Scope and Interpretation of Chapter XII-G of Income Tax

Income tax cases sometimes give rise to peculiar instances in which any decision on seemingly simple-minded issues results in intricate and wide ranging repercussions upon an industry as a whole. This case is one such instance wherein the scope of special concessions granted for shipping industry by introduction of Chapter XII-G in the Income Tax Act was called into question. The question of law that was up for consideration of the Supreme Court was whether the High Court is right in holding that the assesse is eligible for tonnage tax on income received under slot charter arrangement from a ship which does not satisfy the conditions specified under Section 115 VD of the IT Act. It is important to note here that many shipping companies, apart from owning ships for carrying out shipping operations, hires slots for carrying out the operations, which sometimes contributes to the majority of their income. Any narrow interpretation of the chapter shall have adverse repercussions for these companies. The High Court in this case interpreted the case in favour of the assesse. However, the decision raises lot many question as far as interpretation is concerned. It has ignored certain vital aspects of Chapter XII-G while deciding the case. Here I shall try to expound few of those glaring errors in its reasoning. The revenue has challenged the judgement before the Supreme Court wherein arguments have already been heard and the judgement is awaited.

The brief facts of the case that led to this case before Supreme Court is given here for better understanding of the case. The petitioner is a ‘qualifying company’, as per Section 115 VC of the IT Act, whose income is assessable under XII-G of the Act, containing special provision relating to income of shipping companies in sections 115V to 115 VZC.  The assesse is also a ‘tonnage tax company’, whose income is calculated under the tonnage tax scheme under Chapter XII-G of the Act. Apart from owning and operating ships they also chartered ships under the ‘slot charter’ arrangements, wherein only a portion of the ship is chartered for the purposes. While filing his returns, for the income that were received vide the slot charter arrangement, did not submit the valid certificate, referred to in Section 115VX of the Act, to show that the chartered ships are ‘qualifying ships’. The assesse submitted the valid certificate only for those ships that it owned. Further the assesse contended that there is no requirement to submit the certificate for those ships which are chartered under the slot charter arrangement, since the income for the same is computed based on the ‘deemed tonnage’ as defined under Rule 11 Q of IT Rules, unlike the income from a fully chartered ship, which is calculated on ‘net tonnage’ basis. Also it was contended by the assesse that ship is not owned by it and hence the certificate required cannot be procured by them. The Assessing Officer (AO) for want of the ‘valid certificate’ denied the contention of the assesse, consequently denying the benefit, that is accorded under Chapter XII-G for a slot charter, and proceeded to estimate the income from slot charter for the relevant assessment years based on the net tonnage basis derived vide the profit and loss account submitted by the assesse.

Both the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal dismissed the consequent appeals filed by the assesse. Aggrieved the assesse filed an appeal before the High Court of Kerala. The Hon’ble High Court in its judgement/order allowed the appeal. The Court determined that the basis for determination of income for the purposes of tonnage tax scheme under Chapter XII-G of the Act, meant for the slot charter arrangement, shall be on the deemed tonnage basis. The reasoning for the same is provided as follows

             i.      Section 115 VG of the Act make available the computation of tonnage income, wherein subsection 4 states that tonnage means that the tonnage of a ship indicated in certificate referred to u/s 115VX of the Act and includes the deemed tonnage computed in prescribed manner. The explanation offered in the same section states that for the purposes of the sub-section deemed tonnage shall be the tonnage in respect of an arrangement of purchase of slots, slot charter, whose computation shall be on the basis of Rule 11Q of the IT Rules. Sub-rule 1 of the same make specific reference to Form No.66 of the Rules and the illustrative formula given in the relevant note appearing under that form as regards the sub-rule. For the purposes of Rule 11T the report of audit of accounts has to be mentioned in Form.66, wherein at Sl. No.10 the format of providing computation of tonnage, as per Sec.115VG, income is provided. Column No.1 of the same is the ‘Name of the Ship’, which stands with an asterisk, whose explanation is as under

“There is no need to mention the name of the ship, income from which is computed on deemed tonnage basis”

Therefore it clear that there is no need for providing the valid certificate in case the charter is a slot charter. Consequently, the income shall be calculated on deemed tonnage basis.

        ii.     The reading of Sections 115VB, 115VC, 115VD, makes it clear that, while it is necessary to own at least one ship to become a qualifying company, operating ships may either be owned or chartered by the company. It is also clearly seen that the income derived from slot charter operations by a company shall be included to determine the income of a company, even if such operations are carried on in ships which are not qualifying ships in terms of the provisions of the Act.

              iii.            There is nothing in the act or the rules to indicate that the income which falls within the definition of ‘deemed tonnage’ will be operative only if it is carried out through ‘qualifying ships’.

       iv.      Form No.66, under Rule 11T, provides for the conversion of TEUs into NT for the Slot Charter under Note 3. The same says that the formula for the conversion is provided for converting slots hired into net tonnage, since the slots can be hired all-round the year for short or long terms in varying numbers, therefore it is not possible to convert them to net tonnage just by identifying the particular vessel on which the slot is hired.

The High Court has faltered in not considering the following grounds in its judgement:

The basic requirement for a qualifying company to come within the ambit of tonnage tax scheme is that apart from satisfying other requirements of Chapter-XII G of the Act, is to provide for the proof that the business is carried out in a ‘qualifying ship’. The statute does not in any manner envisage a situation wherein an exemption can be carved out, for the hiring of slot for a charter, from satisfying the requirement of a qualifying ship. Moreover, the primary reliance placed by the High Court upon the provision in a form to interpret the chapter, especially when there are express provisions within the chapter, is a logical fallacy in its least.

The inference can be drawn from Section 115 VI wherein relevant shipping income is defined. Sub-section 6 of the same provides that when a qualifying company operates a ship which is not a ‘qualifying ship’ the income attributable to such operation shall be computed in accordance with the other provisions of this Act. As per this provision, though it merely provides for the income derived from ‘operation’ of a qualifying ship, it cannot be said by any stretch of logic that it only includes such an activity, for such an interpretation will fall foul of the sub-section 2 of Sec 115 V-I, which defines the core activities of a tonnage tax company for the purposes of calculation of relevant shipping income. Apart from this a combined reading of the provisions of the chapter shall make it clear that, though the specific requirement of a ‘qualifying ship’ is not provided anywhere, by necessary implication it shall be applicable for the slot charter arrangement as well. 

As per Section 115VD of the Act, that defines the qualifying ship which can be operated by a qualifying company, for which a valid certificate is necessary. Under Section 115VG it is clear that only a qualifying ship can be operated for the purposes of a slot charter. A combined reading of Section 115VB, 115VD, 115VG will clearly demonstrate that the ship chartered in under slot charter shall be a qualifying ship and the certificate of tonnage is necessary for ships. Therefore, the basic condition necessity that ship should be a qualifying ship cannot be parted with.

Interpretational fallacies of the High Court's judgement apart any parochial interpretation of this Chapter by the court shall result in a situation which will defeat the very purpose introducing this chapter altogether. Any interpretation by the Supreme Court under this chapter which should provide enough leeway for the assessee to accrue the benefits of this chapter even while going for slot charter arrangement. This could be an one off case to rule in favour of the revenue. However, while doing so the court has to be conscious of the fact the repercussions of any blanket restrictions by way of interpretation for slot charter. 

Book Review: Before the Memory Fades

It is not often that you find people who achieve the pinnacle of one’s profession and live to see it. Mr.Nariman, the godfather of Indian bar is one such exception. The very name evokes awe in the minds of many who are a part of the bar and it without any surprises also includes judges who are on the other side of the bar. My first experience of him happened when I was present in the court during his arguments against the proposed NJAC in Supreme Court. I must say there is a quality to his voice and tenor that made me think of Richard Attenborough for a moment. In comparison to the commanding opposition of the Attoney General Mr.Mukul Rohatgi, it was a mellifluous performance that one does not get to witness very often. It is sad that this incandescent voice of the bar is fading due to old age. Naturally as an aspiring member of the bar I picked up this autobiography of his at my first opportunity. With some unexpected eagerness, with which I generally am not associated with for biographies, I started reading the genius of a lawyer’s life. The first few chapters of the book fulfilling my expectations was about his personal life, written in an interesting way laced with sufficient humour to interest the reader. From these pages it is clear that he is from a somewhat well to do background. His professional pedigree too is from the best of stables in the country, chambers of Sir Jamsedji Kanga, of which other stalwarts of the profession like Palkhiwala, Seervai too are a part of. It is actually surprising that even at this age he remembers many interesting incidents at the bar that he fondly reminisces in this book. This part of the book moves without many surprises but with much more gentle humours making it a fast paced interesting albeit not so exciting read altogether.
The real turn in the whole book comes at the stage of his life when he accepts the post of Additional Solicitor General of India and shifts his residence to New Delhi. It happened during the time period when the whole country was at the cusp of radical change of times that will take it into one of most turbulent times that independent India is yet to go through. It was when he was holding this position that the ‘phony’ emergency, as he calls it, was declared in the country, leading to him resigning the post as a form of protest. Considering the then prevailing circumstances when there existed no security even for one’s own life, it was one of the bravest moves that this country has witnessed. As a matter of fact his resignation invited the much needed public attention to the negative effects of the emergency. This particular chapter gives some interesting insight into the mind of the man who mustered the courage to take such a step.
One of the opportunities that Nariman seems to have missed is to appear in the famous Fundamental Rights case (Keshavananda Barati Vs Union of India). His participation in that matter, apart from being a valuable contribution in the case, would have spiced up the reading a little more. The life of a towering personality like him will inevitably touch upon certain watershed moments of Indian judiciary for it is him who played an active role in crafting the outcome of certain number of those pages of history. The subsequent chapters of the book take a definite turn in its tenor and content when he starts to delve into few of those instances. Fraught with controversies even to this day, his decision to defend the Union Carbide in the massive litigation initiated after the Bhopal Gas Tragedy is one such instance. Interestingly he seeks he seeks to justify his stance through this book. Prior to the litigation his reputation for the cause of human rights was internationally celebrated, no less due to his decision not to continue in the post of law officer when the emergency was declared. His reputation in this regard also caused to raise many an eyebrows when he appeared as the lead counsel to defend Union Carbide. In this chapter he explains at length the reality, for much information available to the public are emotionally prejudiced. This chapter in particular helped me no less in understanding several questions that many lawyers are posed in their professional life. Much of the detractors of this decision of Nariman were emotionally opinionated judging him unfairly. But through this chapter he puts up a formidable defence explaining his stance rationally. He has even reproduced two letters (one by renowned Professor Upendra Baxi) that were addressed to him questioning this decision of his. Even prior to reading this book I had several doubts that existed over the role that a lawyer plays in any judicial proceedings. Two extreme forms of reasoning can be had for this question. In one form he is seen as someone who can appear on behalf of anyone that he pleases and in the other he has to judge the cause before entering his appearance. Gandhi, as a lawyer chose the second path. He rejected any cause which he believed is not just. This reasoning of Gandhi is somewhat irrational, for he judges upon the cause of a person even before he is afforded an opportunity before the court. The detractors of this decision of Nariman too sound the like. This reasoning may somewhat put the lawyering as anything for money profession, but the role of a lawyer in judiciary itself calls for it. I personally am not able to see any incongruity in this reasoning and I find it to be rationally robust. As this subject needs separate detailed critical examination I shall refrain from digging further on this. Apart from justification or rather explanation that he offers for his stance in this controversial case, he also offers many judicial solutions to work out of such intricate situations which create difficulties both judicially and emotionally. It does seem to look a little out of place since he himself was and always has been in a veritable position to make such changes. In one page he even offers somewhat of an explanation to this as well, albeit not so convincingly.
The next important chapter is where he narrates his experience as a nominated member of Rajya Sabha (Upper House) of the Parliament. How much ever he seems to have loved it and portrayed it to be a very useful stint as the member, one cannot escape the feeling that his membership was not of much consequence. This is definitely not a surprising when considering the fact that he is nominated member without any party affiliations. Within the political landscape that is fraught with ulterior political motives in every move made, there is little that a sole member can do without the support of major parties on the floor. At its very best his membership did indeed offer the infusion of intellect in the debates held on the floor, sufficing the purpose of his nomination for the membership.
Throughout the passages one can witness the passion that this man holds for this profession. It is hard to miss that in those seemingly autobiographical passages is hidden the man’s eagerness to deliver the message about the ideals for which the profession of advocacy stands for. Hidden is his lament over the disgraceful fall of standards. Nevertheless, more than his reminiscences about the yesteryear members of the bar, who upheld the ideals of the profession, the man himself stands as an exemplar for the wannabes. One thing that I sorely missed in the book is the absence of any interesting information about his maverick of a son Rohinton Nariman. It would have been interesting, personally, to know a little more about the life of Rohinton, whose trailblazing performance as a judge in Supreme Court is raising the standards in the Indian judiciary. All in all this is an extremely interesting read and well serves as an inspiration for aspiring lawyers and lawyers alike.

Extinguishment of Purpose & Dissolution of Trust: A Piquant Dissent

Sometimes, it is the differences that make law interesting to deal with, especially when it is between two Supreme Court judges trying to settle the law. I recently got the chance to work in one such case[1], wherein, two Supreme Court judges differed in their opinions over several questions that arose on extinguishment of a trust under Indian Trusts Act, 1882 (Act). With the judges differing in their views, the matter at present stands referred to a larger bench for its final settlement.

Facts of the Case

The petitioner in the case represents the trust created by Dunlop India Ltd., for the purposes of providing pension, annuities and other benefits to the executive management staff of the company. In the meanwhile the company became sick and is declared as such by the BIFR. The trustees of the trust so created made an application under Section 34 of the Trusts act seeking appropriate directions and/or advice and/or opinion with regard to the money that is lying with the trust. It was stated in the application that the purpose of the trust stands fulfilled without completely exhausting the property held by the trust. Out of some 25 Crores and odd money that was held by the trust for its beneficiaries, an amount totalling Rs.3,99,55,682/- was deposited with LIC to purchase annuities to pay the beneficiaries their dues in the future. With that the purpose of the trust is stated to be exhausted and directions were sought for the rest of the money to be returned to the author of the trust, which is the Company itself. The application was dismissed by single judge of the High Court stating that payment of pension was to be made not only to the existing members but also to the widows and dependants and just by making an advertisement in two newspapers consent of all the members of the trust could not be held to have been obtained impliedly. This is in effect a refusal on the part of the judge to exercise the jurisdiction under Section 34. The intra court appeal made against the dismissal also came to be dismissed subsequently. The appellate court opined that the purpose of trust shall exist until the last surviving employee of the company receive his benefit from the trust fund and therefore the remaining funds lying with the trust cannot be taken by the company.

Before the Supreme Court

The primary question that was up for the consideration of the apex court is the scope of powers under Section 34 of the Act.

34. Right to apply to Court for opinion in management of trust property—Any trustee may, without instituting a suit, apply by petition to a principal Civil Court of original jurisdiction for its opinion, advice or direction on any present questions respecting the management or administration of the trust property other than questions of detail, difficulty or importance, not proper in the opinion of the Court for summary disposal.

A copy of such petition shall be served upon, and the hearing thereof may be attended by, such of the persons interested in the application as the Court thinks fit.

The trustee stating in good faith the facts in such petition and acting upon the opinion, advice or direction given by the Court shall be deemed so far as regards his own responsibility, to have discharged his duty as such trustee in the subject-matter of the application.

The costs of every application under this section shall be in the discretion of the Court to which it is made.

The lower courts refused to entertain the application on the premise that the powers vested in a civil court of original jurisdiction under the section is only to tender opinion, advice or direction for the management of the trust property and it shall not mean that a direction can be issued under the section for the extinguishment of the trust as a whole, confining the powers by literal interpretation of the statute. Upholding the reasoning of the lower court, Sinha J. held that an application under Section 34 may be maintainable only when the question involved are not questions of detail, difficulty or importance, not proper in the opinion of the Court for summary disposal. In the present case there involved the right of a member of the trust to receive pension, for, admittedly on facts, there were cases with several employees pending adjudication over the issue. In order to adjudicate such an issue would require the interpretation of trust deed which cannot be done under the summary jurisdiction so conferred under the section. Segregating Chapter IV (of rights and powers of trustees), under which Section 34 is listed, from other sections involving the extinguishment of a trust (Section 77 and Section 83 under Chapter VIII and IX respectively), he stated that the court cannot exercise a jurisdiction which is not vested with it.

The contention of the petitioner over the application of Section 83, since in this case the trust became incapable of being executed without exhausting the trust property, was not accepted by him since, according to him, firstly, involves seriously disputed question of fact; secondly, the court under the summary jurisdiction cannot finally determine the rights and obligations of the trustees and the beneficiaries thereon and thirdly, even if a few persons opposed the extinction of the trust it should be treated to be sufficient for the court to refuse to exercise its summary jurisdiction under Section 34 of the Act.

The Disagreement

In his judgement, differing from the conclusions arrived at by Sinha J., Markandey Katju J. held that, since all the beneficiaries being paid off, through the payment made to LIC, without exhaustion of the funds of the trust, the trust no longer is under any liability or obligation towards its beneficiaries. Therefore, the balance amount lying with the trust is to be returned to the company, being the author of the trust, in view of Section 83 of the Act. Interestingly enough, he agrees with Sinha J. over the maintainability of an application under Section 34, for a different reason, stating that the words “management and administration of trust property” would not apply when the purpose of the trust itself is exhausted and the question is over the remaining funds. however, in an interesting turn, he invokes the power under Article 142 of Constitution to refund the balance amount to the company.

Syllogism of Powers under Section 34

To the extent that there seems to be no other provision under the Act to govern such piquant situations, it is untenable to hold that an application under Section 34 is not maintainable, upon the premise that it is a summary jurisdiction. This is especially the case when the application so made is governed by principles such as Res Judicata is made applicable. This leaves the author of the irrevocable trust in a piquant situation that even after the exhaustion of all the mandates of the trust, it is still not open to manage the properties of the trust as it deems fit. Sinha J. argument that the application is not maintainable is solely based upon the reasoning that it involves important issues to be adjudicated, which cannot be done under summary procedure, may not be altogether tenable, since the only issue that could possibly arise for adjudication is whether the purpose of the trust is exhausted or not. Since in the present case a sum for those purposes has been set aside in clear terms, the petition can be held to be maintainable for all purposes. Though Katju J. disagrees over the management of trust money, he concurs to the extent that the application under Section 34 is not maintainable. The alternative remedy as proposed is of a suit to be instituted. However, they have failed to take note of the option that has been conferred upon the trustee to go for a remedy under Section 34. A pari materia provision is provided under Section 7 of Charitable and Religious Trusts Act, 1920, which does not have the option “without instituting a suit”, making clear that there exists a option in the hands of the trustee to choose this remedy.

Moreover, the reference of the issue to a larger bench, hearing for which is yet to happen, raises several interesting questions on its own, other than the above stated issues. The inevitable question over the exercise of powers under Article 142 apart, the scope of hearing by the larger bench so referred to will be an interesting aspect to be dealt with. Whether the larger bench can hear the matter afresh or whether they should limit themselves only to the question upon which there has been a disagreement? It will be much more interesting to go into this aspect. I comment on this conclusively at this stage. I shall post on this soon with adequate information.

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[1] Ashok Kumar Kapur Vs. Ashok Khanna (2007) 5 SCC 189

Dispute Review Boards: The Gun Without Bullets

In a post that I wrote early this year, I discussed the new, for India, concept of Dispute Review Boards. There I merely gave an overview of what the concept is all about, without resorting to any sort deep analysis, and the role of lawyers in such kind of proceedings. Though I wrote that post without actually attending in person any DRB proceedings, my opinions were based on the way in which everyone who is involved in it treated it, as an adjudicating process. My fears, in fact proved to be true beyond reproach as I got to attend one of the most hostile conciliation in my very limited experience. 

The problems in this particular DRB proceeding that I happened to involve myself are numerous. I can with a degree of certainty state that the same is the case with most other DRB proceedings in India. The fundamental problem is the mind-set that every person involved in the proceedings has towards the proceedings itself. As stated in my earlier post, lawyers contribute the most to this problem. Everyone involved in the proceedings thinks this merely as another box ticking exercise that has to be done before reaching the process of litigation, how much ever long drawn and adversarial it could be. This is no less because of the fact that none of the people who were involved in the process were either trained in the process or at least gone through the pain of reading the literature on this process. They essentially treated this like arbitration with a change in the nomenclature of certain things here, like an award in arbitration into recommendation. One of the important contributing reasons for this waywardness is the poor drafting of contractual clauses concerning the DRB. The contract that I was involved in, merely had two lines to the effect that the disputes should be first referred to a DRB and the process shall be governed by the ICC (International Chamber of Commerce) Dispute Board Rules. 

When to form?

The primary aim that is sought to be achieved through this conciliatory process is to solve any dispute in a commercial transaction as and when it arises and as amicably as possible. This has to be seen in the light of the fact that the whole concept Dispute Boards evolved as a solution for the problem of delay that happens frequently in the construction industry. To the contrary, in my case, the DRB process was initiated only after the whole project is over defeating the whole purport. In case the process is initiated post the completion of project, apart from the failure to resolve the disputes on time, it also results in a futile reconstruction of whole process again, wherein inevitably some muddling happens resulting in time and cost to the parties. A real time settlement more than settling the disputes helps preserving the relationship between the parties. An important reason for this mistake is because it has not been expressly mentioned in the contract, that the DRB has to be constituted at the beginning of the project, in order to continuously monitor the project and settle the disputes in real time.

Is It a Necessary Condition Precedent?

An interesting implication can be drawn if we suppose that a party bypasses the process completely and goes to litigate its claims. Though I was not able to find any Indian case law on this subject (Albeit it is a limited and indolent search of a lazy bone) I was able to find several American case laws, for the process has matured to a greater extent there. Two possibilities arise in such situations. One is where the claimant simply bypasses it and initiates litigation and another is where the other party simply insists upon the DRB proceedings to buy more time from litigation. The court (in BAE Automated Systems V. Morse Diesel International), as expected, ruled that, in the absence any legally justifiable reasons the process cannot be bypasses. The reasons can be waiver by one of the parties, fraud, estoppel etc. 

Appointment and Removal of Members

As in all conciliatory proceedings the integrity and impartiality of the person who is appointed as a member of the board is of utmost importance. It will be rhetoric to write about the code of conduct that a member of DRB must follow. In the proceedings that I happened to witness one of the members of DRB was visibly advocating the cause of the party who appointed him when the other party’s counsel made his oral presentation of his case. The reason could either be because he did not realise that it is a conciliatory proceedings and that he has to be impartial or because he is just a plain old jackass. The implications of such instances are very important, for any loss of confidence that a party has over the member will undermine the sanctity of overall process.

Applicability of Part III

I was curious after the incident, over whether the provisions of Arbitration and Conciliation Act, 1996, pertaining conciliation will be applicable in this case or not. It is given that it is a conciliation process; however it is still a creature of a contract. One possible reason can be that we cannot thrust in something which is not there already in the contract, with this essentially being a creation of the contract we cannot set it aside. However, Section 61 of the Act clears the air by defining its application and scope.

61. Application and scope - (1) Save as otherwise provided by any law for the time being in force and unless the parties have otherwise agreed, this Part shall apply to conciliation of disputes arising out of legal relationship, whether contractual or not and to all proceedings relating thereto. (2) This Part shall not apply where by virtue of any law for the time being in force certain disputes may not be submitted to conciliation.

I found an Indian case law that indirectly deals with the applicability of Part III of the act to the proceedings before DRB (Alcove Industries Ltd. Vs. Oriental Structural Engineers Ltd. [1]). The main issue in this case is the responsibility of an arbitrator to disclose in writing at the outset, such facts, which may give rise to justifiable doubts to his independence and impartiality. The arbitrator in this case, before being appointed as an arbitrator by the defendant company, worked as a member of Dispute Board, in respect of some works executed by respondent company. This fact was not disclosed when the appointment to the present arbitration proceedings were made. The court in order to explicate the bar of a conciliator (member of DRB in this case) referred to the provisions contained in Part III of the act. The judgement goes on to hold that section 80 of the act prohibits a conciliator from acting as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject matter of the conciliation proceedings. Though these aspects are irrelevant for the present post, the important aspect that I can infer from this decision is the applicability of Part III of the act to the DRB proceedings. The decision, albeit indirectly, makes it clear that DRB proceedings are indeed governed by the provisions of the act.

Conclusion
Whatever is the form that the efforts for an amicable dispute resolution might take, it all ends up depending upon the intention and ability of the lawyers to best utilize the opportunity, more than the parties themselves, to settle the disputes in the most prudent way possible. The very intent of the process is defeated in most cases with things as basic as the tenor language that is used in the written communications. Without a fundamental understanding of such intricacies it is impossible for such efforts to succeed at any level. Moreover, in most cases with the resolution process being administered ad hoc without any institutional assistance, just like the case of arbitration, in India, the process loses its focus and the required streamlined approach without required expert assistance. The solution cannot be a something that can be done at the stroke of a pen. It requires some ideological acceptance of the process as a genuine alternative to settle the disputes. 

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[1] 2008 (1) ARBLR 393 (Delhi)

Hearing without Hearing

A recent case of Review in Supreme Court that I worked upon opened my mind up to certain intriguing questions that I never thought before. As a law student, I have studied the review jurisdiction of Supreme Court in a superficial manner, under the constitutional law. However, the real world experience of drafting and filing a review petition was a world apart. Though theoretically I was sound I experienced a lot of difficulties in putting it to the best use possible. It was like an undelectable mix of dessert topped with salt for icing. Maybe I am one of those victims of the curse that most suffers here, the practice-academia disconnect. I was merely taught about what was review jurisdiction of Supreme Court of India, that too in a dilettantish way.

Coming to the topic of this post,

Though Article 137 of Constitution of India provides the power of review to the Supreme Court of India, its implementation is carried out through the rules that are framed by the Supreme Court, vide the powers vested in it by Article 145 of the Constitution. The Supreme Court Rules, coming into force for the first time in 15th January 1966, governs the procedures that are to be followed in the proceedings before the apex court of the country. This was subsequently repealed, considering the changing circumstances the change in circumstances with time and the necessity to keep pace with it, with The Supreme Court Rules, 2013, coming into force on 19th August, 2014.

In this particular brief that I worked upon, which has a history of long and protracted litigation, a Special Leave Petition was filed against the order judgement which the petitioner lost. Now he wanted to try his luck in a review of the judgement. It was only after filing of the review petition that I observed something peculiar in the Supreme Court Rules that governs the review petition. Under Part IV, Order XLVII; Rule 3 dictates that an application for review shall be disposed of by circulation, without any oral arguments. The provision itself is extracted below:

"Unless otherwise ordered by the Court an application for review shall be disposed of by circulation without any oral arguments, but the petitioner may supplement his petition by additional written arguments. The Court may either dismiss the petition or direct notice to the opposite party. An application for review shall as far as practicable be circulated to the same Judge or Bench of Judges that delivered the judgment or order sought to be reviewed."

This was the first instance, which I encountered, where a person’s right to be heard publicly is curtailed expressly. This gives rise to a situation where a person's case is decided upon secretly, in the chambers of the judges, through the process of circulation, without giving an opportunity to present oral arguments. The hearing becomes 'deaf' without it. The purpose of this provision, ostensibly, is to prevent wastage of court's precious time, however, it in effect refuses a person a right as basic as to make oral presentation of his case in public. Moreover, this denial of this right, it can be argued, leads to violation of a person’s fundamental right equality enshrined under Article 14 and the procedural fairness under Article 21. Numerous case laws have expounded these two rights and it will be trite to mention them here emphasizing their importance as a fundamental right. The irony is that it is very same Supreme Court, which created this unconstitutional rule, in numerous cases acted as the paragon of justice, upholding these rights.

The previous version of this rule, introduced under Order 40, Rules 2 (1) & 3 of the Supreme Court Rules, 1966 as an amendment, was challenged in the case of P.N. Eshwara Iyer Vs. The Registrar, Supreme Court of India.[1] The rampant filing of review petitions, without much basis legally, made the court to think of a way to curb it, leading to the amendment that gave away the oral arguments for disposal through circulation. Two important arguments that were taken by the petitioner to invalidate the rule are (i) Scuttling of oral hearing is subversive of a basic creed that public justice shall be rendered from the public seat. (ii) A Review is a judicial process and its proceedings must not run away from the processual jurisprudence. However, the court rejected the arguments and upheld the constitutional validity of the rule. Justice. V.R. Krishna Iyer, writing on behalf of his brother judges Murtaza Fazal Ali and D.A.Desai J.J. reasoning can be condensed thusly

1.   Laxity in certification (to be given by the lawyer that there exists reasonably good grounds for a review) and ‘promiscuity’ in filing review applications has crowded the court with ‘unwanted review babies’.

2.    In order to curb the reckless filing of reviews, a process of preliminary screening is a need, which is established through this rule as the disposing of through circulation.

3.      Oral hearing has been substituted by written submissions and it adequately provides an opportunity to the petitioner a hearing. Moreover, the right to be heard is of essence but hearing does not mean more than a fair opportunity to present one’s point on a dispute, followed by a fair consideration thereof by fair-minded judges.

4.  ‘Circulation’, in the judicial context, merely means, not in court through oral arguments, but by discussion at a judicial conference. Judges, even under the amended rule, must meet, collectively cerebrate and reach conclusions.

5.   A Review is not an original hearing and a second hearing of an order that is already passed after a full hearing is inept. The distinction between an original application vis-à-vis an application for review for the enforcement of fundamental right was observed as made in the case of Lala Ram’s Case.[2] There it was observed that an application for review is not to enforce a fundamental right but to reopen an order vitiated by an error on the face of the record. The enforcement of the fundamental right therefore is therefore a mere consequence of the review.

In the same case Pathak J. with A.D. Koushal J. also came to the same conclusion in a differently worded judgment. With this the matter was put to rest.

The question again came up for consideration in a batch of cases (It is interesting to note here that Yakub Memon’s petition was also one amongst them), in the context of a review in matters involving death sentences.[3] This time however the rule that was challenged was under the latest The Supreme Court Rules, 2013, albeit with the same wordings of the previous one in this regard. The question that came up for consideration before the court was, whether the rule holds good in the cases where a review is sought against an order confirming death penalty. Again the questions over right to life, irreversibility of a death sentence, importance of oral submissions, procedure for review of death sentence cases were considered. The majority opinion after considering and clarifying the P.N. Eshwara Iyer case ruled that Order 40, Rule 3 sufficiently meets the requirement of the principle of audi alteram partem. However, it clarified, in the cases death sentence the question is something that is over the life or death of a person. Therefore, even a remote chance of deviating from a decision which is sought to be reviewed would justify an oral hearing. It is too precious to be parted with. If it is found that such a sentence is not warranted, after the sentence is executed, it would serve no purpose. Thus the court found that a limited oral hearing, even at the stage of review, is mandated under Article 21 of Constitution in all the death cases. To support its cause the court relied upon the fact that Court’s overcrowded docket would be able to manage a limited oral hearing of 30 minutes in death sentence cases, which are numerically filed at the rate of 60 per annum. The court ruled it to have a prospective effect.

Jasti Chelameshwar J. dissenting from the majority held that an obligation to guarantee for such rights are a given under the constitution; however, it does not extend so far as to compulsorily giving an oral hearing in every case where a review is sought by a condemned convict. The reasoning, sound in its own right, as provided is as follows.

1.    Barring the contingency contemplated under Article 134, the makers of the Constitution did not even think it fit to provide an appeal to the Supreme Court even in cases of death penalty.

2.  In cases other than that are bought as matter of right under Article 134, the Court’s jurisdiction is discretionary. Therefore, Article 137 of Constitution does not confer any right to any person to seek a review, rather it recognises the authority of Supreme Court to review its own judgements.

3.   The rule of audi alteram partem do not take within its sweep the right to make oral submissions in every case. It all depends upon the demands of justice in a given case.

It is interesting in the way in which the Supreme Court has opened up the avenue to a limited extent for the death penalty cases while at the same time it tries in every possible way not to open the gates of oral hearing in any manner for other cases. How much ever generous it may sound to be, for providing a leeway for death penalty cases, one fact has been firmly established in both the cases even in the dissent that was written in them no one has entertained the possibility of giving the opportunity for an oral presentation of the case. Some feel that it not fair for a person to be deprived of the advantage a party will get because of the oratorical skills of an advocate and also mere practical consideration, that most of review that were filed are futile, cannot outweigh the rights of a person. Rightfully said. The fundamental rights are never intended to be protected in degrees like in this case where death penalty is given preference over others. It is weird that it is the same court that talked about procedural fairness all through its judgment ending it with a conclusion that such a right cannot be vested in all cases in a review. If at all there is a problem, it is merely systemic that must be rectified through other means, rather than curtailing the rights of a person. Imposition of exemplary costs, though it fails to deter most of the parties or rather the advocates, limiting the time granted for oral arguments and so on. Looking back at the history of Supreme Court and its exemplary activism, this is in fact surprising. Maybe with changing needs of the time the perception of freedom has changed too.

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[1] AIR 1980 SC 808

[2] (1967) 2 SCR 14

[3] (2014) 9 SCC 738

Dispute Boards: An Overview

In the legal universe dispute settlement is a never ending process that seeks constant attempts to innovate and try new mechanisms. This attains enormous significance in the case of India, given its infamous reputation for its long drawn judicial decision making process. Now that the economy of the country is making giant strides, the consequent increase in commerce needs for such innovations to be made in the alternative dispute resolution mechanisms to provide the entrepreneurs with a safe and effective decision making process to fall back upon. However, India has always been late in adopting such innovations. One example for that can be the Arbitration as an effective alternative dispute settlement process. It was not until the Arbitration and Conciliation Act, 1996 was passed that it was really seen as an effective solution to resolve the disputes. These days it has become an invariable standard for everyone to resort to arbitration to solve their disputes. Ignoring the harsh reality that in most of the cases the arbitral awards are challenged again the court giving raise to numerous litigations, rendering the whole intention of resorting to the arbitration in the first place ineffective, we still have to recognize the fact that it still provides a person a safe and effective dispute settlement process over which is both flexible and on time.

Arbitration as a dispute settlement process, however, comes into play only after a dispute arose and both the parties recognize that it has to be decided by way of a formal adjudication. Thus it still is a process that possesses the possibility to delay the projects, if it is an ongoing one. Moreover, the whole process is adversarial that it will not result in an amicable ‘settlement’. Though other dispute resolution mechanisms like mediation, conciliation do exist they still lack the actual engagement between the parties in real time to be effective to curb a problem as and when it arises. This role of providing a platform for the parties to realistically engage can be provided by the still budding concept of ‘Dispute Board’. Though the concept itself is not new, it is yet to attain the required traction in India. Major commercial contracts have just begun to include Dispute Board Clauses with reference to the International Chamber of Commerce (ICC) Rules.

Dispute Boards- An Overview

The International Chamber of Commerce defines a Dispute Board as standing bodies, comprising one or three members, normally set up at the outset of a contract to help parties resolve any disagreements and disputes that may subsequently arise during its performance. Under the ICC Dispute Board Rules three different types of Dispute Boards has been prescribed, giving the parties a choice to choose amongst them according to their own preference and convenience. They are

i)                    Dispute Review Boards (DRB), which issues recommendations

ii)                  Dispute Adjudication Boards, which issue decisions and

iii)        Combined Dispute Boards (CDB), which normally issue recommendations but may  issue decisions if a party so requests and no other party objects.

The classification is completely based on the binding nature of the decisions or recommendations that the parties wishes the Dispute Board to issue, where a decision must be complied with by the parties without any delay and a recommendation must be complied with only if no party expresses dissatisfaction within a prescribed time limit. Also it is free for the parties to make even the non-binding observations made by the board admissible as evidence in the court. Thus it is completely dependent upon the choice made by the parties over the nature and mandate of the Dispute Board.

An Ideological Hijack

The major advantage of this model of dispute resolution technique is that this is a ‘hands on’ approach that involves both the parties in a fair and transparent manner without any third party intervention, read lawyers. In India at least, I feel that, the reason for failure of arbitration and other dispute resolution methods is because they have been hijacked by lawyers. Yes, the involvement lawyers to a great extent as defeated the purpose of such alternative dispute resolution mechanisms. The very moment a lawyer gets involved in the process he brings with him all those unnecessary legalese that the process is designed to avoid. Of course, one can never refuse the necessity of involving a lawyer in certain unavoidable situations within these mechanisms, but the level of involvement has become too much for any meaningful outcome from these mechanisms.

The Dispute Boards on the contrary stands out with the difference that it seeks to involve the parties directly and its formation is, as mentioned earlier, is right at the outset of the project itself. The parties gets to appoint a member of their own in the board and the board will meet periodically to review the project as a whole, looking for any emerging issues between the parties to nip them in the bud. Thus this is proactive in its way of functioning. As far as involvement of the lawyers are concerned, the International Chamber of Commerce (ICC) Dispute Board Rules, which provides with a standard and uniform set of rules for the procedures before the dispute board, Article 19 (7) is the provision that is used as the entry ticket. It reads as follows

“The parties shall appear in person or through duly authorized representatives who are charge of the performance of the Contract. In addition, they may be assisted by advisors.”

The problem arises when the lawyers who involve themselves brings with them the uncalled for courtly atmosphere. Even with my very limited experience in dealing with this I was able to see this plainly. The fact that the parties feel a psychological discomfort when they do not have a lawyer around, even for a process as friendly as this only adds to the woes. Unless this still budding mechanism is rescued from the hands of lawyers like me by limiting their role only to the extent as an adviser the novel concept will definitely go wayward like others of our history.