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LITIGATION NEWSLETTER JULY 2019 | Series 25.3

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Rejection of Plaint as a whole or not at all

Suit in respect of different properties can be filed in any of the courts having jurisdiction if cause of action is the same

Builders Cannot Charge Exorbitant Interest on Delayed Payment

Writ Petition Maintainable Against Private Body, if Discharging a Public Duty

Jurisdiction of Chief Judicial Magistrate to Entertain Application Under Section 14 Of The SARFAESI Act

Assesses before filing writ petitions in the High Court Invoking Article 226 of the Constitution of India have to exhaust the remedies provided under the IT Act

Tests to Find Out Whether Contract Labourers are Direct Employees by Supreme Court

SUPREME COURT OF INDIA

Rejection of Plaint as a whole or not at all

- Shrusti Jena Maharathy, Associate

A Division bench of the Supreme Court in the case of

Madhav Prasad Aggarwal v. Axis bank Ltd. & Anr.1

reiterated in respect of rejection of plaint in exercise of

powers under order 7 rule 11(d) of Code of Civil

Procedure, 1908 that powers is limited to rejection of the

plaint as a whole or not at all.

The plaintiff filed a civil suit against the Orbit Corporation

Limited. The Bank filed a notice of motion under the Code

of Civil Procedure, 1908 of order 7 rule 11(d) on the

ground that the particular suit against it, would be barred

by the provisions of Section 34 of The Securitization and

Reconstruction of Financial Assets Act, 2002. Hence Single

Judge Bench dismissed the Notice of Motion but the

division Bench of the High Court allowed it. Plaintiff

aggrieved by the decision approached the Supreme Court

through the Special Leave Petition quoting the Judgment

of Sejal Gas Limited v. Navilan Merchants Private Limited2

thereby contending that the plaint cannot be rejected only

1 SLP (C) No.31579 of 2018)

against one of the defendant(s) but, it could be rejected as

a whole.

The Division Bench observed that the plaint can and must

be rejected in exercise of powers under Order 7 Rule 11(d)

of CPC on account of non-compliance of mandatory

requirements or being replete with any institutional

deficiency at the time of presentation of the plaint,

ascribable to clauses (a) to (f) of Rule 11 of Order 7 of CPC.

In other words, the plaint as presented must proceed as a

whole or can be rejected as a whole but not in part.

Thereby accepting the contention of plaintiff and setting

aside the order of the Division Bench of the High Court and

held that the power is

limited to rejection of the plaint as a whole or not at all.

Suit in respect of different properties can be filed in

any of the courts having jurisdiction if cause of action

is the same

-Bhavana Peela, Associate

The Supreme Court in the case of Shivnarayan V. Maniklal

and others3 expanded the definition of Section 17 under

the Civil Procedure Code 1908, to include cases arising out

of same cause of action in respect of more than one

property situated in different jurisdictions.

The case arose out of a suit seeking partition of joint family

properties after setting aside certain documents of

conveyance. The suit was instituted in a civil court at

Indore. However, properties situated at Mumbai were also

scheduled in the plaint. The trial court struck off the

properties in Mumbai scheduled in the plaint stating the

reason that they were outside the court's territorial

jurisdiction. This was challenged in the High Court by the

plaintiff. The High Court turned down the challenge saying

that Section 17 of CPC cannot be applied to a scenario of

more than one property located in different jurisdictions.

This led the plaintiff to approach the Supreme Court.

The bench noted that the suit was arising out of different

causes of actions pertaining to different documents

executed by different defendants. The plaint encompasses

2 6 (2018) 11 SCC 780 3 MANU/SC/0150/2019

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different causes of action with different set of defendants.

The cause of action relating to Indore property and

Bombay property were entirely different with different set

of defendants. The suit filed by the plaintiff for Indore

property as well as Bombay property was based on

different causes of action and could not have been

clubbed together. The suit as framed with regard to

Bombay property was clearly not maintainable in Indore

Courts. Therefore, the appeal was dismissed, affirming the

findings of the High Court and trial court, but on a different

reasoning.

NATIONAL CONSUMER DISPUTES REDRESSAL

COMMISSION

Builders Cannot Charge Exorbitant Interest on Delayed

Payment

- Anshu Singh, Associate

NCDRC on 03/06/2019 in the case of Amit Soni & Ors. Vs.

Umang Realtech Ltd. & Ors.4, held that provisions in

Builder- Buyer agreement that bind home-buyers with

contractual terms to protect the interests of the company

at the cost of the buyers are one sided, unfair and

unreasonable as per Section 2(r) of the Consumer

Protection Act, 1986.

The buyer was promised possession of the flat by Dec

2015 and had paid around ₹83 Lakhs to the builder in

different instalments. As the builder failed to deliver the

project even four years after the promised date, buyer

filed a complaint under Section 21(a)(i) of the Consumer

Protection Act, 1986 for the refund of entire amount

collected towards the consideration of the house along

with interest of 18% on the amount paid by the

complainant. Counsel for the Opposite party contended

that as per clause 7.9 of the ‘Apartment Buyers’

agreement if there is any delay regarding construction and

possession of the house, the company shall be liable to pay

only Rs. 5/- per square foot of the apartment per month

as penalty.

The National Commission held that forcing home-buyers

to pay interest in the range of 18% per annum for delay in

4 Consumer Case No. 2524 of 2017

payment of instalment while the builders themselves pay

a paltry 1.5-2% for delay in project amounts to unfair trade

practice by real estate companies since it gives a one sided

advantage to seller over the buyer. Commission also said

that a term of a contract will not be final and binding if it

is shown that the flat purchasers had no option but to sign

on the dotted line on a contract framed by the builder.

The National Commission through the judgment made it

clear that builders had to return the money to the buyer

on the same interest of what they are charging for any

delayed payments.

HIGH COURTS

Writ Petition Maintainable Against Private Body, if

Discharging a Public Duty

- Simran Tandon, Associate

In the case of Jasmine Ebenezer Arthur versus HDFC ERGO

General Insurance Company Limited & Ors.5 High Court of

Madras allowed a writ petition seeking a direction to a

private insurance company to honour an insurance claim

in respect of Health Insurance Policy availed by her

husband. The petitioner and her husband applied for a

Home Loan which was sanctioned to them. Also the

Petitioner’s husband was advised to avail insurance

coverage for the Home Loan stating that the said

insurance policy, inter alia, covers Critical Illness Diagnosis

as well. He took the policy by paying a premium. On the

fateful day, when the Petitioner's husband was proceeding

to his office he suffered from cardiac arrest and he went

through ventricular fibrillation and he died. The Petitioner

filed a claim petition. The Petitioner’s claim was

repudiated on the ground that the cause of death of her

husband was not covered under 'Major Medical Illness”.

Aggrieved by such repudiation, the petitioner lodged a

complaint with the grievance cell which did not yield any

positive response. Hence, she filed a complaint with the

Insurance Ombudsman, Chennai, which was dismissed

vide Award.

5 W.P. No. 22234 of 2016

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The Court held that today, in the modern world, there are

numerous socioeconomic activities to be performed by

the State. This resulted in sharing some of the obligations

to the other bodies, while retaining certain level of control

over them. This gave a motivation to the public and private

bodies to acquire major concerns and started exercising

monopoly power over its activities, which are close to

State functions. By allowing these governmental functions

to the private bodies, the fundamental rights of the

citizens are being strained. Therefore, to protect the rights

from the clutches of the Legislature, Executive, public and

private agencies, the Courts have to extend their power

under Article 226 of the Constitution of India, which is

usefully extracted hereunder:

A reading of Article 226 makes it clear that it can be

invoked not only for infringement of fundamental rights,

but also for any other purpose. The question before the

High Court was to determine whether the private bodies

performing public duties can be brought within the

purview of judicial review. The Court observed that if a

private body is brought within the purview of Article 12,

then it will be subject to constitutional limitations. As

happened in this case, lack of effective control has made

the private bodies acquire more power similar to public

authorities. The public monopoly power is replaced by

private monopoly power. Hence, it becomes necessary

that the private bodies should be made accountable to

judiciary within the judicial review. If any private body has

a public duty imposed on it, the Court has jurisdiction to

entertain the writ petition.

Jurisdiction of Chief Judicial Magistrate to Entertain

Application Under Section 14 Of The SARFAESI Act

- Gaurav Singh Gaur, Associate

The Hon’ble Kerala High Court in its recent judgment

dated 27-06-2019 in K.O. Anto and Anr. v. State of Kerala

and Anr.6 held that a Chief Judicial Magistrate can

entertain an application under Section 14 of the SARFAESI

Act.

6 OP(Crl) No.283 of 2019 7 2008 (3) KHC 935

The Petitioners challenged the maintainability of the

application by Respondent under Section 14 of

Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (SARFAESI Act).

Petitioners also challenged the sustainability of the

consequential order passed on the same date by the

learned Magistrate, appointing an Advocate

Commissioner to take delivery of the Secured Assets.

The Hon’ble High Court observed that a division bench of

the Hon’ble Court in Muhammed Ashraf and another v.

Union of India and Ors.7, had emphatically decided on the

subject-matter and opined that the powers of the Chief

Judicial Magistrate in non-metropolitan areas and the

Chief Metropolitan Magistrate in metropolitan areas are

one and the same.

Furthermore, placing reliance on Authorised Officer, SBT

and Anr. v. Mathew K.C.8, which in turn referred an earlier

decision in Punjab National Bank v. O.C. Krishnan and

Ors.9, it was held that the DRT Act has been enacted with

an object to provide a special procedure for recovery of

debts due to the banks and the financial institutions. There

is a hierarchy of appeal provided in the Act, and this fast-

track procedure cannot be allowed to be derailed either

by taking recourse to proceedings under Articles 226 and

227 of the Constitution or by filing a civil suit, which is

expressly barred. Even though a provision under an Act

cannot expressly oust the jurisdiction of the Court under

Articles 226 and 227 of the Constitution, nevertheless,

when there is an alternative remedy available, judicial

prudence demands that the Court refrains from exercising

its jurisdiction under the said constitutional provisions.

Having considered the entire facts on the touchstone of

the provisions of the statute and the binding precedents,

the Hon’ble High Court was of the considered view that

the orders passed by the learned ACJM do not suffer from

any perversity or jurisdictional error warranting

interference by High Court in exercise of its supervisory

powers under Article 227 of the Constitution of India.

8 2018 (1) KLT 784 9 (2001) 6 SCC 569

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Recently in a similar appeal challenging the order passed

by ACJM, Ernakulam, the Supreme Court’s Vacation Bench

noted that the Calcutta, Bombay and Madras High Courts

have taken view that the Chief Judicial Magistrate has no

powers to entertain applications under Section 14 of

SARFAESI Act, whereas Kerala, Andhra Pradesh and

Allahabad High Courts have leaned towards a diametrically

opposed viewpoint that the Chief Judicial Magistrate

indeed has jurisdiction to entertain application under

Section 14 of SARFAESI Act.

All such similar cases before the Apex Court, arising out of

the same subject-matter were clubbed and are expected

to be heard and resolved soon by the Apex Court.

Assesses before filing writ petitions in the High Court

Invoking Article 226 of the Constitution of India have to

exhaust the remedies provided under the IT Act

- Ram Bharathwaj, Associate

The Hon’ble Madras High Court on 25.06.2019, dismissed

the Writ Petitions filed by Cognizant Technology Solution

Private Limited (Cognizant) and two of its foreign

shareholders – Cognizant (Mauritius)Limited and New

Jersey-based Cognizant Technology Solutions Corporation

over Tax disputes relating to the buy-back of shares.

In the present case the dispute at hand emanated from

the buyback of shares by Cognizant from its foreign

shareholders. The petitioners submitted that the

subsidiary company had decided to buy back the shares

since it had substantial cash surplus in 2013, for which

there was no immediate requirement in the company.

Consequently, Cognizant identified buy-back of shares

under section 77A of the Companies Act, 1956.

The Value of the Shares determined by using the

Discounted Free Cash Flow (DCF) method is at Rs.

23,915.10 per share. However, the Income Tax(IT)

authorities subsequently estimated the price per share at

Rs. 8,512, based on a Fair Market Value estimation, citing

11UA of the Rules of Income Tax Act, 1961 (IT Act). A

show-cause notice was eventually Issued in December

10 M/s Bharat Heavy Electricals Ltd. vs. Mahendra Prasad Jakhmola, Civil Appeal Nos. 1799-1800 OF 2019 (Arising out of SLP (C) Nos. 33747-33748 of 2014)

2017 as to why the excess consideration over the said

value should not be assessed to tax under Section 56(1) of

the IT Act. On December 31, the IT authorities also passed

their draft assessment order based on this valuation.

This prompted the two shareholders to approach the High

Court Invoking Article 226 Writ Jurisdiction. The

Petitioners contended that passage of the draft

assessment order involved a violation of the principles of

natural justice and that the draft order was passed in

contravening Section 92CA (4) of the IT Act.

The Court, however did not delve too deeply into the

merits of the case on the grounds of availability of an

effective alternate remedy of filing statutory appeals

before the authorities concerned i.e. the alternate

grievance redressal forums prescribed in the Income Tax

Act itself. Noting that the Income Tax Act provided for a

Dispute Resolution Panel(DRP) under Sub-section 6 of

Section 144C of the IT Act, consisting of experts in the

field. The Court, therefore, dismissed the writ petitions

and directed the petitioners to approach the Dispute

Resolution Panel within two weeks.

CASE ANALYSIS

Tests to Find Out Whether Contract Labourers are Direct

Employees: Supreme Court

-Deiya Goswami, Associate

The dispute arises as to the termination of 64 employees

by M/s Bharat Heavy Electricals Ltd.10 by the reference

notification dated 24.04.1990 issued under the Contract

Labour (Regulation and Abolition) Act, 1970 and was

referred to the Labour Court at Haridwar, by an award

dated on 01.11.2009 the Labour Court held that based on

documentary evidence in the form of gate passes, the

workmen, who were otherwise employed by a contractor,

were directly employed by the appellant and all 64

workers were entitled to be reinstated with immediate

effect but without back wages. From this Labour Award, a

review petition was filed by the appellant. On 18.05.2011,

this review was dismissed by the Labour Court. From this

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Labour Award, a review petition was filed by the appellant

i.e. BHEL. On 18.05.2011, this review petition was

dismissed by the Labour Court. A writ petition was filed,

being W.P. No. 1021/2011, against the aforesaid orders.

This writ petition was dismissed by the first impugned

order dated 24.04.2014 in which the High Court recorded

that “undisputedly” all petitioners, i.e., workmen, were

performing the duties which were identical with those of

regular employees. Therefore, it can be said that they

were under the command, control, and management of

BHEL and, concomitantly, the contractor has absolutely no

control over the workmen in performing such duties. It

was, therefore, held that the alleged contract with the

contractor was “sham” and, consequently, the Labour

Court Award was correct in law and was upheld. Against

this order, a special leave petition was filed before the

Supreme Court and was disposed of by the Supreme

Court. The appellant then filed a review petition before

the High Court and was disposed of accordingly. Further,

an Appeal (Civil) has filed before division bench of the

Supreme Court.

Issue Raised: - Whether Contract Labourer is a Direct

Employee according to the UP Industrial Disputes Act,

1947?

Analysis:- The Court in order to decide the dispute relied

on the test laid down by the Supreme Court in General

Manager, (OSD), Bengal Nagpur Cotton Mills,

Rajnandgaon v. Bharat Lala and Another11, which is as

follows:

“Two of the well-recognized tests to find out whether the

contract labourers are the direct employees of the

principal employer are: (i) whether the principal employer

pays the salary instead of the contractor; and (ii) whether

the principal employer controls and supervises the work

of the employee.”

Further, to explain the expression "control and

supervision" in the context of contract labour was

explained by this Court in International Airport Authority

11 (2011) 1 SCC 635

of India v. International Air Cargo Workers' Union12 as

follows:

"If the contract is for supply of labour, necessarily, the

labour supplied by the contractor will work under the

directions, supervision and control of the principal

employer but that would not make the worker a direct

employee of the principal employer, if the salary is paid by

a contractor, if the right to regulate the employment is

with the contractor, and the ultimate supervision and

control lies with the contractor.

The principal employer only controls and directs the work

to be done by a contract labour, when such labour is

assigned/allotted/sent to him. But it is the contractor as

employer, who chooses whether the worker is to be

assigned/ allotted to the principal employer or used

otherwise. In short, worker being the employee of the

contractor, the ultimate supervision and control lies with

the contractor as he decides where the employee will

work and how long he will work and subject to what

conditions. Only when the contractor assigns/sends the

worker to work under the principal employer, the worker

works under the supervision and control of the principal

employer but that is secondary control. The primary

control is with the contractor".

It was held that test No. 1 is not met as the contractor pays

the workmen their wages. Secondly, the principal

employer cannot be said to control and supervise the work

of the employee merely because he directs the workmen

of the contractor 'what to do' after the contractor assigns/

allots the employee to the principal employer. Supervision

and control of the principal employer is secondary in

nature, as such control is exercised only after such

workman has been assigned to the principal employer to

do a particular work. Therefore, the bench held that the

workers were not direct employees.

Conclusion: -The approach taken by the Apex Court is

based on the applied tests set by judicial by precedents for

determining whether a contract labourer is a direct

12 (2009) 13 SCC 374

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employee in order to qualify as under the definition of

“employees”.

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