Geopolitical changes: India 2019 (2/3)

To start from where we left- some Supreme Court judgments- so that you know it happened in 2019.

I. Supreme Court Cases

1.  Reliance Communications & Ors. v. State Bank of India & Ors

2.  Surya Roshni Ltd. v. Employees Provident Fund and Othrs.

3.  Ayodhya Judgement

4.  Central Public Information Office, Supreme Court of India v. Subhash Chandra Agarwal

5.  Manohar Lal Sharma v. Narendra Damodardas Modi

6.  Sabarimala Case Review Petition

7.  Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta &Ors

8.  Shiv Sena vs. Union of India

9.  Hindustan Company Construction Ltd. v. Union of India

10. P. Chidambaram v. Directorate of Enforcement 

11. Cyrus Pallonji Mistry v. Tata Sons Ltd. &Ors. (December 19, 2019)

1.  Reliance Communications &Ors. v. State Bank of India &Ors. (February 20, 2019)- IBC is here to stay. The energy at RCom infrastructure at Koparkhainare will not change for some time to come!

· On February 20, 2019, the Supreme Court held Reliance Communications Chairman, Mr. Anil Ambani and two of his top executives guilty of contempt of court for willfully failing to pay dues to Ericsson. Ericsson has filed a contempt petition after Reliance repeatedly failed to honour court’s orders directing it to clear Ericsson’s dues.

· RCOM, Reliance Telecom and Reliance InfraTel were also held guilty of contempt and a fine of INR 1 Crore was imposed on each;

· Reliance companies were grated an opportunity to purge contempt by paying INR 453 Crores to Ericsson within 4 weeks.

· Anil Ambani avoided prison time by clearing the same;

· RCom owed INR 550 Crores to Ericsson.

· Ericsson refused a settlement outside the Supreme Court Order;

· The Supreme Court ordered Mr. Ambani and his two executives to pay INR 453 Crores within four weeks or face a jail term of four months.

· The Supreme Court observed that RCOM had no intention of honouring the court’s orders. The undertaking given to the court and the related orders were also not complied with.

· An additional fine of INR 1 Crore was also imposed upon them for their cavalier attitude towards the court’s orders.

· The Resolution Process has been ongoing on RComm and bids have been invited and are being worked on.

2.   Surya Roshni Ltd. &Ors. v. Employees Provident Fund and Othrs. (February 28, 2019)- PF to be paid on universally paid allowance- Principal of universality upheld, employers to make contributions.

· In this Judgement, the Supreme Court has settled the long standing debate around what should be the deductions for PF contributions -

o  Upheld that universally paid allowances are part of “Basic Wages”;

o  Allowances not paid by all concerns or not earned by all employees of a concern will be excluded from calculating PF;

o  It applies to contributions to be made within the threshold of INR 15,000.

3.   Ayodhya Judgement (November 9, 2019)- Temple and Mosque- both, it is!

· The disputed land is a part of the village Ramkot in Ayodhya spreading over 1500 yards. This judgment has put to rest a more than two-decade long dispute.

· The Supreme Court held the following:

o  A trust should be created by the Government of India and Board of Trustees should be formed within 3 months.

o  The government should hand over the disputed land of 2.77 acres to this trust for the construction of Ram Temple. 

o  An alternate 5 acres of land should be given to the Sunni Waqf Board for building a mosque within Ayodhya. 

o  The Demolition of Babri Masjid in 1992 and its desecration in 1949 were against the law.

4.   Central Public Information Office, Supreme Court of India v. Subhash Chandra Agarwal (November 13, 2019)- RTI extends to the CJI

· RTI activist Subhash Chandra Agarwal approached the Central Public Information Office of the Supreme Court for information pertaining to appointment of judges and to obtain information pertaining declaration of assets by judges.

· The issue which gained primacy was that whether CJI comes under the purview of RTI.

· The Supreme Court held the following:

o  The declaration of assets is covered under RTI.

o  The CJI did not hold such declarations in fiduciary capacity hence, they do not fall under exemptions under the RTI Act.

o  Judicial independence and accountability go hand in hand.

o  The disclosure of assets of judges is required in the larger interest of the public.

· This is a path-breaking decision, as it brings the CJI under the purview of RTI. This makes the judiciary accountable to the public and the public can demand information from them.

5.   Manohar Lal Sharma v. Narendra Damodardas Modi (Rafale Jet Review Judgement) (November 14, 2019)- RTI overrules the OSA.

· In 2007, the Ministry of Defence issued tenders to purchase 126 fighter jets. The French company Dassault, which manufactures the Rafale twin-engine fighter aircraft, was selected.

· In 2015, PM of India and the President of France announced a new deal reducing the purchase from 126 to 36 Rafale fighter jets. Dassault was expected to invest 50% of the contract value back in India via the purchase of Indian goods and services.

· Irregularities were alleged when Dassault entered into a joint venture with Anil Ambani’s Reliance group.

· Relying on evidence produced by the State in sealed covers, in December 2018, the court dismissed the plea for a court monitored investigation.

· The court found-

o  no irregularity in the decision making process, including pricing or selection of the off-set partner;

· On 21 February 2019, a review petition was filed. The review petitioners alleged that the judgment of Supreme Court rendered in December, 2018, rested on erroneous factual claims made by the government.

· The issue in consideration was that whether leaked documents could be placed on record.The Supreme Court held-

o  that classified documents cannot be placed on the record since the documents were protected under the Official Secrets Act and were not authorized to be published by media;

o  it has limited jurisdiction under Article 32, with respect to scrutiny of defence contracts.

o  if judiciary starts analyzing the decision making process of the executive, it may interfere with the theory of separation of powers,

o  classified documents provided in sealed covers and not placed on record adversely impacts a free and fair trial; and

o  that the RTI Act had significantly diluted the OSA and that the OSA can not bar the court from receiving the documents.

6.  Sabarimala Case Review Petition (November 14, 2019)- Religion- Not an easy feat.

· The Sabarimala temple prohibits the entry of women who are in their menstruating years (between 10-50 years old) on the ground that it is a place of worship.

· This rule was constitutionally challenged on the ground of violation of Article 14 (right to equality) and Article 25(freedom of religion).

· In 2018, in a 4:1 judgement, Supreme Court held exclusion of women violated the fundamental rights of women between the ages of 10-50 years and Rule 3(b) of the Public Worship Rules was unconstitutional.

· More than 50 review petitions were filed in relation to this judgement. On November 14, 2019, these review petitions were referred to a larger Constitutional Bench. This was a 3:2 split verdict and the Supreme Court opined that it should tread cautiously in the matter of religious beliefs.

7.  Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta &Ors. (November 16, 2019). Do we stretch it?

· In March, 2019, Arcelor-Mittal’s bid for Essar Steel was approved.

· The CoC approved the resolution plan offered by Arcelor Mittal wherein an advance cash payment of INR 42000 crores was offered to financial creditors and a capital infusion of INR 8000 crores was planned in the next few years.

· This resolution plan was approved by NCLAT and orders an equal distribution for all creditors, financial and operational.

· The Supreme Court held:

o  Wisdom of committee of creditors: The Supreme Court recognized the primacy of commercial wisdom of the committee of creditors to accept a plan which may involve differential payments to different classes of creditors.

o  Principle of equality: Un-equals should not be treated equally. Equitable treatment needs to be given to each creditor basis the class to which it belongs.

o  Jurisdiction of tribunals: Tribunals cannot interfere in the commercial decisions taken by the committee of creditors. This makes the decisions of committee of creditors supreme.

o  Financial vs. Operational Creditors: The Court held the primacy of financial creditors over operational creditors with respect to distribution of funds. The rationale given was that financial creditors are capital-providers and hence should be given priority.

o  The Supreme Court dispensed with the 330-day mandatory deadline for resolution of insolvency, failing which bankruptcy was ordered. It stated that such a deadline is the violation of Articles 14 and 19 of the Constitution.

Point to Ponder: This is in direct conflict with the time frame of 330 days imposed under the IBC Amendment Act. Also, not having a mandatory deadline, may lead to prolonged insolvency resolution process and may adversely affect creditors.

8.   Shiv Sena vs. Union of India (November 26, 2019)- Governor can not individually assess the majority without a floor test.

· The Bhartiya Janata Party and Shiv Sena had a pre-poll alliance and has contested the state legislative assembly elections, jointly.

· No single party had requisite majority in the house.

· BJP declined to form government on November 10. An attempt to form a joint government between Shiv Sena and NCP failed.

· President’s Rule was imposed by a proclamation on 12th Nov.

· On November 23, 2019, the President’s Rule was revoked at 5:47 am and Devendra Fadnavis was sworn in as the Chief Minister whereas AjitPawar was sworn in as Deputy Chief Minister at around 8 am.

· Sharad Pawar declined his support and claimed that it was AjitPawar’s personal decision and not that of National Congress Party. The NCP MLAs who went with Ajit Pawar said that they were not aware of being taken to Raj Bhawan for the swearing-in ceremony.

· A petition was filed in the SC and SC held:

i.   Governor making an assessment of his own does not arise;

ii.   the loss of confidence of the House was an objective fact, which could have been demonstrated, one way or the other, on the floor of the House;

iii.   Article 212 of the Constitution, relied on by the Respondents, would have no application as it relates to validity of proceedings in the Legislature of a State that cannot be called in question in any court on the ground of any alleged irregularity of procedure;

iv.   CM Devendra Fadnavis should prove his majority on the floor of assembly on November 27 at 5pm by open ballot;

v.   admitting that Fadnavis would not clear the floor test, Devendra Fadnavis and AjitPawar resigned from the post of CM and Deputy CM.

· Following these events, the Shiv Sena Chief Uddhav Thackrey took oath as the CM on November 28.

This decision also goes a long way in establishing, that governor cannot independently assess the majority without the same being proved on the floor of the assembly.

9.   Hindustan Company Construction Ltd. v. Union of India (November 27, 2019)- Arbitral awards will be enforceable, even if the same are being challenged.

· The Supreme Court, on November 27, 2019-

-struck down Section 87 of the Indian Arbitration and Conciliation Act, on the grounds that it was manifestly arbitrary and violated Article 14.

-Section 87 states that the changes brought about by the Arbitration and Conciliation (Amendment) Act, 2015, will not apply to court proceedings arising from or in relation to an arbitral proceeding irrespective of such court proceedings commencing before or after October 23, 2015 (cut-off date for application of 2015 Amendment).

· This is against the Supreme Court judgement in Kochi Cricket judgement, wherein it was held that 2015 amendments will be applied, prospectively.

· The 2015 Amendment enabled a speedy enforcement of arbitral awards.

· Section 36 of the Act before the 2015 amendments did not provide for enforcement of arbitral awards during the pendency of any challenge to the same. This led to an automatic stay against enforcement.

· The 2015 Amendments changed this position and stated that mere filing of challenge application under Section 34, will not make the award unenforceable until and unless the court grants a stay on the enforcement of the award.

· Section 87, hence, in effect, would have led to the same position as it existed prior to the 2015 Amendments.

· The Supreme Court held-

-that this will have the effect of `turning the clock backwards’ and will also push a company into insolvency, as the payments due to them may get blocked.

-Section 87 would lead to a delay in disposal of arbitral proceedings and an increase in the interference of courts in arbitral matters.

-the Kochi Cricket judgement would continue to apply and 2015 amendments would be prospectively applied.

· The 2015 Amendments were passed with an intent to put an end to automatic stay and ensure a speedy enforcement of arbitral awards. The Kochi Cricket decision put an end to speculations of the amendments’ applicability and ruled that they would be prospectively applied. This decision by quashing Section 87, has the effect of restoring the ratio laid down in the Kochi Cricket decision.

10. P. Chidambaram v. Directorate of Enforcement- Unleash the evidence- not in sealed envelopes, please.

· While granting bail to P. Chidambaram, in the INX Media case, the Supreme Court observed-

-the practice of delivering evidence in sealed covers by prosecution has become rampant and such a practice may affect the fair trial of the case (this was also held in the Rafale Case)

-a court may receive materials/documents collected during investigation and peruse through the same to determine the accuracy of the investigation, however, the judge cannot record fact findings from the sealed cover notes in their judgement.

-that the Delhi High Court erred in extracting a paragraph from the sealed cover notes and verbatim stating it in its judgement. This cannot be the basis of giving or rejecting bail.

Points to Ponder: The SC critiqued the practice of providing evidence in sealed covers and also stated that the recording of fact findings from the same in the judgements would not be acceptable.

11. Cyrus Pallonji Mistry v. Tata Sons Ltd. &Ors. (December 19, 2019), some clawed back!

· NCLT had passed an order in July, 2017, removing Cyrus Mistry from the position of Executive Chairman. The NCLAT recently set aside this order.

· NCLAT observed that-

 vi.  the removal had nothing to do with Mr. Mistry’s performance. In fact, the company had performed well under Mr. Mistry.

 vii.  mismanagement in the company cannot be attributed to Mr. Mistry.

 viii.  conversion of Tata Sons from public to private was illegal and the said decision was prejudicial and oppressive to minority shareholders.

Points to Ponder: This decision seeks to provide more say to minority shareholders. That provision of the AoA which allowed majority shareholders to buy out the minority shareholders by passing a special resolution, has been held illegal. This will prevent oppression and mismanagement and will ensure that majority shareholders act in a more equitable manner.

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