Last week the finance ministry had shortlisted one of its senior officers to join as a member in the Securities Appellate Tribunal (SAT). The highly unusual move is a pointer to the discomfort within the government of the goings on in the various tribunals especially in the financial sector.
Each of the tribunals have either run up a huge backlog of cases because of which settlement takes more than five to six years, or have been questioned about the quality of orders with one case inviting a Central Bureau of Investigation (CBI) probe.
Several of them are running without the full complement of members, judicial and technical. These include other than SAT, the six benches of Customs and Central Excise Appellate Tribunal and the 36 Debt Recovery Tribunals (DRTs). The massive backlog of cases has huge revenue implications for the ministry. In July the CBI had asked the Centre for the papers related to the DLF case. The case was filed by DLF in the tribunal appealing against a three-year ban imposed on the real estate firm by Sebi in an order issued in October 2014. The order was reversed by the tribunal through a 2-1 majority in March this year. The dissenting note surprisingly came from the presiding officer of the tribunal, Justice JP Devadhar. While Sebi has made an appeal against the order to the Supreme Court, the government is keen to ensure that the tribunals are able to pass orders that stand the test of law in the higher courts.
In the CESTAT the number of pending cases as per finance ministry data is 97,672 as on May 31, 2015. The total revenue implication of these cases is Rs 1,31,380 crore or a fifth of the total indirect tax receipts for 2015-16. Ironically, the CESTATs were set up to cut down pendency of revenue-related court cases. Finance ministry data shows that there are just 18,624 cases pending in the regular courts including the Supreme Court or just a fifth of the numbers pending in CESTAT. The tax implication of those cases is Rs 31,968 crore. Another report shows that the rate of disposal of cases in 2014 was 13,612. This means the average delay in getting a case cleared in CESTAT is about five years.
There is an equally huge delay in the DRTs and their appellate bodies— the debt recovery appellate tribunals. A Cabinet note to set up six more of them in December 2014 had noted that the number of pending cases in these tribunals has crossed 50,000. The latest data on the amount pending through these cases is Rs 14,38,725 crore as on March 31, 2013, or close to 3 per cent of the total investments made by the banking sector. All these have a bearing on the health of the financial sector. Shankh Sengputa, partner at Trilegal, a corporate law firm, says that considering the case load, some delay in judgments is expected, “although, the delays are also on account of litigants deliberately prolonging the proceedings”. Abhishek Jain, partner at EY agreed that the “majority time of the benches is spent on deciding stay applications”. According to him, the pile up is typically because of frequent adjournments by litigants and department representatives, delays in submission of documents and the frequent transfers of the judges. Sengupta says, “There is a shortage of judicial members in CESTAT as their appointments have not happened in time. While there was a proposal to create additional benches in other states, there has been no development with respect to such proposal.”
For instance two years ago the government cleared a proposal for a new bench of CESTAT in Allahabad among six such benches in several cities. The case ran up to a division bench of the Allahabad High Court which had to issue directions to the Central government to make the bench operational by July this year. Another reason for the rise in pendency is because of the circular line of awards. Parties approach the tribunals and at times anticipating an adverse order, obtain a stay from a higher court. Finance ministry data shows that at the end of May 2015, total stays granted by CESTAT was 4,647. The month had begun with a backlog of 4,902.
A finance ministry rule states that a member can serve in a tribunal only if she/ he has not practiced before the same forum. While the SAT, as of now, has no commensurate backlog, the interest taken by CBI in the DLF case shows how judgments leave room for interpretation. Jain of EY said the benches could fix a timeline for cases “with negative implications in case of breach and limiting the number of adjournments to ensure no artificial delays are caused”.
One of the options is to prioritise cases based on the gravity of issues involved. But this requires deeper understanding of pertinent issues. Rahul Mitra, national head for litigation and dispute resolution for transfer pricing and direct taxes at KPMG, India agrees. “For specialised matters, like transfer pricing, being concerned with economics, rather than interpretation of law, the government may consider appointing subject matter specialists as tribunal members or at least as expert witnesses/ amicus curie, for optimal and expeditious disposal of cases”.
The implications are huge. While the time lines for cases pending in DRT are relatively recent, since they came up later, in the CESTAT there are cases pending for nearly three decades. There are 413 cases pending in these forums from before the year 2000. The oldest case dates back to 1988 in Delhi CESTAT.
The delays are defeating the very reasons why these tribunals were set up-fast-track courts. Sengupta of Trilegal suggests imposing costs or taking strict action against parties who “attempt to delay the matters by filing frivolous applications and seeking unnecessary adjournments”. The government has already moved some distance on this. Finance minister Arun Jaitley has made it mandatory for litigants to deposit a percentage of the tax dues with the government as the precondition for appearing before the CESTAT. Some innovative measures are required for dragging cases in DRT too.