Monthly Archives: January 2020

Dishonour of Cheque – Statutory Presumption

A dishonor of cheque carries a statutory presumption of consideration. The holder of cheque in due course is required to prove that the cheque was issued by the accused and that when the same presented, it was not honoured. Since there is a statutory presumption of consideration, the burden is on the accused to rebut the presumption that the cheque was issued not for any debt or other liability. There is the mandate of presumption of consideration in terms of the provisions of the Negotiable Instruments Act. The onus shifts to the accused on proof of issuance of cheque to rebut the presumption that the cheque was issued not for discharge of any debt or liability in terms of Section 138 of the Negotiable Instruments Act. Uttam Ram v. Devinder Singh Hudan, (2019) 10 SCC 287.

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Roof – Not a Necessary and Indispensable Adjunct for a Building

From a bare perusal of the definition of “building” in Section 3(i) of the U.P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972, it is clear that unless the context otherwise requires, “building” means a residential or non-residential roofed structure and includes any land (including any garden), garages and out houses, appurtenant to such building; any furniture supplied by the landlord for use in such building and any fittings and fixtures affixed to such building for the more beneficial enjoyment thereof. As held by the Hon’ble Supreme Court in Ashok Kapil v. Sana Ullah, (1996) 6 SCC 342 a structure or edifice enclosing a space within its walls and usually but not necessarily, covered with a roof is a building. Roof is not necessary and indispensable adjunct for a building because there can be roofless buildings. The “building” as defined in Section 3(i) of the U.P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972, is a residential or non-residential roofed structure and includes any land (including any garden), garages and out-houses, appurtenant to such building. Therefore, an open land including any garden, garages and out-houses, appurtenant to a roofed structure for its beneficial enjoyment shall be a building within the meaning of Section 3(i) of the U.P. Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972. Munnu Yadavi v. Ram Kumar Yadav, 2020 (138) ALR 70.   

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Relationship Between Foreman & Subscribers – In a Chit Fund Transaction

The relationship between the foreman and the subscribers in a chit fund transaction is of such a nature that there is a necessity and justification for making stringent provisions to safeguard the interest of other subscribers, and the foreman. If a prized subscriber defaults in payment of his subscriptions, the foreman will be obliged to obtain the equivalent amount from other sources, to meet the obligations for payment of the chit amount to the other members, who prize the chit on subsequent draws. For raising such an amount, the foreman may be required to pay high rates of interest.

        The stipulation of empowering the foreman to recover the entire balance amount in a lump sum, in the event of default being committed by a prized subscriber, is to ensure punctual payment by each of the individual subscribers of the chit fund. Without punctual payments, the system would become unworkable and the foreman would not be in a position to discharge his obligations to the other members of the chit fund. M/s Oriental Kuries Ltd. V. LISSA, 2020 (138) ALR 220.

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Factors to be Determined by Adjudicating Authority – When Examining an Application U/s 9 of IBC

The Adjudicating Authority, when examining an application under Section 9 of the Insolvency and Bankruptcy Code, will have to determine:

  • Whether there is an operational debt, as defined, exceeding Rs. 1 lakh? (Section 4 of the IBC).
  • Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And
  • Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?

If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9 of the IBC, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act. Transmission Corporation of Andhra Pradesh Limited v. Equipment Conductors and Cables Ltd., (2019) 12 SCC 697.

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Non-Arbitrable Disputes

In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. [Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532  the following has been laid down:

“ The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

 The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

 It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject-matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, a judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself.

Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.” Emaar MGF Land Ltd. v. Aftab Singh, (2019) 12 SCC 751

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Arbitral Award – Period of Limitation for Challenging

In Section 34(3) of the Arbitration and Conciliation Act, the commencement period for computing limitation is the date of receipt of award or the date of disposal of request under Section 33 (i.e. correction/additional award). If Section 17 of the Limitation Act were to be applied for computing the limitation period under Section 34(3) of the Arbitration & Conciliation Act, the starting period of limitation would be the date of discovery of the alleged fraud or mistake. The starting point for limitation under Section 34(3) would be different from the Limitation Act.

        In the context of Section 34(3) of the Arbitration & Conciliation Act, a party can challenge an award as soon as it receives the award. Once an award is received, a party has knowledge of the award and the limitation period commences. The objecting party is therefore precluded from invoking Section 17(1)(b) and (d) of the Limitation Act once it has knowledge of the award. Section 17(1)(a) and (c) of the Limitation Act may not even apply, if they are extended to Section 34, since they deal with a scenario where the application is “based upon” the fraud of the respondent or if the application is for “relief from the consequences of a mistake.” Section 34 application is based on the award and not on the fraud of the respondent and does not seek the relief of consequence of a mistake. P. Radha Rai v. P. Ashok Kumar, (2019) 13 SCC 445.   

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