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Determining ‘complex fraud’ and arbitrability of disputes

Keeping in mind the changes brought in with the implementation of the Act of 1996, the question which now arise for consideration is whether the judgement rendered in Abdul Kadir’s case still holds the field. In terms of Section 8 of the Act of 1996, no discretion lies with the court to not refer a matter for arbitration when arbitration agreement exists between the parties.

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THERE has been a lot of debate on the issue whether in those cases where fraud has been alleged, disputes can be referred for arbitration when arbitration agreement exists between the parties. The question ultimately arise for consideration is whether the Court or the Arbitral Tribunal has the jurisdiction to decide such issues. The said issue, for the first time, had arisen before the Supreme Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak (“Abdul Kadir’s case”) where, certain disputes arose out of a partnership agreement entered into between the parties for cutting of forest. These disputes related to not maintaining proper books of account, inflating the stock of goods in statement of accounts etc. The courts below rejected the application filed under Section 20 of the Arbitration Act, 1940 (“Old Arbitration Act”) seeking reference to arbitration inter alia on the ground that serious allegations of fraud have been made. However, while allowing the appeal and considering that dispute is inter se between parties, the Supreme Court specifically observed every allegation tending to suggest or imply moral dishonesty or moral misconduct in the matter of keeping accounts would not amount to such serious allegation of fraud as would impel a court to refuse to order the arbitration agreement to be filed and refuse to make a reference. Therefore, looking to the allegations which have been made in the case, the Court held that there are no such serious allegations of fraud as would be sufficient for the court to say that there is sufficient cause for not referring dispute to arbitration. While referring the matter to arbitration, it also observed that in cases, where serious allegations of fraud are made against a party and the party charged with fraud desires that the matter should be tried in open court, that would be sufficient cause for the court not to make reference to arbitration.

‘Fraud’ is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment. Its ingredients are an intention to deceive, use of unfair means, deliberate concealment of material facts, or abuse of position of confidence. Section 10 of the Indian Contract Act, 1872 (“Contract Act”) states that all agreements are contracts if they are made with free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Section 14 further states that consent is said to be free when it is not caused inter alia by fraud as defined in Section 17. Importantly, the section goes on to say that consent is said to be so caused when it would not have been given but for the existence, inter alia, of such fraud. Where such fraud is proved, and consent to an agreement is caused by fraud, the contract is voidable at the option of the party whose consent was so caused.

In Fazal D. Allana v. Mangaldas M. Pakvasa, the Bombay High Court held that Section 17 only applies if the contract itself is obtained by fraud or cheating. A distinction was made between (i) a contract being obtained by fraud and; (ii) performance of contract being vitiated by fraud or cheating. The latter would fall outside Section 17 as in such case the remedy for damages would be available, but not the remedy for treating the contract itself as being void. Hence, Section 17 itself talks about two things:

Where a party was induced to enter into a contract by fraud or cheating, and;

Where performance of contract is vitiated by fraud or cheating for which remedy for damages are available in law.

With respect to Sr. No. (a) above, a dispute can either be inter-se between the parties which does not affect the public at large or, it can be a dispute where relief is being claimed against public at large. In the former case, the right exercised by a party is a right in personam. Whereas, in the latter case, the right being exercised by a party is a right in rem.

Undisputedly, the judgment in Abdul Kadir’s case was delivered when the Old Arbitration Act was in force and under Section 20, court had wide discretion to not refer a matter for arbitration if “sufficient cause” was shown. However, the implementation of the Arbitration and Conciliation Act, 1996 (“Act of 1996”) completely overhauled the Old Arbitration Act. The Act of 1996 – (a) under Section 5, restricts the intervention of court in arbitration matters; (b) under Section 8, makes it mandatory for a court to refer the matter to arbitration where there exists an arbitration agreement between the parties, and; (c) under Section 16, incorporates the principle of ‘kompetenz-kompetenz’ thereby giving Arbitral Tribunal the right to rule on its own jurisdiction.

Keeping in mind these changes brought-in with the implementation of the Act of 1996, the question which now arise for consideration is whether the judgment rendered in Abdul Kadir’s case still holds the field. In terms of Section 8 of the Act of 1996, no discretion lies with the court to not refer a matter for arbitration when arbitration agreement exists between the parties. After the implementation of Act of 1996, the issue regarding arbitrability of disputes where allegations of fraud were raised, came up for consideration before the Supreme Court in N. Radhakrishnan v. Maestro Engineers (“N. Radhakrishnan case”) where, it relied heavily on Abdul Kadir’s case (which based its decision on Old Arbitration Act) and held that wherever serious allegations of fraud are raised in a case in which there is an arbitration agreement, it should be tried in a court of law. However, it did not consider Sections 5, 8 and 16 of the Act of 1996 and also, completely failed to consider that in Abdul Kadir’s case, it was specifically held that serious allegations of fraud are not made out when allegations of moral or other wrongdoing inter parties are made.

Therefore, it is clear that till 2010 that is, when judgment in N. Radhakrishnan’s case was delivered, there was no criteria/test to determine in which cases, disputes can / cannot be referred to arbitration when allegations of fraud were raised. It was entirely left to the discretion of courts. It was in Afcons Infrastructure Ltd. v. Cherian Varkey Constructions Co (P) Ltd. and Booz Allen Hamilton Inc. v. SBI Home Finance Ltd. that the Supreme Court categorized what kind of disputes can / cannot be referred to arbitration even if arbitration agreement exists between the parties. While doing so, it also carved out a non-exhaustive list of disputes which are incapable of being subject to private arbitration. It observed that if the dispute is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal, then even if arbitration agreement exists, the dispute cannot be referred to arbitration. Further, cases inter alia involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion etc and cases involving prosecution for criminal offences are not suitable for arbitration.

Subsequently, in Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee8 (“Swiss Timing’s case”), the Supreme Court was again vexed with similar issue regarding arbitrability of disputes where allegations of fraud were made. It is a judgment in context of Section 11 of the Act of 1996 and by a Single Judge where, the Supreme Court had the occasion to deal with N. Radhakrishnan’s case as well. The court did not accept the law as laid down in N. Radhakrishnan’s case since applicability of Section 8 of the Act of 1996 was not considered and decision was based on the law as laid down in Abdul Kadir case, which in turn, had relied upon Section 20 of the Old Arbitration Act. In Swiss Timing’s case, the court held that when a judicial authority is shown an arbitration clause in an agreement, it is mandatory for the authority to refer parties to arbitration and it was for the Arbitral Tribunal to decide whether there is any substance in plea of fraud raised by the Respondent.

Thereafter, it was in A. Ayyasamy v. A Paramasivam9 (“Ayyasamy’s case”) that the Supreme Court settled the law as to in which cases, where allegations of fraud have been raised, matter can / cannot be referred to arbitration under Section 8 of the Act of 1996 even if arbitration agreement exists between the parties. The issue before the Court was where there are serious allegations of fraud against a party, is it still mandatory for the Court to refer the matter to arbitration? While dealing with the said issue, the court classified ‘allegations of fraud’ into two categories:

Allegations of serious fraud – Cases where there are serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that voluminous evidence needs to be produced, for instance, in cases of forgery/fabrication of documents, where fraud goes to the validity of contract itself which contains an arbitration clause, they are to be treated as non-arbitrable and it is only the civil court which should decide such matters and;

Allegations of fraud simpliciter – Cases where there are allegations of fraud simpliciter and such allegations are merely alleged, for instance, allegations which touch upon internal affairs of the party inter se and has no implication in the public domain and it will not nullify the effect of arbitration agreement, such issues can be decided by Arbitral Tribunal

and held that while considering an application under Section 8, courts should siftly go through the materials for the purpose of determining whether nature of dispute is such that it cannot be referred to arbitration or, that allegations are of serious and complicated nature that it would be more appropriate for the court to deal with the subject matter rather than relegating the parties to arbitration. It also impliedly over-ruled the judgment in N. Radhakrishnan’s case as it has been utilized by parties to avoid arbitration.

The judgment in Ayyasamy’s case was then applied in Rashid Raza v. Sadaf Akhtar (“Rashid Raza’s case”) where the dispute arose out of partnership deed and related to siphoning of funds. The Supreme Court, with great clarity, explained the judgment in Ayyasamy’s case, which in turn had explained N. Radhakrishnan’s case, as referring only to such serious allegations of fraud as would vitiate the arbitration clause along with the agreement, and allegations of fraud which are not merely inter parties, but affect the public at large. In Rashid Raza’s case, it laid down two working tests to ascertain whether dispute can be referred to arbitration or not when allegations of fraud are raised:

Does the plea permeate the entire contract and above all, the agreement of arbitration, rendering it void; or

Whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.

These complex working tests were further clarified by the Supreme Court in Avitel Post Studioz Limited & Ors v. HSBC PI Holdings (Mauritius) Limited (“Avitel’s case”) where, after considering the above precedents, it laid down two tests to satisfy that there exists ‘serious allegations of fraud’:

First test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all.

Second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent or malafide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public domain.

Thus, the expression ‘serious allegation of fraud’ as used in the judgments delivered prior to Ayyasamy’s case and Rashid Raza’s case are to be understood by applying the above two tests and merely because civil and criminal proceedings are pending or have been filed on same set of facts, cannot lead to a conclusion that a dispute which is otherwise arbitrable, ceases to be so.

Therefore, the above decisions now amply clarify the position that in those cases, where allegations of fraud have been made and arbitration agreement exists between the parties, the concerned authority – be it the court or Arbitral Tribunal, has to go through the materials placed on record and exercise its discretion keeping in mind the above two working tests laid down to come to a conclusion whether dispute is arbitrable or not. Heavy burden lies on the party who opposes reference to arbitration. Thus, the Supreme Court has narrowed down the criteria for deciding whether case involves ‘serious allegations of fraud’ or such allegations are being made just to avoid arbitration.

These judgments repose immense faith in the Arbitral Tribunal and, is also, in tune with the vision of the Parliament to make India a global hub of arbitration & India’s approach to revamp the ADR process.

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Allahabad High Court Quashes POSCO Case: If Husband/Accused Is Convicted Then Victim/Wife’s Future Would Be Ruined

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Allahabad High Court Quashes POSCO Case: If Husband/Accused Is Convicted Then Victim/Wife’s Future Would Be Ruined

The Allahabad High Court recently in the case Rajiv Kumar v. State of U.P. And 2 Others observed and has recently quashed an FIR and criminal proceedings in a POCSO case registered against a man as it noted that the accused man and victim-wife (who was a minor at the time of the incident) married the accused/ applicant out of her own sweet will and is living a happy married life with him.
The bench comprising of Justice Manju Rani Chauhan observed that to punish punish the offenders for a crime, involved in the present case, is in the interest of society, but, at the same time, the husband is taking care of his wife and in case, the husband is sentenced and convicted for societal interest, then, the wife will be in great trouble and it would ruin their future. Thus, it is also in the interest of society to settle and resettle the family for their welfare, the bench quashed the rape-POCSO case against the accused.

Facts of the Case:
The Maternal Uncle of the Victim lodged an FIR against the accused under Sections 363, 366, and Section 376 of the Indian Penal Code, 1860and Section 3/4 of the POCSO Act, alleging that the accused had raped the victim (then a 17-year-old minor).
Further, the accused moved the instant Section 482 CrPC petition seeking to quash the instant FIR. Also, the victim appeared before the Court and had submitted that her maternal uncle had lodged the FIR in an attempt to ruin her married life.
It was further stated by her that she has entered into a compromise with the accused and has married him out of her free will, and consent, and without any external pressure, coercion, or threat of any kind. Before the court, it was also submitted that that out of their wedlock, they are blessed with a male child, who is presently four and half years old and as per her date of birth and at the time of marriage she was nearly 17 and half years old.
It was submitted by the Applicant-Accused that on account of the compromise entered into between the parties concerned, all disputes between them have come to an end, and therefore, further proceedings are liable to be quashed in the present case.

Observations Made By Court:
In the present case, the court noted that though the offence under the relevant sections 363, 366 and 376 of IPC and Sections 3/4 of POCSO Act are not compoundable under Section 320 Cr.P.C, however, adding to it, the court stated that the power of the High Court under Section 482 Cr.P.C is not inhibited by the provisions of Section 320 Cr.P.C and the criminal proceedings as well as the FIR can be quashed by exercising inherent powers under provision of Section 482 Cr.P.C, if warranted in given facts and circumstances of the case for ends of justice or to prevent abuse of the process of any Court, even including the cases which are not compoundable where parties have settled the matter between themselves.
The court while considering the facts and circumstances of the case, and also the submissions made by the counsel for the parties, the court came to the considered opinion that the victim herself, has stated before this Court that out of her own sweet will, she has married the applicant and is living a happy married life and out of their wedlock, the couple are blessed with a male child. However, no useful purpose shall be served by prolonging the proceedings of the criminal case as the parties have already settled their disputes.
Accordingly, the court quashed the charge sheet and the cognizance order as well as the entire proceedings of the Criminal Case were hereby quashed. Thus, the application was allowed.

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SC likely to hear next month pleas related to Article 370

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SC to hear Manoj Tiwari’s plea on firecracker

A Supreme Court constitution bench is expected to hear a slew of petitions related to Article 370 of the Constitution, which granted Jammu and Kashmir (J&K) semi-autonomous status before it was repealed in August 2019. Chief Justice of India (CJI) Uday Umesh Lalit said on Friday that the petitions will be heard after the Dussehra holiday.

When senior advocate Prashanth Sen asked the CJI to list the matter, Justice Lalit responded, “We will certainly list that…it will be listed after Dussehra break.” From October 3 to 10, the court will be closed for Dussehra.

The petitions were last heard in March 2020, when a five-judge panel declined to refer the case to a larger panel. The reference was requested because previous court decisions on the subject were in conflict with one another. This contention was rejected by the bench.

At the time, the bench was aware of an older batch of petitions pending in the Supreme Court challenging the constitutionality of Articles 370 and 35A, which granted J&K special status. It was stated that all issues concerning Article 370 should preferably be heard together.

National Conference legislators, former bureaucrats, and some organisations are among those who have objected to the repeal of Article 370. Some petitioners cited the Supreme Court’s 2018 decision, which stated that Article 370 had gained permanent status.

Many petitions have also been filed against the Jammu and Kashmir State Reorganization Act, which calls for the division of J&K into two Union Territories.

Despite opposition from the central government, which argued that Article 370 had international and cross-border implications, the Supreme Court issued notices on the petitions on August 28, 2019. The Centre also claimed that it is a highly sensitive issue, and that whatever happens in the country will be brought up at the United Nations. While issuing notices in 2019, the court referred the case to the five-judge constitution bench.

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Supreme Court: Fixed Term Sentences Exceeding 14 Years Can Be Alternative To Death Sentence In Certain Cases

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death penalty

The Supreme Court in the case State of Haryana vs Anand Kindoo observed and stated that fixed term sentences exceeding 14 years can be awared in appropriate cases to strike a delicate balance between the victims’ petition for justice and rehabilitative justice for the convicts.
The bench comprising of Justice Sanjay Kishan Kaul, Justice Abhay S. Oka and the Justice Vikram Nath observed that this fixed term sentence can only be by the High Court or this Court and not by the trial Court.
In the present case, the trial court awarded death sentence to the accused who were ‘trusted employees’ of the deceased. However, Major General Kailash Chand Dhingra (K.C. Dhingra) and his wife Smt. Sangeeta Dhingra, who were an aged couple and were killed by the accused while they were sleeping. It was refused by the High Court to confirm the death sentence and imposed life sentence on them.
In an appeal before the Apex Court, the complainant and the state contended that given the brutality of the crime, the court should impose a fixed term sentence before which the convicts are not liable to be considered for granting of remission. Thus, it was submitted that there should be at least a fixed term sentence.
The court observed that it was a pre-planned murder for gain and greed by somebody who was in a position of trust with the family.
The bench observed that at an advanced stage in such health respect, there is always an element of trust and faith in the person by a person who employs them as well as the family members. However, the work takes other family members elsewhere and with the joint family system having broken down, the role of such trusted help becomes even more significant. Also, it is the significance of the society where a wrong signal goes if a trusted person breaches that trust to kill the person who had employed them in such a gruesome manner. It has been stated by the trial Court, the society itself demands justice, apart from an utter element on deterrence which is in any aspect of conviction. Further, the approach cannot be the vindictive but lack of appropriate sentence leaves the cry of justice of the society un-addressed apart from the fact that other persons who may have the propensity to carry out the crime feel that they will get away with the lighter sentence, if in case they are caught. While, battering two sleeping people beyond recognition who imposed trust in their employee certainly calls for something more than merely a life sentence under Section 302, IPC, even if death sentence is not to be imposed.
Therefore, the court imposed a fixed term sentence of 30 years.
The bench while allowing the appeal observed in the case Shankar Kishanrao khade vs. State of Mahrashtra (2013) 5 SCC 546, wherein it was held that if there is any circumstance favouring the accused such as lack of intention to commit the crime, young age of the accused, possibility of reformation etc., accused not being a menance to the society, no previous criminal record etc., the accused may avoid capital punishment. It was opined by the court that the crime is important but so is the criminal and hence the Supreme Court in recent past has substituted death penalty with fixed term sentences exceeding 14 years. It stated that imposing a fixed term sentence creates a possibility for the convict to re-integrate into society after serving his/her sentence. A delicate balance is strike the balance between victims’ plea for justice.

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NCLAT Upholds Dismissal Of Section 7 Petition, Corporate Debtor Willing To Pay Full Amount, Opposed By Financial Creditor

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NCLAT Upholds Dismissal Of Section 7 Petition, Corporate Debtor Willing To Pay Full Amount, Opposed By Financial Creditor

The National Company Law Appellate Tribunal (“NCLAT”) in the case Reliance Commercial Finance Limited v Darode Jog Builder Private Limited, the Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Judicial Member, Justice M. Satyanarayana Murthy and the Technical Member, Mr. Barun Mitra observed while adjudicating an appeal filed in Reliance Commercial Finance Limited v Darode Jog Builder Pvt. Ltd., has upheld the Adjudicating Authority’s decision to not admit a petition under Section 7 of IBC, despite there being a default and a debt. It was recorded by the bench the Corporate Debtor an opportunity to pay/settle the full amount of default despite the Financial Creditor’s unwillingness to enter settlement.

Background Facts of the Case:
The Appellant/ Financial Creditor, Reliance Commercial Finance Limited had sanctioned Term-Loans of Rs. 19.5 Crores to the Corporate Debtor i.e., Darode Jog Builder Pvt. Ltd. on 29.07.2013. In 2017, the Loan Accounts were declared as the Non-Performing Assets. On 04.11.2019, a petition under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC”) was filled by Financial Creditor, wherein seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) over a default of Rs. 15,79,41,658/- against the Corporate Debtor.
It was observed that in an hearing held on 06.07.2022, the Corporate Debtor acknowledged its liability to pay and made an offer of Rs. 12.75 Crores, which is to be paid within 45 days. Thus, the Adjudicating Authority directed the Counsel for the Financial Creditor to obtain appropriate instructions. Thus, the court observed that if the Settlement did not take place, the Petition would automatically be admitted on the next date of hearing.
The court on the next date of hearing i.e. 11.07.2022, it was submitted by the Corporate Debtor that it is willing to deposit the entire amount of Rs. 15,79,41,658/- within 45 days. However, the Financial Creditor expressed its unwillingness for settling the matter. The Bank account details of the Financial Creditor were obtained by the Adjudicating Authority and alongside granted liberty to the latter to file for restoration of petition in case said amount is not deposited within 45 days. The court disposed of the appeal.
The Financial Creditor filed an appeal before the NCLAT, aggrieved by the order dated 11.07.2022.

Contentions Made By Appellant:
It was submitted by the Financial Creditor that the Adjudicating Authority committed error in disposing of the Petition, as it was not willing to settle the matter. However, the Adjudicating Authority could not have permitted the Corporate Debtor to deposit amount in Financial Creditor’s account.

Contentions Made By Respondent:
It was argued by the Corporate Debtor that Financial Creditor was unwilling to settle as earlier entire amount was not offered and settlement had not taken place despite several adjournments. Further, it was submitted that the Corporate Debtor has financial capacity to deposit the entire amount.

NCLAT Decision:
The Bench placed reliance on the Supreme Court judgment in the case Vidarbha Industries Power Limited Vs. Axis Bank Limited, Civil Appeal No. 4633 of 2021.
It was observed by the bench that as per the judgment, even after debt and default is there, Adjudicating Authority has to apply its mind to assess the feasibility of initiating CIRP.
It stated that when the Corporate Debtor has complied to deposit the entire defaulted amount of the Financial Creditor as permitted by the Adjudicating Authority and no purpose and occasion shall survive to still proceed with the Corporate Debtor Insolvency Resolution.
Accordingly, the bench observed that the proceedings under Section 7 are for resolution of insolvency. Adjudicating Authority had not erred in ascertaining whether the Corporate Debtor can comply to deposit the entire defaulted amount in bank account of Financial Creditor’s. Further, the court observed that the Financial Creditor’s interest was fully protected, since liberty was already given to revive the petition in case full amount was not received within 45 days.

The bench dismissed the appeal.

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IBBI Amends Liquidation Process Regulations: COC To Function As Stakeholder’s Consultation Committee For First 60 Days

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IBBI Amends Liquidation Process Regulations: COC To Function As Stakeholder’s Consultation Committee For First 60 Days

On 16.09.2022, the Insolvency and Bankruptcy Board of India (“IBBI”) has notified amendments for a second time to the IBBI (Voluntary Liquidation Process) Regulations, 2016 (“Voluntary Liquidation Regulations”) and IBBI (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”).
Detailed Overview Of the Amendments:
the IBBI has introduced the following amendments to the Voluntary Liquidation Regulations and Liquidation Process regulations, in exercise of the powers conferred by Section 196(1)(t) read with Section 240 of the Insolvency and Bankruptcy Code, 2016.
For enabling better participation of stakeholders and streamline the liquidation process to reduce delays and realize better value, the following major modifications are made for the amendment in Liquidation Regulation.
The Committee of Creditors (CoC) constituted during Corporate Insolvency Resolution Process (CIRP) shall function as Stakeholders Consultation Committee (SCC) in the first 60 days and after the adjudication of claims and within 60 days of initiation of process, the SCC shall be reconstituted with respect to the admitted claims.
It has been mandated to the liquidator to conduct the meetings of SCC in a structured and time bound manner with better participation of stakeholders.
It has been enlarged the scope of mandatory consultation by liquidator with SCC and now SCC may even propose replacement of liquidator to the Adjudicating Authority (AA) and fix the fees of liquidator, if the same during CIRP is not fixed by the CoC.
The amount of claim collated during CIRP shall be verified by the liquidator, if any claim is not fixed during the liquidation process.
Whenever it is decided by the CoC that the process of compromise or arrangement may be explored during liquidation process, an application shall be filled by the liquidator only in such cases before Adjudicating Authority for considering the proposal of arrangement or compromise, if any, within thirty days of the order of liquidation.
For Auction process, specific event-based timelines have been stipulated.
SCC b Before filing of an application for dissolution or closure of the process shall advice the liquidator, the manner in which proceedings in respect of avoidance transactions or fraudulent or wrongful trading and shall be pursued after closure of liquidation proceedings.
Further, the Amendment Liquidation Regulations and Amendment Voluntary Liquidation Regulations lays down the manner and period of retention of records relating to liquidation and voluntary liquidation of a corporate debtor or corporate person, respectively.

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Supreme Court: Setting Aside NCDRC Order Awarding Compensation To Women Who Gave Birth Despite Undergoing Tubectomy Surgery

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Supreme Court: Setting Aside NCDRC Order Awarding Compensation To Women Who Gave Birth Despite Undergoing Tubectomy Surgery

The Supreme Court in the case Civil Hospital vs Manjit Singh observed and has set aside an NCDRC order that directed a hospital to pay compensation to a woman who delivered a child despite undergoing tubectomy procedure.
In the present case, a woman underwent tubectomy procedure twice, though both the procedures remained unsuccessful. In the year 2003, she gave birth to a male child. A complaint was filled by her before the District Consumer Disputes Redressal Forum alleging medical negligence on account of failed tubectomy surgery. Thus, the court dismissed the same on the ground that the hospital is not a consumer. The order was affirmed by the State Consumer Commission (SCDRC). Later, the revision petition was allowed by the National Consumer Commission and has directed to pay compensation as per the guidelines and the policy of the State.
Before the Apex Court, two contentions were raised by the hospital (1) that hospitals and Doctors who render service without any charge to every person availing of the service would not fall within the ambit of ‘service’ under Section 2(1)(o) of the Act relying on the case Indian Medical Association Vs. V.P. Shantha And Ors., (1995) 6 SCC 651 that the failed tubectomy surgery is not a case of medical negligence as the sterilized woman can become pregnant due to natural causes. [relying on the case State of Punjab Vs. Shiv Ram and Ors., 2005, 7 SCC 1].
The bench while taking notice of the law laid down in the decisions relied on by the appellants, allowed the appeal by setting aside the NCDRC order. However, if the respondent has been paid any amount in terms of the Order of the NCDRC, the same shall not be recovered by the State, the bench said.
It was observed in In V.P. Shantha that the Hospitals and Doctors who render service without any charge whatsoever to every person availing of the service would not fall within the ambit of ‘service’ under Section 2(1)(o) of the Act. Thus, the payment of a token amount for registration purposes only would not alter the position in respect of such doctors and hospitals.
The Apex Court regarding failed tubectomy surgery in Shiv Ram (supra), had observed that the cause of action in claiming compensation in cases of failed sterilization operation arises on account of negligence of the surgeon and not on the account of child birth. Further, the failure due to natural causes would not provide any ground for claim and it is the women who has conceived the child to go or not to go for medical termination of pregnancy. Thus, having gathered the knowledge of conception in spite of having undergone sterilization operation, if the couple opts for bearing the child, it ceases to be an unwanted child and the compensation for maintenance and upbringing of such a child cannot be claimed.

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