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Former Directors of Hogar Controls lose Trademark Battle in Delhi High Court

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CASE TITLE – Hogar Controls India Pvt. Ltd. Versus Anadasu Vijay Kumar & Ors. 

CASE NUMBER – CS(COMM) 669/2022

DATED ON – 29.05.2024.

QUORUM – Hon’ble Mr. Justice Sanjeev Narula

FACTS OF THE CASE

The Plaintiff, Hogar Controls Pvt. Ltd. (formerly Z-Wave India Pvt. Ltd.), a wholly owned subsidiary of Hogar Controls Inc., is suing to protect their intellectual property associated with the trademarks “HOGAR”, “HOGAR CONTROLS”, and “[Logo of HOGAR] “, which they allege are being unlawfully usurped by Defendants No. 1 to 3, who are the Plaintiff’s former Directors.  On July 1, 2014, Defendant No. 1 founded a proprietary corporation focusing on affordable home and workplace electric power automation solutions. This entity specialized in home automation and Internet of Things (IoT) devices. This proprietorship eventually became a partnership with Defendants No. 1, No. 2, and No. 3 as partners. On April 11, 2017, Defendants No. 1 to 3 incorporated Z-Wave India Pvt. Ltd. as a private limited company, with each defendant holding an equal share. Defendant No. 4, Mr. Burri Venkata Surya Narayana, a cousin of Defendants No. 1 to 3, participated in Z-Wave’s commercial operations. In March 2017, Mr. Vijay Raghava Reddy Mukkamalla introduced Defendants No. 1 to 3 to Mr. Vishnu Vardhan Malikireddy and Mr. Veerabhadra Reddy Malikireddy, both Non-Resident Indians (NRIs) based in the USA. Mr. Vishnu Vardhan Malikireddy decided to invest in Z-Wave’s home automation and IoT business. From August 2017 to February 2018, Mr. Vishnu Vardhan Malikireddy’s mother, Smt. Santhamma, provided Rs. 2.25 crores to Z-Wave through credit agreements. On August 22, 2017, as a result of this investment, Mr. Vishnu Vardhan Malikireddy and Defendant No. 2 were appointed as directors of Z-Wave. After discussions, Mr. Vishnu Vardhan Malikireddy became the sole shareholder of Hogar Inc. on September 15, 2017. The parties discovered that “Z-Wave” is a communication technology managed by a consortium based in Houston, Texas, similar to “Bluetooth.” To avoid infringing on the consortium’s rights, on May 07, 2018, the parties agreed to change the company’s name from Z-Wave India Pvt. Ltd. to Hogar Controls India Pvt. Ltd. (the Plaintiff). Defendant No. 1 was appointed Managing Director of the Plaintiff and was responsible for day-to-day operations, while Mr. Vishnu Vardhan Malikireddy focused on his business interests in the USA. On October 25, 2018, a Common Stock Purchase Agreement was signed between Hogar Controls Inc. and Mr. Vishnu Vardhan Malikireddy. Mr. Vishnu acquired a majority (55%) of the shares in Hogar Controls Inc., while Defendants No. 1 through 3 retained a minority (15% combined). A Shareholders and Subscription Agreement was signed on October 26, 2018, between Hogar Controls Inc., the Plaintiff, and Defendants Nos. 1 and 2. Mr. Vishnu Vardhan Malikireddy invested approximately Rs. 1.84 crores in the Plaintiff under this agreement. On May 02, 2019, Mr. Vishnu’s brothers, Mr. Veerabhadra Reddy Malikireddy and Mr. Harsha Vardhan Malikireddy, were appointed as directors of the Plaintiff, with the consent of the existing directors.

 

ISSUES

Whether Defendant No. 1 is the owner of “HOGAR Controls”.

 

CONTENTIONS BY THE PLAINTIFF

Hogar Controls Inc. and Hogar Controls Pvt. Ltd. produce and sell high-end smart home devices under the trademarks “HOGAR” and “HOGAR CONTROLS,” operating globally in countries like Dubai, Doha, Oman, Singapore, Thailand, London, France, the Netherlands, and Lagos. Under the Shareholders and Subscription Agreement (SSA), Defendants Nos. 1 and 2 transferred all of Z-Wave’s rights, including intellectual property, to the Plaintiff. Consequently, the Plaintiff owns the trademarks “HOGAR” and “HOGAR CONTROLS” and the domain name “www.hogarcontrols.com.”  Financial records indicate that prior to the SSA, Defendant No. 1 made no investments in promoting these trademarks. The Plaintiff significantly promoted the “HOGAR” brand, resulting in increased sales from 2017-2021 and extensive advertising through various media platforms. In August 2020, an audit revealed that Defendant No. 1, with help from Defendants Nos. 2 and 3, misappropriated approximately Rs. 3.05 crores by transferring company funds and signing checks for personal gain. They also transferred money to relatives and acquaintances. Defendants Nos. 1 and 2 resigned as directors to avoid criminal charges, and Defendant No. 2 was later reinstated as Chief Technical Officer as a goodwill gesture. Despite these issues, Defendant No. 1 sold products under the “HOGAR” brand on Amazon at lower prices, sourcing them from the Plaintiff’s supplier, M/s Lumi. These listings were removed following the Plaintiff’s complaints. A software audit on June 12, 2021, revealed plagiarized source codes in the Plaintiff’s mobile application, suggesting deception by Defendants Nos. 1 through 3. Following this, Defendant No. 3 resigned on July 15, 2021, and Defendant No. 2 was terminated. The Plaintiff filed a complaint with the Madhapur Police Station in Hyderabad, accusing Defendants Nos. 1 through 3 of financial fraud.

 

CONTENTIONS BY THE DEFENDANTS

Defendant No. 1’s attorney, Mr. Hemant Daswani, refuted the Plaintiff’s ownership claim over the “HOGAR” trademark, asserting it was not included in the SSA and remains an exclusive asset of Defendant No. 1. On September 7, 2016, Defendant No. 1 filed trademark applications for “HOGAR Controls” in classes 9 and 11, citing use since July 1, 2014, supported by invoices. Z-Wave was established on April 11, 2017, by Defendants Nos. 1, 2, and 3, and later renamed Hogar Controls India Pvt. Ltd. The understanding was that Plaintiff would act as the dealer and distributor for the “HOGAR Controls” brand owned by Defendant No. 1.During the SSA execution, Defendant No. 1 intended to retain his property rights over the “HOGAR Controls” mark separately from Z-Wave’s operations. The trademark was never assigned or transferred to Plaintiff. Defendant No. 1 filed a counterclaim against the Plaintiff for unauthorized use of “HOGAR” and attempting to pass off their goods as those of the Defendants. The Plaintiff was accused of using the mark without Defendant No. 1’s consent, leading to the issuance of a cease-and-desist letter on March 8, 2022.Defendants Nos. 1 and 2 terminated the SSA on September 27, 2021, due to their involuntary resignation and non-receipt of consideration. Defendant No. 1 continued his business with Defendant No. 5, leveraging the “HOGAR Controls” trademark. The SSA did not explicitly include intellectual property transfer, and no consideration was paid for such a transfer. The valuation report from Ernst & Young dated December 3, 2021, did not mention intellectual property or the “HOGAR” mark. Plaintiff failed to amend the trademark applications to reflect any alleged assignment, rendering the transfer of intellectual property void. This argument relied on the High Court of Calcutta’s ruling in Paul Brothers and Anr. v. Union of India and Ors. Defendant No. 1 provided an NOC for Z-Wave’s name change to Hogar Controls India Pvt. Ltd., indicating the Plaintiff’s awareness of Defendant No. 1’s ownership of the “HOGAR Controls” trademark. Property in a director’s or shareholder’s name cannot be deemed company property. Defendant No. 1’s signing of the SSA as Z-Wave’s authorized signatory did not transfer his personal property. Plaintiff was merely a licensee of the “HOGAR” mark, not the owner, and could not prevent Defendant No. 1, the licensor, from using it. This contention referenced the Bombay High Court ruling in Cott Beverage Inc. v. Silvassa Bottling Company. Defendant No. 1’s lawsuit in Agra for the unauthorized use of the “HOGAR Controls” mark was initially dropped but later reinstated on September 22, 2023. Plaintiff’s registration of the mark “” on December 18, 2021, is considered an attempt to pass off Defendant No. 1’s established “HOGAR Controls” mark, which has been in use since 2014.

 

COURT ANALYSIS AND JUDGEMENT

The Hon’ble Delhi High Court assessed that the primary question in this case is which party—Defendants Nos. 1 through 3 or Plaintiff (Hogar Controls Inc. and Hogar Controls Pvt. Ltd.)—possesses the intellectual property rights to the “HOGAR” trademark and its variations. The way the Shareholders and Subscription Agreement (SSA) is interpreted will determine this. The court after going through the SSA, determines that the SSA clearly transfers to the Plaintiff the intellectual property rights to “HOGAR” and “HOGAR Controls”. The Defendants’ claims are at odds with the specific provisions of the SSA, which clearly give the Plaintiff these rights. Defendant No. 1 claimed to have first adopted the trademark “HOGAR Controls” for a sole proprietorship called Z-Wave, which later became a partnership firm. He asserted that the trademark was his personal property and used by Z-Wave under a license agreement. The court found no evidence supporting Defendant No. 1’s claim of a sole proprietorship. Documents such as VAT and GST certificates and Income Tax Returns indicated that Z-Wave was a partnership firm since April 17, 2014. Applications for trademark registration by Defendant No. 1 lacked documentary evidence of the claimed use since July 1, 2014. The court noted inconsistencies in Defendant No. 1’s statements and lack of credible evidence for his sole ownership claim. There was no substantiation of “Hogar Controls” being used independently by him. The court found issues with the credibility of the license agreement through which Defendant No. 1 claimed to have authorized Z-Wave to use the trademark. It questioned the authenticity based on discrepancies such as the absence of royalty mentions and travel records indicating Defendant No. 3 was in the USA at the supposed time of signing. While the defendants argued that the plaintiff was aware of the trademark applications, the court noted that this did not affect the plaintiff’s right to seek an injunction. The SSA did not explicitly mention the rights claimed by Defendant No. 1. Defendants argued that the trademark assignment was invalid due to non-compliance with Section 42 of the Trademarks Act, which requires advertisement of the assignment within specified timelines. The court clarified that an unregistered trademark assignment, whether with or without goodwill, does not prevent the assignee from seeking legal protection. The court differentiated between the execution of an assignment deed and its registration, noting that rights transfer upon execution, not registration. The court restrained the defendants from using or reproducing the trademarks “HOGAR,” “HOGAR CONTROLS,” and associated marks, as well as from using the plaintiff’s mobile application interface and advertisements, which infringed on the plaintiff’s copyright. The defendants were directed to remove any infringing content from their digital platforms, including YouTube and their website. The Hon’ble Delhi High Court concluded that the defendants had not substantiated their claim to the “HOGAR Controls” trademark and were found to be infringing on the plaintiff’s intellectual property rights. Consequently, the plaintiff was granted an injunction against the defendants, preventing them from using the disputed trademarks and related intellectual property.

 

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Judgement Reviewed by – Gnaneswarran Beemarao

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Possession of Hindu Female Must Not Only Be Possessed of The Property but She Must Have Acquired It for Establishing Full Ownership U/S 14(1) Of Hindu Succession Act: Supreme court

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Possession of Hindu Female Must Not Only Be Possessed of The Property but She Must Have Acquired It for Establishing Full Ownership U/S 14(1) Of Hindu Succession Act: Supreme court

Case title: MUKATLAL VS KAILASH CHAND (D) THROUGH LRS. AND ORS.

Case no.: CIVIL APPEAL NO(S).          OF 2024 Arising out of SLP (CIVIL) NO(S). 12842 OF 2018

Dated on: 16th May 2024

Quorum:  Hon’ble. MR JUSTICE SANDEEP MEHTA and Hon’ble. MR JUSTICE B.R. GAVAI.

FACTS OF THE CASE

The instant appeal by special leave challenges the final judgment and order dated 2nd November, 2017 passed by learned Division Bench of the Rajasthan High Court in D.B. Special Appeal (Writ) No. 1029 of 2006 whereby the appeal preferred by the appellant questioning the legality and validity of the judgment dated 21st July, 2006 passed by learned Single Judge of the Rajasthan High Court in S.B. Civil Writ Petition No. 1587 of 1993 was dismissed. The core question of law involved in this appeal is as to the right of the plaintiff Kailash Chand being legal heir of Hindu widow Smt. Nand Kanwar bai to enforce her right of succession in the unpartitioned Joint Hindu Family property by virtue of Section 14(1) of the Hindu Succession Act, 1956 (hereinafter being referred to as ‘Succession Act’) by filing a suit in the Revenue Court. Few facts, most germane and relevant to the issue are required to be extracted from the chronology of dates and events. The suit property was owned by Kishan Lal who had two sons, namely, Mangilal and Madho Lal. Madho Lal was married to Smt. Nandkanwarbai. Mangilal had a son Kanwarlal. Mangilal died in the year 1912 whereas Madho Lal died issueless in 1929. Smt. Nandkanwarbai claims to have adopted plaintiff Kailash Chand on 12th June, 1959 that is nearly after 30 years from the date of death of Madho Lal. Kanwarlal had executed a will of the entire unpartitioned estate in favour of defendant Mukat Lal (appellant herein) on 9th February, 1949. Shri Kanwarlal passed away in the year 1954. Thus, the suit property devolved upon defendant Mukat Lal under the will executed by late Shri Kanwarlal. Smt. Nandkanwarbai, widow of late Madho Lal filed a Civil Suit No. 11 of 1958 seeking a declaration of title and possession over the suit property contending that the property in question was a joint Hindu family property and that the will be allegedly executed by late Kanwarlal was illegal. It was further contended in the suit that defendant Mukta Lal was not entitled to any share in the HUF property by virtue of the will. The Civil Court dismissed the said suit vide judgment and decree dated 21st May, 1959 while recognizing the right of Smt. Nandkanwarbai only to the extent of receiving maintenance from the suit property. Smt. Nandkanwarbai, did not challenge the said judgment any further. However, defendant Mukat Lal on attaining majority, preferred an appeal against the judgment dated 21st May, 1959 which was allowed by the learned Senior Civil Judge vide judgment dated 9th February, 1968 and the judgment and decree passed by the civil Court in favour of Smt. Nandkanwarbai to the extent of the right to receive maintenance from the suit property was set aside. Being aggrieved, Smt. Nandkanwarbai preferred a Second Appeal No. 347 of 1968 before the learned Single Judge of Rajasthan High Court. During the pendency of the said second appeal, in the year 1972 Smt. Nandkanwarbai passed away and her legal heir i.e. plaintiff Kailash Chand was taken on record. Learned Single Judge of Rajasthan High Court, vide judgment dated 20th March, 1973 allowed the second appeal filed by Smt. Nandkanwarbai and restored the civil Court’s judgment to the extent of her right to be maintained from the suit property. Resultantly, the status of defendant Mukat Lal as being the beneficiary of the suit lands as being the legatee of the will made by his father Shri Kanwarlal stood crystallized. The present appeal arises from the aforesaid Revenue Suit No. 37 of 1979 seeking partition which culminated in the impugned judgment dated 2nd November, 2017 passed by the learned Division Bench of the Rajasthan High Court.

ISSUES

  1. Whether Smt. Nandkanwarbai, the widow of late Madho Lal, had any interest in the suit property that could transform into absolute ownership under Section 14(1) of the Hindu Succession Act, 1956.
  2. Whether the requirement of possession under Section 14(1) of the Hindu Succession Act was fulfilled in this case, considering the dismissal of Smt. Nandkanwarbai’s previous suit for possession and title over the suit property.
  3. Whether the previous civil court judgments, which recognized only Smt. Nandkanwarbai’s right to maintenance from the suit property, operated as res judicata, thereby precluding her legal heir, Kailash Chand, from claiming partition of the suit property.
  4. Whether the right to maintenance conferred upon Smt. Nandkanwarbai constituted sufficient possession or interest in the property to attract the provisions of Section 14(1) of the Hindu Succession Act.
  5. Whether Kailash Chand, as the adopted son of Smt. Nandkanwarbai, could enforce his rights to partition the joint Hindu family property based on the succession rights of his adoptive mother under the Hindu Succession Act.

LEGAL PROVISIONS

  1. Hindu Succession Act, 1956

Section 14(1): Property of a Female Hindu to be Her Absolute Property

This section provides that any property possessed by a female Hindu, whether acquired before or after the commencement of the Act, shall be held by her as full owner and not as a limited owner.

The section is aimed at converting any limited estate held by a woman into an absolute estate, provided she was in possession of the property.

Section 14(2): Exceptions to the Absolute Ownership Rule

This section carves out an exception to Section 14(1), stating that the transformation to absolute ownership does not apply to any property acquired by a female Hindu through a gift, will, or any other instrument or under a decree or order of a civil court or an award, where the terms of the acquisition prescribe a restricted estate.

  1. Principles of Res Judicata

Section 11 of the Civil Procedure Code (CPC), 1908: Res Judicata

This section states that no court shall try any suit or issue that has been directly and substantially in issue in a former suit between the same parties, and has been heard and finally decided by such court.

It precludes the re-litigation of issues that have already been settled in previous judgments.

 CONTENTIONS OF THE APPELLANT

Shri Puneet Jain, learned counsel representing the appellant advanced the following pertinent submissions and urged that the Division Bench erred in law in dismissing the appeal preferred by the appellant affirming the judgment of the learned Single Judge and restoring the judgment and decree of the Revenue Court. That Smt. Nandkanwarbai had no interest, either limited or otherwise, in the suit land which could fructify into absolute ownership under section 14(1) of the Succession Act and the Division Bench erred in treating “Charge over property towards Maintenance” as possession over the property. It was contended that in order to attract Section 14(1) of the Succession Act, there must be a “Property possessed by the Hindu Women” but in the present case, the suit for possession and title filed by Smt. Nandkanwarbai was dismissed and hence she was never in possession, either legal or actual, over the suit property. That the civil suit for title and possession filed by Smt. Nandkanwarbai having been dismissed, the judgment of the civil Court operated as res judicata and hence the relief could not have been granted to her adopted son [Kailash Chand(plaintiff)] in the subsequent partition suit filed in the Revenue Court. The plank contention of Shri Puneet Jain, learned counsel representing the appellant for assailing the impugned judgments was that the deceased widow Smt. Nandkanwarbai was never in possession of the suit property and as a consequence, her adopted son, plaintiff Kailash Chand, was precluded from claiming partition of the suit property by virtue of succession and hence, the Revenue suit was not maintainable. He had placed reliance on the findings arrived at by the civil Court in the suit filed by Smt. Nandkanwarbai to buttress this contention.

CONTENTIONS OF THE RESPONDENTS

Shri Bishwajit Bhattacharya, learned senior advocate representing the respondents, vehemently and fervently opposed the submissions advanced by learned counsel for the appellant and contended that the issue in the present case regarding the ambit of the rights of a female Hindu on the undivided joint Hindu family estate under Section 14(1) of the Succession Act has been settled by this Court in the case of Munni Devi alias Nathi Devi Dead) Thr LRs & Ors. v. Rajendra alias Lallu Lal Dead) Thr LRs & Ors.3 He placed reliance on the pertinent observations (reproduced infra) made by this Court in Munni Devi(supra) and implored the Court to dismiss the appeal and affirm the impugned judgments. We have given our thoughtful consideration to the submissions advanced at bar and have gone through the impugned judgment and the material available on record.

COURT’S ANALYSIS AND JUDGEMENT

A Bench of two Honourable Judges of this Court after considering the gamut of Section 14 of the Succession Act in the case of Munni Devi(supra) observed as below: In view of the above, there remains no shadow of doubt that a Hindu woman’s right to maintenance was not and is not an empty formality or an illusory claim being conceded as a matter of grace and generosity. It is a tangible right against the property, which flows from the spiritual relationship between the husband and the wife. The said right was recognised and enjoined by pure Shastric Hindu Law, which existed even before the passing of the 1937 or the 1946 Acts. Those Acts merely gave statutory backing recognizing the position as was existing under the Shastric Hindu Law. Where a Hindu widow is in possession of the property of her husband or of the husband’s HUF, she has a right to be maintained out of the said property. She is entitled to retain the possession of that property in lieu of her right to maintenance. Section 14(1) and the Explanation thereto envisages liberal construction in favour of the females, with the object of advancing and promoting the socio-economic ends sought to be achieved by the said legislation. Thus it is clear from the above observations and findings in the case of Munni Devi(supra) that this Court after taking into consideration the pre-existing right of Bhonri Devi to maintenance from the estate of the HUF of her husband and her exclusive settled possession over the suit property concluded that she had acquired the suit property in lieu of her pre-existing right to maintenance and that she had held the suit property as the full owner and not limited owner by virtue of Section 14(1) of the Succession Act. Thus, what we are required to adjudicate in the present case is as to whether in absence of even a semblance of possession either actual or legal over the suit property, plaintiff Kailash Chand being the legal heir of Smt. Nandkanwarbai was entitled to institute a Revenue suit for partition of the suit property based on the succession rights of the widow on the joint Hindu family property. In this very context, we would like to gainfully refer to the judgments of this Court which were relied upon by Shri Puneet Jain, learned counsel for the appellant. Seen in the light of the ratio of the above judgments, it is clear that for establishing full ownership on the undivided joint family estate under Section 14(1) of the Succession Act the Hindu female must not only be possessed of the property but she must have acquired the property and such acquisition must be either by way of inheritance or devise, or at a partition or “in lieu of maintenance or arrears of maintenance” or by gift or be her own skill or exertion, or by purchase or by prescription. in this context, when we consider the effect of the earlier civil suit instituted by Smt. Nadkanwarbai (deceased widow), it becomes clear that she was never in possession of the suit property because the civil suit was filed by her claiming the relief of title as well as possession and the same was dismissed. This finding of the civil Court was never challenged. Since, Smt. Nadkanwarbai was never in possession of the suit property, as a necessary corollary the Revenue suit for partition claiming absolute ownership under Section 14(1) of the Hindu Succession Act could not be maintained by her adopted son, plaintiff Kailash Chand by virtue of inheritance. As a consequence of the above discussion, the impugned judgments do not stand to scrutiny and cannot be sustained.  Resultantly, the judgment dated 2nd November, 2017 rendered by learned Division Bench and the judgment dated 21st July, 2006 rendered by the learned Single Judge are hereby reversed and set aside. Consequently, the Revenue Suit No. 37 of 1979 filed by the plaintiff is dismissed. 3 The appeal is allowed in these terms. No costs. Decree be prepared accordingly.  Pending application(s), if any, shall stands disposed of.

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Judgement Reviewed by – HARIRAGHAVA JP

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Delhi High Court Upholds Eviction Order in Landmark Rental Dispute: Lays down Implications for Property Owners and Tenants in Delhi

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Delhi High Court Upholds Eviction Order in Landmark Rental Dispute: Lays down Implications for Property Owners and Tenants in Delhi 

Case Name: Nem Chand Jain v. Sanjay Kumar Jain & Anr 

Case No.: RC.REV. 405/2014 

Dated: May 13, 2024 

Quorum: Justice Girish Kathpalia 

 

FACTS OF THE CASE: 

The present respondents filed an eviction petition against the present petitioner under Section 14(1)(e) of the Act, claiming to be the owners of the shop Delhi. They claimed to be operating under the name M/s. Sagar Chand Jain and to be in the business of selling cards and stationery from tenanted premises in Delhi.  

Given that they don’t have access to any other reasonably acceptable commercial accommodations, they genuinely need the subject premises for their children. With the consent of the owners, who obtained the right to live by virtue of a will dated 11.03.1974, the first and upper floors of the property are being used as a godown. Previously, they were using them for residential purposes, but they later moved to a residential area in Sainik Farms, Delhi.  

They own two rooms and a veranda on the third story of the Chawri Bazar property, but they are unable to be used as a shop. They need the relevant premises for their daughter Sanjana to get a degree in Fine Arts so that she can launch her own wedding card design business, and for their sons Shantanu and Toran to operate their card and stationery business. They were also launching eviction cases against the tenants of the shops next to the subject premises because the subject premises would only partially satisfy their requirements.  

Later, stores were cut out of the property’s ground floor, and the municipal authorities gave each store a unique number so that they could all be a part of the bigger structure. The Will dated 11.03.1974 of their grandmother, which was also probated, gave the present respondents ownership of the entire larger land in Chawri Bazar as well as in Chhota Chhipiwara Khurd, Chawri Bazar, Delhi. In order to use the subject premises for their children’s legitimate economic needs, the petitioner now residing there may be forced to vacate.  

 

CONTENTIONS OF THE PETITIONER: 

The petitioner argued against the contested eviction decision on the grounds that the current respondents had hidden all relevant information about the property they owned and could have used for their children’s business. The petitioner/tenant’s learned counsel argued that the condition put forward by the respondents/landlords needs to be rejected as lacking validity because they disguised the entire area, including measures and the number of shops on each of their properties together with the tenants’ personal information. The argument was that the landlords/respondents had misrepresented the shops that were offered as godowns, hence their argument to that effect had to be denied.  

The learned counsel representing the petitioner/tenant relied on the ruling of a coordinate bench of this court in the Khem Chand vs. Arjun Jain, 2013 IX AD (Delhi) 89 case. They argued that the suitability and reasonableness of the alternate accommodation is a factual matter that must be evaluated on a case-by-case basis rather than as a general rule that the landlord is the best judge. 

 

CONTENTIONS OF THE RESPONDENTS: 

The contested eviction decision was backed by knowledgeable lawyers for the landlords/respondents, who argued that the current petition had any validity at all. The knowledgeable attorney representing the respondents/landlords guided me through opposing pleadings and supporting documentation to bolster his contention that the petitioner/tenant’s allegation of concealments is wholly untrue given that the respondents/landlords had explicitly revealed and elucidated every piece of property they owned.  

On behalf of the respondents/landlords, it was contended that not even the subject premises’ site plan was contested during cross-examination because it had been properly proven in evidence. The learned counsel representing the respondents/landlords cited the ruling of this court’s coordination bench in Mohd. Saleem v. Zaheer Ahmad, 2023 SCC OnLine Del 1469, as evidence for his claims.  

 

COURT’S ANALYSIS AND JUDGMENT: 

The court held that there should be exercise caution not to engage in a roving investigation that would transform the authority of superintendence into that of a regular first appeal, which is expressly prohibited by the legislature, while reviewing the Rent Controller’s records to ensure that the contested order was issued legitimately. 

Unless the factual findings recorded by the Rent Controller were so irrational that no Rent Controller would have recorded the same on the material available, it is not permissible for the High Court in such proceedings to reach a different conclusion.  

The court reviewed the record with consideration for the previously specified restricted parameters of this court’s particular jurisdiction under the proviso to Section 25B of the Act. From the information above, it is clear that the parties do not dispute the existence of a legal relationship of tenancy or the respondents’/landlords’ ownership of the relevant premises.  

The challenge to the validity of the requirement established in light of the alternative accommodations offered by the respondents/landlords is centre to the current issue. All of the respondents’ children lack the necessary skills or inclination to operate a paper business, the current petitioner further claimed in their pleadings.  

During the court proceedings, as previously said, the primary focus of the petitioner’s/tenant’s knowledgeable legal representation was to reveal the extent to which the respondents/landlords had obscured the availability of alternative accommodations.  

 

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Supreme Court relied on the principle that a transaction must satisfy the essential characteristics of a “sale” to be subjected to sales tax.

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Case Title: M/s. K.P. Mozika vs Oil and Natural Gas  Corporation Ltd. & Ors

Case No: CIVIL APPEAL NO.3548 OF 2017

Decided on: 09.01.2024

Coram: Hon’ble Mr. Justice Abhay S. Oka

 

 Facts of the Case

This group of appeals revolves around whether transporting companies owe taxes on vehicles provided to Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOCL). The question hinges on whether hiring these vehicles constitutes a “sale” under Indian tax laws. If the agreement involves transferring the right to use the vehicles, it might be considered a sale and subject to tax. However, if it simply involves providing a service (i.e., transportation), the tax implications could differ. This case ultimately clarifies the tax treatment of such arrangements, potentially offering relief to transporters by avoiding double taxation.

In this case, a company agreed to provide crane services with crew to ONGC for its operations. ONGC threatened to deduct taxes on these services, prompting the company to challenge this in court. Both the single judge and the division bench ruled against the company, considering the agreement a transfer of goods usage rights and thereby subject to tax under VAT and Sales Tax Acts. This sets a precedent for similar agreements involving temporary vehicle usage and potential tax implications.

Issues

Whether the transactions reflected from the agreements subject matter of these appeals amount to a sale within the meaning of sub-clause of (d) of Clause 29A of Article 366?

Legal Provision

Clause 29A of Article 366 of Indian Constituition – 

 “tax on the sale or purchase of goods” includes—

  1.  a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment, or other valuable consideration;

The definition of “sale” under the Sales Tax Act, in sub­section (33) of Section 2, incorporates the requirement of transfer of property in goods.

Court Analysis and Decision

Clause 29A(d) of Article 366 expands the definition of a taxable “sale of goods” beyond the traditional requirement of ownership transfer. While the Sale of Goods Act hinges on both possession and property transfer, Clause 29A(d) focuses on the “transfer of the right to use any goods” for consideration, regardless of the purpose or duration. However, granting mere permission to use goods, devoid of a genuine transfer of usage rights, does not fall under this provision. Recognizing this distinction is paramount for determining tax liability in situations involving temporary access to goods for a fee.

The Court with reference to case 20th Century Finance Corporation Ltd. & Anr. v. State of Maharashtra [(2000) 6 SCC 12] held that to attract subclause (d) of Clause 29A of Article 366, the goods must be available at the time of transfer, must be deliverable and delivered at some stage.  If the goods are not deliverable at all by the service provider to the subscriber, the question of the right to use those goods would not arise.

 The contract in present case provides that there is no transfer of the right to use the crane/equipment. The Contractor fully controls the trailers during the contract period, and therefore, again, this is a case of a license granted to ONGC to use the trailer, and the right to use the trailer is not transferred to ONGC.

The court allowed all the appeals of the assessees by holding that the contracts are not covered by the relevant provisions of the Sales Tax Act and of the VAT Act, as the contracts do not provide for the transfer of the right to use the goods made available to the person who is allowed to use the same. Civil Appeal no.3580 of 2017 preferred by the Union of India is disposed of given the earlier findings with the liberty to the Union of India to initiate proceedings, if any, for recovery of service tax by law.

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Written by- Bhawana Bahety

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