Some recent developments in case law and legislation

By Vivek Vashi, Shreya Gupta and Prakritee Yonzon, Bharucha & Partners
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Two Supreme Court decisions and some issues arising from the Companies Act, 2013, are outlined below.

Developers win battle

In the case of Godrej & Boyce Mfg Co Ltd & Anr v State of Maharashtra, the Supreme Court held that the state cannot be allowed to demolish massive constructions built on disputed forest lands on the outskirts of Mumbai, owing to the state’s inaction over half a century.

Vivek Vashi
Vivek Vashi

The facts of the case involved a notice by the state under section 35(3) of the Indian Forest Act, 1927. The notice was allegedly published in the Bombay Government Gazette on 6 September 1967 but the state could not demonstrate that the notice had been served to Godrej, which owns 133 acres of the affected property.

After the notice was published, the government did not act on it or take possession of the disputed land. On the contrary, permissions were granted to Godrej from time to time for construction on the land by the state and also the high court, at which time the notification was not revealed.

The Supreme Court after an analysis of the applicable law held that mere issuance of a notice under the provisions of section 35(3) was not sufficient for any land being declared a “private forest” within the meaning of the expression as defined in section 2(f) of the Maharashtra Private Forests (Acquisition) Act, 1975.

Ruling in favour of the developers and almost 500,000 residents, the court held that there was no reason why it should not come to the aid of victims of the state’s inaction. As a deterrent, the court further decided that the state was to be held responsible for the situation in light of its culpable failure to implement and enforce the law for several decades.

Promoting arbitration

The Supreme Court, in World Sport Group (Mauritius) Ltd v MSM Satellite (Singapore) Pte Ltd, while overturning the judgment of a division bench of Bombay High Court, analysed the terminology used in section 45 of the Arbitration and Conciliation Act, 1996. Section 45 empowers the courts to refuse to refer matters to arbitration if the arbitration agreement is (i) null and void; (ii) inoperative; or (iii) incapable of being performed.

The high court held that the validity of the agreement, including issues of fraud, ought to be decided by the court as it would be contrary to public policy were a matter of national importance to be decided in an arbitration in accordance with foreign laws. Further the high court held that an arbitration cannot be resorted to where the interests of third parties (not parties to the agreement) are involved.

Shreya Gupta
Shreya Gupta

However, the Supreme Court held that the main agreement being void on account of fraud does not vitiate the arbitration agreement. In terms of section 45, an arbitration agreement would be inoperative only where it has ceased to have effect and has been revoked by the parties, whether by their conduct or otherwise, and the phrase “incapable of being performed” would come into play only when practical constraints are placed on the parties.

Interpreting the terminology used in section 45 very strictly, the court held that allegations of fraud and issues of “public policy” do not fall within the ambit of section 45 and therefore cannot preclude arbitration. Finally, the court suggested that reference to arbitration could not be declined on the grounds of an interrelated suit being pending in Indian courts, thereby loosening its reins on foreign-seated arbitrations.

Companies law transition

Section 466(1) of the Companies Act, 2013, provides that the Company Law Board (CLB) shall stand dissolved on the constitution of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The central government is empowered to constitute the NCLT and NCLAT by notification under sections 408 and 410 of the act. Although both sections have been notified and came into force on 12 September 2013, the government has not yet published any notification on the dissolution of the CLB.

Section 434(1) of the 2013 act enumerates the pending matters, proceedings or cases that will stand transferred to NCLT. The second proviso to section 465(1) states that the provisions of the Companies Act, 1956, in relation to the CLB will continue to apply until the government publishes a notification under section 434(1) for such a transfer.

Section 434 is silent on the transfer of appeals pending before a high court. However on a reading of section 465(2)(a), it can be reasonably inferred that such an appeal will be deemed to have taken place under the corresponding provisions of the 2013 act and can continue to subsist under the aegis of that act.

Sections 434, 465 and 466 have yet to been notified. A clarification in this regard is expected in the coming months.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Shreya Gupta and Prakritee Yonzon are associates.

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