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Month: November

Recovery — Directors of Pvt. Ltd company who were not co-borrowers nor guarantors not liable — Recovery of Debts due to Banks and Financial Institutions Act 1993.

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  1. Recovery — Directors of Pvt. Ltd company who were not
    co-borrowers nor guarantors not liable — Recovery of Debts due to Banks and
    Financial Institutions Act 1993.

[Vijay Dashika Char v. Bank of Maharashtra, AIR 2009
(NOC) 2260 (Bom.)]

The plaintiff bank filed a suit for a monetary claim
against the defendants. The original defendant was a private ltd company who
had taken financial assistance from the plaintiff bank of Rs.2.50 lacs. In
security the defendant company had executed a demand promissory note.

The bank had contended that the managing director and
director had executed bond and were guarantors, however no such bond was ever
produced by the bank before the Court.

The Court observed that merely because the directors had
put their signatures on the credit note, would not render the promise made a
personal promise on part of directors. It was admitted position that the cash
credit facility was given only to the company. There was no personal cash
credit facility granted to any of the directors. Thus it was clear that there
was no personal facility granted in favour of any individual director. Thus,
the bank has no case against the directors, but was only for recovery from the
company. The plaintiff’s suit as against the directors’ was therefore
dismissed.

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Stamp duty — Stamp duty is payable as per market value of property at time of submission of sale deed for registration — Stamp Act, 1899.

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Stamp duty — Stamp duty is payable as per market value of
property at time of submission of sale deed for registration — Stamp Act, 1899.




[Iqbal Kaur v. State of Punjab & Ors., AIR 2010
Punjab & Haryana 130]

On 5-5-1970, an agreement to sell was executed for a sum of
`80,000 for
land. The agreement was renewed on 20-11-1995. However, when the vendor failed
to perform his part of the agreement by executing sale deed in favour of the
petitioner, the petitioner filed a suit for specific performance in the Civil
Court, which was decreed on 3-12-2001. For the execution of the decree passed
by the Civil Court, dated 3-12-2001, the sale deed was registered on
5-11-2008. The Collector exercising the powers u/s.47-A of the Indian Stamp
Act determined the market value of the property subject-matter of the sale
deed at the time of registration of the instrument. Order of the Collector was
confirmed by the Commissioner vide order dated 28-1-2009. A writ petition was
filed challenging the above order, which was dismissed.

On further appeal, the Court held that stamp duty is
payable at the time of submission of the sale deed for registration. The sale
deed was produced for registration on 5-11-2008, therefore, stamp duty on the
market value as on 5-11-2008 is payable. Agreement to sell has no relevance in
the matter of payment of stamp duty. The appeal was dismissed.


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Gift — Gift deed of immovable property should be attested by two witness — Transfer of Property Act S. 123.

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  1. Gift — Gift deed of immovable property should be attested
    by two witness — Transfer of Property Act S. 123.

[Lankeswar Malakar & Ors. v. Harendra Nath Deka (Dead) &
Ors., AIR 2009 (NOC) 2462 (Gau.)]

As per S. 123 of Transfer of Property Act, a document
whereby a gift of immovable property is made should be attested by two
witness. The document if not proved as required u/s.68 of Evidence Act, the
donee cannot claim title over suit land by means of such a Gift deed.

Inheritance — Children of void marriage would be treated as legitimate children of their father for purpose of inheriting separate property of father — Hindu Succession Act 1956.

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  1. Inheritance — Children of void marriage would be treated as
    legitimate children of their father for purpose of inheriting separate
    property of father — Hindu Succession Act 1956.

[Govind Manohar Jadhav & Ors. v. Smt. Rukhminibai
Manohar Jadhav & Anr., AIR 2009 (NOC) 2366 (Bom.)]

One Mr. Manohar Jadhav married respondent No.1 Rukminibai.
During the subsistence of the said marriage, he married appellant No. 3
Popatbai. From the second marriage appellant No. 1 & 2 were born. One person
had purchased some property from Respondent No. 1 (i.e. first wife).
Mr. Manohar had received his share of property on partition from his brother.

The issue that arose for consideration was whether the
property received by Mr. Manohar on family partition was his separate property
and therefore whether the illegitimate children were entitled to inherit
share.

The Court observed that as per S. 314 of the Principles of
Hindu Law by Mulla, Volume I, 20h Edition, a wife cannot herself demand
partition, but if a partition does take place between her husband and his
sons, she is entitled to receive a share equal to that of a son. It does not
appear that in absence of any child, male or female, wife automatically
be-comes sharer in the property of husband during his life time. So, it cannot
be said that 1st wife-respondent No. 1 Rukminibai has more than
3 share in
the property of Manohar. The case would have been different if respondent No.
1, Rukminibai had a son, in that case such son would have been coparcener and
such son, Rukminibai and Manohar each would have
ard share
and property available for partition amongst heirs would have been
a share. The
2nd wife would not be entitled to any share. On partition between brothers,
the mother would have equal share with sons.

The Court held that the 2 children from the 2nd wife were
entitled to share in the property of their father, Manohar, though the second
wife had no such right.

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Hindu Undivided Family — Sale of coparcenaries property for legal necessity — Hindu Succession Act 1956.

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  1. Hindu Undivided Family — Sale of coparcenaries property for
    legal necessity — Hindu Succession Act 1956.

[Shankarlal Ramprasad Ladha (deceased by L.Rs.) v.
Vasnat Chandidasrao Deshmukh & Ors., AIR 2009 (NOC) 2367 (Bom.)]

The ancestral agricultural properties were kept undivided.
The respondent No. 4 was the karta of the family as he was the eldest male
member. He used to manage affairs of the joint family including cultivation of
the family lands. He was required to maintain himself and the other members of
the joint Hindu family. It was subsequently learnt that the Karta alienated
the suit houses.

The issue arose as to whether there was existence of legal
necessity for alienation of the suit house.

Concept of legal necessity as illustrated under Article 243
of the Hindu Law [By Mulla — 20th Edition (Vol. I) page 371]. It is well
settled that ‘legal necessity’ does imply pressure on the resources of the
joint Hindu family. So, if it is proved that there was considerable strain on
financial resources of the joint Hindu family at the relevant time, then the
sale transaction may be justified. The alienation by Manager of the joint
Hindu family may be permissible if it is for the benefit of the estate.
Article 244 of the Hindu Law (By Mulla) would make it manifest that purchaser
of the joint Hindu family property is under obligation to discharge burden of
proof to prove existence of the legal necessity or that his having made proper
and bonafide inquiry as to the existence of such necessity.

The Karta alienated the suit properties for improvement of
the lands, for maintenance of himself and education of the minors and for
meeting out his own marriage expenditure. It had come on record that in the
proximity of time of the sale deed, the karta got married.

It is explicit in view of Article 243(c) of the Hindu Law
(By Mulla) that marriage expenses of male coparceners can be regarded as
incidents of legal necessity. The marriage expenditure required for the
purpose of marriage of the Karta appears to be the reason for which the house
property was alienated by him.

The house property was sold by the Karta on account of
legal necessity, namely, to meet out expenditure of his own marriage. However,
the sale transaction of the other house property is not proved to be for the
purpose of legal necessity nor it could be for the benefit of the estate of
the joint family. Which is therefore held to be not on account of legal
necessity.

In the result, the appeal was partly allowed.

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Affidavit — Evidence — Sworn before Notaries can be accepted by the Civil Court — Civil Procedure Code S. 139 Order 18 Rule 4.

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  1. Affidavit — Evidence — Sworn before Notaries can be
    accepted by the Civil Court — Civil Procedure Code S. 139 Order 18 Rule 4.

[ Prashant Chandrashekhar Gundawar & Ors. v. Municipal
Council, Bhadrawati & Anr., AIR 2009 Bombay 144]

The issue which arose for consideration was whether
affidavits which are to be filed in the Court, can be sworn by on
administering the oath to the deponents, by any notary appointed under the
Notaries Act.

It was observed that notaries have power to administer oath
under the Notaries Act. In absence of statutory provision, the courts were
refusing to accept the affidavits sworn before the notary. S. 139 of CPC, was
amended to include a specific provision permitting the swearing of such
affidavits before the Notaries. The deponents are to be the persons who are
authorised u/s.139 of CPC to do so. Therefore, the result is obvious that the
notaries are authorised to administer oath to the deponents. The affidavits
which are to be under the Code, can be sworn by on administering the oath to
the deponents, by any notary appointed under the Notaries Act and under Order
18, Rule 4 of the CPC there is no bar requiring to exclude the affidavits
sworn before the Notaries for taking them on record as an examination in
chief. Thus, such affidavit sworn before Notaries can be accepted as evidence
by the Civil Court.

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Deficiency in service — person — includes company : Consumer Protection Act S. 2(1)(m).

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7. Deficiency in service — person — includes company :
Consumer Protection Act S. 2(1)(m).

[ Karnataka Power Transmission Corporation Ltd. & Anr.
v. Ashok Iron Works P. Ltd. with Ors., AIR 2009 SC 1905]

The definition of term person was never intended to exclude
a juristic person like company. The definition u/s.2(1)(m) is inclusive and
not exhaustive.

The Court held that non supply of electricity to consumer
by transmission company within time agreed upon even if the consumer is a
manufacturing unit, amounts to deficiency in service as per the definition of
consumer as it stood before 2002 Amendment. Therefore the complaint against
transmission company is maintainable before Consumer Forum.

The Court further observed that u/s.2(1)(o) ‘service’ means
service of any description which is made available to potential users and
includes the provision of facilities in connection with supply of electrical
or other energy. ‘Deficiency’ u/s.2(1)(g) means any fault, imperfection,
shortcoming or inadequacy in the quality, nature and manner of performance
which is required to be maintained by or under any law for the time being in
force or has been undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service. As indicated in the
definition of ‘service’, the provision of facilities in connection with supply
of electrical energy is a service. Supply of electricity by the Board or for
that matter KPTC to a consumer would be covered u/s.2(1)(o) being ‘service’
and if the supply of electrical energy to a consumer is not provided in time
as is agreed upon, then u/s.2(1)(g), there may be a case for deficiency in
service.

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Oral partition of joint family property is permissible and subsequent writing does not require registration or stamp duty : Hindu Law.

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10 Oral partition of joint family property
is permissible and subsequent writing does not require registration or stamp
duty : Hindu Law.


The appellants were heirs of the original plaintiff Sonabai.
Sonabai’s husband Ganpatrao died leaving behind his son Motiram and two
daughters, namely, the appellants. Defendnat No. 1 was the widow of Motiram
while defendant no. 2 was daughter of defendant no. 1.

It was alleged that the suit property was the joint family
property left behind by Ganpatrao. The appellant submitted that there was no
partition of the suit property and as such they claimed one half share in the
suit property.

The defendant resisted the claim on the ground that soon
after the death of Motiram and his son, there was a partition and that the
appellants and defendants were cultivating and enjoying their separate share.

The learned Trial Judge held that there was already a
partition and the property did not continue to be joint. The learned Judge found
that the partition had taken place orally and subsequently in writing by
way of memorandum. The appeal was also dismissed.

In the instant case, it was not disputed that the suit
property was a joint family property. Where a document in respect of partition
comes into existence after the oral partition has already taken place, it will
neither require stamp nor registration. The partition deed would require
registration and stamp duty only if interest is created in specific property by
or under that document. If there is an oral partition, that oral partition
itself creates interest in that specific property and not the document which
comes into existence later. The document can be used for proving the severance
of status.

[Lilabai Chavan & Anr. v. Deokabai Kadam & Anr., AIR
2008 (NOC) 2050 (Bom.)]

 


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Secured Creditor is entitled to apply for assistance of Court for taking over actual physical possession from borrower/secured debtor : Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 S. 14.

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11 Secured Creditor is entitled to apply for
assistance of Court for taking over actual physical possession from
borrower/secured debtor : Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 S. 14.


On account of the first respondent’s liability under a
security agreement in term of the SARFAESI Act, 2002, proceedings were initiated
by the petitioner u/s.13(2) of the Act. The petitioner, a secured creditor,
took symbolic possession of the property leaving the first respondent in de
facto physical possession. The property was brought to sale, sale
certificate was also issued in favour of the auction purchaser.

 

It is within the wisdom and freedom of the secured creditor
as to whether in a given case it would, in exercise of authority u/s. 13(4) take
over de jure and de facto possession at one go, or whether it
would let the secured debtor to continue to hold de facto possession
after taking over only de jure possession, by publication in accordance
with the Act and rules, to aid the secured creditor to proceed with the sale
u/s.13. It is not the requirement of S. 13(6) or any other provisions of the Act
that a transfer by a secured creditor after taking over possession would be only
after taking over actual possession, de facto. The right to take
possession u/s.13(4)(a) is provided in such wide terms that it gives fair room
for the secured creditor to decide whether it would first proceed only to take
de jure possession. At any rate, a secured debtor, continuing to hold
de facto possession on the ground of not having been dispossessed, would
only be one who had been given the advantage to continue to hold on de facto
possession for the time during which different steps would have followed,
resulting in the confirmation of sale in favour of a third party auction
purchaser. In absence of any jurisdictional requirement for de facto
possession to make a transfer in terms of S. 13(6), there is no legal or
jurisdictional error in the sale being held by the secured creditor on the
strength of de jure possession. Such a sale or transfer has the complete
support of S. 13(6).

[ Kottakkal Co-op. Urban Bank v. T. Balakrishnan & Anr., AIR 2008
Kerala 179]

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Deposits made in post office monthly income account which was opened contrary to Rules — Depositor entitled to interest accrued on deposits. Govt. Saving Bank Act, 1879 S. 15.

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9 Deposits made in post office monthly income
account which was opened contrary to Rules — Depositor entitled to interest
accrued on deposits. Govt. Saving Bank Act, 1879 S. 15.


The petitioner’s husband made deposits in multiple accounts
in post office monthly income scheme by opening 12 accounts. Subsequently the
accounts were converted into joint accounts. None of the post office staff
informed the petitioner that one should not invest beyond a certain amount in
joint a/c. In fact agents of post office persuaded the petitioner and her
husband to invest the amounts. When the petitioner asked for payment of the
amounts on maturity of the deposits the respondent deducted the interest amount
over and above the limit provided under the Post Office Monthly Scheme Rules.

The Court observed that it is an undisputed fact that the
petitioner has deposited different amounts into various accounts and none of
those accounts has exceeded the prescribed deposit limit. The first respondent
noticed that all the accounts were opened in the name of a single depositor in
various post offices and the amount put together exceeded the maximum amount
prescribed under the rules. Though the rules prescribed that more than two
accounts shall not be opened by any person, it was a mistake on the part of the
post master also in allowing the petitioner to open more accounts contrary to
the rules.

The petitioner contended that the agents who get com-mission
also made the petitioner and her husband to believe that there will not be any
problem if they open more accounts and they will also get interest on all the
accounts without any objection. Had there been any objection at the time of
opening of accounts or obtaining a declaration from the depositor that the
depositor did not open more than two accounts in any post office, that would
have made the petitioner and her husband to bind themselves that they have
knowledge about the rule that they should not open more accounts than two. There
was a mistake on the part of the post master also in allowing the petitioner to
open more accounts in the name of the petitioner and her husband. Therefore, as
the deposits were not made intentionally after knowing the rules, the petitioner
cannot be deprived of the interest accrued thereon.

The petitioner is entitled for interest on the entire amount
kept in the various post offices.

[ Smt. K. Susheela v. Ministry of Communications Dept.
of Post & Ors., AIR 2008 Andhra Pradesh 179.]

 


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GAPs in GAAP – Accounting of Treasury Shares

Accounting standards

Companies may have invested
in their own shares for a number of reasons, for example, treasury shares are
created at the time of mergers and acquisitions of a group company or any other
company. When a company sells its own shares, the shares are transferred from
one set of owners to another set of owners. Under International Financial
Reporting Standards (IFRS), no gain or loss is recognised on the acquisition or
sale of treasury shares, because they are considered as fresh capital issuances
leading to an increase or decrease in share capital rather than an income or an
expense. The acquisition or subsequent resale by an entity of its own equity
instruments represents a transfer between those holders of equity instruments
who have given up their equity interest and those who continue to hold an equity
instrument and hence no gain or loss is recognised.

IAS 32, Financial
Instruments : Presentation sets out the requirements very clearly in paragraphs 33 and 34.


33 If an entity
reacquires its own equity instruments, those instruments (‘treasury shares’)
shall be deducted from equity. No gain or loss shall be recognised in profit
or loss on the purchase, sale, issue or cancellation of an entity’s own
equity instruments. Such treasury shares may be acquired and held by the
entity or by other members of the consolidated group. Consideration paid or
received shall be recognised directly in equity.

34 The amount of
treasury shares held is disclosed separately either in the statement of
financial position or in the notes, in accordance with IAS 1 Presentation
of Financial Statements. An entity provides disclosure in accordance
with IAS 24 Related Party Disclosures if the entity reacquires its
own equity instruments from related parties.


However, under current
Indian accounting standards, in the absence of any specific guidance, there are
disparate practices, though it is common to find companies recognising profit on
sale of treasury shares. This is acceptable under current Indian accounting
standards. However, as already mentioned, the same would not be acceptable under
IFRS. This would provide companies with an accounting arbitrage prior to their
IFRS transition date. For example, a company may sell the treasury shares prior
to the IFRS transition date and thereby recognise gains under Indian GAAP. If
the company sells these shares after adoption of IFRS, it cannot recognise any
gain/loss. As IFRS is being adopted in phases, the accounting arbitrage will
continue for entities that adopt IFRS in later phases or are not required to
apply IFRS.

It may be noted that in
accordance with the directives of SEBI, the stock exchange listing agreements
were amended to require all listed companies to comply with accounting standards
in the case of any merger, amalgamation or restructuring u/s.391 and u/s.394,
and that this would be evidenced by a certificate from the auditors of the
company. Consequently, this had the effect of pre-empting the rights of the High
Court in determining the accounting treatment u/s.391 and u/s. 394. If such a
scheme requires gain/loss to be recognised on sale of treasury shares, then the
auditors will not be able to qualify the certificate with regards to compliance
with accounting standards.

The absence of a standard in India with
regards to accounting of treasury shares is a gap that will be filled
when IFRS kicks in.

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