Cryptocurrencies – RBI – Circular imposing ban on trading in cryptocurrency – Subordinate legislation – Violation of Fundamental Rights [Constitution of India, Art. 19(1)(g), Art. 14; Banking Regulation Act, 1949, S. 35A, S. 36(1)(a), S. 56; RBI Act, 1934, S. 45JA, S. 45L; Payment and Settlement Systems Act, 2007, S. 10(2), S. 18]
FACTS
The Reserve Bank of India (RBI) issued a ‘Statement on Developmental and Regulatory Policies’ on 5th April, 2018 and a Circular dated 6th April, 2018 in exercise of the powers conferred on it by section 35A read with section 36(1)(a) and section 56 of the Banking Regulation Act, 1949; section 45JA and 45L of the RBI Act, 1934; and section 10(2) read with section 18 of the Payment and Settlement Systems Act, 2007, which directed the entities regulated by RBI (i) not to deal with or provide services to any individual or business entities dealing with or settling virtual currencies, and (ii) to exit the relationship, if they already have one, with such individuals / business entities, dealing with or settling virtual currencies (VC).
The petitioner challenged the said Statement and Circular and sought a direction to the respondents not to restrict or restrain banks and financial institutions regulated by RBI from providing access to the banking services to those engaged in transactions in crypto assets.
HELD
The measure taken by the RBI should pass the test of proportionality, since the impugned Circular has almost wiped the VC exchanges out of the industrial map of the country, thereby infringing Article 19(1)(g) of the Constitution.
While regulation of a trade or business through reasonable restrictions imposed under a law made in the interests of the general public is saved by Article 19(6) of the Constitution, a total prohibition, especially through a subordinate legislation such as a directive from RBI, of an activity not declared by law to be unlawful, is violative of Article 19(1)(g). The Circular dated 6th April, 2018 was set aside on the ground of proportionality.
20. Tarabai Wellinkar Charitable Trust & Anr. vs. The State of Maharashtra & Ors. WP No. 448 of 2020 Date of order: 12th February, 2020 Bench: Pradeep Nandrajog J., Bharati Dangre J.
Leave & Licence – No transfer of right, title or interest – Levy u/s 37A of Maharashtra Land Revenue Code is held to be not valid [Maharashtra Land Revenue Code, 1966, S. 37A]
FACTS
Petitioner No. 1, the trust, executed a Leave & Licence agreement with M/s Sheorey Digital Systems Private Limited demising to it, as a licensee, the ground floor of a building popularly known as ‘Tarabai Hall’ for three years commencing from 15th July, 2019 to 14th July, 2022 with licence fee of Rs. 4,00,000 per month plus GST and other taxes to be borne by the licensee.
Treating the Leave & Licence agreement to be a sale / transfer of interest, the Collector has by order dated 21st June, 2019 issued u/s 37A of the Maharashtra Land Revenue Code, 1996 demanded from the petitioner Rs. 41,27,427 towards unearned income.
HELD
A bare reading of the legislation in section 37A of the Maharashtra Land Revenue Code, 1966 makes it clear that the permission of the State Government, with right vested in the State Government under sub-section (2), is required when a sale, transfer, redevelopment, use of additional Floor Space Index, transfer of Transferable Development Rights or change of use is taking place under a document. The transfer referred to in the said section has to be a transfer of an interest in the corpus.
An Indenture of Leave & Licence does not create any right, title or interest in the corpus of the property in favour of the licensee. It only permits the licensee to enter upon the property and do such acts as are permitted and which in the absence of the licence would amount to a trespass.
The Indenture of Leave & Licence, be it for residential, commercial or industrial purpose, would not be subject to any levy u/s 37A of the Maharashtra Land Revenue Code.
21. Vidya Drolia & Ors. vs. Durga Trading Corporation Civil Appeal No. 2402 of 2019 (SC) Date of order: 14th December, 2020 Bench: Sanjiv Khanna J., N.V. Ramana J.
Arbitration – Landlord-Tenant disputes under Transfer of Property Act, 1882 – Arbitrable if Rent Control Laws are not applicable [Arbitration and Conciliation Act, 1996, S. 8, S. 11; Transfer of Property Act, 1882, S. 111, S. 114, S. 114A]
FACTS
A reference was made to a larger bench vide order dated 28th February, 2019 in Civil Appeal No. 2402 of 2019 titled Vidya Drolia and Others vs. Durga Trading Corporation, 2019 SCC OnLine SC 358 as it doubted the legal ratio expressed in Himangni Enterprises vs. Kamaljeet Singh Ahluwalia (2017) 10 SCC 706 that landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882 are not arbitrable as this would be contrary to public policy.
The issues that are required to be answered relate to two aspects that are distinct and yet interconnected, namely:
(i) meaning of non-arbitrability and when the subject matter of the dispute is not capable of being resolved through arbitration; and
(ii) the conundrum – ‘who decides’ – whether the Court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability.
HELD
The landlord-tenant disputes arising out of the Transfer of Property Act, 1882 are arbitrable as they are not action in rem but pertain to subordinate rights in personam that arise from rights in rem.
Further, the Transfer of Property Act, 1882 does not expressly bar arbitration and an arbitral award may be executed and enforced like a decree of a civil court.
The Arbitration and Conciliation Act, 1996 itself does not exclude any category of disputes as being non-arbitrable. However, post the 2015 amendment the structure of the Act was changed to bring it in tune with the pro-arbitration approach. Under the amended provision, the Court can only give a prima facie opinion on the existence of a valid arbitration agreement. In clear cases where the subject matter arbitrability is clearly barred, the Court can cut the deadwood to preserve the efficacy of the arbitral process.
However, where a dispute would be covered by State Rent Control Laws, then the said dispute is not arbitrable.
22. Rajesh Agarwal vs. RBI & Ors. WP 19102 of 2019 (Telangana)(HC) Date of order: 10th December, 2020 Bench: Raghvendra Singh Chauhan J., B. Vijaysen Reddy J.
RBI – Master Circular – Principles of Natural Justice to be read into the Circular
FACTS
The petitioner was the Chairman and Managing Director of the borrower company. In the course of its business, the company approached several banks, including the respondent banks, and availed a loan of Rs. 1,406.00 crores. The company defaulted in repayment of the loan amount.
As per the Circular Guidelines of the Reserve Bank of India, all lender banks, with the State Bank of India as the lead bank, formed the JLF (a Joint Lenders Forum). On 29th June, 2016 the JLF declared the company’s accounts as Non-Performing Assets.
Based on the Forensic Audit Report dated 29th August, 2016, on 31st August, 2016 the JLF closed the issue observing that ‘there were no irregularities, with regard to fraudulent transactions pointed out in the Forensic Audit Report’.
Thereafter, by invoking Clause 2.2.1(g) of the Master Circular, on 2nd February, 2019 the JLF & Fraud Identification Committee declared the account of the company as ‘fraud’. Hence the writ petition.
HELD
Fair play in governance is the gravitational force which binds the entire State. Therefore, before a person or entity is obliterated, or is subjected to civil and penal consequences, the person or entity must be given an opportunity of a hearing. Without giving such an opportunity, without giving the opportunity to explain the intricacies of the accounts, or of the business dealings, to denounce a person is to act unfairly, unjustly, unreasonably and arbitrarily. Even in an administrative action, justice should not only be done but must also appear to be done to the satisfaction of all the parties.
Considering the grave civil consequences and penal action which would follow as a result of classifying a borrower as ‘a fraudulent borrower’, or ‘a holder of a fraudulent account’, it is imperative that the principles of natural justice, especially the principles of audi alteram partem, must be read into Clauses 8.9.4 and 8.9.5 of the Master Circular.
23. Nautilus Metal Crafts (P) Ltd. vs. Joint Director-General of Foreign Trade WP(C) No. 5167 of 2020 (Del.)(HC) Date of order: 18th November, 2020 Bench: Navin Chawla J.
Foreign Trade (Development and Regulation) Act, 1992 – Suspension or cancellation – Licence, certificate, scrip or any instrument bestowing financial or fiscal benefits – Only with ‘for good and sufficient reasons’ – Mandatory requirement [Foreign Trade (Development and Regulation) Act, 1992, S. 9]
FACTS
The petitioner dealt with readymade garments. It procured orders from other countries and after procurement of an order directly approached the manufacturer in India who manufactured the same and thereafter these were supplied by the petitioner to the foreign buyers.
The respondent issued the impugned show cause notice dated 8th November, 2019 to the petitioner stating that the DRI had informed it that an investigation is being carried out against the petitioner ‘for gross overvaluation to fraudulently avail export benefits’ and it had been requested not to issue any export incentives to the petitioner. The petitioner was asked to show cause as to why it be not placed in DEL so that benefits under Foreign Trade Policy (FTP) are stopped, including future refusal of Authorisation / Scrips under Rule 7(c), 7(j) and 7(n) of the Foreign Trade (Regulation) Rules, 1993 (‘Rules’).
The petitioner has challenged the show cause notice dated 8th November, 2019 on the ground that it was vague as it did not spell out the exact nature of violation for which the petitioner is sought to be proceeded against and also the impugned order dated 10th January, 2020 on the ground that the same had been passed without supplying the petitioner the documents sought to be relied upon for proceeding against it.
The petitioner further claimed that pursuant to the Circular No. 16/2019-Customs dated 17th June, 2019 issued by the Director, Customs, Central Board of Indirect Taxes and Customs with regard to IGST refund, the exports made by the petitioner were subjected to 100% examination and no discrepancy was found in the same. It was further claimed that even the export proceeds against these exports and other exports had been realised by the petitioner.
HELD
The Court held that any refusal to grant, suspend or cancel any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits can only be ‘by an order in writing’. In fact, section 9(4) expressly mandates that suspension or cancellation of any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits can only be ‘for good and sufficient reasons’. The requirement of giving reasons cannot, therefore, be dispensed with and is mandatory.
Further, in the order there is no reference to the show cause notices and to the replies submitted by the petitioner and how they have been dealt with and appreciated by the Authority. In fact, it gives no reason except stating that the ‘Firm is under DRI Ludhiana investigation’.
The impugned order dated 10th January, 2020 does not show any application of mind to these submissions as the order contains no reasons. The impugned order was set aside. Costs were imposed on the respondent.
