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Case Comment: Nabi Alam v. State (Govt. of NCT of Delhi)
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Introduction
The present matter, Nabi Alam v. State (Govt. of NCT of Delhi)[1] was referred to the
Division Bench of the High Court of Delhi by the Single Bench of Justice Suresh Kumar
Kaith, to settle a question which arose because of two conflicting judgments concerning
the Narcotic Drugs and Psychotropic Substances Act, 1985[2] (hereon referred to as
“the NDPS Act”), of the same court with regards to the “presence of a Magistrate or
gazetted officer being mandatory during the process of search and seizure of illegal
substances”.
The present situation can be analysed as:
:
i. Whether or not, in the present scenario can it be inferred that there was non-
conformity of the absolutely binding provisions of Section 50[3] of the NDPS Act.
ii. If the accused chooses not to be searched before a Magistrate or gazetted officer,
and the officer conducting the search goes ahead and makes personal search of the
accused, would this be substantial compliance.
The main contention of the accused in the present petition was, that waiving off of their
legal right is of no consequence for observance of Section 50 i.e. the right to their own
personal search in attendance of either a Magistrate or a gazetted officer (from the
departments enumerated under Section 42[4] of the NDPS Act), the officer leading the
search must still strive to bring the accused/suspect in the company of either a gazetted
officer (from the departments enumerated under Section 42 of the NDPS Act) or a
Magistrate for conducting of the personal search.
Topics to discern:
1. The Division Bench of the Delhi High Court on the issue.
2. Scope of Section 50.
3. Substantial compliance of Section 50.
4. Supreme Court cases on the issue.
The Division Bench of the Delhi High Court on the issue

The para 26 of the judgment extracted, reads as under:
26. For the sake of clarity it is held that, axiomatically, there is no requirement to
conduct the search of the person, suspected to be in possession of a narcotic
drug or a psychotropic substance, only in the presence of a gazetted officer or
Magistrate, if the person proposed to be searched, after being apprised by the
empowered officer of his right under Section 50 of the NDPS Act to be searched
before a gazetted officer or Magistrate categorically waives such right by electing
to be searched by the empowered officer. The words “if such person so
requires“, as used in Section 50(1) of the NDPS Act would be rendered otiose, if
the person proposed to be searched would still be required to be searched only
before a gazetted officer or Magistrate, despite having expressly waived “such
requisition“, as mentioned in the opening sentence of sub-section (2) of Section
50 of the NDPS Act. In other words, the person to be searched is mandatorily
required to be taken by the empowered officer, for the conduct of the proposed
:
search before a gazetted officer or Magistrate, only “if he so requires“, upon
being informed of the existence of his right to be searched before a gazetted
officer or Magistrate and not if he waives his right to be so searched voluntarily,
and chooses not to exercise the right provided to him under Section 50 of the
NDPS Act.[5]
The High Court of Delhi has taken two specific phrases from Section 50:
1. Section 50(1): If such person so requires.
2. Section 50(2): Such requisition.
The High Court of Delhi has placed reliance on Vijaysinh Chandubha Jadeja v. State of
Gujarat[6] and categorically stated that it is a settled position by the Supreme Court, that
while it is mandatory to strictly comply with the provisions of Section 50, it is also
observed that the accused person has been given a choice to practise this legal right
and the person may choose to or not exercise that right.
Hence, according to the Court the ratio of Arif Khan v. State of Uttarakhand[7] does not
provide any utility to the accused in the present scenario.
Scope of Section 50
From reading the provisions we can see that in the first instance there is a right
provided to the accused which he/she can exercise by demanding to be presented
before the officers mentioned in Section 50(1)[8], also that the officer concerned can
detain the accused until the person can be presented before the Magistrate[9], a further
reading will make it crystal clear as to why this right has been provided, as the next
provision clearly stipulates that the officer concerned mentioned in Section 50(3) can
either discharge the accused if he/she sees no reasonable ground to keep the accused
or direct that search be taken of the accused[10].
This right has been provided to keep a check on frivolous cases, as the NDPS Act is an
unforgiving piece of legislation and if the circumstance allows, and the Magistrate or
gazetted officer thinks that there is no legitimate case against the accused, then he/she
can be released immediately, because under the NDPS Act if a person is booked for
intermediate or commercial quantity then preventive detention for such an alleged crime
is extremely taxing, and moreover, getting bail is a problematic affair when it comes to
:
the full satisfaction of court under Section 37[11] of the NDPS Act, a provision which has
to be satisfied to get bail under commercial quantity and when charged with Sections
19[12], 24-A[13] & 27[14] of the Act.
In the same section, there is a provision which establishes the procedure to be followed,
if such a person cannot be produced before a Magistrate without parting with the control
of such illegal substances, in such a scenario the empowered officer can search the
person according to Section 100 of the CrPC[15].
We can see here that Section 50 is providing a legal right to an accused against
frivolous detention and arrest, and also casting a duty upon the empowered officer to
strive to take the accused to the officers mentioned for the personal search of the
accused.
A procedure is mentioned for a generic situation when the accused cannot be produced
among such officers[16], but nowhere does the provision mention anything about
completely bypassing this sacrosanct duty cast upon the empowered officer by simply
getting a piece of paper signed (which could be done under duress), without any actual
authenticity about waiving off of a legal right which can be done to avoid legitimate
procedure.
Substantial Compliance of Section 50

What is substantial compliance
It is when an empowered officer does not follow the procedural safeguards provided
under Section 50 of the NDPS Act, 1985, strictly, but rather follows them in part or in
such a manner which is not totally transparent or flimsy, e.g., getting a paper signed
about waiving off of the legal right to be searched in front of Magistrate or gazetted
officer, without recording reasons for non-compliance.
Supreme Court has clarified in the Jadeja judgment[17] that the empowered officer who
is conducting the search and seizure of illegal substances, must follow the procedure
laid out under Section 50 to the letter, that after the empowered officer has satisfied the
complete procedural safeguards, after that the accused person can use or not use their
legal right afforded to them under Section 50.
It was in this case that the Supreme Court had finally rejected the substantial
compliance theory, which was being followed as it was wrongly read into Section 50 by
earlier judgments of Joseph Fernandes[18] and Prabha Shankar Dubey[19].
:
Supreme Court cases on the issue
To quote the Supreme Court judgment that the High Court of Delhi has utilised and
relied upon in the present petition, which was Vijaysinh Chandubha Jadeja v. State of
Gujarat[20], the observation made by the Supreme Court of India was:
The empowered officer must endeavour in the first instance to
bring the said suspect among a Magistrate or a gazetted officer,
this must be done in order to strengthen the case of the
prosecution, as these officers enjoy much more confidence of the
citizens, however, no hard and fast rule can be made but doing
this would grant impartiality, authenticity, worthiness,
transparency to the entire proceedings.
In Arif Khan[21] it was the prosecution’s version that the accused had “waived off his
right and had consented to be searched by the police officials of the raiding party”, in
which there was neither a Magistrate nor a gazetted officer.
The Supreme Court in para 24 of the judgment[22] has held that “this search and
recovery does not fulfil the mandatory requirements of Section 50 as prescribed by the
dictum laid down in Vijaysinh Chandubha Jadeja v. State of Gujarat[23]”.
Excerpt from para 24.4 of the same judgment[24] of the Supreme Court says that
It is absolutely mandatory for the prosecution to prove that when the recovery has been
affected from the person of the accused, it must be proved to have been recovered in
the presence of a Magistrate or a gazetted officer.
Conclusion
Preventive detention under the NDPS Act, 1985 is not a magnanimous process, getting
bail under the NDPS Act, 1985 in a situation where Section 37 of the Act applies, is not
just a hectic but a mentally taxing affair for the accused, as the time given for filing
charge-sheet is 180 days in certain cases, which can be extended up to one year in
exceptional circumstances and getting bail in NDPS cases is more difficult than UAPA
cases[25] as the conditions under Section 37 are extremely stringent.
The right provided under Section 50 to the accused is a legal right given to protect
:
against illegal arrest, but, there is also a duty which is being directed towards the
empowered officer which would make the officer to comply with the provisions in a strict
manner, we can also gather this by reading Arif Khan judgment[26] where the Court has
held that there is a responsibility cast upon the empowered officer for presenting the
accused amongst a Magistrate or gazetted officer for their personal search, this has
been inferred by the Court because in the earlier judgment of Jadeja case[27], the
Court has observed that the empowered officer must strive to bring the accused
amongst a Magistrate or gazetted officer because these officers are much more
trustworthy to the general public.
So, if the Supreme Court thinks that for search and seizure a Magistrate is much more
trustworthy for the general public, then, how can an unnotarised, non-stamped piece of
paper which has been signed only in the presence of a police officer stating the waiving
of a legal right be trusted?
The Supreme Court in the recent case of Tofan Singh v. State of T.N.[28] has held that
confessions given to the police under Section 67[29] of the NDPS Act, 1985 are non-
admissible as evidence as they are given to “police officers” and the empowered
officers under the NDPS Act, 1985 are “police officers”. This is another instance where
documents signed in police presence are not deemed to be trustworthy and cannot be
treated as evidence.
Moreover, Section 50 only specifically provides for the instance where the “person so
requires” but does not expressly provide for a situation where the “person does not”, the
Supreme Court has answered this question in Jadeja[30] and Arif Khan[31], in the
Jadeja judgment the Supreme Court completely tossed aside the substantial
compliance doctrine when it comes to search of a person, it was reaffirmed by Arif Khan
judgment[32], the Supreme Court has categorically held in Arif Khan that it must be
proved by the prosecution that the recovery of illegal substances from the person of the
accused must be in the presence of a Magistrate or a gazetted officer, while the Delhi
High Court has held a contrary view.
Given the extremely rigorous and uncompromising provisions of the NDPS Act, it is only
natural to expect an elevated sense of probity, seriousness and genuineness from the
empowered officer conducting the search and carrying out the duty as detailed by the
legislation (Narcotic Drugs and Psychotropic Substances Act, 1985) as well as the
observations of the Supreme Court in an uncompromising and scrupulous manner.
:
The Delhi High Court has perhaps not taken all the observations of the Supreme Court
in the present matter into account, the judgment of the Delhi High Court needs
reconsideration as there is clear conflict and it can be inferred in the present case that
there was merely substantial compliance of Section 50, which has been torn down by
the Supreme Court in cases of personal search of the suspect or accused, hence, there
is probability of muddying the waters even further, there is also a likelihood that this
judgment might lend the police wide scope for abuse of power, and provide an excuse
to bypass the whole safeguard provided under Section 50.
† Advocate, Supreme Court of India and Delhi High Court

[1] 2021 SCC OnLine Del 3055.
[2] <http://www.scconline.com/DocumentLink/206RMMRJ>.
[3] <http://www.scconline.com/DocumentLink/rMFC7htv>.
[4] <http://www.scconline.com/DocumentLink/93l1bvaf>.
[5] 2021 SCC OnLine Del 3055.
[6] (2011) 1 SCC 609.
[7] (2018) 18 SCC 380.
[8] S. 50(1) of the NDPS Act, 1985: “When any officer duly authorised under S. 42 is
about to search any person under the provisions of S. 41, S. 42 or S. 43, he shall, if
such person so requires, take such person without unnecessary delay to the nearest
gazetted officer of any of the departments mentioned in S. 42 or to the nearest
Magistrate.”
[9] S. 50(2) of the NDPS Act, 1985: “If such requisition is made, the officer may detain
the person until he can bring him before the gazetted officer or the Magistrate referred
to in sub-s. (1).”
[10] S. 50(3) of the NDPS Act, 1985: “The gazetted officer or the Magistrate before
whom any such person is brought shall, if he sees no reasonable ground for search,
forthwith discharge the person but otherwise shall direct that search be made.”
[11] <http://www.scconline.com/DocumentLink/2h286Qi4>.
[12] <http://www.scconline.com/DocumentLink/fY20H20h>.
[13] <http://www.scconline.com/DocumentLink/4mpCJN6g>.
:
[14] <http://www.scconline.com/DocumentLink/p7m2xO4X>.
[15] S. 50(5) of the NDPS Act, 1985: “When an officer duly authorised under S. 42 has
reason to believe that it is not possible to take the person to be searched to the nearest
gazetted officer or Magistrate without the possibility of the person to be searched
parting with possession of any narcotic drug or psychotropic substance, or controlled
substance or article or document, he may, instead of taking such person to the nearest
gazetted officer or Magistrate, proceed to search the person as provided under S. 100
of the Code of Criminal Procedure, 1973 (2 of 1974);
<http://www.scconline.com/DocumentLink/DG2fI1tD>”.
[16] Ibid.
[17] Vijaysinh Chandubha Jadeja v. State of Gujarat, (2011) 1 SCC 609.
[18] Joseph Fernandes v. State of Goa, 1995 SCC OnLine Bom 504
[19] Prabha Shankar Dubey v. State of M.P., (2004) 2 SCC 56
[20] (2011) 1 SCC 609.
[21] (2018) 18 SCC 380.
[22] Arif Khan, (2018) 18 SCC 380.
[23] (2011) 1 SCC 609.
[24] Arif Khan, (2018) 18 SCC 380.
[25] Union of India v. K.A. Najeeb, (2021) 3 SCC 713, para 20.
[26] (2018) 18 SCC 380.
[27] (2011) 1 SCC 609.
[28] (2013) 16 SCC 31.
[29] <http://www.scconline.com/DocumentLink/5Ibkc11X>.
[30] (2011) 1 SCC 609.
[31] (2018) 18 SCC 380.
[32] (2018) 18 SCC 380.
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Published on August 12, 2021 – By Editor

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OP EDS OP. ED.
Treatment of Statutory Dues/Claims after Approval of Resolution

Plan Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss : A case
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Introduction
The Supreme Court of India, vide its recent and very detailed judgment dated 13-4-2021
in Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.[1]
(GMSPL order) has settled the long pending question of whether statutory creditors,
including the Central Government, State Government and any local authority, are bound
by a resolution plan, once it is approved by an adjudicating authority under sub-section
(1) of Section 31 of the Insolvency and Bankruptcy Code, 2016[2] (IBC/the Code) [as
amended vide IBC (Amendment) Act, 2019[3] dated 5-8-2019 (the 2019 Amendment)].
The relevant extracts from the GMSPL order[4], containing the ratio of the judgment,
have been reproduced as it is below, for ease of understanding:
95. … (i) Once a resolution plan is duly approved by the

adjudicating authority under sub-section (1) of Section 31, the
claims as provided in the resolution plan shall stand frozen and
will be binding on the corporate debtor and its employees,
members, creditors, including the Central Government, any State
Government or any local authority, guarantors and other
stakeholders. On the date of approval of resolution plan by the
adjudicating authority, all such claims, which are not a part of the
resolution plan shall stand extinguished
and no person will be entitled to initiate or continue any
proceedings in respect to a claim, which is not part of the
resolution plan;
(ii) 2019 Amendment to Section 31 of the I&B Code is clarificatory
and declaratory in nature and therefore will be effective from
the date on which the Code has come into effect;
(iii) consequently, all the dues including the statutory dues owed
to the Central Government, any State Government or any
local authority, if not part of the resolution plan, shall stand
extinguished and no proceedings in respect of such dues for the
period prior to the date on which the adjudicating authority
grants its approval under Section 31 could be continued.
:
(emphasis supplied)
Along with the ratio abovementioned, it has also been clarified by the Supreme Court
that with respect to any statutory dues owed/claims raised in relation to the period prior
to the 2019 Amendment, the resolution plan shall still be binding on the statutory
creditors concerned, and the statutory dues owed to them, which were not included in
the resolution plan, and such claims shall stand extinguished.
This article attempts to analyse the GMSPL order[5], taking into consideration the
various judicial precedents that led up to the said order, as well as whether the analysis
of the Supreme Court has addressed the pending issues in totality. The aftermath of
the order has also been explored in brief, to understand whether the Supreme Court
has been interpreted in the spirit of the Code, or if there exist gaps in the law that are
yet to be considered by the courts.
History of the decision in GMSPL order

It is important to note, for the purpose of understanding the relevance of GMSPL order,
that Section 14(1)(a) of the Code[6] prohibits the institution of suits or the continuation of
pending suits or proceedings against the corporate debtor (including the execution of
any judgment, decree or order in any court of law, tribunal, arbitration panel or other
authority), upon admission of the petitions filed under Section 7[7] (by financial
creditors), Section 9[8] (by operational creditors) or Section 10[9] (by the corporate
debtor itself), and passing of orders for initiation of corporate insolvency resolution
process (CIRP). Thus, in terms of Section 14 of the Code, a “moratorium” is imposed
against initiation or continuation of legal proceedings against the corporate debtor.
Over the past few years, there have been many landmark judgments passed by the
Courts in India clarifying the type of “proceedings” that fall under the bar imposed by
Section 14, including criminal, arbitral or writ proceedings, as well as proceedings
initiated against a corporate guarantor of the corporate debtor, etc. whether or not the
same come within the ambit.
Some of these proceedings considered as hit by the moratorium have been initiated
based on disputes inter se two parties, arising out of contract/arrangement between
them. Whereas, other proceedings concern debts owed to the Government exchequer
viz. debts or dues owed under a statute/imposed by the statutory authorities under a
statute, being tax arrears, or customs duties arrears, etc. The latter are colloquially
:
known as “crown debts” or statutory debts.
In earlier judgments of the Supreme Court, including in Essar Steel (India) Ltd. v. Satish
Kumar Gupta[10], K. Shashidhar v. Indian Overseas Bank[11], Maharashtra Seamless
Limited v. Padmanabhan Venkatesh[12], Karad Urban Coop. Bank Ltd. v. Swapnil
Bhingardevay[13] and Kalpraj Dharamshi v. Kotak Investment Advisors Ltd.[14], on
account of the imposition of the moratorium under Section 14, legal proceedings have
been held to not continue and be adjudicated upon/determined against the corporate
debtor. The Courts had held that all such claims, being undecided and disputed claims,
are to be submitted to the resolution professional, in order to be addressed in the
resolution plan, and that the resolution plan shall be the final authority on such claims if
the plan is approved subsequently by the adjudicating authority.
The details with regard to all material litigation and an ongoing investigation or
proceedings initiated by Government and statutory authorities are required to be
contained in the Information Memorandum as disseminated to the prospective
resolution applicants, for their reference. In Essar Steels[15], it has been categorically
laid down that “a successful resolution applicant cannot suddenly be faced with
‘undecided’ claims after the resolution plan submitted by him has
been accepted”. All claims must be submitted to and decided by the resolution
professional so that a prospective resolution applicant knows exactly what has to
be paid in order and that it may then take over and run the business of the
corporate debtor.
Therefore, for all intents and purposes, in terms of the various judgments mentioned
hereinabove, the undecided claims have been dealt with by resolution professionals and
included/precluded from the resolution plan accordingly. However, no differentiation has
been made out by the courts, between claims raised by financial and operational
creditors, arising from contract, and claims raised by statutory creditors, as imposed and
recoverable under a statute/application of law created explicitly. A general
understanding has been taken by the courts, in terms of IBC alone, leaving much room
for interpretation.
Treatment of undecided claims/disputed claims by governmental

authorities
Section 31 of the Code deals with the implications of the approval of a resolution plan,
:
as per which, if the adjudicating authority is satisfied that the resolution plan as
approved by the Committee of creditors, it shall by order approve the resolution plan
which shall be binding on the corporate debtor and its employees, members, creditors,
including the Central Government, any State Government or any local authority to
whom a debt in respect of the payment of dues arising under any law for the time being
in force, such as authorities to whom statutory dues are owed, guarantors and other
stakeholders involved in the resolution plan.
The entire ambiguity in treatment of undecided or disputed claims by
Government/statutory creditors began with the amendment made to the Code, vide S.O.
2953(E) dated 16-8-2019[16], being the 2019 Amendment, as per which the following
words were inserted in Section 31 of the Code:
“including the Central Government, any

State Government or any local authority to whom a debt in
respect of the payment of dues arising under any law for the time
being in force, such as authorities to whom statutory
dues are owed”.
Due to this specific and explicit inclusion, at such later date in the Code, there has been
quite some confusion with regard to how the claims/statutory debts pertaining to the
period prior to the 2019 Amendment are to be treated. Therefore, several statutory
authorities, due to the lack of differentiation between the types of claims, have decided
unilaterally as follows:
(a) their claims should not be rejected by the resolution

professional; or
(b) if their claims are not provided for in the resolution plan, as
ultimately approved by the adjudicating authority; or if no claims
have been submitted to the resolution professional at all by such
statutory authorities as creditors, they can initiate afresh/continue
proceedings after approval of the resolution plan, since the
moratorium under Section 14 of the Code is lifted upon approval of
the plan.
Judicial precedents prior to the GMSPL order

:
i. Director General of Income Tax v. Synergies Dooray Automotive Ltd.[17]— The
National Company Law Appellate Tribunal(NCLAT) in the order dated 20-3-2019[18]
has held that statutory dues such as “income tax”, “value added tax” and other statutory
dues arising out of the existing laws, arise when a company is operational, and hence
are “operational debt” under the Code. As per the facts of the case, the grievance of the
appellant statutory creditor was that the income tax liability/demand in respect of the
corporate debtor therein amounting to INR 338 crores approximately had been settled
for 1% of the “crystallised demand” to a maximum of INR 2.58 crores approximately in
the resolution plan as approved by the CoC. This was challenged before NCLAT as
being against the mandate of the Income Tax Act, 1961[19] (the IT Act) and that the
dues under the IT Act cannot render the IT authorities as an “operational creditor” of the
corporate debtor. It is relevant to note that this order was passed prior to the 2019
Amendment, and categorically held that the resolution plan, as approved, shall be final
and not subject to modification, even if the statutory claims are not included in the plan.
However, while the resolution plan explains that the statutory dues are admitted by the
resolution applicant “shall be reduced to the extent already paid by the corporate
debtor”, the order does not deal with any refunds of the amounts already paid and not
admitted under the plan, if any.
ii. Ultra Tech Nathdwara Cement Ltd. v. Union of India[20] – The Rajasthan High Court
vide its order dated 7-4-2020, has taken a similar view. Thereunder, the claims of the
GST Department of the State of Rajasthan were verified by the resolution professional
and included in the plan. However, further statutory dues were raised by the tax
authorities, after the finalisation and approval of the resolution plan. The writ petition
filed, seeking relief, was dismissed by the Division Bench on account of the
interpretation of amended Section 31 of the Code. It was held that any debts that do not
already form part of the approved resolution plan will stand invalidated and that the
statutory creditors have no right to audience. The Court held that “evaluation of all the
dues and liabilities, as they exist on the date of finalisation of the resolution plan, has
been left in the exclusive domain of the resolution professional, with the approval of the
Committee of creditors”, and cannot be interfered with by courts/tribunals.
iii. Ultra Tech Nathdwara Cement Ltd. State of U.P.[21] – As per the facts of this case,
the Commissioner (Appeals) concerned under the U.P. Value Added Tax Act, 2008[22]
(the U.P. VAT Act) had passed an appellate order much after the approval of the
resolution plan by the adjudicating authority under Section 31 of the Code. In the order
:
dated 6-7-2020 passed by the Allahabad High Court, where the petitioner sought for a
declaration that all other proceedings pending before different authorities be declared to
have abated in terms of the resolution plan approved, as well as sought the refund of
the tax already deposited by it with the statutory tax authorities, the Court held that:
(a) the petitioner has a remedy of filing a second appeal against

the appellate order before the Commissioner Tax Tribunal under
Section 57 of the U.P. VAT Act[23]; and
(b) in connection with the refund of amounts deposited, the
petitioner may apply to the authorities concerned.
iv. Electrosteels Limited v. State of Jharkhand[24] (Division Bench) – A separate view
was taken vide judgment dated 1-5-2020 of the Jharkhand High Court, as per which, if
(a) the authority was not aware of the initiation of the corporate
insolvency resolution process (CIRP) against the corporate debtor
i.e. if the Government was not a part of the resolution process,
they can continue proceedings against the corporate debtor;
(b) if such tax amounts have already been collected by a company
and not remitted to the tax authorities, the statutory dues may still
be claimed from the corporate debtor, and the amounts can be still
be recovered from the corporate debtor after the approval of the
resolution plan, since the same amounts to criminal
misappropriation of the government money entrusted to the
corporate debtor;
(c) dues on account of non-remission of VAT, as collected from
customers cannot be termed as “operational debt” under the
Code; and
(d) the 2019 Amendment is applicable prospectively and hence,
cannot be applicable to CIRPs initiated prior to the amendment. It
is relevant to note that though no payments have been made/pre-
deposited by the corporate debtor, under the Jharkhand Value
Added Tax Act, 2005[25] (the JVAT Act) in the facts of the case, on
account of a garnishee order issued by the VAT authorities to the
:
banker of the corporate debtor, under Section 87 of the Finance
Act, 1994[26] (the Finance Act), substantial amounts have been
transferred to the VAT authorities, after the resolution plan has
been admitted.
A glance at the conflicting judgments passed by various High Courts, as
abovementioned, would reveal multiple issues addressed vide those judgments, with
regard to the treatment of undecided/disputed claims of statutory creditors after
approval of the resolution plan. The GMSPL order[27], which is a combined order also
dealing with appeals filed against the orders in Electrosteels case[28] and Ultra Tech
Nathdwara case[29] (the Uttar Pradesh order), should ideally have set at rest all such
issues. However, the following points have not been considered or addressed by the
Supreme Court:
A. Refund of the pre-deposit amounts/pre-maturely appropriated amounts by the
authorities
Various statutes provide for a mandatory pre-deposit of amounts (whether pertaining to
tax matters or otherwise) when preferring appellate proceedings. While the IT Act does
not invite any pre-deposit for invoking the appellate jurisdiction, pre-deposit for appeals
can be trailed from the Central Excise Act, 1944[30], the Central Goods and Services
Tax Act, 2017[31], the Real Estate (Regulation and Development) Act, 2016[32], the
Securitisation and Reconstruction of Financial Assets and Enforcement of Securities
Interest Act, 2002[33], the Recovery of Debts and Bankruptcy Act, 1993[34], the
Employees’ Provident Funds and [Miscellaneous Provisions] Act, 1952[35], the
Negotiable Instruments Act, 1881[36] as well as the Consumer Protection Act, 2019[37].
The difference lies in the nature of the proceedings viz. as far as the tax, customs
duties, etc. are concerned, the payments are statutory debts owed directly to the
exchequer and any pre-deposits made are also directly deposited with the same.
While the statutes themselves prescribe a procedure for refund of pre-deposited
amounts upon the appeal proceedings being decided in favour of the appellant, there
remains a doubt as to whether a refund of amounts would be allowed in the event of
extinguishment of proceedings after approval of the resolution plan. At the outset, a
direction for refund of the amount, particularly from fora such as consumer fora or the
Debts Recovery Tribunal (DRT), etc., where the award has already been made in the
favour of the creditor party and now pending in appellate stage, makes the entire judicial
:
proceeding futile.
There are various instances, such as in Ultra Tech Nathdwara case[38] (Uttar Pradesh
order) and Electrosteels case[39] hereinabove, as well as by the appellants in GMSPL
order[40], where they have deposited partial amounts of the duties or penalties passed
against them, in order to prefer an appeal before the appellate authorities/amounts
under such duties and penalties levied have been partially appropriated by the
authorities unilaterally.
It is necessary to note that, vide paras 132 and 149 of the GMSPL Order[41], when
faced with the question of refund of amounts already paid, the Supreme Court has held
that:
“We hold and declare, that the respondents

are not entitled to recover any claims or claim any debts owed to
them from the corporate debtor accruing prior to the transfer date.
Needless to state, that the consequences thereof shall follow.”
There is no specific direction as such to the statutory authorities to refund the amounts
already deposited.
It may be noted that, in GMSPL order[42], the Supreme Court while relying on the
transcripts of the Rajya Sabha Debates held on 29-7-2019, had noted the legislative
intent of the 2019 Amendment as “The Government will not raise or make
any ‘further claim’ after resolution plan is approved.” This stress on the term “further
claims” is rendering the status of refunds very uncertain since it does not clarify if the
pre-deposited amounts/already appropriated amounts are to be forfeited or refunded
back to the corporate debtor since no “further claims” made by such creditors shall
involve the sums already paid.
The Bombay High Court in the recent judgment dated 22-12-2020, in GGS
Infrastructure (P) Ltd. v. Commissioner of CGST & Central Excise[43], has categorically
held that the statutory authority shall be duty-bound to refund any balance amounts to
the corporate debtor, in terms of the approved resolution plan, after deduction of the
amounts determined under the said plan, and that the same is in accordance with law
and the Code. The Court observed that there is no question of retaining the said amount
and that “it cannot be argued that the State having recovered certain money even
though such recovery may be illegal or questionable cannot be compelled to refund the
same. Once it is determined that the State is holding money beyond what is legally
:
permissible, it has a binding duty to refund the same”. A reference was made to the
Supreme Court judgment in New India Industries Ltd. v. Union of India[44], whereunder
it was held that an application under Article 226 of the Constitution of India[45] would lie
for enforcing the obligation of the State to refund and/or return the money collected
towards illegal tax or dues, and that “it would be abhorrent to the principles of justice if
the State is permitted to retain money unjustly gained or recovered. The same would
have to be refunded”.
As per the facts of the case, since the authorities had already recovered substantial
amounts against the service tax debt that had not yet crystallised, from the bankers of
the corporate debtor, by initiating recovery proceedings under Section 87(b)(i) of the
Finance Act, the Court ordered for refund of the recovered amounts.
A similar stance has been taken by the NCLT, Mumbai Bench in Sundaresh Bhatt v.
Associate Commissioner of Income Tax[46], whereunder the Bench held that a conjoint
reading of Section 14(1)(a) and Section 238 of the Code[47], clearly shows that the
Code overrides Section 44 of the Gujarat Value Added Tax Act, 2003 (GVAT) and that
any proceedings initiated under the same would be hit by the moratorium under Section
14. That being so, the VAT authorities thereunder had issued letters to the bankers of
the corporate debtor and recovered substantial amounts, without any adjudication of the
claims under the GVAT. The NCLT had ordered refund of the amounts so appropriated
by the VAT authorities back to the corporate debtor.
B. Non-inclusion of statutory claims in the resolution plan due to lapse in
intimation under Section 13 of the Code
The Supreme Court, based on the facts of Electrosteels case[48] whereunder the VAT
authorities have claimed being uninformed about the CIRP proceedings, in para 146 of
the GMSPL order[49], has merely noted that another branch of the State Government
has filed its claim before the resolution professional. On account of the same, the Court
has deemed it impossible that the VAT Department authorities would not have
knowledge of the proceedings. Therefore, in the event that there is a lapse in intimation
of any governmental authorities, under Section 13 of the Code[50], read with the
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016[51], whether they can continue proceedings/initiate
proceedings afresh against the corporate debtor is not clear from the order.
It is relevant to note that the Madras High Court vide an order dated 26-4-2021 in Ruchi
:
Soya Industries Ltd. v. Union of India[52], had partly accepted the contention of the
assessee-corporate debtor relating to the extinguishment of the rights of the Customs
Department to claim customs duty in light of the GMSPL order[53]. The High Court,
while observing that “Corporate restructuring of financial debt under IBC, 2016 does not
mean a waiver of extinguishing of sovereign debts”, ordered the corporate debtor to file
an application before the NCLT concerned to get the issue clarified that crown debts like
the differential “customs duty” payable to the Department under the bill of entry which is
the subject-matter of that writ petition were treated as “operational debt” before the
NCLT by the corporate debtor, and whether or not the same have been factored in while
approving the resolution plan. In the absence of being included in the plan, the customs
authorities have been permitted to proceed with recovering the pending duties from the
corporate debtor. This exposes that even though the issue has been settled by the
Supreme Court, the ambiguity continues with regard to inclusion and non-inclusion of
statutory dues or claims in the Plan.
C. Differentiation between the types of statutory claims
Though a clear differentiation has been made in Electrosteels case[54] between
statutory debts that are directly owed under the statute, such as income tax dues, and
VAT dues which are merely to be collected from customers by the corporate debtor and
remitted to the authorities concerned, this issue has not been addressed by the
Supreme Court. In a limited reference, Synergies Dooray case[55] equates statutory
debt towards income tax dues and VAT under the same bracket of “operational debt”.
The GMSPL order[56] is also silent on the point of criminal misappropriation committed
by the corporate debtor, on account of collecting funds and failing to remit the same.
Therefore, this opens the Pandora’s Box, as to whether companies that deduct tax,
provident fund (PF), VAT amounts from their customers/employers and fail to remit the
same can now go scot-free, due to the approval of the resolution plan. In terms of the
Electrosteels case[57], an additional remedy has been offered to the statutory
authorities to initiate criminal proceedings against such defaulting corporate debtors and
their erstwhile management. This can stand even in the event that their claims have
become extinguished after approval of the resolution plan.
In fact, vide a recent order dated 12-5-2021, as passed by the NCLAT, Chennai Bench,
in Regional Provident Commissioner, Employees Provident Fund Organisation,
Telangana v. Vandana Garg, Resolution Professional of M/s GVR Infra Projects
Limited[58], the GMSPL order[59] has been invoked to hold that the provident fund dues
:
as included in the approved resolution plan shall only be considered for payment, and
no person is entitled to initiate or continue any proceedings regarding a claim not
forming a part thereof. It is relevant to note that this indirectly deals with the question of
the nature of statutory debts such as VAT, which are not direct debts of the corporate
debtor itself, but debts owed by a third party that are collected and to be remitted to the
statutory authority. Further, this order further establishes that corporate debtors that fail
to remit funds shall not be held accountable, placing all the payers of tax, PF, etc. in a
difficult position with the Government.
Conclusion and way forward

Though the GMSPL order dated 13-4-2021[60] strives to remove legal hurdles with
respect to dues owed to or claims made by statutory creditors, there are some glaring
issues with respect to the actions to be taken by statutory creditors, as discussed in this
article. Litigations continue to be instituted by wary corporate debtors and/or the
successful resolution applicants, to reach closure of all statutory claims and revive their
companies.
Post the passing of the said order, various High Courts and even NCLAT have
interpreted the order in their own ways. The Calcutta High Court in the order dated 7-5-
2021 in Sirpur Paper Mills Ltd. v. I.K. Merchants (P) Ltd.[61], has relied on the GMSPL
order[62] to explain that extinguishment of appellate proceedings does not mean the
award already granted shall become confirmed. In the context of deciding whether an
arbitral award is confirmed in favour of the award-holder during the pendency of an
appeal against Section 34 of the Arbitration and Conciliation Act, 1996[63] (the
Arbitration Act), after the approval of the resolution plan, the High Court stated that
same is not possible since the award amounts have not been included in the resolution
plan. The High Court, while observing that “In essence, an operational creditor who fails
to lodge a claim in the CIRP literally missed boarding the claims-bus for chasing the
fruits of award even where a challenge to the award is pending in a civil court”, disposed
of the petition under Section 34 of the Arbitration Act as infructuous.
The Madras High Court in Ruchi Soya Industries case[64] has clearly taken a different
view altogether, as mentioned above, whereas the NCLAT in Vandana Garg case[65]
has expanded the ambit of what kind of statutory debts shall be waived off after
approval of the resolution plan. Thus, the matter is still left in limbo.
:
At this juncture, litigants may remember that most of the erroneous and adverse
judgments passed by the High Courts so far have been set aside through the GMSPL
Order[66] and all claims thereunder have been pronounced “extinguished”, with a
direction that consequences of such extinguishment shall follow. Stakeholders may rely
upon the said order, read with the abovementioned precedents, to demand refunds of
pre-deposited amounts/prematurely appropriated amounts with statutory creditors.
However, the resolution applicants along with the corporate debtors have to be diligent
with the intimation of initiation of CIRP, and approval of resolution plan, to all creditors
including the statutory authorities, to avoid any unpleasant issue of notices or claims,
even after approval of the resolution plan and handing over of the management to the
successor. It is needless to state that the threat of criminal prosecution still rides over
the erstwhile management in the event of collection of tax dues/PF/VAT amounts and
failure to remit the same to the authorities.
* Joint Partner, Lakshmikumaran & Sridharan Attorneys.

** Associate, Lakshmikumaran & Sridharan Attorneys.
[1] 2021 SCC OnLine SC 313
[2] http://www.scconline.com/DocumentLink/gvPKCciX.
[3] http://www.scconline.com/DocumentLink/bV8o94ba.
[4] Supra Note 1.
[5] Ibid.
[6] http://www.scconline.com/DocumentLink/e2E5pU46.
[7] http://www.scconline.com/DocumentLink/K60PW5A6.
[8] http://www.scconline.com/DocumentLink/09ftZIDF.
[9] http://www.scconline.com/DocumentLink/Kp5IKPzm.
[10] (2020) 8 SCC 531.
[11] (2019) 12 SCC 150.
[12] (2020) 11 SCC 467.
[13] (2020) 9 SCC 729.
[14] 2021 SCC OnLine SC 204.
[15] Supra Note 8.
:
[16] http://www.scconline.com/DocumentLink/Suf357ZI.
[17] 2017 SCC OnLine NCLAT 317.
[18] Pr. Director General of Income Tax v. Synergies Dooray Automotive Ltd., 2019 SCC
OnLine NCLAT 691.
[19] http://www.scconline.com/DocumentLink/7VAV83wS.
[20] 2020 SCC OnLine Raj 1097.
[21] 2020 SCC OnLine All 1724. .
[22] http://www.scconline.com/DocumentLink/wff5uR85.
[23] Ibid.
[24] 2020 SCC OnLine Jhar 454
[25] http://www.scconline.com/DocumentLink/EauO9DT1.
[26] http://www.scconline.com/DocumentLink/PqGcOrHZ.
[27] Supra Note 1.
[28] Supra Note 24.
[29] Supra Note 21.
[30] http://www.scconline.com/DocumentLink/E4zd0gLl.
[31]http://www.scconline.com/DocumentLink/ZN57RKH6.
[32] http://www.scconline.com/DocumentLink/u5bCT3Hd.
[33] http://www.scconline.com/DocumentLink/1hbkvwWJ.
[34] http://www.scconline.com/DocumentLink/2zlK12A4.
[35] http://www.scconline.com/DocumentLink/0JY49FoX.
[36] http://www.scconline.com/DocumentLink/wgV2j1VM.
[37] http://www.scconline.com/DocumentLink/P62rNTsE.
[38] Supra Note 21.
[39] Supra Note 24.
[40] Supra Note 1.
[41] Ibid.
[42] Ibid.
[43]GGS Infrastructure (P) Ltd. v. Commissioner of CGST & Central Excise, 2020 SCC
:
OnLine Bom 10477.
[44] 1990 Mh LJ 5.
[45] http://www.scconline.com/DocumentLink/22VRSLhE.
[46] 2020 SCC OnLine NCLT 938.
[47] http://www.scconline.com/DocumentLink/dQ5LC1RE.
[48] Supra Note 24.
[49] Supra Note 1.
[50] http://www.scconline.com/DocumentLink/vmKEerI1.
[51] http://www.scconline.com/DocumentLink/1Uw56FFO.
[52] Ruchi Soya Industries Ltd. v. Union of India, 2021 SCC OnLine Mad 2181
[53] Ibid.
[54] Supra Note 24.
[55] Supra Note 17.
[56] Supra Note 1.
[57] Supra Note 24.
[59] Supra Note 1.
[60]Ibid.
[61] 2021 SCC OnLine Cal 1601.
[62] Supra Note 1.
[63] http://www.scconline.com/DocumentLink/teuo89l3.
[64] Ruchi Soya Industries Ltd. v. Union of India, 2021 SCC OnLine Mad 2181.
[66] Supra Note 1.
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OP EDS OP. ED.
Raising the bar to challenge illegal appointments Pooran Chand

v. King George Medical University: A case comment
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The recent decision of the Supreme Court in Pooran Chand v. King George Medical
University[1] raises the bar to challenge illegal appointments in State-run institutions by
severely curtailing the opportunities to challenge illegal appointments. The Supreme
Court set aside the decision of the Allahabad High Court in Jitendra Kumar v. King
:
George Medical University[2], stating that the challenge to the appointment of Dr
Pooran Chand by Dr Jitendra Kumar Rao was made beyond the time prescribed under
Section 53 of the King George’s Medical University Act, 2002.
Facts
Dr Chand and Dr Rao were appointed as Assistant Professor and Lecturer of
Prosthodontics respectively in King George’s Medical University by the same Selection
Committee in 2005. Statute 11.02 B2 of the University states that a person needs three
years of teaching experience as Lecturer/Chief Resident/Senior
Resident/Demonstrator/Tutor or equivalent after obtaining MDS degree in the subject
concerned.
Dr Rao was appointed as Lecturer, as he did not have three years of teaching
experience. Dr Chand was appointed as Assistant Professor as he claimed to have
three years of teaching experience. Dr Rao was promoted as an Assistant Professor in
2007 after completing three years of teaching experience. Dr Rao was placed below Dr
Chand in the seniority list as he was a later entrant to the post of Assistant
Professorship.
Dr Rao challenged the appointment of Dr Chand before the Vice-Chancellor vide
general representations dated 4-11-2008, 3-1-2009 and 8-2-2009, after coming to know
that Dr Chand did not have three years of teaching experience at the time of his
appointment. Receiving no response, Dr Rao submitted a representation dated 13-2-
2009 under Section 68 of the U.P. State Universities Act, 1973[3], challenging the
appointment of Dr Chand and claiming seniority over Dr Chand. The Chancellor vide
order dated 8-7-2009 rejected the representation citing delay and without considering
the eligibility of Dr Chand at the time of his appointment.
Proceedings before the High Court

Aggrieved, Dr Rao challenged the order dated 8-7-2009 before the High Court and
primarily sought a direction to set aside the order dated 8-7-2009, set aside the
appointment of Dr Chand, and consider the appointment of Dr Chand to be as a
Lecturer from the date of his appointment. Dr Rao contended that Dr Chand did not
have three years of teaching experience at the time of his appointment as required
under Statute 11.02 B2, and therefore, he was ineligible to be appointed as an Assistant
:
Professor.
As the Chancellor did not give any finding on the eligibility of Dr Rao at the time of his
appointment, the High Court was constrained to summon the records relating to the
appointment of Dr Rao. After going through the appointment records, the High Court
gave a finding of fact that Dr Chand did not have three years of teaching experience to
be appointed as an Assistant Professor at the time of his appointment. The High Court
noticed that Dr Rao was a Medical Officer, Provincial Medical Services (Dental) from
September1992 to July 2003 and Assistant Professor (Dentistry), B.R.D. Medical
College, Gorakhpur since July, 2003 to date (of his appointment). The High Court held
that the teaching experience as Assistant Professor (Dentistry) could not be counted as
a teaching experience for Prosthodontics, relying on a Coordinate Bench decision in
Gulshan Kumar Singh v. Chhatrapati Shahuji Maharaj Medical University.[4]
Thus, the High Court set aside the appointment of Dr Chand for being contrary to the
appointment rules as Dr Chand was ineligible to be an Assistant Professor at the time of
his appointment. The High Court, relying on the decisions of the Supreme Court in
Nagendra Chandra v. State of Jharkhand,[5] Government of A.P. v.
K.Brahmanandam[6] and Pramod Kumar v. U.P. Secondary Education Services
Commission,[7] held that illegality in qualification at the time of appointment could not
be cured. To the stand taken by the University that Dr Rao had approached the Court
with unexplained delay, the High Court gave a categorical finding that Dr Rao
approached the authorities as and when he came to know about the illegality. However,
the High Court exercising its equitable and discretionary jurisdiction, directed the
University to treat Dr Chand as having been appointed initially to the post of Lecturer,
with all necessary consequences.
Proceedings before the Supreme Court

In the appeal filed by Dr Chand, the Supreme Court set aside the High Court’s decision,
stating that Dr Rao did not challenge the appointment within three months as prescribed
in Section 68 of the U.P. State Universities Act, 1973. The Supreme Court did not
reverse the High Court’s finding on the illegibility of Dr Chand at the time of his
appointment or the finding on the date of knowledge of Dr Rao. The Supreme Court
relied on Section 68 to state that the period specified in Section 68 to challenge
appointments is sacrosanct and therefore set aside the High Court’s decision. So, what
:
does Section 68 say?
68. Reference to the Chancellor.—If any question arises whether any person has
been duly elected or appointed as, or is entitled to be, member of any authority
or other body of the University, or whether any decision of any authority or officer
of the University (including any question as to the validity of a Statute, Ordinance
or Regulation, not being a Statute or Ordinance made or approved by the State
Government or by the Chancellor) is in conformity with this Act or the Statutes or
the Ordinance made thereunder, the matter shall be referred to the Chancellor
and the decision of the Chancellor thereon shall be final:
Provided that no reference under this section shall be made—

(a) more than three months after the date when the question could have been raised for
the first time;
(b) by any person other than an authority or office of the University or a person
aggrieved:
Provided further that the Chancellor may in exceptional circumstances—
(a) act suo motu or entertain a reference after the expiry of the period mentioned in the
preceding proviso;
(b) where the matter referred relates to a dispute about the election and the eligibility of
the person so elected is in doubt, pass such orders of stay as he thinks just and
expedient.
The Supreme Court allowed the appeal and upheld the Chancellor’s order by stating
that the period of three months specified in sub-clause (a) of the first proviso must be
followed as the object and purpose of the sub-clause is to give quietus to any disputes
relating to appointments at the earliest. The Supreme Court observed that Dr Rao
challenged the appointment of Dr Chand beyond the “reasonable time” specified in the
Act, and therefore it is not equitable to be set aside the appointment of Dr Rao.
The Supreme Court wrongly observed that Dr Rao challenged the appointment of Dr.
Chand for the first time before the High Court. A reference under Section 68 relates to
questions relating to the eligibility of a person duly elected or appointed, therefore the
question of challenging the appointment of Dr Chand is integral to the reference before
the Chancellor. In any case, Dr Rao claimed seniority for himself based on the illegal
appointment of Dr Chand; therefore, a challenge to the illegal appointment of Dr Chand
:
was intrinsic to claiming seniority by Dr Rao.
Analysis
Firstly, the Supreme Court did not notice that the period specified in sub-clause (a) of
the first proviso commences from when the question could have been raised for the first
time and not from the date of appointment. It is well-settled law that cause of action
arises from the date of knowledge of the event and not from the date of the event itself.
Sub-clause (a) of the first proviso reiterates the established principle of law. However,
by relying on the date of appointment to commence limitation, the Supreme Court
ensured that questioning illegal and irregular appointments would become challenging.
The Supreme Court did not consider that the information relating to appointments is
generally sensitive and confidential. If the appointments are intentionally made illegally,
additional efforts are made to hide the information from public view. Therefore, by
commencing limitation for challenging illegal appointments from the appointment date
and not from date of knowledge, the Supreme Court made the exercise of challenging
illegal appointments illusory.
Secondly, even if the delay on the part of Dr Rao is accepted for the sake of argument,
the Supreme Court overlooked the discretion vested with the Chancellor under sub-
clause (a) of the second proviso, despite acknowledging it, and that the Chancellor has
inherent powers to condone the delay. Sub-clause (a) of the second proviso
categorically allows the Chancellor to look into questions relating to the appointment
beyond the specified period in exceptional circumstances.
The Supreme Court did not notice that Section 68 provides for a two-step procedural
process for deciding the reference i.e. the reference needs to be made within three
months from the date the question could have arisen [sub-clause (a) of the first proviso],
and if the reference is made beyond three months, the Chancellor may in exceptional
circumstances consider the reference beyond the three months [sub-clause (b) of the
first proviso]. Thus, the Chancellor’s powers under sub-clause (a) of the second proviso
are discretionary in nature, the exercise of which must be based on relevant materials.
In the instant case, once the Supreme Court and Chancellor came to a conclusion that
the reference by Dr Rao is barred by delay, they ought to have considered whether the
reference fits under the exceptional circumstances or not. By not giving a finding on the
existence of exceptional circumstances, the Supreme Court and Chancellor have
:
rendered sub-clause (a) of the second proviso otiose.
It is a settled principle of law that the exercise of discretionary powers must be based on
relevant considerations and is subject to judicial review, albeit with a higher threshold.[8]
The discretion being statutory in nature needs to be exercised, not capriciously or
arbitrarily but according to sound principles laid down.[9] Moreover, whether the
reference falls under exceptional circumstances or not must be determined based on
whether conditions for the exercise of such powers have been established or not on
merits.[10] The Allahabad High Court in Ram Chandra v. State of U.P.,[11] interpreting
sub-clause (a) of the second proviso held that the Chancellor has the power to set aside
appointments even twelve (12) years after the appointment as illegal appointments
wreak havoc on the education system. Therefore, it was necessary for the Supreme
Court/Chancellor after giving a finding of delay to have decided whether the case fell
under the sub-clause (a) of the second proviso, especially when Dr Chand admittedly
was ineligible to be appointed as an Assistant Professor at the time of his appointment.
Insofar as delay in considering the reference is considered, it is no longer res integra
that an application under Section 5 of the Limitation Act, 1963[12] is not required for
filing condoning delay.[13] In any case, the Supreme Court in Chaudhary Charan Singh
University v. Garima Singh[14] held that a delay application is not required to be filed
under Section 68.
In a catena of decisions, the Supreme Court has observed that appointments made in
contravention to the eligibility requirements offend the equality clause of the Constitution
and that rule of equality in public employment is a basic feature of our Constitution[15]
and therefore should not be condoned.[16] In fact in the instant case, the Supreme
Court relying on Nagendra Chandra[17], observed that an appointment made in
infraction of recruitment rules would be cancelled. However, the Supreme Court wrongly
distinguished Nagendra Chandra[18] by relying on the recommendation by the
Selection Committee and approval of the Executive Council after due advertisement to
justify Dr Chand’s appointment, overlooking the categorical finding given by the High
Court about the ineligibility of Dr Chand at the time of his appointment.
Qualification requirements are essential for applying for any post as it is the first step in
the appointment process. Recommendation by the Selection Committee and approval
of the Executive Council being the later stage of the appointment process cannot
cure/relax the eligibility of requirements unless previously advertised, as their decision is
predicated on the satisfaction of eligibility requirements. Therefore, once an applicant
:
does not fulfil the eligibility requirements, the approval of the Selection Committee and
Executive Council would not survive.
Thirdly, the Court’s restrictive interpretation of sub-clause (a) of the first proviso by
citing certainty required for quality teaching ironically ensured that quality of pedagogy
would be affected in the long run. As noticed by the Supreme Court in Frank Anthony
Public School Employees’ Assn. v. Union of India[19] excellence of instruction provided
by an institution depends on the qualifications of the teaching staff. The Supreme
Court’s restrictive view on limitation to challenge illegal appointments and lack of
exercise of discretion by the Chancellor in setting aside illegal appointments
perpetuates illegal appointments, without any fear of retribution as challenges to illegal
appointments has been made onerous.
Concluding remarks
The Supreme Court decision in Pooran Chand v. King George Medical University[20]
raises the bar significantly to challenge illegal appointments. It is a serious blow to the
service and equality jurisprudence as it prioritises administrative convenience over
enquiry into illegal appointments and discriminates in favour of illegal appointees by
severely curtailing the opportunities to challenge illegal appointments and rendering the
exercise of discretion of the superior authorities in a lawful manner otiose.
*Advocate, Hyderabad. Author can be reached at tpsharsha@gmail.com.

[1] 2021 SCC OnLine SC 47.
[2]2018 SCC OnLine All 5988.
[3] Act 10 of 1973
[4] 2010 SCC OnLine All 2594.
[5] (2008) 1 SCC 798.
[6] (2008) 5 SCC 241.
[7] (2008) 7 SCC 153
[8]See Mangalam Organics Ltd.v. Union of India, (2017)7SCC221.
[9] See Registrar of Trade Marks v. Ashok Chandra Rakhit Ltd., AIR 1958 SC 558.
[10] See Apex Finance and Leasing Ltd. v. CIT, 1995 Supp (2) SCC 729.
:
[11] 2014 SCC OnLine All 4203.
[12]http://www.scconline.com/DocumentLink/wEz17QCP
[13] See Sesh Nath Singh v. Baidyabati Sheoraphuli Cooperative Bank, 2021 SCC
OnLine SC 244.
[14]Civil Appeal No. 20976 of 2017, order dated 1-12-2017.
[15]See State of Karnataka v. Umadevi (3), (2006) 4 SCC 1.
[16] See Nagendra Chandra, supra Note 5; K.Brahmanandam, supra Note 6 and
Pramod Kumar, supra Note 7.
[17]Supra Note 5.
[18]Ibid.
[19](1986) 4 SCC 707.
[20]Supra Note 1.
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OP EDS OP. ED.
Whether NCLT has power to order criminal proceedings KVR

Industries Pvt Ltd v. PP Bafna Ventures Pvt Ltd: A Case Comment
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Introduction
After the enactment of the Insolvency and Bankruptcy Code 2016, NCLT and NCLAT
have seen a sharp increment in number of proceeding before it. These cases have
overburdened the tribunals with proceedings related to oppression and
mismanagement, revival of companies and IBC. Given the intense emphasis on these
subject-matter cases, many appear to be unsure about the Tribunals’ powers, including
the ability to pass orders and issue instructions if the Tribunals discover that a
complainant has perjured itself before it. In this paper, the authors attempted to address
:
this problem through case comment of Kvr Industries Pvt Ltd Vs Pp Bafna Ventures Pvt
Ltd[1].
Fact
Corporate Debtor has filed an appeal against order of NCLT passed at Hyderabad for
financial creditor P.P. Bafna Ventures Pvt. Ltd. Corporate debtor filled an application for
initiating criminal proceeding under section 340 of Cr. P.C. read with Section 195 (1) (b)
(i) of Cr. P.C. read with Section 193 of Indian Penal Code, 1860 against the P.P. Bafna
who is authorized signatory of Financial Creditor. The NCLT has passed an order for
withdrawal of an application filed by Financial Creditor on the ground that Eshwar
Enterprise (Operational Creditor) has already filled an application under section 8 of IBC
against the Corporate Debtor and, financial creditor can club its application with
application of operational creditor. It was contended by the Financial Creditor that
Corporate Debtor and Operational Creditor has settled their dispute outside of the court,
so court should restore their previous application. On the other side, Corporate Debtor
contends that signature of the Financial Creditor on application sought for restoration of
earlier application is forged and court should initiate the criminal proceeding against the
Financial Creditor.[2]
Background of Law
Section 424(4) of Companies Act state that all proceeding before NCLT or
NCLAT should be treated as ‘judicial proceeding’ within the meaning of section
193, 196 and 228 and NCLT and NCLAT will be treated as civil court for purpose
of section 195 and Chapter XXVI of the code of Civil procedure.[3]
Section 195 1(b)(1)of IPC “No Court shall take cognizance of any offence
punishable under any of the following sections of [the IPC], namely, Sections
193 to 196 (both inclusive), 199, 200, 205 to 211 (both inclusive) and 228, when
such offence is alleged to have been committed in, or in relation to, any
proceeding in any Court”.[4] Sub section (3) of 195 states that “In clause (b) of
sub-section (1), the term ‘Court’ means a Civil, Revenue or Criminal Court, and
includes a tribunal constituted by or under a Central, Provincial or State Act if
declared by that Act to be a Court for the purposes of this section.”[5]
340 of Cr.P.C. states that when court is of opinion that it is convenient in interest
:
of justice to have an inquiry related to offence mentioned under clause (b) of
sub-section(1) of Section 195 of IPC which appears to have been committed in
or in relation to a proceeding in that Court or, as the case may be, in respect of a
document produced or given in evidence in a proceeding in that Court, such
Court may, after such preliminary inquiry, if any, as it thinks necessary,—
a) Record a finding to that effect;

b) Make a complaint thereof in writing;
c) Send it to a Magistrate of the First Class having jurisdiction;
d) Take sufficient security for the appearance of the accused before such Magistrate, or
if the alleged offence is non-bailable and the Court thinks it necessary so to do, send
the accused in custody to such Magistrate; and
e) Bind over any person to appear and give evidence before such Magistrate.” And sub
section (4) provides that ‘Court’ will be having same meaning given under section
195.”[6]
Issue
Whether NCLT or NCLAT are courts within the ambit of Section 195 read with
340 of Cr.P.C?
Whether NCLT or NCLAT has power to order criminal proceeding?
Whether judicial proceeding mentioned under section 424(4) of Companies Act
comes under the purview of proceeding in any court under section 195(1)(b)(1)
of Cr.P.C.?
Analysis
In present case, NCLAT held that Adjudicating Authority is not right while stating that it
does not have jurisdiction to order criminal proceeding against the financial creditor.
Section 340 of Cr.P.C read with section 195 of Cr.P.C gives Adjudicating Authority a
power to hold preliminary inquiry “of opinion that it is expedient in the Interest of Justice
that an inquiry should be made” into any offence referred in Clause ‘b’ of Sub-Section 1
of Section 195, which appears to have been committed in or in relation to a proceeding
in that Court or, as the case may be, in respect of a document produced or given in
:
evidence in a proceeding in that Court, i.e. Adjudicating Authority”.[7] Section 5 (1)of
IBC defined adjudicating authority as NCLT formed under section 408 of Companies Act
2013. NCLAT also stated that ‘Courts’ in Section 195(3) of Cr.P.C. includes any tribunal
constituted by or under Central, Provincial or State Act if the said act provides it. Section
424 sub clause 4 also provides that proceeding before NCLT or NCLAT shall be treated
as ‘judicial proceeding’ within the meaning of section 193 and 228 and for the purposes
of Section 196 of the Indian Penal Code and the NCLT this Tribunal shall be deemed to
be Civil Court for the purposes of Section 195 and Chapter XXVI of Cr. P.C. NCLAT
after interpreting all these provision held that NCLT was not right in its observation that it
did not have jurisdiction to entertain matter related to criminal proceeding. In case of
Lalji Haridas vs State of Maharastra[8], Supreme Court stated that judicial proceeding
under section 193 of IPC would include “any proceeding in any court”
per Section 195(1)(b) Cr. PC. In case of Amit vashistha vs Suresh[9]SC relying on the
decision of Lalji Haridas[10]said that proceeding before the authority under the
Employees’ Provident Funds and Miscellaneous Provisions Act, 1952[11] were
specifically in the nature of a “judicial proceeding”[12]so it can be treated as proceeding
before “court” under section 195(1) of Cr.P.C. Court relied on Section 2(1) of Cr.PC as it
defined judicial proceeding to include every proceeding where evidence is collected or
may be taken on oath[13]and proceeding by authority under section 7-A Employees’
Provident Funds and Miscellaneous Provisions] Act [1952] gives power to take evidence
on oath[14]. Therefore such proceeding can be equated with judicial proceeding under
section 195(1)(b) of Cr.P.C.[15] Similarly, Bombay High Court in case of Baskar Mendon
vs Sadashiv Narayan Shetty[16]stated that proceeding before the labour court will be
treated as proceeding before the court under section 195 of Cr.P.C. By reading
harmoniously the Judgement of Lalji Haridas, Amit Vashitha and Baskar Mendon it can
be summarized that;1) proceeding before NCLT and NCLAT are judicial proceeding for
the purpose of section 193 of IPC; 2) NCLT and NCLAT comes under the definition of
“court” under section 195(1)(b) and 340 of Cr.P.C; 3) NCLT or NCLAT has power under
section 340 of Cr.P.C to conduct preliminary inquiry of an application and send it as a
complain to magistrate of first class having jurisdiction for the commission of the offense
of perjury committed in proceeding before NCLT or NCLAT.[17] Following that, such
Magistrate of the First Class shall continue to act on such a complaint in the same
manner as he or she would in a normal criminal trial.[18]
:
Conclusion
While these statutes, when read in conjunction with the aforementioned judicial
decisions, provide a consistent procedural framework for furnishing false evidence in
the NCLT and the NCLAT, the NCLT Rules and the National Company Law Appellate
Tribunal Rules, 2016 do not specify which officer of such Tribunals is explicitly
appointed to submit the “complaint” to the Magistrate of the First Class. However, given
how proceedings in India are conducted, it is possible that the Tribunals may instruct the
party claiming perjury to carry out service of such “complaint,” and if the NCLT or
NCLAT initiates suo motu proceedings relating to perjury, the Tribunal may direct a
member of the Tribunal to carry out service of such “complaint.” An ad hoc process, on
the other hand, may stifle the NCLT’s and NCLAT’s ability to pursue those who present
false evidence or information. Any institution’s judicial discipline, as well as the
reverence and power it bears among the general public, is dependent on its ability to
avoid misuse of its process. This would also include the ability to punish a litigant for
wrongdoing during the hearings. To that end, NCLT`s President should use his
administrative powers to appoint enough officials from each Bench to be able to initiate
criminal proceedings against the person who provides false information or give false
evidence.
*4th Year Student at WBNUJS Kolkata

[1] 2020 SCC ONLINE NCLAT 828
[3] Section 424(4) of Companies Act 2013
[4] Section 195 of IPC
[5] ibid
[6] Section 340 of Cr.P.C.
[8] Lalji Haridas vs State of Maharastra (1964) 6 SCR 700
[9] Amit vashistha vs Suresh (2018) 15 SCC 240
[10] S.340 of Cr.P.C.
:
[12] Akin to Section 424(4) of Companies Act 2013
[13] Section 2(1) Cr.P.C.
[14] S.7–A of the Employees’ Provident Funds and Miscellaneous Provisions] Act, 1952
[15] Section 340 of Cr.P.C.
[16] Baskar Mendon vs Sadashiv Narayan Shetty 2018 SCC OnLine Bom 2106
[17] S. 340 of Cr.P.C.
[18] S. 340 of Cr.P.C.
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OP EDS OP. ED.
Encashment of bank guarantee and relevance of moratorium

Bharat Aluminium Co. Ltd. v. J.P. Engineers (P) Ltd.: A Case
Comment
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Introduction
Insolvency and Bankruptcy Code, 2016[1] (hereinafter “IBC”) has introduced a much
more stable structure with strict time frames into the resolution process, providing the
system with much-needed clarity and reliability. It has totally removed the governing
powers of the companies under the resolution process and transferred them to a
resolution professional to ensure a smooth transition and revival. Unlike the previous
regime’s never-ending moratorium, the IBC established a far more practical structure
with a set deadline. As per Section 14 of the IBC, while the moratorium is in effect,
:
creditors of a company in the corporate insolvency resolution process (CIRP) are
prohibited from taking any action to recover a security interest generated by the
corporate debtor. However, the scope of this section has remained under debate for the
longest time and has finally been settled by the Supreme Court as well as the National
Company Law Appellate Tribunal (NCLAT). This comes after the 2018 Amendment to
the IBC. In this paper, the issue whether a bank guarantee can be invoked during
moratorium period in light of Bharat Aluminium Co. Ltd. v. J.P. Engineers (P) Ltd.[2] has
been analysed.
Facts
M/s Worldwide Metals Pvt. Ltd., the operational creditors, had filed a company petition
under Section 9[3] of the IBC to initiate the corporate insolvency resolution process
against M/s J.P. Engineers Pvt. Ltd., the corporate debtor and Respondent 1. The
National Company Law Tribunal (NCLT) admitted the application and appointed an
interim resolution professional (IRP). Bharat Aluminium, the appellants, and the
corporate debtor had entered into an agreement for purchase and sale of aluminium
products. Subsequently, the corporate debtor issued a bank guarantee worth Rs one
crore and sixty lakhs which was executed by Respondent 2 i.e., Andhra Bank. At the
end of the contractual period, the debtor failed to make the payments as a result of
which, the appellant wrote a letter to Respondent 2 for invoking the bank guarantee. To
this letter, Respondent 2 replied that the bank guarantee could be encashed only upon
the approval of the IRP. Thereafter, the appellant applied to the IRP, but the IRP refused
to allow encashment of the bank guarantee on the grounds of enforcing moratorium
against Respondent 1. Thereafter, the appellant had filed an application before NCLT
seeking encashment of the bank guarantee on the grounds that it is not covered by
moratorium as specified under Section 14 of the IBC. The Tribunal dismissed this
application and directed the appellant to not ask for encashment of bank guarantee, as
the same is covered under moratorium declared under Section 14 of the IBC. Thus, the
appellant filed this appeal.
Issue
The NCLAT was posed with the issue whether a bank guarantee can be invoked against
the surety once the moratorium has been imposed against the corporate debtor under
:
Section 14 of the IBC.
Background of law
Section 14 of the IBC provides the effect and scope of the moratorium.[4] Until 2018,
the law was unclear on whether the bank guarantees can be invoked during moratorium
period. However, after an amendment passed in June 2018, a clause was introduced in
the IBC which provided that in a contract of guarantee to a corporate debtor, the surety
is not shielded under moratorium.[5] However, for a personal debtor, the Supreme
Court, relying upon the report of the Insolvency Law Committee, held that moratorium
will not apply to such debtor.[6] The report noted that the assets of the debtors and that
of the surety are separate and thus, the ongoing proceedings of CIRP against the
corporate debtor will not have any impact as a result of any actions taken against the
assets of the surety.[7] Further, invoking guarantee will not have any significant impact
on the corporate debtor’s debt because the creditor’s right against the debtor simply
transfers to the surety, for the amount paid by surety.[8] The Committee recommended
that the scope of moratorium should be limited only to the assets of the corporate debtor
and actions against the guarantors cannot be barred.[9]
Analysis of the judgment

In the present case, the NCLAT held that “bank guarantee can be invoked even during
moratorium period issued under Section 14 of the IBC in view of the amended provision
under Section 14(3)(b) of the IBC”.[10] The appellant drew an analogy between
performance bank guarantees and financial bank guarantees by referring to Section 14
and proviso to Section 3(31)[11], which excludes performance bank guarantees from
“security interest”, to emphasise their contention that bank guarantees can be invoked
during moratorium.[12] They also relied on the amendment discussed above and
various case laws to submit that bank guarantees can be invoked during moratorium.
[13] On the contrary, the respondent relied on cases to establish that once the
moratorium period has begun, no amount can be debited from the account of the
corporate debtor.[14] They distinguished between financial and performance bank
guarantees.[15] Further, they submitted that since IBC is a specific law, it will prevail
over a general law like the Contract Act, 1872.[16]
The Tribunal perused the submissions of the parties and held that the guarantee in
:
question is a financial bank guarantee and not a performance bank guarantee.[17] The
Reserve Bank of India (RBI) has also distinguished between the two types of
guarantees in one of its circular.[18] The NCLT in its judgment dated 31-7-2020 had
relied on Nitin Hasmukhlal Parikh v. Madhya Gujarat Vij Co. Ltd.[19], where the Tribunal
held that the moratorium applies for all bank guarantees, except for performance bank
guarantees, as they form a part of “security interest” defined under Section 3(31) of the
IBC. This case was decided on 9-2-2018. The amendment to Section 14 was introduced
on 6-6-2018.[20] The court gave the judgment on 31-7-2020, which was after the
amendment was introduced. As mentioned above, the amendment provided that the
effect of moratorium will not apply to “a surety in a contract of guarantee to a corporate
debtor”.[21] Thus, the NCLT erred in its decision by relying on Nitin case[22] and
overlooking the amendment which had a retrospective effect. The Tribunal then relied
on Ramakrishnan[23], where the Supreme Court held that Section 14(3) is clarificatory
in nature and has retrospective effect.[24] The Tribunal also backed its finding by relying
on principles of Contract Act, which provides that the “liability of surety is coextensive
with that of a principal debtor and the creditor may go against either of them”.[25] Thus,
the NCLAT rightly held that the corporate creditor can invoke bank guarantee during
moratorium with no difficulties, as the bank guarantee is irrevocable and unconditional.
[26] It was held in U.P. State Sugar Corpn. v. Sumac International Ltd. that a bank is
bound to honour irrevocable bank guarantees irrespective of any issue raised by the
customers.[27] It further distinguished the assets of the corporate debtor with those of
the surety and overruled the decision of the lower court i.e., NCLT.
Conclusion
Prior to the amendment, the law on the point on invocation of bank guarantee during
moratorium was not clear. There were several conflicting decisions being passed by the
tribunals across the country. The amendment put an end to the series of conflicting
judgments. In addition to this, the judgment of the Supreme Court in Ramakrishnan[28],
which explained the application and scope of the amended provision, acted as a cherry
on top of the cake and gave more clarity on this issue. The NCLT, though, erred in its
decision by not taking the amendment into consideration and relying on a case which
was decided before the amendment was introduced. The NCLAT corrected the error
made by the NCLT and by relying on the reports of the Insolvency Law Committee, the
object of IBC and Section 14 of the IBC, rightly held that financial bank guarantee can
:
be invoked during moratorium period under Section 14 of the Code. The judgment of
the NCLAT is also in consonance with the judgments of the Supreme Court on the same
issues.
The decision of the Court acts as a clarification on the issue whether the guarantees
issued by third parties/banks can be invoked during the moratorium period. This
decision, though, is definitely in favour of the creditors, banks may find it difficult to
recover their money from a corporate debtor on whom moratorium is imposed under
Section 14 of the IBC.
± 4th year student, BA LLB (Hons.), West Bengal National University of Juridical
Sciences (WBNUJS)
Kolkata
[1] <http://www.scconline.com/DocumentLink/86F742km>.
[2] 2021 SCC OnLine NCLAT 57
[3] <http://www.scconline.com/DocumentLink/09ftZIDF>.
[4] The Insolvency and Bankruptcy Code, 2016, S. 14
[5] The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, S. 10
[6] SBI v. V. Ramakrishnan, (2018) 17 SCC 394
[7] Shri Injeti Srinivas, Report of the Insolvency Law Committee, 35 (26-3-2018),
<http://www.scconline.com/DocumentLink/sYKPTj8e>.
[8] Ibid.
[9] Ibid.
[10] Bharat Aluminium Co. Ltd. v. J.P. Engineers (P) Ltd., 2021 SCC OnLine NCLAT 57,
para 37
[11] <http://www.scconline.com/DocumentLink/rOllWgj8>.
[12] Id at para 8.
[13] Id at para 9.
[14] Id at para 16.
[15] Id at para 18.
[16] Id at para 17.
[17] Id at para 22.
:
[18] Reserve Bank of India, Circular DBOD.No.BP.BC.89.21.04.009/2012-13 (Issued on
2-4-2013), <http://www.scconline.com/DocumentLink/z9UP86k8>.
[19] 2017 SCC OnLine NCLT 19360
[20] The Insolvency and Bankruptcy Code, 2016, S. 14
[21] Ibid.
[22] 2017 SCC OnLine NCLT 19360
[23] SBI v. V. Ramakrishnan, (2018) 17 SCC 394.
[24] Bharat Aluminium Co. Ltd v. J.P. Engineers (P) Ltd., 2021 SCC OnLine NCLAT 57,
para 31.
[25] Contract Act, 1872, S. 128.
[26] Bharat Aluminium Co. Ltd. v. J.P. Engineers (P) Ltd., 2021 SCC OnLine NCLAT 57,
para 37.
[27] (1997) 1 SCC 568.
[28] SBI v. V. Ramakrishnan, (2018) 17 SCC 394.
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CASE BRIEFS FOREIGN COURTS
Case Comment on Four Seasons Holdings Inc. v. Brownlie — A

UK Supreme Court Decision
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I.Introduction
The Brownlie case[1], subject of comment on jurisdictional aspects of “damage” in
tortious claims, centered on the rules applicable on service out where tort claims have
connections with UK Court, only to the extent where claimant suffers consequential
damages within its territory.
II. Brief Description of Facts
Litigation before the High Court of England and Wales[2] commenced between Lady
Christine Brownlie, widow of renowned international lawyer Sir Ian Brownlie QC and
Four Seasons Holdings Incorporated (Canadian Corporation) running a chain of hotels
:
by the name and style of Four Seasons. She along with her husband, daughter and
grandchildren suffered a tragic accident in Cairo, Egypt, on a holiday. Their excursion on
3-1-2010 resulted in a car crash whereby Lady Brownlie and the grandchildren survived
serious injuries. However, Sir Ian Brownlie and their daughter died.
It is Lady Brownlie’s evidence that on her previous visit she had taken a brochure,
published and circulated by Four Seasons advertising safari tours provided by them.
She contacted the hotel before leaving England for the holiday through telephone and
made a booking to hire a chauffeur-driven vehicle for an excursion with the concierge of
the hotel.
Lady Brownlie’s claims were against — (a) Four Seasons Holdings Inc., the holding
company (first defendant); (b) Nova Park SAE (Egyptian company), owner of the hotel
building (as per Lady Brownlie’s solicitors) (second defendant).
The three tortious claims by Lady Brownlie, through service out jurisdiction after her
return to England against defendants (Canadian) were for (a) “personal claim” on
account of severe injuries suffered on her person; (b) being a dependent, for loss of her
husband under Fatal Accidents Act, 1976; and (c) as an executrix of the estate of Sir
Brownlie, for the loss and damages under the Law Reform (Miscellaneous Provisions)
Act, 1934.
III. Applicable Rules of Jurisdiction
Prior to the Brownlie case[3], English courts since 1852 opined that jurisdiction in tort
cases was delimited by the power of the court[4], for permission for grant of service on
the defendant subject to the claimant’s proof that a serious issue existed for trial by
England courts (forum conveniens).[5]
According to English common law, English courts have adjudicatory competence on the
basis of “submission” and “presence”. The service of proceedings on a foreign-based
defendant is possible wherein the defendant is domicile of European Union (EU)
member State/another part of UK. As per Civil Procedure Rules (CPR) (Rules 6.32 and
6.33), the claimant is not required to take the permission of the court and Brussels I
Regulation Recast is applicable.
However, in a cross- border commercial matter wherein the defendant is not domiciled,
the claimant needs a prior permission of the court before submission of claim form
(outside jurisdiction) and an English Court, may grant permission, as per the CPR
(Domestic Law of UK).[6] Exercise of discretionary powers[7] by the court to allow
:
service out are subject to the main obligations being satisfied by the claimant. These
mandatory service out conditions on a foreign-based defendant are[8]—
(i) Application for permission (Rule 6.36) setting out grounds in Para 3.1 of Practice
Direction 6-B. “Good arguable case” to be tested on the ground that at least one of the
claims by the parties falls within the “gateways” of Practice Directions.
(ii) Belief that the claim has a reasonable prospect of success.
(iii) A “reasonable issue” must exist between the claimant and defendant and
“reasonably” tried on merits by the court.
Discretion is exercised once the court believes that England and Wales are forum
conveniens (proper place) for the claim to be brought, by applying the test in Spiliada
Maritime Corpn. v. Cansulex Ltd.[9].
In Lady Brownlie case[10], the application for permission of the claim founded on
contract to serve out was based on Practice Direction 6-B, Para 3.1(6)(a), contending
that the contract was made within jurisdiction. Her claim founded on tort was based on
Practice Direction 6-B, Para 3.1(9)(a), further arguing consequential losses were
suffered in England. She placed reliance on an earlier decision[11] to support that
consequential damage sustained by her in England was sufficient to satisfy
requirements of CPR Practice Direction 6-B Para 3.1(9)(a) gateway. However,
defendants supported the decision in Erste Group Bank AG (London) v. JSC (VMZ Red
October)[12] wherein English courts determined the meaning of damage preferring
direct damage interpretation [in torts – CPR Para 3.1(9)(a)] in line with the Brussels I
Regulation Recast.
In my opinion, a fading line of distinction distinguishes direct damage (which completes
cause of action) from damage that is consequential leaving applicability to be an open
question.
IV. Interpretation of Rules on Jurisdiction and Decision
Claimant, resident of England brought the claim in England against the defendant of a
Canadian Holding Company, on the ground that the contract for excursion was with
defendant or that defendant was vicariously liable for fatal accident due to driver’s
negligence.
The analysis of English Court’s approach is primarily for the determination of “damage”
as per CPR Practice Direction 6-B Para 3.1(9)(a), regarded as obiter dicta.
The Court of Appeal[13] unanimously upheld direct damage suffered by the claimant to
:
be outside tort gateway however, the loss of dependency claim was well within its
confines.
The Supreme Court[14] opined that Lady Brownlie stumbled on the first aspect to
provide the prerequisites of service out as first defendant, the non-trading holding
company were neither owners nor operated the Cairo Hotel.
The interpretation of the “tort gateway” as per Practice Direction 6-B, Para 3.1(9)(a) is
divided in the ratio of 3:2.
The majority opinion concluded upon the ordinary and natural meaning of gateway, to
include, “all detriment, physical, financial and social, which the plaintiff suffers as a
result of the tortious conduct of the defendant”. The Court opined that despite personal
injury and death of Sir Brownlie in Egypt, the consequential damage (funeral and
medical expenses, pain, suffering and loss of amenity) were suffered in England.
It is my view that the majority opinion has adopted a very wide approach in determining
the gateway to test damage suffered to serve out. Any event occurring in England sans
“significant damage” will not hold good to prove forum conveniens. It has trodden away
from “direct damage”[15] since the applied gateway only mentioned “damage”. No
differentiation of direct and indirect/consequential damage is clear in the absence of
lucid and precise meaning of the gateway being provided, leading to an unreliable test.
This wide approach poses a risk of opening floodgates to many applications to serve
out of the jurisdiction, by interfering with the sovereignty of another State. The required
cautious approach is not being exercised by the UK jurisdiction, leaving the concept of
damage open to questions since the Court has not discarded it by clearly defining the
boundaries of tort gateway. The opinion of rejecting the consistency between the
gateway and Brussels I Regime is however a test for if the history behind the draft of the
gateway is being correctly applied.
I agree with the minority view to the extent of supporting restrictive application of
“damage” as personal injury. However, the universal jurisdiction of English courts on tort
claims suffered anywhere is vague.
V. Conclusion
Through the majority view, whether expansive interpretation by English courts of tort
gateways should be abandoned or that ambiguity can be removed if the meaning is
brought within the scope of the interpretation under Article 7(2) Brussels I Regulation for
achieving certainty in a situation gripped with the conflict of laws. It is also hard to
:
conclude the approach which the courts will finally adopt in order to attain a balance in
the situation of the claimant and defendant considering if the test of forum conveniens is
applicable. It can be said that the Supreme Court missed the bus for determining scope
of jurisdiction – service out in tortious claims.
* BA LLB (Hons.) Amity Law School, Delhi, Guru Gobind Singh Indraprastha University,
Delhi (Batch of 2019).
[1] (2018) 1 WLR 192
[2] Ibid.
[3] (2018) 1 WLR 192
[4] R. 6.36, Civil Procedure Rules.
[5] Seaconsar (Far East) Ltd. v. Bank Markazi Jomhouri Islami Iran, (1994) 1 AC 438 :
(1993) 3 WLR 756 HL(E) (Seaconsar).
[6] (2018) 1 WLR 192; R. 6.37, Civil Procedure Rules.
[7] Lord Collins of Mapesbury et al., Dicey, Morris & Collins on the Conflict of Laws, 15th
Edn., Sweet & Maxwell, 2012.
[8] R. 6.37, Civil Procedure Rules, UK.
[9] 1987 AC 460 : (1986) 3 WLR 972 HL(E)
[10] (2018) 1 WLR 192
[11] Booth v. Phillips, (2004) 1 WLR 3292: 2004 EWHC 1437 (Comm)
[12] [2015] EWCA Civ 379; [2015] 1 CLC 706, CA
[13] Brownlie v. Four Seasons Holdings Inc., (2016) 1 WLR 1814
[14] (2018) 1 WLR 192
[15]Dumez France SA v. Hessische Landesbank, (Case C-220/88) ,1990 ECR I-49;
Marinari v. Lloyds Bank Plc., 1996 QB 217 : (1996) 2 WLR 159
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Case Comment: Nabi Alam v. State (Govt. of NCT of Delhi)

The Division Bench of the Delhi High Court on the issue

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† Advocate, Supreme Court of India and Delhi High Court

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History of the decision in GMSPL order

Treatment of undecided claims/disputed claims by governmental

“including the Central Government, any

(a) their claims should not be rejected by the resolution

Judicial precedents prior to the GMSPL order

(a) the petitioner has a remedy of filing a second appeal against

“We hold and declare, that the respondents

Conclusion and way forward

* Joint Partner, Lakshmikumaran & Sridharan Attorneys.

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Raising the bar to challenge illegal appointments Pooran Chand

Proceedings before the High Court

Proceedings before the Supreme Court

Provided that no reference under this section shall be made—

*Advocate, Hyderabad. Author can be reached at tpsharsha@gmail.com.

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Published on June 23, 2021 – By Editor

Whether NCLT has power to order criminal proceedings KVR

a) Record a finding to that effect;

*4th Year Student at WBNUJS Kolkata

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Published on June 15, 2021 – By Editor

Encashment of bank guarantee and relevance of moratorium

Analysis of the judgment

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Published on June 15, 2021 – By Editor

Case Comment on Four Seasons Holdings Inc. v. Brownlie — A

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