Arbitration Weekly Round-Up: 13th November To 19th November
ausaf ayyub
21 Nov 2023 3:45 PM IST
Bombay High Court Amount Of Arbitration Award Received By Retiring Partner For Relinquishing Claim In The Firm Is Not Taxable: Bombay High Court Case Title: Ramona Pinto v. Deputy Commissioner of Income Tax, Income Tax Appeal No. 2610 of 2018 The High Court of Bombay has held that an amount of arbitration award received by a retiring partner for relinquishing its claim in...
Bombay High Court
Case Title: Ramona Pinto v. Deputy Commissioner of Income Tax, Income Tax Appeal No. 2610 of 2018
The High Court of Bombay has held that an amount of arbitration award received by a retiring partner for relinquishing its claim in the firm is not a taxable income.
The bench of Justices K.R. Shriram and Dr. Neela Gokhale held that the amount received by a partner under a consent arbitration award for relinquishing its stake in the firm cannot be treated as an ‘income from other sources’ within the meaning of Section 56(1) of the Income Tax Act, 1961 to bring it within the rubric of taxable income. It held that to bring an amount within the fold of Section 56(1), it has to be first shown as income, however, an amount received upon retirement from a firm is not an income. It also held that such an amount also does not fall within the scope of ‘capital gains’.
The Court also held that receipt of an amount in lieu of inheritance or pursuant to family arrangement cannot be charged with tax under the Act as arrangement is an agreement between the members of the same family for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family peace, honour, security and property of the family by avoiding litigation and amounts so received or not exigible to tax.
Amount Received In Satisfaction Of The Inheritance Rights Is Not A Taxable Income: Bombay High Court
Case Title: Ramona Pinto v. Deputy Commissioner of Income Tax, Income Tax Appeal No. 2610 of 2018
The High Court of Bombay has held that an An amount received in satisfaction of the inheritance rights is not a taxable income.
The bench of Justices K.R. Shriram and Dr. Neela Gokhale held that receipt of an amount in lieu of inheritance or pursuant to family arrangement cannot be charged with tax under the Act as arrangement is an agreement between the members of the same family for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family peace, honour, security and property of the family by avoiding litigation and amounts so received or not exigible to tax.
Delhi High Court
Case Title: Madhu Sudan Sharma v. Omaxe Ltd, RFA 823/2019
The High Court of Delhi has held that once a party has duly taken objection to the jurisdiction of the Court to entertain the suit due to the presence of the arbitration clause between the parties in its written statement, it would be sufficient compliance of Section 8 of the A&C Act and there is no need for a separate application.
The bench of Justice C. Hari Shankar held that once an arbitration clause has been extracted by a party in its written submission to object to the jurisdiction of the Court, the mere fact that the party did not separately request that the dispute between the parties be referred to arbitration, would be of little consequence.
It held that once the arbitration clause had been extracted, it would be too hyper technical to hold that, for want of a separate request to refer the dispute between the parties to arbitration, there was no compliance with Section 8(1) of the 1996 Act.
Case Title: Madhu Sudan Sharma v. Omaxe Ltd, RFA 823/2019
The High Court of Delhi has held that a party cannot be deemed to have waived off its right to arbitration merely because it continued to contest the suit when it had specifically raised objection to the maintainability of the suit due to the presence of the arbitration agreement.
The bench of Justice C. Hari Shankar held that when a party takes a specific objection predicated on Section 8 in the application under Order XXXVII Rule 3(5) seeking leave to defend the suit and that objection, thereafter, is reiterated in the written statement and arguments. It cannot be said that the party has waived the right to arbitration.
Case Title: Madhu Sudan Sharma v. Omaxe Ltd, RFA 823/2019
The High Court of Delhi has held that an objection regarding non-maintainability of the suit due to the presence of the arbitration agreement cannot be considered to be raised belatedly in terms of Section 8 of the A&C Act when it was taken in the application under Order XXXVII Rule 3(5) for grant of leave to defend the suit.
The bench of Justice C. Hari Shankar held that in terms of Section 8 of the A&C Act an application to refer the dispute to arbitration has to be made not later than submitting the first statement on the substance of the dispute. It held that the first statement on the substance of the dispute is the written statement, ergo, a Section 8 application can be made with or before the filing of the written submission.
The Court held that an application for leave to defend the suit is a step prior to the filing of the written submission, therefore, the objection taken under the said application cannot be considered to be belated.
Case Title: Skypower Solar India Pvt Ltd v. Sterling and Wilson International FZE, FAO(OS)(COMM) 29 of 2022
The High Court of Delhi has held that the Court exercising powers under Section 9 of the A&C Act would not order furnishing of Bank Guarantee (BG) to secure the claims of a party pending the arbitration proceedings, unless it shown that the order party is alienating its assets or acting in a manner that would frustrate the enforcement of the Arbitral Award.
The bench of Justices Vibhu Bakhru and Amit Mahajan held that an order under Section 9 directing furnishing bank guarantee to secure the claims is akin to an order of attachment before judgment as provided under Order XXXVIII Rule 5 of CPC. It held that the Court under Section 9 of the A&C Act is not unduly bound by texts of CPC, however, it cannot pass any order in disregard to the principles of CPC.
The Court held that a Court while ordering security for the amount in dispute in the arbitration, it has to ascertain that whether the petitioner has a prima facie case, balance of convenience, and if the respondent is acting in a manner that would defeat the realization of the award.
Case Title: Raghunath Builders Pvt. Ltd. v. Anant Raj Limited, FAO (OS) (COMM) 220/2017
A Division Bench of the Delhi High Court recently allowed restoration of an arbitral award, noting that it was not within the scope of the Single Judge u/s 34 of A&C Act to re-interpret the contract between the parties and substitute the finding of the Arbitrator’s despite it being plausible and well-reasoned.
The court referred to Ssangyong Engineering and Construction Co. Ltd. v. NHAI and said:
“…a change that has been brought in by the Amendment Act, 2015 is that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short that the arbitrator's view is not even a possible view to take”.
Applying the test laid down in Associate Builders v. DDA on the scope of interference u/s 34 on the ground of ‘public policy’, it was observed that the Arbitrator had given a plausible interpretation to the contract terms which was not against ‘public policy’ and did not shock the conscience of the court.
Case Title: Babu Lal and Anr. v. Cholamandalam Investment and Finance Company Ltd. and Anr., FAO (COMM) 135/2023
A Division Bench of the Delhi High Court has reiterated that a party interested in the dispute cannot unilaterally appoint an Arbitrator, and if any Award is passed as a result of such unilateral appointment, the same would be a nullity.
The Bench, comprising Justices Sanjeev Sachdeva and Manoj Jain, noted that the respondents’ nomination of the Arbitrator was without reference to the court in terms of Section 11 of A&C Act.
Moreover, the respondents had merely intimated the appellants about appointment of the Arbitrator, without concurring from them.
Referring to the Supreme Court’s decision in Perkins Eastman Architects DPC and Anr. v. HSCC (India) Ltd., the Bench opined that reference of an arbitral dispute must be to an independent person.
“…an award rendered by an ineligible Arbitrator would be a nullity as has been held by a Coordinate Bench of this Court in Kotak Mahindra Bank Ltd. vs. Narendra Kumar Prajapat”.
Case Title: ArcelorMittal Nippon Steel India Limited v. GAIL (India) Limited, O.M.P.(I) (COMM.) 353/2023
The Delhi High Court recently denied urgent interim relief to leading steel manufacturer-ArcelorMittal Nippon Steel (petitioner) in a claim against GAIL India Ltd., observing that the scope of enquiry u/s 9 of A&C Act was limited to prima facie examination of the issue, which was not established in the petitioner’s favour.
The petitioner had approached the court seeking stay over a Notice issued by GAIL, statedly to terminate the LNG Sale and Purchase Agreement (LSPA) entered by the two. It further sought directions for GAIL to deliver LNG in accordance with the LSPA.
