 3. As you are aware that Board have already imposed a ban for filling up of posts of LDCs and Sepoys vide their letter F.No. A-11012/27/2000-Ad. IV dated 10.04.2001, it is reiterated that these instructions may be strictly adhered to and it is further stated that no direct recruitment may be made to any grade till further orders of the Board/ Department of Revenue. 4. The receipt of this letter may please by acknowledged.
Yours faithfully,
SD/-
(Y.P. Vashishat)
Under Secretary to the Govt. of India”
18. Thereafter, there is communication dated 19.09.2001, which will be adverted to later on. 19. It is necessary to note what is alleged to be an Order of the CBEC, lifting the ban on promotion, dated 03.01.2002:
“New Delhi, the 3rd Jan, 2002
To, All Chief Commissioners/ Commissioners of Customs and Central Excise, All Directors Generals/ Directors of Customs and Central Excise. Narcotics Commissioner, C.B.N. Gwalior Subject: Holding of DPC for promotion to the grade of Group ‘B’ & ‘C’ in C.B.E.C. Department – reg. Sir, I am directed to refer to Board’s letter of even number dated 10.9.2001 imposing a ban on holding of DPCs for Group ‘B’ & ‘C’ posts. The Board have received representations against the aforesaid ban on promotions. 2. The matter has been considered by the Board and it has been decided that where ever the DPC, have already been held, the panel prepared by the DPCs may be given effect and the resultant vacancies in the feeder cadre may also be filled up. Where the DPCs have not been held, the DPCs may be held on the basis of pre-revised strength i.e. the strength existing before the cadre restructuring and the resultant vacancies may be filled up. 3. Action may be taken on priority basis under intimation to the Board.
Yours faithfully,
SD/-
(Y.P. Vashishat)
Under Secretary to the Govt. of India”
20. The communication dated 05.06.2002 by the CBEC purporting to allocate posts to each zone, and communicating the sanctioned strength, needs to be noticed:
“F. No. A-11013/4/2002-Ad.IV Government of India Ministry of Finance Department of Revenue Central Board of Excise & Customs
Dated: 05th June, 2002
To All Chief Commissioners of Central Excise and Customs, All Chief Commissioners of Customs, All Chief Commissioners of Customs (Preventive), All Directors General, All Directors. Chief Departmental Representative, CEGAT Chairman, Settlement Commission. Subject: Allocation of posts in Group ‘A’, ‘B’, ‘C’ and ‘D’ amongst various Zones/Commissionerates and Directorates Gen. / Directorates – reg. Sir, I am directed to refer to Ministry’s letter F. No A- 11019/72/99-Ad.IV dated 19th July 2001, notifying the revised sanctioned strength at different levels in the Central Excise & Customs department consequent to approval of cadre restructuring of Central Excise and Customs departments by the Union Cabinet. 2. I am further directed to say that the allocation of staff to the Zones / Commissioner-ate / Directorates Gen. / Directorates at different levels has been decided by the Board and approved by the Government has been detailed in the enclosed Folder. The allocation indicated herein supersedes all earlier allocations in respect of the Cadres/Categories in the enclosed folder. The number and categories of posts in the Central Excise & Customs department other than those referred to in the enclosed Folder remains unaltered. 3. Separate staff strength has been allocated for the offices of Chief Commissioner, Commissioner (Appeals) and Commissioner (Adjudication) for which no separate staff had been allocated till now. The staff allocated to these formations has been shown along with the allocation to the Commissioner-ate in which city it is located. The model adopted for the allocation is indicated in Annexure – IV of the enclosed folder. 4. I am also directed to request all Chief Commissioners and other Heads of Department to carefully study the details of re-organization of the Customs and Central Excise formations and bring to the notice of the Board any discrepancies or any aspects that may require review or may not have been taken into account, to enable necessary corrective steps may be taken at an early date with the approval of appropriate authority. 5. I am further directed to say that the sanctioned strength now indicated supersedes all previous sanction issued so far. The sanctioned strength now indicated will accordingly form your sanctioned strength of Group ‘A’, ‘B’, ‘C’ & ‘D’ posts. As indicated in the preceding paras, the Chief Commissioners are requested to study the allocation of posts within their respective jurisdiction and send proposal which are considered necessary within the overall sanctioned strength provided to the Commissioner-ates within their jurisdiction. 6. I am also directed to inform that the Cadre Control which is presently vested with respective Commissioners in particular Zones will continue to vest with them for the present in order to ensure that there is no dislocation in the cadre management at the field level. Switch over of cadre control from Commissioners to Chief Commissioners would be effected from a date to be specified after the new formations come into existence. 7. It has been decided to extend the ban on direct recruitment imposed, in terms of para 3 of Deptt’s letter F. No. A-11019/72/99 Ad.IV dated 19.07.2001 up-to 31.12.2002. However, the ban would be applicable only to the posts that have been included in the cadre restructuring. It has also been decided that the ban on direct recruitment would not apply to compassionate ground appointments made with the approval of the Board. 8. The Detailed instructions/ orders/ Recruitment Rules governing the manner of filling up of the vacancies at all levels will be issued separately. No vacancy in respect of the posts included in the cadre restructuring should be filled up till such time as further orders are issued.
Yours faithfully
Encls.: As above
(Y.P.Vashishat)
Under Secretary to the Govt. of India”
21. Still further, on 19.09.2002, the CBEC initiated process for filling-up of vacancies based on the post restructuring strength and permitting convening of Departmental Promotion Committees (DPCs) where the revised Recruitment Rules stood circulated. It was, however, clarified that promotion orders would be issued only on the directions of the Ministry. That ban on Direct Recruitment was to continue. The Order reads as follows:
“New Delhi, Dated 19th September, 2002
To All Chief Commissioner of Central Excise, All Chief Commissioner of Customs, All Chief Commissioners of Customs (Preventive), All Director General, All Directors, The Chief Department Representative CEGAT The Chairman, Settlement Commission. Sir, Subject: Filling up of posts in Group B, C and D – reg. I am directed to refer to Ministry’s letter F.No.A-11013/4/2002-Ad. IV dated 05.06.2002 on he allocation of posts in Group ‘A’, ‘B’, ‘C’ and ‘D’ amongst various Commissioner-ates and Director-aes General/ Directorates. So far as Group ‘A’ posts suitable action is being taken by the Board. As for remaining posts, you have already been advised o hold DPCs for promotion to the grade of Superintendents of Central Excise, Superintendents of Customs (Prev) vide our letter no. F.A.600/11/23-2002-Ad. III B dated 26th June, 2002 and to the grade of AO/ACAO/EOA Group ‘B’ vide letter F.No.A.32012/3/2002- Ad.IIB dated 15th July, 2002. The cadre of O.S. is to be merged with the cadre of A.O. and all the existing O.S. are only to re-designated as Administrative Officer. Since the pay scale of both he cadres is same, the re-designation can be done by an administrative order. 2. It has now been decided to initiate the process of filling up of vacancies that has arisen on account of cadre restructuring in all remaining cadres up to Grade ‘B’. You are directed to ensure that DPCs are converted in respect of all grades where Recruitment Rules except for change in the number of posts, as also grades where revised Recruitment Rules have been circulated. You may accordingly hold DPCs immediately for filling up vacancies in various grades, and ensure that by 30th September, 2002 the lists are kept ready. It is clarified that promotion orders may be issued only on receipt of further directions from the Ministry. 3. The ban imposed on direct recruitment in terms of para-3 of letter F.No.A.11019/72/99-Ad.IV dated 19.07.2001 is applicable up to 31.12.2002. IT is clarified that this ban applies only to the posts that have arisen in the cadre restructuring and that the ban will not apply to posts in the lower grades which are not to be filled by promotion, and can only be filled up by promotion, and can only be filled up by Direct Recruitment. Requisite steps for filling up Direct Recruitment posts may also be initiated immediately in accordance with existing instructions on the subject so as to ensure that Direct Recruitment vacancies can immediately be filled up after 31.12.2002 of Board’s letter of 05.06.2002. 3. Further, in suppression of the instruction contained in para 7 & 8 of Board’s letter of 05.06.2002 the Commissioners are also permitted to make compassionate ground appointments as well as inter Commissioner-ate transfers, with the approval of Chief Commissioners, in accordance with existing instructions on the subject. The instructions contained in paras (7) & (8) of Board’s letter of even no. dated 05.06.2002 stand modified to this extent.
Yours faithfully,
(NISHA MALHOTRA)
Jt. Secy. (Admn.)”
22. The communication dated 28.10.2002 is the next development. It reads as follows:
“Dated 28th October, 2002
To All Chief Commissioner of Customs & Central Excise Subject: Draft Recruitment Rules – Circulation of reference and necessary action-Reg. Sir, Please find enclosed Draft Recruitment Rules for Group ‘C’ Posts of Inspector (Central Excise & Land Customs), Inspector (Examiner), Inspector (Preventive Officer) & Senior Tax Assistant as approved by the Ministry. Notifications, notifying these Rules will be issued shortly. Meanwhile you may initiate the necessary action to start the process for DPC etc. You may, however, await issue of notifications before issue of any orders of promotions based on these Rules. Draft of the Recruitment Rules of Tax Assistants will also be sent shortly as they are being finalized in consultation with law Ministry.
Yours faithfully,
Sd……
(B.K. Gupta)
O.S.D. (Admn.) CBEC
Enclosures: As above” 23. On 06.11.2002, the Draft Recruitment Rules for Tax Assistant came to be forwarded with the caveat that promotion orders be not issued until the Rules were notified:
“Dated 6th November, 2002
To All Chief Commissioner of Customs & Central Excise Sir, Subject: Draft Recruitment Rules – Circulation of reference and necessary action-Reg. —
In continuation of this office letter dated 28.10.2002 forwarding of Draft Recruitment Rules of Group “C” Post of Inspector (Central Excise and land Customs), Inspector (Examiner), Inspector (Preventive Officer) & Senior Tax Assistant, please find enclosed Draft Recruitment Rules for Tax Assistant (Group “C”) as approved by the Ministry. The Notification for notifying these Rules will be issued shortly. Meanwhile you may get circulated these Draft Rules to all the Commissioner-ates, initiate the necessary action to start the process for DPC etc. Confirm the issue of Notification notifying these Rules before issue of any order based on these Rules. Yours faithfully
Enclosures: As above
(B.K. Gupta)
O.S.D. (Admn.) CBEC”
24. On 14.11.2002, the CBEC permitted issuance of promotion orders subject to certain conditions:
“New Delhi the 14th November 2002
To All Chief Commissioner All Director General All Director under CBEC Subject : Cadre restructuring of Customer and Central Excise – regarding promotion in the Grade ‘B’, ‘C’ and ‘D’ posts. Sir, I am directed to refer to Minister’s letter F. No. A-11013/01/2002-Ad-IV dated 19th September, 2002 regarding holding of DPC’s in all grade where Recruitment Rules Exits, us also in grades where revised recruitment rules have been circulated. In terms of Para 2 of the said letter, it was directed to hold the DPC’s by 30th September, 2002 and keep the list ready for issue. It was also clarified that promotion orders may only be issued on receipt of further directions from Ministry. 2. In view of the above, you are requested to issue the promotion orders in respect of remaining Group ‘B’, ‘C’ and ‘D’ posts as stated below:- (i) promotion orders in respect of Sepoy, Havaldar, Head Havaldar, Tax Assistant, Senior Tax Assistant and Inspector of Central Excise/Preventive Officer/Examiner of Customs may be issued on the basis of Recruitment Rules after allotment of GSR No by the Government of India Press. Wherever not yet allotted. (ii) DPC in respect of Appraisers and Administrative Officer may be held on the basis of existing Recruitment Rules and promotion orders may be issued. (iii)DPC in respect of remaining grades except DOS L-II may be held on the basis of existing Recruitment Rules and Promotion orders may be issued by 25.11.2002. (iv) Promotion in the grade of DOS L-II may be made only after the new recruitment rules are circulated by the Ministry.
Yours faithfully
(Angra Ram)
Under Secretary to the Government of India”
25. Thereafter, as already noticed, the Inspector Rules, 2002 came to be notified on 07.12.2002. We may further notice that the Senior Tax Assistant (STA) Rules came to be notified on 20.01.2003. On 21.04.2003, the following decision was taken by the CBEC:
“New Delhi, the 21st April, 2003
To, All Chief Commissioners of Central Excise, All Chief Commissioners of Customs, All Director Generals, All Commissioner of Central Excise/Customs/Directors under CBEC Subject: Cadre Restructuring of Customs and Central Excise – Fixation of date of Existence of restructured cadres-reg. Madam, I am directed to say that clarification have been sought by field formations regarding the date of existence of restructured cadres. The matter has been examined in the Board and it has been decided that the restructured cadres would come into existence from the dates on which the new/amended rules are notified. Accordingly (a) The restructured cadre of Inspector (Central excise), Inspector (Preventive Office) and Inspector (Examiner) came into effect on and from 07.12.2002 i.e., the date of publication of Recruitment Rules. (b) The restructured cadre of Senior Tax Assistant came into existence on and from 20.01.2003 i.e. the date of publication of Recruitment Rule.
Yours faithfully,
SD/-
(Y.P. VASHISHAT)
Under Secretary to the Govt. of India”
THE SPATE OF LITIGATION
26. The position, as noticed, led to a scenario where the erstwhile Data Entry Operators Grade ‘B’ and ‘C’, who came to be re-designated as Senior Tax Assistants (STAs) and who were not invited to participate in the promotional exercise for the post of Inspector, launched litigation in various Tribunals across the country.
THE PROCEEDING IN THE CHANDIGARH TRIBUNAL
27. O.A.1221 of 2002 came to be filed before the Tribunal at Chandigarh. The applicants were Data Entry Operators Grade ‘A’, who were promoted in the year 2000 as Data Entry Operators Grade ‘B’. They contended that they being Data Entry Operators Grade ‘B’, were deemed to have been appointed as Senior Tax Assistants and were eligible to be considered for the post of Inspector. They were also placed in the higher Grade of L 5000 to 8000 and were senior to the U.D. Clerks. The applicants Complained that though they were eligible to be considered for promotion to the post of Inspector, Central Excise along with the candidates of the pre-structured cadre, they were not being considered. The Tribunal found merit in the contention of the applicants and held as follows:
“10. There is no doubt that the Data Entry Operators Grade B have now been re-designated as Senior Tax Assistants Recruitment Rules, 2002. It is also very clearly mentioned in the notification in para 4(i) that the service rendered by them before commencement of these rules shall be taken into consideration for deciding the eligibility for promotion to the next higher grade. According to the Inspector Recruitment Rules, 2002, under Clause (b)(i) of schedule to these rules, Senior Tax Assistants with 2 years regular service are eligible for consideration for promotion. In other words, Data Entry Operators Grade b with 2 years service as Data Entry Operator and/or Senior Tax Assistants are eligible promotion. There is no such condition in the Recruitment Rules, that the categories of employees covered under clause (b) under column 12 of the schedule are required to put in 2 years of service exclusively as Senior Tax Assistant. Their past service as Data Entry Operators is also required to be taken into consideration. In fact the respondents are relying on the provision made in Note 1 under col.12 to emphasize that the Senior Tax Assistants will be considered for promotion only after 2 years from the date of restructured cadres come into existence. Note 1 reads as under: Note 1: Promotion under clause (a) above shall be operative only for a period of two years from the date or which the restructured cadres mentioned under clause (b) above come into existence.” A close reading of the above Note would reveal that it is in respect of employees covered under Clause (a) and is not relevant to the employees under Clause (b). It is therefore, wrong to interpret the provision made in the above Note that Data Entry Operators (now re-designated as Sr.Tax Assistants) are not eligible for promotion for a period of 2 years. In fact, Senior Tax Assistant have been given higher grade of L 5000-8000 and they are senior to the UDCs according to the Senior Tax Assistant Recruitment Rules, 2002, while UDCs have been considered for promotion for the post of Inspector, there does not appear to be any justification for denying senior Tax assistants their legitimate right for consideration for promotion. 11. Note 2 under col.12 specifically provides that the candidates shall be required to pass such written test as may be determined by the Central Board of Excise and Customs from time to time. The judgment in the case of Madan Singh & ors (supra) cited by the learned counsel for the applicant is, therefore, distinguishable to the extent that the departmental examination is prescribed in the relevant rules in the instant case. Senior Tax Assistants are, therefore, required to pass the written test before they are considered for promotion to the post of Inspector as has been done in the case of other categories employees. As Sr. Tax Assistants are senior to UDCs, they should also have been given an opportunity to appear in the departmental written examination and if they had passed, they should have been considered for promotion to the post of Inspector. Non-consideration of Sr. Tax Assistants for promotion is, therefore, in violation of the relevant Rules.” 28. On the basis of the aforesaid discussion, the Tribunal directed applicants to be considered for promotion as Inspector, in terms of the relevant Rules, considering the service rendered by them as Data Entry Operator Grade ‘B’, after giving them an opportunity to appear in the departmental examination, as provided in Note 2 in the Schedule to the Inspector Rules, 2002, inter alia.
29. The next, in the chronological order, is the Order dated 29.08.2003 passed by the CAT at Bombay. This decision went against the reasoning adopted by the Chandigarh Bench, which we have already noted. However, the High Court of Bombay, by its Judgment dated 07.10.2003, allowed the Writ Petitions filed against Order dated 29.08.2003. The High Court found the reasoning of the Chandigarh Bench appealed to it. No doubt, it related to filling-up the post of Inspector (Customs). The Special Leave Petition filed against the Judgment of the High Court of Bombay came to be dismissed on 09.02.2004 by this Court. In the interregnum, CAT, Madras, by Orders dated 04.09.2003 and 12.09.2003, adopted the view accepted by the Chandigarh Bench. Finally, CAT, Ahmedabad also, by its decision dated 07.05.2004, accepted the view propounded by the CAT, Chandigarh.
THE LITIGATION BEFORE US ORIGINAL APPLICATION NO. 1362 OF 2002
30. The applicants, as already noticed, are the appellants in the Civil Appeal Nos. 1970-1975 of 2009. They approached the Tribunal on the following allegations, inter alia. They had been appointed as Data Entry Operator Grade ‘A’ between October, 1993 to March, 1994. On completion of six years’ service, they came to be promoted as Data Entry Operator Grade ‘B’. After completing the desired computerization, they were entrusted with regular work relating to the Executive Side. This included technical work, statistics, preventive audit and other legal work. They claimed that they were at par with the existing Tax Assistants. After the Fifth Central Pay Commission, they stood equated with the Tax Assistants. There were grievances raised relating to promotional avenues not being on par as between the Data Entry Operators and the Tax Assistants. There was reference made to the Order dated 19.07.2001. It was pointed out that the official respondent had communicated the Draft Recruitment Rules, which contained “an unconscionable condition”. The unconscionable condition referred to was the incorporation of Clause (a) that those working as Tax Assistants with two years of service, etc., were given preference for promotion over the restructured categories. They contended that Order dated 19.07.2001 had already come into force. They pointed out that there was no meaning in considering the pre-structured Cadre of Tax Assistants and U.D. Clerks, etc., after the restructuring [Apparently, they felt aggrieved by the invitation to the Tax Assistants and U.D. Clerks, based on the provisions contained under 2002 Rules (Column 12, Clause (a))]. The proposed promotion was dubbed as an attempted backdoor entry. It was only the restructured Cadre of Senior Tax Assistant (STA) alone, which was eligible for promotion as Inspector. The pre-structured Cadre should not be allowed to steal a march over the applicants, who were already placed in the higher scale. The unconscionable part of the Rules was dubbed as violative of Articles 14 and 16 of the Constitution of India. In the grounds, they attacked Note 1 to 2002 Rules found in Column 12. The Note was alleged to have given “leverage to the Tax Assistants and the U.D. Clerks and Stenographers to count their pre-structured service”. Being new Cadre, they could not have required period of two years under the restructured Cadre. The Draft Recruitment Rules were impugned as being issued with “malafide intention” for creating avenues for the “ineligible Lower Division Cadre”. It is also contended that Draft Rules had not been finalised, and only after finalisation, the matter could be proceeded with.
31. The reliefs sought were as follows:
“(a) to set aside the intimation letters C.No.II/3/21/2002 Con. Sec. C.No. II/3/16/2003-Con. Sec. & C.No. II/03/52/2002 Estt. All dated 5.11.2002 conducting physical Test/interviews, in the absence of finalization of draft recruitment rules, on the basis of the unconscionable conditions stipulated in the draft recruitment rules for the purpose of promoting the in-eligible candidates, depriving the applicants from their due promotion to the posts of inspector of Customs and Central Excise, declaring the same as arbitrary, illegal, unwarranted, misconceived, frivolous and in violation of Articles 14 & 16 of the Constitution of India. (b)to set aside that part of recruitment rules communicated vide F.No. A 12018/48/2000-Ad. III-B dated 28.10.2002 of R-1, incorporating certain unconscionable conditions under Clause (a), as confirmed vide Gazette of India Notification dated 29.11.2002 and note(1) of clause (b) of column 12 of Group ‘C’ Recruitment Rules 2002, for eligibility condition for promotion to the cadre of inspector of Customs and Central Excise, providing illegal opportunities to the cadres that were existing prior to the restructured cadre when the restructured process has already been affected w.e.f. 19.7.2001, giving leverage to the ineligible candidates to march over the eligible candidates of DEOs Grade ‘B’ cadre for promotion to the cadre of Inspector of Customs and Central Excise, declaring that part of the said draft rules as arbitrary, illegal, un-warranted, misconceived, malafide and against the principles of natural justice and in violation of Articles 14 & 16 of the Constitution of India; (c) to declare that the applicants who were working as DEOs in Gr. ‘B’ in the scale 4500-7000 even before re-structuring deemed to have been merged into the cadre of Sr. Tax Assistants in the scale of 5000-8000 as enumerated under the restructured scheme communicated vide R-1 Letter F. No. A-11019/72/99 Ad. IV dated 19.7.2001 communicating the approval of restructuring by the Ministry with immediate effect enclosing Annex. I therewith showing the cadres and the strength, duly directing the respondents to consider the cases of the applicants for promotion to the cadre of Inspectors, Customs and Central Excise, by way of 100% promotion under one time relaxation scheme on par with those Assistants, DEO Grade ‘C’, Tax Assistants, DEO Grade ‘B’ and UDC(Special Pay), who were re-designated as Senior Tax Assistants under the restructuring of cadres who are only to be considered for promotion to the cadre of Inspectors of Central Excise & Customs; with all consequential benefits; and be pleases to pass such other and further order, or orders as the Hon’ble Tribunal may deem fit and proper in the circumstances of the case.” 32. In the reply by the official respondents, it was, inter alia, pointed out as follows:
The post of Inspector was covered by 1979 Rules. Feeder categories were, as we had noted earlier. There was, in other words, reference to the 1979 Rules as amended in 1996. Regarding the Order dated 19.07.2001, the stand of the Government was that it was only approval of the Ministry for restructuring process. It was contended that it was incorrect to say that the new Cadre of Senior Tax Assistants and Tax Assistants were created from 19.07.2001. The restructuring became effective only after the formulation of the Recruitment Rules. The Order dated 19.07.2001 was silent as regards mode of restructuring and the process after merger. In regard to the claim of the appellants of parity with U.D. Clerks, it was pointed out that the appellants could not compare themselves with the U.D. Clerks for promotion as Inspector. The initial scale of Data Entry Operator Grade ‘A’ (Entry Post) was L 1150-1500 prior to the Fifth Central Pay Commission, whereas, the pay of U.D. Clerk was L 1200-2040. The educational qualification required for being an U.D. Clerk was Graduation. For a Data Entry Operator Grade ‘A’, on the other hand, the educational qualification was pass in the Intermediate Course. It was further contended that the nature of duty was also different. The U.D. Clerks were selected on staff selection conducted on all- India basis. The Data Entry Operators Grade ‘A’ were employed through Employment Exchanges. As far as conditions in Column 12, which were challenged by the applicants, viz., the requirement of two years’ service, which was dubbed as unconscionable, it was contended that the condition relating to two years’ service was necessary to cover fair process for different categories. The Cadre of Inspector was a basic work force. Promotions were effected on the basis of promotion to the post of Superintendent, on all-India basis, leading to large number of vacancies in the post of Inspector. In the Andhra Pradesh zone, there were 242 vacancies of Inspector. The applicants, it was contended, did not fall in the feeder categories. The contention of the applicants that they were doing various other works, was denied and it was contended that the Data Entry Operators were basically doing the work of data entry and when they were doing the other work, the nature of work was typing on computers.
ORDER OF THE TRIBUNAL IN O.A. NO. 1362 OF 2002
33. After setting out the pleadings, noting the contentions and also the orders passed by the Central Administrative Tribunal, Chandigarh, the Madras Bench and also the Division Bench of the Bombay High Court, the Tribunal proceeded to enter the following findings, inter alia:
a. The above decisions referred, viz., by the Tribunals and the Bombay High Court, were found to have been rendered on careful considerations of the Rules notified on 29.11.2002. The Tribunal agreed with the interpretation. b. The Tribunal proceeded to, therefore, express its inability to accept the contention of the respondents that the action initiated by sending the impugned intimation letter dated 05.11.2002, confining the consideration of selection for promotion to the post of Inspector only to candidates in the pre-structured Cadre, was in accordance with the provisions of the Rules. 34. It is further held that the further contention of the respondents that the 1979 Rules entitled them to fill-up the vacancies, could not be accepted, since the restructuring of the cadres had coming to effect on 19.7.2001 itself.
35. The existing Assistants, Tax Assistants, U.D. Clerks (Special Pay), DEOs Grade ‘B’ and ‘C’ were found to have been merged and re-designated as Senior Tax Assistants (STAs). It was found that the restructuring cadres came into effect from the date of issue of letter dated 19.07.2001. Therefore, any further promotions to be effected from restructured cadres was to be only in accordance with the Rules promulgated under Article 309, viz., the Inspector Recruitment Rules, 2002. It was done in the supersession of the 1979 Rules. It was found that the Authorities were not justified in resorting to fillup the existing vacancies in 242 posts in the Cadre of Inspector by following the old Rules of 1979 which were superseded by the new Rules, by initiating the process of selection before the new Rules, came to be notified in the Gazette after the date of restructuring of cadres came into force i.e. on 19.07.2001, thereby confining the selection only to the pre-structured category. The Tribunal did not agree with the contention of the respondents that the restructuring of the Cadre came into force only with effect from 16.01.2003 (apparently the date of publication of the Senior Tax Assistant (STA) Rules). The contention of the appellants was accepted that the appellants must be deemed to have been absorbed into the Cadre of Senior Tax Assistants in the scale of pay L 5000-8000 under the restructured scheme with effect from 19.07.2001. Therefore, for the purpose of promotion to the Cadre of Inspector, appellants became eligible for consideration under the new Rules framed which came into force with effect from 07.12.2002. Therefore, the Authorities were to consider the appellants for promotion to the cadre of Inspector of Central Excise and Customs based on the new Rules and not on the basis of the old Rules prevailing in respect of pre-structured cadres. Rejecting the contention of the respondents that the restructuring did not come into effect on 19.07.2001, as the Rules relating to all the restructured cadres were formulated subsequently, it was further found that since in Rule 5 of the Senior Tax Assistant Rules, it has been clarified that the service rendered by them before the amendment of the Rules was to be taken into consideration for promotion to the next higher cadre, it was found that in view of the said Rules, the Senior Tax Assistants could take into consideration their service as Data Entry Operator Grade ‘B’, and therefore, Data Entry Operator Grade ‘B’ with two years’ service in the said post was eligible for promotion. There was no condition in Clause (b) that the employees were to put in two years’ service exclusively as Senior Tax Assistants. It is further found as follows:
“The learned counsel for the applicants has also relied upon a decision of the Supreme Court reported in 1998 SCC (L&S) page 1075 in the case of Rajasthan Public Service Commission v. Chanan Ram and another, in support of his contention that on cadre restructuring coming into force, the earlier cadres stand abolished. He further submitted that after merging of various cadres into restructured cadre of Senior Tax Assistant, the uniformity of restructured cadre of Senior Tax Assistant alone would be eligible for promotion to the cadre of Inspector of Customs and Central Excise. It is also pointed out by him that it is incumbent on the part of the respondents to work out the placement of the categories mentioned under sub para (3)of para 4 of the Re-cruitments rules of Senior Tax Assistants for working out the inter se seniority from among the integrated cadres and basing on such seniority, promotion to the cadre of Inspector of Customs and Central Excise has to taken place. According to him, even for the one time measure standard relaxation by way of 100% by promotion to the cadre of Inspector of Excise, the method shown in the recruitment rules of Senior Tax Assistants for the purpose of inter se seniority placement of various cadres has to be followed and promotion to the next higher cadre of Inspector of Central Excise has to be given on the basis of such integrated seniority list as per sub-para (3) of Para 4 of the said recruitment rules. We agree with the above contentions of the learned counsel for the applicants, since we have taken the view that with effect from 19.7.2001 the restructuring of Senior Tax Assistants came into force ad all the earlier cadres of Assistant, Tax Assistant/ UDC (Spl. Pay), DEOs Gr. B and C have been merged and re-designated as Senior Tax Assistant, the promotion from the said cadre to the next cadre of Inspector of Customs and Central Excise is to be considered only on the basis of the new recruitment rules which came into force. In this view of the matter, we find that all the applicants became eligible for consideration for promotion to the post of Inspector of Customs and Central Excise and the service rendered by them in the predesignated cadre for two years is also to be taken into consideration. The learned Standing Counsel for the respondents submitted that the selection process initiated on 5.11.2002 for promotion to the post of Inspector of Central Excise and Customs from the other categories of employees other than the DEOs Gr.B and Gr.C has been finalised and the existing vacancies were filled up. Since it is now found that the applicants are also eligible for consideration for the promotion to the said post, we find it necessary to dispose of this O.A. by directing the official respondents to consider the cases of the applicants also for promotion to the post of Inspector of Customs and Central Excise in terms of the relevant rules, taking into consideration the service rendered by them as DEO Gr.B after giving them an opportunity to appear in the Departmental Examination as notified in Note 2 in the schedule to the Inspector Recruitment Rules 2002 and in case they are successful and are finally selected as Inspectors, as per Rules, they should be promoted as Inspectors and assign suitably seniority vis-a-vis other categories of staff who have already been promoted. In the result, this O.A. is allowed in part. The respondents are directed to consider the cases of the applicants for promotion to the post of Inspector of Customs and Central Excise in terms of the relevant recruitment rules taking into consideration the service rendered by them as Data Entry Operators Gr. B after giving them opportunity to appear in the departmental examination as provided in Note 2 in the schedule to the Inspector. Recruitment Rules, 2002. In case, they are successful and are finally selected as Inspectors, as per rules, they should be promoted as Inspectors and assigned suitably seniority vis-a-vis other categories of staff who have already been promoted by the revision of seniority as per the provisions of Rule 5 of Rules relating to recruitment of Grade C Senior Tax Assistants in the Central Excise and Customs Department. The declaration sought for by the applicants in para 8(C) of the O.A. is granted as prayed for.” 36. As already noticed, the High Court came to the conclusion that the decision dated 19.07.2001 was an approval, in principle, for the restructuring. The restructuring came into force with effect from the date on which Statutory Rules in 2003 were framed. It was further found that in regard to the existing vacancies, the erstwhile Rules of 1979 held the field and governed the parties.
37. We heard learned Counsel for the parties. Shri C.U. Singh, learned Senior Counsel, led the arguments on behalf of the appellants. We also heard Shri P.S. Patwalia, learned Senior Counsel on behalf of the party respondents and Shri K. Radhakrishnan, learned Senior Standing Counsel on behalf of the Government of India besides Shri Sridhar Potaraju, learned Counsel on behalf of some of the party respondents. 38. The learned Senior Counsel for the appellants, undoubtedly, after referring to the Rules and the Government decisions, contended that this is a clear case where the High Court was in error in proceeding on the basis that the vacancies must be filled-up on the basis of the 1979 Rules. He pointed out that the principle enunciated in Y.V. Rangaiah and others v. J. Sreenivasa Rao and others, (1983) 3 SCC 284 is, by no means, a universal or unexceptionable norm. The decision was rendered in the special facts of the case. He drew our attention to the body of case law flowing from this Court, which has enunciated the principle that despite the fact that there exists Statutory Rules and unfilled vacancies, it is very much open to the Government, when it is mulling change, to take a conscious decision, though supported by reasons, to leave vacancies unfilled and to take a call at a relevant point of time.
39. As regards the effect of 2002 Rules and the 2003 STA Rules, it was the contention of Shri C.U. Singh that the Court may bear in mind the backdrop in which the restructuring came about as persons who were appointed as Data Entry Operators were found stagnating in comparison to their colleagues working in the ministerial cadre. Perceiving merit in their genuine grievances, the Government decided to completely restructure. It is accordingly that certain categories, which included Data Entry Operator Grade ‘B’ and ‘C’, were designated as Senior Tax Assistants. This is evidenced by the proceedings dated 19.07.2001. The restructuring attained completeness from the said decision, as correctly found by the Tribunal. The Order of the Tribunal has not been properly appreciated by the High Court, it is complained. Our attention has been drawn to the view taken by the Chandigarh Bench and the High Court of Bombay, in particular. It is further impressed upon us that this Court lend its seal of approval to the view expressed by the High Court of Bombay. He pointed out, thus, that the Tribunal at Chandigarh, Madras, High Court of Bombay and the Tribunal at Ahmedabad, have spoken in one voice about the rights of the erstwhile cadre of Data Entry Operators to be treated as Senior Tax Assistants. They were entitled to count their previous service also for the purpose of calculating the period of two years’ service as required in the 2002 Inspector Rules for promotion.
40. Per contra, the learned Senior Counsel Shri P.S. Patwalia, K. Radhakrishnan, Senior Standing Counsel and Shri Sridhar Potaraju, learned Counsel stoutly defended the Order of the High Court. It is their contention that quite apart from the fact that in terms of the principle laid down in Y.V. Rangaiah (supra) that existing vacancies should be filled-up under the old Rules, the Data Entry Operators were not in the feeder categories for promotion as Inspector under the 1979 Rules in 2002. They come into Feeder Category for promotion only when the Rules were framed in the year 2002, which was brought into force on 07.12.2002. Even proceeding under the said Rules, Shri P.S. Patwalia would point out that they would have to gain experience and work for two years as STA and they were certainly not eligible for being considered when the Government decided to fill the vacancies on 05.11.2002. Therefore, apart from the principle enunciated in Y.V. Rangaiah (supra), they would make the mark in terms of the Rules only on completion of two years’ service from January 2003 as Senior Tax Assistants. Our Attention is drawn to 2002 Inspector Rules to point out that what is required under the said Rules is that the Senior Tax Assistants, with two years Regular Service in the Grade, alone, would be eligible. Having regard to the pay-scale of a Senior Tax Assistant, it is not open to the appellants to contend that the requirement of Regular Service in the Grade, would be fulfilled, by taking into consideration the previous service rendered by them in the erstwhile Cadre of Data Entry Operator. It is also contended that the Memorandum dated 19.07.2001 also embodies a decision, in principle, in this regard. Our attention is drawn to Memorandums dated 05.06.2002 and 28.10.2002. It is only on issuance of the Rules that the restructuring happened. The Rules were brought into force in the year 2003. It is further contended that all the Data Entry Operators Grade ‘A’, ‘B’ and ‘C’ continued as such and were only re-designated as Tax Assistants or Senior Tax Assistants upon the enforcement of the 2003 Rules and not before. The pay-scale of Senior Tax Assistants was L 5000-8000. The appellants belonging to Data Entry Operator Grade ‘B’ did not draw the pay-scale of a Senior Tax Assistant, though, the Grade of Data Entry Operator Grade ‘C’ was same as that of the STA. Reliance was placed on the Memorandum of the Government of India dated 21.04.2003, which categorically states that restructured Cadre of STA came into force only on 20.01.2003.
41. Under the 2002 Inspector Rules, there is a clear scheme. The earlier Ministerial Staff, who were eligible for promotion under the repealed Rules, continued to remain eligible under the 2002 Rules. The eligibility was for a period of two years. The period of two years started from the day on which the restructured cadres came into force. For the first two years, the earlier Ministerial Staff were eligible. During that period, the Rules contemplated that the restructured Cadres would acquire eligibility. Rule 5 of the 2003 STA Rules is sought to be explained away by pointing out, it would only mean that if any of the Ministerial Staff, who had been Tax Assistants/U.D. Clerks (Special Pay), who came into the restructured Cadre of Senior Tax Assistants, fall short of two years or five years under Part 12(a) of the 2002 Inspector Rules, then, their previous service, as also service after restructuring, would count towards their eligibility. In this regard, he drew our attention to Note 1 of the 2002 Rules. Distinction is sought to be drawn between Rule 5 of the Senior Tax Assistant Rules, 2003 and Rule 4 of the Tax Assistant Rules, 2003. The Grade of Senior Tax Assistant is higher than the Grade of Data Entry Operator Grade ‘B’, both in terms of status and pay-scale.
42. Thus, it is contended that the service rendered by the Officers, prior to there being restructuring, could not be counted for the purpose of Clause (12) (b) of the 2002 Inspector Rules. As regards the question as to whether there was a ban on appointment, it is contended that though, initially a ban was imposed vide Memorandum dated 10.09.2001 by Memorandum dated 03.01.2002, the ban was clearly lifted. It is contended that the letter dated 05.06.2002 extended the ban relating to Direct Recruitment but it did not affect letter dated 03.01.2002, which had removed the ban. Reliance is also placed on letter dated 28.10.2002. It is contended also that since there was no ban during the period 2001-2002 and 2002-2003, and seeking to draw support from the O.M. dated 08.09.1998, which provides for a model calendar for holding of DPCs, the principle in Y.V. Rangaiah (supra), is pressed into service. It is pointed out that promotions had already been made on the basis of the impugned judgment of the High Court and resultant vacancies were also filled-up by implementation Orders dated 26.09.2005, 17.05.2006 and 19.07.2006. Even the erstwhile Data Entry Operator Grade ‘B’, re-designated as Senior Tax Assistants, have been promoted as Inspectors. Many of the contesting parties have further been promoted as Superintendents. The judgment of the High Court of Bombay has not been implemented. The Order of the CAT, Chandigarh Bench, is sought to be faulted. It is pointed out that the Draft Recruitment Rules dated 28.10.2002 were taken as Final Recruitment Rules and the entire judgment proceeds on the said basis. It also failed to examine the scope of Clauses (a) and (b) in Column 12 as also the Note below Column 12 of the 2002 Inspector Rules. The High Court of Bombay also did not refer to and consider the effect of the 2002 Rules.
43. The Data Entry Operators were not in the category on 01.01.2001, for the Recruitment Year 2001-2002 and, on 01.01.2002, for the Recruitment Year 2002- 2003, and therefore, they were not eligible.
AMENDMENT OF LAW AND FILLING-UP OF OLD VACANCIES
44. The appellants would point out that it is not a universal principle that vacancies must be filled-up in accordance with the unamended Rules. He would point out that the view taken by this Court, in this regard, may be noticed.
45. In Y.V. Rangaiah (supra), this Court was dealing a case under the Andhra Pradesh Registration and Subordinate Service Rules. The Rule in question, inter alia, contemplated preparation of a panel every year in September. That apart, the Government also issued very clear instructions, which emphasised prompt preparation of panels being essential for increasing administrative efficiency and filling of vacancies without delay. Instead of filling-up vacancies on the 01.09.1976, there was delay and the panel came to be drawn-up in 1977 by which time an amendment to the Rules purported to take away rights of the Lower Division Clerks for promotion and the Feeder Category was sought to be confined to the U.D. Clerks. It was in the said factual context that the court proceeded to lay down as follows:
“9. Having heard the counsel for the parties, we find no force in either of the two contentions. Under the old rules a panel had to be prepared every year in September. Accordingly, a panel should have been prepared in the year 1976 and transfer or promotion to the post of Sub- Registrar Grade II should have been made out of that panel. In that event the petitioners in the two representation petitions who ranked higher than Respondents 3 to 15 would not have been deprived of their right of being considered for promotion. The vacancies which occurred prior to the amended rules would be governed by the old rules and not by the amended rules. It is admitted by counsel for both the parties that henceforth promotion to the post of Sub- Registrar Grade II will be according to the new rules on the zonal basis and not on the State-wide basis and, therefore, there was no question of challenging the new rules. But the question is of filling the vacancies that occurred prior to the amended rules. We have not the slightest doubt that the posts which fell vacant prior to the amended rules would be governed by the old rules and not by the new rules.” 46. It suffices, for our purpose, to note that the view taken by the Court, in the said case, came to be followed in subsequent judgments, viz., P. Ganeshwar Rao and others v. State of A.P. and others, (1988) Supp. SCC 740; P. Mahendran and others v. State of Karnataka and others, (1990) 1 SCC 411; A.A. Calton v. Director of Education, (1983) 3 SCC 33 and N.T. Devin Katti and others v. Karnataka Public Service Commission and others, (1990) 3 SCC 157.
47. On the other hand, there is another line of decisions which is relied upon by the appellants. Very briefly, the principle is this: Despite availability of vacancies, if the Appointing Authority consciously takes a decision to keep unfilled the vacancies for good reasons, the Rules, as on the day of consideration of the matters relating to promotion, would govern the situation.
48. The representative of this view would be the decision by the Bench of three Judges in K. Ramulu (Dr.) and another v. (Dr.) S. Suryaprakash Rao and others, (1997) 3 SCC 59 and P. Ganeshwar Rao (supra). In K. Ramulu (Dr.) (supra), the Government had taken a decision to amend the Rules in question. It also took a conscious decision not to fill the vacancies till the amendment. For the years 1995-1996, there was no panel prepared. Essentially on the said facts, this Court held as follows:
“12. The same ratio was reiterated in Union of India v. K.V. Vijeesh [(1996) 3 SCC 139 : 1996 SCC (L&S) 683] (SCC paras 5 and 7). Thus, it could be seen that for reasons germane to the decision, the Government is entitled to take a decision not to fill up the existing vacancies as on the relevant date. Shri H.S. Gururaja Rao, contends that this Court in Y.V. Rangaiah v. J. Sreenivasa Rao [(1983) 3 SCC 284 : 1983 SCC (L&S) 382] had held that the existing vacancies were required to be filled up as per the law prior to the date of the amended Rules. The mere fact that Rules came to be amended subsequently does not empower the Government not to consider the persons who were eligible prior to the date of amendment. It is seen that the case related to the amendment of the Rules. Prior to the amendment of the Rules two sources were available for appointment as Sub-Registrar, namely, UDCs and LDCs. Subsequently, Rules came to be amended taking away the right of the LDCs for appointment as Sub-Registrar. When the vacancies were not being filled up in accordance with the existing Rules, this Court had pointed out that prior to the amendment of the Rules, the vacancies were existing and that the eligible candidates were required to be considered in accordance with the prevailing Rules. Therefore, the mere fact of subsequent amendment does not take away the right to be considered in accordance with the existing Rules. As a proposition of law, there is no dispute and cannot be disputed. But the question is whether the ratio in Rangaiah case [(1983) 3 SCC 284 : 1983 SCC (L&S) 382] would apply to the facts of this case. The Government therein merely amended the Rules, applied the amended Rules without taking any conscious decision not to fill up the existing vacancies pending amendment of the Rules on the date the new Rules came into force. It is true, as contended by Mr H.S. Gururaja Rao, that this Court has followed the ratio therein in many a decision and those cited by him are P. Ganeshwar Rao v. State of A.P. [1988 Supp SCC 740 : 1989 SCC (L&S) 123 : (1988) 8 ATC 957], P. Mahendran v. State of Karnataka [(1990) 1 SCC 411 : 1990 SCC (L&S) 163 : (1990) 12 ATC 727], A.A. Calton v. Director of Education [(1983) 3 SCC 33 : 1983 SCC (L&S) 356], N.T. Devin Katti v. Karnataka Public Service Commission [(1990) 3 SCC 157 : 1990 SCC (L&S) 446 : (1990) 14 ATC 688], Ramesh Kumar Choudha v. State of M.P. [(1996) 11 SCC 242 : (1996) 7 Scale 619] In none of these decisions, a situation which has arisen in the present case had come up for consideration. Even Rule 3 of the General Rules is not of any help to the respondent for the reason that Rule 3 contemplates making of an appointment in accordance with the existing Rules. 13. It is seen that since the Government have taken a conscious decision not to make any appointment till the amendment of the Rules, Rule 3 of the General Rules is not of any help to the respondent. The ratio in the case of Ramesh Kumar Choudha v. State of M.P. [(1996) 11 SCC 242 : (1996) 7 Scale 619] is also not of any help to the respondent. Therein, this Court had pointed out that the panel requires to be made in accordance with the existing Rules and operated upon. There cannot be any dispute on that proposition or direction issued by this Court. As stated earlier, the Government was right in taking a decision not to operate Rule 4 of the General Rules due to their policy decision to amend the Rules. He then relies on para 14 of the unreported judgment of this Court made in Union of India v. S.S. Uppal [(1996) 2 SCC 168 : 1996 SCC (L&S) 438 : (1996) 32 ATC 668] . Even that decision is not of any help to him. He then relies upon the judgment of this Court in Gajraj Singh v. STAT [(1997) 1 SCC 650 : (1996) 7 Scale 31] wherein it was held that the existing rights saved by the repealed Act would be considered in accordance with the Rules. The ratio therein is not applicable because the existing Rules do not save any of the rights acquired or accruing under the Rules. On the other hand, this Court had pointed out (in Scale para 23) thus: (SCC pp. 664-65, para 22) “Whenever an Act is repealed it must be considered, except as to transactions past and closed, as if it had never existed. The effect thereof is to obliterate the Act completely from the record of Parliament as if it had never been passed; it never existed except for the purpose of those actions which were commenced, prosecuted and concluded while it was an existing law. Legal fiction is one which is not an actual reality and which the law recognises and the court accepts as a reality. Therefore, in case of legal fiction the court believes something to exist which in reality does not exist. It is nothing but a presumption of the existence of the state of affairs which in actuality is non-existent. The effect of such a legal fiction is that a position which otherwise would not obtain is deemed to obtain under the circumstances. Therefore, when Section 217(1) of the Act repealed Act 4 of 1939 w.e.f. 1-7-1989, the law in Act 4 of 1939 in effect came to be non-existent except as regards the transactions, past and closed or saved.”” 49. In Deepak Agarwal and another v. State of U.P. and others, (2011) 6 SCC 725, one of the two appellants was a Statistical Officer. The other one was a Technical Officer. The Rules prior to their amendment included them in the Feeder Category for the promotion to the post of Deputy Excise Commissioner. The amendment, by which they stood deprived of their right to be considered for promotion, was made considering work experience, duties and qualifications of Statistical Officer and Technical Officers rendering them unfit to be considered for the higher post. The question, which fell for consideration, was posed in paragraph 18 as follows:
“18. The short question that arises for consideration is as to whether the appellants were entitled to be considered for promotion on the post of Deputy Excise Commissioner under the 1983 Rules, on the vacancies, which occurred prior to the amendment in the 1983 Rules on 17-5-1999.” 50. This Court noticed that there was no statutory duty cast on the State to complete the selection process within a prescribed period. It further noted the statutory provision enabling the State to leave a particular post unfilled. It was still further found that the promotion to the vacancies had been made under the amended Rules. The principle laid down in Y.V. Rangiah (supra) came to be distinguished in the following words:
“24. We are of the considered opinion that the judgment in Y.V. Rangaiah case [(1983) 3 SCC 284 : 1983 SCC (L&S) 382] would not be applicable in the facts and circumstances of this case. The aforesaid judgment was rendered on the interpretation of Rule 4(a)(1)(i) of the Andhra Pradesh Registration and Subordinate Service Rules, 1976. The aforesaid Rule provided for preparation of a panel for the eligible candidates every year in the month of September. This was a statutory duty cast upon the State. The exercise was required to be conducted each year. Thereafter, only promotion orders were to be issued. However, no panel had been prepared for the year 1976. Subsequently, the Rule was amended, which rendered the petitioners therein ineligible to be considered for promotion. In these circumstances, it was observed by this Court that the amendment would not be applicable to the vacancies which had arisen prior to the amendment. The vacancies which occurred prior to the amended Rules would be governed by the old Rules and not the amended Rules.” 51. Still further, we may notice the following statement of the law contained hereunder:
“26. It is by now a settled proposition of law that a candidate has the right to be considered in the light of the existing rules, which implies the “rule in force” on the date the consideration took place. There is no rule of universal or absolute application that vacancies are to be filled invariably by the law existing on the date when the vacancy arises. The requirement of filling up old vacancies under the old rules is interlinked with the candidate having acquired a right to be considered for promotion. The right to be considered for promotion accrues on the date of consideration of the eligible candidates. Unless, of course, the applicable rule, as in Y.V. Rangaiah case [(1983) 3 SCC 284 : 1983 SCC (L&S) 382] lays down any particular time-frame, within which the selection process is to be completed. In the present case, consideration for promotion took place after the amendment came into operation. Thus, it cannot be accepted that any accrued or vested right of the appellants has been taken away by the amendment.” 52. This Court proceeded to follow the judgment in K. Ramulu (Dr.) (supra).
53. In M.I. Kunjukunju and others v. State of Kerala and others, (2015) 11 SCC 440, the Court proceeded to lay down that when Recruitments Rules were amended with retrospective effect, pending process of selection, the selection must proceed in accordance with amended Rules. The Court, inter alia, took the view that a candidate, on making an application to the post pursuant to the advertisement, do not acquire any vested right of selection (See paragraph 19).
54. In State of Tripura and others v. Nikhil Ranjan Chakraborty and others, (2017) 3 SCC 646, the Court, following Deepak Agarwal (supra), took the view that a candidate only has a right to be considered in the light of the extant Rules, on the date of which, the consideration for promotion takes place and there is no Rule of an absolute application that vacancies must invariably be filled-up under the existing law when they arose. We may only refer to paragraph 9:
“9. The law is thus clear that a candidate has the right to be considered in the light of the existing rules, namely, “rules in force on the date” the consideration takes place and that there is no rule of absolute application that vacancies must invariably be filled by the law existing on the date when they arose. As against the case of total exclusion and absolute deprivation of a chance to be considered as in Deepak Agarwal [Deepak Agarwal v. State of U.P., (2011) 6 SCC 725 : (2011) 2 SCC (L&S) 175] in the instant case certain additional posts have been included in the feeder cadre, thereby expanding the zone of consideration. It is not as if the writ petitioners or similarly situated candidates were totally excluded. At best, they now had to compete with some more candidates. In any case, since there was no accrued right nor was there any mandate that vacancies must be filled invariably by the law existing on the date when the vacancy arose, the State was well within its rights to stipulate that the vacancies be filled in accordance with the Rules as amended. Secondly, the process to amend the Rules had also begun well before the Notification dated 24-11- 2011.” ANALYSIS
55. The post of Inspector, which is at the centre stage of the controversy in Civil Appeal Nos. 1970- 1975 of 2009, is mentioned as the post of Inspector (Ordinary Grade) in the 1979 Rules. The Feeder Category, in regard to the post of Inspector, was:
a.Upper Division Clerks with five years’ service; b.Upper Division Clerks with 13 years of total service as Upper Division Clerk and Lower Division Clerk, taken together subject to the condition that they have a minimum of two years’ service in the Grade of Upper Division Clerk; c.Stenographers (Senior Grade) with two years’ service; d.Stenographers (Senior Grade) or Stenographers (Ordinary Grade) with twelve years’ service as Stenographer/Upper Division Clerk and Lower Division Clerk, if any, taken together subject to a minimum of two years’ service as Stenographers (Ordinary Grade) or Upper Division Clerk Grade; e.The next category, eligible was, Women Searchers with seven years’ service in the Grade; f.Draftsmen with seven years’ service in the Grade. 56. Later on, by an amendment, the post of Tax Assistant was created out of the Cadre of Upper Division Clerks (This must be referred to as the old Cadre of Tax Assistants in contrast with the Cadre of Tax Assistants as a result of restructuring and by Rules dated 03.05.2003). The old Tax Assistants were also, by virtue of Order dated 19.03.1988, rendered eligible for consideration as Inspector.
57. On the other hand, the Data Entry Operators, a Cadre, which was thought of and created to bring about computerization in the Excise and Customs Department, came into being and came to be governed by the Rules made in the year 1992. There were four Grades. The Entry Grade was Data Entry Operator Grade ‘A’, and Data Entry Operator Grade ‘A’ with six years’ service, could aspire for promotion as Data Entry Operator Grade ‘B’. Likewise, Data Entry Operator Grade ‘B’ could aspire to be entitled as Data Entry Operator Grade ‘C’. At the top of the pyramid, was the post of Data Entry Operator Grade ‘D’.
58. It is seen from the above that the Data Entry Operators were not eligible to be considered for promotion as Inspector. The post of Inspector is a Group ‘C’ post. The Data Entry Operators were also Group ‘C’ but in the technical branch. The Upper Division Clerks, Stenographers, Women Searchers, Draftsmen, etc., who constituted the feeder categories, were holding posts in the Ministerial Category. The post of Inspector was a Group ‘C’ post in the Executive Category. The holders of the post in the Ministerial Cadre were in the Feeder Category for promotion to the Executive post but holders of posts of Data Entry Operators, though a Group ‘C’ post, but being in the technical side, they constituted a different and separate Cadre. There was no avenue for them to get further promotions by getting promoted as an Inspector.
59. According to the Data Entry Operators, they were actually, after the period of computer-ization was over, doing various other works and had gained experience which entitled them to be considered for promotion as Inspector. This issue apparently engaged the attention of the Government. Government Decided to bring about restructuring. Accordingly, the decision regarding restructuring is seen captured in the proceedings dated 19.07.2001. As to what is the effect of the same, will be the heart of the controversy. Hence, we deem it appropriate to dissect the said proceedings in detail.
60. The Order dated 19.7.2001, recites that Government has approved restructuring. It is further stated that as a result of the restructuring, there has been a change in number and nomenclature of the various Grades and posts. The revised pay and designation of the various posts at different levels, in both the Customs and Central Excise Departments, has been indicated in Annexure-1. The post of Inspector is at Serial No.10. It refers to the post of Inspector, Preventive Officer and Examiner. The existing pay is shown as L 5500-9000. The restructured post has been shown as Inspector. The pay-scale remains the same. The sanctioned strength is shown as 18053. The Notes are significant and they read as follows:
“Notes: 1.The posts in the grade of Superintendents also include posts of SIO, AAD, IO of various directorates (Sl. No. 7). 2.The posts in the grade of Inspectors also include the posts of P.O. and Examiner and Intelligence Officers (Sl. No. 10). 3.The posts in the grade of AO also include the posts of ACAO and EAO (Sl. No. 12) 4.The existing posts in the cadres of Asst., Tax Asstt. UDC (Sp Pay), DEO Gr(C) and DEO Gr (B) have been merged into and re-designated as Sr. Tax Asstt (Sr. No. 19). 5.The existing posts in the cadres of UDC, DEO(A) and UDC (except 717 posts of LDC for the purpose of promotion of Group D) have been merged and re-designated as Tax Asstt. (neew) (Sl No. 20). 6.The cadre of OS has been abolished and the posts have been merged in the posts of A.O. (Sl. No. 12). 7.Other posts which exist in the department and are not reflected in the above table have been kept in their existing strength in the existing pay scales only. 8.Details of other posts are given in Annexure II (Sl. No. 15, 25, 30 and 33).” 61. No doubt, at Serial No.4, the expression used in existing posts ‘have been’ merged into and re-designated as Senior Tax Assistant (New).
62. The post of Senior Tax Assistant is shown as ‘New’ with a pay-scale of L 5000-8000. The sanctioned strength is shown as 3152. So also, the post of Tax Assistant is shown as ‘New’. The sanctioned strength is shown as 5525. The pay-scale is L 4000-6000. Coming back to the body of the communication, it is stated that all the posts at different levels, as per Annexure-1, stand sanctioned with immediate effect. It is next stated that whenever there is a reduction in the number of posts at any level, such reduction will be effective after the existing incumbents are promoted to the higher level or the post falls vacant on account of retirement, etc. For the year 2001-2002, no Direct Recruitment was to be made without approval of the Ministry/Department as the Cabinet had approved a one-time relaxation for filling-up of all the vacancies by promotion in all the cadres. Next, it is stated that the formation-wise distribution of posts, at different levels, will be notified separately. The other posts included in the restructuring proposal but where there is no proposal for alteration of the scale or strength, were included in Annexure-2. The post of Inspector does not figure in Annexure-2.
63. At first blush, on a perusal of the decision, as embodied in the communication dated 19.07.2001, the view, we may tentatively take, would be that Government has not only approved the restructuring, but it has intended it to be effective. It is not in dispute that the post of Inspector was formerly the post of Inspector/Preventive Officer/Appraiser. In place of these three posts, there was only to be the post of Inspector. In terms of the sanctioned strength, it is common case that there was formerly in excess of 22000 posts of Inspector. The number of posts, in fact, came down to 18053 as a result of restructuring. The restructuring has also resulted in abolishing of certain posts, as for instance, the post of O.S.. Certain posts came to be merged and new posts have emerged. Of interest to us, in resolving the dispute, are the cadres of Assistant, Tax Assistant, U.D. Clerk (Special Pay), Data Entry Operator Grade ‘C’ and Grade ‘B’, which merged, and the post of Senior Tax Assistant, emerged. In place of the enumerated posts, as above, it was contemplated that the post of Senior Tax Assistant will take their place. The existing posts of U.D. Clerk, Data Entry Operator Grade ‘A’ also underwent a merger and, in their place, emerged the post of Tax Assistant (New).
64. A perusal of the proceeding dated 19.07.2001 also drives home the point that the posts in different levels, consequent upon restructuring, have been articulated in Annexure-1. What is more, they stood sanctioned with immediate effect. These circumstances, undoubtedly, do point to the restructuring exercise being not one only in principle but also to have effect immediately. Even more, in this direction, is the further decision that as a result of restructuring, there has been reduction in the number of posts and if there is a person, holding the post, the restructuring in the form of reduction, was not to come into force except after the person holding the post was to either retire or he was promoted to the next higher post. An illustration would clarify the point. As noticed, prior to the restructuring, there were more than 22000 posts of Inspector. The number of posts of Inspector was reduced to a little over 18000. What would happen to the persons who were holding the posts of Inspector in excess of 18000, is, what is provided in the order. The person holding the posts of Inspector, in excess of the reduced sanctioned strength, would continue to hold the post till either retirement or he was promoted, where-after, the post would die a natural death. The expression used in Note 4 also indicates that the posts were merged and re-designated. Undoubtedly, these aspects do provide circumstances for us to hold that the decision of the Cabinet, as provided in the communication dated 19.07.2001, was not just a principle set in motion towards achieving the target of actual restructuring, but it itself exhaustively brought about the restructuring per se.
65. The next letter is dated 25.07.2001. Therein addressing all Chief Commissioners of Customs/Central Excise and Commissioner-ate besides Director Generals, it is stated that the cadre restructuring proposal has been approved. In addition to the communication, a number of activities had to be initiated, including the issuance of Customs and Excise notifications, indicating jurisdiction and also distribution of posts in various Grades among the Commissioner-ates and Customs House. An implementation Cell was constituted consisting of seven members. The next communication is dated 10.9.2001. It reads as follows:
“I am directed to say that the issue of holding of DPCs in respect of Group ‘B’ & ‘C’ posts as well as making direct recruitment to the various posts pending distribution of posts of various field formations is being undertaken by the Implementation Cell in pursuant to sanction issued by Board’s letter F.No. A-11019/72/99-Ad.IV dated 19.07.2001 conveying the approval of the Cabinet to the restructuring of Customs and Central Excise Department has been considered by the Board. 2. It is felt that if the DPCs for group ‘B’ & ‘C’ are conducted by the cadre authorities it may lead to widening of imbalances in promotion prospects or create imbalances. The Board have, therefore, decided that the holding of DPC of group ‘B’ & ‘C’ post may be frozen and no DPC may be held for group ‘B’ & ‘C’ post till the distribution of posts under various level is completed and instructions are issued by the Board in this regard. 3. As you are aware that Board have already imposed a ban for filling up of post of LDC and Sepoys vide their letter F.No.A-11012/27/2000-Ad.IV dated 10.04.2001. It is reiterated that these instructions may be strictly adhered to and it is further stated that no direct recruitment may be made to any grade till further orders of the Board/ Department of Revenue. 4. The receipt of this letter may please be acknowledged.”
(Emphasis supplied)
66. It may be noticed that by the said letter the holding of DPC for Group ‘B’ and Group ‘C’ posts was frozen till the distribution of posts under various levels was completed and instructions were received. The next communication is dated 19.09.2001.
“As you are aware, some reports have earlier been called from the field formations by this Directorate with regard to sanctioned and working strength of different cadres and additional requirements, if any, keeping in view the model structure of the new Commissioner-ates which was circulated (copy again enclosed for ready reference). It is observed that either reports have not been received of where received, there are some deficiencies. Many commissioner-ates have still projected requirements of OS, UDCs, Examiners, DEO etc. which cadres have already been merged into new cadres and will not exist under the new dispensation. Similarly some of the Commissioner-ates have accepted the model structure without considering the actual requirement. As stated in earlier communications, the model structure indicates average requirement for one Commissioner-ate and it may not be possible to apply it across the board. Airport and Preventive Customs Commissioner-ates may not require 19 or 12 Appraisers whereas they may need more Supdts. and Inspectors than indicated in the model structure. It is therefore, necessary to adjudge the actual requirement of staff of different cadres keeping in view the quantum and nature of work handled by the particular Commissioner-ates and the principles governing the cadre restructuring proposals which envisage the deptt. To be officer-oriented, technology driven with reduced manual processing of documents by greater use of computers and reducing interface with tax-payers. This means a reduction in man-power in general. 2. It is, therefore, requested that precise information in the proforma I to III annexed to this letter may please be provided. Proforma I relates to existing sanctioned strength prior to cadre review for each cadre. In case, any cadre which is existing but has been left out in the proforma the same may be added at the end of proforma. This proforma has to be in reference to cadres existing prior to the cadre restricting exercise. Proforma II seeks information on actual requirement of staff of each cadre which will exist after the coming into effect of the cadre restructuring proposal. While providing information in this proforma the following points should be carefully considered: (i) Since new Zones are being created by bifurcating or trifurcating the existing Zone, the staff proposed in this proforma will be for the same overall jurisdiction for which staff indicated in proforma I was sanctioned. Any deviation may please be indicated as footnote to this proforma. This means where one zone has been divided into three zones, the staff strength of cadres not affected by the restructuring exercise would remain same for all three zones i.e. total strength of such cadre in three zones would be equal of strength in earlier combined zone. (ii) Requirement in this proforma should be in the reference to cadres which will exist henceforth. For example, requirement of Sr. Tax Assistants should be adjudged with reference to the work earlier handled by Tax Assistants, Special Pay UDCs, DEOs Grade B and C as all these cadres have been merged into the cadre of Sr. Tax Assistants. Similarly requirement of AOs should include the requirement for work earlier handled by OS as the cadre of OS has been merged with cadre of AO. Similarly, all POs/Examiners/Inspectors will be designated as Inspector only. A chart showing the merger/abolition of cadres and increase/decrease in the no. of posts is enclosed. (iii) While indicating requirements for the Zone, it may be ensured that where no. of posts have been reduced the requirement of staff has to reduce proportionally for the Zone. For example, the number of Inspector level posts having been reduced from 21222 to 18053, the Zones’ sanctioned strength has also to be reduced in the same ratio. Similarly where posts have been increased (for example, superintendents and Appraisers), the requirement can be increased proportionately. In case of any deviation required in any Zone in this regard, full justification should be provided in a separate note. Since total no. of posts in any cadre cannot be more than posts approved for the country as a whole, the Chief Commissioners should consider the requirements projected work carefully. It may please be noted that purpose of this exercise is to allocate the staff already sanctioned to Zones/Commissioner-ates and not to consider sanction of additional staff. Proposals for additional staff should not therefore be made while furnishing the information. (iv) Staff required for the Chief Commissioners’ office and for Commissioner(Appeal)/Adjn. should also be adjudged keeping in view the modern tools of administration available. (v) Wherever requirement of any cadre for the new Zones/Commissioner-ates exceeds the staff managing the same jurisdiction at present, the proposal for additional staff should be supported by the study conducted by the S.I.U. If in any formation S.I.U. has recommended reduction in staff, the same should also be indicated. 3. Proforma III seeks information on staff sanctioned and required for handling Customs work falling in the jurisdiction of Central Excise Commissioner-ates under the proposals for re-organization forwarded by the Chief Commissioners. Requirement of staff projected must be supported by the statistics of work being handled by the Customs Division/ICD/CFS etc. The staff sanctioned/required this work should not be included in the data provided in proforma I and II and a confirmation to this effect recorded in the proforma. However, if no staff has been sanctioned for customs work earlier and the work was being managed by staff sanctioned for Central Excise work, this may be indicated in this proforma and staff sanctioned should be included in proforma I with suitable remarks. The staff required should be only with reference to designations which will be functional after implementation of the proposal. 4. In respect of each Commissioner-ate, the name of the cadre controlling Commissioner-ate should also be informed along-with details of cadres controlled by them. 5. Since giving effect to the proposal of restructuring including promotions etc., is dependant on the information being sought, you are requested to ensure that carefully compiled information complete in all respects is made available within a week’s time.” The chart is omitted. 67. On 03.01.2002, the following communication is seen sent:
“I am directed to refer to Board’s letter of even number dated 10.09.2001 imposing a ban on holding of DPCs for Group ‘B’ & ‘C’ posts. The Board have received representations against the aforesaid ban on promotions. 2. The matter has been considered by the Board and it has been decided that wherever the DPCs may also be filled up. Where the DPCs have not been held, the DPCs may be held on the basis of re-revised strength i.e. the strength existing before the cadre restructuring and the resultant vacancies may be filled up. 3. Action may be taken on priority basis under intimation to the Board.” 68. In proceeding dated 02.04.2002, promotion was effected to the post of Tax Assistant from the post of U.D. Clerk. According to Shri C.U. Singh, this was by way of filling-up the posts in terms of Order dated 03.01.2002. Further proceedings to be noticed is dated 05.06.2002. Therein reference is made to 19.07.2001 while notifying the revised sanctioned strength at different levels consequent to approval of cadre restructuring. It is further stated that the allocation of staff to the zones Commissioner-ates, Director General and Directorate at different levels has been decided by the Board and approved by the Government as detailed in the enclosed folder. The allocation superseded all earlier Notifications in respect of Cadre categories in the enclosed folder separately. All the Chief Commissioners and other Head of Departments were required to carefully study the detail of reorganisation of the formation and to bring to the notice of the Board any discrepancy that may require review or may not have been taken into account for corrective action. Cadre control was to vest to the respective Commissioners in the particular zones and it is further stated that the ban on direct recruitment was to continue till 31.12.2002. The ban was to applicable only to posts including in the cadre restructuring. Finally, in paragraph 8, it is stated as follows:
“The detailed instructions/orders/ recruitment rules governing the manner of filling up of the vacancies at all levels will be issued separately. No vacancy in respect of the posts included in the cadre restructuring should be filled up till such time as further orders are issued.”
(Emphasis supplied)
69. It may be noted at once that though there is case for the respondents that the ban on restructuring was lifted by letter dated 03.01.2002, such contention appears to be categorically belied by the prohibition against filling-up of any vacancy in respect of posts included in the cadre restructuring, till such time, as further orders are issued. Though vacancies may have arisen, which could be filled-up under the 1979 Rules, this appears to be a case where a conscious decision was taken not to fill-up the vacancies in the wake of the restructuring process which was undertaken by the Government. Though a contention is taken that the post of Inspector is not part of the cadre restructuring, we are of the view that there may not be merit in the said contention. The post of Inspector emerged as re-designated post in place of the erstwhile post of Inspector/Preventive Officer/Appraiser. More importantly, that it was a part of the restructuring, is clear from the fact that the number of posts fell from a little over 22000 to a little over 18000. Therefore, the post of Inspector was a post which can be treated as included in cadre restructuring. The taboo against filling-up of the vacancy, is clearly reflected in the communication dated 05.06.2002. On 26.6.2002, urgent direction is issued to hold DPC to the post of Superintendent of Central Excise and Superintendent of Customs. Therein, it is, inter alia, stated as follows:
“I am further directed to say that while drawing up the panel for promotion to the cadre of Superintendents of Central Excise from the Grade of Inspectors of Central Excise and Superintendents of Customs (Preventive) from the grade of Preventive Officers, the vacancies arising on account of the cadre restructuring scheme as also regular vacancies arising on account of retirement etc., during the year 2002- 2003 may be taken into account after observing the procedure for DPC etc. However, posts indicated in the cadre restructuring scheme shall be filled up only after necessary orders are issued by the Ministry in this regard. I am also directed to draw your attention to this Ministry’s letter F.No.A. 32012/9/89-Ad.II B dated 26.06.1990 (Copy enclosed) and to say that this year orders of promotion instead of being issued on the last working day of June may issued on the 1st working day of July 2002.” 70. The next letter to notice is the letter dated 19.09.2002. Therein, after referring to letter dated 26.06.2002, it is stated that it was decided to initiate the process for filling-up vacancies that have arisen on account of cadre restructuring in all remaining cadres up to Grade ‘B’. It was directed to ensure that apparently DPC was convened in respect of all Grades for the change of number of posts, as also Grades, where revised Recruitment Rules have been circulated. On 23.09.2002, promotion orders in respect of Superintendents were allowed to be issued. On 28.10.2002, the Draft Recruitment Rules for Group ‘C’ post of Inspector and Senior Tax Assistant was communicated to all Chief Commissioners, both, Customs and Central Excise. It was further stated that Notifications notifying the Rules will be issued shortly. Direction was given to start the process of DPC. Thus, it could be said that by the issuance of this communication, the Government decided to proceed with the recruitment by promotion to the post of Inspector.
71. A perusal of the communication dated 28.10.2002, reveals the following:
All chief Commissioners were favoured with Draft Recruitment Rules for the Group ‘C’ post of Inspector (Central Excise and Land Customs), Inspector (Examiner) and Inspector (Preventive Officers). Besides the Draft Recruitment Rules for the post of Senior Tax Assistant, as approved by the Ministry, was also dispatched to the Chief Commissioners. It is specifically stated that the Notifications, notifying the Rules, will be issued shortly. The Chief Commissioners were told that they may initiate necessary action to process for DC (apparently DPC). The next sentence is of crucial significance. It reads as follows: “You may however await issue of notification before issue of any order of promotion based on these Rules.” 72. This communication establishes further, the following aspects:
Restructuring the post of Inspector, contemplated under the order dated 19.07.2001, had not yet come into being. This is because there is reference to the post of Inspector (Central Excise & Customs), Inspector (Examiner) and Inspector (Preventive Officer). If the post of Inspector, as contemplated under the Order dated 19.07.2001, had already come into existence with the issuance of the Order dated 19.07.2001, there was no occasion to continue to refer to pre-designated posts from which the post of Inspector emerged. 73. Still further, what was obviously contemplated was that the post of Inspector was to be filled-up after the process of restructuring was over. In other words, the Rules relating to Inspector and the Rules relating to recruitment of Senior Tax Assistants, was to be brought into force simultaneously. This conclusion appears inevitable from the circumstance that the Chief Commissioners were directed to await issuance of Notification notifying the Rules before orders of promotions were issued based on the Rules which were the Draft Recruitment Rules. It is not indicated in the Order dated 28.10.2002 that promotion to the post of Inspector was to be made under 1979 Rules. What was, in fact, contemplated was that the process, viz., the holding of the DPC for the post of Inspector, was to begin and operation-alised under the Draft Rules but the actual orders of promotion were to be issued only after the Rules were actually brought into force. The Draft Recruitment Rules for the Tax Assistant was also sent by letter dated 06.11.2002. By letter dated 14.11.2002, it is directed as follows:
“I am directed to refer to Minister’s letter F.No.A-11013/01/2002-Ad-IV dated 19th September 2002 regarding holding of DPC’s in all grade where Recruitment Rules exist, as also in grades where revised recruitment rules have been circulated. In terms of Para 2 of the said letter, it was directed to hold the DPC’s by 30th September, 2002 and keep the list ready for issue. It was also clarified that promotion orders may only be issued on receipt of further directions from Ministry. 2. In view of the above, you are requested to issue the promotion orders in respect of remaining Group ‘B’, ‘C’ and ‘D’ posts as sated below:- (i) promotion orders in respect of Sepoy, Havaldar, Head Havaldar, Tax Assistant, Senior Tax Assistant and Inspector of Central Excise/Preventive Officer/ Examiner of Customs may be issued on the basis of Recruitment Rules after allotment of GSR No by the Government of India Press, Wherever not yet allotted. (ii) DPC in respect of Appraisers and Administrative Officer may be held on the basis of existing Recruitment Rules and promotion orders may be issued. (iii) DPC in respect of remaining grades except DOS L-II may be held on the basis of existing Recruitment Rules and Promotion orders may be issued by 25.11.2002. (iv) Promotion in the grade of DOS L-II may be made only after the new recruitment rules are circulated by the Ministry.”
(Emphasis supplied)
74. In the Order dated 14.11.2002, it is specifically, inter alia, ordered that promotion orders in respect of the post of Inspector (Central Excise)/Preventive Officer/Examiner of Customs may be issued on the basis of the Recruitment Rules after the allotment of GSR Number by the Government of India Press. Thus, the green signal was given to go ahead with the issuance of promotion order for the post of Inspector, inter alia, based on the Recruitment Rules, after the allotment of the GSR, which means the Notification of the Rules.
75. What actually happened was, however, as follows:
The Inspector Rules and the Senior Tax Assistant Rules were not published and brought into force on the same date. The Inspector Rules came to be finalised and published on 29.11.2002. It is brought into force on 07.12.2002. The STA Rules, though published on 16.01.2003, was brought into force on 20.01.2003. WHEN CADRE RESTRUCTURING TOOK PLACE
76. The next question, however, which would arise as to when was the cadre restructuring actually effectuated. In this regard, we have already noticed the contents of the communication dated 19.07.2001. We have also pointed out the circumstances which tends to indicate that not only the Cabinet took a decision to bring about restructuring in the Central Excise and Customs Department in principle but evidencing an actual sanctioning of posts with immediate effect in various cadres. We have also noticed how the Government has provided that in case of reduction in strength, as a result of the restructuring, persons holding posts in excess of the revised and reduced strength, were permitted to continue till their promotion or retirement, etc.. We have noticed the language used in Note 4 also. The time is now ripe for us to have a look at the Statutory Rules. The contention of the respondents and the finding of the High Court is that restructuring came into effect only with the issuance of the Statutory Rules in the case of Senior Tax Assistants on 16.01.2003, which was published in the Official Gazette on 20.1.2003. Therefore, the actual restructuring became a reality only on 20.01.2003, runs the argument of the respondents.
77. Inspector Rules, 2002 came into force on 07.12.2002. The Senior Tax Assistant Rules came into force with effect from 20.01.2003. In Column 12 to the Schedule to the 2002 Inspector Rules, which deals with how promotion is to be effected; Clause (a) contains, apparently, those categories, which were among the feeder categories under the 1979 Rules. In fact, Clause (a) itself recites by selection from those candidates working in the pre-restructured cadre. No doubt, the words ‘pre-structured’ is added by Corrigendum in 2003. Clause (b) provides for selection from those candidates working in the restructured cadre. The third Feeder Category is to operate, failing the method of recruitment specified under clause(b). It is apposite that we notice, at this juncture, Note 1. For the purpose of convenience, it is recapitulated again. It reads as follows:
In case of recruitment by promotion/ deputation/absorption, grade from which promotion/deputation/absorption to be made.
12
Promotion: (a) By selection from those candidates working in the following restructured cadres: Note 1: Promotion under Clause (a) above shall be only operative for a period of two years from the date on which the restructured cadres mentioned under Clause (b) above comes into existence. The service rendered under the new grade in the restructured cadres shall be counted towards considering the eligibility for promotion under Clause (a) above.
78. It is strenuously argued before us on behalf of the respondents that Note 1 reveals the Legislative intent that the feeder categories, mentioned in Clause (a), would be given the right exclusive in nature, thereby excluding those categories in Clause (b). This exclusive right, it is pointed out, was to last only for a period of two years. We may shift focus also to the STA Rules of 2003. We may advert to it as much may turn on its purport:
“5. Initial constitution.-(i) All the persons appointed on the regular basis at the time of commencement of these rules to the Grade of Assistant, Tax Assistant, Upper Division Clerk (Special Pay), Data Entry Operator Grade B’ and ‘C’ shall be deemed to have been appointed as Senior Tax Assistants under these rules. The service rendered by them before commencement of these rules shall be taken into account for deciding the eligibility for promotion to the next higher grade. (ii) Assistants (Rs. 5000-8000) and Data Entry Operator Grade ‘C’ (Rs. 5000-8000) are being re-designated as Senior Tax Assistants in the same scale of pay. Therefore, the Assistants and Data Entry Operator Grade ‘c’ shall be placed en-block senior to the other categories. However, their inter-se placement shall be done according to the date from which they had actually been appointed to these grades on regular basis subject to the condition that their inter se placement in their respective category shall not be altered. (iii) The Data Entry Operator Grade ‘B’ (4500-7000) and Tax Assistants (4500- 7000) have been placed in their higher scale of 5000-8000 and they shall be placed below the Assistant and Data Entry Operator Grade ‘C’ and their inter-se-placement shall be fixed in accordance with the date of regular appointment to the respective grade subject to the condition that their inter-se-placement in respective category shall not be disturbed. (iv) Upper Division Clerk with special pay shall be placed below Assistant, Data Entry Operator Grade ‘C’, Data Entry Operator Grade ‘B’ Tax Assistants. (v) The present employees would be required to pass the required or suitable departmental examination, as specified by the Competent Authority, from time to time, in Computer application and relevant procedures within two years falling which they would not be eligible for further increments.” 79. We may notice that under the 2003 STA Rules, Rule 5 contemplated the initial constitution of the Cadre of Senior Tax Assistants. It was to consist of the former categories of Tax Assistant, U.D. Clerk (Special Pay), Data Entry Operator Group ‘B’ and ‘C’. The future method of recruitment was by way of 100 per cent promotion from Tax Assistants, as provided in Column 12 of the said Rules. It is also necessary to notice Rule 4 of the Tax Assistant Rules 2003, which was brought into force with effect from 05.05.2003.
“4. Initial constitution:- (1) The person appointed on regular basis and holding the post of Upper Division Clerk and Data Entry Operator Grade A on the commencement of these rules shall deemed to have been appointed as Tax Assistant under these rules and the service rendered by such persons in the respective posts before commencement of these rules shall be taken into account as regular service rendered on the post of Tax Assistant for the purpose of promotion etc. (2) The person holding the post of Data Entry Operator Grade-A appointed under these rules as Tax Assistant, shall, within two years, from the date of such appointment as Tax Assistant, pass the Departmental Examination as conducted by the competent authority, failing which he shall not be entitled to get any further increment. (3) Any person, who holds a post of Lower Division Clerk on regular basis and falls within the seniority list as determined by the appointing authority at the commencement of these rules shall, on passing the Departmental Computer Proficiency examination conducted by the appointing authority, be deemed to have been promoted with effect from date of passing such examination on the post of Tax Assistant. (4)The Upper Division Clerks and Data Entry Operator Grade -A shall be placed en-block senior, and their inter se placement shall be fixed in accordance with the date of regular appointment to the respective grade subject to the condition that their inter se placement in the respective grade shall not be disturbed. (5) Lower Division Clerks shall be placed below Upper Division Clerks and Data Entry Operator Grade -A.” 80. The dispute, as to when the restructuring was completed, must be resolved on a conspectus of the decision dated 19.07.2001 and the subsequent decisions, as expressed in communications which we have adverted to, and the combined effect of all these Rules.
81. Now, turning back to Note 1 to the 2002 Inspector Rules, we notice that promotion under Clause (a) was to be operative for a period of two years from the date on which the restructured Cadre in Clause (b) comes into existence. If the interpretation sought to be placed by the appellants is accepted, and we are to hold that the restructured cadre of Senior Tax Assistant came into force with effect from 19.07.2001, the result would be that promotion under Clause (a) would be limited by a period of two years from 19.07.2001. In other words, no promotion could be ordered from the Feeder Category mentioned in Clause (a) in Column 12 of the 2002 Inspector Rules after 18.07.2003. This also means that promotions could be, therefore, effected during the period commencing from 19.07.2001. This produces the anomalous result that promotions are to be countenanced under the 2002 Rules, retrospectively from 19.07.2001. What is more, according to the appellants, promotions were banned during the period. This, in our view, completely militates against the idea that the restructured Cadre came into being from 19.07.2001. We are not oblivious and we have indeed expressly articulated the circumstances from communication dated 19.07.2001 which pro-bablised the appellant’s contention that restructuring became a reality from 19.07.2001. But, we, at this juncture, must also notice that the actual distribution of posts in different formations was postponed. It may not be in apposite, at this juncture, to also notice another factual aspect. There is a definite case for the respondents that the Data Entry Operator Grade ‘B’ and ‘C’ continued as such and they were only re-designated as Senior Tax Assistant or Tax Assistant on the enforcement of the 2003 Rules and not before such enforcement. In fact, it was also not seriously disputed before us that this was indeed the case on the ground. We may also find light from the STA Rules. Rule 5 declares that “all the persons appointed on regular basis at the commencement of the Rules in the Grade of Assistant, Tax Assistant, U.D. Clerk (Special Pay), Data Entry Operator Grade ‘B’ and Grade ‘C’, shall be deemed to have been appointed as Senior Tax Assistant under these Rules”. No doubt, the Rule contemplated that the persons to be deemed to have been appointed as Senior Tax Assistant under the 2003 Rules, were the categories, which we have already indicated. What is more relevant is, they are referred to as the persons appointed at the commencement of “these Rules”. The words used are “persons appointed”. The intention appears to be to indicate that the persons were appointed and working on the commencement of the Rules, which is on 20.01.2003. It is those persons, who were referred to by the designation, which were the posts which were held by them prior to the restructuring. In other words, appellants, who were working as Data Entry Operator Grade ‘B’, upon being promoted in the year 2000, were indeed persons who were appointed on regular basis as Data Entry Operator Grade ‘B’ as on 20.01.2003, when the Rules, admittedly, were brought into force.
82. We find further support for the view that the appellants became Senior Tax Assistant upon Rules being brought into force from the further limbs of Rule 5. Sub-Rules (ii), (iii) and (iv) deal with the issue of inter se seniority of the different erstwhile restructured categories from which the designated category of Senior Tax Assistant was born. Those Assistants, who were drawing salary of pay scale of 5000-8000, and Data Entry Operator Grade ‘C’, drawing the same pay scale, were re-designated as Senior Tax Assistants in the same scale. They were to rank at the top of the seniority list of the newly created posts of Senior Tax Assistants. Just below them were put the categories of Data Entry Operator Grade ‘B’ and Tax Assistants, both drawing the pay scale of 4500-7000, and they have been placed in the higher pay scale of 5000-8000 and they were to be placed below the Data Entry Operator Grade ‘C’. Similarly, at the bottom of the pyramid, there is the post of Upper Division Clerk with special pay, who were to be placed below all the above categories as aforesaid.
83. We also bear in mind that the language used in Note 1, in Column 12 of the 2002 Inspector Rules. It provides that the promotion in Clause (a) was to be operative for a period of two years from the date on which the restructured cadres, mentioned under Clause (b) above, comes into existence. Had it been the case where the restructured cadre in Clause (b) had already come into existence, by virtue of order dated 19.07.2001, the Law Giver would have used language indicating the past tense. The Law Giver, thus, contemplated that the restructured cadre in Clause (b), which includes cadre of Senior Tax Assistants, had not come into existence and it was to come into existence. It came into existence, indeed, in the future, viz., on 20.01.2003.
84. We are, thus, of the view that on a consideration of the Government Orders and, more importantly, the Statutory Rules that the conclusion appears to be inevitable that restructured cadre actually came into force in the cadre of Senior Tax Assistant with the Rules being brought into force on 20.01.2003. Quite apart from the fact that this is the legal interpretation that flows, we are also supported by the fact on the ground that the appellants appeared to continue till after the Rules were brought into force with the designation as Data Entry Operators Grade ‘B’.
A perusal of Rule 5(v) of the STA Rules 2003 would also show reference to ‘present employees’ and they were to pass the departmental examination ‘within two years’. Failure was to result in their being rendered ineligible for future increments. Certainly, the period of two years would commence only from 20.01.2003. If so, the ‘present employees’, including the appellants continued as Data Entry Operator Grade ‘B’ till 20.01.2003. The view that the STA Cadre emerged only on 20.01.2003, is supported by official understanding, as reflected in proceedings dated 21- 04-2003. The principle of contemporanea ex-positio is apposite in the facts.
APPELLANTS RIGHTS AS SENIOR TAX ASSISTNATS ON RESTRUCTURING
85. Having found that restructuring was effective from the date of the promulgation of the Statutory Rules in case of Senior Tax Assistant w.e.f. 20.01.2003, and also having found that there was a ban on carrying out promotions under the earlier Rules, as evident from a perusal of communications dated 10.09.2001, 03.01.2002 and 05.06.2002, and thus, it manifested a conscious decision on the part of the Government not to fill the vacancies in accordance with the earlier Recruitment Rules, viz., 1979 Rules, the question arises as to what is the nature of the right which the appellants had. It must be remembered that the appellants filed the Original Application before the Tribunal taking exception to the Notice dated 05.11.2002. Now, let us analyse the reasoning of the Tribunal with reference to the case set up by the parties. The case of the appellants must be understood as follows:
• The restructured cadre has come into existence on 19.07.2001. • Promotion to the post of Inspector could be made only from the restructured cadres while so the draft recruitment rules came to be issued on 28.10.2002. 86. In the said Rules, preference was sought to be given to the pre-structured cadres, which included the old tax assistants with a certain number of years. It was Clause (a) to Column 12 of the 2002 Inspector Rules, which was alleged as unconscionable and violative of Articles 14 and 16 of the Constitution of India. It was the further complaint that Note 1 in Column 12 of the 2002 Inspector Rules was also flawed insofar as the persons in the pre-structured cadre, viz., those falling in Clause (a), were enabled to steal a march by being promoted, taking into consideration their service in the new Grade in the restructured Cadre for the eligibility for promotion under Clause (a). The only Cadre, which was eligible for promotion after the order dated 19.07.2001, was the restructured Cadre, including the Cadre of Senior Tax Assistants, ran the argument.
87. The Tribunal proceeded on the basis that the restructuring became complete with the issuance of the order dated 19.07.2001. It must be noted that the Original Application came to be filed on 19.11.2002 at a time when the Inspector Rules had not even been finalized as the Rules came to be finalized only on 29.11.2002 and, in fact, brought into force till later on 07.12.2002. Undoubtedly, the Note contemplated, giving persons in Clause (a), viz., those falling in the pre-restructured cadre, the benefit of taking into consideration the service rendered in the restructured Cadre, for being promoted as Inspector. The persons falling in the restructured Cadre, were not conferred with such advantage. However, by the time the Original Application came to be heard, the Senior Tax Assistants Rules 2003 came into force with effect from 20.01.2003. Under Rule 5 of the 2003 Rules, the persons working as Data Entry Operator Grade ‘B’, inter alia, stood re-designated as Senior Tax Assistants and they were also given the benefit of reckoning the past service and calculating the qualification of experience of two years under the Inspector Rules, 2002. In fact, the Tribunal has also taken note of the 2003 Rules. Both the persons in the pre-structured cadre and those in the restructured cadres, were, by virtue of Note 1 to Column 12 to the 2002 Rules and Rule 5(i) of the Senior Tax Assistants Rules 2003, respectively, were given the benefit of counting service as provided therein. The Tribunal, in fact, has gone on to find that the Senior Tax Assistants under Rule 5(i) of the 2003 Rules were entitled to reckon their service as Data Entry Operator Grade ‘B’ for eligibility for promotion as Inspector. The Tribunal goes on to find that the unified restructured cadre of Senior Tax Assistants alone would be eligible for promotion as Inspector. The integrated seniority is to be worked out in terms of Rule 5 of the 2003 Senior Tax Assistant Rules. This is based on the premise that with effect from 19.07.2001, the restructuring of Senior Tax Assistant came into force and all the earlier Cadres stood merged. We notice also the following findings by the Tribunal:
The Tribunal noticing the contention of the respondents that the selection process initiated on 05.11.2002 has been finalized from categories other than of the employees i.e. Data Entry Operator Grade ‘B’ and ‘C’ and the existing vacancies were filled-up, it was, thereafter, found by the Tribunal as it is now found that the appellants were also eligible, the Original Application was to be disposed of by directing the appellants be considered eligible for promotion after considering the service rendered by them as Data Entry Operator Grade ‘B’. The Original Application was accordingly disposed of directing the appellants be considered for promotion based on the years of service on the post of Data Entry Operator Grade ‘B’ after allowing them to appear for the examination contemplated in Note 2 under the 2002 Inspector Rules. The further relief granted was to direct to promote them if they were successful and to fix the seniority based on Rule 5. The declaration which was sought for by the appellants in paragraph 8(c) of the Original Application, which we have already extracted, was granted. 88. Thus, the Original Application has been allowed in part. It is necessary to notice that the effect of granting the said relief and also the effect of not granting the reliefs in paragraph 8(b). Granting of the Relief 8(c) would mean that this Court would also have to accept that under the 2002 Inspector Rules, it is only the restructured Cadre, which would be entitled for promotion to the cadre of Inspector. To put it differently, the persons falling in Category (a), which corresponds to feeder categories, under the 1979 Rules, would not be entitled for promotion as Inspector.
89. It is now necessary to look at their prayer, i.e., 8(b) and the effect of not granting any relief thereunder. Prayer 8(b) was sought by the appellants to set aside the Recruitment Rules communicated vide 28.10.2002, as confirmed vide Gazette of India Notification dated 29.11.2002, incorporating the unconscionable conditions under Clause (a) and Note 1 of Column 12 of the 2002 Inspector Recruitment Rules. This prayer is also based on the restructuring process, having effect from 19.07.2001. The Tribunal has not granted the relief in paragraph 8(b) of the Original Application. This means that the persons in Category (a) of Column 12 of the Inspector Rules, cannot be affected. The result is that it exposes the fallacy in grant of Relief 8(c). In fact, there are two basic flaws. In the first place, as we have noticed, the restructuring did not come into effect on issue of communication dated 19.07.2001. The restructuring came into effect only with the issuance of Rules, for reasons, which we would have already explained. This by itself takes away the entire basis of the Tribunal’s Order. Secondly, the Tribunal has not declared the Statutory Rule infirm, which was the specific relief sought for by the appellants in Relief 8(b). In other words, Clause (a) of Column 12 and the Note, in the 2002 Inspector Rules impugned on the one hand, continues on the Statute Book, whereas, the declaration is purportedly granted under paragraph 8(c), which necessarily involves declaring that only persons re-designated under the restructured cadres in Clause (b) as Senior Tax Assistants, inter alia, would be entitled to be considered for promotion as Inspector of Central Excise and Customs. In fact, the Order of the Tribunal at Chandigarh also did not involve granting any exclusive right to the persons in the restructured Cadre falling in Clause (b). The decision of the Bombay High Court also does not reflect any such reasoning. It is well-settled that when Statutory Rules are challenged, they are upheld, or if warranted, declared ultra vires or read down, if possible. The Order of the Tribunal is specific that what is granted, is the relief contained in paragraph 8(c) of the Original Application. Resultantly, Clauses (a) and (b) continued to be on the Statute Book. The Tribunal has rather allowed the Original Application partly and found that the appellants are also entitled to be considered for promotion as Inspector. In Arriving at this conclusion, the Tribunal has drawn support undoubtedly from the views expressed by the Central Administrative Tribunal, Chandigarh, the Central Administrative Tribunal, Madras and the High Court of Bombay.
WHETHER STA COULD ADD SERVICE AS DATA ENTRY OPERATORS AND WHETHER PERSONS IN CLAUSE (A) HAD AN EXCLUSIVE RIGHT FOR TWO YEARS?
90. What is to be the eligibility condition flowing from the requirement in Clause (b) that Senior Tax Assistants should have put in two years’ service in the Grade. It is the contention of the respondents that what is contemplated by the Law Giver is that only persons mentioned in Clause (a) to Column 12, who were incidentally persons, who fell in the feeder category under the 1979 Rules, are to be considered for filling-up vacancies for a period of two years, and it is therefore their contention that the right of persons mentioned in Clause (b) arises only after the expiry of two years, and till then, the persons, who are qualified in Clause (a), are alone to be considered during these two years. It is also seen that the use of the word ‘Grade’ is referred to, to contend that appellants, who were working as Data Entry Operator Grade ‘B’, were not in the same Grade, in terms of the pay-scale to which they became entitled upon the restructuring coming into effect w.e.f 20.01.2003. In other words, appellants, who were on a lower pay-scale than the Senior Tax Assistants, and thus only after 20.01.2003, when the actual restructuring became a reality, the appellants would commence working in the Grade, meaning the post with the scale of pay attached to the post of Senior Tax Assistant.
91. On the other hand, the case of the appellants is that a perusal of the Rule 5 of Senior Tax Assistant Recruitment Rules, 2003, would show that the appellants were entitled to take into consideration the service which was rendered by them prior to 2003. We also notice another aspect, viz., there is the case for the respondents that Note 1 to Column 12 contemplates that the service rendered by persons, falling in Clause (a) in the restructured cadre, could be considered for the purpose of calculating the period required under Column 12. Therefore, an attempt is made to contend that the provisions of Rule 5 must also be understood in the said vein. Let us look at the issue with concrete examples:
(i) An U.D. Clerk is eligible to be considered for promotion as Inspector under Clause (a). He has to, however, put in certain number of years. (ii) The U.D. Clerk, who has less than requisite service as on 20.01.2003, in order that he be considered for promotion as an eligible person under Clause (a), it is quite clear that he can add the service after 20.01.2003 as Senior Tax Assistant to the previous service and make a claim for being considered. The latter part of Note 1 to Column 12, in our view, is only to clothe persons falling in Clause (a) with the right to add the service in the restructured Cadre. But that is not to say that Rule 5 of the Senior Tax Assistant Recruitment Rules, 2003, has the same object. 92. Coming back to the issue, as to whether a person falling within the four walls of Rule 5 of the 2003, Rules can stake a claim for counting the previous service prior to 20.01.2003, we are of the view that the appellants are right that they are entitled to count the previous service. The words used in Rule 5 are unambiguous and clear. In this regard, we must also deal with the yet another contention based on the differences between Rule 5 of the Senior Tax Assistant Recruitment Rules, 2003 and Rule 4 of the Tax Assistant Rules, 2003. It may be true that there is some difference but, in our view, the words used differently in the two provisions, are not meant to take away the right, which was conferred on persons who were on restructuring to be designated as Senior Tax Assistants and Tax Assistants.
93. In Rule 5, what is contemplated is that the service rendered by Data Entry Operators Grade ‘B’ and ‘C’, inter alia, before commencement of the Rules is to be taken about for eligibility for promotion to the next higher grade. No doubt, in Rule 4, of the Tax Assistant Rules, the Rule Maker has become more articulate. They have referred to the words like ‘respective post’, before commencement of Rules and ‘regular service’ which expressions are conspicuous by their absence in Rule 5 of the Senior Tax Assistant Rules. Better wisdom prevailed on the Law Giver in the course of few months to attain clarity in thought and expression but we would not be gleaning the intention of the Law Giver, if we were oblivious to the context and the object with which the entire exercise of restructuring was carried out. They would also amount to introducing an element of discrimination between the Senior Tax Assistants and the Tax Assistants in the conferring of benefits. Of foremost importance is that the view we have taken is warranted by even the plain words used in Rule 5. Rule 5 clearly indicates that the service which was rendered by a Data Entry Operator Grade ‘B’ and ‘C’, inter alia, prior to the commencement of the Rules, would be considered for promotion. This leaves us in no doubt that the intention was to allow the Data Entry Operator both Grade ‘B’ and ‘C’, inter alia, to tag their previous service that is prior to 20.01.2003 for the purpose of calculating the requisite period of service under the 2002 Inspector Rules. It would appear that what was contemplated was that the Inspector Rules and the STA Rules would be brought into force at the same time. If it had so happened, the following consequences would have followed. Not only would STA would be a feeder category but STA would have been able to count their previous service as Data Entry Operator Grade ‘B’, inter alia. Still further, under Note 1, promotion under Clause (a), was to be operative for a period of two years, from the date the restructured cadre, under Clause (b), was to come into existence. Apart from indicating that the restructured cadre ‘was to come into force’ and, therefore, it had not come into force as on 19.07.2001 as contended by the Data Entry Operators, the promotion from Clause (a) being predicated on the point of time when the restructured cadre came into force, if the STA Rules were also brought into force from 07.12.2002, the service rendered by persons under the restructured Grade could have been availed of by persons in Clause (a) from 07.12.2002.
94. As regards the argument that under the 2002 Inspector Rules, persons in Clause (a) were given an exclusive right to be promoted for a period of two years, we see little merit in the same. Clause (c) of Column 12 provides for promotion from the categories thereunder, in the absence of persons falling in Clause (b). No such rider is found in Clause (b). If the STA Rules had been brought into force on 07.12.2002, then, it is clear that adding two years as Data Entry Operator Grade ‘B’, the appellants would certainly be eligible, particularly, keeping in mind the intent in Order dated 28.10.2002. There can be doubt that nothing stands in the way of appellants and others similarly situated being considered from 20.01.2003 by adding the service as Data Entry Operator Grade ‘B’. Both, persons in Clause (a) and persons in Clause (b), subject to being possessed of qualifications, could compete for the vacancies. The right of those in Clause (a), would come to an end from 19.01.2005.
95. The effect of STA Rules, 2003 coming into force only on 20.01.2003 qu a vacancies that existed prior to 20.01.2003, the effect of promotion made from other categories, and the direction by the Tribunal to consider appellants for promotion and apply Rules as to seniority.
96. There can be no doubt that the STA Rules came into effect on 20.01.2003. The restructured cadre of STA became a reality from 20.01.2003.
97. The problem, however, arises as what is to be done qua vacancies of Inspector which were purportedly filled-up as on 20.01.2003 pursuant to Notice dated 05.11.2002 which was impugned in O.A. 1362 of 2002. The Tribunal has not interfered with the notice dated 05.11.2002 but it has found that it was not in accordance with the Rules (apparently Inspector Rules 2002 which superseded the 1979 Rules). But this is again premised on the restructuring becoming a reality with effect from 19.07.2001. This, we have found to be erroneous.
98. The Tribunal notices the contention of respondents that selection has been finalised for categories other than Data Entry Operator Grades ‘B’ and ‘C’ and existing vacancies were filled-up. Thereafter, the Tribunal, on the basis that it found appellants were also eligible, directed appellants to be considered taking into consideration their service as Grade ‘B’ and with opportunity to take the exam. If they were found successful and selected as Inspector, suitable seniority was to be assigned based on Rule 5.
99. Here, it is necessary to notice that persons in Clause (a), under the 2002 Rules, could be promoted for a period of two years from the date the restructured categories under Clause (b) came into force. Thus, the promotion involving 2002 Rules from Clause (a) could be for a two year from 20.01.2003 as the restructured category came into force only on 20.01.2003, even according to the respondents. Thus, for both categories in Clauses (a) and (b) (STAs), their eligibility under 2002 Rules, commenced only from 20.01.2003.
100. If so, the question would be the effect of promotion already made as noted by the Tribunal itself. As on 05.11.2002, the 1979 Rules governed promotions. The status of the draft Recruitment Rules is no longer res integra. While, promotion can be based on draft Recruitment Rules, it cannot be done, if the draft Rules are in the teeth of existing Statutory Rules. In this regard, we may notice the following discussion in Union of India through Govt. of Pondicherry and another v. V. Ramakrishnan and others, 2005(8) SCC 394 :
“28. Valid rules made under proviso appended to Article 309 of the Constitution operate so long the said rules are not repealed and replaced. The draft rules, therefore, could not form the basis for grant of promotion, when Rules to the contrary are holding the field. It can safely be assumed that the principle in Abraham Jacob; (1998) 4 SCC 65 : 1998 SCC (L&S) 995, Vimal Kumari; (1998)4 SCC 114: 1998 SCC(L&S) 1018 and Gujarat Kishan Mazdoor Panchayat; (2003)4 SCC 712 : 2003 SCC (L&S) 565 that draft rules can be acted upon, will apply where there are no rules governing the matter and where recruitment is governed by departmental instructions or executive orders under Article 162 of the Constitution.” 101. The Tribunal granted relief by giving the declaration under 8(c), which we have found unwarranted. The High Court has found that regarding the vacancies prior to 07.12.2002, it is to be filled-up as per the 1979 Rules.
102. Thus, it is clear that vacancies were filled- up as per notice dated 05.11.2002 from persons falling under Clause (a), who corresponded to the feeder category in the 1979 Rules. The appellants have not laid any challenge to the Order of the Tribunal.
103. It is to be remembered that the ban on direct recruitment was to come to an end on 31.12.2002. There were 242 vacancies of Inspectors in Hyderabad Commissioner-ate. It is true that under letter dated 28.10.2002, and even read with letter dated 14.11.2002, what was contemplated was promotion under the draft Recruitment Rules for Inspector and STA. Promotion orders were to be made only after GSR Number were made for the Draft Rules, meaning thereby, after it was finalised. They were intended, as already found, to be operated at the same time, thus, rendering both categories in Clauses (a) and (b), to be considered. We are of the view that having regard to the fact that vacancies were not filled-up, as can be seen from communications dated 10.09.2001 and 05.06.2002, in the light of the restructuring that took place in the Department, it would appear that a conscious decision was taken to not fill-up the vacancies arising from the restructuring based on 1979 Rules. Instead, communication dated 28.10.2002 clearly would show that the vacancies were to be filled-up, based on the proposed new Recruitment Rules. This being the case, the High Court was in error in proceeding on the basis that the principle in Y.V. Rangaiah (supra) would apply.
104. Till 07.12.2002, the STA was not even in Feeder Category. We have also held that the STA Cadre is born on 20.01.2003. There is a case for the respondents that the ban on direct recruitment (which is also a method of appointment) was to come to an end. There was a need to have Inspectors in a larger number of vacancies. The STA Cadre could not have been used to fill the vacancies. The finding that from 19.07.2001, the restructured Cadre came into being, is unsustainable. In such circumstances, though it may be true, intention was to fill-up the vacancies after both sets of Rules were operational-ised, promotions were made. As to whether it is legal, the answer can be that promotion, as per extant Rules, given in vacancies prior to the new Rules, is recognized. This is not a case where the Authority was denying promotion to vacancies based on the earlier Rules. We also notice that based on such promotion, further promotions have been given. The appellants were directed to be considered for vacancies, which were filled-up after. We cannot, in the circumstances, be persuaded to hold that the Tribunal was right in directing the respondents to revise the seniority qua promotion made earlier.
LEGALITY AND CORRECTNESS OF HIGH COURT DIRECTING VACANCIES TO BE FILLED WHICH EXSISTED PRIOR TO 07.12.2002
105. The High Court has left open the question about entitlement to promotion to vacancies after 07.12.2002. It has directed all vacancies, which are prior to 07.12.2002, to be filled-up as per the 1979 Rules. While, we agree that the STA cadre was born on 20.01.2003, clearly, the whole purpose was to simultaneously operate the Rules, both relating to Inspector and STAs. This would have resulted in STA being considered with the experience they had as Data Entry Operator Grade ‘B’ also. This, as already noticed, was a case where the Authority clearly intended to fill-up the vacancies of Inspector under the new Recruitment Rules. However, the vacancies, which were filled-up, cannot be subjected to a review based on Rules relating to seniority in Rules 5(i) of the STA Rules, based on promotion orders on dates, when on the dates, on which the vacancies stood filled-up, the appellants were not even in the cadre.
106. But the High Court was not right in directing filling-up of vacancies prior to 07.12.2002, based on the 1979 Rules, as after the 2003 Rules came into force, going by the intention of the Authority, the right to promotion would be based on the new Rules, even if the vacancies arose prior to the new Rules. That is to say, when the High Court disposed of the matter, if any vacancy remained to be filled-up in the Cadre of Inspector, then, as the STA Rules had come into existence on 20.01.2003, the STAs armed with the right to add service as Data Entry Operator Grade ‘B’, were entitled to be considered. However, it is here that the impact of the matter, having been pending in this Court for more than a decade, and, in the meantime, the judgment being implemented and further promotions being made, cannot be lost sight of, even in an Appeal, which is maintained by grant of Special Leave, as in this case. It is open to the Court to decline to interfere. We bear in mind the principles laid down by this Court in Taherakhatoon (D) By Lrs. v. Salambin Mohammad, (1999) 2 SCC 635 and would not disturb the direction to fill-up the vacancies which arose prior to 07.12.2002, as directed.
VACANCIES OF INSPECTOR WHICH AROSE AFTER 07.12.2002
107. As noted, the High Court has left open the question about entitlement to vacancies after 07.12.2002. The STA rules came into force on 20.01.2003. The restructured cadre of STA came into force on that said day. We have already found that STAs are entitled to count their previous service as Data Entry Operators Grade ‘B’ for the purpose of promotion under 2002 Inspector Rules. Even, persons in Clause (a) of the 2002 Inspector Rules, would be entitled to be considered for promotion under 2002 Rules from the date on which the restructured cadre in Clause (b) came into force. Thus, both persons in Clauses (a) and (b)(STA Cadre) became entitled to be considered for promotion under the two sets of Rules with effect from 20.01.2003. Certainly, the appellants having worked as Data Entry Operator Grade ‘B’ are entitled to add the period of service as Data Entry Operators Grade ‘B’. Thus, vacancies of Inspector, to be filled-up by promotion, must be filled-up by considering both on the basis of the seniority, under Rule 5 of the 2003 STA Rules. The appellants would be entitled also to be considered for promotion based on the same on the basis of the entitlement, as aforesaid.
CIVIL APPEAL NO. 1976 OF 2009
108. The appellants challenge the common judgment passed by the High Court in Writ Petition No. 2378 of 2005 and Writ Petition No. 45 of 2005. The appellants filed this Appeal with the leave of the Court as they were not parties to the Writ Petitions. The Writ Petitioners, two each in the two Writ Petitions, were the four applicants (hereinafter referred to as ‘the applicants’) in O.A. 1040 of 2003 filed before the CAT, Hyderabad.
109. The case in brief, set up by the four applicants before the Tribunal, was as follows:
Applicant nos. 1 and 2 were appointed as Lower Division Clerk (L.D.) and they were working as such. Applicant nos. 3 and 4 were appointed as L.D. Clerks and were working as U.D. Clerks. Applicant nos. 1 and 2 set the claim for promotions as U.D. Clerk under the Recruitment Rules of 1979. Applicant nos. 3 and 4, on the other hand, claimed promotion as Tax Assistant under the said Rules. There is reference to the various orders, which we have already referred to in connection with the post of Inspector, including order dated 19.07.2001. It is the further case that the respondents who, it may be noted, were official respondents, had conducted DPC for all other cadres upto Inspectors and issued promotion orders. Only with regard to the post of Inspector, promotion orders were not issued before 31.12.2002 in view of the stay passed in O.A. 1362 of 2002. The stay was vacated on 31.12.2002 and the promotion orders were issued on the same day. It is further stated that promotions were given to the extent of 214 on 31.12.2002. Due to the delay, U.D. Clerks were not being considered for promotion as Tax Assistants and L.D. Clerks for U.D. Clerks. There is discrimination. Meanwhile, new Recruitment Rules, i.e., STA Rules 2003 and Tax Assistant Rules 2003, which we have already referred to, have come into force in the process of restructuring and re-designating of the posts. The said Rules are prospective in nature. The old Rules prevailed till the new Rules came into force. Even if the DPC is conducted after 31.12.2002, the vacancies that will be considered would be only those which have arisen on or before 31.12.2002. The restructuring cannot take away the accrued rights. They sought promotion as per the old Rules. A direction was sought to promote them under the Rules as U.D. Clerks and Tax Assistants from the date of their eligibility and availability of vacancies with all consequential benefits. 110. In their reply, the stand taken by the respondents to the O.A. was as follows, inter alia:
Since restructuring was directed, it was further directed that no vacancy included in the restructuring, should be filled-up. The STA Rules 2003 and the Tax Assistant Rules 2003 came into force. On the publication of the said Notification of the STA Rules of 2003 on 20.01.2003, further promotions were regulated as per the Notification. Under the Tax Assistant Rules 2003, under Section 4, all the U.D. Clerks were deemed to have been re-designated as Tax Assistants and their promotions have to be regulated further in the said cadre only. As far as L.D. Clerks were concerned, under the 2003 Tax Assistant Rules, on passing departmental examination, they were to be deemed to have been promoted as Tax Assistants. Thus, the stand was that Applicant nos. 1 and 2 would, on passing departmental examination under the 2003 Rules, become Tax Assistant, whereas, Applicant nos. 3 and 4, who were U.D. Clerks, were deemed to have been appointed as Tax Assistants in the very same pay-scale and they have to work out the promotions under the said cadre. Delay was attributed to court cases. It was denied that Department has not followed instructions in Order dated 19.07.2002 as all the vacancies, which arose before the restructuring, were duly filledup under the old Rules. It is lastly pointed out that the chain vacancies in the Inspector cadre, upon filling up the post of 373 posts of Superintendent, were filled-up by following the Recruitment Rules notified on 29.11.2002 superseding the earlier Recruitment Rules. Filling-up of the post was done by from those candidates working in the pre-structured cadre. The consideration of the pre-structured cadre was to be operative for two years from the date on which the restructured cadre came into force. The said promotions were part of restructuring following the amended Rules. The Draft Recruitment Rules were also notified for the restructured Cadre and, as such, the contention of the applicants that the said promotions were done following the earlier Rules and as such they were entitled to be considered based on the earlier Recruitment Rules, was pointed as untenable and liable to be rejected (Thus, it may be noted that the stand taken in this O.A. by the official respondents was the persons who were promoted as Inspectors, were give promotions in terms of their being part of the pre-structured cadre). The Tribunal dismissed the O.A. by Order dated 10.12.2004 after noticing the contentions and noticing the arguments based on Y.V. Rangaiah (supra) among the other decisions and found that there is no case for grievance. Noticing that with regard to one of the grievances, viz., need to pass ministerial staff examination, it was already redressed by deleting this requirement for promotion as Senior Tax Assistant. Through proceedings dated 04.06.2001, the further contention relating to seniority was also dealt with by noticing that since the date of their entry into the feeder cadre would be one of the relevant factors and it had not been finalised, the applicants could represent against the seniority. It also drew support from another order passed by Tribunal in two other O.A.s dated 15.10.2004 (O.A.s 834-835 of 2009) and found that the issue involved was one and the same and agreed with it. It was found that the applicants had been placed on the higher pay-scale. 111. The High Court, in the two Writ Petitions, filed by the four Applicants, allowed the same drawing support from the judgment rendered in the case relating to the Inspectors and it found that promotions to the post of U.D. Clerk and Tax Assistant was to be made as per the old Rules in respect of the vacancies which arose prior to 05.05.2003. Substantially, the contention, appellants have taken, is based on Dr. Ramulu (supra). The contention is also that the intention and the conscious decision of the Government was not to fillup any vacancies by way of 100 per cent promotions until the amended Recruitment Rules were notified in the Official Gazette. There is also a case for the appellants that the order of the High Court runs counter to the judgment of the Bombay High Court and the orders of the Tribunal which we have already referred to in connection with other cases.
112. Under the 1979 Rules, on the basis of an amendment, the post of Tax Assistant (old) was incorporated by GSR 314 dated 12.07.1996. Thereunder, post of Tax Assistant (old) was included in the 1979 Rules. Promotion to the post was to be from the post of U.D. Clerk with three years’ service subject to their passing a departmental exam with minimum marks of 40 per cent. There are other rights given to Senior Clerks under the Note. We have already extracted the Tax Assistant Rules 2003. It is the appellants case that it is established law that vacancies created due to cadre restructuring shall be filled in accordance with new Recruitment Rules. There is reference, in fact, to order dated 26.09.2005, implementing the orders of the High Court.
113. Under the 1979 Rules, the post of U.D. Clerk was to be filled-up 50 per cent from direct recruitment and 50 per cent by promotion. One of the feeder categories was L.D. Clerks with seven years’ service which was relax-able up to five years. The second Feeder Category was Women Searchers recruited prior to 09.05.1975 with five years’ combined service as Women Searcher and L.D. Clerk and who have passed departmental or promotional exam.
114. It may be noted that the 1979 Rules, insofar as it related to the post of U.D. Clerks and Tax Assistants, continued to remain in force even after the promulgation of the Inspector Rules, 2002 and the Senior Tax Assistant Rules. It is when the Tax Assistant Rules were made in supersession of the 1979 rules so far as it related to the post of U.D. Clerk and L.D. Clerk that the 1979 Rules ceased to apply. Thus, 1979 Rules continued to be in force in regard to the post of U.D. Clerk and L.D. Clerk till 05.05.2003.
115. Under the 2003 Tax Assistant Rules, brought into force w.e.f. 05.05.2003, as contended by the official respondents before the Tribunal, the persons working as U.D. Clerks, were to be established as initial cadre of Tax Assistants. So also, the L.D. Clerks, upon passing the examination, were to become Tax Assistants. The posts of U.D. Clerk and L.D. Clerk are Group ‘C’ posts. No doubt, the ban, which was imposed on direct recruitment, was to continue till 31.12.2002 (See Order dated 19.09.2002). By Order dated 28.10.2002, which we have already extracted, the draft Recruitment Rules for Inspector and Senior Tax Assistants was communicated and the process was to be set in motion and promotion was to await the issue of Notification.
116. As far as the post of Tax Assistant is concerned, by the order dated 06.11.2002, all the Chief Commissioners were forwarded the draft Recruitment rules for Tax Assistants which was approved by the Ministry. The Commissioners were to initiate necessary action for the process of DPC, etc. The issue of any order passed under the draft Tax Assistant Recruitment Rules was to await issue of Notification of the said Rules. However, on 14.11.2002, it ordered, inter alia, that DPC in the remaining Grades except DOSL-222 may be held on the basis of the existing Recruitment Rules and the promotion orders issued by 25.11.2002.
117. As far as the post of L.D. Clerks and old Tax Assistants is concerned, the vacancies, which existed as on 06.11.2002, were to be filled-up under the existing Recruitment Rules (See letter dated 14.11.2002). The orders were to be issued by 25.11.2002. By 25.11.2002, the Tax Assistant Rules were not even finalised, leave alone brought into force. The Tax Assistant Rules came into force only by publication on 03.05.2003 and brought into force two days thereafter, i.e., on 05.05.2003. Going by letter dated 14.11.2002, the principle that vacancies must be filled-up in accordance with the existing Rules, would appear to apply. The intention of the Authority would also appear to be the same as is evident from Clause (3) of Order date 14.11.2002.
118. In such circumstances, there is no scope for any ambiguity and we are unable to find fault with the order of the High Court.
SUMMARY OF CONCLUSIONS IN C.A. NOS.1970-1975 OF 2009
119. Summary of Conclusions in C.A. Nos. 1970-1975 of 2009, is as follows:
1)Promotion to the post of Inspector was governed by the 1979 Rules till 07.12.2002. 2) Under the 1979 Rules, Data Entry Operators were not among the feeder categories for promotion as Inspector. 3)By 19.07.2001, Cabinet approved restructuring of certain posts including the post of Inspector. The number of posts of Inspector fell from a little over 22000 to a little over 18000. Thereunder, the post of Data Entry Operator Grade ‘B’ among other categories, were merged and the cadre of Senior Tax Assistants emerged. However, the restructured cadre of Senior Tax Assistants, did not come into being. 4) The restructured Cadre of Senior Tax Assistants was born with the bringing into force of the Senior Tax Assistant Rules 2003, on 20.01.2003. Data Entry Operators Grade ‘B’, among other categories, were re-designated as Senior Tax Assistants under Rule 5. 5) The Inspector Rules 2002, was brought into force on 07.12.2002 superseding the 1979 Rules relating to Inspectors. 6) The post of Senior Tax Assistant, which was not among the feeder categories under the 1979 Rules, became one of the feeder categories for promotion as Inspector, under Inspector Rules, 2002 under Clause (b) of Column 12. 7) There was a ban of promotion to the posts of Inspector. This is clear from communications dated 10.09.2001, 03.01.2002 and 05.06.2002. The communication dated 28.10.2002 read with communication dated 14.11.2002, establish that the Draft Recruitment Rules which were finalized on 29.11.2002 and brought into force on 07.12.2002 as far as Inspectors are concerned and Draft Recruitment Rules finalized and brought into force on 20.01.2002 as far as Senior Tax Assistants are concerned, were to be basis for promotion to the post of Inspector. As per Order dated 28.10.2002, Departmental Promotion Committee (DPC), was to operate, based on the draft rules but no promotion orders were to be issued till the draft rules were finalized. With order dated 04.11.2002 even the promotion orders were permitted. The authority apparently contemplated simultaneous bringing into force of the Inspector Rules and the STA Rules. 8)The High Court was in error in holding that it has to be necessarily held that the vacancies which arose prior to the revised Recruitment Rules coming into force has to be filled-up under then existing Rules (the 1979 Rules) relying upon case law including Y.V. Rangaiah (supra). There was a conscious decision taken to not fill-up vacancies based on the restructuring, and what is more, letters dated 28.10.2002 and 14.11.2002 show that promotion to the post of Inspector was to be effected based on the new recruitment rules. 9) It is while so, that in the Hyderabad Commissioner-ate, by Notice dated 05.11.2002, persons falling under Clause (a) of Column 12 of the ‘Draft Inspector Rules’ who also corresponded to the feeder categories under the ‘extant’ Statutory Rules, the 1979 Rules, alone were called for selection as Inspector. 10) The benefit of reckoning service under Note 1 to categories in Clause (a) would be available only after the restructuring came into effect which was on 20.01.2003. This also indicates that the powers that be contemplated simultaneous operation of the ‘Inspector Rules’ and the Senior Tax Assistant Rules. 11) However, the Inspector Rules and the Senior Tax Assistant Rules were enforced with a gap of about six weeks. 12) The appellants even proceeding on the basis that they were to be treated as Senior Tax Assistant as on 07.12.2002, were not having the two years’ experience required under the 2002 Inspector Rules. 13) With the 2003 Senior Tax Assistant Rules brought into force on 20.01.2003 under Rule 5(1), the appellants who were working as Data Entry Operators Grade ‘B’ could take into consideration their service as Data Entry Operators Grade ‘B’ for reckoning the period of two years stipulated under the 2002 Inspector Rules. In this regard, the finding of the Tribunal is correct. Appellants in O.A. have stated that they were promoted as Data Entry Operator Grade ‘B’ in April 2000. If so, their service as such would count and even as on 07.12.2002, they would have 2 years’ service as contemplated under the 2002 Rules. As on 20.01.2003, certainly, they would be eligible to be considered for promotion as Inspectors. 14) The Tribunal not having granted prayer 8(b), the Draft Recruitment Rules, 2002 relating to Inspectors as finalized which was impugned remained intact. The Tribunal clearly erred in granting the declaration, as sought for in paragraph 8(c), recognizing exclusive right to the restructured Cadre. 15) The restructuring Order under letter dated 19.07.2001, fructified and became complete and effective relating to the post of Senior Tax Assistant only on 20.01.2003. The findings to the contrary by the Tribunal stood correctly set aside by the High Court. 16) The Tribunal has not interfered with the promotion already granted to persons drawn from the categories other than the Senior Tax Assistant pursuant to Notice dated 05.11.2002. 17) Ban of Direct Recruitment was to end on 31.12.2002. In respect of promotion made earlier and not interfered with, the Tribunal could not have directed review of seniority based on later promotions as Inspector. The appellants cannot be given seniority based on later promotions qua promotions given, which cannot be termed illegal, when as on the date of earlier promotions, appellants were not even in the cadre. Promotion from Senior Tax Assistant could have been made only 20.01.2003 at the earliest. Even the categories in Clause (a) could have been promoted under the 2002 Inspector Rules, vide Note 1 only for two years starting from the date the restructured Cadre in Clause (b) come into force, i.e., 20.01.2003. 18) We reject the contention that persons in Clause (a) of Column 12 of the Rules, who were also in the feeder categories for promotion under 1979 Rules, had an exclusive right to be considered for promotion for a period of two years. 19) While promotions can be made based on Draft Recruitment Rules, it cannot be so made, if the Draft Rules are in the teeth of existing Statutory Rules [V. Ramakrishnan and others (supra)]. In this case, however, under Orders dated 28.10.2002 and 14.11.2002, what was contemplated was processing by DPC under the Draft Recruitment Rules and issue of the promotions orders after the Draft Rules were finalized. 20) However, till 07.12.2002, under the 1979 Rules, being also feeder categories under the said rules, those in Clause (a) Column 12, 2002 Inspector Rules could be promoted. While it may be contrary to what was contemplated by the Central Authority (as evident from letters dated 28.10.2002 and 14.11.2002) promotions were made, which could not be termed illegal. Even the Tribunal has not set aside the promotions. 21) The High Court has directed the filling-up of vacancies prior to 07.12.2002 as per the 1979 Rules. In this regard, having regard to the fact that the vacancies were not filled-up as per the ban, as can be seen from 10.09.2001 and 05.06.2002, and it was specifically contemplated under letter dated 28.10.2002 that vacancies arising from restructuring be filled-up, as per the new Recruitment Rules, the principle in Y.V. Rangaiah (supra) may not apply and it was the Rules as on date of filling-up the vacancies, that would count. As on the date of the High Court Order, the STA Rules 2003, had come into force on 20.01.2003. Thus, vacancies existing prior to 07.12.2002 and which were not filled-up, must be filled-up by considering STA (Appellants) including their service as Data Entry Operators Grade ‘B’. 22) But it is here that the impact of the matter remaining pending, and in the meantime, implementation of the judgment and what is more, further promotions being made cannot be lost sight of. We bear in mind the principle laid down in Taherakhatoon (D) By Lrs. (supra) and would not disturb the directions to fill-up vacancies which arose prior to 07.12.2002, as directed. 23) However, in case of vacancies of Inspector, which arose after 07.12.2002, the appellants would, undoubtedly, have a right to be considered as explained hereinbefore. In regard to such vacancies, the matter must be looked into and seniority fixed, based on Rule 5 of the STA Rules. The persons working in Clause (a) are also entitled to be considered for a period of two years from 20.01.2003 under the Inspector Rules to be considered for promotion. RELIEF IN CIVIL APPEAL NOS. 1970-1975 OF 2009
120. Civil Appeals Nos. 1970-1975 of 2009 are disposed of as follows:
The restructured cadre of Senior Tax Assistants came into force on 20.01.2003. Appellants are not entitled to have seniority determined in respect of vacancies of Inspector which arose prior to 07.12.2002. The appellants are eligible to be considered for promotion from 20.01.2003 and they are entitled to add their service as Data Entry Operator Grade ‘B’ for the purpose of the 2002 Inspector Rules and considered for vacancies to be filled by promotion, which arose after 07.12.2002. The persons in Clause (a) under Column 12 of the 2002 Rules, are also entitled to be considered for two years from 20.01.2003. Seniority is to be considered based on Rule 5 of the STA Rules. The exercise, as above, if not carried out already shall be carried out. Further promotions based on the above will be granted. However, we direct that the promotions shall be notional where promotions have already been effected, however, entitling the parties to seniority and pensionary benefits. The above exercise shall be completed at the earliest. 121. Civil Appeal No. 1976 of 2009 will stand dismissed.
122. There shall be no order as to costs in all the appeals.
Before :- Uday Umesh Lalit and Dinesh Maheshwari, JJ.
Review Petition (C) D. No. 46265 of 2019 in Civil Appeal No. 5397 of 2010. D/d. 5.2.2020.
M/s. Natesan Agencies (Plantations) – Petitioners
Versus
State rep. by The Secretary to Govt. Environment & Forest Department – Respondents
For the Petitioners :- V. Ramasubramanian, Advocate.
ORDER
Delay Condoned.
2. Put in a nutshell, the relevant background aspects of this matter are as follows: The appellant firm had taken the land in question on lease for a period of 5 years (from 01.07.1972 to 30.06.1977) from its owner, Sri Nanamamalai Jeer Mutt, Nanguneri, for plantation and co-related purposes. By the notification dated 06.03.1976 issued under the Wild Life (Protection) Act, 1972, the land in question was proposed to be included in the wild life sanctuary. However, a fresh long-term lease for a period of 25 years (from 01.07.1977 to 30.06.2002) was made in favour of the appellant. The appellant and the Mutt attempted to get the land in question excluded from the sanctuary but remained unsuccessful. On the other hand, proceedings for award of compensation in relation to the land in question remained under contemplation. However, instead of making any award, the collector issued the order dated 19.11.1993, excluding the land in question from the limits of wild life sanctuary. Being aggrieved by such exclusion, the Mutt and the appellant filed a writ petition before the High Court, which was allowed by the Single Judge but then, the Division Bench of High Court, in its judgment dated 18.09.1997, did not approve the order so passed by the Single Judge and, while acknowledging the power of the Government to withdraw from the notification, dismissed the writ petition but left it open for the appellant and the Mutt to approach the appropriate forum in relation to their claim for damages. Thereafter, on 08.06.1998, the appellant instituted the civil suit for damages against the State while alleging that it had been prevented from using the land in question from the year 1976 to the year 1993.
3. The civil suit so filed by the appellant was decreed by the learned Single Judge of the High Court but, the Division Bench reversed the decree and dismissed the suit by way of its judgment and decree dated 26.02.2007 in OSA Nos. 193 of 2002 and 178 of 2003.
4. Having examined the matter in its totality, this Court found that after issuance of the notification dated 06.03.1976 and inclusion of the subject land therein, there was no occasion for the appellant acquiring any further right in the land after expiry of the term of lease on 30.06.1977 and hence, the alleged second lease for a period of 25 years was of no effect; and the appellant had no right to claim damages from the State. It was also found that there was nothing on record to suggest that appellant was prevented by the State from going inside the forest and collecting usufructs and hence, there was no basis for the appellant to maintain an action for damages.
5. The question of limitation, though left unanswered by the Division Bench of High Court, was also examined by this Court and it was found that in the earlier proceeding, the appellant sought exclusion of the land from sanctuary and asserted that State ought to take the land and pay compensation whereas the claim in the present suit was founded on the ground that the plaintiff had suffered loss due to the proceedings under Wild Life (Protection) Act, 1972 and then, due to exclusion of the land in question from acquisition. It was, therefore, found that the relief claimed in the present suit was different and matter-in-issue was not the same as that of the earlier proceeding and hence, the appellant was not entitled to the benefit of Section 14 of the Limitation Act.
6. Having examined the record and the grounds stated, we are unable to find any error apparent on the face of the record calling for review of the judgment dated 20.08.2019.
Civil Appeal No. 1042 of 2020 (@special Leave Petition (Civil) No. 20393 of 2018). D/d. 6.2.2020.
Canara Bank – Appellants
Versus
M/s United India Insurance Co. Ltd. & Ors. – Respondents
With
Civil Appeal No. 1043-1051 of 2020 (@special Leave Petition (Civil) No. 24774-24782 of 2018), Civil Appeal No. 1052-1059 of 2020 (@special Leave Petition (Civil) No. 25957-25964 of 2018), Civil Appeal No. 1060-1071 of 2020 (@special Leave Petition (Civil) No. 25137-25148 of 2018), Civil Appeal No. 1072-1081 of 2020 (@special Leave Petition (Civil) No. 25235-25244 of 2018), Civil Appeal No. 1082-1090 of 2020 (@special Leave Petition (Civil) No. 25535-25543 of 2018), Civil Appeal No. 1091-1097 of 2020 (@special Leave Petition (Civil) No. 25325-25331 of 2018), Civil Appeal No. 1098-1106 of 2020 (@special Leave Petition (Civil) No. 26077-26085 of 2018), Civil Appeal No. 1107-1117 of 2020 (@special Leave Petition (Civil) No. 26494-26504 of 2018), Civil Appeal No. 1118-1126 of 2020 (@special Leave Petition (Civil) No. 25714-25722 of 2018), Civil Appeal No. 1127-1133 of 2020 (@special Leave Petition (Civil) No. 25343-25349 of 2018), Civil Appeal No. 1134-1203 of 2020 (@special Leave Petition (Civil) No. 31449-31518 of 2018).
For the Appearing Parties :- P.P.Malhottra, Sr.Adv., Vineet Malhotra, Mohit Paul, Vishal Gohri, Ms. Sunaina Phul, Shubhendu Kaushik, Sabarish Subramanian, Raghunatha Sethupathy, Prabu Ramasubramanian, Vishnu Unnikrishnan, K. Paari Vendhan, Mohit Paul, Rajesh Kumar-I, Anant Gautam, Ms. Sakshi Gaur, Ms. Khushboo Aggarwal, Sorabh Dahiya, Vibhu Sharma, Anmol Mehta, Deepak Anand, Advocates.
JUDGMENT
Deepak Gupta, J. – Leave granted.
2. All these appeals are being decided by one common judgment since they arise out of a common order dated 08.06.2018 of the National Consumer Disputes Redressal Commission, New Delhi, hereinafter referred to as `the National Commission’.
3. Briefly stated the facts of the case are that most of the claimants, hereinafter referred to as `the farmers’, had grown Byadgi Chilli Crop during the year 2012-2013. Some of the farmers had some other crops. These farmers had stored their agricultural produce in a cold store run by a partnership firm under the name and style of Sreedevi Cold Storage, hereinafter referred to as `the cold store’. These farmers also obtained loans from Canara Bank, hereinafter referred to as `the Bank’. The loan was advanced by the Bank to each one of the farmers on security of the agricultural produce stored in the cold store. The cold store was insured with the United India Insurance Company Limited, hereinafter referred to as `the insurance company’. A fire took place in the cold store on the night intervening 13.01.2014 and 14.01.2014. The entire building of the cold store and the entire stock of agricultural produce was destroyed.
4. After the fire, the cold store, which had taken out a comprehensive insurance policy, raised a claim with the insurance company but the claim of the cold store was repudiated by the insurance company mainly on the ground that the fire was not an accidental fire. The farmers had also issued notice to the insurance company in respect of the plant, machinery and building but this claim was repudiated by the insurance company on the additional ground that the farmers had no locus standi to make the claim as the insured was the cold store and not the farmers. It was further pleaded that Condition No.8 of the insurance policy had been violated, and that there was no privity of contract between the farmers and the insurance company. Since the claims of the farmers were either rejected or not answered, they filed claim petitions against the cold store, the Bank and the insurance company in which the primary relief claimed was the value of the agricultural produce as on the date of fire and interest thereupon and each of the farmers also claimed damages of L 1,00,000/- per head. There were 91 claim petitions filed and in most of them the agricultural produce was Byadgi Chilli. In a few petitions, the agricultural produce was Dabbi Chilli, Guntur Chilli, Bengal Gram, Coriander (Dhania), Jwar etc. However, this will not have any material impact on the decision of these cases. The details containing the name of the claimants, the nature of the produce, number of bags and quantity thereof, rate, and number of kilograms have been set out in Para 7 of the judgment of the National Commission which we are not reproducing for the sake of brevity.
5. In the claims filed it was pleaded that the cold store while levying the general charges had also charged the insurance premium paid by it. It would be pertinent to mention that a tripartite agreement had been entered into by each one of the farmers while taking a loan from the Bank and hypothecating the agricultural produce which was stored in the cold store. The farmer, the Bank, and the cold store were parties to the tripartite agreement. The cold store issued a warehouse receipt giving the particulars of the crop stored, the value thereof and also the date of the tripartite agreement. For the period in question i.e. from 2012-2013 till the occurrence of fire, the cold store was admittedly insured with the insurance company. The plant and machinery of the cold store was insured for L 5 crores and the stocks were insured for L 30 crores.
6. The case of the farmers was that in terms of the tripartite agreement, the cold store had got the stocks insured from the insurance company. The fire was an accidental fire and, therefore, in terms of the policy, the insurance company was liable to pay the amount of value of the agricultural produce stored with the cold store as on the date of fire and was also liable to pay interest on the amount payable. The insurance company resisted the complaint mainly on the ground that the `farmers’ were not `consumers’ within the meaning of Consumer Protection Act, 1986, hereinafter referred to as `the Act’. It was also claimed that there was no privity of contract between the farmers and the insurance company because the policy was taken by the cold store and not by the farmers. It was alleged that the entire story of loans was a false story. On merits, any conceivable objection which could be taken was taken. The insurance company went to the extent of denying that the claimants were farmers or they had produced the agricultural produce or that they had stored it in the cold store. It was also alleged that the Bank was negligent as it did not take any step to recover the amount due for more than two years. The case of the insurance company is that nobody in his right mind would store agricultural produce for such a long period of time. Therefore, the very genuineness of the tripartite agreement was challenged. The other main ground taken was that the fire was not an accident and there was no spontaneous combustion on account of electrical short circuit. According to the insurance company, there was an element of arson involved and the cold store seems to have been deliberately set on fire.
7. The stand of the cold store was that the fire was accidental and that since the stock was insured, the amount was payable by the insurance company. The Bank supported the claim of the farmers with the caveat that the amount should be paid to it so that it could set it off against the loans advanced to the farmers.
8. The Karnataka State Consumer Disputes Redressal Commission at Bangalore, hereinafter referred to as `the State Commission’ vide judgment dated 28.04.2017 held that the farmers had proved that the fire took place on account of electrical short circuit and no element of human intervention or use of kerosene was found. The State Commission also found that as per the tripartite agreement entered into between the farmers, the Bank and the cold store, it was mandatory for the cold store to insure the goods so hypothecated by the farmers with the Bank. The insurance company was held liable to pay the amount to the farmers. The State Commission assessed the value of the goods by taking the value as reflected in the warehouse receipts issued at the time of taking of loan and did not accept the plea of the farmers that they should get the market value of the goods as on the date of fire. The Bank was also held deficient in service. The cold store and the insurance company were held jointly and severely liable and were directed to pay the value of the agricultural produce hypothecated with the Bank to the farmers/claimants as on the date of tripartite agreement together with the interest at the rate of 14% per annum payable from six months from the date of the incident till the date of realisation. One complaint being Complaint No.597 of 2015 was dismissed. In some of the complaints, the Bank was also held jointly and severely liable to pay the costs of L 10,000/- whereas in a large number of cases the complaint against the Bank was dismissed.
9. Aggrieved by the aforesaid judgment dated 28.04.2017 of the State Commission, an appeal was filed before the National Commission. By the impugned judgment, the National Commission concurred with the findings of the State Commission and held that the farmers are consumers. It held that the insurance company was aware of the fact that the goods were held in trust. It further held that there is no evidence to show that the fire was not an accidental fire or that the fire had been started by the owner of the cold store. However, it partly allowed the appeal of the insurance company and reduced the interest from 14% per annum to 12% per annum. The farmers had also filed appeal claiming that in terms of the insurance policy they should have been paid the value of the goods as on the date of fire. However, this claim was rejected basically on the ground that the farmers had failed to show that the chilli and/or other produce stored is of the same class and characteristics as reflected in the Variety-wise Periodic Report of the Bengaluru Market for different commodities. As far as the appeals filed by the Bank were concerned, the National Commission held that in the peculiar facts of the case where the farmers had suffered substantial losses, the principal amount of loan advanced by the Bank would be remitted by the insurance company to the Bank but the other amount i.e. interest and damages, would be given to the farmers. It was also held that there was no deficiency of service on behalf of the Bank and the costs imposed on the Bank in some of the cases were set aside.
10. Before this Court, appeals have been filed by the insurance company, the farmers, the cold store and the Bank.
11. We have heard Shri P.P. Malhotra, learned senior counsel appearing for the insurance company, Dr. Rajeev Dhavan and Shri Gopal Shankaranarayanan, learned senior counsel appearing for the farmers, Shri Sajan Poovayya, learned senior counsel appearing for the cold store and Shri Dhruv Mehta, learned senior counsel appearing for the Bank.
Appeals of the Insurance Company
12. Shri P.P. Malhotra, learned senior counsel appearing for the insurance company raised several issues for consideration of this Court. One of the contentions raised by him is that the fire in question was not an accidental fire. It is also contended that the farmers were not consumers and therefore the consumer fora have no jurisdiction to decide the dispute. He next contends that there is no privity of contract between the farmers and the insurance company. According to him, a contract of insurance is to be strictly construed between the parties to the contract. He submits that there was no insurable interest of the farmers and the tripartite agreement entered between the Bank, the farmers and the cold store was never disclosed to the insurance company. He further submits that there is non-disclosure of important facts by the cold store (insured) and, as such, the insurance company is not liable. He also urged that the liability of the insurance company is excluded by virtue of General Exclusion Clause 5 and General Condition no.1 and General Condition no.8 of the insurance policy.
Whether the fire was an accident?
13. As far as this issue is concerned, both the State Commission and the National Commission have come to the conclusion that the fire was an accidental fire and occurred due to a short circuit. These are pure findings of fact which, in our view, cannot be challenged in these proceedings. However, since lengthy arguments were addressed by Shri P. P. Malhotra in this behalf, we shall deal with the same. At the outset, we may note that the electrical inspector, the police investigation team and the forensic science laboratory (FSL) have all come to the conclusion that the fire took place due to a short circuit. The concluding portion of the report of the FSL reads as follows:-
“From the above examination, the following observations have been made 1. Presence of combustible materials like thermocol (which are used to insulate the walls) pillars, wooden partitions and the grains stored inside the building could have enhanced the spread of fire. 2. The congested space in the building might have accelerated the smoldering fire. 3. The fire might have originated at the sixth floor front side of the building. But it was not possible to locate the exact place of origin of fire since the complete building was involved in fire. 4. An electrical short circuit may have initiated the fire.” The insurance company relies upon the findings given by a company namely Truth Labs and those of Rank Surveyors Private Limited, which read as follows:-
“Based on a thorough and in-depth inspection of the incident site, forensic examinations, field investigations, documentary evidence analysis and personal evidence obtained, it is concluded that the fire occurred in M/s. Sree Devi Cold Storage, Billary on the intervening night of 13/14th January 2014. a. Was not due to spontaneous combustion on account of bacterial/chemical fires. b. Was not due to electrical failure caused by short circuit. c. And was on account of extraneous ignitable fire accelerants such as kerosene used deliberately for ignition, initiation, propagation and burning of stocks in the cold storage through human intervention. d. Based on the motive, means and opportunity to carry out such malicious acts the possibility of the involvement of management in such a nefarious act cannot be ruled out.” 14. We may note that it is not disputed that in the construction of the cold store, the temperature was maintained by insulating the walls of the cold store. Bitumen (coal tar) and Thermocol were used for providing insulation. The FSL found that in a fire which takes place in a building where such material is used for construction, hydro carbons would obviously be present. On the other hand, M/s. Truth Labs mainly relied upon the presence of hydro carbons to come to the conclusion that the fire had not occurred spontaneously and on account of electrical short circuit but occurred on account of extraneous ignitable fire accelerants such as kerosene. The conclusions of M/s. Truth Labs were based on some inspection and chemical analysis carried out by a team headed by Dr. R. Srinivas. Admittedly, this report of Dr. R. Srinivas was never furnished to the parties nor was placed before the State Commission. Interestingly, when Mr. G. V. H. V. Prasad, Director of M/s. Truth Labs was put a specific query whether the walls of the ground floor and the top floor and the inside portion of the cold store along with 169 pillars were constructed by sandwiching bitumen and thermocol between the concrete in order to raise the level of insulation, he replied that `he was not aware of how the Cold Storage was built’. This clearly shows the shoddy manner in which M/s. Truth Labs conducted the investigation. There can be no proper investigation of a fire if the investigating agency does not even try to find out what is the nature of construction of the building which has been destroyed in the fire. M/s. Truth Labs has clearly stated that the observation that fire took place on account of extraneous ignitable fire accelerants, is based on the chemical analysis report which shows presence of hydro carbons in the debris. It is apparent that M/s. Truth Labs, for reasons best known to it, did not analyse the material used for construction because if it had done so, it would have realised that hydro carbons would be present when thermocol or bitumen are burnt. Thermocol is basically a rigid plastic foam material which is derived from petroleum and natural gas by-products. Bitumen is a semi-solid hydrocarbon product produced from crude oil. Both thermocol and bitumen are derivatives of petroleum products and hence are hydrocarbons by their very nature. Therefore, presence of hydrocarbons would be natural when a fire takes place. The presence of hydro carbon could not lead to a conclusion that kerosene oil had been used to ignite the fire.
15. The National Commission has also dealt in detail with this issue and has come to the conclusion that M/s. Truth Labs visited the burnt cold store on two occasions and collected samples on both the occasions. It, however, decided to send 12 samples collected only in the second visit for analysis. Interestingly, the controlled samples were collected from a plastic bag containing (fresh unaffected) chillies found in the burnt stock of the affected premises. The controlled samples did not show presence of hydro carbons and hence, the assumption that the presence of hydro carbons in the remaining samples was not relatable to thermocol and tar. There is no explanation why the samples taken on the first visit were not sent for analysis. It is also difficult to believe that in a building which has been totally gutted in a fire, there would be one plastic bag containing (fresh unaffected) chillies found in the burnt stock. It is possible that these unburnt chillies may have been introduced later on. Therefore, we cannot place any reliance on the report of M/s. Truth Labs.
16. In any event, neither in the report of M/s. Truth Labs nor in the other reports by the insurance company is there anything to show that the insured had set the cold store on fire. Whether the fire took place by a short circuit or any other reason, as long as insured is not the person who caused the fire, the insurance company cannot escape its liability in terms of the insurance policy. We reject the contention of the insurance company that the fire was ignited by the use of kerosene and hence it is not liable.
Rule of Strict Interpretation
17. It has been submitted on behalf of the insurance company that the terms of the insurance policy should be construed strictly and since only the insurance company and the cold store (insured) were parties to the contract of insurance, the insurance company will not be liable to pay any claim to the farmers. Various authorities were cited by both sides.
18. In United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal, (2004) 8 SCC 644 this Court held as follows:-
“9….It is settled law that terms of the policy shall govern the contract between the parties, they have to abide by the definition given therein and all those expressions appearing in the policy should be interpreted with reference to the terms of policy and not with reference to the definition given in other laws. It is a matter of contract and in terms of the contract the relation of the parties shall abide and it is presumed that when the parties have entered into a contract of insurance with their eyes wide open, they cannot rely on the definition given in other enactment….” 19. Reliance was placed on Raghunath Rai Bareja v. Punjab National Bank, (2007) 2 SCC 230wherein it was held:
“58. We may mention here that the literal rule of interpretation is not only followed by judges and lawyers, but it is also followed by the layman in his ordinary life. To give an illustration, if a person says “this is a pencil”, then he means that it is a pencil; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean.” 20. Reliance was also placed on the following paragraph in Suraj Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co. Ltd., (2010) 10 SCC 567:
“26. Thus, it needs little emphasis that in construing the terms of a contract of insurance, the words used therein must be given paramount importance, and it is not open for the court to add, delete or substitute any words. It is also well settled that since upon issuance of an insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy, its terms have to be strictly construed to determine the extent of liability of the insurer. Therefore, the endeavour of the court should always be to interpret the words in which the contract is expressed by the parties.” 21. The principles relating to interpretation of insurance policies are well settled and not in dispute. At the same time, the provisions of the policy must be read and interpreted in such a manner so as to give effect to the reasonable expectations of all the parties including the insured and the beneficiaries. It is also well settled that coverage provisions should be interpreted broadly and if there is any ambiguity, the same should be resolved in favour of the insured. On the other hand, the exclusion clauses must be read narrowly. The policy and its components must be read as a whole and given a meaning which furthers the expectations of the parties and also the business realities. According to us, the entire policy should be understood and examined in such a manner and when that is done, the interpretation becomes a commercially sensible interpretation. As far as the present case is concerned, if we read the tripartite agreement along with the terms of the policy it is obvious that the Bank insisted that the stock be insured. The farmers were told that they would pay the premium. The cold store while fixing the rent obviously factored the premium into the rent. It was obvious that the intention of the parties was that they would be compensated by the insurance company in case of any untoward loss.
Whether the farmers are consumers and the issue of privity of contract
22. One of the main grounds of attack to the judgments of both the State Commission and the National Commission on behalf of the insurance company is that the farmer is not a consumer insofar as the insurance company is concerned. The contention is based on the ground that the insurance policy is admittedly only between the insurance company and the cold store. It is further urged by Shri Malhotra that the claim of the cold store for damage to the building, plants and machinery was repudiated by the insurance company on 16.09.2015. The cold store has not challenged the repudiation. Thereafter, all the complaints have been filed through one counsel which indicates that they have been orchestrated by the cold store itself. It is also submitted that the tripartite agreement is not relevant as far as the insurance company is concerned since the insurance company is not a signatory to the tripartite agreement. It is further contended that the coverage for the goods was only for the goods owned by the cold store and not by the farmers who are in the nature of third parties. It is contended that in some cases the tripartite agreement has not even been signed by the Bank.
23. On the other hand, on behalf of the farmers, it is submitted that they paid rent to the cold store which included the element of insurance. It is submitted that the crops were given on contractual bailment to the cold store for a valuable consideration and, therefore, the cold store held the goods as a bailee on behalf of the farmers. It is also submitted that in terms of the tripartite agreement, the cold store was bound to take out an insurance policy and the crops and the premises were separately insured and the insurance was renewed every time for a period of 3 years. It is also submitted that insurance company was aware that the insurance policy had been taken for the benefit of the real owners i.e. farmers.
24. To decide these issues, it would be apposite to refer to the definition of `consumer’ under Section 2(d) of the Act, which reads as follows:-
“2 Definitions. – (1) In this Act, unless the context otherwise requires,- xxx xxx xxx (d) “consumer” means any person who, – (i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment, when such used is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or (ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person…;” 25. The definition of consumer under the Act is very wide and it not only includes the person who hires or avails of the services for consideration but also includes the beneficiary of such services who may be a person other than the person who hires or avails of services.
26. Taking the issue of privity of contract, we are of the considered view that as far as the Act is concerned, it is not necessary that there should be privity of contract between the insurance company and the claimants. The definition of consumer under Section 2(d) quoted hereinabove is in 2 parts. Sub-clause (i) of Section 2(1)(d) deals with a person who buys any goods and includes any user of such goods other than the person who buys such goods as long as the use is made with the approval of such person. Therefore, the definition of consumer even in the 1st part not only includes the person who has purchased but includes any user of the goods so long as such user is made with the approval of the person who has purchased the goods. As far as the definition of the consumer in relation to hiring or availing of services is concerned, the definition, in our view, is much wider. In this part of the section, consumer includes not only the person who has hired or availed of the services but also includes any beneficiary of such services. Therefore, an insured could be a person who hires or avails of the services of the insurance company but there could be many other persons who could be the beneficiaries of the services. It is not necessary that those beneficiaries should be parties to the contract of insurance. They are the consumers not because they are parties to the contract of insurance but because they are the beneficiaries of the policy taken out by the insured.
27. The definition of consumer under the Act is very wide and it includes beneficiaries who can take benefit of the insurance availed by the insured. As far as the present case is concerned, under the tripartite agreement entered between the Bank, the cold store and the farmers, the stock of the farmers was hypothecated as security with the Bank and the Bank had insisted that the said stock should be insured with a view to safeguard its interest. We may refer to the penultimate clause of the tripartite agreement which reads as follows:-
“WHEREAS the Third Party has agreed to insure the produce/goods stored in the cold storage to indemnify the produce in case of any casualty or accident by any means to cover the risk and also to cover the loan amount to avoid loss at the cost of the Second Party till the release order or repayment of the loan amount.” 28. The aforesaid clause in unambiguous terms binds the cold store to insure the goods, to indemnify the produce, to cover the risk and cover the loan amount. This insurance policy has to be taken at the cost of the second party which is the farmer. Therefore, there can be no manner of doubt that the farmer is a beneficiary under the policy. The farmer is, therefore, definitely a consumer and we uphold the orders of both the Commissions that the complaint under the Act is maintainable.
29. Shri Malhotra in support of his argument relied upon the judgement of this Court in M. C. Chacko v. The State Bank of Travancore, Trivandrum, (1969) 2 SCC 343 wherein the appellant as Manager of High Land Bank, Kottayam, had an overdraft account with the Bank. The father of the appellant had executed letters of guarantee in favour of Bank agreeing to pay the amounts due to the Bank under the overdraft agreement subject to a limit of L 20,000/-. The Court held:-
“10. Even if it be granted that there was an intention to create a charge, the Kottayam Bank not being a party to the deed could enforce the charge only if it was a beneficiary under the terms of the contract, and it is not claimed that the Bank was a beneficiary under the deed Ext. D-1. The suit against M.C. Chacko must therefore be dismissed.” 30. We are of the view that this judgment has no relevance to the case before us. This Court held that the Kottayam Bank was not only not a party to the deed but was also not a beneficiary under the contract. In our opinion, the Consumer Protection Act clearly provides that a beneficiary of the services, other than the insured is a consumer under the Act.
General Exclusion Clause No.5
31. It has been urged that there is violation of Clause 5 of the policy under the heading of General Exclusion wherein losses of certain types have not been covered. The said clause reads as follows:-
“5. Loss, destruction or damage to bullion or unset precious stones, any curios or works of art for an amount exceeding L 10000/- goods held in trust or on commission, manuscripts, plans, drawings, securities, obligations or documents of any (illegible) stamps, coins or paper money, cheques, books of accounts or other business books, computer systems records, explosives unless otherwise expressly stated in the policy.” 32. The argument raised by Shri Malhotra is that since the goods were held in trust by the cold store, the insurance company is not liable. We are not at all impressed with this argument. This is not a case where the goods were deposited only on the basis of trust. The goods were kept in the cold store on payment of rent by the farmer. This is not a case envisaged under Exclusion Clause 5 quoted hereinabove. These goods were also not held on commission. Shri Rajeev Dhavan, learned senior counsel appearing for the farmers submits that the relationship between the farmer and the cold store was of bailor and bailee. He submits that the crops were given on contractual bailment to the cold store for consideration.
33. In the present case, as pointed out above, the farmer had agreed to pay consideration to the cold store and, therefore, the goods were not held in trust per se but the goods were held by cold store as bailee of the goods for consideration. The possession of the farm produce was handed over by the bailor, i.e. farmer to the cold store i.e. the bailee, in terms of the contract. There may be inter se rights and liabilities between the farmer and the cold store but it cannot be said that the goods were held `in trust’. The goods were also not held `on commission’. No commission was payable and only rental was paid. Therefore, we reject this argument on behalf of the insurance company.
General Condition Nos. 1 & 8:
34. Shri Malhotra has placed reliance on Condition Nos. 1 & 8 of Part B of the General Conditions of the Insurance Policy:-
“(B) GENERAL CONDITIONS: 1. This policy shall be voidable in the event of misrepresentation, mis-description or nondisclosure of any material particular. xxx xxx xxx 8. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof or if any fraudulent means or devices are used by the insured or anyone acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the willful act, or with the connivance of the insured, all benefits under this policy shall be forfeited.” 35. The contention of Shri Malhotra is that the insurance company was not informed by the Bank, the cold store or the farmers that the farm produce or the insured goods belong to the farmers and therefore the policy is voidable. At the outset, we may note that misrepresentation or misdescription only makes the policy voidable. The insurance company never chose to declare the policy void for 3 long years when it was in existence and, at this stage, cannot be permitted to wriggle out of its liability by taking this objection. Even otherwise, we are of the view that the submission made on behalf of the insurance company is without any substance. The policies of insurance clearly show that the premises was separately insured for L 5 crores and the stock in trade were insured for L 30 crores. This insurance was taken not only for the year when the fire took place but was renewed for 3 long years. The insurance policy had an Agreed Bank Clause which reads as follows:-
“(1) AGREED BANK CLAUSE: It is hereby declared and agreed:- (i) That upon any monies becoming payable under this policy the same shall be paid by the company to the bank and such part of any monies so paid as may relate to the interests of other parties insured hereunder shall be received by the Bank as Agents for such other parties. (ii) That the receipts of the Bank shall be complete discharge of the company thereon and shall be binding on all the parties insured hereunder.” 36. The aforesaid clause itself clearly indicates that it was agreed by the insurance company that upon any amount being payable under the policy in question, the same would be paid to the Bank and the amount so paid “may relate to the interests of other parties”. The said amount would be received by the Bank as agent for other parties. Therefore, the insurance policy itself envisaged that there were interest of other parties and not only the Bank and the insured. Therefore, it was for the insurance company to verify and find out who was the owner of the goods. It could not presume that all the goods belong to the cold store. The assumption of the insurance company that it had insured the goods belonging to the cold store itself has no factual basis. It is a well-known fact that cold stores are constructed in such a way that there are many compartments in the cold store. Any person can deposit a small or large amount of goods to be kept in cold store. Normally, it is the goods of third parties which are stored in a cold store and, therefore, we are dealing with a policy of insurance whereby the premises and the stock and goods in a cold store have been insured. The natural corollary would be that the insurance company should have known that the goods belong to the third parties. From the policy of insurance, we find that in respect of description of risk, the insurance covers “Stock of Guntur Chillies/Byadigi Chillies/Other variety Chillies, Jawar Seeds, Bengal Garam, Red Gram, Tambrind, Coriander Seeds & Other pulses.”
37. This stock in trade was covered for a sum of L 30 crores and premium was charged accordingly. A prudent insurance company before issuing a policy of such a heavy amount, must or at least should have ascertained the value and the nature of the goods. The insurance company before us is one of the largest nationalised insurance companies and a presumption has to be drawn that it must have verified the details before insurance policy was issued. If verification had been done by a visit to the cold store, it could have been easily found out who are the owners of the stock. In case, the insurance company has chosen not to verify the stock it cannot take advantage of its own negligence. The principle of uberrima, fides has no application because the cold store had declared all necessary facts. The bank clause clearly indicated that the goods were hypothecated/pledged to the Bank. Therefore, the insurance company now cannot turn around and claim that the names of the owners were not supplied to it at the time of insurance. We also cannot lose sight of the fact that the insurance policy was renewed at least twice. Therefore, the policy was in existence for 3 years and it is in the 3rd year that the fire took place. If the insurance company chooses not to even write a letter to the insured or take any steps to verify the value of the goods and ownership of the goods, it cannot now turn around and urge that it was not aware about the nature or ownership of the goods.
Fraudulent Claim
38. The insurance company also contends that the whole scheme is fraudulent and that no farmer in his right senses would store agricultural produce for such a long time. This argument is totally baseless.
39. Byadgi Chilli is the major component of the goods that were stored in the cold store. It is a very famous variety of chilli and is produced in two types – dabbi and kaddi. One of the main uses of this chilli is not only as an item of food but as an item to extract red colour pigment which is used in the manufacture of lipsticks, nail polishes, and other cosmetics etc. The material extracted is called oleoresin, which is a red oil extracted from the pods. Many cold stores have been constructed in the area where this chilli is grown because if these chillies are stored at a low temperature of 4 to 6 degree Celsius, the colour and purity is maintained and it also increases the amount of oleoresin which can be extracted from chilli by about 30% to 40%. As such the farmers took a commercial decision to store the chillies because after storing it, the value would go higher.
40. The insurance company also urged that some of the tripartite agreements are not signed by the officials of the Bank. It is urged that this shows that the agreements cannot be relied upon. We are not at all in agreement with this submission. As long as the parties to the tripartite agreement i.e. the Bank, the farmer and the cold store, are not disputing the correctness of the agreement, there is no reason why we should not accept the same to be a genuine document.
Non-disclosure of material facts:
41. It has been urged on behalf of the insurance company that while submitting the proposal form on 21.03.2013, the cold store had not listed out the names of the parties who had an insurable interest including the financial institutions. It is, therefore, submitted that the cold store deliberately did not disclose the fact that the produce belonged to the farmers. Shri Malhotra placed reliance on the judgment in Satwant Kaur Sandhu v. New India Assurance Co. Ltd., (2009) 8 SCC 316 wherein it was held that:
“25. The upshot of the entire discussion is that in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”. If the proposer has knowledge of such fact, he is obliged to disclose it particularly while answering questions in the proposal form. Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance.” 42. At the outset, we may mention that the initial insurance policy was taken in the year 2011, if not earlier, and that proposal form was very material. The same has not been produced by the insurance company before us. Thereafter, it was only renewal of the policy. Furthermore, if a column is left blank, again the insurance company should have asked the insured to fill in the column. There is no wrong information given in the proposal form though it may be true that all the requisite information was not supplied. The column requires listing out the parties who have an insurable interest including financial institutions. Since the policy had a bank clause, the name of Canara Bank should have been mentioned in column 5. That was not there. If the insurance company while accepting the proposal form does not ask the insured to clarify any ambiguities then the insurance company after accepting the premium cannot now urge that there was a wrong declaration made by the insured. In case the insured had written that there were no persons who had an insurable interest, the position may have been different but leaving out the column blank does not mean that there was some misdeclaration of facts. We are, therefore, clearly of the view that the judgment of this Court in Satwant Kaur Sandhu’s case (supra) is not applicable to the facts of the present case.
43. As already held above, the insurance company itself could have also taken some initiative in the matter. To make a contract void the non-disclosure should be of some very material fact. No doubt, it would have been better if the Bank and the insured had given at least 1 tripartite agreement to the insurance company but, in our view, in the peculiar facts of this case, not disclosing the tripartite agreement or the names of the owners cannot be said to be such a material fact as to make the policy void or voidable. We are clearly of the view that there is no fraudulent claim made. There is no false declaration made and neither is the loss and damage occasioned by any wilful act or connivance of the insured.
44. In view of the above discussion, we are clearly of the view that the insurance company under the insurance policy is liable to indemnify the cold store with regard to the value of goods and since the farmers are the beneficiaries, they are entitled to get the amount payable under the policy. However, this will obviously be subject to the bank clause which we have already referred to above.
Appeal of the Bank
45. The Bank has raised objections to the interest portion of the amount being given to the farmers. Otherwise it supports the case of the farmers. Reliance has been placed on the bank clause already quoted above and it is submitted that the direction of the National Commission to pay the interest to the farmers is against the Agreed Bank Clause in terms of which the money is to be paid to the Bank till the outstandings of the Bank are covered. Shri Dhruv Mehta, learned senior counsel for the Bank submits that since the farmers are claiming benefit of the policy, they cannot urge that the bank clause is not applicable. It is further submitted by him that the National Commission has to decide questions on the basis of legal considerations and equitable considerations or equity has no role to play in such matters. On the other hand, it has been urged by Dr. Rajeev Dhavan that the bank clause is only a processual clause.
46. We cannot accept the submission of Dr. Dhavan that the bank clause lays down only a process. The insurance policy is a contract and the amount has to be paid as per the terms of the contract. In our view, the National Commission could not have ordered that the interest on the amount payable to the farmers should not be paid to the Bank till the liabilities of the Bank are paid out. Arguments have been addressed before us that this Court may exercise its power under Article 142 of the Constitution of India to ensure that justice is done to the farmers. We feel that there is no need to invoke the jurisdiction under Article 142 because even after paying off the dues of the Bank, some amount of the value of the goods along with interest thereupon will be payable to the farmers.
Whether there was a deficiency in service on the part of the Bank
47. It was urged on behalf of the insurance company that there is deficiency of service by the Bank and, in fact, it was argued that the Bank connived with the farmers because it did not get the valuation of the products done properly and further, it took no steps to sell the agricultural produce after one year which liberty it had in terms of the tripartite agreement. We find no force in this argument. As already pointed out above, the value of Byadgi chillies which was the major agricultural produce stored in the cold store rises the longer it is kept in the cold store. Therefore, the Bank could have taken a commercial decision not to sell the produce because the product was not deteriorating in any manner and its value was not diminishing.
48. The State Commission had held that there was deficiency on behalf of the Bank in rendering services but the National Commission held otherwise. We are of the view that the Bank was remiss to a limited extent. When the Bank issues loans against the hypothecation of goods, as in the present case, and insists that the goods should be insured to safeguard its outstandings then a duty lies upon the Bank to inform the insurance company of the policy. If both the Bank and the insurance company had done what would be expected of good financial institutions, there would have been no needless litigation. The matter has dragged to this stage only because the names of the farmers were not mentioned in the policy or because the tripartite agreement was not handed over to the insurance company. The Bank, as a prudent financial institution, should have insisted that the tripartite agreement should also be handed over to the insurance company. Therefore, we feel that there is some level of deficiency on behalf of the Bank.
49. In view of the aforesaid, we feel that the Bank cannot claim interest at the contractual rate and is not entitled to claim interest at the contractual rate because the farmers have been driven through a long drawn litigation which could have been easily avoided if the Bank had itself sent the copy of the tripartite agreement to the insurance company or insisted that the insured should send the same to the insurance company. We accordingly hold that the Bank cannot claim interest at the contractual rate. We are therefore, of the view that the Bank would be entitled to charge simple interest right from the date of grant of loan at the rate of 12% per annum.
The amount of claim payable:
50. The farmers in their appeal have claimed that in terms of the policy of insurance the value of the goods was to be assessed on the date of fire and the value was not to be assessed as mentioned on the date when the goods were stored in the cold store. In this regard, we may make reference to the opening portion of the insurance policy wherein the insurance company has agreed to insure the goods. Relevant portion of the insurance policy reads as follows:-
“IN CONSIDERATION of the insured named in the schedule hereto having paid to the United India Insurance Company Limited (hereinafter called the Company) the full premium mentioned in the said schedule. The Company Agrees (Subject to the conditions and exclusions contained herein or endorsed or otherwise expressed hereon) that if after payment of the premium the property insured described in the said schedule or any part of such property be destroyed or damaged by any of the perils specified hereunder during the period of insurance named in the said schedule or of any subsequent period in respect of which the insured shall have paid and the Company shall have accepted the premium required for the renewal of the policy, the Company shall pay to the insured the value of the property at the time of the happening of its destruction or the amount of such damage or at its option reinstate or replace such property or any part thereof.” 51. The highlighted portion of the aforesaid clause leaves no manner of doubt that the insurance company in consideration of the premium received had agreed to either reinstate the goods or replace the same or pay to the insured the value of the property at the time of happening of its destruction or damage. The State Commission and the National Commission had rejected the claim of the farmers in this regard on the ground that the variety-wise periodic report of the Bengaluru market, produced by the farmers, showed that the range between minimum and maximum price for Byadgi and Guntur chillies etc. is very vast and to arrive at an average price would mean construing that all the chillies are of standard quality. According to the National Commission, this would be a speculative exercise based on the assumption that the entire quantity of chillies is of the same class and characteristic.
52. At the time when the farmers deposited the goods with the cold store there were handed over warehouse receipts which not only gave identity of the agricultural produce but also reflected the quantity of the agricultural produce and its market value on the date when this produce was stored in the cold store. However, the quality of the produce is not reflected in the warehouse receipts.
53. Though we hold that in terms of the clause discussed above the insurance company is liable to pay the value of the goods as on the date of the fire, we feel that the National Commission was right when it came to the conclusion that it was not possible to award an amount based on the variety-wise periodic report of the Bengaluru market. This is the only evidence produced by the farmers and brought to our notice to support their contention. The National Commission is right that the difference between minimum price for which this product was sold during the period 14.12.2013 to 14.01.2014 and the maximum price for the same agricultural produce during this period is so high that without exactly knowing what was the quality of agricultural produce, it would not be possible to ascertain what was the price on the date of fire. To give an example, Byadgi chillies have a price range of L 3,200 per quintal to L 17,300 per quintal i.e. L 32 per kilogram to L 173 per kilogram. There is no way for any Court to determine what the exact price would have been without having the benefit of the quality of produce. Unfortunately, even in the warehouse receipts there is no gradation or reflection of the quality of the produce.
54. We, therefore, affirm the decision of the National Commission that the value of the goods as reflected in the warehouse receipts should be taken to be the value on the date of fire. We may add that this value is not very different from the median value for most of the products. We rely upon the value given in the warehouse receipts because that was the value which was given by the farmers, not knowing that their product is going to be burnt, and was accepted by the cold store, which must have known the value of the product in the local market and accepted by the Bank, which on the basis of such surety advanced the loan.
55. In view of the aforesaid discussion, we are of the view that the Bank shall be entitled to recover the principal amount advanced by it to each one of the farmers along with the simple interest at the rate of 12% per annum from the date of advancing of loan till repayment thereof. The insurance company is liable to pay the value of goods as reflected in the warehouse receipts of each farmer along with simple interest at the rate of 12% per annum from the date of fire till payment of the amount. The dues of the Bank till the date of fire will have to be first determined and, thereafter, the excess will be payable to the farmer along with the interest.
56. To clarify the issue we take the example of the first farmer-Thippa Reddy at Sr. No.1, in whose Account No.1425844005736, the loan of L 10,00,000/- was sanctioned on 30.08.2011. The insurance company has worked out his outstanding on the date of incident at L 13,57,307/- whereas the value of the goods was 2,00,2000 as per the warehouse receipt. If we calculate simple interest at the rate of 12% per annum on L 10,00,000/- from 30.08.2011 till 14.01.2014, it works out to L 2,84,712/-approximately. Obviously, if the farmer has paid any amount towards the loan that will also have to be adjusted but for the sake of clarification, we are assuming that no amount has been paid. Therefore, with effect from 14.01.2014, the insurance company shall be liable to pay interest on 10,00,000/- at the rate of 12% per annum to the Bank and shall also be liable to pay a sum of L 7,17,288/- along with interest at the rate of 12% per annum from 14.01.2014 till payment to the farmer.
57. In view of the above, we dispose of the appeals with the following directions:
1. That the insurance company shall be liable to pay to each one of the farmers the value of his goods to be assessed as per the rate mentioned on the warehouse receipts when the goods were stored in the Cold Store in terms of our direction given hereinabove along with interest at the rate of 12% per annum from the date of fire till payment or deposit thereof.
2. That the Canara Bank shall file certified statements of accounts before the Karnataka State Consumer Disputes Redressal Commission showing the principal amount of loan advanced to each farmer and the amount due to the Bank by calculating simple interest @ 12% p.a. up to 13.01.2014 i.e. payable by 14.01.2014 after adjusting the payments which the Bank may have received in the loan account.
3. The Bank in the statement of accounts shall also set out the amount due with the aforesaid rate of interest up to 30.04.2020.
4. The aforesaid statement be filed before the State Commission on or before 02.03.2020.
5. That thereafter, the State Commission in each appeal shall determine the amount payable to the farmer by calculating it in terms of the clarification given above i.e. after adjusting the amount due to the Bank as on 14.01.2014. This exercise be completed on or before 31.03.2020.
6. Out of the aforesaid amount, the Insurance Company shall pay the amount of loan along with simple interest at the rate of 12% per annum from the date of advancement of loan to the date of payment directly to the Bank.
7. Thereafter, the insurance company shall deposit the amount payable to the farmers with the State Commission on or before 30.04.2020.
58. All appeals are disposed of in the aforesaid terms. No order as to costs. Pending application(s), if any, shall also stand(s) disposed of.
Judgment's Digest 