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Madras High Court mandates proportionality in freezing of bank accounts by investigating authorities

Judge's gavel resting on a wooden table with a neutral background.

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The Hon’ble Madras High Court (“Madras HC”), in the matter of Mohammed Saifullah vs. Reserve Bank of India and Ors[1] has delivered a significant ruling on the freezing of bank accounts in cases of ongoing investigations, particularly concerning cybercrimes. The judgment addresses the need to balance investigative needs with the rights of account holders. It also provides clear directions on conducting such actions in a manner that prevents unnecessary hardship to account holders.

Brief facts

Mohammed Saifullah (“Petitioner”) filed a writ of mandamus before the Madras HC after HDFC Bank froze his account based on the instructions from the Cyber Crime Bureau, Telangana. This action was taken as part of an investigation into cryptocurrency-related activities.
While only INR 2,48,835 (Indian Rupees two lakh forty-eight thousand eight hundred and thirty-five) of the account’s balance was suspected to be involved in the crime, the bank froze his account which had a balance of INR 9,69,580 (Indian Rupees nine lakh sixty-nine thousand five hundred and eighty).
The Petitioner argued that neither the investigating agency nor the bank had informed him of the reasons for the freezing of the account or how long it would last, causing undue hardship in his financial affairs.

Issues

Whether the blanket freezing order is justified in cases where the suspected amount is lower than the total account balance?
Should the account holder be notified of the reasons for freezing their bank account?

Analysis and findings

The Madras HC, while acknowledging the statutory powers granted to investigation agencies to freeze accounts under Section 102 of the Code of Criminal Procedure, 1973 (now Section 106 of the Bhartiya Nagarik Suraksha Sanhita, 2023)[2], emphasised that these powers must be exercised responsibly. Below is the summary of the Madras HC’s findings:

account holders must be notified promptly of the reasons for freezing their accounts, and a timeline should be provided for the freeze. The failure to do so violates basic principles of natural justice;
freezing the entire account balance when only INR 2,48,835 (Indian Rupees two lakh forty-eight thousand eight hundred and thirty-five) was suspected to be linked to the crime was unjustified. It held that investigative agencies should freeze or mark a lien only the amount related to the investigation/alleged crime and not the entire account, unless circumstances warrant it; and
indiscriminate freezing of accounts could severely affect individuals’ right to livelihood and business, violating Article 19(1)(g) of the Constitution of India, which guarantees the right to carry on business. The Madras HC stressed that actions by investigating authorities should not infringe upon these fundamental rights without proper justification.

The Madras HC concluded by directing HDFC Bank to immediately de-freeze the Petitioner’s account, allowing him to utilise the remaining funds. However, the bank was instructed to retain a lien on INR2,50,000 (Indian Rupees two lakh fifty thousand), slightly higher than the amount under suspicion, until the investigation was concluded. The Petitioner was also directed to ensure that this amount remain in his account.

Conclusion

This judgment is a significant step toward protecting the rights of individuals and businesses affected by arbitrary account freezes by investigating agencies. By setting guidelines, the Madras HC has reinforced the importance of proportionality and transparency in freezing orders during investigations. Authorities must now ensure that: (a) such freeze is limited to the amount under investigation; and (b) they must promptly inform account holders of the reasons and duration of the freeze.

Additionally, the judgment places a responsibility on law enforcement agencies to conduct thorough investigations, particularly in cases where no specific amount of fraud has been quantified by the complainant. The police will need to carefully evaluate such situations to ensure that the accused is not unjustly enriched whilst also preventing severe prejudice to the complainant. This careful balancing act is essential to avoid unnecessary hardship on the account holders while ensuring that victims of fraud are adequately protected. This ruling will help mitigate the financial and operational challenges caused by unnecessarily broad freezing orders, ensuring a fairer process for account holders while allowing investigations to proceed effectively.

It is important to note that these guidelines are currently limited to the jurisdiction of the Madras HC and, by extension, the state of Tamil Nadu. Similar guidelines will need to be issued by other High Courts or the Supreme Court to provide uniform protection across the country. Nonetheless, this judgment will carry considerable weight and may be cited as persuasive precedent in other courts dealing with similar issues.

This Prism is prepared by:

Varghese Thomas
Partner

Hormuz Mehta
Partner

Ahsan Allana
Senior Associate

[1] W.P.No.25631 of 2024

[2] Power of police officer to seize certain property

Tags Arbitration, Dispute Resolution, JSA, Leading Law Firm, Leading Lawyers, Legal Updates

Sidharth Sethi | India ADR Week 2024 | Delhi

Our Partner, Sidharth Sethi, was invited as a speaker at the recently concluded India ADR Week 2024. Sidharth shared his insights on the topic “Competence-Competence or Incompetence-Incompetence? Court intervention in tribunal jurisdiction”.

Sidharth was joined by:

Dr. Birendra Saraf, Senior Advocate & Advocate General, State of Maharashtra
Mr. Niraj Modha, Barrister and Arbitrator, 39 Essex Chambers
Ms. Tejal Patil, General Counsel, Wipro
Mr. Zameer Nathani, Group General Counsel, CarDekho Group

The session was moderated by Hon’ble Mr. Justice (Retd.) AK Sikri, Former Judge, Supreme Court of India.

JSA Prism | Dispute Resolution | September 2024

Please click here to download the Prism as a PDF.

Supreme Court clarifies that an application seeking extension of arbitral tribunal’s mandate under Section 29A of the Arbitration and Conciliation Act, 1996 can be filed even after the expiry of the mandate

In the recent case of Rohan Builders vs. Berger Paints[1] (“Rohan Builders Case”), the Hon’ble Supreme Court of India (“Supreme Court”) has conclusively settled the long-standing issue concerning the time of filing an application for extension of time to render an arbitral award under Section 29A of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). While deciding the issue in the affirmative, the Supreme Court ruled that such an application can be filed even after the expiry of the prescribed time period.

Background

Under Section 29A of the Arbitration Act, arbitral awards in domestic arbitrations must be delivered within 12 (twelve) months from the date of completion of pleadings[2]. This time period can be extended by another 6 (six) months by the consent of the parties. If the arbitral tribunal is unable to pass the award within this time period of 12 (twelve) months (or 18 (eighteen) months, where parties have consented to the 6 (six)month extension), the mandate of the arbitral tribunal terminates. Thereafter, the mandate can be further extended only by the court under Section 29A(4) of the Arbitration Act, on an application from either party to continue the arbitration process.

In the Rohan Builders Case, the Supreme Court held that under Section 29A(4) of the Arbitration Act, the power to extend the mandate of the arbitral tribunal can be exercised by courts even after the mandate has expired.

This judgement puts to rest the convergent views taken by the High Courts of Calcutta, Delhi, Patna, Bombay, Madras, Kerala and Jammu and Kashmir on this issue.

Brief facts

Rohan Builders (the “Petitioner”) filed an application under Section 29(4) of the Arbitration Act seeking an extension of the arbitral tribunal’s mandate before the Hon’ble High Court at Calcutta (“Calcutta HC”) as the arbitral tribunal had failed to render the award in the prescribed time. Berger Paints (the “Respondent”) contested the application arguing, inter alia, that the Petitioner ought to have sought an extension during the subsistence of the arbitral tribunal’s mandate and that any application filed thereafter is not maintainable.

By a judgment dated September 6, 2023[3], the Calcutta HC agreed with the Respondent, holding that applications seeking extension of time under Section 29A(4) of the Arbitration Act cannot be filed after the prescribed time period (12 (twelve) months or 18 (eighteen) months from the date of completion of pleadings, as the case may be) had expired. The Calcutta HC provided the following reasons for its decision:

Section 29A of the Arbitration Act provides for: (a) ‘termination’ of the arbitral tribunal’s mandate on the expiry of the prescribed period; and (b) ‘extension’ of the mandate. Read together, this means that the mandate of the arbitral tribunal must be ‘continuing’ for it to be extended;
there is a conscious omission of the words ‘renewal’ or ‘revival’ in the provisions empowering courts to extend the mandate of an arbitral tribunal. Such words would have been used (instead of ‘extension’) if the legislature intended that an application under Section 29A(4) of the Arbitration Act could be made even after the expiry of the arbitral tribunal’s mandate; and
allowing parties to approach courts for extension of time even after the expiry of the arbitral tribunal’s mandate would: (a) render the time limits for making an award inconsequential; and (b) encourage rogue litigants who could stall arbitrations by filing extension applications long after the expiry of the arbitral tribunal’s mandate.

Aggrieved, the Petitioner challenged the Calcutta HC’s judgement before the Supreme Court.

Issue

Whether an application for extension of time under Section 29A of the Arbitration Act can be filed even after the expiry of the prescribed period for making of the arbitral award?

Findings

The Supreme Court recognised the divergent views on the issue while the Calcutta HC and High Court of Patna had held that the power of extension under Section 29A(4) of the Arbitration Act cannot be invoked after the arbitral tribunal’s mandate had ended. The High Courts at Delhi, Bombay and Madras had held that parties are entitled to seek an extension of time under Section 29A(4) of the Arbitration Act even after the end of the prescribed time for making an award.

The Supreme Court concurred with the latter view and held that an application for extension of time to make an arbitral award can be filed after the expiry of the prescribed time period. The Supreme Court reasoned that:

Section 29A(4) of the Arbitration Act provides that the mandate of the arbitral tribunal will stand terminated unless extended by the court “either prior to or after the expiry of the period” prescribed for making an arbitral award. The plain language of the provision was unambiguous, and it clearly empowered courts to extend the time for making an award even after the expiry of the mandated period; and
courts should be wary of prescribing a limitation period where the legislature has refrained from doing so.[4] Since no limitation period was prescribed by Section 29A(4) of the Arbitration Act, requiring parties to file extension applications within a specific timeframe would amount to rewriting the statute.

The Supreme Court also dealt with the rationale provided by the Calcutta HC in the following manner:

the Supreme Court noted that the Calcutta HC’s decision turned on the interpretation of the word ‘terminate’ used in Section 29A of the Arbitration Act. However, the Supreme Court clarified that the word ‘terminate’ is followed by the word ‘unless’. As such, the termination of the arbitral tribunal’s mandate is qualified by the succeeding part of the provision, which provides that the mandatory period for making an arbitral award may be extended by the court “either prior to or after the expiry of the period”; and
the Supreme Court appreciated the Calcutta HC’s concern that if parties are allowed to approach the court for extension of time even after expiry of the prescribed time period, rogue litigants may misuse the provision to defeat the mandatory timelines for making an award. However, the Supreme Court highlighted that Section 29A provided for various safeguards against such rogue litigants: (a) the power to extend time is not to be exercised mechanically, but only for ’sufficient cause’; and (b) while extending the time for making an award, the court can impose terms and conditions and even substitute the arbitral tribunal’s member(s).

Conclusion

As observed by the Supreme Courts, High Courts across India have provided conflicting answers to the question of whether extension of time in an arbitration can be sought after the end of the arbitral tribunal’s mandate. With the decision in the Rohan Builders Case, the Supreme Court has rightly ended the conflict by unequivocally declaring that parties are permitted to seek, and courts are empowered to grant, extension of time even if it is sought after the end of the prescribed time period for making an award.

Holding otherwise would have rendered portions of Section 29A(4) of the Arbitration Act meaningless, which expressly empower courts to grant extension of time “either prior to or after the expiry of the period” prescribed for making an arbitral award. As such, the decision is in consonance with the well-settled principle ut res magis valeat quam pereat, which requires courts to lean in favour of interpretations that make statutory provisions intra vires.[5]

Earlier, in Chief Engineer (NH) PWD (Roads) vs. BSC&C and C JV^[6], the Supreme Court had settled conflicting views regarding the territorial jurisdiction under Section 29A of the Arbitration Act for seeking extension of time. It held that the power to extend the time for making an arbitral award vests with principal civil court of original jurisdiction (including a High Court, provided the High Court has ordinary original civil jurisdiction). Now, with the Rohan Builders Case, parties can also enjoy certainty with respect to the time periods governing extension applications under Section 29A of the Arbitration Act.

This judgement also addresses the recent trend of courts mechanically allowing extension applications under Section 29A of the Arbitration Act and reminds parties that such applications can only be allowed for sufficient cause.

This Prism is prepared by:

Dheeraj Nair
Partner

Divyam Agarwal
Partner

Vishrutyi Sahni
Principal Associate

Aniket Aggarwal
Senior Associate

[1] 2024 INSC 686

[2] As per Section 23(4) of the Arbitration Act, pleadings are required to be completed within 6 (six) months from the date of constitution of the arbitral tribunal.

[3] Rohan Builders vs. Berger Paints, A.P. 328/2023

[4] North Eastern Chemicals vs. Ashok Paper Mill, 2023 SCC OnLine SC 1649; Ajaib Singh vs. Sirhind Cooperative, (1999) 6 SCC 82

[5] Johri Mal vs. Director of Consolidation of Holdings, AIR 1967 SC 1568

[6] SLP (Civil) No. 10544/2024

Tags Arbitration Act, Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates

JSA successfully defends a large German auto manufacturer – Mercedes-Benz India Private Limited – against a product liability claim before the National Consumer Disputes Redressal Commission

In a significant judgment on the law relating to product liability in India (Mohd. Hyder Khan v. Mercedes-Benz India Private Limited & Anr., First Appeal No. 10 of 2013, decided on 20 September 2024), the Hon’ble National Consumer Disputes Redressal Commission (“National Commission”), has ruled that an allegation of manufacturing defect must be established by cogent evidence and that compliance with Section 13(1)(c) of the Consumer Protection Act, 1986 is mandatory. The National Commission’s judgment puts to rest and clarifies certain key aspects regarding functioning of airbags. It also underscores the importance of seatbelts and that a vehicle’s deformation pattern alone (i.e., physical damage) cannot be a deciding factor in airbag deployment.

The National Commission’s Judgment assumes significance and lays down the below important principles:

Seatbelt is the primary restraint mechanism in a vehicle. If a seat belt is not worn, the airbag would not deploy, and this aspect is clearly mentioned in the Owner’s Manual.
To prove that a good suffers from a defect, especially a manufacturing defect, testimony of an expert is necessary.
Section 13 (1) (c) of the Consumer Protection Act, 1986 is mandatory and requires that if there is any allegation that goods are defective, the Consumer Commission must get them inspected
For the principle of res ipsa loquitor to apply, the facts must speak for themselves. But if there are no such facts on record, the principle cannot be applied.
The damage pattern of a vehicle or the amount spent in repairing the vehicle cannot alone be determinative to apply the principle of res ipsa loquitor.
A crumple zone in a vehicle is designed to absorb, reduce and redirect the energy. The crumple zone of a vehicle is meant to crumple, and this is to ensure that the integrity of the passenger compartment is maintained and protected. It is therefore a misconception that if a vehicle is badly damaged, airbags ought to have deployed.

Our disputes team comprised Lead Partner – Sidharth Sethi and Senior Associate – Avinash Das.

Tags JSA, Leading Law Firm, Leading Lawyers, Manufacturing

JSA Prism | Dispute Resolution | September 2024

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Pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 is mandatory to file a counterclaim in a commercial suit

The single bench of the Hon’ble High Court of Delhi (“Delhi High Court”) in Aditya Birla Fashion and Retail Limited vs. Saroj Tandon[1] has held that pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 (“Commercial Courts Act”) is a mandatory requirement, even in respect of counterclaims in a commercial dispute.

Brief facts

Saroj Tandon (“Respondent”) owned a shop which was leased to Aditya Birla Fashion and Retail Limited (“Petitioner”). Owing to the COVID-19 pandemic, the Petitioner was constrained to close its business operation from the leased shop and issued a notice terminating the lease while demanding a refund of its security deposit. The Respondent failed to refund the security deposit. Accordingly, the Petitioner considered filing a suit against the Respondent seeking recovery of the security deposit.

Prior to instituting a suit, the Petitioner filed an application in terms of Section 12A of the Commercial Courts Act for pre-institution mediation and settlement. Despite due service of the notice of summons, the Respondent failed to appear and the process of mediation was declared a non-starter. Consequently, a commercial suit was filed by the Petitioner.

After the institution of the suit, the Respondent filed its written statement and counter claims for recovering rentals from the Petitioner. Considering that the Respondent’s counter claims involved a commercial dispute, a commercial suit was registered. No urgent relief was contemplated in respect of the Respondent’s counter claims.

Given that the Respondent had failed to invoke pre-institution mediation prior to lodging its counter claims, the Petitioner filed an application for rejection of the counter claims under Order VII Rule 11 of the Code of Civil Procedure, 1908 (“Code”). However, the Petitioner’s application was rejected by the Ld. Trial Court on the ground that the process for pre-institution mediation under Section 12A of the Commercial Courts Act was not mandatory for counterclaims. In these circumstances, the Petitioner filed a petition under Article 227 of the Constitution of India.

Issue

Whether recourse to pre-institution mediation under Section 12A of the Commercial Courts Act is obligatory for filing counterclaims in commercial disputes when no urgent relief is contemplated?

Analysis and findings

The single bench of the Delhi High Court dismissed the petition and inter alia observed as follows:

the Commercial Courts Act and the Code do not contain any provision providing different treatment for counterclaims. A counterclaim is a suit in its individual and distinct capacity. Once counterclaims are lodged, it must be treated as a regular suit for all practical and procedural purposes. Like any other commercial suit, the counterclaims in a commercial dispute must go through all stipulated rigours scrupulously as may be prescribed for any general commercial suit;
as per Rule 2(g) of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (“Rules”), an opposite party means a party against whom relief is sought in a commercial dispute. The scheme of the Rules is not to oust the requirement of pre-institution mediation and settlement for any party. Consequently, an opposite party in respect of a counterclaim has a legal right to participate in mediation prior to the institution of counterclaims;
the process of pre-institution mediation is mandatory for every suit including a commercial suit and no distinction can be drawn when it comes to a counter claim involving a commercial dispute which does not contemplate any urgent relief;
the objective behind the pre-institution mediation is a benevolent one and it does not frustrate speed trial at all. To the contrary, it aims and visualises a situation where there may not be institution of any fresh case, once the matter is settled through such pre-institution mediation. Thus, attempting to settle disputes through mediation cannot be labelled a futile exercise;
merely because the defendant in a suit did not participate in settling the matter does not ipso facto mean that such defendant is not bound by the mandate of law. It would be incorrect for the defendant to presume that the plaintiff may also not participate in such process. The state of mind of any such party cannot be decoded mechanically;
the fact that the same parties had already participated or had opportunity to participate in the pre-institution mediation would not render Section 12A of the Commercial Courts Act a nugatory in the context of any such counterclaim, not contemplating any urgent relief; and
in Patil Automation Private Limited vs. Rakheja Engineers Private Limited[2], the Supreme Court of India has held:
- that recourse to Section 12A of the Commercial Courts Act is mandatory in nature and non-compliance thereof would entail rejection of the plaint under Order VII Rule 11 of the Code; and
- the cut-off date for rejection of plaints filed in non-compliance of Section 12A of the Commercial Courts Act is August 20, 2022. Any such plaint filed in violation of Section 12A of the Commercial Courts Act after the jurisdictional High Court has declared Section 12A of the Commercial Courts Act to be mandatory would disentitle the plaintiff from seeking any relief.

In the facts of the above case and the observations made, given that the counterclaim was filed on February 21, 2022 (before the cut-off date of August 20, 2022), the Delhi High Court allowed the Respondent’s counterclaim. However, the Delhi High Court held that Section 12A of the Commercial Courts Act is not only mandatorily applicable to suits but also to counterclaims.

Conclusion

Pursuant to this judgement, a defendant in a suit under the Commercial Courts Act, 2015 who seeks to raise a counterclaim is mandatorily required to initiate pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 when it raises a counterclaim. The judgement clarifies that a defendant raising a counterclaim in a commercial suit is required to exhaust the remedy of pre-institution mediation so long as no urgent relief is contemplated. This decision promotes a comprehensive and holistic pro-mediation approach prior to initiating long drawn court proceedings.

This Prism is prepared by:

Farhad Sorabjee
Partner

Pratik Pawar
Partner

Shanaya Cyrus Irani
Partner

For more details, please contact [email protected]

[1] 2024 SCC OnLine Del 6099

[2] 2022 SCC OnLine SC 1028

Tags Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Litigation

JSA Prism | Dispute Resolution | September 2024

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The Madras High Court clarifies the law on presentation, stamping and registration requirements of a sale certificate issued by the authorised officer under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

The Madras High Court (“Madras HC”) in its recent judgement in M/s. Sri Balaji Fibre vs. The Inspector General of Registration and Ors.[1], has held that, no stamp duty in terms of the Indian Stamp Act, 1899 (“Stamp Act”) or registration fee, as per the Registration Act, 1908 (“Registration Act”), is payable when a sale certificate issued under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) is forwarded by the authorized officer to the registering authorities, for filing as required under the Registration Act ; and the requirement of payment of stamp duty and registration fee would arise only when the person in whose favour the sale certificate is issued, voluntarily presents the sale certificate for registration or when the sale certificate is used to establish right/title over the property, in any proceedings. This judgement of the Madras HC is significant since it consolidates and clarifies the law on the presentation, stamping and registration requirements of a sale certificate issued by an authorized officer under the SARFAESI Act.

Brief facts

The petitioners were the purchasers of properties sold in public auction conducted by various authorised officers of the secured creditors under the SARFAESI Act and sale certificates were issued in their favour. When copies of the sale certificates were forwarded to the jurisdictional registering authorities by the authorised officers, the registering authorities demanded payment of stamp duty and registration fee, as applicable for conveyance, as a precondition for filing the sale certificate as required under Section 89(4) of the Registration Act. In another set of cases, when the sale certificates were presented for registration by the persons in whose favour they were issued, the registering authorities treated the transaction as undervalued and demanded stamp duty and registration fee on the market value of the underlying properties and/or referred the sale certificate under Section 47-A of the Stamp Act for ascertaining market value of the property and consequential orders were passed for payment of deficit stamp duty. The Registration Department’s stand was that the sale certificate issued under SARFAESI Act is a sale inter vivos, hence it is an instrument required to be stamped as conveyance and is compulsorily registrable as the authorised officer is neither a civil nor revenue officer as per Section 17(2)(xii) of the Registration Act. Writ petitions were filed before the Madras HC challenging the actions of the registration department.

Decision of the High Court

The Madras HC dealt with various judicial precedents on the subject matters and held as under:

Authorised officer as civil or revenue officer: The Madras HC relied on the judgment of the Supreme Court in Shanti Devi L. Singh v. Tax Recovery officer[2], and held that the term ‘revenue officer’ used under Section 89 of the Registration Act must be liberally construed to include persons effecting compulsory sale for recovery of dues in terms of a statute. The Court, considering the nature of powers exercised by an authorized officer under the SARFAESI Act, held that the authorized officer will be a revenue officer under Section 89 of the Registration Act.
Sale certificate is not compulsorily registrable: The Madras HC clarified that since the authorised officer is a revenue officer under the Registration Act, in terms of Section 17(2) of the Registration Act, the sale certificate does not require registration, when it is forwarded by the authorized officer, in terms of section 89(4) of the Registration Act. Considering that the Transfer of Property Act, 1882 applies only to transfer by act of parties[3] and that a sale under the SARFAESI Act is an involuntary transfer by operation of law, Madras HC clarified that the provisions of the Transfer of Property Act, 1882 requiring mandatory registration for transfers involving value above INR 100 (Indian Rupees one hundred), does not apply to the sale certificate issued under the SARFAESI Act.
Sale certificate is not an instrument of conveyance: The Madras HC clarified that the transfer and vesting of title to the immovable property in favour of the auction purchaser takes place, when the sale is confirmed by the authorised officer. A sale certificate issued by the authorised officer merely records and evidences the sale.[4] Therefore, the sale certificate is not an instrument of conveyance.
Stamping of sale certificates: The Madras HC held that the sale certificates will have to be compulsorily stamped in terms of Article 18 of Schedule 1 to the Stamp Act and not as per Article 23 dealing with conveyances. In case the sale certificates are not stamped, the same will not be admissible in evidence as per Section 35 of the Stamp Act; any authority or court before whom a sale certificate is submitted for any purpose, can impound it and refer it for assessment of duty; and the person relying on the certificate will have to pay the stamp duty and penalty, as applicable.
Sale price mentioned in the sale certificate alone to be considered: The Madras HC clarified that the sale price mentioned in the sale certificate alone will have to be considered for the purpose of calculating the stamp duty; and the registration department cannot treat the transaction as undervalued and exercise powers under Section 47A of the Stamp Act.
Recording of sale certificate forwarded by the authorised officer: The Madras HC relied on judgments of the Supreme Court[5] and held that, upon receipt of the copy of the sale certificate forwarded by the authorised officer in terms of Section 89(4) of the Registration Act, the jurisdictional sub-registrars are required to record the details in Book I as per the Registration Act, subject to receipt of filing fees; and for this purpose, they cannot insist on payment of stamp duty or registration fee as payable on conveyances or sale certificates.

Based on the above, the Madras HC passed suitable orders in each of the writ petitions directing the registration department to refund excess duties paid by the purchaser; register the sale certificates presented by the parties on payment of requisite stamp duty and registration fee; reduced the penalty levied; and quashed the proceedings initiated to ascertain the market value of the properties; and directed the registration department to release the impounded documents.

Conclusion

The judgement consolidates and clarifies the position of law on stamping and registration requirements for a sale certificate issued by the authorized officer under the SARFAESI Act. There were conflicting judgements of the Madras HC on these issues including, scope of the term ‘revenue officer’ under the Registration Act, powers of the registration department to ascertain the market value of the property covered under the sale certificate, levy of transfer duty on a sale certificate, etc. This judgement resolves such conflicting views and consolidates the position of law on the subject. There have been instances where the registration department has taken a stand that the exemption available under the Registration Act applies only to the sale certificates issued by nationalised banks. This judgement has clarified that the exemption is applicable to sale certificates issued by an authorized officer under the SARFAESI Act, irrespective of whether the secured creditor is a nationalised bank or not. This judgement will assist auction purchasers who purchase properties under the SARFAESI Act.

This Prism is prepared by:

Vinod Kumar
Partner

Srinivasan M.D
Partner

Dharaniya Sri K.M
Associate

For more details, please contact [email protected].

[1] Judgement dated July 23, 2024, in W.P. Nos. 415, 3696, 23276 & 22555 of 2023 and W.M.P.Nos.3791, 22815, 22816 and 22817 of 2023; and W.P. Nos. 859, 6807, 6808, 6810, 9728, 9886, 10285, 10454, 11503, 12097, 12742, 12788, 15704, 16520, 16911, 17613, 18044 and 17205 of 2024.

[2] (1990) 3 SCC 605.

[3] Relied on Bharat Petroleum Corporation vs. P. Kesavan and Anr [(2004) 9 SCC 77].

[4] Relied on B. Arvind Kumar vs. Govt of India [(2007) 5 SCC 745]; and K. Chidambara Manickam vs. Shakeena [(2007) 6 MLJ 488].

[5] Esjaypee Impex Private Limited vs. Assistant General Manager and Authorised Officer, Canara Bank [2021 (11) SCC 537]; Inspector General of Registration and Anr vs. Madhurambal [2022 SCC OnLine SC 2079].

Tags Dispute Resolution, JSA, JSA Prism, Leading Law Firm, Leading Lawyers, Legal Updates, Madras High Court

JSA successfully advised and represented Jayant Agro Organics Limited and Jayant Finvest Limited before the NCLT, Mumbai in a matter pertaining to scheme of merger by absorption

JSA successfully advised and represented Jayant Agro-Organics Limited (“Jayant Agro”) and Jayant Finvest Limited (“Jayant Finvest”) in a scheme of merger by absorption wherein the holding company – Jayant Finvest was merged into its subsidiary – Jayant Agro, which is listed on the BSE and NSE. The petition for sanction of the scheme was heavily contested by the Income Tax Authority (“ITA”) on the grounds that the scheme falls under the Impermissible Avoidance Agreement (IAA) under Section 96 of the Income Tax Act, 1961. After considering the objections of ITA and our submissions, the NCLT sanctioned the scheme of merger.

The ITA had objected to the sanction of the scheme on the grounds that the scheme was nothing but a mechanism to avoid tax. This was defended on the basis that once the Scheme is found to be not violative of any law and not contrary to public policy, the NCLT will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who have given their approval.

On this basis, the NCLT whilst sanctioning the scheme held that the Scheme is permissible under Section 230 of the Companies Act and squarely falls under the provisions of Section 2(1)B of the Income Tax Act which may result in exemption of income tax in the hands of Jayant Finvest, Jayant Agro and their respective shareholders.

Our Transaction Team Comprised Lead Partner – Varghese Thomas and Vikram Raghani, Of Counsel – Saeeda Bandukwala, Senior Associate – Ahsan Allana.

Tags BSE, Companies Act, JSA, Leading Law Firm, Leading Lawyers, NCLT, NSE

JSA Brief | August 2024

This edition of the JSA Brief showcases JSA authored articles, updates & newsletters and achievements such as deals and events in all practice area over the preceding month (August 2024).

To read further details, click here or refer to the below document.

For more details, please contact [email protected]

*In case the document is not visible on the device you are using, please click the link above.

Tags Articles, Deal Making, Events, JSA, JSA Prism, Legal Updates, Newsletters, Publications, Recognitions

JSA Prism | Dispute Resolution | September 2024

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Bombay High Court affirms the applicability of Section 5 of the Limitation Act, 1963 vis-à-vis the Maharashtra Stamp Act, 1958 to condone delay in stamp duty refund applications

A 2 (two) judge bench of the Hon’ble Bombay High Court (“Bombay HC”) in Nanji Dana Patel vs. State of Maharashtra, Through Government Pleader and Others[1] has upheld the applicability of section 5[2] of the Limitation Act, 1963 (“Limitation Act”) to the Maharashtra Stamp Act, 1958 (“Stamp Act”) for the purpose of condoning delay in filing of refund application. The Bombay HC noted that there is nothing in the Stamp Act that excludes the applicability of the Limitation Act. Accordingly, the delay in filing the application for a refund was condoned, and the matter was remanded to the Inspector General of Registrar and Controller of Stamps (“Controller”) to be considered de novo on merits, with a specific deadline of October 31, 2024.

Brief facts

Nanji Patel, the Petitioner had entered into a development agreement dated March 3, 2014, with a counter-party, and a stamp duty of INR 78,65,000 (Indian Rupees seventy-eight lakh sixty-five thousand) was paid under the provisions of the Stamp Act.

Subsequently, in 2015, the parties decided to cancel the development agreement and convey the property to the Petitioner for valuable consideration. A cancellation deed and a conveyance deed both dated June 24, 2015, were executed, and an additional stamp duty of INR 1,00,00,000 (Indian Rupees one crore) was paid on the conveyance deed.

On February 15, 2018, the Petitioner filed an application for refund of INR 78,65,000 (Indian Rupees seventy-eight lakh sixty-five thousand) stamp duty paid on the now-cancelled development agreement. However, the Controller rejected the refund application on the grounds that it was filed beyond the 6 (six) month period mandated under Section 48(1) of the Stamp Act.

Aggrieved by the above rejection, the Petitioner filed a writ petition before the Bombay HC.

Issues

Whether Section 5 of the Limitation Act is applicable to the Stamp Act?
If ‘sufficient cause’ exists, can delay in filing a refund application be condoned?

Analysis and Findings

The Bombay HC, upon consideration of the submissions adduced by the parties and the relevant provisions of the Limitation Act and the Stamp Act, opined that –

while Section 48 of the Stamp Act provides for a 6 (six) month limitation for filing refund applications, there is no specific exclusion of the Limitation Act, especially Section 5 of the Limitation Act. This allows for the condonation of delay in filing such applications when ‘sufficient cause’ is demonstrated;
in the present case, the Bombay HC accepted the Petitioner’s argument that the delay was caused by being ‘ill-advised’, which constitutes ‘sufficient cause’ under Section 5 of the Limitation Act;
to support its decision, reliance was placed on the judgement of Abaad Ali vs. Directorate of Revenue Prosecution Intelligence[3], which held that, unless a statute (general or special) expressly excludes the applicability of the Limitation Act, Section 5 can be invoked to condone delays;
furthermore, the Bombay HC also extensively relied on the principles laid down in Bano Saiyed vs. Chief Controlling Revenue Authority and Inspector General of Registration and Controller of Stamps[4], which directs the State to not ordinarily rely on technicalities when dealing with a citizen. It was the Bombay HC’s view that if the State is satisfied that the case of a citizen is a just one, even though the legal defences may be open to it, it must act as an honest person;
moreover, the Bombay HC highlighted that a fiscal lis is not an adversarial proceeding, and the State must act as an honest party, especially where excess payments have been made. In this case, the retention of INR 78,65,000 (Indian Rupees seventy-eight lakh sixty-five thousand) by the State was deemed contrary to Articles 265 and 300A of the Constitution of India (“Constitution”), which prohibit the retention of taxes without legal authority; and
accordingly, applying the above-stated principles to the present matter, the Bombay HC treated the writ petition as an application under Section 5 of the Limitation Act and permitted condonation of delay in filing the refund application.

The Bombay HC quashed the order of the Controller rejecting the refund application and remanded the matter for de novo consideration on merits, after condoning the delay. The Controller was directed to pass a reasoned order on or before October 31, 2024, and provide the Petitioner with notice for a personal hearing at least 5 (five) working days in advance.

Conclusion

This judgment establishes a significant precedent for allowing delayed applications for stamp duty refunds under the Maharashtra Stamp Act by invoking Section 5 of the Limitation Act. The Bombay HC reaffirmed that, unless expressly excluded, Section 5 can be applied to condone delays, provided ‘sufficient cause’ is demonstrated.

However, a gap remains regarding which authority has the power to condone such delays under the Stamp Act, as the Stamp Act itself does not provide for this. As a result, individuals seeking refunds may still need to approach the High Court under Article 226 of the Constitution for delay condonation, placing an undue burden on both citizens and the judiciary. Legislative reform may be required to address this procedural gap.

Despite this, the judgment delivers much-needed clarity and relief, reiterating that citizens should not be penalized for procedural delays when seeking refunds for excess payments. It also reinforces the State’s obligation to avoid unjust enrichment by retaining excess payments, as such retention would violate Articles 265 and 300A of the Constitution.

This Prism is prepared by:

Varghese Thomas
Partner

Ahsan Allana
Senior Associate

Kabir Saund
Associate

For more details, please contact [email protected]

[1] 2024 SCC OnLine Bom 2817

[2] Section 5 of the Limitation Act, 1963 permits the condonation of delay in preferring an appeal or making an application in certain cases where the court is satisfied that the delay was due to ‘sufficient cause’.

[3] (2024) 7 SCC 91

[4] 2024 SCC OnLine SC 979

Tags Bombay High Court, JSA, JSA Prism, Leading Lawyers, Legal Updates, Limitation Act, Maharashtra Stamp Act, Stamp Act

JSA successfully represented State Bank of India in admitting Mr. Shantanu Jagdish Prasad (Promoter/Personal Guarantor of EduComp) into personal insolvency resolution proceedings

The National Company Law Tribunal, New Delhi Bench admitted State Bank of India’s application under Section 95 of the Code against Mr. Shantanu Jagdish Prakash (Personal Guarantor / Promoter of EduComp).

By the said Judgement, the NCLT decided the following key legal issues – (i) Whether the date of default can be beyond the date of NPA declaration; (ii) Whether SBI can maintain a company petition when the Deed of (Personal) Guarantee was executed in favor of SBICAP Trustee and whether the clause in Deed of Guarantee granting joint and several rights to SBICAP Trustee and SBI was violative of Section 28 of the Indian Contract Act? (iii) whether a Company Petition can be admitted against the Personal Guarantor pending the re-evaluation of the shares held by the Corporate Debtor?

Re: Date of Default

The NCLT held that the Company Petition is deemed to be within limitation since the limitation period started on 23.08.2018. This was based on the issuance of the revival letter by the Corporate Guarantor on 30.11.2016, acknowledging the debt for the purpose of Section 18 of the Limitation Act, and the subsequent loan recall notice issued by SBI on 22.06.2018, under Section 13(2) of the SARFAESI Act, demanding the payment to be made within 60 days.

Re: The Deed of Guarantee in favour of SBICAP Trustee

the NCLT held SBI had the locus standi to file the Company Petition since it is seen from Section 95(1) of Code, that the creditor may apply either himself or jointly with other creditor or through RP to this Adjudicating Authority for initiating an Insolvency Resolution Process under chapter III. Merely because the SBICAP Trustee acted on behalf of SBI, it cannot be held that the beneficiary/creditor cannot enforce the Personal Guarantee. As per the Master Reconstruction Agreement, SBICAP was appointed as Security Trustee to hold security interests for the benefit of the CDR lenders and non-CDR lenders. Therefore, SBI had the right to initiate insolvency proceedings.

Further, the NCLT held that the Personal Guarantee was valid. It observed that while Section 28 of the Indian Contract Act prohibits certain types of agreements that restrict a party’s rights, the Personal Guarantor’s plea would also primarily result in the recovery of the debt from the Security Trustee.

Re: Admission of company petition against personal guarantee pending re-evaluation of the shares held by the Corporate Debtor

The NCLT held that the Personal Guarantor is responsible for preparing the repayment plan under Section 105 of the Code. Therefore, the Personal Guarantor can include details about the value of securities and the amount of debt repaid by the Principal Borrower or other guarantors during the implementation of the repayment plan. It was further held that the guarantor cannot be absolved of liability based on beliefs about the Corporate Debtor’s ability to repay or the possibility of a credit facility extension. Lastly, it was held that if the revaluation of securities results in an increase in value, the guarantor may benefit under Section 141 of the Indian Contract Act.

Deal value: INR 323 Crores

Our Disputes Team Comprised Partners – Dheeraj Nair and Manish Jha, Principal Associate – Vishrutyi Sahni and Associate – Muskaan Gupta.

Tags JSA, Leading Law Firm, Leading Lawyers, NCLT

New Filters: Dispute Resolution and Arbitration

Brief facts

Issues

Analysis and findings

Conclusion

Supreme Court clarifies that an application seeking extension of arbitral tribunal’s mandate under Section 29A of the Arbitration and Conciliation Act, 1996 can be filed even after the expiry of the mandate

Pre-litigation mediation under Section 12A of the Commercial Courts Act, 2015 is mandatory to file a counterclaim in a commercial suit

The Madras High Court clarifies the law on presentation, stamping and registration requirements of a sale certificate issued by the authorised officer under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Bombay High Court affirms the applicability of Section 5 of the Limitation Act, 1963 vis-à-vis the Maharashtra Stamp Act, 1958 to condone delay in stamp duty refund applications

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