Filing of Bail Applications Successively- Curbing Forum Shopping

Jagmahon Bahl and Anr. v. State of NCT of Delhi and Anr.

Recently, the Supreme Court had given an important ruling intending to curb the practice of forum shopping amongst lawyers, where they would after getting a bail application rejected/accepted from one judge, the aggrieved party (can be accused or prosecutor or complainant) would again file a similar bail application before another judge.

I. Facts of the Case

The appellants had earlier moved an application u/§ 438 CrPC for grant of anticipatory bail which was dismissed by one judge. Thereafter, the appellants after expiry of three weeks filed 2^nd application u/§ 438 Cr.PC which came to be considered by another judge, while the earlier judge who had decided the previous bail application was still available.

II. Decision in the Case

The Court categorically stated that such practice was not consistent with the judicial discipline which must be maintained by Courts both in the interest of administration of justice by assuring the binding nature of an order which becomes final, and the faith of the people in the judiciary.

Therefore, the Judge who has declined to entertain the prayer for grant of bail, if available, should hear the second bail application or the successive bail applications, as such practice is in consonance with the principle of judicial decorum, discipline and propriety.

Here, it is important to note that the acceptance of 2^nd bail application by another judge, i.e., when the 1^st application has been rejected by a different judge, “is a bail order passed in a perverse manner excluding the relevant matters”. Such ground of cancellation of bail order is different from the cancellation of the order of bail because of violation of the terms and conditions of the order granting bail and other supervening circumstances.

However, an obvious exception is provided in cases where a Judge has demitted the office or has been transferred. In such cases, the earlier judge was obviously “not available”.

III. Conclusion

It is obvious that the phrase “not available” can be construed to include where judges are on holidays. Though such cases are bound to happen, the judgment, however, is a welcome reminder for the lower Courts to uphold the judicial discipline of respecting one judge’s opinion and introduce a modicum of certainty in the decision making.

Undue Enrichment vis-a-vis Unjust Recovery: Article 14 Obligation

State of Punjab and Ors. v. Rafiq Masih (White Washer) and Ors.

Recently, the Supreme Court was confronted with the issue of whether employees that were in receipt of monetary benefits beyond their due, should be exempted in law, from the reimbursement of the same to the employer. An important factual scenario that is required to be noted is that the employees were no guilty of furnishing any incorrect information, which had led the concerned competent authority, to commit the mistake of making the higher payment to the employees.

The issue has its own inherent difficulty in the sense that there is a Right to Recovery of the employer as against the effect on the employee who had been in good faith, enjoying the excess amount received by him/her.

I. Precedents Involved

(i) Shyam Babu Verma and Ors. vs. Union of India & Ors. (1994) 2 SCC 521;

(ii) Sahib Ram Verma vs. State of Haryana (1995) Supp. 1 SCC 18;

(iii) Chandi Prasad Uniyal and Ors. vs. State of Uttarakhand & Ors. (2012) 8 SCC 417;

(iv) Syed Abdul Qadir v. State of Bihar, (2009) 3 SCC 475;

(v) Col. B.J. Akkara v. Government of India, (2006) 11 SCC 709.

II. Decision of the Court

The Court in para 8 reasoned that the right to recover being pursued by the employer, will have to be compared, with the effect of the recovery on the concerned employee. It held that in case, the effect of the recovery from the concerned employee would be more unfair/more wrongful/more improper/more unwarranted, than the corresponding right of the employer to recover the amount, then it would be iniquitous and arbitrary, to effect the recovery.

The Court invoked Article 14 and DPSPs u/Arts 38, 39, 39A, 43 and 46 to reason that equity and good conscience, in the matter of livelihood of the people of this country, has to be the basis of all governmental actions. Otherwise, the said action is Arbitrary and consequently violative of Article 14.

III. Instances where Right to Recovery is Unconstitutional

The Court was presented with precedents of the Supreme Court itself, where by exercising its extra- ordinary power under Article 142 to pass equitable orders in the ends of justice, it had previously ordered non- recoverability of excess amount. The Court used these judgments to lay down certain instances, where recovery will not be allowed, since such recovery would be iniquitious or have a harsh and arbitrary effect on the employee and consequently violative of Article 14:

(i) If the excess payment had been made for a long duration of time, i.e., more than 5 years, it would be iniquitous to make any recovery. (because it would be almost impossible for an employee to bear the financial burden, of a refund of payment received wrongfully for a long span of time);

(ii) Recovery from employees in lower rung of service, i.e., Class-III and Class-IV – sometimes denoted as Group ‘C’ and Group ‘D’. (because employees in lower rung of service would spend their entire earnings in the upkeep and welfare of their family, and if such excess payment is allowed to be recovered from them, it would cause them far more hardship, than the reciprocal gains to the employer);

(iii) Recovery of excess payments, made from employees who have retired from service, or

are close to their retirement. (because it would entail extremely harsh consequences outweighing the monetary gains by the employer as a retired employee or an employee about to retire, is a class apart from those who have sufficient service to their credit, before their retirement. Also, at this stage an employee is past his youth, his needs are far in excess of what they were when he was younger and his earnings have substantially dwindled on retirement);

(iv) Where employees were entitled to wages, for the post against which they had discharged their duties, even if the concerned appellants were ineligible for the same post. But the mistake of employing on that post must be of someone else and the employee should not have contributed to that mistake; or

(v) where the Court arrives at the conclusion, that recovery if made from the employee, would be iniquitous or harsh or arbitrary to such an extent, as would far outweigh the equitable balance of the employer’s right to recover.

IV. Conclusion

The Court through its reasoning, in cases where the employer is ‘State’ has termed such recovery to be violative of Article 14, but still it has allowed the doors open where the employer is a ‘private person’. In latter cases, equity still can be invoked to have the Court exercise its discretion in employee’s favor.

IVa. Law of Unjust Enrichment

The law of recovery in cases of “unjust enrichment” is based on law of restitution in cases where there is neither any consent or wrongdoing issue. Such action is based neither on contract nor on tort, hence it falls in a third category i.e. of restitution. The law is clear on this issue Lipkin Gorman v. Karpnale Limited[1] where it was held:

“The claim for money had and received is not… founded upon any wrong committed by the club against the solicitors. But it does not, in my opinion, follow that the court has carte blanche to reject the solicitors' claim simply because it thinks it unfair or unjust in the circumstances to grant recovery. The recovery of money in restitution is not, as a general rule, a matter of discretion for the court. A claim to recover money at common law is made as a matter of right; and even though the underlying principle of recovery is the principle of unjust enrichment, nevertheless, where recovery is denied, it is denied on the basis of legal principle. [emphasis added] [example defence of change of position].”

The position in India seems to be a bit changed, allowing for huge scope for judicial discretion in interpreting when would the ‘recovery be unjust’, rather than simply analyzing the defences available to such restitution:

“Unjust enrichment” has been defined by the court as the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience. A person is enriched if he has received a benefit, and he is unjustly enriched if retention of the benefit would be unjust.”[2]

This position may cause a reader to erroneously mix two different aspects, one what is unjust enrichment and second when is recovery unjust. Right to recovery flows from unjust enrichment, but such recovery may be unjust if an employee has been innocently getting such sum for say 20 years. The law is that recovery can be stopped only when one of the defences is applicable, otherwise there is a Right to have recovery. The Indian Courts have in such cases used equity principles to refuse such recovery, though the Right to Recover due to unjust enrichment is still there. In my opinion, what is not allowed is the enforcement of the Right because allowing Right to Recover from a person unjustly enriched, would be more unjust to the employee as compared to how unjust it was to the employer when he gave the excess amount to the employee.

IVb. Present Decision and its Impact.

The Court here used Article 14 and not resorted to the invocation of jurisdiction in equity which had earlier been used to do so by the precedents cited in the present case.

Therefore, the decision seems to be sound in the sense that it uses the fundamental rights of State employees against the State employer’s Right to recover, consequently avoided any scope of using equity jurisdiction, which could have the adverse effect of twisting the law of Unjust Enrichment by subjecting the private employers’ Right to the recover given under the common law, to the law of equity and consequently to vast discretion of the Courts. The decision has given a Constitutional basis to reject the claim of recovery, though under the guise of judicial discretion to check whether the recovery would be unjust.

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[1] [1991] 3 WLR 10 (House of Lords).

[2] Indian Council for Enviro Legal Action v. UOI, accessible at http://indiankanoon.org/doc/1356184/.

Ownership of Employer over Employee's Patents: An Analysis of Darius Rutton Kavasmaneck v. Gharda Chemicals Limited, Keki Hormusji Gharda& Ors.

Two weeks ago, Bombay High Court in the case of Darius Rutton Kavasmaneck v. Gharda Chemicals Limited, Keki Hormusji Gharda & Ors. decided on the issue of ownership of employer over inventions of employee. The Court held that the test is whether there is any such clause in the employment contract regarding transfer of ownership over invention devised by the employee or whether the invention was devised in the course of employment. The Court also discussed the use of employer’s funds in devising the invention. However, it did not clarify what role of such "use of funds" would be in the transfer of ownership.

 Following are the submissions made by the plaintiff (shareholder of Company) and the defendant (Managing Director of Company). Plaintiff, here, is challenging the patents registered in the name of defendants that they should have been registered in the name of the Company.

 Plaintiff’s Arguments:

§   Defendant used the R&D facility, support and R&D team of the Company and therefore the, any patent, obtained and/or applied for should be in the name of the Company.

§   Arguendo, in view of the fiduciary duty, being the managing director, the patents should be registered in the name of Company only.

§   Company incurred expenses regarding the impugned Patents.

§   Section 88 of Indian Trust Act requires the Defendant to hold for the benefit of the company the advantage (interest in the patents) that he has himself gained.

§   In the whole time employment of the Company, Defendant is obligated and devoted his whole time exclusively for the benefit of the Company alone.

§   Also, the fiduciary duty of the Defendant enjoins Defendant to exclusively work for the Company and not to compete with or divert the business or assets of the Company.

Defendant’s Arguments:

§  Defendant firstly challenged the locus of plaintiff. The post is not concerned about these arguments. The arguments are discussed here and here.

§  Patents are individual creation of the defendant, hence should be registered in his name only.

§  Though Defendant owes a fiduciary duty, but this does not follow that patent devised by him in his individual capacity should belong to the Company or that he should hold them in trust for the Company.

§  The expenditure on the impugned patents by the Company has not been for making or for granting these patented process for products but only to fine tune how economically the Defendant can use the patents.

§  There is no provision in law which provides that the employee generated patent should belong to the employer.

§  Defendant is appointed as the Managing Director of the Company, he is only entrusted with powers of management and he is not required to do any research and development or make inventions.

§  If it is held that the patent was wrongfully obtained by Defendant rather than in the name of Company, then any person including the competitors of the Company may apply for revocation/cancellation of the patent under Section 64(1)(b) of the Patents Act and this can never be in the interest of company.

 Determination by the Court:

§  The Court firstly decided the maintainability of derivative action in favour of Defendant. 

§  Fiduciary duty violation: The test is whether Defendant, as Managing Director, had a duty to invent. On perusal of Managing Director Contract, there is not even an iota of indication either expressly or by implication that Defendant was also required to devise inventions.

§  Defendant did not create the inventions in the course of his employment. Also, he did not have a duty to create the inventions. For these reasons, Section 88 of Indian Trust Act is not applicable.

§  With respect to R&D funds of Company, the Court accepted the submissions of the Defendant.

Sections 8 and 11 of Arbitration & Conciliation Act, and Res Judicata

Recently, a division bench of Supreme Court in Anil & Ors. v. Rajendra & Ors. delivered an important ruling regarding Chief Justice’s power to appoint an arbitrator under Section 11(6). It was held that once the trial court has declined to refer the matter for arbitration under Section 8, the Chief Justice is barred to appoint an arbitrator under Section 11(6) as the earlier determination by the trial court acts as res judicata. With this, the Court set aside the order of High Court which affirmed the appointment made by CJ under Section 11(6). The reasoning of High Court was that Section 8(3) does preclude appointment of arbitrator during the course of litigation pursuant to the agreement.

Ironically, a higher judicial authority is made bound by determination of a lower judicial authority by the judgement. The same disapproval was faced by judgement of Supreme Court in SBP v. Patel Engg. Further, the Court remained silent as to what would have been appropriate remedy against such order of non-reference to arbitration under Section 8. Apparently, the applicant would approach an appellate authority. Had the Court allowed CJ to assume jurisdiction under Section 11(6), res judicata would have played out for such appellate authority. However, such a determination would require a doubtful assumption that CJ may act as an appellate authority under Section 11(6). Yet this route would clearly save the parties from the vice of the pro-longed litigation in Civil Courts.

Maintenance to Working Wife: The Dichotomy of “Saying” and “Doing”

Maintenance to a Hindu wife is provided under Hindu Marriage Act, Hindu Adoption and Maintenance Act, Cr.P.C. etc. Under these legislations, there is no fixed limit as to the quantum of maintenance. Under Cr.P.C., the limit of Rs. 1500/- was removed by the Central Amendment. Thus, currently, the magistrate or other relevant judicial authority has the discretion to award proper and necessary amount of maintenance as per the facts and circumstances of a case.

However, to restrict the above discretion, Supreme Court has evolved the test of “status of family” that “the wife should be in a position to maintain standard of living that is neither luxurious nor penurious but what is consistent with status of a family.”[1] In this test various factors such as earning capacity of both the husband and wife, current and prospective earnings of both husband and wife, number of children and expenses incurred and to be incurred upon, etc. are taken into consideration.

Ironically, the judiciary has disregarded the test when the working wife is claiming maintenance. In such cases, the Court sees whether the working wife is able to earn enough to live her life irrespective of the fact that she is not enjoying status of family that she enjoyed with her husband. For example, recently, Delhi HC rejected claim for maintenance by wife who earns 80,000/- per month, though 80,000/- is not sufficient to maintain her earlier strata.

In the above observation, the question is not whether the earning wife should get maintenance when her income is enough to live a life better than that of a destitute. Rather the issue is about the trend of judiciary that what the judiciary sets as ‘law’ has not been properly followed even by the judiciary itself. Nonetheless, the trend is a significant step forward in dealings with short-term marriages.

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[1]Chaturbhuj v. Sita Bai, AIR 2008 SC 530 (Justices Arijit Pasayat and Aftab Alam)

Issuance of Shares and Transfer Pricing: An Analysis of Vodafone India Services Pvt. Ltd. v. Union of India & Ors – Part II

In the last post we saw that issuance of shares cannot be subjected to transfer pricing provisions of Income Tax Act. Continuing from this, in this post I will discuss hypothetical stimulation of arguments on merits of the Vodafone judgement. In this regard, two issues are discussed viz. first, whether Revenue was right in making the addition of notional interest by treating the addition on the subscription of the shares as deemed loan. Second, whether the Discounted Cash Flow (DCF) is the most appropriate method for the valuation of the shares or Net Asset Value (NAV).

Before doing so, it is notified that relying on Vodafone judgement, a Mumbai High Court bench of justices M S Sanklecha and SC Gupte on a petition filed by Shell India Markets upheld that issuance of share does not generate ‘income’. It is anticipated that Revenue is likely to approach Supreme Court. In this context, the arguments on merits become significant as even if SC overrules Shell India, revenue would not be able to impose notional interest.

Whether Revenue was right in making the addition of notional interest by treating the addition on the subscription of the shares as deemed loan.

An adjustment for the notional interest by re-characterization of equity into debt (as done in the present case) is referred to as “secondary adjustment” in the parlance of Transfer Pricing. Secondary adjustment creates a constructive transaction such as constructive loan, constructive dividend, constructive equity distribution etc.

With respect to applicability of secondary adjustment principles, the OECD has clarified in its commentary on Article 9 of the model treaty convention that sovereign countries can opt for secondary adjustments, if permissible under their domestic tax laws. Following this view, Canada, Korea, South Africa, 9 EU members (Austria, Bulgaria, Denmark, Germany, France, Luxemburg, Netherlands, Slovenia and Spain) have incorporated such provision in their respective taxing statute.

Currently, India does not have any express or specific provision for inflicting the secondary adjustment in Transfer Pricing rules and therefore the TPO/AO cannot impose notional interest by treating alleged unpaid money as loan. This view was recently confirmed by Mumbai ITAT tribunal in PMP Auto Components Pvt. Ltd. v. DCIT.[1]

However, it must be noted that re-characterization is permissible under Chapter X-A (General Anti-Avoidance Rules) of the Income Tax Act which is not in force yet. It would be interesting to see whether GAAR being a general law on tax-avoidance can capture transactions held permissible by Specific Anti-Avoidance Rule i.e. Transfer Pricing (Chapter-X).

Levy of penalty under section 271G by transfer pricing officers

Assuming the said transaction between V-India and V-Mauritius is hit by TP, the appropriate recourse of by the Assessing Officer or the Commissioner (Appeals) should have been levy of penalty under Section 271G of the Act and not secondary adjustment. [Finance (No. 2) Act, 2014 has amended section 271G to include Transfer Pricing Officer in addition to AO or Commissioner. This amendment will take effect from 1st October, 2014.]

V-India as against these penalties would have been validly arguing that arm’s length price was calculated in good faith and due diligence was taken while using NAV method for valuation of shares. With this I move on to the next issue regarding appropriate method for valuation of shares.

Whether the Discounted cash Flow is the most appropriate method for the valuation of the shares or Net Asset Value

 In case of long-term investment in the 100% subsidiary (as opposed to investment for capital gains), the valuation should be future prospective earning on the capital and should not be based on the present net worth of the subsidiary. This contention was accepted by the Mumbai ITAT tribunal in PMP Auto Components Pvt. Ltd. v. DCIT.[2] In this respect the Revenue was correct in applying DCF method as opposed to NAV. However, DCF method is surrounded by the clouds of legal uncertainty as it works on too many unruly economic assumptions. Consequently, it's vires may be challenged on the basis of arbitrary exercise of power.

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[1] [TS-263-ITAT-2014(Mum)-TP]

[2] Id.

Towards Gender Equity: Striking Down the Bias Against Women Make- Up Artists

 Charu Khurana & Others v. Union of India &Others

Charu Khurana & Others v. Union of India & Others

 Writ Petition (Civil) No.78 of 2013

“The days of yore when women were treated as fragile, feeble, dependent and subordinate to men, should have been a matter of history, but it has not been so, as it seems.”[1]

Background of the Case

The petitioner in the present case is a trained make- up artist and hair dresser, who had sought a membership card for the same, which was refused by the respondent no. 5, i.e., the Association on the grounds that no female make- up artist has ever been issued a membership card. The respondent stated that females are given membership card for hair dressing only, whereas the job of make- up artists is reserved for males.

The present post is restricted in dealing with the gender discrimination part of the judgment, while the Court had also discussed the domicile requirement in securing the membership card.

Establishing Writ Jurisdiction over the Association

While the association was not a ‘state’ under the terms of Article 12, the Court nevertheless looked into the validity of the bye- laws of the Association which were certified by the Registrar of Trade Unions in exercise of the Statutory power under the Trade Unions Act 1926. (Read this link to gather the flaws in this reasoning of the Court and the adverse implications of it)

I. Submission of the Association Defending Non- Granting of Membership Card to Female Make- up Artists

The Association justified their stance on the ground that if the female members were given membership card for make- up artists also, then, it would become impossible for the male members to get work, as there is a human tendency to employ female make- up artists if they are available. In the association’s view they have sought to give equal opportunity by reserving the field of hair- dressing for females only, while allotting membership cards for make- up to males only.

II. Challenges Posed Against the Association’s Stance with respect to Discrimination on the Basis of Gender

(a)   There is no reasonable justification for the classification of not allowing women to be make- up artists,

(b)  Unless membership cards are issued, women would not be engaged as make-up artist and thus causing a hazard in earning their livelihood.

Consequently, it is contended on behalf of the petitioners that there is a violation of their rights under Articles 14, 15, 19 (1) (g) and 21 of the Constitution of India.

III. Relevant Provisions

Ø  Trade Union (TU) Act 1926

§  Section 21. Any person who has attained the age of fifteen years may be a member of a registered Trade Union subject to any rules of the Trade Union to the contrary, and may, subject as aforesaid, enjoy all the rights of a member and execute all instruments and give all acquittances necessary to be executed or given under the rules:

Ø  Bye- Laws of the Association with Registration No. 1871

§  Clause 4. Membership: Membership of the Association shall comprise of Make-up men, Costume men, and Hair Dressers who were admitted as members by the Association & who continue to be members and all those who shall be admitted hereafter under clauses 6 & 7 of the constitution of the Association including the membership in Family Relief fund, provided he/she agrees & abide by the rules & sub-rules that may form by the Association from time to time.

§  Clause 6. Admission of New Members: Any person desiring to become the member of the Association who has attained the age of majority of 18 and who possess a good moral character shall send an application in prescribed form and duly recommended by two members with its prescribed fees. A. Applicant should have been a resident of Maharashtra at least for 5 years; B. Son or Daughter of members who have completed 15 years of membership shall be eligible to be enrolled as members of the Association, provided they fulfil other conditions relating to age and domicile status of 5 years in the State of Maharashtra.

IV. Judgment Holding the Stance of the Association Wrong

IVa. For Violating the Main Statute

The Court held that the Clause 4 violates the § 21 of the TU Act on the ground that the Act does not distinguish between men and women.

IVb. For Violating the Constitutional Norms

The Court here firstly held that the Right to livelihood of the women artists is getting adversely affected since it intervenes with her capacity to earn her livelihood, consequently it is breaching Article 21 of the Constitution.

Then, by using principles of gender equity and justice as envisaged in:

(i)             International Conventions (incorporated or adopted through judicial interpretation in cases like Vishaka v. State of Rajasthan),

(ii)           directive principles of state policy (these principles have been used by the Supreme Court to interpret the Fundamental Rights) under Article 39 (a) where the state should try that men and women have an equal right to an adequate means of livelihood, and Article 38 where the State should strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life, along with Article 37 which imposes an obligation on the State to apply these principles in making laws,

(iii)          fundamental duties where a collective responsibility is imposed on the State (through interpretation by the Court) to develop a scientific temper, thereby, provide opportunities to people and not to curtail it,

the Court held that there is a violation of the constitutional mandate and consequently quashed the clause 4 of the bye- laws.

V. Analyses

Firstly, the part where the Court finds the impugned provision violative of § 21 of the main Act itself, it is submitted is completely erroneous. The Court opined that § 21 does not contemplate any difference between men and women when it states 'any person above the age of 15 yrs may become a member', therefore, the impugned provision is violative of the main Act. The problem is that § 21 itself allows for a subjecting clause, when it allows the Society to make Rules. § 21 states that 'any person above the age of 15 yrs may become a member of a Registered Society subject to any rules of the Trade Union to the contrary...'. Clearly, § 21 itself allowed for such leeway to Rule making authority.
In my opinion the Court though reached a right outcome, however, it could have struck down the provision simply on the basis of violating Article 14 and 15 of the Constitution of India, once it was comfortable in its reasoning that the associations' rules are amenable to be tested at the Threshold of Fundamental Rights. Instead of citing numerous precedents on Right to life including right to livelihood, quoting International Conventions unnecessarily, the Court could have by employing the Reasonable Classification test, reached the same conclusion, on a rather (in my opinion) better legally and logically sound reasoning.

The test of reasonable classification as employed in the case of State of West Bengal v. Anwar Ali Sarkar,[2] provides for a three- step checking mechanism to justify any differential treatment. In order to justify any such treatment, firstly, it has to be shown that there is a classification done on some intelligent and reasonable grounds, secondly, such classification should be done with a view to achieve an object and lastly, the classification should have a nexus with the object.

In the present case, the object seems to be to provide livelihood for men. But the classification between men and women on the ground that women if allowed to become make- up artists would lead to deprivation of men from such employment on account of some notion of human tendency. The very reading of the basis of this classification is enough for one to see the unreasonability involved in the stand of the Association. The job of a make- up artist does not entail that only women are suitable at it or better than men. There is no empirical data to justify this classification.

Therefore, such stance of the Association clearly falls foul of the equal protection of the law under Article 14 of the Constitution. As it can be seen, the Court could have held the Association’s conduct to be unconstitutional on this ground only (apart from holding the bye- laws to be violative of the main Act itself), rather than going into the sexual harassment of women or right to livelihood of women or fundamental duties unwarrantedly.

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[1] Deepak Mishra, J. in the present case.

[2] AIR 1952 SC 75.