"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Thursday, October 3, 2013

Scope of Power under S. 27 Arbitration & Conciliation Act: Delta Distilleries

In a recent judgement in Delta Distilleries v. United Sprits Limited, the Supreme Court has ruled on the scope of S. 27 of the Arbitration and Conciliation Act, 1996 (Act or 1996 Act). In this short post, we comment on the relevant aspects of the judgement.


Briefly, the facts that led to the decision are that in the arbitration proceedings between Delta Distilleries (Delta) and United Sprits Limited (USL), USL sought inspection of sales tax returns and sales tax assessment and appellate orders (Sales Tax Documents) relating to Delta. The request was denied by Delta. Consequently, an application was made before the arbitrator for production of these documents. The arbitrator allowed the application partially by ordering production of sales tax assessment and appellate orders. 

Subsequently, allegations of bias were made against the arbitrator who resigned and subsequently, a three member arbitral tribunal was formed. The tribunal refused to review the previous order passed by the arbitrator for production of the said documents. Delta refused to comply with the order. Consequently, the tribunal allowed USL to approach the court under Section 27 praying for a direction to Delta to produce the said orders.

Consequently, USL approached a Single Judge of the Bombay High Court which allowed the application and directed Delta to produce the sales tax assessment and appellate orders. Delta filed a special leave petition to the Supreme Court against the Single Judge’s Order on two grounds:

(1) the Single Judge did not have the competence to pass the order under S. 27 of the Act,
(2) the documents sought to be produced were confidential documents.


In this post, we will deal with the court’s ruling on the first ground while briefly touching upon the ruling on the second.

As regards the first ground, the court rejected the contention of Delta that S. 27 (and S. 43 of the 1940 Act) did not contemplate passing of an order in the nature of the order by the Single Judge but was only for the purpose of calling witnesses. The Court held that the scope of the power under S. 27 includes the power to call a party to the arbitration or any third party. The Supreme Court held that S. 27 would be available to the tribunal “to seek assistance from the court where any person who is not cooperating with the Arbitral Tribunal or where any evidence is required from any person, be it a party to the proceedings or others.” The Court held that S. 27 can even be exercised against a party which is not appearing before the arbitral tribunal.

 Therefore, the Court dismissed the appeal.

Two points, which are interrelated, are noteworthy.

One, the second ground raised by Delta against the Single Judge’s order was that the sales tax orders sought to be produced were confidential under the relevant tax laws. The Supreme Court rejected this contention. The court agreed that the Maharashtra VAT Act, 2002 provided that no court shall pass an order directing the tax officials to produce documents, returns or statements submitted to the tax officials. The court, however, held that while there was a bar against orders requiring government officials to produce such documents, there was no bar against an order directing the party to produce the same. 

Two, in the application filed before the Single Judge, USL impleaded the Assistant Commissioner of Sales Tax, Pune as Respondent as well. The Single Judge allowed the petition under S. 27 by directing the appellant to produce the documents. In the penultimate para of the judgement, the Single Judge observed:

“In that view of the matter, in ordinary course this Court would have passed the order directing the Respondent No.2 to produce the Assessment Orders on the failure of the Respondent No.1 to produce the same. However, since the learned AGP categorically stated that the record is not available with the Respondent No.2, as such a direction cannot be issued as against the Respondent No.2.”

The Supreme Court recognized that no court could order a government official to disclose documents, returns or statements made by the assessee in the course of proceedings before the tax officials bud did not rule on the correctness of the interpretation of the VAT Act by the Single Judge that records, statements or returns would not include assessment orders or appellate orders.

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