Can a Ship held Under a Demise Charter be Arrested for a
Claim against the Charterer

(By V.B.Hari Narayan, Advocate, High Court of Kerala)

Facts:

In the recent decision of Sunil B. Naik v. Geowave(Civil Appeal No:2617/2018 dated
9.3.2018) the Supreme Court has shed light upon a crucial point of admiralty law concerning enforcement of maritime claims through arrest of the vessel held by a Charterer.

Reflect Geophysical Pte Ltd (‘Reflect’) entered into a bareboat charter with Master and Commander AS Norway (‘AS Norway’) for the vessel Geowave Commander (‘Geowave’)
in order to discharge its obligations under a contract awarded by Oil & Natural Gas Corporation (‘ONGC’) in 2012. As per the contract, Reflect was required to carry out seismic survey operations off the cost of Gujarat near Okhra port.

To facilitate the survey operations, Reflect entered into a charter hire agreement with M/s.Sunil B.Naik for the supply of 24(initially for 16) fishing trawlers being chase vessels. Likewise, a vessel ‘Orion Laxmi’ was hired from one Yusuf Abdul Gani to support survey vessel Geowave. In default of payment due under the hire contracts, Sunil Naik and Yusuf Gani obtained orders of arrest against the vessel Geowave from the Bombay High Court in order to enforce their respective maritime claims. On a notice of motion filed by AS Norway, the learned Single Judge vacated the order. Hence, an appeal was filed before the Division Bench. The same was dismissed and thus the matter was before the Supreme Court.

Issue

The principal issue in the appeal was whether a maritime claim could be maintained under the admiralty jurisdiction of the High Court for an action in rem against the respondent ship in respect of the dues of the appellants against the charterer who was not the de jure owner of the ship.

Principal Argument

The appellants alleged liability on the part of the respondent vessel based on the rights and obligations flowing from the charter hire agreement. They pressed their case further by putting up a plea for “beneficial ownership”, in an attempt to equate the status of a demise charterer with that of a beneficial owner. In order to canvas for such a proposition, the appellants relied on Medway Drydock & Engineeing Co Ltd v. MV Ursula (1973) QB 265 and Epoch Enterrepots v. M.V. Won Fu (2003) 1 SCC 305.

The respondent challenged the existence of a maritime claim and the corollary right to arrest the respondent vessel. It was argued that the maritime claim lay in respect of the appellants’ vessels. In addition, on account of Reflect not being an owner of the respondent vessel, the same could not be arrested.

Reliance was also placed by both sides on the celebrated case of M.V.Elisabeth (AIR 1993 SC 1014) for establishing (for appellants) and disproving (for respondent) jurisdiction.

Analysis

Admiralty Jurisdiction in India & Maritime Claims

In order to address the issue at hand, the Supreme Court extensively dealt with the law relating to admiralty jurisdiction in India with respect to maritime claims.

Regarding the scope of exercise, the appellants relied on the expanding jurisdiction by referring to the new Admiralty Act of 2017 under which the claim includes services rendered for the operation, management and preservation of the vessel.The appellants argued that the agreement related to the above provisions and hence the case fell within the admiralty jurisdiction of the Court.

On the other hand, the respondents argued that the charter hire agreement did not concern provision of goods or services and in fact related to use of the appellants vessel. In addition, the respondents stressed on the importance of fundamental principles of admiralty jurisdiction, and reiterated the rationale and manner of exercise of an action in rem.As laid down in MV Elisabeth, a right in remis conferred upon a claimant by virtue of admiralty law and allows him to proceed against the ship or cargo. It is distinguishable from a right in personamto proceed against the owner. An action originally commencing in rembecomes a personal action against the defendant upon appearance. The right
in remarises from a maritime lien or claim imposing a personal liability upon the owner of the vessel. Thus, the respondent’s argument was that the vessel could only be arrested in case of liability against the owner of the vessel. It was argued that Reflect was not the owner of the ship, and hence the respondent vessel Geowave, owned by AS Norway could not be proceeded against. In order to determine the jurisdiction, the Supreme Court followed a two-fold approach.

The Court first ascertained if the bareboat charterer Reflect was the de jure ownerof the vessel. Second, the Court determined the vessel to which the maritime claim under the charter hire agreement related.

Ownership of the Respondent Vessel

In order to resolve the issue regarding ownership of the respondent vessel, the Court examined the nature of agreement between Reflect and AS Norway in particular clauses from the concerned charterparty dealing with maintenance, use of vessel, changes to the vessel, indemnity etc.

The charter agreement did contain a clause for conversion of the status into a de jure owner but the occasion for the same never arose. The option to purchase was to be exercised by an advance intimation of six months prior to the end of the charter period and the purchase price was also specified. Also, the charterer could not make any structural changes in the vessel or in the machinery, boilers, appurtenances or spare parts thereof without first securing the owner’s approval and the vessel had to be restored to its former condition before the termination of the charter, if so required by the owners.

Further, the Court delineated on the nature of a bare boat charterparty and differentiated it with contracts of affreightment (primarily time and voyage charters).

As explained by the Court, a bareboat charter or a charter by demise operates to act as a lease pursuant to which possession and control is passed from the owners to the charterers, whilst the latter(COA), are in essence contracts for the provision of services, including the use of the chartered ship.

The appellants relying on the case of MV Ursula argued that demise charterers could be equated to a “beneficial owner” in order to bring an action in remunder Section 3(4) of the Administration of Justice Act, 1956. In the case, the determinants for a beneficial ownership were held to be lawful possession and control of the ship, irrespective of having legal or equitable ownership.The Appellants also placed reliance on the case of Epoch Enterrepots to differentiate between different types of charter parties and to assert that in the case of a demise charter, the charterer has complete control of the vessel.

However, the above arguments did not hold water, and the Supreme Court noted that the rule in Medway Drydockwas not accepted and followed in subsequent decisions.

In I Congreso Del Partido (1978) QB 500 it was held that even though a demise charterer has, within limits defined by contract, the beneficial use of the ship; he does not, however, have the beneficial ownership as respects all the shares in the ship.In The “Father Thames” (1979) 2 Lloyds Rep 364 Sheen J. also declined to follow Medway Drydock & Engineering Co. Ltd. and followed I Congreso Del Partido and held that the phrase “beneficially owned” in the 1956 Act did not apply to a demise charter.

The Singapore Court of Appeal in the decision of The “Permina 3001”(1979) 1 Lloyds Law Reports 327 has adopted the similar view that a ship in full possession and control of a person, who is also not an owner of all the shares therein cannot be utilized for the purposes of restraint of the ship.

In the Canadian case Mount Royal/Walsh Inc. v. The Ship Jensen Star el al ((1990) 1 FC 199) it was held that the qualifying term “beneficial” could only be used in reference to the title in remitself.

On analyzing the above authorities, the Supreme Court held that there is a clear distinction between the beneficial owner of a ship and charterer of a ship, and hence Reflect was not the beneficial owner of the ship.

To delineate further on the rationale, the Court drew parallels with a garnishee order where even though amounts held by a third party on behalf ofthe defendant can be attached to satisfy a claim arising against the defendant , recourse cannot be taken towards a third party’s own money. Similarly, in a maritime claim, somebody else’s vessel cannot be arrested.

The Vessel in Issue

In order to determine this issue, the Supreme Court turned to the Arrest Convention of 1999.Article 1 specifies that the maritime claim means a claim inter alia arising out of an agreement relating to use or hire of “the ship.”

It was held that the “ship” connotes to appellants’ vessel being the 16 trawlers and Orion Laxmi and the maritime claim against the above vessels could not be converted into a maritime claim against the respondent ship not owned by Reflect Geophysical.

The contracts entered into between the appellants and Reflect constituted charter hire agreements/contracts and the unpaid amounts under these contracts could only amount to claims against Reflect.

If there was another vessel owned by Reflect, the appellants would have had the remedy to seek arrest of that vessel. Alternatively, if the respondent vessel was put under the de jureownership of Reflect, the appellants could have recovered from the arrest of the vessel.

Judgment

In full agreement with the decision taken by courts below, the Supreme Court dismissed the appeal and held that an order of arrest cannot be made against a ship to enforce a maritime claim against a third-party who is not the de jureowner of the ship.

Comment

The decision of the Supreme Court has brought to light an important issue in admiralty law and is helpful for the shipping industry which comes across similar issues often. It provides an interesting insight into issues where under a charter agreement two vessels are involved. The decision also comes as an eye opener for creditors who should devise alternatives for recovery, for e.g., through a letter of credit.

The decision is commercially sound. The owner of a vessel stands as a third party to any agreement that is entered into between a demise charterer with another party. A default of the demise charterer should not expose the owner of the ship to any liability by virtue of arrest of the vessel.

DECISIONAL AUTONOMY AND THE LEGAL AGE TO MARRY:

FAR FROM THE FIRST STEP TOWARDS DESTINATION?

(By Dr. Sandeep Menon Nandakumar, Assistant Professor,

School of Legal Studies, REVA University, Bangalore)

Abstract

The legal age of marriage of girls in India is eighteen and though the same is an established law of the country, our courts have, time and time again, questioned the validity of the decision of a major girl regarding her marriage. The recent apprehensions by the Courts in the country regarding the decisional autonomy of girls above eighteen regarding their marriage have raised a lot of debate. Any attempt made by the organs of the State to question the goodness of the decision of girls regarding marriage infringes upon the decisional autonomy conferred by the very same organs of the State. The decision and, especially, the remarks made in certain judgments make one feel that a girl does not possess decisional autonomy over her personal life even after the age of majority. This article examines the situation in India regarding the decisional autonomy of girls regarding marriage and the right of parents and judiciary to enforce their decisions regarding marriage over those girls who have attained the age of majority. This article argues that it is time that the Indian society realises and admits that girls are not allowed to exercise and enforce their decisions even in personal and important matters of their life and there should be a line drawn beyond which her parents or any other institution, for that matter, cannot transcend.

Introduction

The Supreme Court in 2018 set aside the order of a High Court which annulled the marriage of a 24 year old girl[1].  There is nothing strange in a girl marrying at the age of eighteen as it is the age prescribed under law for marriage. However, it is an issue to contemplate when the highest appellate court of an Indian State makes a remark in a judgment pronounced in an open Court that “a Girl aged twenty four is weak and vulnerable.”[2] The major reason why it is to be considered as an issue to contemplate is because the case was related to the custody of a married girl aged twenty four in a Habeas Corpus petition filed by her father. The reasons for the learned Judges of the High Court

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1.Shafin Jahan v. Asokan K.M. & Ors.Criminal Appeal No.366 of 2018 (Arising out of S.L.P.(Crl.) No.5777 of 2017).

2. Para 50 of the judgment dated 24.5.2017 in K.M.Asokan v. State of Kerala (W.P.(Crl.) No.297 of 2016 (2017 (3) KLT 2010).

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in concluding that the marriage, performed as per Islamic customs by an otherwise Hindu girl claiming to have converted to Islam, is a sham seems to be legitimate. The Court was concerned with the welfare of the girl in question and was apprehensive about chances of forcibly converting her to another religion by the respondents in the case. But the comments and statements indicating that even girls above the age of eighteen is weak and vulnerable and that they can be easily persuaded to even change their religious beliefs show some mismatch between the legal age to marry and decisional autonomy of girls above the age of eighteen. It was shattering to note that the Apex Court was called to step in a purely personal matter and decide the validity of the marriage between two consenting adults.

Decisional Autonomy and the Legal Age to Marry: The Mismatch

The statement that girls above the age of eighteen are weak and vulnerable have a direct relation with their decisional autonomy over marriage and it challenges the fundamental concept of legal age for marriage of girls in India. If the interpreters of law believe that they are still vulnerable after attaining the legal age to marry, then it is time that a rethink is made with regard to fixing their legal age of marriage as eighteen. The relevance of this issue is not because of some random statements or remarks in a single judgment. Earlier in 2014, the same Court (not the same Bench, but the same strength), in Dr.Parameswar Lal v. N.N.Ullas and Ors.[3] held that the parents cannot concede absolute decisional autonomy to their children who have attained the age of majority and that social establishments like families grant parental authority to advise and guide their wards.[4]  This observation was also made in a Habeas Corpus petition filed by a doctor against the parents of a daughter who was also a doctor employed in the same place as that of the petitioner. Though the Court admitted the relationship between the petitioner and the detenue and also confirmed that the detenue has decided firmly to marry the petitioner, the Court decided in favour of the parents who kept her in confinement by denying her the right to employment and the freedom to use a mobile phone. The observation from the judgment quoted below would prove this,

“In answer to our (Court’s) questions, she (detenue) confirmed her love affair with the petitioner and also told us that it is her firm decision to get married to the petitioner. She also told us that in order to force her to withdraw from the relationship, for the last three months, she was kept in confinement without allowing her to continue the employment and even refusing to give the mobile phone, which she had. She also told us that all these facilities will be restored only if she agrees for a marriage with somebody else, which was not acceptable to her.” [5]

The Court’s decision against the detenue’s decisional autonomy was after the admission of the Court that “we (Court) interacted with her (detenue) in detail and were prima facie satisfied that there is truth in the allegations of the petitioner.” [6]

The issue regarding legal marriageable age becomes more complex when, in India, the Law Commission recommends lowering of legal age for marriage of boys to eighteen

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3. 2014 (1) KLT 937.

4. Para 21 of the Judgment in Dr.Lal Parameswar v. N.N.Ullas and Ors. (2014 (1) KLT 937).

5. Para 2 of the Judgment in  Dr.Lal Parameswar v. N.N.Ullas and Ors. (2014 (1) KLT 937).

6. Para 2 of the Judgment in Dr.Lal Parameswar v. N.N.Ullas and Ors. (2014 (1) KLT 937).

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and the High Courts recommend increasing the legal marriageable age of girls to twenty one. The 18th Law Commission in its 205th Report in February 2008 had recommended that the age of marriage for both boys and girls should be eighteen years as according to them the discrimination in the age of marriage for boys and girls lacks scientific reason.[7] The Law Commission did not find any rational basis for prescribing different ages for marriage of boys and girls. In the year 2016, a government appointed high-level panel had recommended amendments to make the legal age for marriage of boys and girls to eighteen, thereby to remove the gender based discrimination that exist in Indian family laws.[8] The recommendation was based on the 18th Law Commission recommendations. At the same time, the Madras High Court in Thiagarajan v. S.I.of Police, Trichy & Ors.[9] expressed concern over the disparity in legal marriageable age of girls and boys in India. The Court was concerned whether a girl could acquire social and psychological maturity at the age of eighteen when compared to the boys who are at the age of twenty one.[10] To make matters worse, a petition has been filed in February 2018 [11] to fix the legal age for marriage for boys and girls as 25 years and 21 years respectively. The suggestion has been made in the petition so as to ensure population control thereby ensuring freedom from poverty and other social menaces.

The presumption of the whole country that girls should be younger to boys at the time of marriage should be done away with. A comparative analysis made with regard to legal age for marriage in other countries would reveal that same age for both boys and girls (be it eighteen or twenty one) are fixed by most of the nations. The discussion regarding physical maturity and hormonal maturity and its proximity with the age of eighteen has been avoided here primarily because there is much more to the concept of marriage than physical intercourse. Arguing for second thoughts about legal age for marriage of girls is in the context of social and psychological maturity that enables a girl to have complete autonomy over her decisions, or in other words, in the context of whether a girl attains sufficient maturity to decide for herself. However, the version that the physical and hormonal maturity is the reason for fixing 18 as the age for marriage of girls has gained popularity. Due to the very same popularity, it is not surprising that one of the courts in India granted divorce to the husband who claimed that wife abstained from sex.

The law in India, which states “sexual intercourse by a man with his own wife, the wife not being under fifteen years of age, is not rape” [12], that has legalized marital rape is another example of linking marriage with physical intercourse. Laws like this would continue to be valid just like the terms in family law such as ‘maintenance’ are sanctioned

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7. Law Commission on PROPOSAL TO AMEND THE PROHIBITION OF CHILD MARRIAGE ACT, 2006 AND OTHER ALLIED LAWS, 205th Report, 41.

8. Shalini Nair, Family law reforms: Change Adultery Law, Fix Marriage Age for Both Boys, Girls at 18 yrs, Says Government Panel (October 9, 2017, 5.30 p.m.), http://indianexpress.com/article/india/india-news-india/family-law-reforms-change-adultery-law-fix-marriage-age-for-both-boys-girls-at-18-yrs-says-govt-panel/.

9. Habeas Corpus Petition (MD) No. 1039 of 2014 dated 03.09.2014.

10. Para 12.

11. Ashwini Kumar Upadhyay v. Union of India, Writ Petition (Civil) No 157 of 2018.

12. Exception to Section 375, I.P.C.

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under our law. There are no issues with the term ‘maintenance’ as one of the meanings of the term is connected to providing financial support, but sometimes when read along with other atrocities like domestic violence, molestation and rape, the term ‘maintenance’ seems more like a technical term that denotes woman as a property.

The fact that a girl attains social maturity at the age of eighteen, i.e., hardly months after completing her school education, is hard to digest and in these lines, the statement made by the Hon’ble Judge in K.M. Asokan v. State of Kerala [13]  that “the detenue who is a female in her twenties is at a vulnerable age” is logical. But when the case in hand is related to parental custody of a girl aged twenty four years who has voluntarily married a man of another religion, the order of the learned Judges that the state police should “ensure that she (detenue at her hostel) is not provided the facility of possessing or using a mobile phone” seems unreasonable.

Conclusion

Marriage is, without a doubt, an important choice in life. Though the legal age for marriage of girls is fixed as eighteen years and still girls in India are not conceded the power to make decisions regarding marriage. A girl aged eighteen can marry, if parents have consented to the marriage or if they have arranged the marriage. But she cannot take a voluntary decision to marry or not at the same age. More regrettably, she cannot decide the spouse to whom she wants to get married to. The first step to be taken to solve an issue is to realise that there is one and then take the first step in achieving the destination accordingly. The Indian society and the laws that prescribe different age for boys and girls for marriage keep on stereotyping and discriminating women and the lack of understanding of their real life issues shows that we are far from the first step towards destination.

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13. Para 7 of the judgment dated 24.5.2017 in K.M. Asokan v. State of Kerala (W.P.(Crl.) No.297 of 2016 (2017 (3) KLT 2010))

SUPREME COURT’S INTERPRETATION OF THE NOTION OF ‘EXISTENCE OF DISPUTE’ UNDER INDIAN INSOLVENCY AND BANKRUPTCY CODE, 2016 : A CRITIQUE

A Single Judge Bench of the Supreme Court of India in the case of Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd[1] , has given, what may be called as a purposive interpretation to the notion of ‘existence of dispute’ under S. 8(2) of the Insolvency and Bankruptcy Code, 2016 (in short ‘the Code’). This has effectively expanded the otherwise limited jurisdiction of the Adjudicating Authority to ascertain the existence of a dispute to a proportion which is totally unintended by the Legislature. Though this judgment is laudable in the light of the specific facts of the case, the long term impact of this judgment on the working of the Code is matter that requires further consideration. Without adverting to the facts of the case, the following two paragraphs gives you a glimpse into the question of law which arose in this case.

 Ss.8 & 9 of the Code deals with Corporate Insolvency Resolution Process (CIRP) at the instance of an operational creditors[2] . Upon sending of a demand notice by the operational creditor to the corporate debtor on occurrence of default, the latter has to bring to the notice of the former the proof either of the existence of dispute or the repayment of the unpaid operational debt within 10 days from the date of delivery of notice, failing which the former can initiate CIRP by filing an application before the Adjudicating Authority[3]. Bringing to the notice of the operational creditor the existence of a dispute is a sure ground to secure the rejection of the said application and thereby, halt the CIRP until either the rejection is reversed by the appellate authority or the dispute is resolved[4]. To proceed any further, it is imperative to bring to your attention the definition of the ‘dispute’ under the Code, which is crafted as follows : “dispute includes a suit or arbitration proceedings relating to (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warrant[5];”. Equally indispensable to this analysis is the wording of S. 8(2)(a)[6] , when understood literally points to the only acceptable and conclusive proof to be adduced to prove the existence of dispute, ie. the record of pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute (hereinafter referred to as ‘record of pendency’).

The interpretative conundrum lies the sense in which the word ‘and’ which appears before the aforementioned phrase and following the words “existence of dispute, if any” in S.8(2)(a) is to be interpreted. Analyzing this provision through the lens of literal interpretation makes two points crystal clear: (1) the legislature intends that the production of record of pendency of suit or arbitration proceedings in relation to the dispute is the only acceptable mode of bringing to the notice of the operational creditor the existence of dispute ; (2) the jurisdiction conferred on the Adjudicating Authority is limited to taking a decision as to whether to commence CIRP contingent on the production of the aforementioned record of pendency. But, the literal approach leads to an obvious anomalous situation where the corporate debtor would be effectively prevented from proving the existence of a dispute where the dispute arises few days prior to triggering of insolvency process in which case there will not be sufficient time to take the matter either to a conciliatory or adjudicatory authority. Same is the case where owing to existence of long limitation periods, the parties would not be keen to take the disputed matter immediately to a Court or Arbitrator. On the other hand, interpreting the word ‘and’ as meaning ‘or’, which is not unprecedented[7], would permit a disjunctive reading of conditions proceeding and following it, which as far this provision is concerned would permit the proving of existence of dispute otherwise (by other evidence) than by production of record of pendency . Even though this is not a case of the aforementioned anomalous situation, the Apex Court adopted what may be called as a purposive approach and interpreted the term ‘and’ as meaning ‘or’, or in other words, in disjunctive sense rather than conjunctive sense, thereby effectively expanding the jurisdiction of the Adjudicating Authority to look into the matter of existence of dispute by scrutiny of evidence other than record of pendency. The purpose of this comment is simply to make a note of caution about the unforeseen ramifications that this decision may hold on the future of CIRP under the Code.

At this juncture, it is imperative that the relevant facts of this case are mentioned as briefly possible. The appellant (Mobilox Innovations Pvt. Ltd.) was engaged by the Star TV for conducting tele-voting for the ‘Nach Baliye’ program. The appellant subcontracted the work to the respondent who provided the requisite services which included the setting up of toll free numbers for viewers to cast their votes, customization of a software for the coordination of results and provision of the same to the appellant. A Non Disclosure Agreement (in short ‘NDA’) was executed between the appellant and respondent whereby the respondent agreed not to disclose or publicize their association either with the appellant or the ‘Nach Baliye’ Program. More than a month after the execution of the NDA ie. on 30th January 2015, the appellant wrote to the respondent that they are withholding payments against invoices raised by the respondent as it had disclosed on their web page that they had worked for the Nach Baliye Program and thus, had breached the NDA. On 30th December 2016, which is almost two years after the said communication, the respondent sent a demand notice under S.8 of the Code against which the appellant replied that there exists serious and bonafide dispute between the parties including the breach of NDA and no amount was due as the NDA has been breached. The respondent filed CIRP application under S.9 before the Adjudicating Authority (NCLT) which dismissed the application on the ground that appellant has served a ‘notice of dispute’. Appeal by respondent before National Company Law Tribunal (NCLAT) led to the holding that demand notice does not raise a dispute under S. 5(6) or S. 8(2) and the defence raised by the respondent was vague, got-up and motivated. Against the NCLAT decision, appellant went in appeal before the Supreme Court which concluded that there exists dispute between the parties under S.8(2) of the Code.

The Legislative Intent

The Code was path breaking legislation brought about by the Parliament in the recent past with a view to overcome the inefficiencies and delays associated with the insolvency resolution of corporates, partnerships and individuals in the pre-existing regime. The avowed object behind the enactment of this code is to bring together the matter of insolvency of corporate persons, partnership firms and individuals under single unified legislation and to ensure the completion of reorganization and insolvency resolution of corporate persons in a time bound manner for maximizing the value of assets of such persons, to promote entrepreneurship, availability of credit whilst balancing the interests of all stake holders including creditors, debtors, employees and the government[8]. The Code has brought about a paradigm shift in the insolvency resolution regime in India. The final report of the Banking Law Reforms Committee, 2015 was the main impetus behind the enactment of the Code. It laconically describes a limited liability company as a contract between equity and debt, where the shareholders can exercise complete control of the company only for as long as the debt obligations are timely discharged and the creditors would have no say in how the business is run. But, when the default takes place, the control is supposed to transfer to the creditors whereupon the equity owners will lose their say. But, the Indian scenario has been one that which permits the promoters to remain in control even after the default. Weak recovery rights and remedies for recovery of debts has drained the confidence of the creditors and has made them averse to lend without security.[9] An observation in the same vein can be found in another decision by the same judge in the case of M/s Innoventive Industries Ltd. v. ICICI Bank[10], which emphasized this revolutionary change in the law of corporate insolvency by strenuously arguing that managements which are unable to pay their debts should not be allowed to stay in control. Though, Innoventive was a case concerning CIRP relating to financial debt, the shift in approach is evident from there. In short, delays and uncertainties in the pre-existing regime and disparity of power of creditors as against the debtors were the main reasons which crippled its working. To minimize this, an insolvency law should be transparent and predictable so as to enable potential lenders and creditors to understand how insolvency proceedings operate and assess the risk associated with their position as creditor in the event of insolvency [11]. Augmentation of the credit flow in this country and promotion of entrepreneurship and economic and infrastructural development ought be given preeminence, if the code is prove itself as a progressive step in the insolvency law of this country.

Changes to the in the definition of dispute during the legislative process

The Bill attached to the Bankruptcy Law Reforms Committee Report ,2015 had the word ‘means’ in place of the word ‘includes’ and the expression ‘suit or arbitration proceedings’ was immediately preceded word ‘bona fide’, which was omitted in the final bill. It is clear that the definition of ‘dispute’ is now an inclusive one. But, the definition of dispute should not be given a meaning which is not permitted by the context in which the word is used in the statute. S.8(2)(a) is clear as to the point that only means of proving the existence of a dispute is by producing a record of pendency in relation to the dispute. In the light of the said fact, the term ‘dispute’ could not be given a meaning so as to encompass disputes which are not yet in the course of being resolved. Hence, the meaning of the term ‘dispute’ should be read subject to the context in which it appears and inclusivity of the definition should be construed only as permitting the inclusion of those disputes of which tangible evidence can be adduced to prove the fact that it is in the process or course of being resolved.

Hitherto, this position was pro-creditor in nature because only means by way of which a debtor can secure the rejection of an insolvency application is by producing the record of the pendency. The form of a suit or arbitration proceeding is the minimum threshold required to stave off an insolvency application and is most beneficial to operational creditors as it offers guarantee to the them that the CIRP will commence most likely resulting in recovery if the debtor fails to bring to the notice of the Adjudicating Authority the existence of a pending dispute before the court or arbitrator. This would have definitely gone a long way towards the achievement of the object of infusing certainty into the insolvency resolution and debt recovery process, thereby promoting the credit flow in the country resulting from increased confidence the creditors would have about recovery of debt even in the absence of security. But, a mechanical approach such as that has its drawbacks as it could be used as a pressure tactic to force payments unreasonably by making threat of triggering CIRP as is alleged in this case. It is important to see to it that the Code is not misused. But, at the same time, it is equally important that the opportunity to dispute the debt is not misused so as either to delay or stall the process for ever. It is also imperative to look into the legislative intent behind the deletion of the word ‘bonafide’ in the final bill. The only plausible theory is that the legislature never intended to Adjudicating Authority to look into the genuineness of a dispute pending before another forum. Hence, the construction which permits the Adjudicating Authority to accept a lower threshold than the record of pendency to take a decision on initiation of insolvency process is inconsistent with apparent intention of the legislature

Impact of the Decision

This decision has expanded the otherwise limited jurisdiction of the adjudicating authority to look into the question of existence of dispute beyond the mechanical ascertainment of existence of dispute from the record of pendency. As per this judgment, all that the debtor has to do is to raise before the adjudicating authority a ‘plausible contention’ which requires further investigation and the adjudicating authority has to ascertain that it is not a patently feeble legal argument or a mere assertion unsupported by evidence. The extent to which the court can go into the merits of the dispute is limited to determining whether dispute truly exists in fact and is not spurious, hypothetical or illusory. It does not even require that dispute be one that is likely to succeed. It is is notably a watered down version of the test laid down in the Interim Report of the Bankruptcy Law Reforms Committee, 2015[12] , for determining whether a debt in question is bonafide disputed and found applied in the case of Madhusudhan Gordhandas & Co. v. Madhu Woolen Industries[13]. This yardstick is three pronged - (i) the defence of the company should be in good faith and one of substance; (ii) the defence is likely to succeed in point of law; and (iii) the company adduces prima facie proof of the facts on which the defence depends[14]. On the face of it, these two tests are different in terms of the extent to which the Adjudicating Authority is permitted to go into the merits of the matter. While the former is strictly limited to the extent of ascertaining the mere existence of dispute in fact, the latter permits the inquiry to go to the extent of ascertaining that dispute is one that is likely to succeed in point of law and is in is in good faith and one of substance. The former test affords no guidance as to the nature of evidence that is admissible and the possible conclusions that may be arrived therefrom. This has resulted in the formation of a cloud of uncertainty from the point of view of the operational creditors and has made this remedy one of questionable effectiveness in so far recovery of operational debts are concerned.

Conclusions and Suggestions

1.    The Code of 2016 is in the economic sphere. In very recent decision of the Calcutta High Court [15] rendered in February 2018, questioning the constitutional validity of the undue preference given to the financial creditors as against operational creditors under the scheme of the Code, the Court quoted with approval the observations of the Apex Court in two of its Division Bench Judgments[16] to buttress the point that decisions in the economic and social spheres are essentially adhoc, experimental, extremely complicated and therefore, warranting special treatment. The State must therefore be left with wide latitude in devising ways and means of fiscal or regulatory measures, and the court should not, unless compelled by statute or by the Constitution, encroach into this field, or invalidate such a law. The legislative intent in giving limited jurisdiction to Adjudicating Authority was obviously experimental in nature and the apparent purpose was to minimize the uncertainty in the process. The Hon’ble Apex Court should not have shown such undue haste in overturning the ostensible intention of the legislature on sole ground that there exists a possibility of abuse or anomaly.

2.    If the Code is to achieve its objectives, there are certain changes that has to take place in the conventional business practices and attitudes as such. A debtor who is availing operational debt should be aware of the law that if he fails to make timely and prompt payments, the operational creditor has in his hand an effective remedy under the Code to initiate the insolvency process to recover the defaulted amount. This knowledge would prompt debtor to take the dispute immediately after it has occurred to a resolution mechanism or at least take step towards its settlement or adjudication which can be proven beyond doubt on the basis of incontrovertible evidence. The position adopted by the Court in this Judgment coupled with the long limitation periods has done nothing short of giving confidence to the debtors that the they can still stall the insolvency process for as long as they could manage to keep the dispute unresolved and this is something that should not and will not happen from the part of a vigilant debtor.

3.    S.8(2)(a) of the Code ought to have been understood literally, meaning that the Court ought to have read the word ‘and’ in its cumulative sense requiring the fulfillment of all the conditions that it joins together. But, an interpretation such as that would lead to an anomalous situation in cases where there is insufficient time to make the matter assume the form of suit or arbitration proceeding. The Adjudicating Authority ought not have been vested with such elaborate and unguided discretion in taking a decision on the commencement of insolvency process. But, with a view to avoid injustice being caused to those who are effectively denied their right to take steps such as those would be required to prove the existence of dispute, the tribunal may enter into this inquiry only in such cases and that too, guided by the three prong test[17] laid down in the Interim Bankruptcy Law Reforms Committee Report and in the Madhusudhan case (supra). In short, the expanded jurisdiction of the Adjudicating Authority should have been limited and remained one which could only be used sparingly in exceptional circumstances such as those mentioned above. The right balance could only be struck where the Code can balance the interests of all participants without compromising on its effectiveness.

4.    As regarding the definition of the term ‘dispute’ under S.5(6) , the interpretation given by the NCLAT in the appeal by the respondent seems most appropriate [18]. The NCLAT held that the definition being an inclusive one cannot be limited to a pending proceeding or “lis”, within the limited ambit of suit or arbitration proceedings , the word ‘includes’ ought to be read as “means and includes” including proceedings initiated or pending before consumer court, tribunal, labour court or mediation, conciliation etc. If any action is taken by the Corporate Debtor under any act or law including while replying to a notice under S.80 of CPC, 1908 or to a notice issued under S.433 of the Companies Act or S.59 of the Sales of Good Act or regarding the quality of goods or service provided by the ‘operational creditor’ will come within the ambit of dispute, raise and pending within the meaning of S.5(6) read with S.8(2) of the Code.

5.    In the light of point 3, the following amendment is proposed which is to insert a proviso to s.8(2)(a) of the Code which goes like this : “Provided that the Adjudicating Authority may determine the existence of bonafide dispute in exceptional cases from other evidence as may be prescribed, where a corporate debtor is effectively deprived of his right to establish the existence of dispute due to no fault or ignorance on his part and in doing so, the court shall take into account three factors : (i) that the defence of the company (debtor) is in good faith and one of substance; (ii) the defence is likely to succeed in point of law; and (iii) the company adduces prima facie proof of the facts on which the defence depends.

Foot Note:

1. Civil Appeal No. 9405 of 2017 of the Supreme Court ( Decided on 21 September, 2017)
2. S. 5 (20) defines an ‘operational creditor’ to mean a person to whom an operational debt is owed and S. 5(21) defines an ‘operational creditor’ to mean a  claim in respect of the provision of goods or services including employment or a debt in respect of repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.
3. The Insolvency and Bankruptcy Code, 2016, Ss. 8(1) & (2).
4. The Insolvency and Bankruptcy Code, 2016, S. 9(5)(ii)(d).
5. The Insolvency and Bankruptcy Code, 2016, S. 5(6).
6. For convenience S.8(2)(a) is reproduced here : S.8(2) :“The corporate debtor shall within a period of  ten days….bring to the notice of the operational creditor- (a)existence of a dispute, if any and the record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute”
7. The Court referred to three decisions namely, Samee Khan v. Bindhu Khan, (1998) 7 SCC 59,  Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd., (2008) 4 SCC 755, Maharishi Mahesh Yogi Vedic Vishwavidyalaya v. State of M.P., (2013) 15 SCC 677  to buttress the point that it is a settled law that ‘and’ may be read as ‘or’ in order to further the object of the statute and/or to avoid an anomalous situation. 
8. The Preamble to the Code
9. Dr. T.K. Viswanathan, The report of the Bankruptcy Law Reforms Committee, November 2015, p.10, available at http://ibbi.gov.in/BLRCReportVol1_04112015.pdf (accessed on 1/2/2017)
10. Civil Appeals No. 8337-8338 of 2017 of the Supreme Court (decided on 31st August 2017)
11. “Legislative Guide on Insolvency Law of the United Nations Commission on International Trade Law”, available at https://www.uncitral.org/pdf/english/texts/insolven/05-80722_Ebook.pdf (accessed on 1/2/2018)
12. Dr.T.K. Viswanathan, Interim Report of The Bankruptcy Law Reform Committee, February 2015, available at http:// www.finmin.nic.in/sites/default/files/Interim_Report_BLRC_0.pdf (accessed on 1/2/2018)
13. AIR 1971 SC 2600;This was a case relating to an application filed for winding up of a company, inter alia, on the ground that the company was unable to pay its debts due to the appellants wherein the court observed that “the rules for winding up on a creditor’s petition are if there is a bonafide dispute about a debt and the defence is a substantial one, the Court would not order winding up. The defense of the  company should be in good faith and one of substance, if the defence is likely to succeed in point of law and the company adduced prima facie proof of the fcats on which the defence depends, no order of winding up would be made by the courts”
14. Supra note. 12 at p.25
15. W.P. No. 672 of 2017 of the Calcutta High Court (decided on 2nd February 2018)
16. Bhavesh D. Parish & Ors. v. Union of India, 2000 (5) S.C.C. 471 and  Government of Andhra Pradesh & Ors. v. P. Laxmi Devi, 2008 (4) S.C.C. 720
17. Supra Note.12
18. Kirusa Software Pvt. Ltd. v. Mobilox Innovations Pvt. Ltd., Company Appeal (AT) (Insolvency) 6 of 2017 (decided on 24th May 2017)
19. Ibid at Para. 35

Suit for Framing Scheme: Which Type of Interlocutory Application

can be Entertained after Passing the Decree?

(BY P. Krishna Kumar, Additional District Judge- I, Thiruvananthapuram)

When a civil court passes a decree, ordinarily it becomes functus officio. A decree conclusively determines the rights and liabilities of the parties in respect of matters in controversy. However, a practice is in vogue in many courts in Kerala that, persons interested in the subject matter of suit for framing a scheme for a public charity are being permitted to raise various types of disputes in such suits, wherein a decree framing a scheme has been passed. Such disputes are usually raised by filing interlocutory applications in the suit which might have been disposed of several years back. A suit under Section 92 of the Code of Civil Procedure (for short the ‘Code’) cannot be instituted to vindicate private rights of parties. Suits cannot be instituted without the leave of the court, if the relief sought for is one of the types mentioned in S.92(1)(a) to (h). But the dichotomy here is that, when such questions are raised in an interlocutory application, the said limitations are crossed over.

In some schemes framed by the court, there would be provisions enabling the court to entertain such applications. In many applications, the relief sought for are permanent in nature and having the effect of independent decrees, when granted. Several reliefs covered by S.92(1)(a) to (h) of the Code are sought for in such applications and courts are frequently passing orders thereunder. In some occasions, reliefs may not relate to any of the matters specified in S.92 and which are in the nature of subject matter of ordinary civil disputes. Usual justification for raising such application is that, once the court framed a scheme for a public trust, the court is its guardian and it has got exclusive jurisdiction to resolve any matter in controversy in respect of the trust. The resultant effect is that, merely because the court has framed a scheme, the charitable or religious trust, loses its insulation provided u/S.92 of the Code, from being subjected to harassment through ordinary civil litigations. Thus, election/appointment/removal of trustees, vesting of property in them, direction for accounts etc., (matters covered by S.92(1)(a),(b),(c) and (d) of the Code) are frequently being raised before the District Court or Subordinate Judge’s Court which passed a decree for framing a scheme. In effect, framing a scheme by the court makes it much easier to sue the public trust, as mere filing of an interlocutory application alone is necessary thereafter, to vex the trust. One may take assistance of O.39 R. 2 of the Code for filing post-decree applications in a disposed suit. But the said provision only enables the court to pass interim injunctions even when the Judgment is already pronounced.

A significant decision in this regard has come in Ray Sudhan v. Sajeendran   (2017 (1) KLT 371) wherein the Division Bench of the Hon’ble High Court of Kerala held that such subsequent applications are barred, if the relief sought for is any one of the types provided in Section 92(1)(a) to (h). His Lordship Anil K.Narendran J. declared the law in the said manner by a separate concurrent judgment. Unfortunately, the law reporters omitted to include this vital legal proposition in the head note. As a result, it seems that many members of the legal fraternity did not take notice of this important declaration of law. In this backdrop, certain historical aspects and legality of such practice can be considered in detail.

Making Provisions in the Scheme for its Modification – Permissibility

Is it permissible to incorporate a provision in the scheme framed by the court so as to enable the parties to approach the very same court by filing an interlocutory application for its subsequent modifications? This question was considered by the Full Bench of Madras High Court in Veeraraghavachariar v. Advocate General of Madras (AIR 1927 Mad.1073) and the court held that:

The first is “Where liberty to apply is reserved...to ask for directions as to carrying out the scheme . So far as this is concerned this may well be intra vires unless it contravenes the provisions of Section 92, Civil Procedure Code, for the assistance of the Court is asked merely to carry out what it has already ordered, and if such assistance can be given without contravening the provisions of Section 92, there can be no objection to such a rule being framed, but when permission is given to apply to the Court for alteration or modification of the scheme it appears to me that this at once offends against Section 92. The scheme having been framed, any modification or alteration of it is in effect a new scheme and the power to frame a scheme is given only subject to the conditions specified in Section 92. I will therefore answer the question put to us by one joint answer, namely, that the reservation by the Court to a person or persons to apply for a relief which will come within Section 92 of the Civil Procedure Code is ultra vires but that if such reservation does not offend in this way or against any other provision of law it may be useful or advisable for carrying out the provisions of the scheme already framed.

However, in Chandraprasad Ramaprasad v. Jinabharathi Narayan (AIR 1931 Bom.391), the Bombay High Court held that provision in the scheme which gives power to the court to alter or modify it is not ultra vires. This decision was followed by the Alahabad High Court in Swamirangacharya v. Gangaram (AIR 1936 All.1997) and the Calcutta High Court in Srijib Nyayatirtha v. Dandy Swami Jayannat Ashram (AIR 1941 Cal.618).

At last, the above said question was raised before the Hon’ble Supreme Court in Raje Anandarao v. Shamrao (AIR 1961 SC 1206). Overruling the finding of Madras High Court, the Hon’ble Supreme Court held that:

“So far as the scheme is concerned, S.92(1) provides for setting a scheme and if a suit is brought for this purpose it has to comply with the requirements of S.92(1); but where such a suit has been brought and a scheme has been settled, we see nothing in S.92(2) which would make it illegal for the court to provide a clause in the scheme itself for its future modification. All that that sub-section provides is that no suit claiming any of the reliefs specified in sub-s.(1) shall be instituted in respect of a trust as is therein referred to except in conformity with the provisions of that sub-section. This sub-section therefore does not bar an application for modification of a scheme in accordance with the provisions thereof, provided such a provision can be made in the scheme itself. Under sub-s.(1) the Court has the power to settle a scheme. That power to our mind appears to be comprehensive enough to permit the inclusion of a provision in the scheme itself which would make it alterable by the Court if and when found necessary in future to do so. A suit under S.92 certainly comes to an end when a decree is passed therein, including the settlement of a scheme for the administration of the trust. But there is nothing in the fact that the Court can settle a scheme under S.92(1) to prevent it from making the scheme elastic and provide for its modification in the scheme itself. That does not affect the finality of the decree; all that it provides is that where necessity arises a change may be made in the manner of administration by the modification of the scheme. We cannot agree that if the scheme is amended in pursuance of such a clause in the scheme it will amount to amending the decree.”             (emphasis added)

The logic in such a finding is that if a provision is included in the scheme permitting the court to make it elastic for providing modifications, it would not offend any of the provisions in S.92(1) of the Code as the modifications made in the scheme would not amount to amending the decree passed by the court. The Court observed that even when the scheme is altered the decree by which the court decides to frame scheme stands as it was, and all that happens is causing some changes in the scheme settled by the court.

Thus it is beyond the scope of any dispute that making a provision in the scheme to modify the same by the same court itself on a filing an application in the same suit is permissible and it will not offend S.92 of the Code. The Hon’ble High Court of Kerala in Elias v. Elias (1986 KLT 72) held that, even when there is no provision in the scheme which permits the court to modify it, the court has inherent power to modify the scheme settled by it. The said finding is also based on the very same principle that amendment of scheme framed by the court would not tantamount to a separate decree.

Applicability of Similar Rule in Other Matters

Even when a mechanism for altering or modifying a scheme is held to be valid, is it justifiable to make similar provisions for raising any type of questions by preferring an application in an already terminated suit, is the next question to be answered. It is relevant to note that the question considered by the Hon’ble Supreme Court in Raje Anandarao case was that ‘how far it is open to a court to amend a scheme once framed under S.92 of the Code, where a power to amend the scheme is reserved in the scheme itself’ (Paragraph 6). The Court obviously restricted the scope of its enquiry to the aspect of validity of incorporating a clause for amending the scheme by the very same court alone. The Court cautiously abstained from making any comment in respect of a wider question i.e., whether the court can make similar provisions enabling the parties to raise any type of disputes by filing an application in a closed suit. This is evident from the reservation made by the Hon’ble Court in paragraph 11: “We do not therefore propose to consider whether it would be open to appoint or remove trustees etc., on the ground of breach of trust without recourse to a suit under S.92. We shall confine ourselves only to the question whether in a case where there is provision in the scheme for its modification by an application to the Court, it is open to the Court to make modifications therein without the necessity of a suit under S.92.” The Court further observed in no uncertain words that “A suit under S.92 certainly comes to an end when a decree is passed therein, including the settlement of a scheme for the administration of the trust.”.

From the above said observations of the Hon’ble Supreme Court, it is clear that the Court permitted such a practice for the main reason that the decree in such type of suits would contain a direction for settling a scheme or finalising a scheme, but the body of the scheme is not strictly forming part of the decree and so its alteration is only incidental in nature so as to make the bye-laws of the public charity dynamic and suitable to face challenges arising due to the passage of time. Even when the view expressed by the Bombay High Court in Chandraprasad Ramaprasad case was upheld, the Apex Court carefully restricted its words so as to exclude its approval to another part of the decision taken by the Bombay High Court, declaring that there is nothing illegal in making provisions in the scheme so as to file an application for removing trustees etc. If such a provision is made in a scheme framed by the court, it is submitted that, it would defeat the very purpose of S.92 of the Code. When S.92(2) bars institution of suits claiming any of the reliefs specified in sub-section (1) of the said provision except in conformity with the provisions of that sub-section, if the scheme framed by the court provides an easier way to escape the rigour of the statutory provisions, it will be ultra vires of the powers of the court.

True, the bar provided u/S.92(2) is for institution of the suit and not for filing interlocutory applications. But the said provision cannot be interpreted in that fashion, since the intention of the legislature is to interdict the very institution of the suit itself except in conformity with the special procedure. When there is no suit, there is no question of filing interlocutory application, unless it is otherwise permissible. The court is not expected to get over the legislative mandate by making a provision in the scheme framed by it in such a way conferring jurisdiction to courts which is not intended by the statute. If that practice is allowed, it may also frustrate the elementary principle of finality of decrees and the same may negate the statutory right of appeal to the aggrieved person, as he could have otherwise challenged the out come of the application in a different forum and also in a comprehensive manner.

But, in some other decisions (Syed Khaja Gulam Rasool v. K.M.Bijili Sahib (AIR 1965 Mad.404) and Janardhana Mishra v. Janardhana Prasad (1996 (1) MLJ 588)) it was held that if the court appoints a life trustee or a manager for a considerable length of time for the trust, it is permissible for the court to provide a clause in the scheme to remove him in case he has become ineligible or incapacitated to continue. The rationale may be that, it would be extremely prejudicial to the interest of the trust if it is required to file a fresh suit after following the long drawn procedure for leave etc. when the life trustee has subsequently became incapable. In fact such power is just another facet of review jurisdiction of the civil court and the same does not offend the general principles referred above. It is relevant to note that one of the circumstances in which review powers can be exercised is subsequent ‘discovery of new and important matter’, which expression is wider enough to cover the above said requirement also within its fold.

Later, in Chairmman Madappa v. M.N. Mahanthadevaru (AIR 1966 SC 878), the Hon’ble Supreme Court followed the decision in Raje Anandarao case and held that if the scheme contains such a provision, the trusties or managers of public trusts are entitled to seek directions from the court which are deemed necessary for the administration of the trust by filing an application in such a suit. The Court further observed that though such reliefs can be sought for in a separate suit u/S.92 of the Code, there is nothing wrong in providing such a clause in the scheme for enabling the trustees or managers to seek the directions of the court in respect of the administration of the trust. But, here also the court specifically reserved its opinion as to the permissibility of seeking such directions by any third person. Further, the Court gave specific emphasis to the words employed in S.92 that ‘where the direction of the court is deemed necessary for the administration of any such trust”, which is obviously the second limb of S.92. It cannot be ignored that, when the trustees alone are permitted to seek directions of the court by filing applications in a disposed suit, it would not necessarily result in determination of substantial questions or contentious matters. It is also clarified by the Apex Court that there might be situations like divergent opinion between trustees as to the administration of the trust or disposal of trust properties and in such cases, it would be better in the interest of the trust to seek opinion of the court through such applications, without insisting presentation of a fresh suit. It is profitable to quote the relevant text of the Judgment:

“There may be other situations where it may be necessary to alienate trust property which might require Court’s sanction and that is why there is such a provision in Cl.(f) in S.92(1). But that clause in our opinion was not meant to limit in any way the power of trustees or managers to manage the trust property to the best advantage of the trust and in its interest, and if necessary, even to let, sell, mortgage or exchange such property. Further if Cl.(f) cannot be read to limit the powers of trustees or managers to manage the trust property in the interest of the trust and to deal with it in such manner as would be to the best advantage of the trust, there can be no bar to a provision being made in a scheme for directions by the Court in that behalf. If anything, such a provision would be in the interest of the trust, for the Court would not give directions to let, sell, mortgage or exchange the trust property or any part thereof unless it was clearly in the interest of the trust. Such a direction can certainly be sought by the trustees or managers or even by one manager out of two if they cannot agree, and there is nothing in Cl.(f) in our opinion which militates against the provision in the scheme for obtaining such direction. We may add that we say nothing about obtaining of such directions by persons other than managers or trustees, for this is not a case where the direction was sought by a persons other than a co-manager. Whether such a direction can be sought by persons other than trustees or managers or one of two managers as provided in paragraphs (11) and (12) of the scheme is a matter which does not arise for consideration in the present case and we express no opinion thereon. We are dealing with a case where the prayer is made by one trustee and the order passed thereon relates to matters which are incidental to acts of management of the trust property and we have no doubt that Cl.(f) in S.92 (1) cannot be read in such a way as to hamper the ordinary administration of trust properties by trustees or managers thereof; and if that is so, there can be no invalidity in a provision in the scheme which directs the trustees or managers or, even one out of two co-managers when they cannot agree to obtain directions of the Court with respect to the disposal or alienation of the property belonging to the trust. We are, therefore, of opinion that Cl.(f) does not apply to the circumstances of this case and no suit under S.92 was necessary in consequence.”           (emphasis supplied)

Therefore, it is evident from both the decisions of the Apex Court (both decisions are rendered by his Lordship Wanchoo J, for the bench) that the court deviated from the usual concept of finality of decrees only in two specified eventualities and in both the decisions the Supreme Court very cautiously limited the applicability of its decisions to matters raised before it, seemingly for not extending the said rule even to analogous situations.

Inherent Power of Civil Court and Parens Patriae jurisdiction as the protector of charities In English law, Chancery Courts exercised inherent jurisdiction to supervise the administration of charitable trusts, and it was recognised as the duty of the court to intervene in its administration, whenever situation required. Originally this power was vested with the Crown. When the State exercised its judicial function through courts, this power has eventually percolated to law courts, the judicial wing of the State, and thus it has become the guardian of all deities or charities, whether or not legislatively empowered.

After referring to Tudor on Charities (VII Edition) page 294, Snell’s Principles of Equity (XXVIII Edition) pages 210, 211 and 170, Hindu Law of Religious and Charitable Trusts by Justice Mr.B.K. Mukherjea (IV Edition) pages 452, 455 and 456 and 460 and Law of Hindu Religious and Charitable Endowments, V.K. Varadachari (III Edition), Chapter XIII Enforcement of Trustees, pages 471 to 474, the Hon’ble High Court of Kerala has succinctly held as follows:

“We are of the view that apart from the remedy available under S.92 of the Code of Civil Procedure and the initiation of proceedings under Art.226 of the Constitution of India, the Civil Courts have got ‘inherent power’ to initiate action, probe into the matter and set right the abuses by a remedial action in the case of charitable and religious trusts or deities as guardian of such juridical entities. This is a ‘reserve power’ vested in Courts to protect the interests of persons, who, by themselves, cannot initiate proceedings and safeguard their interests. We are inclined to take such a view. But so far as this case is concerned, it is unnecessary to call in aid such power since this Court has already initiated this action under Art.226 of the Constitution of India.”

However, in the said case, the Court was not considering the question posed herein and the above said opinion of the court was made in a different context. But in a given case, the civil court may exercise its inherent power to remedy any abuse or misapplication of charitable fund, even on an application filed in a suit disposed of whether or not there is an enabling provision in the scheme or even if the suit was not for framing scheme. Nevertheless, no one can file such an application as of right, as it is the prerogative of the court alone to invoke its parens patriae powers and that too only in exceptional circumstances. Further, the court may exercise such powers suo motu or in the course of any other suit. In principle, it may be used even where there is no suit or a leave petition. Thus, existence of this power is not a justification for incorporating such a clause in the scheme, ignoring the bar u/S.92(2) of the Code, as inherent powers of the court cannot be exercised inconsistent to the specific provisions of the statute.

Principles Emerging from Madras View and Bombay View - and the Consequences

Even though the decision of the Full Bench of Madras High Court is overruled by the Apex Court so far as the finding on modification of scheme through court, the resounding words of his Lordship Wallace J. in Abdul Hakim Baig v. Burramiddin (ILR (1925) Mad.580), which was followed in the Full Bench decision, do not completely lose its significance:

“The principle underlying Section 92, I take it, is that no trustee shall be removed or new trustees appointed, or any other reliefs of the nature specified therein granted except by way of a suit filed under the sanction of the Advocate-General, so that trustees may be afforded some protection against frivolous and vexatious attempts to remove them, I do not think the legislature intended this principle to be any the less applicable when a scheme for the administration of a public trust has once been framed, or intended to countenance any procedure by which, when once a scheme has been framed, Section 92 will no longer have any application to the trust and that in future if a scheme has been framed the interesting game of attacking, harassing and removing trustees may go on merely on an application under the scheme without any guarantee, such as the necessity of obtaining the sanction of the Advocate-General affords, that the proceedings are either in the interests of the public or in the interests of the institution.…. The difficulty of holding any other view is enhanced when I consider what remedy a trustee removed under such a removal clause in such a scheme has. If he had been removed by a suit under Section 92 he has the right of appeal but if he is removed under a clause in the scheme it is very doubtful if he has any right of appeal, even though the scheme confers it.”

One of the main reasons which led the Hon’ble High Court of Bombay to dissent from the view expressed by the Full Bench of the Madras High Court is that the Privy Council had approved similar schemes earlier. Even when it was agreed by the bench that the question of the validity of those clauses was not raised before the Privy Council, the court placed much reliance on that view. The said approach, it is submitted, is against the doctrine of sub silentio. Another reason for disagreement was expressed in the following words:

“Where a scheme is once settled it precludes a suit to establish a private right to manage the property which if established would interfere with the scheme settled by the Court, and the proper remedy in such cases would be by an application under the leave to apply reserved under the scheme. ….Unless liberty is reserved, a second suit may probably be barred by the principle of res judicata under Section 11, Explanations IV and VI.”

This reason also does not appear to be sound and is not at all sufficient to include a clause in the scheme for enabling the court to remove or select a new trustee, since such a question need not and cannot be the matter directly or substantially in issue in the suit for framing scheme. Whatever it may be, if such a decision is hit by res judicata, the court cannot bypass its operation by making some provisions in the scheme. If the legislature actually intended to place the decree for framing scheme in a different stratum, it would have provided so expressly. The definition of ‘decree’ takes in both ordinary decree and decree passed in a suit u/S.92 of the Code and hence the court which passed such decree must also generally become functus officio, after ‘conclusively determining the rights of the parties’. The argument which proposes that, unless it is permissible to incorporate such wider provisions in the scheme, it would be very difficult to raise matters relating to public charities through the cumbersome procedure of suits, presupposes judicial primacy over the legislative dictate.

Ray Sudhan v. Sajeendran (2017 (1) KLT 371) - the Insulation to Public Charities Reaffirmed

In the separate concurring Judgment (Paragraph 40), after discussing the ratio of Raje Anandrao case (supra), Madappa case (supra) and most of the above said issues, his Lordship Anil K.Narendran J. held that, if the nature of relief sought for in a post decree application is one set out in clauses (a) to (h) of sub-section (1) of Section 92 of the Code on the allegation of breach of trust, mal-administration etc., it is barred by sub-section (2) of Section 92 and such relief can be sought for only in a separate suit filed under Section 92.

But the court reiterated that Section 92(2) of the Code does not bar an application for modification of the scheme framed by the court, and that there would be no invalidity in making a provision in the scheme for permitting the trustees to obtain directions from the court as to administration of trust properties. When the law is declared so explicitly, the practice of raising all the subsequent disputes in a suit which has already been disposed of cannot be entertained any more.

Conclusions

a)  As held by his Lordship Anil K. Narendran J. in Ray Sudhan (supra), when a suit for framing a scheme has been disposed of no subsequent application seeking a relief of the nature set out in clauses (a) to (h) of sub-section (1) of Section 92 of the Code can be entertained by the court.

b) But in view of the decision of the Hon’ble Supreme Court in Raje Anandarao, making a provision in the scheme for its modification through an application in the same suit on supervening considerations, is valid. Order in such application may not amount to modification of the decree and even otherwise, it comes within the scope of review powers. If the court appoints trustees by its decree, then also it is permissible to invoke its jurisdiction again by filing applications. Making provisions to undo the vice, if any, of the order passed by the court is well with in the limit of its review powers. In both cases, the powers of the court may be exercised, whether or not such provisions are in the scheme. Application for merely carrying into effect the provisions of the scheme can also be entertained, as it is of the nature of enforcement of the directions of the court.

c)  Provisions can also be incorporated in the scheme for permitting trustees to seek directions of the court for the administration of the trust in view of the findings in Chairman Madappa, but such right cannot be conferred to third parties. Likewise, this principle cannot be extended to contentious matters or instances which would take away the rights of parties, including right of appeal.

d)  Except for the above exercises and subject to the exceptions well known to law, the court becomes functus officio once it passes a decree, irrespective of the fact that it is for framing a scheme. The immunity given to public charities shall not be pierced, except in the manner provided in the Code. Inherent powers of civil court as guardian of charities shall also be used only consistent with specific statutory objectives. Any other interpretation would militate against Ss.2(2) and 92(2) of the Code.

Voiceless Voice Test

(By Girish Panju M.S., Deputy Director of Prosecution, Kottayam)

Amendment Act 25 of 2005 Cr.P.C. has made some revolutionary changes in the fieldof investigation of criminal cases. Section authorizes the police officer not below the rank of a Sub Inspector to request a medical practitioner to conduct various examinations including, examination of blood, blood stain, semen swabs in case of sexual offences, sputum and sweat, hair samples and finger nail clippings including DNA Profiling and such other tests of an accused which the doctor thinks necessary (See Section 53 Cr.P.C.). Section 53A Cr.P.C. was incorporated for the examination of persons accused of rape. These changes were incorporated for the purpose of collecting evidence as to the commission of offence during investigation. Besides the radical changes in Section 53 and the incorporation of Section 53A another milestone in the field of investigation by way of amendment is the introduction of Section 311A. Section 311A authorize the magistrate to direct a person including an accused to give specimen signature or handwriting for the purpose of investigation or any proceedings under the Code.

Interestingly neither Sections 53, 53A nor 311A deals with the taking of voice sample during the course of investigation, which was a long pending matter and still under the consideration of our Apex Court. In Ritesh Sinha v. State of U.P. reported in 2013 (1) KLT SN 1(C.No.1) SC, our Hon’ble Supreme Court consisting of two Judges bench has got occasion to consider the constitutional validity of taking voice sample of accused. Unfortunately the two Judges delivered two divergent observations and hence the Hon’ble Supreme Court decided to constitute a larger bench to consider the validity of taking voice sample of an accused.

Once our legal fraternity was under the impression that furnishing any information or evidence by the accused amounts to self incrimination and is violative of the rights guaranteed to the accused under Article 20(3) of our Constitution. Article 20(3) simply says that no person accused of any offence shall be compelled to be a witness against himself. In various judgments of our constitutional courts it was repeatedly held that the protection even to the accused commences as soon as a formal accusation is made, whether before or during prosecution. It follows that the lodging of a F.I.R., the filing of a complaint in court or the issuance of a show-cause notice under a special criminal statute will bring Article 20(3)into force.

But it is also settled by various courts that immunity under Article 20(3) does not extend to compulsory production of material objects or compulsion to give specimen writing, specimen signature, finger impression or compulsory exhibition of body or giving of blood specimens. In State of Bombay v. Kathikalureported in 1961 KLT 74 (SC), AIR 1961 SC 1808our Hon’ble Apex Court took the view that compulsion regarding the documents is prohibited only if the documents convey the personal knowledge of the accused relating to the charge. In C.Sampath Kumar v. Enforcement Officer Madras(AIR 1998 SC 16) a different matter in issue was considered by the Hon’ble Supreme Court that whether the statement of a person who is summoned and examined u/S.40 of the Foreign Exchange Regulation Act amounts to self incrimination and the Apex Court held that such a statement cannot be discarded on the ground of infringement of the protection guaranteed under Article 20(3). In A.A Mulla v. State of Maharashtrareported in AIR 1997 SC 1441 the court took the view that when no penalty is prescribed for the contravention in question the right under Article 20(3) does not apply. It is also significant to note that the protection against compulsion “to be a witness” is confined to a person “accused of any offence” and it is not applicable to a witness. But Sections 132 and 148 of the Indian Evidence Act confers protection against self incrimination to witnesses in civil and criminal courts. In R.Dinesh Kumar v. State Rep. Inspector of Policereported in 2015 Cr.L.J. 2362 Madras High Court took the view that Section 132 deserves most liberal construction and no prosecution can be launched against the maker of the statement on the basis of the answers given by a person while deposing as witness before court. Again the polygraph test and brain finger printing tests where subjected to the consideration of our constitutional court inSelvi v. State of Karnataka reported in AIR 2010 SC 1974 and took the view that those are testimonial compulsions and the bar under Article 20(3) will apply. At the same time it is repeatedly held by our Hon’ble Apex Court that taking specimen finger prints and handwritings from the accused is constitutionally valid and not hit by Article 20(3). See State through SPE and C.B.I. A.P. v. M.Krishnamohanreported in 2008 (4) KLT Suppl.722 (SC) = AIR 2008 SC 368.

Ritesh Sinha v. State of U.P. was decided by two Judges bench consisting of Justice Ranjana P.Desai and Justice Aftab Alam. Both of them delivered two separate judgments. The view taken by Justice Ranjana P.Desai is that direction to give voice sample is not violative of Article 20(3). According to her voice sample is like finger print impression, signature or specimen handwriting of an accused. Hon’ble Justice further added that giving of voice sample cannot be included in the expression “to be a witness” because by giving voice sample accused does not convey any information based upon his personal knowledge which will incriminate him. Hon’ble Justice further added that giving of voice sample is merely giving of an identification data to the investigating agency and he is not subjected to any testimonial compulsion. It is nothing but a physical characteristic of the accused. Hon’ble Judge further observed that voice sample can be included in the inclusive definition of the term “measurments” appearing in Section 2(a) of the Identification of Prisoners Act 1920. But Hon’ble Justice Aftab Alam has expressed his dissenting view that it is impossible to extend the provisions of the Identification of the Prisoners Act to that extend. Since no fruitful purpose was served it is decided to place the issue before a larger bench and the decision of the larger bench is awaited since 2012 December. So far till 2018 no decision was rendered by the Hon’ble Apex Court in this aspect.

At the same time our High Court has got benevolent opportunities to decide on the constitutional validity of taking voice sample. A single learned Judge of our Hon’ble High Court in Prathap v. C.B.I. reported in 2017 (3) KLT 458 took the view that if the accused in a criminal case can be directed to provide his hand writing or signature for comparison what is the bar in taking voice sample. The very same principle as that of taking hand writing can be adopted in taking voice sample also. To arrive at that conclusion Hon’ble single Judge has relied upon the dictum laid down by our Hon’ble Apex Court in State of Bombay v. Kathi Kalu Oghandi(1961 KLT 74 (SC)) in which our Hon’ble Apex Court has elaborately discussed the concept of testimonial compulsion. The observation of the Apex Court is that to attract the barriers of testimonial compulsion there should be a direction to the accused to do anything or to make any statement indicating his complicity in an offence, in any manner. The direction to provide voice sample of the accused will not in any way amount to testimonial compulsion because the direction is not to give any statement touching the offence or concerning his role or complicity in the offence. A mere direction to provide specimen voice sample is equal to that of providing hand writing, specimen thumb impression, or impression of foot or palm or finger, Hon’ble Supreme Court further held that if there is a positive direction to the accused to make some statements or to do something against his will or without his consent touching the allegation in the case, certaintly it will amount to testimonial compulsion. In Prathap’scase our Hon’ble High Court observed that the spirit of Section 311A Cr.P.C authorizing collection of specimen hand writing and signature can very well be applied in the case of voice sample also. The High Court further clarified that even though there is no specific provision in any law to authorize a particular course of action to take voice sample, the trial court can use its inherent or ancillary powers to do justice. The above mentioned Prathap’scase was decided by a single Judge of our Hon’ble High Court on 7th July 2017.

Again a similar matter was decided by two learned Judges of our Hon’ble High Court in Roopesh v. Union of Indiareported in 2018(1) KLT 23 in which our Hon’ble High Court took a complete different view that neither Section 311A of Cr.P.C. nor Section 5 of Identification of Prisoners Act can be invoked to confer powers on the Magistrate to direct the voice sample of the accused. The finding in Prathap’scase was vehemently attacked and the Division Bench consisting of two learned Judges clarified that a magistrate does not have any inherent powers and it is available to the High Court u/S.482 Cr.P.C. The Division Bench further held that since no statute confers an express power to direct the accused to provide his specimen voice sample it cannot be allowed by the Magistrate in any implied manners. The Division Bench further declared the judgement in Prathap v. C.B.I.is not good law. The Division Bench also expressed the view that the decision is subject to the verdict of the apex court yet to be pronounced. Again the entire legal community is awaiting the decision of the Hon’ble Supreme Court.

Tail piece

A buffalo was running like mad

Elephant asked “Why are you running”?

Buffalo: - They are arresting all cows

Elephant: - But you are not a cow!!

Buffalo: - Dear it will take minimum 20 years to prove that in an Indian Court

The Elephant also started running.