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Multilateral Instruments & General Anti-Avoidance Rules: An Interplay

Gagan Kumar

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A. The genesis of Multilateral Instruments

A.1. Introduction

 Multinationals (“MNCs”) operates in various countries, and such entities may be taxed both the countries, i.e. country of their residence as well as the source country. Countries enter into treaties to avoid double taxation in the source as well as resident countries. Such treaties are generally referred to as Double Taxation Avoidance Agreements (“DTAAs”). More than 3000 DTAAs are currently in effect, and the numbers seem to be growing with time.

The DTAAs are generally structured on the UN Model or the OECD Model or combination of both these models. The fundamental difference between these models is that unlike OECD Model, the UN Model is skewed more in favour of the source countries (Country where the source of income lies) and is generally preferred by the developing countries. However, the common basis of both the model is that the source country should get the fair share of its taxes and such taxes paid in the source country are available as a credit to the taxpayer in the country of its residence.

MNCs often structure their operations in a tax-efficient manner to enjoy favourable tax positions between contracting parties to the DTAAs. Any enterprise may either have active income (business income) or passive income (dividends, interest or capital gains). The structuring includes Treaty Shopping, Excessive use of debt over equity, Abuse of Transfer Pricing Provisions, Use of Tax Havens etc. For example: Interposing entities in low tax jurisdictions to avoid taxation of passive incomes or organizing the operation in the source country in such a manner to eschew creation of Permanent Establishment and consequently avoid taxation of active incomes. Such interposing of entities or organizing of operations without commercial substance had been a matter of concern for the contracting parties to a DTAAs as interposing of such entities lead to erosion of tax base as contemplated by the contracting parties. Sometimes mere structuring leads to double non-taxation of incomes. It is in this backdrop, the OECD, along with some other countries, took up a project in 2013 to avoid such erosion of tax base. This Project is popularly known as Base Erosion and Profit Shifting (“BEPS”). The resulting program provides governments with domestic and international instruments better-aligning taxation with economic activity and value creation.

 A.2. BEPS

 BEPS is a term commonly used to refer to notorious tax avoidance strategies, which taxpayers use to shift their profits from high tax jurisdictions to low or no-tax jurisdictions, to minimize their tax burdens. Such strategies revolve around exploitation of mismatches between different tax laws of different countries. The idea to deal with BEPS dates back to the year 2013 when the OECD issued a report titled ‘Addressing Base Erosion and Profit Shifting’. Following the release of this report, multiple nations (including OECD member nations and the G20 nations including India) adopted a 15-point Action Plan to address the BEPS bugbear, with a deadline of 2015. This resulted in the release of the final BEPS reports, in 2015, on each of the 15 categories identified in the BEPS Action Plan. Such reports seek to purge double non-taxation, annihilate treaty-abuse and ensure that profits are taxed in the jurisdiction of value creation.

 The following are the fifteen action plans envisaged to curb the base erosion and shifting of profits from one tax jurisdiction to others:

 Action 1 Addressing the Tax Challenges of the Digital Economy

Action 2 Neutralising the Effects of Hybrid Mismatch Arrangements

Action 3 Designing Effective Controlled Foreign Company Rules

Action 4 Limiting Base Erosion Involving Interest Deductions and Other Financial Payments

Action 5 Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance

Action 6 Preventing the Granting of Treaty Benefits in Inappropriate Circumstances

Action 7 Preventing the Artificial Avoidance of Permanent Establishment Status

Actions 8-10 Aligning Transfer Pricing Outcomes with Value Creation

Action 11 Measuring and Monitoring BEPS

Action 12 Mandatory Disclosure Rules

Action 13 Transfer Pricing Documentation and Country-by-Country Reporting

Action 14 Making Dispute Resolution Mechanisms More Effective

Action 15 Developing a Multilateral Instrument to Modify Bilateral Tax Treaties

As can be seen, the actions plan ranges from prevention of erosion of tax base to enhancement of international cooperation on the emerging issues as well the ways of implementing the same. The BEPS project suggested inclusion of Principle Purpose Test (“PPT”) and Limitation of Benefit Clause (“LOB”) to identify the genuineness and substance of a transaction and an entity. These suggestions are aimed at reducing avoidance of tax on passive incomes. The recommendations have lowered the bar for creation of Permanent Establishment to minimise avoidance of tax on business incomes. The OECD described the final BEPS reports as containing recommendations that fall in following different categories:

Agreed minimum standards

  • Recommendations to counter Harmful Tax Practices (Action Plan # 5);
  • Treaty Abuse (Action Plan # 6);
  • Country-by-Country Reporting (Action Plan # 13) and
  • Improving Dispute Resolution Mechanisms (Action Plan # 14)

 Reinforced international standards

  • Aligning Transfer Pricing Outcomes with Value Creation (Action Plans # 8-10) and
  • Preventing Artificial Avoidance of Permanent Establishment Status (Action Plan # 7)

 Common approaches and best practices for domestic law

  • Hybrid Mismatch Arrangements (Action Plan # 2);
  • Controlled Foreign Company (CFC) rules (Action Plan # 3);
  • Limiting Interest and Other Financial Payments (Action Plan # 4) and
  • Disclosure of Aggressive Tax Planning (Action Plan # 12)

Analytical reports

  • Tax challenges of the Digital Economy (Action Plan # 1);
  • Measuring and Monitoring BEPS (Action Plan # 11) and
  • Multilateral Instrument for implementing treatybased recommendations (Action Plan # 15)

A Multilateral Instrument (“MLI”) is developed to implement tax treatyrelated measures of the BEPS Project. The OECD/ G20, through MLI, has implemented the outputs of four action plans out of the 15-point action plan under the BEPS Project (Discussed below). For the implementation of remaining action plans, BEPS suggested changes in the domestic laws.

A.3. Changes made by India

Even before the onset of BEPS, India had introduced General Anti Avoidance Rules (“GAAR”). GAAR provisions gave extensive powers, even to override tax treaty benefits if the tax department is of the view that any transaction or arrangement is made with the primary purpose of obtaining a tax benefit. However, these changes have been given effect from the fiscal year only.

GAAR were introduced in Indian tax law to catch all schemes of tax avoidance in general under Chapter X-A of Income Tax Act, 1961 (“the Act”). It is effective from 1st April 2017, i.e. the Assessment Year 2018-19. GAAR reflects ‘substance over form principle’ and consist of a broad set of rules based on general principles to counter potential tax avoidance. Among other things, GAAR provisions can be applied to deny tax treaty benefits to a non-resident taxpayer who would be otherwise eligible to benefit through treaty abuse.

GAAR can be invoked in case of an Impermissible Avoidance Arrangement (IAA), if there is no business purpose or commercial expediency except to obtain a tax benefit, GAAR may be invoked.

Further, without waiting for the final BEPS proposals; India made changes in its domestic law like the (i) introduction of the concept of significant economic presence to tax foreign entities if they cross certain thresholds and (ii) introduction of equalization levy. Further modulated Thin Capitalization rules were introduced to restrict the claim of interest expenditure from the income taxable in India. MNCs were further obligated to maintain Master file as well as a local file of their worldwide operations so that the tax department can identify as to whether the entity is offering its income in proportion to its functions, assets and risk employed in India. Such changes find their place in the BEPS report.

B. MLI-Outcome of Action 15 of BEPS

B.1. What is MLI?

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting is one of the outcomes of the OECD/ G20 Project to tackle BEPS. An MLI is developed to implement tax treaty-related measures of the BEPS Project. MLI does not replace existing DTAA provisions but is to be referred along with a DTAA. The Action Plan 15 of BEPS Report, “Developing a Multilateral Instrument to Modify Bilateral Tax Treaties”, concluded that a multilateral instrument, providing an innovative approach to enable countries to modify their bilateral tax treaties swiftly. With over 3000 treaties being functional today, a treaty by treaty amendment for implementation of these measures would have been cumbersome and practically impossible without the risk of inconsistencies. Thus, a single instrument with pervasive applicability was conceptualised and thus arrived the MLI.

Action 15 of the BEPS suggested entering into MLI where the participating country, may merely be required to give their consent on various Articles of MLIs broadly instead of negotiating a treaty with all the treaty partners. If the consent given by India over a particular Article overlaps with the consent given by another partner country, then only it can be said that both the countries have agreed to amend their Tax Treaty. After the OECD ratifies such overlapping, a notification is issued by India notifying such changes. Once a notification is issued, the tax treaty is modified in terms of MLI, and an MLI synthesized text of Tax Treaty is published. The main objective of MLI is to alter the DTAA’s with one agreement rather than negotiating the DTAA on a bilateral basis which may take many years or decades. MLI is not a substitute to DTAA but acts as an adjunct document.

 The OECD/G20, through MLI, has implemented the outputs of 4 action plans out of the 15-point action plan under the BEPS Project. The 4 action plans which MLI seeks to address are as under:

 It may be noted that keeping the MLI relevant to the object of the BEPS project; there are certain minimum standards to which all the participating countries had to agree. Such minimum standards include Principal Purpose Test, etc.

B.2. Principal Purpose Test: Article 7 of MLI

 Article 7: Principal Purpose Test is a Minimum Standard requirement. As per the PPT treaty, the benefit shall be disallowed if it is reasonable to conclude having regard to all relevant facts and circumstances that one of the principal purpose an arrangement or transaction was obtaining the treaty benefit. However, if it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the DTAA; in such case, the treaty benefits shall not be disallowed. The benefit covers all limitation on taxation like tax reduction, exemption, deferral, tax reduction, the benefit of tax sparing, Underlying Tax Credit etc.

C. Beneficial to India

With the spread of COVID pandemic throughout the world and with China’s expansionist agenda, many countries including the United States does not have excellent trading relations with China and are willing to shift their manufacturing bases out of China and sees India as an attractive investment location. Therefore, considering the object of BEPS and MLI as aligning taxation with the value creation, India is likely to significantly benefit from MLIs as it as the significant value addition in the supply chain may take place in India, and it would generate substantial tax revenue for India.

 D. Tax Uncertainty D.1. Interpretation of DTAAs

With the applicability of MLI on Indian tax treaties with effect from 1st April 2020 all the DTAAs stand automatically affected. Interpretation of tax treaty shall pose a great deal of difficulty since the tax treaties need to be read together along with MLI text, MLI position of the other partners etc.

 D.2. The interplay of PPT and GAAR under domestic law

PPT rule is compendious in its scope than GAAR. “One of the purpose” threshold under PPT is broader than “Main Purpose” under GAAR, the threshold limit under PPT is lesser than the GAAR. Tax treaty benefit under PPT can be denied if one of the purposes of the arrangement is to obtain a tax benefit. However, in the case of GAAR to deny a benefit, it requires fulfilment of twin condition of main purpose test and tainted element test. A structure which passes the PPT test may pass the GAAR test as well. In other words, by qualifying in one test of MLI, the risk of invocation of GAAR is obliterated.

The scope of GAAR is expansive as compared to PPT since GAAR applies to all forms of abuse of tax provision; domestic as well tax treaty benefit whereas PPT rule applies only in the case of treaty abuse.

GAAR provisions can be invoked if the tax benefit exceeds Rs.3 crores; however, no such limit has been provided in case of PPT.

As per section 90 of the Act, provisions of domestic tax law apply to the extent they are more beneficial than the tax treaty. Therefore, in a situation where a taxpayer is likely to fail PPT, he may seek to cover himself under GAAR on the contention that provisions of domestic GAAR (having a threshold) is more beneficial than PPT. However, one cannot lose sight that GAAR provisions override the provisions of the Act, including section 90 of the Act.

GAAR provides for grandfathering of investments acquired before 1st April 2017, however, PPT does not provide for grandfathering provisions hence once MLI becomes effective even transfer of past investments made before 1st April 2017 may be subject to PPT although grandfathered under GAAR.

The safeguard provided by GAAR in the form of Approving Panel is absent in case of PPT. There is no separate panel or authority to decide whether a transaction or arrangement has passed the PPT test required by the tax treaty.

 Unlike PPT, the burden of proof under GAAR is on the department. Hence the assessment officer will likely refuse treaty-related benefit on the reasonable belief that the PPT requirement under the tax treaty has not been fulfilled and it for the Assessee to prove otherwise.

 One of the purposes of both GAAR and PPT is to prevent abuse of treaty benefit, and hence there may arise a conflict between them in the course of application. The conflicts which may occur between GAAR and PPT application may give rise to various litigations and need to be settled by the judiciary.

 E. Conclusion

Anti-abuse provisions would serve the desired purpose only if they are applied in true spirit and invoked only in case of genuinely abusive or artificial arrangements. Both PPT and GAAR will irrefragably increase the documentation requirements for justification of commercial expediency or business rationale of a transaction or arrangement otherwise it may result in protracted litigation.

Adv. Gagan Kumar, a Chartered Accountant and Advocate practices as an Arguing counsel at the Supreme Court & Delhi High Court. He is the founder of Krishnomics Legal practising in the areas of Arbitration, Bankruptcy / Insolvency, Breach of Contract, Corporate, Customs & Central Excise, GST, Media and Entertainment, Startup, Tax.

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NCLAT: Withdrawal Of Resolution Plan Will Have Disastrous Effect.

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NCLAT: Withdrawal Of Resolution Plan Will Have Disastrous Effect.

The National Company Law Appellate Tribunal (NCLAT) in the case Shardha Buildcon Pvt. Ltd v. The Dhar Textile Mills Ltd, the bench comprising of Justice Ashok Bhushan and Justice Mr. Barun Mitra observed and has dismissed the appeal filed by the Resolution Applicant seeking permission to withdraw its resolution plan and held that allowing withdrawal of a resolution plan will be having serious disastrous effect on the whole purpose of the Insolvency & Bankruptcy Code, 2016.

Before the NCLAT, the appellant filled an appeal against the order dated 21.07.2022 passed by NCLT Indore which relying upon the judgment of Supreme Court in the case Ebix v. Educomp dismissed the application filed by the Appellant wherein seeking for the withdrawal of the resolution plan.

The Appellant contended that the judgement of Ebix is not applicable as the same deals with the cases where the Corporate Debtor has undergone changes but in the present case, wherein the Appellant is seeking withdrawal due to the financial difficulty that is being faced by the Appellant.

The argument of the Appellant was rejected by the bench and has held that even if the Appellant is allowed to withdraw from the plan due to financial difficulty and the same will be amounting to go back from the commitment made in the resolution plan which is not permissible.

The bench observed that the IBC is process consists of different steps with a ultimate object of reviving the Corporate Debtor. Thus, permitting Successful Resolution Applicant to withdraw after the Plan has been approved will have serious disastrous effect on whole purpose and object of IBC.

Accordingly, the NCLAT bench dismissed the appeal filed by the Appellant and has upheld the order of NCLT, Indore.

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Supreme Court: Order Of Termination Approved By Industrial Tribunal Is Binding On Parties, Labour Court Can’t Take Contrary View.

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SUPREME COURT

T

he Supreme Court of India in the case Rajasthan State Road Transport Corporation vs Bharat Singh Jhala (Dead) Son of Shri Nathu Singh, through Legal Heirs & Anr observed that the that an order of termination approved by an Industrial Tribunal is binding on the parties and a Labour Court cannot take a contrary view against it.

The bench comprising of Justice MR Shah and Justice Krishna Murari observed and has stated that once the order of termination was approved by the Industrial Tribunal on appreciation of the evidence led before it, thereafter it was stated that the findings recorded by the Industrial Tribunal were binding between the parties and no contrary view could have been taken by the Labour Court contrary to the findings being recorded by the Industrial Tribunal.

However, the court was considering an appeal plea by the Rajasthan State Road Transport Corporation.

The bench observed that a workman was subjected to departmental enquiry for not issuing tickets to 10 passengers after collecting the fare. Thus, on conclusion of the departmental enquiry, his services were terminated. The termination was the subject matter of the approval application before the Industrial Tribunal in an application under Section 33(2)(b) of the Industrial Act. In the said proceedings, it was permitted by the management to lead the evidence and prove the charge/misconduct before the Tribunal. By order, the Tribunal approved the order of termination.

It was observed that after a judgment and an award in 2019, the Labour Court, Jaipur allowed the said reference and set aside the order of termination. An order was passed by the Labour Court while awarding 50% back wages from the date of termination till his death i.e., December 10, 2018. The Award and the judgement passed by the Labour Court was challenged before both, Single and Division Benches of the High Court. However, the petitions were dismissed both the times.

The Court observed after going through the relevant facts of the case that once the order of termination was approved by the Industrial Tribunal, thereafter the fresh reference under Section 10 of the Industrial Disputes Act, wherein challenging the order of termination was not permissible.

Adding to it, the court stated that though it is required to be noted that the order dated 21.07.2015 passed by the Industrial Tribunal which as such is a higher forum than the finality has been attained by the Labour Court.

Before the High Court, though the aforesaid fact was pointed out, the court did not consider this aspect and confirmed the judgment and award passed by the Labour Court for setting aside the order of termination, which has been approved by the Industrial Tribunal. 

It was held by the Supreme Court that the judgment and award passed by the Labour Court, confirmed by the High Court is unsustainable and allowed the appeal plea.

It has been committed by the High Court that a very serious error in dismissing the writ petition/writ appeal confirming the judgment and award passed by the Labour Court setting aside the order of termination.

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‘Attempt To Threaten Judges With Contempt Pleas Unacceptable’ : Madhya Pradesh High Court

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‘Attempt To Threaten Judges With Contempt Pleas Unacceptable’ : Madhya Pradesh High Court

 While fully, firmly and finally deprecating most strongly the most reprehensible practice of bringing “every wrong order” that is passed by the Trial Courts under the contempt jurisdiction, it is most assuaging to learn that none other than the Madhya Pradesh High Court itself has in a most laudable, learned, landmark and latest judgment titled Majid Beg and Ors vs Shri Tej Pratap Singh in Contempt Petition Civil No. 1987 of 2022 pronounced as recently as on September 20, 2022 observed sternly that trying to threaten judges with contempt pleas will not be accepted. It must be noted that while very strongly pulling up four litigants for making ‘reckless allegations’ against a Trial Court Judge, a Division Bench comprising of none other than the Hon’ble Mr Chief Justice Ravi Malimath himself and Hon’ble Mr Justice Vishal Mishra observed without mincing any words in simple, straightforward and suave language that, “…We deprecate such attitude. We do not appreciate that every wrong order passed by the Trial Court is to be brought under contempt and the concerned judge has to be proceeded against trying to threaten the judges with petitions for contempt, in our considered view, is not going to be accepted.” Absolutely right!

More to the point : If Judges cannot function smoothly, then even God cannot save our country for it is Judges who determine God’s fate. As for instance when a woman lawyer named KL Chitra filed a PIL in Supreme Court for action to create a High Court Bench in West UP, the then CJI Ranjan Gogoi had very clearly said that we are no one to rule on this and it is only for the Centre to act in this regard. While adding a rider, the then CJI Gogoi said that he fully sympathized with the contentions that the people of so many districts of West UP are made to travel so far about 700 to 750 km on average all the way not even to Lucknow which is 200 km earlier but right till Allahabad to get justice. KL Chitra abided by that judgment instead of beating her chest and complaining and accusing Judge of being biased which really deserves to be applauded as inspite of losing the case as her PIL was dismissed yet she took it in correct spirit that judiciary whether it is UP Chief Justice or UP Chief Minister or Chief Justice of India is no one to rule on this and it is Centre and Centre alone which has to take the final call on it!   

Anyway, coming back to the key issue, it must be noted at the outset itself that this brief, brilliant, bold and balanced judgment authored by Hon’ble Mr Chief Justice Ravi Malimath for a Division Bench of the Madhya Pradesh High Court comprising of himself and Hon’ble Mr Justice Vishal Mishra sets the ball rolling by first and foremost putting forth in para 1 that, “This petition is filed seeking initiation of proceedings for contempt against the respondent herein for willfully disobeying the order dated 9th July, 2022 passed in Miscellaneous Criminal Case No.27507 of 2022.”

To put things in perspective, the Division Bench then envisages in para 2 of this learned judgment that, “Shri Vishal Vincent Rajendra Daniel, learned counsel for the petitioners contends that the respondent has violated the aforesaid order. He submits that the order passed by this Court in paragraph-9 has been disobeyed. He submits that even though the impugned order therein dated 10.05.2022 was set aside, the trial judge is proceeding to recall the witnesses and record their evidence. It is his submission even though he brought it to the notice of the trial judge, he was told that there was no order to restrain him not to summon the witnesses. Therefore, in view of the fact that there is no specific order restraining him not to summon the witnesses, there is no disobedience of the aforesaid order. Therefore, it is pleaded that since the contempt has been committed in disobeying the directions contained in paragraph-9, appropriate action be taken against the respondent.”

While mentioning about the core issue itself, the Division Bench after hearing the petitioners counsel as mentioned in para 3 then enunciates in para 4 of this remarkable judgment that, “Paragraph-9 of the order, which is said to have been disobeyed by the respondent reads as follows:-

“9. Therefore, in view of the above, present petition is allowed. Order dated 10.05.2022, passed by the learned Chief Judicial Magistrate, Seoni is set aside and learned Chief Judicial Magistrate is directed to decide the matter afresh after granting an opportunity of hearing to the petitioners/accused and to raise all such objections as are available to them, in accordance with law. Criminal case is pending for more than 9 years. Therefore, learned CJM is expected to dispose of this case as early as possible preferably within a period of six months from the date of receipt of copy of this order.””

Furthermore, the Division Bench then specifies in para 5 of this robust judgment that, “It is the further plea that the trial judge has stated that there was no order passed by the High Court directing him not to recall any of the witnesses. What was ordered by the High Court was to decide the matter afresh after giving an opportunity of hearing to the petitioners/accused etc. Therefore, what is being done by the trial judge is in accordance with the directions especially given in paragraph-9. Hence, there is no contempt.”

Most forthrightly, the Division Bench then mandates in para 6 of this pragmatic judgment that, “On considering the contentions, we are of the considered view that no contempt would arise in this matter. There is no specific order directing the trial court not to summon the witnesses or anything of the like nature. This Court after setting aside the order dated 10.05.2022 which is an order under Section 311 of the Cr.P.C., directed the CJM to decide the matter afresh after granting opportunity. ‘Afresh’ necessarily means from the beginning. Opportunity has already been granted. Therefore, we do not find any willful disobedience as pleaded by the petitioners. Hence, the petition is liable to be dismissed on this ground itself.”

Most remarkably and also most significantly, the Division Bench then encapsulates in para 7 what constitutes the cornerstone of this notable judgment that, “So far as the contentions being advanced are concerned, we do not appreciate the same. Apparently, the plea of the petitioners is that in spite of the order of the Court, the trial judge has disobeyed the same. We have hereinabove held that the same does not amount to contempt. Every order that is passed by a superior court, is liable to be followed by the lower court. Even assuming the case of the petitioners is to be accepted of certain misapplication of the law, that does not amount to contempt. The understanding of the trial court is quite a different issue than disobedience. One has to show that the disobedience is willful to the orders passed by the superior courts. If there is any scope for any interpretation in the directions being issued then that cannot constitute a contempt. In the instant case, the impugned order therein was set aside with a direction to consider the matter afresh. Therefore, the trial court has to consider the matter afresh. As to how that amounts to contempt, we are unable to follow. Therefore, we are of the view that this is nothing but a pure adventurism by the petitioners in making such reckless allegations against the trial judge. We deprecate such attitude. We do not appreciate that every wrong order passed by the trial court is to be brought under contempt and the concerned judge has to be proceeded against. Trying to threaten the judges with petitions for contempt, in our considered view, is not going to be accepted. Since this matter is arising for the first occasion we have restrained ourselves from taking strict action but only direct a warning to the petitioners to desist from such adventurism.”

Finally, the Division Bench then as a corollary finds no hesitation in coming to the palpable conclusion as directed in para 8 of this progressive judgment that, “Petition is accordingly dismissed.”

In a nutshell, what inevitable conclusion that can be drawn from this most powerful, pragmatic and progressive judgment is that the Madhya Pradesh High Court has minced just no words to make it indubitably clear that any attempt to threaten Judges with contempt plea is totally unacceptable. There is absolutely no bona fide reason why any citizen of India should dare to differ even marginally with what the Division Bench comprising of none other than the Hon’ble Mr Chief Justice Ravi Malimath himself and Hon’ble Mr Justice Vishal Mishra have dwelt upon so succinctly and so convincingly that there remains no valid reason not to agree in totality with what they have held so commendably!

Sanjeev Sirohi, Advocate

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Supreme Court Sets HC Bail Condition Of Depositing Rs 7.5 Lakhs: Plea Seeking Pre-Arrest Bail Not Money Recovery Proceedings.

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Supreme Court Sets HC Bail Condition Of Depositing Rs 7.5 Lakhs: Plea Seeking Pre-Arrest Bail Not Money Recovery Proceedings.

The Supreme Court in the case Udho Thakur Vs State Of Jharkhand observed while opening that petitions seeking pre arrest bail are not same as money recovery proceedings petitions, the Top Court of India recently annulled a condition imposed by the Jharkhand High Court of depositing 7.5 Lakhs as “victim compensation” while granting pre-arrest bail.

The Division bench comprising of Justice Dinesh Maheshwari and Justice Bela M Trivedi observed and stated that even if we take the submissions of the learned counsel for the contesting respondent on its face value, the bench is clearly of view that in essence, the petitions seeking relief of pre arrest bail are not money recovery proceedings and, ordinarily, for adopting such a course there is no jurisdiction that for the purpose of being given the concession of pre-arrest bail, the person concerned apprehending arrest has to make payment.

In the present case, the bench was considering an appeal plea filed challenging the order of the Jharkhand High Court granting pre-arrest bail to the appellants on the condition that they furnish a bond of Rs.25,000/- and deposit a demand draft Rs.7,50,000/- as an ad-interim victim compensation.

It was submitted by the counsel appearing for No. 2 submitted 1 that the expression “victim compensation” as used in the impugned order may not be apt as it was not a case of recovery of victim compensation, but otherwise, the condition cannot be said to be onerous or unjustified because receiving of the said sum of Rs. 7,50,000/- by the appellants at the time of marriage has not been a fact in dispute.

It was observed that the counsel appearing for the state government relied on several orders against imposing the terms of payment for the purpose of granting the relief of pre-arrest bail and remitting the matter for re-consideration.

The order of High Court was modified by the Court without remitting the matter back to the High Court.

The court observed while having regard to these circumstances that the said condition of depositing a sum of Rs.7,50,000/- for the purpose of granting the relief of pre-arrest bail cannot be approved and else and the order of granting bail deserves to be maintained. However, the court is of the view that no useful purpose would be served by sending the matter for reconsideration to the High Court and the order impugned deserves to be modified appropriately only in these appeals.

The order was clearly clarified by the Supreme Court of India in the manner-releasing the appellants on bail in the event of arrest on furnishing bond of Rs. 25,000/ will remain intact but on the other part of the order, the appellant require to deposit a sum of Rs. 7,50,000/- has been annulled.

Accordingly, with the aforesaid observation, the court disposed of the petition.

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Delhi High Court: [CPC] Objective Of Interrogatories Is To Narrow Controversy, Can’t Be Used By Plaintiff For Substituting Burden Of Proof.

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Delhi high court

The Delhi High Court in the case Micromax Media Pvt Ltd v. M/S Hewlett Packard India Sales Pvt Ltd and Ors. observed and stated that the interrogatories cannot be used by the plaintiff in a suit for substituting its burden of proving things by adducing relevant evidence, adding that its objective is to narrow the controversy and facilitate the framing of issues regarding the disputed facts in the case.

The bench comprising of Justice Neena Bansal Krishna observed and has further added that Order 11 Rule 1 of the Code of Civil Procedure, 1908 is for expediting trial of the suit, thereby saving the costs of litigation and judicial time.

The Court stated that the interrogatories must be used liberally by the parties and one of the greatest objects of the interrogatories when properly administered is to save evidence i.e., for diminishing the burden of proof which was otherwise on the plaintiff. Thus, the object is not merely to discover the facts but also to save the expense of proving a part on the case.

It was observed that Order XI Rule 1 of the Code states that the plaintiff or defendant in a suit may, by leave of the Court, deliver interrogatories in writing for examination of opposite parties or for any of the parties.

It is also stated in the provision that no party shall deliver more than one set of interrogatories to the same party without an order for the same.

It was observed by the court that interrogatories are not limited to giving plaintiff the knowledge of something which is not already known, but includes getting admission of anything which he has to prove on any issue raised between the defendant and him.

The court added that Order 11 gives a party a right to interrogate with a view to obtain an admission from his opponent of everything which is material and relevant to the issue raised in the pleadings.

In the present case, the court was delaing with an application filed under Order XI Rules 1 and 5 read with Section 151 of the Code by Micromax Media Private Limited seeking directions to make Hewlett Packard India Sales Private Limited officials to answer the interrogatories in the suit filled.

It was ststed in the application that the defendants in their Written Statement-cum-Counter Claim had admitted the entitlement of the plaintiff company to the MVC rebates and bonus for the period between December 2008 till June 2009.

However, Hewlett allegedly set off and raised a counter-claim of Rs. 5,69,00,000 against  Micromax claiming that it had received excess payments from the month of November 2007 to April 2009 which was discovered during the audit. The court was informed that no document was placed by the defendant company on the basis of which it was claiming excess payment.

The counsel appearing for the defendant company seek dismissal dismissal of the application by taking a preliminary objection that the company had nowhere admitted to the entitlements to the alleged MVC rebates.

Before the Court, it was also argued that the interrogatories sought to be administered to the defendants were nothing but a fishing expedition tantamounting to embarking on a roving enquiry.

Also, the court observed that the documents sought from the defendants, relating to their Counter-Claim, did not shorten the controversy or narrow the scope of evidence that the plaintiff would have to prove necessarily in support of its claim.

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No need for a NOC to transfer flats built on land leased to the developer: SC

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Supreme Court

The Maharashtra government cannot require a “no objection certificate” from the collector in order to register the transfer of flats in cooperative societies built on land not provided directly by the state, the Supreme Court ruled last week.

The Court was hearing a petition filed by the state government challenging a decision issued by the Bombay High Court on September 29, 2009, which held that the state could not insist on payment of a premium and the issuance of a NOC for registering the transfer of plots when there is clear evidence that the land was allotted first to builders who built flats and then sold it to purchasers. Following that, the owners formed a cooperative society.

The HC decision was based on a petition filed by Aspi Chinoy, a senior advocate in Mumbai, and the Cuffe Parade Residents Association, who were residents of the 22-story Jolly Maker Apartments.

The top court bench of justices BR Gavai and BV Nagarathna dismissed the state’s appeal on Friday, “Since the land was not allotted to a society but to a builder on lease, who has constructed flats for private individuals, who have subsequently formed a Cooperative Society, the 1983 Resolution and 1999 Resolution would not be applicable to the members of such a society.”

The state had relied on two resolutions, dated May 12, 1983 and July 9, 1999, to levy a premium as a condition for granting permission for flat transfers.

The Resolution of 1983 provided for the grant of land at reduced rates to various categories of co-operative societies.

Following the 1983 Resolution, the government issued a modified resolution in 1999 that applied to co-operative societies to whom government lands were sanctioned at reduced rates.

Chinoy had approached the HC, questioning the resolutions’ relevance to their plot. He had challenged the collector’s letter of June 27, 2000 to the sub-registrar, Bombay City, Old Custom House, directing him not to register any transaction involving the transfer of flats in the buildings located in B.B.R. Block Nos. 3 and 5, Nariman Point and Cuffe Parade, Bombay, without first obtaining a NOC from the collector.

According to the residents, their building dates back to 1971, when the state government solicited bids for the lease of Plot Nos.93, 94, 99, 100, and 121 from Block V Back Bay Reclamation Estate. In response to the notice, M/s. Aesthetic Builders Pvt. Ltd. successfully won the bid and completed the construction of flats. On December 12, 1975, the building’s occupancy certificate was issued. Two years later, the owners established the Varuna Premises Cooperative Society Limited.

The bench said, “The present case is not a case where the land is allotted to a co-operative society by the government. The land was leased out to the builder, who was the successful bidder and after the ownership of flats was transferred to the private individuals, a society of the flat owners was formed.” The judges also lifted the stay on the refund order issued by the Supreme Court.

Chinoy claimed that the flat in which he lives was first sold to A Madhavan in 1972 and then to Reshmidevi Agarwal in 1978.

Chinoy then entered the picture by signing an agreement with Agarwal in December 2020 in exchange for five shares in the society.

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