Banking Law & Incidental matters part 4
Summary of Question- Capital Gains on Auction Sale of Mortgaged Property
Question – Whether Capital Gain Tax is levied if a person mortgages his property (i) as a borrower to secure a loan or (ii) as a guarantor to secure a loan and he has interest in the loan, and the mortgaged property is sold by the creditor.
1. In the case of reported in AIR 2002 SC 388, short facts were that the assessee who carried on abkari business mortgaged to the Excise Department of the State of Andhra Pradesh immovable property belonging to him. He did so to provide security for the amounts of "kits" which were due by him to the State. The State sold the immovable property by public auction, without the intervention of the court, to realise its dues. A sum of Rs. 5,62,980 was realised at the auction. Thereout, the State deducted the amount of Rs. 1,29,020 due to it towards "kits" and interest and paid over the balance to the assessee.
1.1. Observation and Finding of the Hon'ble Court
"We are of the view that the Tribunal and the High Court were in error. What was sold by the State at the auction was the immovable property that belonged to the assessee. The price that was realised therefore belonged to the assessee. From out of that price, the State deducted its dues towards "kits" and interest due from the assessee and paid over the balance to him. The capital gain that the assessee made was on the immovable property that belonged to him. Therefore, it is on the full price realised (less admitted deductions) that the capital gain and the tax thereon has to be computed."
2. The said decision of the Hon’ble Supreme Court has been relied upon by the ITAT, Chennai Bench in the case of The Income Tax Officer Vs. B. Kailasam , decided on 06.03.2018.
2.1. Observation and finding of ITAT :
“With regard to the issue of income from long term capital gain, the Assessing Officer noticed that the assessee sold the property at 17A, Karpagambal Nagar, Mylapore for a consideration of ` 1,75,00,000/-, which was not admitted by the assessee in the return of income. When the details were called for, it was the submission of the assessee that the assessee has mortgaged the property owned by him at Karpagambal Nagar, Chennai for the loan granted by Indian Overseas Bank (IOB) to Min Bimbangal Productions Pvt. Ltd. [MBPPL] around the year 2001-02. As it was only as additional collateral security extended by the assessee, the assessee did not receive any consideration at that time of the mortgage of the property with IOB. Since the MBPPL failed to repay the loan availed from IOB, the IOB issued notice for disposal of the property for recovery of the loan extended to MBPPL and subsequently the property was sold and the entire consideration was recovered by the bank. The contention of the assessee that the assessee has not received a pie from the transfer and the entire sale proceeds realized on transfer of the mortgaged asset has been appropriated towards discharge of mortgage was not accepted by the Assessing Officer since, when, the property belonging to the assessee is sold in discharge of the mortgage created by the assessee himself, then irrespective of the amount actually received by the assessee, the capital gain has to be computed on the full price realized [less admissible deduction] on transfer of the asset. Accordingly, the Assessing Officer worked out the income from capital gain and brought to tax.”
“The assessee has pledged his property to IOB as a collateral security to loan availed by MBPPL. No lay man can execute a deed of mortgage of his property against the loan availed by a third party, a private limited company, until and unless the individual has substantial interest over the said company. Even though MBPPL is a registered company, this company is owned partly by the assessee as observed by the ld. CIT(A). Thus, it is clear that the assessee availed loan from the IOB under the banner of MBPPL by mortgaging assessee's own property and MBPPL (partly owned by the assessee) failed to repay the loan, the bank sold the property and the entire consideration was recovered by the bank. Thus, it cannot be held that the assessee has not received any consideration directly or indirectly, which were liable to tax.”
Summary of Question- Capital gains in case of GPA and JDA in favour of builder
Question – Whether a registered GPA (General Power of Attorney) and JDA(Joint development agreement) in favour of a builder can be construed as transfer of land within meaning of section 2(47)(v) of the I. Tax Act for attracting Capital Gains.
Answer – Yes, but in certain situation.
1. In the case of M/s. Tamilnadu Brick Industries Vs. ITO (I.T.A.No.744/Chny/2017 decided by IIAT, Chennai on 11.05.2018), short facts were:
(i) The assessee was engaged in the business of brick manufacture and filed its return on 19.07.3013 for total income of ₹.44,04,628/-. The return of income was processed under section 143(1) of the Income Tax Act. Subsequently, the case of the assessee was selected for scrutiny. After scrutiny , the Assessing Officer completed the assessment under section 143(3) of the Act by determining the total income of the assessee at ₹.511,60,00,657/- after making addition of long term capital gains of ₹.511,02,41,400/-.
(ia) As the assessee who was engaged in the business of brick manufacture till 1986 was not functioning due to stoppage of brick manufacture because the available land was fully exploited, the firm’s 35 acres of land was subjected of joint development agreement [JDA] with M/s. Brigade Enterprises Ltd. during the year 2012-13 to develop residential flats . In this transaction, the assessee has received interest free refundable deposit of ₹.10 crores. The Assessing Officer applied the provisions of section 2(47)(v) of the Act since the assessee had agreed to transfer/sell its 60% of total land of 35.55 acres to M/s. Brigade Enterprises Ltd. for a consideration which would be equivalent to 40% of total constructed area . Hence, the Assessing Officer requested the assessee to explain the applicability of section 2(47(v) of the Act as per the JDA. In turn, the AR of the assessee contended before the Assessing Officer that the provisions of section 2(47)(v) of the Act would not be applicable as actual transfer of property as per section 53A of the Transfer of Property Act had not been taken place and it was a mere agreement to develop the property without transferring ownership till development. The Assessing Officer did not accept the assessee’s claim of non-applicability of section 2(47(v) of the Act and observed that the capital gain will be charged to tax as there was a transfer under the provisions of section 2(47)(v) of the Act. The value of the property was determined as on the date of execution of JDA by adopting the guideline value at ₹.5,500 per sq.ft. One acre is 43560 sq. ft. and accordingly, the area available was worked out at 15,48,558 sq. ft. for 35.55 acres. The guideline value for 15,48,558 sq. ft. at the rate of ₹.5,500 per sq. ft. was worked out at ₹.851,70,69,000/-. Accordingly, the Assessing Officer computed the capital gains on the deemed sale of 60% of the total area at ₹.511,02,41,400/- and added the same to the total income under the head “long term capital gains”.
(ii) The assessee moved in appeal before the ld. CIT(A). After considering the details as was furnished before the Assessing Officer and the written submissions, the ld. CIT(A) confirmed the addition made towards long term capital gains.
(iii) Being aggrieved, the assessee moved to ITAT contending , inter alia, that the ld. CIT(A) was not correct in confirming the taxation Long Term Capital Gains on the presumption of deemed transfer of 60% of the land in favour of the developer as per the scheme of Memorandum of Agreement and Joint Development Agreement executed on the application of section 2(47)(v) of the Act .
2. Hon’ble ITAT referring to various judgments observed and held, inter alia, as under:
“6.13.…………….………………………………………………………………………………………………………………………………………………………….In this case, transfer took place because land is given possession to the developer and in consideration of land owner agreeing to give 60% undivided share in the land, the developer agreed to construct and deliver 40% of the super built up area, therefore the transferor is liable for capital gain tax. There is vesting of rights by the land owner to the developer to possess the land and bring such land under its control to do certain developmental activities in terms of the contract. The essence of section 53A of the Transfer of Property Act is that there is a transfer as soon as the possession is vested. The law treats the same as deemed sale. The ITAT, Hyderabad in the case of Ravinder Singh Arora, ITA No.58 & 355 (Hyd) of 2011 dated 20.07.20 12 vide para 26 and in the case of Shri. Suresh Kumar D. Shah, ITA No.s420 to 425/Hyd/2011 dated 16. 12.2011 vide para 31 held that the fact of legal ownership continued with the owners to be transferred to the developer at a future distant date does not affect the applicability of Section 2(47)(v) of the Act. The contention of the assessee that the ownership never shifts to the builder is also not correct because when the ultimate sale takes place in favour of the final buyers, the signatories to the sale deed are both the owner and the developer. The developer possesses inherent title or right over the property till JDA subsists. Further after the completion of project, if final buyer is not available, the developer definitely is the owner for his share of super structure along with the undivided share in the land even if no instrument is registered formally transferring the ownership in favour of the developer. Part Performance comes into operation only to take care of situation like this.”
“6.16……………………………………………………………………The rights of the parties have been determined in clear terms both in JDA and the GPA-2 in comparison to MOU. The MOU is mere understanding which got formalized in JDA and GPA. Therefore, the ld. CIT(A) was of the view that the date of transfer must be taken as on 17.09.2012 instead of 31.01.2012.”
“7.2.4 . Under the above facts and circumstances, the execution of MOU and JDA coupled with two registered GPAs in favour of the developer, we conclude and held that the transfer of the schedule property was taken place on 17.09.2012 in terms of provisions of section 2(47)(v) of the Act and to this extent, the order of the ld. CIT(A) stands sustained.”
Summary of Question- Cancellation of Sale Deed
Question – Whether a Sale Deed can be cancelled by the seller even with the consent of the buyer.
Full Bench decision of the Hon’ble Madras High Court in AIR 2011 Mad. 66 observed and held as under:
" After giving our anxious consideration on the questions raised in the instant case, we come to the following conclusion: -
(i) A deed of cancellation of a sale unilaterally executed by the transferor does not create, assign, limit or extinguish any right, title or interest in the property and is of no effect. Such a document does not create any encumbrance in the property already transferred. Hence such a deed of cancellation cannot be accepted for registration.
(ii) Once title to the property is vested in the transferee by the sale of the property, it cannot be divested unto the transferor by execution and registration of a deed of cancellation even with the consent of the parties. The proper course would be to re-convey the property by a deed of conveyance by the transferee in favour of the transferor.
(iii) Where a transfer is effected by way of sale with the condition that title will pass on payment of consideration, and such intention is clear from the recital in the deed, then such instrument or sale can be cancelled by a deed of cancellation with the consent of both the parties on the ground of non-payment of consideration. The reason is that in such a sale deed, admittedly, the title remained with the transferor.
(iv) In other cases, a complete and absolute sale can be cancelled at the instance of the transferor only by taking recourse to the Civil Court by obtaining a decree of cancellation of sale deed on the ground inter alia of fraud or any other valid reasons."
Summary of Question- Stay of Execution of Arbitration Award
Question – What is the latest position with regard to stay of Arbitration Award.
1. Amendment has been made in 2015 in section 36 of the Arbitration and Conciliation Act to the effect that just filing of Appeal against the Award will not cause stay of enforcement of Award. In case , Award is stayed this stay will be on the condition of furnishing security if the Award is money Award.
2. In this connection, it is also relevant to quote below the following observation of the Hon’ble Supreme Court reported in (2018) 6 SCC 287:
“From a reading of Section 26 as interpreted by us, it thus becomes clear that in all cases where the Section 34 petition is filed after the commencement of the Amendment Act, and an application for stay having been made Under Section 36 therein, will be governed by Section 34 as amended and Section 36 as substituted. But, what is to happen to Section 34 petitions that have been filed before thle commencement of the Amendment Act, which were governed by Section 36 of the old Act? Would Section 36, as substituted, apply to such petitions? To answer this question, we have necessarily to decide on what is meant by "enforcement" in Section 36…...”
“…………where an arbitral award is delivered, such award shall be final and binding on the parties and persons claiming under them, Under Section 35 of the 1996 Act. Under Section 36, both pre and post amendment, such award shall be "enforced" in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the Court. It is clear that the scheme of the 1996 Act is materially different from the scheme of the 1940 Act. Under Section 17 of the 1940 Act, once an award was delivered, the Court had to pronounce judgment in accordance with the award, following which a decree would be drawn up, which would then be executable under the Code of Civil Procedure. Under Section 36 of the 1996 Act, the Court does not have to deliver judgment in terms of the award, which is then followed by a decree, which is the formal expression of the adjudication between the parties. Under Section 36 of the 1996 Act, the award is deemed to be a decree and shall be enforced under the Code of Civil Procedure as such.”
“Since it is clear that execution of a decree pertains to the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applications on the date of commencement of the Amendment Act.”
Summary of Question- Oral relinquishment of Joint Hindu Property
Question- Can there be a valid relinquishment of Joint Hindu Property orally i.e., without registered a deed of relinquishment.
1. AIR 1965 Bom 74
“The question then arises whether it is open to the mother to relinquish her interest in the joint family properties orally when the joint family properties consist of immovable properties like the suit fields and the value of her share therein is more than Rs.100/-. Mr. Deshpande drew my attention to the case reported in Dattatraya Govind v. Narayan Gangaram, AIR 1936 Nag 186. It was held by Vivian Bose J. in that case that "except in the case of partition among the members of a joint Hindu family, where the unities of possession, interest, title and time are complete and except in the case of entrance to a religious order involving complete renunciation of the world, no person can divest himself of interests which have once vested in him by a mere disclaimer. A title once vested can be divested only by a recognized conveyance or one of the other means allowed by law. It cannot pass by admission, relinquishment, or disclaimer when the law requires a deed." This case does not lay down that relinquishment cannot be made orally. All that it says is that the title once vested can be divested only by a recognized conveyance or by one of the other means allowed by law. It further says that the title once vested cannot pass by relinquishment when the law requires that relinquishment can only be made by a deed or by an instrument. Transfer of Property Act clearly recognizes oral transfers. Section 9 of the Act provides that "a transfer of property may be made without writing in every case in which a writing is not expressly required by law." It follows, therefore, that an oral transfer of property is rule unless there is law which expressly requires that it should be made in writing. Transfer of Property Act contains various transfers where writing is necessary. Under S. 54, a sale of tangible immovable property of the value of Rs.100/- or upwards, or of a reversion or other intangible thing is required to be made only by a registered instrument. Under Section 59, a writing is necessary in the case of a simple mortgage by deposit of title-deeds where the principal sum secured in Rs.100/- or upwards. Under Sec. 107, a lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent, is required to be made in writing. Under Section 123, a gift of immovable property can only be made by a writing. Under Sec. 130, all transfers of actionable claims have to be made by writing and, under Sec. 118, all exchanges are subject to the same rules as are applicable to sales. Thus, when the law requires that there should be an instrument in writing and that instrument must be registered, the transfer can only be effected in that manner. But where no writing is required by the Transfer of Property Act or any other law, the transfer may be made orally. Mr. Deshpande is unable to point out any statute which requires that the relinquishment by the mother of her interest in the joint family property, when the property consists of immovable property and the value of the share therein exceeds Rs. 100/- can only be made in writing or by an instrument registered.”
“In Imperial Bank of India, v. Bengal National Bank, Ltd. AIR1931Cal223 Rankin C.J. said that partition, release and surrender are all forms of transfer but that so far as the Transfer of Property Act is concerned, they come under no restrictions. A right to recover a share of immovable property may be relinquished orally and without an instrument in writing.”
“Mr. Deshpande, however, drew my attention to the provisions of Section 17 of the Registration Act. There is nothing in the Registration Act or the provisions of Section 17 thereof, which requires any particular transaction to be recorded in writing. That Act requires only that when certain transactions are so recorded, the writing shall be registered. There is nothing in the Transfer of Property Act or any other law that I am so far aware which requires that a mere extinguishment of an interest in the immovable property shall be in writing. The relinquishment by Bainabai of her interest in the joint family property was merely abandonment of here interest in the joint family property in favour of her two sons. Such a relinquishment or abandonment of interest in the joint family property, even though it consists of immovable properties and is of the value of Rs.100/- and upwards, can be effected without a written instrument, though if one is executed, it would undoubtedly require registration under Section 17 of the Registration Act,………..”
2. 2008 (2) MhLJ 334
“The law is well settled that a co-parcener or a sharer in joint family property can surrender his share orally at the time of partition. In a decision cited by the leaned counsel for the appellant, reported in 1964 Mh.L.J.736 (Ramdas Chimna v. Pralhadj Deorao), it is held that oral relinquishment of share in a joint family property is valid. As; said earlier, the plaintiff's case is of oral surrender and that too of self-acquired property. Such alleged surrender, if any, of self acquired property was therefore invalid and Pithuji continued to be the owner and no title under the alleged surrender ever vested in the plaintiff or defendant No. 2.”
3. 1996 (2) Bom CR 183
“It may be that there can be valid oral relinquishment as held by this Court in Ramdas Chimna v. Pralhad Deorao, 1964 Mah.L.J. 736 and Hivabai w/o Harji Ingale v. Babu Manika Ingale, 1980 Mah.L.J. 494 and there can be an oral maintenance arrangement but then such an oral arrangement must satisfy the requirements of a family arrangement as held by the Supreme Court in the case of Kale and others v. Dy. Director of Consolidation, 1976 (3) SCR 202 , while holding that the family arrangement can be oral in which case no registration is necessary, the Supreme Court has inter alia held in the said case that the family arrangement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family and that it must be voluntary and should not be induced by fraud, coercion or undue influence. In the facts and circumstances narrated above it cannot be held that the maintenance arrangement in question satisfies the above tests. It cannot thus be held to be valid.”
4. AIR 1980 Bom 315
“As far as oral surrender by a Hindu in such property is concerned, there is good authority of this Court in Ramdas Chimna v. Pralhad Deorao, AIR 1965 Bom 74 , that it can be done without any document, there being no impediment of effecting such surrender in terms enacted by the provisions of the T. P. Act. We are in agreement with what is observed by the learned single Judge of this Court in Ramdas Chimna's case that the oral relinquishment by the mother of her interest in Hindu Joint Family property exceeding Rs. 100/- in value is valid and effective. There is also the authority for such proposition of a Division Bench of this Court in Kisansingh v. Vishnu, AIR 1951 Bom 4 , where the father by recourse to division of property evidenced by oral declarations settled the same on his sons……….”
Summary of Question- Death of borrower / guarantor after 13(2) SARFASI Notice
Question- Whether Fresh Notice under section 13(2) of SARFASI Act is required to be given to the legal heirs if there is death of borrower / guarantor
A Division Bench of the Hon’ble Madras High Court in W.P. No. 27230 of 2009 decided on 01.12.2010 observed and held :
“Point No. (i): Whether the notice under Sub-section (2) of Section 13 should be issued to the legal heirs of the deceased borrower/guarantor afresh in the event such borrower/guarantor dies after the service of notice under Sub-section (2) of Section 13 of the SARFAESI Act. The object of the provisions of Sub-section (2) of Section 13 is mainly requiring the borrower/guarantor by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice, failing which the secured creditor shall be entitled to exercise all or any of the rights under Sub-section (4) of Section 13 of the SARFAESI Act. In that sense, the proceedings initiated against a person while he was alive would automatically stand abated immediately after his/her demise. The only course open to the Respondent-Bank is to initiate proceedings by issuance of fresh notice to the legal heirs of the borrower/guarantor, as the case may be, as the legal heirs of the borrower/guarantor will have an opportunity to discharge the liabilities in sixty days. Only in the event of failure to discharge the liabilities in full by the legal heirs, the Respondent-Bank could proceed further by issuance of notice under Sub-section (4) of Section 13 and duly served or affixed in terms of that provision read with Rule 8 of the Security Interest (Enforcement) Rules. The first point is answered accordingly.”
Summary of Question- Non-applicability of section 17 of Limitation Act to condone delay in filing application under section 34 of Arbitration and Conciliation Act.
Question- Whether an application under section 17 of the Limitation Act would be maintainable to condone delay in filing an application for setting aside Award under section 34 of the Arbitration and Conciliation Act.
In Civil Appeal Nos. 7710-7713 of 2013 decided on 26.9.2018, the Hon’ble Supreme Court observed and held:
“If Section 17 of the Limitation Act were to be applied to determining the limitation period Under Section 34(3), it would have the following consequences:
(a) In Section 34(3), the commencement period for computing limitation is the date of receipt of award or the date of disposal of request Under Section 33 (i.e. correction/additional award).
If Section 17 were to be applied for computing the limitation period Under Section 34(3), the starting period of limitation would be the date of discovery of the alleged fraud or mistake. The starting point for limitation Under Section 34(3) would be different from the Limitation Act.
(b) The proviso to Section 34(3) enables a Court to entertain an application to challenge an Award after the three months period is expired, but only within an additional period of thirty dates, "but not thereafter". The use of the phrase "but not thereafter" shows that the 120 days period is the outer boundary for challenging an Award. If Section 17 were to be applied, the outer boundary for challenging an Award could go beyond 120 days. The phrase "but not thereafter" would be rendered redundant and otiose. This Court has consistently taken this view that the words "but not thereafter" in the proviso of Section 34 (3) of the Arbitration Act are of a mandatory nature, and couched in negative terms, which leaves no room for doubt…..”
“…….the exclusion of Section 17 is also necessarily implied when one looks at the scheme and object of the Arbitration Act.”
“In the context of Section 34, a party can challenge an award as soon as it receives the award. Once an award is received, a party has knowledge of the award and the limitation period commences. The objecting party is therefore precluded from invoking Section 17(1)(b) & (d) once it has knowledge of the Award. Section 17(1)(a) and (c) of Limitation Act may not even apply, if they are extended to Section 34, since they deal with a scenario where the application is "based upon" the fraud of the Respondent or if the application is for "relief from the consequences of a mistake". Section 34 application is based on the award and not on the fraud of the Respondent and does not seek the relief of consequence of a mistake.
“ The fraudulent conduct where Section 17 of the Limitation Act would have helped the objecting party is where there was a fraud in the delivery of the award. However, in such a scenario, resort to Section 17 is not necessary. If there is any fraud in the delivery of Award, the requirement of receipt of Award Under Section 34(3) itself is not satisfied.”
Summary of Question- Attachment of Pension Account
Question- Can Bank attach Pension account to recover loan dues.
1. Madurai Bench of the Hon’ble Madras High Court in W. P (MD) No. 17838 of 2015 and M. P. (MD) No. 1 of 2015 (in which the petitioner was aggrieved against the order of SBI, SARB by which petitioner’s SB Account dealing with her pension amount) was put was put on hold, relied on (2009) 1 SCC 376 and held :
‘6. It is well settled that attachment of pension amount cannot be made for realization of any outstanding. In this aspect, the above decision of the Apex Court relied on by the learned Counsel appearing for the petitioner can be usefully quoted, wherein, in paragraph No.33, the Supreme Court has observed that the pension and gratuity amount should not attached under the provision of the Code of Civil Procedure. Paragraph No.33 reads as follows:-
“33. However, we are also of the view that having regard to proviso (g) to Section 60(1) of the Code, the High Court committed a jurisdictional error in directing that a portion of the decretal amount be satisfied from the fixed deposit receipts of the appellant held by the Bank. The High Court also erred in placing the onus on the appellant to produce the Matador in question for being auctioned for recovery of the decretal dues. In other words, the High Court erred in altering the decree of the trial Court in it revisional jurisdiction, particularly, when the pension and gratuity of the appellant, which had been converted into fixed deposits, could not be attached under the provisions of the Code of Civil Procedure. The decision in Jyothi Chit Fund case has been considerably watered down by later decision which have been indicated in para 22 hereinbefore and it has been held that gratuity payable would not be liable to attachment for satisfaction of a court decree in view of proviso (g) to Section 60(1) of the Code"
7. Therefore, if there is any outstanding due payable by the petitioner, it is for the respondents bank to work out their remedy to recover the said amount, in the manner known to and permissible by law, before the appropriate forum. Without doing so, resorting to attach the pension amount by way of passing the impugned order is impermissible.’
2. In this connection, it is also worthwhile to refer to the Hon'ble NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION decison dated 29th. Jan 2019 in REVISION PETITION NO. 2840 OF 2018 (CHIEF MANAGER, STATE BANK OF INDIA Vs. MANIKA SARKAR) in wnich NCDRC found no irregularity in the order passed by both the District Forum and the State Commission.
2.1. The District Forum order was that the Respondent (before NCDRC) is a widow and her husband was a defence employee ; After the demise of her husband, family pension used to be credited in the Savings Banks Account, which the Respondent held jointly with her son ; Under no circumstances, pension can be withheld.
2.2. The State Commission stated in its order that they do not find any irregularity in the order passed by the District Forum, as no transaction other than withdrawal of the pension amount was allowed ; The Respondent cannot be made to suffer due to the offence committed by her son, who incidentally was a joint holder of the Pension Account in question.
Summary of Question- Finality of Award given by Lok Adalat
Question – Whether Suit or Writ petition against Award given by Lok Adalat would be maintainable.
1. The Hon’ble Supreme Court in the case reported in (2005) 6 SCC 478 held –
“The award of Lok Adalat is final and permanent which is equivalent to a decree executable, and the same is an ending to the litigation among parties.”
2. The Apex Court also referred to the decisions of Hon’ble M.P. High Court reported in AIR 2000 MP 301 and Hon’ble Andhra Pradesh High Court reported in 2000 (5) ALT 577 as quoted below :
M.P. High Court -
“This provisions* of the Act shall prevail in the matter of filing an appeal and an appeal would not lie under the provisions of Section 96 C.P.C. Lok Adalat is conducted under an independent enactment and once the award is made by Lok Adalat the right of appeal shall be governed by the provisions of the Legal Services Authorities Act when it has been specifically barred under Provisions of Section 21(2), no appeal can be filed against the award under Section 96 C.P.C."
* Section 25 of Legal services Authorities Act which provides that the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
"It may incidentally be further seen that even the Code of Civil Procedure does not provide for an appeal under Section 96 against a consent decree. The Code of Civil Procedure also intends that once a consent decree is passed by Civil Court finality is attached to it. Such finality cannot be permitted to be destroyed, particularly under the Legal Services Authorities Act, as it would amount to defeat the very aim and object of the Act with which it has been enacted, hence, we hold that the appeal filed is not maintainable.”
A.P . High Court –
“The award is enforceable as a decree and it is final. In alt fours, the endeavour is only to see that the disputes are narrowed down and make the final settlement so that the parties are not again driven to further litigation or any dispute. Though the award of a Lok Adalat is not a result of a contest on merits just as a regular suit by a Court on a regular trial, however, it is as equal and on par with a decree on compromise and will have the same binding effect and conclusive. Just as the decree passed on compromise it cannot be challenged in a regular appeal, the award of the Lok Adalat being akin to the same, it cannot be challenged by any regular remedies available under law including invoking Article 226 of the Constitution of India challenging the correctness of the award on any ground. Judicial review cannot be invoked in such awards especially on the grounds as raised in this writ petition.”
Summary of Question- Inconsistent stand by a Party on same facts
Question – Whether it is permissible for a party to approbate and reprobate on same facts and take inconstant shifting stands.
1. Brief facts in a case before a three Judges Bench of the Hon’ble Supreme Court reported in AIR 2018 SC 4769 were as under:
i. Company Petition was filed for winding up of M/s. Mahendra Petrochemicals Ltd. (M/s. MPL). The company was also referred for rehabilitation to BIFR. During pendency of the same, without permission or knowledge of the BIFR, M/s. MPL entered into an unregistered memorandum of understanding ( 'MOU') with the sister concern of the Appellant, M/s. Suzuki Parasrampuria Suitings Pvt. Ltd. for leasing out its properties to the Appellant for 20 years for repayment of its debts. The MOU was also not brought to the attention of the company court till the winding-up order was passed on 19.04.2010. The IFCI, Bank of Baroda and the Punjab National Bank were secured creditors. IFCI held first charge over the assets of M/s. MPL and the Bank of Baroda held second charge. On 28.07.2010 after the winding-up order, IFCI assigned its dues to the Appellant for a sum of Rs. 85 lacs only and informed the official liquidator.
ii. The Appellant then filed Company Application No. 248 of 2014 with a prayer for substitution in place of IFCI as a secured creditor of M/s. MPL. The Company Judge rejected the application on 31.07.2015 holding that the Appellant was neither a Bank or Banking company or a financial institution or securitization company or reconstruction company and therefore could not be substituted in place of IFCI as a secured creditor for the purpose of the SARFAESI Act. In the nature of the relief sought for substitution as a secured creditor under the SARFAESI Act, the Company Judge held that the Appellant could not draw any benefit for the purpose from Section 130 of the Transfer of Property Act. The Appellant then filed OJMCA No. 170 of 2015 invoking the inherent powers of the Company Court for recall/review of order dated 31.07.2015 contending that the Appellant had never sought substitution as a secured creditor and simply desired substitution as a transferee of an actionable claim under Section 130 of the Transfer of the Property Act . The recall/review application was rejected holding that an entirely new case was sought to be made out in the application.
2. The Apex Court observed and held:
“The Appellant initially took a conscious and considered stand before the Company Judge, staking a claim for being substituted as a secured creditor under the SARFAESI Act consequent to the assignment of debt to it by the IFCI. That the claim was not simply with regard to assignment of an actionable claim under Section 130 of the T.P. Act is evident from its own pleadings and the pursis filed by the IFCI before the Debt Recovery Tribunal. No material has been placed before us with regard to the orders that may have been passed by the Tribunal on such application. After the claim of the Appellant of being a secured creditor was rejected by the Company Judge, and the Appellant realised the unsustainability of its claim in the law, it made a complete volte face from its earlier stand and surprisingly, contrary to its own pleadings, now contended that it had never sought the status of a secured creditor under the SARFAESI Act.”
“A litigant can take different stands at different times but cannot take contradictory stands in the same case. A party cannot be permitted to approbate and reprobate on the same facts and take inconsistent shifting stands. The untenability of an inconsistent stand in the same case was considered in Amar Singh v. Union of India (2011) 7 SCC 69, observing as follows:
50. This Court wants to make it clear that an action at law is not a game of chess. A litigant who comes to Court and invokes its writ jurisdiction must come with clean hands. He cannot prevaricate and take inconsistent positions.”
“A similar view was taken in Joint Action Committee of Air Line Pilots' Assn. of India v. DG of Civil Aviation (2011) 5 SCC 435, observing:
12. The doctrine of election is based on the Rule of estoppel--the principle that one cannot approbate and reprobate inheres in it. The doctrine of estoppel by election is one of the species of estoppels in pais (or equitable estoppel), which is a Rule in equity..... Taking inconsistent pleas by a party makes its conduct far from satisfactory. Further, the parties should not blow hot and cold by taking inconsistent stands and prolong proceedings unnecessarily.”
Summary of Question- Cancellation of conditional Gift Deed
Question – Can a conditional Gift deed be cancelled.
CIVILAPPEAL NO. 10785 OF 2018 decided on 26th. October 2018
In the said case one ‘S’ executed a gift deed . The gift deed specified that the gift would take effect after death of donor (‘S’ ) and her husband with the condition that the donee would look after them. Subsequently, ‘S’ executed a deed of cancellation, cancelling the gift deed.
Apex Court observed and held as under:
"A conditional gift with no recital of acceptance and no evidence in proof of acceptance, where possession remains with the donor as long as he is alive, does not become complete during lifetime of the donor. When a gift is incomplete and title remains with the donor the deed of gift might be cancelled."
“We are in agreement with the decision of this Court in Reninkuntla Rajamma (supra) that there is no provision in law that ownership in property cannot be gifted without transfer of possession of such property. However, the conditions precedent of a gift as defined in Section 122 of the Transfer of Property Act must be satisfied. A gift is transfer of property without consideration. Moreover, a conditional gift only becomes complete on compliance of the conditions in the deed.”
“In the instant case, admittedly, the deed of transfer was executed for consideration and was in any case conditional subject to the condition that the donee would look after the Petitioner and her husband and subject to the condition that the gift would take effect after the death of the donor. We are thus constrained to hold that there was no completed gift of the property in question by the Appellant to the Respondent and the Appellant was within her right in cancelling the deed. The judgment and order of the High Court cannot, therefore, be sustained.”
Summary of Question- Grounds of ‘Time not essence of contract’ and ‘Force Majeure’ by builder
Question – Whether grounds of ‘Time not essence of contract’ and ‘Force Majeure’ would be valid to seek condonation of delay in giving possession of Flat.
Answer- No. However, in the matter of ‘Force Majeure’ clause in a Contract , the decision of the Hon’ble Supreme Court reported in (2017) 14 SCC 80 is relevant.
1. The Hon'ble National Commission in 16 Appeals pertaining to DLF HOMES PANCHKULA PVT. LTD. , decided on 12 December 2018, observed and held :
"57.We may note that the builder co. has raised two principal contentions:
one: that ‘time was not the essence of the contract’. two: that due to force majeure the possession of the subject unit could not be given to the complainant in time as Hon’ble Supreme Court had stayed construction activities at the site Vide its Order dated 19.04.2012.
We have already determined in para 41 above that the builder co.’s contention that ‘time is not the essence of the contract’ is misconceived and erroneous. [Such finding has also been given by the State Commission (refer para 28 (d) above)]. We may also note that assigning (by itself to itself) an extended time period of 12 months by its letter dated 05.06.2013 is also per se on the face of it inconsistent with the builder co.’s contention that ‘time was not the essence of the contract’. Had that been so, there was no need to assign to itself an additional time period in the way it was assigned by it vide its letter dated 05.06.2013 (refer paras 53, 54 above). However, that being as it may be, we are, as already determined in para 41 above, of the clear opinion that the builder co.’s contention that ‘time is not the essence of the contract’ is misconceived and erroneous.
We may further note that, as already stated in paras 47 and 48 above, availability of land (/ acquisition of land), as well as approvals from competent authorities, as and when due, being fundamental basic requirements of a housing project, are decidedly the builder co.’s primary responsibilities, and not of the consumer, and, force majeure , unforeseeable circumstances, irrespective of its various ‘liberal’ or ‘strict’ interpretations, and irrespective of its various interpretations in different sets of facts, can, but, not be nebulously and irrationally argued for anything and everything related to the builder co.’s responsibilities for completion of the project without cost or time overruns. In the given facts and position of this case, we do not find merit in the builder co.’s contention that stoppage of construction activities for about 8 months (from 19.04.2012 to 12.12.2012) due to an interim Order of Hon’ble Supreme Court in litigation apropos acquisition of land can be construed to mean ‘force majeure’ .
However, we may furthermore note that due to this interim Order of Hon’ble Supreme Court, the builder co. assigned to itself an extended time period of 12 months vide its letter dated 05.06.2013. The State Commission has computed compensation from the date the extended time period expired. We have also not interfered with this milestone date (refer para 55 above). So, either way, this contention of the builder co. also fails."
2. Following observations of the Hon'ble Supreme Court in the case ,reported in (2017) 14 SCC 80, is noteworthy on the point of Force majeure in the matter of a contract:
" “Force majeure” is governed by the Indian Contract Act, 1872. In so far as it is relatable to an express or implied clause in a contract,............. , it is governed by Chapter III dealing with the contingent contracts, and more particularly, Section 32 thereof. In so far as a force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Contract....."
" Prior to the decision in Taylor vs. Caldwell, (1861-73) All ER Rep 24, the law in England was extremely rigid. A contract had to be performed, notwithstanding the fact that it had become impossible of performance, owing to some unforeseen event, after it was made, which was not the fault of either of the parties to the contract. This rigidity of the common law in which the absolute sanctity of contract was upheld was loosened somewhat by the decision in Taylor vs. Caldwell in which it was held that if some unforeseen event occurs during the performance of a contract which makes it impossible of performance, in the sense that the fundamental basis of the contract goes, it need not be further performed, as insisting upon such performance would be unjust."
" The law in India has been laid down in the seminal decision of Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310. The second paragraph of Section 56 has been adverted to, and it was stated that this is exhaustive of the law as it stands in India. What was held was that the word “impossible” has not been used in the Section in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose of the parties. If an untoward event or change of circumstance totally upsets the very foundation upon which the parties entered their agreement, it can be said that the promisor finds it impossible to do the act which he had promised to do. It was further held that where the Court finds that the contract itself either impliedly or expressly contains a term, according to which performance would stand discharged under certain circumstances, the dissolution of the contract would take place under the terms of the contract itself and such cases would be dealt with under Section 32 of the Act. If, however, frustration is to take place de hors the contract, it will be governed by Section 56."
" In M/s Alopi Parshad & Sons Ltd. v. Union of India, 1960 (2) SCR 793, this Court, after setting out Section 56 of the Contract Act, held that the Act does not enable a party to a contract to ignore the express covenants thereof and to claim payment of consideration, for performance of the contract at rates different from the stipulated rates, on a vague plea of equity. Parties to an executable contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate, for example, a wholly abnormal rise or fall in prices which is an unexpected obstacle to execution. This does not in itself get rid of the bargain they have made. It is only when a consideration of the terms of the contract, in the light of the circumstances existing when it was made, showed that they never agreed to be bound in a fundamentally different situation which had unexpectedly emerged, that the contract ceases to bind. It was further held that the performance of a contract is never discharged merely because it may become onerous to one of the parties."
" Similarly, in Naihati Jute Mills Ltd. v. Hyaliram Jagannath, 1968 (1) SCR 821, this Court went into the English law on frustration in some detail, and then cited the celebrated judgment of Satyabrata Ghose v. Mugneeram Bangur & Co. Ultimately, this Court concluded that a contract is not frustrated merely because the circumstances in which it was made are altered. The Courts have no general power to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events."
" It has also been held that applying the doctrine of frustration must always be within narrow limits. In an instructive English judgment namely, Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH, 1961 (2) All ER 179, despite the closure of the Suez canal, and despite the fact that the customary route for shipping the goods was only through the Suez canal, it was held that the contract of sale of groundnuts in that case was not frustrated, even though it would have to be performed by an alternative mode of performance which was much more expensive, namely, that the ship would now have to go around the Cape of Good Hope, which is three times the distance from Hamburg to Port Sudan. The freight for such journey was also double. Despite this, the House of Lords held that even though the contract had become more onerous to perform, it was not fundamentally altered. Where performance is otherwise possible, it is clear that a mere rise in freight price would not allow one of the parties to say that the contract was discharged by impossibility of performance."
" This view of the law has been echoed in ‘Chitty on Contracts’, 31st edition. In paragraph 14-151 a rise in cost or expense has been stated not to frustrate a contract. Similarly, in ‘Treitel on Frustration and Force Majeure’, 3rd edition, the learned author has opined, at paragraph 12-034, that the cases provide many illustrations of the principle that a force majeure clause will not normally be construed to apply where the contract provides for an alternative mode of performance. It is clear that a more onerous method of performance by itself would not amount to an frustrating event. The same learned author also states that a mere rise in price rendering the contract more expensive to perform does not constitute frustration. (See paragraph 15-158)"
" Indeed, in England, in the celebrated Sea Angel case, 2013 (1) Lloyds Law Report 569, the modern approach to frustration is well put, and the same reads as under:
“111. In my judgment, the application of the doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances. Since the subject matter of the doctrine of frustration is contract, and contracts are about the allocation of risk, and since the allocation and assumption of risk is not simply a matter of express or implied provision but may also depend on less easily defined matters such as “the contemplation of the parties”, the application of the doctrine can often be a difficult one. In such circumstances, the test of “radically different” is important: it tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances.”