NCLAT New Delhi- RERA Authority also has locus to challenge in appeal against CIRP initiation Order under Sec. 61 of IBC before NCLAT.

 IN THE NATIONAL COMPANY LAW APPELLATE TRIBUNAL

Principal Bench, New Delhi

Real Estate Regulatory Authority

v.

D.B. Corp Ltd. & Anr.

Company Appeal (AT) (Insolvency) No. 1172-1173 of 2022 with 1321 of 2022

Decided on 08-Dec-23

Brief about the decision:

Facts of the case

• Corporate Debtor entered into Barter Agreement with Operational Creditor for extensive advertising campaign of its projects. Pursuant to the Agreement, the Operational Creditor was to publish Advertisement for consideration which included cash component and Barter Component. The Cash Component against the advertising was to the paid and the Barter Component was to be utilized in form of allotment of units which were required to be transferred in favour of the Operational Creditor.
• The RERA received various complaints from allottees of the Corporate Debtor, which complaints were entertained and various orders related to different projects were passed in the year 2020-21 directing the Corporate Debtor to refund the amount along with compensation to various complainants. RERA also passed an order on 18.08.2021 under Section 35 of the RERA Act, 2016 to investigate about the diversion of funds from the designated account.
• Orders were also passed on 23.03.2022 by RERA revoking the registration of real estate project ‘Aakriti Business Arcade’ and directing for appointment of an agency for completion of the said project under Section 8 of the RERA Act, 2016.
• An application under Section 9 was filed by the Operational Creditor before the Adjudicating Authority on 02.02.2022 claiming default of operational debt of Rs.10,77,17,000/- with interest consequent to the Barter Agreement entered between the Operational Creditor and the Corporate Debtor and same has been admitted by Adjudicating Authority (NCLT), Indore Bench, Court No.1.
• Appellants herein Regulatory Authority(RERA) constituted under Section 20 of the RERA Act, 2016, Interim Resolution Professional and Aquacity Consumer and Societies Welfare Society’ which claim to be association of 74 homebuyers have challenged the CIRP admission order under Sec. 9 of IBC of NCLT.
• The Appellant, Aquacity Consumer and Societies Welfare Society claiming to be a society of homebuyers claimed to have filed two consumer complaints under Section 12(1)(b) of the Consumer Protection Act, 1986 for its members/homebuyers. The NCDRC allowed both the Consumer Complaints and directed the Corporate Debtor to refund the amount collected from the homebuyers along with interest of 9% pa from the date of possession. Civil Appeals were filed before the Hon’ble Supreme Court by the Appellant Association for modification of the order of NCDRC to the extent that the interest should be from the date of payment and not from the date of possession. In the Appeals notices were issued.

Decision of the Appellate Tribunal

A. Question No. I: Whether RERA has locus to challenge CIRP admission order before NCLAT?

• Section 61 of the Code, 2016 provides for an Appeal by “any person aggrieved by the Order of the Adjudicating Authority”. Section 61, sub- Section (1) uses the expression “any person aggrieved”.(p12)
• RERA is a statutory authority under Section 20 sub-section (2). RERA is a body corporate and is entitled to sue or to be sued in its name. RERA is thus fully competent to sue in its name. Question of locus to file an Appeal as an aggrieved person and the question as to whether appeal filed by the aggrieved person is to succeed, are two different questions and the question of locus is not dependent on success of the grounds in the Appeal.(p18)
• In the present case the RERA has taken various actions against the Corporate Debtor and various orders passed by RERA were to be complied by the Corporate Debtor and it was only due to continuation of CIRP against the Corporate Debtor that RERA could not have proceeded further to initiate compliance of its order.(p23)
• NCLAT in paragraph 6 of the judgment in IBBI v. GTL Infrastructure & Ors. (2023) ibclaw.in 110 NCLAT took the view that IBBI has nothing to do with the litigation between two parties i.e. Financial Creditor and Corporate Debtor whereas in the present case the RERA who had already issued various orders against the Corporate Debtor has to do with the corporate debtor and was directly involved with the enforcement of the RERA Act qua the Corporate Debtor hence the judgment in the case of IBBI (supra) is clearly distinguishable.(p23)
• In view of the sequence and events of the facts which took place and various proceedings drawn by RERA much prior to issuance of notice under Section 8 of the Code by the Operational Creditor, we are satisfied that Appeal filed by the RERA cannot be thrown out on the ground of locus. The RERA held to be aggrieved person within the meaning of Section 61 of the Code.(p25)
• Thus, the Question No. I has to be answered in affirmative holding that RERA has locus to file Company Appeal (AT) Ins. No. 1172-1173 of 2022.(p26)

B. Question No. II Whether Aquacity Consumer and Societies Welfare Society has locus to file Appeal within the meaning of Section 61 of the Code?

• Appellant being association of the home-buyers of Real Estate Project who has already initiated proceedings for direction of the interest of the home-buyers is aggrieved person within the meaning of Section 61 of the Code and the Appeal filed by the Appellant cannot be dismissed on the ground of locus.(p27)
• NCLAT answers Question No. II in affirmative holding that Aquacity Consumer and Social Welfare Society has a locus to file an Appeal under Section 61 of the Code against the Order dated 05th August, 2022.(p28)

C. Question No. III Whether Barter Transaction falls under definition of Operational Debt under IBC?

• There are nine Barter Agreements between the parties beginning from 29.09.2010 and last being 13.08.2019. Barter Agreement is entered between DB Corporation Ltd. and AG8 Ventures Ltd. which is executed on stamp duty of Rs. 1000.(p32)
• From the definition of claim under Section 3(6) of IBC it is clear that both sub-clause ‘(a)’ and ‘(b)’ refers to “a right to payment”. The claim must subsist for a debt being debt to become operational debt must relate to a right to payment unless operational creditor has a claim i.e. a right to payment against the corporate debtor, no operational debt can arise to enable Operational Creditor to initiate proceeding under Section 9 of the Code.(p41)
• The claim of Section 8 and Section 9 also indicates that proceedings under Section 9 by Operational Creditor can be initiated for payment of unpaid operational debt. Section 8(1) uses expression “demanding payment of the amount involved in the default” whereas Section 8(2)(b) uses the expression “the payment of unpaid operational debt” thus non-payment of operational debt is sine qua non for giving any demand notice under Section 8 of the Code leading to Section 9 also makes it clear that after the expiry of period of 10 days from the date of delivery of notice, sub-section 1 of Section 8 of the Code states if the Operational Creditor does not receive payment from the Corporate Debtor, operational Creditor may file an application for initiating a CIRP, thus not receiving the payment from the Corporate Debtor is a condition precedent for initiating Section 9 Application.(p41)
• Hon’ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. NBCC (India) Ltd. & Ors. (2021) ibclaw.in 63 SC held that expression payment only refers to the payment of money and not anything of its equivalent in nature of Barter; when construing the same expression of payment in Section 30(2), the Hon’ble Supreme Court has held that payment refers only to payment of money and not anything of its equivalent in the nature of Barter, the same interpretation has to be put to Section 8 and 9 also of the Code.(p47)
• There was no operational debt due on the corporate debtor on which operational creditor can claim payment of money from the corporate debtor to enable it to issue a demand notice under Section 8 or to file Section 9 Application before the Adjudicating Authority. Entire initiation of proceedings under Section 9 by the Operational Creditor is contrary to the scheme of IBC and no payment of money was due on the corporate debtor on basis of which unpaid dues any proceedings under Section 9 can be initiated.(p49)
• On the basis of Barter Agreement and consequent invoices, non-discharge of Barter Component by the Corporate Debtor shall not lead to any operational debt on basis of which payment of money can be demanded by the Operational Creditor from the Corporate Debtor. No operational debt was owed to the Operational Creditor in the facts of the present case hence initiation of proceedings under Section 9 by the Operational Creditor was contrary to the provisions of the IBC.(p50)

D. Question No. IV & V

• While considering Question No III it has already been held that there was no Operational Debt due on the Corporate Debtor and the proceedings initiated by the Operational Creditor being wholly outside Section 8 and 9 of the Code, no necessity to enter into Question No. IV & V for the purpose of the present case.(p51)

E. Conclusion

NCLAT concludes that:

• Application filed under Section 9 by the Operational Creditor alleging Operational Debt was non-maintainable since there was no operational debt on basis of which payment of money could have been demanded by the Operational Creditor from the Corporate Debtor on account of non-discharge of Barter Component by the Corporate Debtor. At best, the Applicant was entitled for claiming allotment of units as per the Barter Agreement between the parties for which it was open for the Operational Creditor to take such remedy as permissible.(p52)
• However, Section 9 Application was clearly not maintainable, the Adjudicating Authority committed error in admitting Section 9 Application without adverting to the real nature of the transaction between the parties, which is the very basis of the Section 9 Application, the Order of the Adjudicating Authority just is unsustainable.(p52)
• In result, we allow both the appeals, set aside the Order dated 05th August, 2022 admitting Section 9 Application. Both the Appeals having been allowed, no orders are necessary in different IAs, as noted above. The IAs are disposed of. Parties shall bear their own costs.(p53)

Source :- https://ibclaw.in/real-estate-regulatory-authority-v-d-b-corp-ltd-anr-nclat-new-delhi/

Supreme Court - Home buyers who had availed remedies under RERA, can not be treated as unsecured creditors in IBC.

 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3806 OF 2023

VISHAL CHELANI & ORS. .....Appellant(s)

Vs.

DEBASHIS NANDA .....Respondent(s)

Date of Decision :-October 06, 2023

FACTS OF THE CASE:-

1.  The appellants are home buyers, who had opted for allotment in a real estate project of  Buland Buildtech Pvt. Ltd.
2. Aggrieved by the delay in the completion of the project, the appellants approached the UPRERA which by its orders upheld this entitlement to refund amounts deposited by the, together with interest.
3. In the meantime, by the Order dated 28.02.2023 by NCLAT, in C.A.(AT) No. 991/2022 proceedings under the Insolvency and Bankruptcy Code, 2016 were initiated.
4. A resolution plan was presented to the adjudicating authority. In that plan, a distinction was made between home buyers, who had opted or elected for other remedies such as i.e. applying before the RERA and having secured orders in their favor, and those who did not do so.
5. Home buyers who did not approach authorities under RERA Act were given the benefit of 50% better terms than that given to those who approached RERA or who were decree holders.
6. The appellants felt aggrieved as their applications were rejected by the NCLT and their appeals in NCLAT too was unsuccessful. Consequently, they approached the Supreme Court.  

Contentions of appellants

1. with regard to the definition of financial debt [Section 5(8)(f)] which was amended in 2018 after which home buyer allottees in real estate projects also fell within the broad description of financial creditors, so A distinction cannot be made between one set of such home buyer allottees and another.

Contentions of defendants

1. the appellants cannot be permitted to secure two benefits. Having approached the UPRERA, they fell into a different sub-class of home buyers, who were entitled to specified amounts and, therefore, were unsecured creditors, as compared with allottees who had not invoked RERA remedies. It is submitted that such home buyers relinquished their rights under Section 18 of the RERA Act.

QUESTION OF LAW

1. The main issue before the Court was whether such a classification, differentiating between home buyers who sought relief under RERA and those who did not, could be upheld. In essence, the question was whether RERA-allotted financial claims should be treated differently from those not claiming relief under RERA in insolvency proceedings.

COURT'S FINDINGS

1. The Court is unpersuaded by the submission of the Resolution Professional’s view that once an allottee seeks remedies under RERA, and opts for return of money in terms of the order made in her favour, it is not open for her to be treated in the class of home buyer.
2. To treat a particular segment of that class differently for the purposes of another enactment, on the ground that one or some of them had elected to take back the deposits together with such interest as ordered by the competent authority, would be highly inequitable.
3. Section 238 of the IBC contains a non obstante clause which gives overriding effect to its provisions. Consequently its provisions acquire primacy, and cannot be read as subordinate to the RERA Act.
4. In view of the foregoing reasons,  appeal was allowed in the above terms and the impugned order is hereby set aside; the appellants are declared as financial creditors within the meaning of Section 5(8)(f) (Explanation) and entitled to be treated as such along with other home buyers/financial creditors for the purposes of the resolution plan.

P&H High Court - sole proprietors cannot be treated as an entity “other than individual” in RERA AGENT Registration.

 In the matter of Kumar Raunak and others versus State of Haryana and another CWP-20382-2018 The petitioners  who are sole proprietor(s)/ proprietorship , therefore, submitted an application for the registration as Real Estate agents to the Haryana Real Estate Regulatory Authority along with a Fees of 25,000/- which was the requisite registration fee as applicable to individuals under Rule 9 (2) of the 2017 Haryana Rules. 

The petitioners were issued the Registration Certificates as per law, valid for a period of 05 years. The petitioners, however, were served with letters by Haryana Real Estate Regulatory Authority, wherein it was submitted that the petitioners, having applied as a proprietorship concern, were required to submit the fee as applicable to the categories “other than individual” i.e. a sum of Rs. 2,50,000/- instead of Rs. 25,000/-.

A Demand for the deficient amount of Rs. 2,25,000/- was thus raised from the petitioners to be deposited within a period of 15 days failing which their license was threatened to be revoked.The period for depositing the amount was thereafter extended by the respondents vide public notice dated 18.05.2018 mandating the sole

proprietors to convert their registration certificates in the name of their respective proprietorship concerns on payment of the charges applicable to the entities “other than individuals”

The Court opined that Ordinarily understood, sole proprietorship is an unincorporated business that is just one owner by himself or herself. Creation of a separate business or a trade name is not necessary or a prerequisite in a sole proprietorship/sole proprietory business module and even if a separate business name is used for carrying on the business, the same by itself does not give any separate juristic entity or legal existence to the proprietary name separate and distinct from the owner.

The Court further opined that It is a well settled position in law that a proprietary concern and the proprietor are one and the same and that they cannot be treated as separate juristic entities and the petitioners as sole proprietors cannot be treated as an entity “other than individual”

P&H High Court - Courts, should adopt a liberal approach in allowing amendment of pleadings, for just and effective adjudication of the matter

AMENDMENT OF PLAINT 

Vishwa Nath through his LRs ..... Petitioners

Versus

Onkar Chand and another ..... Respondents

CR No.3838 of 2022 (O&M) Date of Decision: 30.11.2022

The petitioners-defendants have filed the present petition under Article 227 of the Constitution of India is for quashing of the order dated 09.08.2022 (Annexure P-1) passed by the learned Civil Judge (Junior Division), Mukerian, vide which an application filed under Order 6 Rule 17 of CPC by the respondents-plaintiffs, was allowed.

The High court opined that The Courts, no doubt, cannot be expected to turn a blind eye and rather must stay alive to any prejudice or injustice which may be caused to the opposite party on account of some amendment to the pleadings, which may have been allowed in an application moved under Order 6 Rule 17 of CPC. However, at the same time, the Courts, should adopt a liberal approach in allowing such amendment of pleadings, which may be necessary for just and effective adjudication of the matter in issue between the parties. The Administration of Justice cannot be allowed to be obstructed by a hyper technical approach while adjudicating upon the question of amendment of pleadings.

Court did not find any merit in the instant petitioner and the same stands dismissed. 

Karnataka High Court - RERA has no Authority Over Projects Granted ‘Partial’ Occupancy Certificate Prior to Enforcement of RERA

RERA has no Authority Over Projects Granted ‘Partial’ Occupancy Certificate Prior to Enforcement of RERA

Provident Housing Limited Vs Karnataka Real Estate Regulatory Authority Writ Petition No.18448 of 2021

Date of Judgement/Order : 02/01/2023

Brief Facts of the Case:

• The petitioner is engaged in the business of real estate development. 
• On receiving respondent’s request to allot an apartment in the project, the petitioner entered into an agreement for sale and Construction with Respondent on 10/09/14. 
• The proposed date of completion of project was 31/01/17. 
• On 18/11/15– A partial occupancy certificate was granted by the competent authority i.e. BDA to the petitioner. 
• On 27/04/17– Second partial occupancy certificate was issued in favour of petitioner. 
• On 14/05/17– Respondent seeks to cancel the agreement on the ground that there was information to him that the land had not been legally acquired by the petitioner for construction of the Apartment complex. 
• On 04/12/17– The contract between petitioner and respondent is concluded, petitioner refunds the amount after deducting the cancellation charges.
• In 2019– Respondent by invoking Section 31 of the RERA Act, files a complaint before RERA Authority seeking a refund of remaining amount. 
• The authority passes the impugned order, directing the petitioner to refund the said amount. 
• On receiving the authority’s order, Petitioner files a petition before Karnataka HC challenging the maintainability of the complaint filed by respondent before the authority.

Petitioner’s Contentions:

• The partial occupancy certificate was issued in favor of petitioner before the commencement of the Act.  
• Therefore, the project of petitioner had already passed the stage of ‘ongoing project’ and is a ‘completed project’. 
• Since the project was completed before the commencement of the RERA Act, the Act is not applicable to petitioner’s project and therefore any complaint filed before the authority by invoking the provisions of the Act is not maintainable.

Respondent’s Arguments:

• The project is still an ‘ongoing project’ as no ‘competition certificate’ was issued in favour of petitioner.

Issues:

• Whether the complaint filed by respondent before the Karnataka Real Estate Authority is maintainable? 
• Whether ‘on-going’ project includes the project for which completion certificate has not been issued.

Court’s Decision: 

• The court while taking into consideration the provisions of RERA Act (Section 2(q), 3, 18, 31, 43 and 84) and the rules made by Karnataka Government (Rule 3 and 4) under Section 84 of the Act, made following observations- 
• Section 3 of the Act mandates the registration for all ongoing projects at the time of commencement of the Act.  
• Section 3(2)(b) specifically excludes those projects to be registered under the act for which ‘completion certificate’ has been issued before the commencement of the Act. 
• In the present case, partial occupancy certificates have been issued, the project would be considered to be not completed at the time of commencement of this Act. 
• The explanation of ‘ongoing project’ under the Karnataka Government Rules (Rule 4) exempts the application of the Act to those projects for which partial occupancy certificate has been issued prior to coming into force of the Act. 
• Therefore as per Rule 4 of the Karnataka Government Rules, the project is not an ongoing project as the explanation in Rule exempts such an ongoing project for which partial certificate has been obtained to the extent of the portion for which the partial occupancy certificate is obtained.
• Therefore, the provisions of the RERA Act are not applicable to the project and the order issued by the Authority is without jurisdiction and thus is not maintainable. 

• Held: The order passed by Karnataka Real Estate Regulatory Authority is without jurisdiction. The project in question is a registered project in view of grant of partial occupancy certificates. In light of the same, the complaint filed before the authority by the respondent, itself is not maintainable.

Mere obtaining of occupancy certificate does not oust the jurisdiction of the RERA Authority

Occupancy Certificate - Developer has obtained the occupancy certificate and not the completion certificate before the RERA came into effect - Therefore, it cannot be held that there was no requirement for even registration of the project by the developer with the RERA authority.

Court would not consider the petitioner to be outside the purview of the jurisdiction of the respondent- authority - Mere obtaining of occupancy certificate does not oust the jurisdiction of the respondent authority.

Section 3 - Haryana Real Estate Regulation and  Development Rules, 2017, Rule 2 - Registration - Petitioner having already applied for and obtained an occupation certificate as referred to above in terms of the Haryana Building Code, 2017, prior to  01.05.2017 - Petitioner still Required to get itself registered with the Authority - 

Held that simply obtaining of an occupancy certificate or having applied for  such certificate in terms of the Haryana Building Code, 2017 - Petitioner not outside the purview of the jurisdiction of the Authority.

Experion Developers Private Limited v. State of Haryana, 2022 (2) Law Herald 1660: 2022 (4) R.C.R.(Civil) 339 : 2022 (3) PLR 290 (P&H) (DB): Law Finder Doc Id #1981966 

Whether a Home Buyer individually oppose to Resolution Plan when the Home Buyers as a class has voted by a majority in favour of the Plan – Jyotsna Kailash Veera Vs. Mr. Manish Motilal Jaju – NCLT Mumbai Bench ONJULY 21, 2023

 Whether a Home Buyer individually oppose to Resolution Plan when the Home Buyers as a class has voted by a majority in favour of the Plan – Jyotsna Kailash Veera Vs. Mr. Manish Motilal Jaju – NCLT Mumbai Bench

ONJULY 21, 2023

The Adjudicating Authority held that in the light of what has been held by the Hon’ble Supreme Court in the Jaypee Kensington Boulevard Apartments Vs. NBCC (India) Limited and others (2021) ibclaw.in 63 SC it becomes abundantly clear that Home Buyers can vote for or against the Plan only as a class and if there are some Home Buyers pitted against the Resolution Plan, who are otherwise in minority, absolutely no locus to oppose the Plan in the capacity of dissatisfied Home Buyers. It is also abundantly clear that such dissenting minority segment within the class of Home Buyers cannot arrogate themselves to be dissenting Financial Creditors. That being the legal position, which is explained in unequivocal terms by the Hon’ble Supreme Court in Jaypee Kensingtons case, in our considered view, any objection raised by the socalled minority Home Buyers raising objection against the Plan, which have been approved by them as a class, cannot be entertained and are liable to be rejected at the very threshold without going through the merit of such objections

Supreme Court in the said decision upheld the delegation of power to decide the complaints by single members in terms of Section 81 of the Act.

 The decision of Allahabad High Court in the case of M/s Newtech Promoters and Developers Pvt. Ltd. (supra) was challenged before the Supreme Court in the case of M/s Newtech Promoters and Developers Pvt. Ltd. Vs. State of UP and Ors. (Civil Appeal No(s).6745-6749/2021) decided on 11.11.2021.. Several questions were raised and answered. One of the questions was whether Section 81 of the Act authorizes the authority to delegate its power to single member to hear complaints instituted under Section 31. After referring to the statutory provisions and relying upon several decisions of the Supreme Court, the Supreme Court in the said decision upheld the delegation of power to decide the complaints by single members in terms of Section 81 of the Act.

The conclusion of the Supreme Court in this respect can be noted as under:-

“120. In view of the remedial mechanism

provided under the scheme of the Act 2016, in our considered view, the power of delegation under Section 81 of the Act by the authority to one of its member for deciding applications/complaints under Section 31 of the Act is not only well defined but expressly permissible and that cannot be said to be dehors

the mandate of law.”

RERA has the jurisdiction to entertain a complaint filed by an aggrieved person against the bank as a secured creditor

 In the matter of Union Bank of India, Jaipur vs. Rajasthan Real Estate Regulatory Authority & Ors., D.B. Civil Writ Petition No. 13688/2021 & 69 other connected Writ Petitions A divisional bench of the Rajasthan High Court  held that the RERA has the jurisdiction to entertain a complaint filed by an aggrieved person against the bank as a secured creditor. In this behalf, the Rajasthan HC observed that lenders such as banks who have entered into securitized transactions have the power in case of default under the SARFAESI Act to enforce their security interest through various measures such as taking possession of the secured assets, taking over management of the business of the borrower, etc. It was held that oncethe bank takes such actions for enforcing their security interest in terms of Section 13(4) of the SARFAESI Act, the secured creditor for all purposes enters into the shoes of the borrower/promoter as there is an assignment of statutory rights in favour of the lender.

The Rajasthan HC held that the RERA Act would have no retrospective application to transactions completed between the borrower (developer in such cases) and the lender (banks/financial institutions) wherein security interest has been created prior to the RERA Act. The RERA Act can have retrospective application only when the creation of security interest was made fraudulently or in collusion with the bank/financial institutions.

The Rajasthan HC observed that both the RERA Act and the SARFAESI Act are special laws. Whilst relying on the order of Bikram Chatterji and Ors. Vs. Union of India 2019 19 SCC 161, the Rajasthan HC concluded that in case of a conflict between two special laws, the special law that was enacted later would prevail. Since,the RERA Act was enacted subsequent to the SARFAESI Act, the provisions of RERA Act would prevail over the provisions of SARFAESI Act.

THE SUPREME COURT OF INDIA in the matter of UNION BANK OF INDIA

VERSUS RAJASTHAN REAL ESTATE REGULATORY AUTHORITY & ORS. ETC. ETC. Petition for Special Leave to Appeal (C) Nos.1861-1871/2022; Dated 14-02-2022 has ratified the above order of the Rajasthan High Court.

the jurisdiction of the Appellate Tribunal stands confined to consideration of challenges raised against orders passed by either the Real Estate Regulatory Authority or the Adjudicating Authority under the RERA

 In the matter of PRAVEEN CHHABRA V/s REAL ESTATE APPELLATE TRIBUNAL W.P.(C) 14552/2021 Decided on 26.05.2022, THE HIGH COURT OF DELHI held that the Court quashed the suo motu proceedings initiated by the Appellate Tribunal (case titled (Suo Motu Case) REAT/0002/2021 titled as “Court of Its Own Motion Vs. Commissioners of all the Municipal Zones & Anrs ) to monitor construction activity in the National Capital Territory. The court held that under the Real Estate (Regulation and Development) Act, 2016 (RERA), the jurisdiction of the Appellate Tribunal stands confined to consideration of challenges raised against orders passed by either the Real Estate Regulatory Authority or the Adjudicating Authority under the RERA. The High Court also said that the Appellate Tribunal being a creation of statute, is not part of traditional judicial institutions. The High court also held that According to Sections 43 and 44 of the RERA Act, which provide for the establishment of tribunals and the definition of what disputes can be brought before such tribunals, the Appellate Tribunal was established as a forum whose jurisdiction could be invoked by a person aggrieved by an order, decision, or direction of the Authority.

The doctrine of election

 The doctrine of election was discussed in A.P. State Financial Corporation v. M/s. GAR Re-rolling Corporation, (1994) 2 SCC 647as follows: 

“15. The Doctrine of Election clearly suggests that when two remedies are available for the same relief, the party to whom the said remedies are available has the option to elect either of them but that doctrine would not apply to cases where the ambit and scope of the two remedies is essentially different. To hold otherwise may lead to injustice and inconsistent results…”

generalia specialibus non derogant

 The latin maxim ‘generalia specialibus non derogant’ governs the

Issue of Conflict between two statues. For statutory construction, it means that “for the purposes of interpretation of two statutes in apparent conflict, the provisions of a

general statute must yield to those of a special one.” This was explained by

the Supreme Court in Gobind Sugar Mills Ltd. v. State of Bihar, (1999) 7 SCC 76 as follows:

“… while determining the question whether a statute is a general or a special one, focus must be on the principal subject-matter coupled with a particular perspective with reference to the intendment of the Act. With this basic principle in mind, the provisions must be examined to find out whether it is possible to construe harmoniously the two provisions. If it is not possible then an effort will have to be made to ascertain whether the legislature had intended to accord a special treatment vis-à-vis the general entries and a further endeavour will have to be made to find out whether the specific provision excludes the applicability of the general ones. Once we come to the conclusion that intention of the legislation is to exclude the general provision then the rule "general provision should yield to special provision" is squarely attracted.”

Section 22 of the Limitation Act 1963 provides for the computation of limitation in the case of a continuing breach of contract or tort.

Supreme court of india in the matter of Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan AIR 1959 SC 798 held that Section 22 of the Limitation Act 1963 provides for the computation of limitation in the case of a continuing breach of contract or tort. It provides that in case of a continuing breach of contract, a fresh period of limitation begins to run at every moment of time during which the breach continues. 

CPC 1908- ISSUE AND SERVICE OF SUMMONS: ORDER V and Section 27-32

ISSUE AND SERVICE OF SUMMONS: ORDER V

Introduction:

After the plaint is filed, the summon is issued by the court to appear in the court to defend it.

The intimation which is sent to the other party (defendant) is called summons. The provision

related to summons are given in Section 27-32 and Order V of CPC.

Summons is an authoritative call from the court to attend the court at a specified place and at

a specified time. The summons as contemplated in Rule 1 is for the attendance of the

defendant. It says that once a plaint is admitted the court is required to send the notice of such

admission to the defendant and then for the purpose of his appearance and to answer (reply)

the allegations made against him in the plaint. The summons are served on the defendant.

This appearance and answer (in the form of a Written Statement) must be made within 30

days from the date of service of summons (being duly received) and may be extended to

further such period as may be granted by the court not beyond 90 days from such service.

Therefore, further 60 days’ extension may be granted, if the case requires.

This does not mean that no further extension may be granted after the period of 90 days is

over, but it must be made only in exceptional circumstances, if the defendant satisfies the

court of an exceptional cause for not appearing and that he was not negligent.

It is not necessary to issue summons when the defendant is in the court at the time of

presentation of the plaint and admits the claim.

Generally, a summons must contain:

i. Reason (Purpose) for sending it,

ii. Signature of the Judge and seal of the court,

iii. Specified date of appearance of the defendant,

iv. Copy of plaint,

v. Appropriate directions.

This order must be read with Section 27-32 of CPC, 1908.

2

Section 27: Summons to Defendants

Section 27 of CPC stipulates that where a suit has been duly instituted by filing a plaint, the

first duty of the court is to issue summons calling on the defendant to appear and answer the

claim and such summons may be served in a manner prescribed in the rules mentioned in

Order V of the first schedule and on such day not beyond 30 days from the date of the

institution of the suit.

Section 28: Service of summons where defendant resides in another state

Section 28 of CPC provides for a situation when the summons is to be sent to a defendant

who is residing in a different state and also provides for the requirement to such process

thereon. It simply says that the summons to be served in an another state must be sent for

service through the court of that state and it will so be served according to the rules in force

in the state in which it is sent to. The court to which it is sent must serve it as it is issued by

that court and return it to the court issuing it along with the proceedings therein.

Section 29: Service of foreign summonses

Section 29 provides for the situation when any of the following courts:

1. Civil or Revenue court to which Civil Procedure Code does not apply.

2. Civil or Revenue court established by the authority of Central Government outside

India.

3. Civil or Revenue court outside India to which this section would apply.

has issued certain summons and is intended to be served in the territory to which Civil

Procedure Code applies. It provides that it may be sent to the courts to which Civil

Procedure Code applies and may be severed by them as if it was issued by such courts.

Section 30: Power to order discovery and the like.

Subject to such conditions and limitations as may be prescribed, the Court may, at any time,

either of its own motion or on the application of any party,-

(a) make such orders as may be necessary or reasonable in all matters relating to the delivery

and answering of interrogatories, the admission of documents and facts, and the discovery,

inspection, production, impounding and return of documents or other material objects

producible as evidence;

(b) issue summonses to persons whose attendance is required either to give evidence or to

produce documents or such other objects as aforesaid;

(c) order any fact to be proved by affidavit.

Section 31: Summons to witness

This provision provides that if a summon is to be sent not to a defendant to appear and

answer the plaint but to any person including defendant for the purpose of giving evidence or

to produce documents or other material objects, then such summons must be sent as

according to Sections 27, 28, 29 and if the person does not comply with the direction

provided in the summons, Section 32 shall apply.

Section 32: Penalty for default If the summons is sent under Section 30 by the court and the person to whom it is sent does

not comply with the orders, the court may in consequence compel the attendance of the

person to whom a summons has been issued under Section 30.

Order V Rule 2 talks about that when summon is to be sent then it is necessary to annexed a

copy of plaint with it.

Order V Rule 3: Court may order defendant or plaintiff to appear in person:

The Court shall order the defendant and the plaintiff to appear on the same day as specified,

in person, if it is so required.

Order V Rule 4: No party to be ordered to appear in person unless resident within local

limits

Q. When can a party be asked to appear personally?

No party will be ordered to appear personally unless

1. He resides within local limits of courts’ jurisdiction.

2. Where he resides within 50 miles from the court-house, or

3. Beyond such jurisdiction but within 200 miles from the court and where 5/6th distance

can be covered by Railways or steamers or other public conveyance.

There are certain provisions where there is an exemption from personal appearance, such as

1. Section 132, in case of certain women like Pardanashin lady,

2. Section 133, in case of other person like President, Vice-President, etc.

4

Order V Rule 5: Summons to be either to settle issues or for final disposal

The summons may be issued for settlement of issues or for final disposal of the suit and the

court shall at the time of issuing the summons specify for what purpose summons are being

issued and it must contain a direction accordingly.

The Court of Small Causes shall issue summons for final disposal only.

Order V Rule 6: Fixing day for appearance of defendant

The following factors should be looked into while fixing the date for appearance1. The current business of the court,

2. The place of residence of the defendant,

3. Time necessary for service of summons,

4. Sufficient time to enable defendant to prepare his defence.

Order V Rule 7: Summons to order defendant to produce documents relied on by him

It shall be ordered to the defendant in the summons to produce all the document or copies

thereof specified in Order VIII Rule 1 A to produce on which he intends to rely in his

support.

Order V Rule 8: On issue of summons for final disposal, defendant to be directed to

produce his witnesses

In the summons for final disposal of the suit the defendant shall be directed to produce all the

witness upon whose evidence he relies for his defence at the day fixed for appearance.

Mode of service of summons

1. Service of court [Rule 9].

2. Service by plaintiff (Dasti Summons) [Rule 9A]

3. Personal or Direct Service [Rule 10-16, 18]

4. Substituted Service [Rule 17, 19-20]- (i) without the order of the court (ii) with the

order of the court.

5. Service by Post.

Order V Rule 9: Delivery of summons by Court- This rule provides for the manner in

which the summons must be served, that if the defendant or his agent is a resident within the

jurisdiction of the court, such summons shall be served either by officer of the court known

as process server or bailiff or by such courier services as are approved by the court.

Furthermore Sub-Rule 3 provides for the manner in which the summons may be served.

The service of summons may be made by delivering or transmitting a copy to the defendant

or his duly authorised agent by:

(a) Registered Post acknowledgement due, or

(b) Speed Post or courier service approved by the High Court or the District Court, or

(c) Any other means of transmission like fax message or electronic mail service, etc.

The service of summons under this sub-rule 3 shall be made on the expenses of the plaintiff.

If the defendant is residing out of the jurisdiction of the court sending summons then such

summons shall be served according to sub-rule 3 except by registered post acknowledgement

due and provisions of rule 21 does not apply.

Where the summons if returned back to the court with the endorsement that the defendant or

his agent refused to accept the summons when tendered or transmitted to him, the court shall

declare that the summons had been duly served on the defendant.

In the following cases the court may declare deemed service of summons-

(a) The refusal or non-acceptance by the defendant,

(b) Where the summons was properly addressed, prepared and duly sent by registered post or

acknowledgement due and having been lost or mislaid and wasn’t received by the court

within 30 days from the date of issue of summons.

The High Court or the District Judge shall prepare the list of courier services.

Rule 9A: Summons given to the plaintiff for service

The types of summons provided under Rule 9A are issued by the court in addition to the

manner provided under Rule 9. In this kind of summons, the plaintiff’s is allowed to served

the summons personally to the defendant. Such summons must be sealed and signed.

The plaintiff must take the acknowledgement from the defendant and shall endorse a return

by stating the time and manner of service of original summons.

Such summons may be served by the court by a re-issue and in a normal manner.

These summon are known as Dasti Summons.

Personal or Direct Service [Rule 10-16, 18]

Rule 10 to 16 and 18 deals with the personal or direct service of summons upon the

defendant. This is an ordinary mode of service of summons.

Rule 10: Mode of Service: Service of the summons shall be made by delivering or tendering

a copy thereof signed by the judge or such officer as he appoints in this behalf, and sealed

with the seal of the court.

Rule 11: Service on several defendants- Where there are two or more defendants, service

shall be made on each of them.

Rule 12: Service to be on defendant in person when practicable, or on his agent- The

summons must be served to the defendant in person or to his authorised agent.

Rule 13: Service on agent by whom defendant carries on business- When the suit relates to

any business or work and is against a person not resident within the jurisdiction of the court

issuing summons, such summons may be served upon any manager or agent who personally

carries on such business or work and is within the local limits of the court.

Rule 14: Service on agent in charge in suits for immovable property- In a suit to obtain a

relief with respect to an immovable property or for suit for compensation over such property,

it would be sufficient that the summons is served upon the agent who is in charge of the

property.

Rule 15: Where service may be on an adult member of defendant’s family- In cases where

the summons cannot be served due to absence of defendant for a reasonable time and the

agent also is not available to receive summons, then such service may be made to an adult

member residing with the defendant. It can be served both on male or female but only on

adult member of the family. In such cases a servant is not considered the family member of

the defendant. Also when adult female members of defendants refused to receive suit

summons, a conclusion can be drawn that summons are served on defendants in view of

Order V Rule 15, CPC.

Rule 16: Person served to sign acknowledgement- The serving officer shall require the

signature of the person accepting the summons to an acknowledgement of the service

endorsed on the original summons.

Rule 18: Endorsement of time and manner of service- The serving officer in all cases where

the summons has been served under Rule 16, shall endorse or annex on the original a return

stating the time and manner of service and name or address of the person identifying the

person or witnessing the delivery.

Substituted Service [Rule 17, 19-20]

Substituted service means the service of summons by a mode which is substituted for the

ordinary mode of service of summons.

For ordering substituted service as per Order 5 Rule 20, CPC it must be shown that the

respondent/defendant is keeping out of the way for the purpose of avoiding service or that for

any other reason, the summons cannot be served in the ordinary way1

.

Publication of notice in Newspaper:- When service of notice is intended by an advertisement

in a newspaper, the Newspaper shall be a daily Newspaper circulating in the locality in which

the respondent/defendant is last known to have actually and voluntarily resided or carried on

business or personally worked for gain2

.

There are two modes of substituted service of summons:

(a) Service without the order of the court

(b) Service with the order of the court

Service without the order of the court- Order V Rule 17 lays down following circumstance

when substituted service can be made on the defendant without the order of the court:

(i) Refusal of acknowledgement- Where the defendant or his agent refuses to sign the

acknowledgement.

(ii) Absence of defendant- Where the serving officer, after due and reasonable diligence,

cannot find the defendant who is absent from his residence at the time of service of summons

and cannot be found within a reasonable time and there is no authorized agent nor any other

person on whom such service can be made. When one of the above two circumstance exist,

the service of summons can be made by affixing a copy on the outer door or some other

conspicuous part of the house in which the defendant ordinarily resides or carries on business

or personally works for gain.

1 See. Maganti Krishna Durga Vs. Maganti Anil Kumar – 2015 (5) ALT 346 (D.B.)

2

Id.

8

Procedure after such service: After affixing such copy of summons as stated above, the

serving officer shall then return the original to the court issuing summons with a report

endorsed thereon stating

(a) The fact about affixing the copy;

(b) The circumstances under which he did so;

(c) The name and address of the person, if any, by whom the house was identified and in

whose presence the copy was affixed.

Order V Rule 19 further provides that if the court is satisfied, either on affidavit or

examination on oath of serving officer, that the summon is duly served, it may either declare

the summons has been duly served or may make such inquiry as it thinks fit. If provisions of

Rule 19 are not complied with, service of summons cannot be said to be in accordance with

law3

.

In other words, Rule 19 provides that where a summons is returned under r. 17, the court

shall, if the return under that rule has not been verified by the affidavit of the serving officer,

and may, if it has been so verified, examine the serving officer on oath, or cause him to be so

examined by another Court, touching his proceedings, and may make such further enquiry in

the matter as it thinks fit; and shall either declare that the summons has been duly served or

order such service as it thinks fit4

.

Service with the order of the court- Order V Rule 20 provides the mode of service of

summons with the order of the court. If the court is satisfied that there is reason to believe

that defendant avoids service or for any other reasons, the summons cannot be served in the

ordinary way, in such case, the service may be affected in the following manner:

(i) By affixing a copy of summons in some conspicuous place in the court house, and in the

house in which the defendant is known to have last resided, carried on business or personally

worked for gain, or

(ii) In such other manner as it thinks fit.

The court may order service of summon by advertisement in a daily newspaper circulating in

the locality in which the defendant is last known to have resided or carried on business or

personally worked for gain [Rule 20 A]

3 State of J&K v. H.W. Mohammed, AIR 1972 SC 2538

4 See. Dr. K.C. Verma vs Asstt. Cit, (2004) 89 TTJ Del 129.

9

Effect of substituted service of summons- Order V Rule 20(2) provides that the substituted

service is as effective as personal service, and such defendant shall be deemed to be duly

served in accordance with law. The court shall fix a time for the appearance of defendant and

give him reasonable opportunity to appear before court.

Such summons affixed is as effective as the service in the manner provided under the Rule.

In Satish Corporation Company v. Allahabad Bank5

, it was observed that while passing

order under Order V Rule 20 the court is required to record its satisfaction that there were

reasons to believe that the defendant was keeping out of the way for the purpose of avoiding

service or in the alternative it is required to record its satisfaction that for any other reasons

the summons could not be served in the ordinary way.

In Sunil Poddar v. Union Bank of India6

, the Court held that where summons was served by

newspaper publication, then the plea that the person sought to be served does not read such

newspaper is not open to the party.

Substitute service is not due service:- As per Explanation to Article 123 of Limitation Act,

1963, substitute service under Rule 20 of Order 5, CPC shall not be deemed to be a due

service. It was held in Maganti Krishna Durga Vs. Maganti Anil Kumar – 2015 (5) ALT

346 (D.B.).

Publication made by plaintiff in a news paper other than the one ordered by Court:- In Basant

Singh and another v. Roman Catholic Mission7

, it was held that its publication made by

plaintiff in a news paper other than the one ordered by Court. However, both the said papers

are local dailies having wide circulation in the area. Such a publication in the circumstances

of the case is a mere irregularity in service of summons. It would not invalidate the effect of

substituted service.

Non-Service of summons:- It was held in Maganti Krishna Durga’s case that second

proviso to Order 9 Rule 13, CPC makes it obligatory on the appellate court not to interfere

with ex parte decree unless it meets the statutory requirements, showing non-service of

summons or where there is sufficient cause for the wife not appearing before the Court.

5 AIR 1999 MP 21

6 AIR 2008 SC 1006,

7 2003 (1) ALT(SC) 1

10

Service of summons in Rent Control cases:- In Bansilal Yadav v. Suraj Chand Bhagat

and others8

, it was observed that under rule 22 (4) of rent control rules, making affixture of

summons on the last known place of abode or business without making efforts to tender

service in person or to serve the same on adult member of their family or to send the same by

registered post is not legal.(2) Order of injunction by Rent Controller.

Permission to defend suit:- In summary suits for recovery of money under Order 37, CPC,

period of ten days to file application by defendant seeking permission to defend the suit be

computed from the date of service of summons for judgment and not from the date of service

of suit summons9

.

Order V is applicable to Execution proceedings:- It is not in dispute that the procedure

contemplated for service of notice under Order 5 is made applicable for service of notice in

the execution proceedings also10

.

Service by Post

Where the summons was properly addressed, prepaid and duly sent by registered post and

acknowledgement is lost or not received by the court within 30 days from the date of issue of

summons, the court shall declare that the summons has been duly served.

Thus, the court may adopt any of these modes accordingly for serving summons on the

defendant so that he is ensured fair trial and there is no delay in the progress of the suit.

Irregularity in service of summons

It has been held that procedural irregularity in the service of notice would not be bad in law

and consequential action would be sustained unless the defendant is able to show that

substantial prejudice was caused due to procedural lapse in making service to him [Prabhun

Ram Pukhan v. State of Assam (2015) 2 SCC (Civ) 331].

For example, A obtained by false representation an order for substituted service by giving

court to understand that B had been avoiding service. In such a case, substituted service shall

be deemed to have effect of personal service upon the defendant and will be valid unless he

shows any prejudice caused to him due to such service.

OTHER PROVISION RELATED TO SUMMONS:

8 2007 (2) ALT 491

9 See. Panduga Veera Reddy v. Bandaru Damodar Reddy and another – 2005 (3) ALT 417. L.

10 Pappasani Narayana Reddy v. Mandem Reddappa Reddy, 2004 (5) ALT 226.

11

Rule 21: Service of summons where defendant resides within jurisdiction of another

court- The service of summons outside the jurisdiction of the court issuing, may be made in

any of the aforesaid manner provided under the rule, to the court other than the High Court in

whose jurisdiction defendant resides.

Rule 22: Service within presidency-town of summons issued by courts outside- Where a

summons issued by any court established beyond the limits of town of Calcutta, Madras and

Bombay is to be served within any such limits, it shall be sent to the Court of Small Causes

within whose jurisdiction it is to be served.

Rule 23: Duty of Court to which summons is sent- The Court to which a summons is sent

under rule 21 and rule 22 shall, upon receipt thereof, proceed as if it had been issued by such

court and shall return the summons to the court of issue, together with the record (if any) of

its proceedings with regard thereto.

Rule 24: Service on defendant in prison- The service of summons to a person confined in

prison shall be served to the officer in charge of prison for service on the defendant either by

post or by courier service or by any other mode of communication.

Rule 25: Service where defendant resides out of India and has no agent- if the suit is

instituted against a defendant residing outside India and he has no agent in India, then the

summon shall be sent to the defendant at the place where he is residing i.e. in any foreign

country.

The summons may be sent either by post or by courier service or by fax or by electronic mail

service or any other means provided by the High Court.

A defendant residing in Bangladesh and Pakistan may be served with the summons through

the court of that country except the High Court.

Rule 26: Service in foreign country through Political Agent or CourtWhere the defendant is residing in a foreign country;

The summons may be sent through the Ministry of Foreign Affairs of that Foreign Country to

such political agent or court, appointed or established by Central Government or to any court

situated in that country and not established or continued by Central Government, for being

served upon the defendant by post or otherwise.

12

When such political agent or court returns the summons with an endorsement to the effect

that summons has been served, such endorsement shall be deemed to be the evidence of the

service.

Rule 26A- Summonses to be sent to officers of foreign countriesThe summons to be served on defendants residing or carrying on business or working for

gain in the foreign country shall be sent to an officer of the foreign country specified by

Central Government through Ministry of Foreign Affairs of India.

The endorsement returned by that officer shall be deemed to be the evidence of the service.

Rule 27: Service on civil public officer or on servant of Railway Company or local

authorityThe service of summons on the defendant who is a public servant (except mentioned in rule

28) or the servant of a railway company or local authority may be served to the head of the

office in which he is employed, together with a copy of it to be retained by the defendant.

Rule 28: Service on soldiers, sailor or airmen- Where the defendant is a soldier, sailor or

airman, the court shall send the summons for service to his commanding officer together with

a copy to be retained by the defendant.

Rule 29: Duty of person to whom summons is delivered or sent for service-

(1) Where a summons is delivered or sent to any person for service under rule 24, rule 27 or

rule 28, such person shall be bound to serve it if possible, and to return it under his signature,

with the written acknowledgement of the defendant, and such signature shall be deemed to be

evidence of service.

(2) Where from any cause service is impossible, the summons shall be returned to the court

with a full statement of such cause and of the steps taken to procure service, and such

statement shall be deemed to be evidence of non-service.

Rule 30: Substitution of letter for summons- This rule provides situation when serving of

summons does not seem to be proper, and in such situation the court sends a letter to the

defendant, who is entitled to this form of calling due to the rank of such defendant requiring

such mark of consideration or respect. However, this does not mean that all the particulars

required in summons will not be mentioned in such letter as it will be treated in all respects,

as a summons.

13

This letter may be sent by post or by special messenger. 

http://www.patnalawcollege.ac.in/econtent/ISSUE%20AND%20SERVICE%20OF%20SUMMONS.pdf

Supreme Court of India - allottee holds the right of refund on demand as an unconditional absolute right, if the promoter fails to give possession of the unit within the time stipulated under the terms of the agreement

The Supreme Court of India vide its land mark judgement Newtech Promoters and Developers Pvt. Ltd. v. State of U.P. (MANU/SC/1056/2021) dated November 11, 2021 held that the allottee holds the right of refund on demand as an unconditional absolute right, if the promoter fails to give possession of the unit within the time stipulated under the terms of the agreement regardless of unforeseen events or stay orders of the Court/Tribunal, provided that the allottee wishes to withdraw from the project.

Thus, the unqualified right of the allottee to seek refund is not dependent on any contingencies or stipulations.

Nomination vs Succession

Nomination vs Succession

 Several controversies have been witnessed in the High Courts of India on the subject of nomination.

Black's Law Dictionary defines "Nomination" as an appointment or designation of a person to fill an office or discharge a duty and "Nominee" as a person who has been nominated or proposed for an office. A nominee is a person that is appointed to receive an asset or investment in the event of one's death. A nominee may not necessarily be a legal heir or a relative.

The ownership of a property of a deceased person is distributed on the basis of the Will, in the absence of which, succession laws come into effect. The classification of heirs and who gets how much is different in different succession laws. The nominee holds the asset until the family members or dependants establish their claim on the same. But if a Will states otherwise, then it would discard all the nominations

Types of Succession

There are two types of successions, one is intestate succession and the other is testamentary succession.

Intestate succession: Intestate means when a person dies without making a Will, the property gets disposed between the family and relatives according to the law concerning the religion of the deceased. It will be according to Hindu succession, if a deceased is Hindu, similarly according to Muslim Personal Law, if a person is Muslim and if the deceased is of any other religion, then according to Indian Succession Act,1925.

Testamentary succession: Testamentary succession is a succession where a person can dispose of a property according to his own wish, and the disposition of the property generally occurs after death. Testamentary succession is based on two basic principles. Firstly, the testator must have a degree of understanding of what he is doing, along with the power to choose and secondly, he should not be forced to accept others opinion while making Will. Every religion allows testamentary succession, and anything which the testator holds such as the property, shares etc., can be provided to the intestate by the Will. Rules of testamentary succession are also prescribed on the basis of religion and contained in the Indian Succession Act.

Rationale Behind Nomination

Nomination is essentially a temporary arrangement so that property do not remain ownerless during the period where succession issues are resolved. Nomination is only a means and not an end. If nomination is not done, legal heirs may face complications in proving their right. Till that time, all the assets and investments, like mutual funds or insurance will remain with the respective companies. However, the rationale behind having a nominee is to have a person, who, in the event of death, will become a guardian of the assets and distribute it to the legal heirs.

A nomination saves many hassles and reduces formalities when, for example, payment of funds outstanding in a closed bank account of any deceased person is to be made. If there is a nomination in the account, the bank gets a perfectly valid discharge of liability if it makes the payment to the nominee. The other successors can then have no legal recourse against the bank under succession laws and they will get their share, if any, from the nominee. People are encouraged to make nominations in financial assets, and they are increasingly making such nominations, to reduce the complications and court cases arising in a situation where there are several claimants to a financial asset.

Legal Heir v Nominee

The legal position of the nominee has been a debated issue in India for a long time. Many instances arise, wherein an individual nominates a nominee, like while purchasing an Insurance Policy or Shares or while creating a fixed deposit in a bank. The role of the nominee in these instances are highlighted below:

HEADING	NOMINATION VS. SUCCESSION
Insurance	The apex court in the case of Smt. Sarbati Devi vs. Smt. Usha Devi1 held that, a mere nomination made under section 39 of the Act does not have the effect of conferring on the nominee any beneficial interest in the amount payable under the life insurance policy on the death of the assured. The nomination only indicates the hand which is authorised to receive the amount, on the payment of which the insurer gets a valid discharge of its liability under the policy. The amount; however, can be claimed by the heirs of the assured in accordance with the law of succession governing them. Now the situation under the Insurance Laws (Amendment) Act 2015 (hereinafter "Act") has changed, where a holder of a life insurance policy nominates his parents, or his spouse, or his children, or his spouse and children or any of them, the nominee or the nominees shall be beneficially entitled to the amount payable by the insurance company to him or them. Further, where the nominee or nominees so elected above, dies after the person whose life is insured, but before the amount is received, then the legal heirs of the nominee or the nominees (as the case may be) shall be beneficiary entitled to such, to the amount which represents the share of the nominee or nominees so dying. The Act clearly specifies that, a nominee shall only get such beneficial interest, where the nominee or the nominees so elected are the parents of the person so insured, or his spouse, or his children, or his spouse and children or any of them.
Fixed Deposits and Employees Provident fund	Vide notification dated June 09, 2005, RBI has notified that in case of deposit accounts where the depositor had utilized the nomination facility and made a valid nomination clause, the payment of the balance in the deposit account to the nominee of a deceased deposit account holder represents a valid discharge of the bank's liability provided that nominee would be receiving the payment from the bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him shall not affect the right or claim which any person may have against the nominee to whom the payment is made. In case where the deceased depositor had not made any nomination, the repayment is made to the legal heirs. Employees Provident Fund: Employee provident fund, the nominee inherits the funds, according to EPF rules, one needs to appoint his family member as nominee unless he has no family, then only he can appoint someone else. If he acquires a family his old nomination becomes invalid and he needs to make new nomination.
Shares and Securities	There is no decision of the Apex court which conclusively answers the question vis-à-vis a nomination of shares per se. Considering the case of Dayagen Private Limited v Rajendra Dorian Punj and Anr2 2008, the Hon'ble Delhi High Court, giving a strict interpretation to article 109A of the Companies Act, made it abundantly clear that the intendment of the legislature is to override the general law of succession and to carve out an exception in relation to nomination made in respect of shares and debentures. The procedural requirements laid down in the said section, for such overriding effect to be given, have to be strictly adhered to i.e. the nomination should be made in the prescribed manner. In the present case, the nomination was not properly attested by any witness, hence invalid. Subsequently in the year 2010, in the case of Harsha Nitin Kokate vs. The Saraswat Co-operative Bank Limited & Ors3 the Hon'ble Bombay High court held that, Section 109A of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case. So, the nomination made shall be valid and the legal heirs of the deceased shall have no claim on the deceased. This has further been abundantly clarified by the provisions of Section 72 of the Companies Act, 2013, that, notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, where a holder of securities of a company or joint holders of the securities (as the case may be) appoints a nominee in a prescribed manner, then in the event of the death of the holder or all such joint holders, the nominee so appointed shall be entitled to all the rights in the securities, of the holder or, as the case may be, of all the joint holders, in relation to such securities, to the exclusion of all other persons, unless such nomination is varied or cancelled in the prescribed manner.
Real Estate	Property or Real Estate of the testator can be divided into 4 parts, self-acquired, inherited ancestral property, jointly owned and property under the Society Act. The Hon'ble Supreme Court, in the case of Smt. Sarbati Devi vs. Smt. Usha Devi4, which was decided in 1983, held that the nominee is a trustee of the property and is liable to hand it over to the legal heirs. The High Court while following Sarbati Devi case held that it is well settled that mere nomination made in favour of a person does not have the effect of conferring on the nominee any beneficial interest in property after the death of the person concerned. The nomination indicates the hand which is authorized to receive the amount or manage the property. Following the above case, the Hon'ble High Court of Delhi in the case of Rampali v.State Govt of NCT(Delhi) where appellant was the sister of the deceased who had filed an appeal to revoke the succession certificate granted to the daughter and husband of the deceased on the ground that the deceased had not been residing with the defendant for over 35 years and had named the appellant as the nominee as per official government records. The Hon'ble Delhi High court held that nomination is not a Will in law and in the absence of any Will, only legal heirs (as per the Hindu Succession Act) shall be entitled to inherit the property of the deceased. Hence, the appeal was dismissed. Talking about the ancestral property, the Apex court in the case of U.R.Virupakshaiah vs Sarvamma & Anr5 held that rights of successors overrides every other mode including the Will. All family members get equal share of ancestral property in accordance with law, thus a nominee cannot exercise his right on ancestral inherited property. But in case of joint ownership of a property, the remaining owner becomes the sole owner. The legal requirement is that the co-owners need to take the title at same time, in the same agreement, with equal interest. The Hon'ble Supreme court got another twist in March 2016 in the case of Indrani Wahi v. Registrar of Cooperative Societies & Ors, wherein it stated that, "a cooperative society cannot challenge the transfer of property to the nominee, if she is a relative of the deceased. The nominee of a deceased member is entitled to ownership by transfer, if she is a relative of the deceased person, who made the nomination in her name, according to the record of the cooperative society and the co-operative society cannot challenge the right of nominee."

Conclusion

From the instances stated above, it is not clear whether nomination should be given preference over testamentary/non-testamentary succession or vice-versa. One should always ensure that, for smooth flow of assets/wealth to the heirs, a Will made by the person should be in line with the nomination or the Will so made should specifically override nominations so that the basic object of the nomination made for a particular subject matter is not defeated. This will avoid any potential conflicts amongst the beneficiaries and the legal heirs.

Footnotes

1. (1984) 1 SCC 424

2. INDLAW DEL 1105 40

3. 2010(112) BomLR2014

4. (1984) 1 SCC 424

5. 1998 (4) Bom CR 506

CREDIT - LALIT MUNSHI - 

Agama Law Associates

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