Dispute Resolution & Arbitration Monthly Update | May 2024

KIPL Vistacore Infra Projects JV v. Municipal Corporation of the City of Ichalkarnji

Bombay High Court | MANU/MH/0513/2024

Background facts

• The Municipal Corporation of Ichalkarnji (Respondent) proposed construction of a project for 2 sewage treatment plants under the Urban Infrastructure Development Scheme for Small and Medium Towns Scheme Mission (UIDSSMT), funded by the Government of India and the State of Maharashtra. Pursuant to the tender floated by the Respondent in 2021, the bid of KIPL Vistacore Projects JV (Petitioner) was accepted and the Work Order was issued in its favor.
• By the year 2019, the Petitioner claimed to have completed 55% of work and the delay was attributed to the Respondent as the possession of the land was handed over belatedly along with the drawings for Sewage Treatment Plants (STP).
• The Petitioner was blacklisted by the Respondent and hence, it approached the Bombay High Court (HC) in a Writ Petition. The same was withdrawn as the Respondent by its resolution, extended the time for completion of the work by 6 months, which was later stayed. The Petitioner then filed another Writ Petition challenging the termination, prompting arbitration proposed by the Respondent, which the Petitioner agreed to.
• Thereafter, an Arbitrator was appointed by the HC to decide the disputes between the parties, and pursuant thereto, the arbitral proceedings were affected due to COVID-19, which led to a mutual extension. When the mandate of the Arbitrator expired, the Petitioner filed an Application under Section 29A of the Arbitration and Conciliation Act, 1966 (Act) before the HC. The Respondent opposed the same contending that the HC does not have authority to grant extension of mandate of an Arbitrator.

Issues at hand?

• Whether the authority to grant extensions under Section 29A (4) of the Arbitration and Conciliation Act, 1996, should lie with the High Court, in accordance with the definition of 'Court' in Section 2(1)(e), or if it should be vested in the principal Civil Court of original jurisdiction?

Decision of the Court

• The court emphasized that it was the HC which appointed the arbitrator, directed the filing of a disclosure statement, issued further instructions to the arbitrator, and determined the arbitrator's costs, therefore, the HC had authority to grant the extension.
• The HC also analyzed DDA v. Tara Chand Sumit Construction Co¹ . which addressed the controversy regarding the authority to extend the mandate of an arbitrator under Section 29A of the Arbitration and Conciliation Act. The Court held that while Section 2(1)(e) defines 'Court' differently for international commercial arbitration and other arbitration cases, the court noted that a rigid interpretation could conflict with the powers of courts under Section 11 of the Act. The court emphasized that the term 'Court' in Section 29A should be interpreted differently, considering the context of the provision. It noted that Section 2(1) itself provides flexibility with the phrase 'unless the context otherwise requires.' Therefore, despite the definition in Section 2(1)(e), the court held that the power to extend the mandate of an arbitrator under Section 29A lies with the High Court in cases of domestic arbitration. This interpretation avoids complications and aligns with the broader powers of courts under the Act.
• The HC further placed reliance on Cabra Instalaciones Y. Services v. Maharashtra State Electricity Distribution Company Limited² , wherein it was specifically held that the High Court, exercising power under Section 29A, does not possess the authority to appoint a substitute arbitral tribunal or member. It emphasized that with regards to international commercial arbitration, such powers exclusively belongs to the Supreme Court. The judgment pointed out that the jurisdiction conferred upon the 'Court' by Section 29A precludes other courts from exercising similar powers.

Sarfaraz S. Furniturewalla v. Afshan Sharfali Ashok Kumar & Ors

Bombay High Court | Writ Petition No. 4958 OF 2024

Background facts

• A dispute arose between Sarfaraz S. Furniturewala (Petitioner) and his stepbrothers in relation to the rights and transit rent payable regarding their deceased father's property which underwent redevelopment in 2017. The dispute was pending before the Small Causes Court and the builder deposited the transit rent in the Small Causes Court. The Small Causes Court passed an order barring the Petitioner from withdrawing any transit rent deposited by the Developer.
• Aggrieved with the order of the Small Causes Court, the Petitioner approached the Bombay High Court (HC). The HC after considering the Petitioner's advanced age and financial condition permitted him to withdraw 50% of the transit rent.
• The advocate representing the Developer (Respondent) sought directions from the HC to get PAN Card details of all parties in order to deduct Tax Deducted at Source (TDS) from the amount payable to them as transit rent. The advocate for the Petitioner contested the same and cited 2 orders of the Income Tax Appellate Tribunal to substantiate his stand.

Issues at hand?

• Whether there should be deduction of TDS on transit rent payable by a Developer?

Decision of the Court

• The High Court first elucidated the ordinary meaning of rent, which is an amount payable by a Tenant/Licensee to a Landlord. The Court thereafter analyzed the common meaning of transit rent and observed transit rent to be a hardship allowance/rehabilitation allowance/ displacement allowance which is payable by the Developer to the Tenant who suffers hardship due to dispossession.
• The Court affirmed the law laid down in (i) Smt. Delilah Raj Mansukhani v. ITO³ , and (ii) Ajay Parasmal Kothari⁴ , wherein it was held that amounts received by the flat owner/tenant as compensation during redevelopment of a property for hardship, rehabilitation and for shifting is not liable to tax as transit rent is to be categorized as a capital receipt rather than a revenue receipt.
• The Court after delving into the provisions of Section 194 (I) of the Income Tax Act, 1961, the common meaning of transit rent and the aforesaid judgments concluded that since transit rent is not to be considered as a revenue receipt, the same is not liable to be taxed.

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Footnotes

1. DDA vs. Tara Chand Sumit Construction Co., MANU/DE/1034/2020

2. Cabra Instalaciones Y Servicios, S.A. vs. Maharashtra State Electricity Distribution Company Limited, MANU/MH/2097/2019

3. ITA No. 3526/MUM/2017 (Assessment Year: 2010-2011)

4. ITA No. 2823/MUM/ (A.Y: 2013-2014)

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