2022 – Page 8 – Nautiliyaa Legal

23 Mar

Applicability of Group Companies Doctrine while deciding applications under section 9 of the Arbitration and Conciliation Act, 1996

In the matter before the Division Bench of the Hon’ble Delhi High Court [Eveready Industries India Ltd. v. KKR India Financial Services Limited FAO(OS) (COMM) 2/2021 and CM APPL. 173/2021 & 2166/2021 decided on 07.02.2022], the Hon’ble Court once again elaborated on the applicability of Group Companies Doctrine to arbitration agreements when dealing with applications under section 9 of the Arbitration and Conciliation Act, 1996.

The issues arise out of the default in repayment of a loan granted in favour of two Indian companies. There were two personal guarantors and an obligor for the said loan. Since there was an arbitration agreement, the Lender (Respondent No. 1) which is a non-banking financial Company, moved an application under section 9 of the Arbitration and Conciliation Act, 1996 seeking an order to restrain the borrowers, guarantors and the obligor from dealing with their assets along with seeking similar order for restraining the appellants, which were stated as “Reference Entities” in the loan documents. In order to justify the same, the Respondent No. 1 invoked the Group Companies Doctrine stating that credit facility under the loan agreement was advanced to borrowers after due verification of the credit worthiness of the group companies including the appellants. The Ld. Single Judge granted the injunction against the appellants wherein they were restrained from selling, transferring, alienating, disposing, assigning, dealing or encumbering or creating third party rights on the assets and from carrying out any change in their capital structure, or any corporate or debt restructuring, during pendency of the arbitral proceedings. The order was challenged before the Division Bench of the Hon’ble High Court.

After hearing the parties at length, the Hon’ble Court first discussed the origin and scope of the Group Companies Doctrine. The doctrine was propounded in the case of Dow Chemicals v. Isover Saint Gobain ICC Case No. 4131, YCA 1984. The Hon’ble Supreme Court applied the doctrine for the first time in Chloro Controls India v Sereven Trent Water Purification (2013) 1 SCC 641. The Supreme Court, while acknowledging the nature of modern business transactions which are carried out through multiple agreements creating intrinsically related transactions between the parties within a corporate group, clarified that a third party or a non-signatory can be subjected to an arbitration agreement without its consent but only in exceptional cases and propounded two legal theories on the basis of which an arbitration agreement may also bind a non-signatory – one on the good faith principle when there is a clear intention of parties to bind a non-signatory and second on legal principle of principal and the agent. In such circumstances, the arbitration agreement entered into by one of the entity in the group can bind the non-signatories and affiliates or the parent company.

The Court held that in addition to examine the aspect whether composite reference of third parties would serve the ends of justice, the Court shall also look at the issue from the “touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute.” The Court further added that “The principle of ‘composite performance’ would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other.”

The doctrine was applied in Cheran Properties Ltd. V. Kasturi& Sons Ltd. (2018) 16 SCC 413to enforce an award against a non-signatory. In Mahanagar Telephone Nigam Ltd V. Canara Bank, (2019) SCC Online SC 995, the Court went on to established the test of “single economic entity” or “single economic reality”. The court explained through illustrations as to when a non-signatory is held to be bound. For instance, a non-signatory is bound when the entity is engaged in the negotiation or performance of the commercial contract. It is also construed to be bound when it made statements indicating its intention to be bound by the contract. The Court also elaborated that an entity in a group is bound when the nature of transaction is composite. A composite transaction refers to “where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute.” The Court also explained that the Doctrine is also applicable where there is a tight group structure with strong organizational and financial links, “so as to constitute a single economic unit, or a single economic reality”. The Court illustrated that this will apply in particular when the funds of one company are used to financially support or re-structure other members of the group.

Applying the principles to the facts and circumstances of the case, the Court found that the facility was extended to the borrower companies for repayments of existing loans of one of the appellants. The appellant was therefore beneficiary of the loan. The appellant however had contended that it had no obligation to either repay, or secure the facility. As per the loan documents any entity controlled by the two guarantors was included in the promoter group. One of the guarantors was the Vice Chairman and Managing Director of the appellant. His father was the Chairman. The other guarantor and cousin of the first guarantor was the director of the appellant. The Court stated that while a managing director as per the Companies Act is entrusted with substantial powers of the management of the affairs of the company, a promoter has control over the affairs of the company. In the same manner, the guarantors held similar positions in the other two appellants also. Moreover, the borrower companies and guarantors and their families were part of the promoter group. They had control over the reference entities which included the appellants.

The Court then went on to further observe that the promoter group held a substantial portion of Eveready Industries Ltd. The two borrower companies and Eveready Industries Ltd. were promoters of one of the appellants. The Court after extensively reviewing the shareholding pattern of the group entities observed that as per the loan documents all security providers, along with guarantors, were also obligors and the borrowers, guarantors and promoter group were restrained from selling, transferring or disposing off, the shareholding in borrowers. A similar bar on selling, transferring, or disposing off shares of any reference entities held by the promoter group without prior consent of the lenders was also provided for. In the loan documents there were several terms and conditions to be observed with respect to the reference entities which showed that the group entities including the appellants consciously sought to provide comfort and binding assurance to the lender so as to secure their loans, by binding the reference entities in every way. To state few of such terms and conditions, it was provided in the loan documents that promoter group, borrowers and obligors or any of their directors were obliged to ensure that they did not appear in the RBI’s list of defaulters and ECGS caution list; reference entities were to be protected from any material adverse effect ; operations of the reference entities had to be in compliance with applicable laws; there was obligation on borrowers to maintain the corporate character of the reference entities and to maintain transparency in the matter of maintenance of the accounts of the reference entities; Event of Default clause set out in loan agreement provided defaults that were with respect to reference entities etc.

The Court therefore concluded that the intention of the parties was clearly to bind the appellants i.e. the reference entities. It was further stated by the Court that the email exchanges clearly showed that the appellants had not just knowledge of the loan agreement, they acknowledged their obligations under the loan agreement. Further, it confirmed that the appellants were intended by all parties, including the appellants, to be bound by the terms of loan document.

The Court, therefore concluded that the ‘tight group structure’ is writ large from the overlapping shareholding pattern in the group, guarantors holding important positions in the appellant companies and a perceivable involvement of the appellant towards giving promise of performance under the loan documents. The Court further stated in strong terms that had there been no security of assets and shareholding of the reference entities/appellants, the Respondent No. 1 would not have extended the loan to the borrower companies. The Court held that respondents as lenders heavily relied on the assets, shareholding and the valuation of the reference entities/appellants and rejected “the contention placed by the Appellants that their assets could be only reached after lifting the corporate veil.” The Court further clarified that “The reason why the assets of the Appellants are liable to be preserved is, because it was the underlying financial strength of the Appellants, on the basis of which the loan was extended by the Lenders/ Respondents. The borrowers have no assets of their own, so it becomes imperative to protect these assets for the aid of the Arbitral tribunal.” The Court finally dismissed the appeal imposing the cost of Rs. 2 lakhs each.

22 Mar

Restraint on Judicial Review of Exercise of Contractual Powers or Tender Jurisdictions by Government Bodies

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Government Tenders

In the case of Tata Cellular v. Union of India [(1994) 6 SCC 651], the Hon’ble Supreme Court had held that power of judicial review would apply to the exercise of contractual powers by Government bodies. However, the Court added a word of caution that although the power of judicial review exists to prevent arbitrariness and favoritism by the Government, the power comes with inherent limitation since “Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State”. Therefore, while the tenets of Article 14 have to be kept in view by the Government while exercising the tender jurisdiction, however the right to choose cannot be considered to be an arbitrary power. The Government always has with it the right to refuse the lowest or any other tender.

The Court went on to lay down the scope of judicial review in the matters related to administrative decision of Government and the award of tenders by the Governments. The Court clarified that the Court cannot sit as a court of appeal and thus cannot substitute its own decision. The Court laid down in clear terms that “The Government must have freedom of contract” provided such decision is not arbitrary and passes the test of principles of natural justice and that of reasonableness as per the Wednesbury principle.

Recently, the Hon’ble Apex Court once again dealt with the similar issue in the matter of M/s. N.G. Projects Limited v. M/s. Vinod Kumar Jain &Ors. [CIVIL APPEAL NO. 1846 OF 2022]. The Court held that construction of roads being an essential part of development of infrastructure in any State, “[w]e find that the interference in contract awarded to the appellant is wholly unwarranted and has caused loss to public interest.”

The issue arises out of tenders invited by the Road Construction Department of Jharkhand in June 2019 for reconstruction of a road connecting cities in Jharkhand. Respondent No. 1 participated in the bid and submitted Bank Guarantee as bid security. However, the tender was cancelled in August 2019 and a fresh notice inviting tender was invited. In the technical evaluation of bids, it was found by the Tender Evaluation Committee that Respondent’s bid was found to be non-responsive for several reasons. The Bank Guarantee was not as per the format prescribed in Standard Bidding Document. It was rather issued on a date preceding the date of the NIT. The amount mentioned was different in numeric and words. The bid capacity of Respondent No. 1 was less than the estimated cost of work. Lastly, the affidavit and undertaking supporting the bid were not properly notarized.

The technical bid of the appellant on the other hand was found to be substantially responsive. After due evaluation of its financial bid, work contract was issued to the appellant in October 2019. The appellant started the work on time and completed earth work for 21.9 kms out of the 24 kms proposed road which monetarily was a work for Rs.8.5 crores as per the appellant.

Respondent No. 1 filed a Writ Petition in October 2019 for quashing of the decision of the Technical Evaluation Committee where its bid was held as nonresponsive. The State defended its decision. The Hon’ble Single Bench of the High Court passed its judgment in favor of the Respondent setting aside award of contract granted to the appellant.The Division Bench of the High Court dismissed the appeals.

On appeal, the Apex Court first went on to observe the tests laid down inTata Cellular [Supra] and also discussed the decision of the Court in Central Coalfields Limited &Anr. v. SLL-SML (Joint Venture Consortium) &Ors [(2016) 8 SCC 622] where it was held that “there must be judicial restraint in interfering with administrative action…the soundness of the decision taken by the employer ought not to be questioned.” The Court in the case had emphasized on the importance of the issue of the acceptance or rejection of a bid or a bidder which should also be looked from the point of view of the employer and not the aggrieved party alone.

Similarly in Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited &Anr [(2016) 16 SCC 818] it was held that “the owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents. The constitutional courts must defer to this understanding and appreciation of the tender documents, unless there is mala fide or perversity in the understanding or appreciation or in the application of the terms of the tender conditions.” In Silppi Constructions Contractors v. Union of India and Ors.[2019 SCC OnLine SC 1133] it was held that the courts may not interfere in the commercial matters. Very recently, in National High Speed Rail Corpn. Ltd. v. Montecarlo Ltd. [2022 SCC OnLine SC 111], the Hon’ble Supreme Court held that the High Courts should be “extremely careful and circumspect” in exercise of its discretion while entertaining writ petitions and/or while granting stay in such matters. In Uflex Ltd. v. Government of T.N. [(2022) 1 SCC 165], the Apex Court stated that the enlarged role of the Government in economic activity and its corresponding ability to give economic “largesse” was the bedrock of creating what is commonly called the “tender jurisdiction”.

Having analyzed catena of judgments, the Apex Court went on to opine that the interpretation of terms of the contract should be viewed from the perspective of the employer and by the employer. Applying the principles laid down by the Hon’ble Supreme Court, the Court in the present mattter observed that the respondent was at fault by not following the terms of the fresh NIT. The Court then went on to observe that recently an amendment was made in the Specific Relief Act, 1963 and a new clause (ha) was inserted in Section 41. The intent of the legislature was that infrastructure projects should not be generally stayed by the Courts especially while exercising its jurisdiction under Article 226 of the Constitution of India. The Court held that “the Writ Court should refrain itself from imposing its decision over the decision of the employer as to whether or not to accept the bid of a tenderer. The Court does not have the expertise to examine the terms and conditions of the presentday economic activities of the State and this limitation should be kept in view”.

The Court further added that the injunction or interference in the tender leads to additional costs on the State and is also against public interest. Therefore, the State and its citizens suffer twice, firstly by paying escalation costs and secondly, by being deprived of the infrastructure for which the present-day Governments are expected to work.In addition to the word of caution against grant of stays and injunctions by the High Courts, the Supreme Court also showed its concern that multiple layers of exercise of jurisdiction also delays the final adjudication challenging the grant of tender. It was therefore suggested that such matters be entrusted to a Division Bench of the High Court.

11 Mar

No Application of Sections 31(8), 31A and 38(1) of Arbitration and Conciliation Act,1996 where the Fees of the Arbitral Tribunal has been fixed by Parties or by the Court in Terms of 4th Schedule

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Arbitration

Hon’ble Division Bench of the Delhi High Court recently in the matter of Jivanlal Joitaram Patel v. National Highways Authority of India[FAO (OS)(COMM) 70/2017] reaffirmed the position of law regarding when can the fee of the Arbitral Tribunal shall be fixed as per Schedule IV of the Arbitration and Conciliation Act, 1996 and what does the term ‘sum in dispute’ imply.

In 2018, an appeal was disposed of by the Hon’ble Delhi High Court appointing a sole arbitrator in a dispute between the Appellant and the Respondent. As per the order, the arbitral tribunal was required to fix the fee as per Schedule IV of the Arbitration and Conciliation Act, 1996 (hereinafter “1996 Act”). On entering reference, the Arbitral Tribunal vide its procedural order determined the total amount of claim and a total amount of counter claim along with the interest. Vide a subsequent procedural order, the Tribunal determined its fees in terms of ratio of the judgment of Hon’ble High Court in Rail Vikas Nigam Vs. Simplex Infrastructure Ltd. Both the parties objected to the fees. Therefore, the Arbitral tribunal heard both the parties on the question as to whether counter claim(s) is/are to be included cumulatively along with the claims in the expression “sum in dispute” appearing in the 4^th Schedule of the 1996, or the claim amount and counter claim amount are to be separately considered in terms of proviso to Section 38(1) of the Act. The Arbitral Tribunal held that applicable arbitral fee has to be assessed separately for the claim, and counter claim. The reasoning inter alia was based on the ground that proviso to Section 38(1) of the Act carves out a specific exception providing for Arbitral Tribunal to fix a separate fee for claims and counter claims. It was further observed by the Ld. Arbitral tribunal that “…combining claims and counter claims for the purposes of determining fee under the 4^th Schedule could result in inequitable situations contrary to the express language of Section 38(1) of the Act.” The Ld. Arbitral Tribunal drew a parallel from the law and practice in civil suits where the court fees is determined separately in case of counter claims.

The parties filed application before the Hon’ble Court seeking clarification regarding the moot question. Both the parties were not in dispute regarding the correctness of the decision in Delhi State Industrial Infrastructure Development Corporation Ltd. Vs. Bawana Infra Development Pvt. Ltd., 2018 SCC OnLine Del 9241 wherein it was held that “sum in dispute” would include both – the claim and counter claim amounts taken cumulatively. It was held that Sections 38(1) does not have any bearing on the interpretation of 4^th Schedule. The Hon’ble Court approved the decision in Delhi State Industrial Infrastructure Development Corporation Ltd. and held that proviso to Section 38(1) of the Act will apply only when the Arbitral Tribunal fixes its own fee and not when fees has to be fixed as per 4^th Schedule of 1996 Act. Therefore, Section 38(1) of the Act cannot be resorted to for interpretation of the expression “sums in dispute” provided under 4^th Schedule.

The Hon’ble Court clarified that unlike in a civil suit where the counter claim can be with respect to entirely different transaction, the counter claim in an arbitration proceeding has to necessarily arise from the same contract and arbitration agreement. This is the reason why the court fees in case of a counter claim is to be calculated and affixed separately. The Court observed that “[T]herefore, in the context of arbitration proceedings it may not be correct to say that counter claim would be an “independent” cause of action”.

The Court further relied upon the judgment in National Highways Authority of India Vs. Gayatri Jhansi Roadways Limited 2019 SCC OnLine SC 906 wherein the Hon’ble Supreme Court held that if there is an agreement between the parties which lays down the fee structure for the arbitral tribunal then the fee will be fixed in terms of the agreement between the parties and not the 4^th Schedule to the Act. Therefore, it was concluded by the Hon’ble Court that Sections 31(8), 31A and Section 38(1) of the 1996 Act of the 1996 Act has no application in interpreting the expression ‘sums in dispute’ as provided in Schedule IV of the 1996 Act or in determination of Arbitral Tribunal fees if the fee structure has been expressly agreed between the parties.

6 Mar

Can a power of attorney be cancelled by simply writing ‘cancelled’ on it?

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Specific Contracts

The issue regarding the revocation of a registered power of attorney (“PoA”) was addressed most recently in the matter of Amar Nath v. Gian Chand [2022 SCC OnLine SC 102] decided on January 28, 2022 by the Hon’ble Apex Court. In the said matter the plaintiff had executed a special power of attorney in favour of the Defendant No. 2 for the sale of plaintiff’s property in favour of Defendant No. 1. The Defendant No. 1, however, was not in a position to arrange for money and Defendant No. 2 PURPORTEDLY surrendered the original power of attorney to the plaintiff and the plaintiff drew a cut line on the document and wrote ‘cancelled’. According to plaintiff he also told Defendant No. 1 that the same stood cancelled. Subsequently Defendant No. 2, allegedly in collusion with Defendant No. 1, applied for the copy of the power of attorney, and fraudulently executed the sale deed in between themselves for a consideration of Rs. 30,000/-. The mutation was also sanctioned. On becoming aware of it, the plaintiff challenged the sale deed by filing a suit for declaration by way of permanent injunction mainly on the grounds firstly that the Defendant No. 2, during the registration of the sale deed, could not have produced the original PoA before the registering officer under Registration Act and secondly, the sale deed was executed without authority since special power of attorney was deemed to have been cancelled.

The trial court declined to grant relief of declaration by way of permanent injunction. The first Appellate court held that the sale deed was valid and the case of the plaintiff, that the power of attorney was cancelled was unsustainable. The High Court proceeded to set aside the findings of the lower courts and held that the mutation showing the sale in favour of the Defendant no. 1 was null and void as per Section 18 (meant to actually refer to 18A) of the Registration Act, 1908. As per section 18A, it was necessary for the Registering Authority to see the true copy of the special power of attorney. Since original power of attorney was cancelled, the same could not be relied upon by the Registering Authority for the purpose of execution of the sale deed.

The Apex Court started by looking into the relevant provisions of Registration Act. The Court observed that Section 18A contemplates the production of a true copy of a document which is sought to be registered. In the present case it was the sale deed and the production of the sale deed is not in question. The Court then went on to analyse the applicability of other provisions under section 32, 33 and 34 of the Registration Act. As per section 32, every document to be registered must be presented by person executing or the representative or an agent of such person. Section 34 deals with enquiry before registration by registering officer. It requires the persons executing the document to be present in person at the time of registration. It has been decided in Rajni Tandon v. Dulal Ranjan Ghosh Dastidar (2009) 14 SCC 782 that section 32 of the Registration Act mandates the presence of the actual persons who executed the document sought to be registered. It was held that “Where a person holds a power of attorney which authorises him to execute a document as agent for someone else, and he executes a document under the terms of the power of attorney, he is, so far as the registration office is concerned, the actual executant of the document and is entitled under Section 32(a) to present it for registration and get it registered.”

Drawing a parallel, the Court observed that in the present matter there was a true copy of power of attorney which authorised Defendant No. 2 and if it was not cancelled and he had executed the sale deed, he is within his rights to present the documents before the registering officer. The Court also observed that the duty of the Registering Officer extends only to enquire and find that such person is the person who has executed the document he has presented and further be satisfied about the identity of the person. He is duty bound to satisfy himself of a right of such a person to so appear. In case of an agent, thus, he is bound to produce the power of attorney to the Registering officer. Section 33(4) of the Act further states that once the same has been produced, power of attorney is proved and requires no further proof.

The Court after dissecting the relevant provisions of the Registration Act, concluded that if the registering Authority is satisfied about the identity of the person and that he admits the execution of the document, the officer may not need to enquire further. The court therefore rejected the argument of the plaintiff that the non-production of the original power of attorney by the Defendant No. 2 was fatal to a valid registration of the sale deed.

The Court then turned on to the contention of the plaintiff that original power of attorney was cancelled by cutting it and writing on it ‘cancelled’ and thus Defendant No. 2 had no authority thereafter.

The Court, in this regard, observed that the power of attorney was registered. The only question therefore which required to be answered was whether the power of attorney was cancelled before the execution of the sale deed. If yes, whether the cancellation was effected in a valid and legal manner and finally, whether it was made known to not only to the Defendant no. 2 i.e. the agent but also to the Defendant no. 1 i.e. the third party.

The Court then analysed the provisions of Chapter X of the Indian Contract Act, 1872. The Court taking note of Section 208 of the Indian Contract Act, observed the principles of contract of agency that a termination of such contract, even if valid, shall not operate against a third party who was not notified. The third party who in good faith entered into contract with the agent in ignorance of the revocation shall be protected. The Court appreciated the facts where the plaintiff had asserted that the deed of PoA was surrendered. The Defendant No. 2 on the other hand stated that the PoA was misplaced and he had to apply for a certified copy. The Court further appreciated that although the oral evidence may be contradictory, and may not be of much help, the letter of the plaintiff to Defendant No. 2 written subsequent to the alleged dated of surrender of the PoA clarifies that the PoA was not surrendered on the date asserted by the plaintiff. In the said letter, the plaintiff has made reference to the PoA and asked the Defendant No. 2 to do the needful and send the money on selling the property. The Defendant No. 2 also informed the plaintiff of the sale by his letter although he could not immediately meet and give the money to the plaintiff due to personal difficulties.

On the aspect of cancellation, the Court was of the opinion that the plaintiff neither did get the power of attorney cancelled at the Sub-Registrar Office nor did he send any notice of cancellation. The Court clarified that “This we say as even in the absence of a registered cancellation of the power of attorney, there must be cancellation and it must further be brought to the notice of the third party at any rate as already noticed.”

1 Mar

Whether Section 7B of the Indian Telegraph Act 1885 Ousts the Jurisdiction of the Consumer Forum

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Consumer

The Apex Court in the matter of Vodafone Idea Cellular Ltd v. Ajay Kumar Agarwal [Civil Appeal No 923 of 2017] decided on 16 February, 2022 held that telecom services provided by a private company comes within the definition of services and section 7B of the Indian Telegraph Act which provides for a statutory arbitration does not oust the jurisdiction of the Consumer For a under Consumer Protection Act, 1986.

The complaint was filed by the Respondent against the Appellant seeking inter alia compensation in tune of Rs. 22,000/- on account of excessive billing between 8 November 2013 and 7 December 2013. The Appellant filed an application challenging the maintainability of the complaint on the ground that according to General Manager, Telecom v. M Krishnan and Another (2009) 8 SCC 481, it is not a service provider. The District Forum preliminarily observed that private telecom service provider is not a ‘telegraph authority’ for the purposes of Section 7B of the Indian Telegraphic Act, 1885 and asked the Appellant to file its written statement.

The order of the District Forum was challenged by the Appellant. The State Commission held that the issue of jurisdiction could be raised as a preliminary issue. The State Commission further relied upon the judgment in Bharthi Hexacom Ltd. v. Komal Prakash [Misc Application No. 204/2014 in Revision Petition Application No. 12] wherein it was held that “for a dispute under Sect. 7(B) between Private Service Provider and Consumer the authority cannot take decision because, for Private Service provider any arrangement is not made in the above act … hence, the Learned Consumer Forum has the jurisdiction to hear, decide and dispose of the dispute between the Private service Provider and consumer”.

The National Commission affirmed the decision of State Commission.

On appeal, the Hon’ble Supreme Court framed the following issue for determination – whether the existence of a remedy under Section 7B of the Act of 1885 ousts the jurisdiction of the consumer forum under the Consumer Protection Act 1986?

The Court started with analysis of the jurisdiction of District Forum provided under Section 11 and definitions of ‘service’ provided under section 2(o) and ‘deficiency’ provided under section 2(g) of the Consumer Protection Act, 1986. The Court observed that the language employed under the provision shows that definition of ‘service’ is very wide particularly by use of expressions – “service of any description which is made available to potential users”, “means and includes”, “but not limited to”. The expression ‘service’ is wide enough to mean service of any description.

Section 7B of the Telegraph Act provides for arbitration. Accordingly, “any dispute concerning any telegraph line, appliance or apparatus arises between the telegraph authority and the person for whose benefit the line, appliance or apparatus is, or has been, provided, the dispute shall be determined by arbitration and shall, for the purposes of such determination, be referred to an arbitrator appointed by the Central Government”. The Appellant while relying on section 7B argued that Appellant being a telecom service provider, the subscriber/Respondent has the remedy to invoke arbitration as per section 7B of the Telegraph Act.

With regards to the overriding effect of Telegraph Act, the Court observed that both are special enactments. While the Telegraph Act is for regulating telegraphs, Consumer Act, 1986 is a later enactment and is intended to protect the interest and welfare of consumers. It was emphasised by the Court that Consumer Protection Act, 1986 being a later enactment, an ouster of jurisdiction cannot be lightly assumed unless express words are used or such a consequence follows by necessary implication. Addressing the contention of the Appellant that telecom services were incorporated only in the new legislation i.e. Consumer Protection Act, 2019, the Court held that “specification of services in Section 2(s) of the earlier Act of 1986 was illustrative” and therefore the argument was declined.

With regard to provision of arbitration under Section 7D of the Telegraph Act, the Court observed that the remedy of arbitration is statutory in nature but this does not retrain the applicability of law laid down by the Apex Court in Emaar MGF Land Ltd. v. Aftab Singh (2019) 12 SCC 751. The Hon’ble Supreme Court had held that an arbitration agreement shall not oust the jurisdiction of consumer fora. The Court added that section 3 of the Consumer Protection Act, 1986 which provides that “the provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force” further strengthens the argument. The Court had held that Consumer Protection Act, 1986 provides for a special remedy to a consumer which is in addition to the remedies that can be availed of by them. Remedies include arbitration and also special statutes [Imperia Structures Ltd. v Anil Patni (2020) 10 SCC 783]. A person/party has in such circumstances. In IREO Grace Realtech (P) Ltd. v. Abhishek Khanna [2021 SCC OnLine SC 277] it was observed that if a person has at its disposal two remedies, he “can make the choice to elect either of the remedies as long as the ambit and scope of the two remedies is not essentially different.” This emerges from the doctrine of election. In the case of IREO Grace Realtech (P) Ltd. the consumer/complainant, who was an allottee, also had the choice of proceeding under RERA.

The accordingly concluded by stating that in the present matter “It would be open to a consumer to opt for the remedy of arbitration, but there is no compulsion in law to do so and it would be open to a consumer to seek recourse to the remedies which are provided under the Act of 1986, now replaced by the Act of 2019.”

The Court once again clarified that the insertion of the expression ‘telecom services’ in the definition which is contained in Section 2(42) of the Act of 2019 cannot be construed to mean that telecom services were excluded from the jurisdiction of the consumer forum under the Act of 1986. The definition of the expression ‘service’ in Section 2(o) of the Act of 1986 was wide enough to embrace services of every description including telecom services.

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