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Category: Corporate And Other Laws

[Sections 43CA, 50C and 56 of Income Tax Act, 1961 (“the Act”)] – need for some amendments

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The menace of Black Money stashed abroad as well as in India is both an external and internal threat as this could be used to finance militancy. It is also unhealthy for the Indian economy as taxes are avoided – which increases the burden on the honest tax payer. Time and again, efforts have been made to unearth black money either by way of strict enforcement or by way of amnesty schemes or voluntary disclosure schemes.

It is an open secret that a major portion of `black money’ gets parked in the real estate sector. Towards this end, the various State Acts (Stamp Acts) and the Central Law –The Income-tax Act have tried to curb this malpractice e.g. the Income- tax Act contained provisions for obtaining tax clearance certificates before sale of immovable properties, thereby providing for a mechanism for preemptive purchase of undervalued properties by the Central Government. However, it is an admitted fact that these mechanisms failed and therefore have either been omitted by the Government or struck down by the Apex Court (e.g. Section 52 was read down by the Hon’ble Supreme Court in the case of K.P. Varghese vs. ITO (1981) 7 Taxman 13). Similarly, Chapter XXC of the Act also proved ineffective.

State Governments have also joined hands in these efforts by amending their respective Stamp Acts to provide for levy of stamp duty on higher of the prescribed ‘ready reckoner value’ and apparent consideration. The Central Government also introduced section 50C in the Income -tax Act w.e.f. 1-4-2003, section 43CA w.e.f. 1-4-2014 and amended section 56(2)(vii) w.e.f. 1-4-2014. Though such provisions are a welcome step in indirectly curbing the flow of black money in real estate transactions, sometimes some unintended and unfair consequences follow. A few such instances are listed below:

The ‘ready reckoner value’ fixed by State Governments for an under construction property and a ready possession property is the same. When it is an open secret that in the real estate market there is an undesirable flow of black money, it is also equally true that the property rates vary according to the stages of construction. If a person is booking a flat today in the year 2015 in a big project, where possession is likely to be received in the year 2020 (though the builder might have intended it to be in the year 2018), the rates would be substantially different from the rates of a ready possession property. Further, in many cases, the builder offers the properties even at much lower rates in the pre-booking stage, to finance the construction. It is openly advertised in newspapers etc. for discounts in pre-booking stage. But the ‘ready reckoner value’ does not provide for any concession for such under construction properties.

In many cases, people have some existing rights in the properties and there is some pending litigation in the Courts. We are all aware of the speed of disposing of litigations in India. In a few such cases, parties agree for out-of-court settlement and decide a consideration substantially lower than the current market value, for obvious reasons.

In some cases, the Court itself decides the consideration to be paid by one litigant to the other, which is substantially lower than the market value.

Recently, I came across a few cases, where a builder has asked for extra consideration for the extra area (balcony) due to change in DC Regulations. Though such area was actually not an ‘extra area’, as the balcony was already there in the original plan but due to change in DC Regulations, it is now to be included in the carpet area. The actual consideration for such so called extra area when compared with the current ‘ready reckoner value’, is bound to be lower. There is a separate supplementary agreement executed and registered after the change in DC Regulations.

Therefore, even the saving clause of sub-section(3) of section 43CA or proviso to Section 56(2)(vii) may not help. (i.e. existence of an agreement of a prior date).

In all the above cases, there are genuine hardships to both the buyers and sellers because of the application of section 43CA and 56(2)(vii). It is accepted that there are safeguards in-built in these sections to refer the valuation to the departmental valuation officer, wherever assessee claims that the ‘ready reckoner value’ is higher than the market value, but the ‘effectiveness’ of such reference is known to all. From a common man’s perspective, when the agreement is executed, it gets reported through AIR to the Income Tax department and the case is taken up for scrutiny in almost all cases of difference between the actual consideration and the ‘ready reckoner value’. In genuine cases, at higher appellate levels, justice may be obtained with a time consuming and costly litigation. However, at the first assessment stage, getting a relief even in genuine cases is a herculean task.

Legislation with a sound objective is always welcome but is it fair to have a rigid, mechanical and rather oversimplified approach in its implementation?

Suggestion:
An appropriate discounting factor be introduced for valuation of incomplete construction based on the stage of construction. So also, exceptions be provided in situations like decisions of a court. Moreover, exceptions provided in Sections 43CA and 56(2) are missing in Section 50C. The provision should be amended to include the same.

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Female Intestate Succession – The Tide Turns (Sometimes)

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Introduction
The Hindu Succession Act, 1956, is one of the
few codified statutes under Hindu Law. It governs the position of a
Hindu male/female dying intestate, i.e., without making a valid Will.
The Act applies to Hindus, Jains, Sikhs, Buddhists and to any person who
is not a Muslim, Christian, Parsi or a Jew. The Act overrides all Hindu
customs, traditions and usages and specifies the heirs entitled to such
property and the order of preference among them. Thus, if a Hindu dies
leaving behind property and does not make a valid Will, then the law
decides which of his/her heirs get what and in what ratio!

There
are separate rules for succession in the case of intestate Hindu males
and Hindu females. Through this Article, let us examine the usual
succession pattern of a female Hindu and certain special circumstances
when this usual pattern changes.

Usual Succession Pattern
Before analysing the special circumstances, one must understand the usual succession pattern of a Hindu female dying intestate.

All
property, whether movable or immovable and by whatever means acquired,
belonging to a female Hindu is held by her as a full owner. A female
Hindu has absolute power to deal with her property and she can dispose
off her property by way of a Will, gift, etc.

The property of an intestate Hindu female devolves on the following heirs in the order specified below:

(a) Firstly, upon her sons and daughters (including the children of any pre-deceased children) and husband;
(b) Secondly, upon the heirs of her husband;
(c) Thirdly, upon her parents
(d) Fourthly, upon the heirs of her father
(e) Fifthly, upon the heirs of her mother

The
order of succession is in the order specified above. Thus, if she has
children and/or husband then they take the entire property
simultaneously and in preference to all other heirs.

Need for a Change?
What
is interesting to note is that in a case where she does not have any
children or husband or grandchildren of predeceased children, then her
property goes to her husband’s heirs and not to her heirs. Thus, if the
mother of her husband is alive, then her whole property would devolve on
her mother-in-law. If the mother-in-law is also not alive, it would
devolve as per the rules laid down in case of a male Hindu dying
intestate i.e., if the father of her deceased husband is alive, her
father-in-law will inherit her property and if the father-in-law is also
not alive, then her property would devolve on the brother and sister of
the deceased husband.

This position has been a bone of
contention when it comes to women’s equal rights. The 207th Report dated
June 2008 of the Law Commission of India makes a case for amending the
Hindu Succession Act to provide that in cases where an intestate Hindu
widow dies issueless, then equal rights must be given to her parental
heirs along with her husband’s heirs to inherit her property. Thus, both
her parent’s heirs and her husband’s heirs must equally inherit her
estate.

The Order Changes – Property from Parents
The above succession pattern undergoes a drastic change in two cases. These are the notable exceptions to the general law.

In
a case where a female Hindu dies intestate without leaving behind any
children or grandchildren of predeceased children, then only in respect
of the property which she had inherited from her parents the succession
position is altered. The Act provides that such property which she had
inherited from her parents would go to her father’s heirs and shall
neither go to her husband nor her husband’s heirs. Thus, three
conditions must be satisfied for this provision to apply and these are
as follows:

a) A female Hindu must die intestate;
b) She must have inherited property from either of her parents; and
c) She must not have any son, daughter or grandchildren from a predeceased son or daughter.

If
all of the above are met, then the property inherited from her father
or mother would go to her father’s heirs. Interestingly, this is so even
if her husband is alive. However, if she leaves behind a child then the
normal succession pattern would apply and even property inherited from
her parents would go to her children and husband. It must be noted that
irrespective of whether the property is inherited by her from her father
or mother, it would go only to the heirs of her father and not to heirs
of her mother.

The exception is only qua property inherited by a
lady from her parents and cannot extend to property inherited from her
husband – Reshma G. Bhandari vs. Yeshubai H. Koli, 2008(2) Bom. C.R.
294. Similarly, the words “father” and “mother” do not in any way lead
to a conclusion to include property inherited from relatives from her
father’s side or her mother’s side”, as including such additional terms
would be inconsistent with the purposes of the Legislature – Balasaheb
Anandrao Ghatge vs. Jaimala Shahaji Raje, 1977 Mh. L.J.777.

Further,
the exception only deals with inherited property. Property received by
way of a gift from parents or by Will or any other mode would not be
covered by the exception and would continue to be governed by the normal
succession pattern.

The Madras High Court while interpreting
the essence of the above exception in Ayi Ammal vs. Subramania Asari,
1966 (1) M.L.J. 411, has held that the word “inherit” is a word of known
import and ordinarily cannot give any difficulty in understanding its
content. To inherit is to receive property as heir that is succession by
descent. It referred to a dictionary definition and held that it meant
to receive property as heir. Inherit meant, succession by descent. To
take by inheritance meant to take, or to have; to become possessed of;
to take as heir at law by descent or distribution; to descend. The words
inherit and heir in a technical sense, related to right of succession
to the real estate of a person dying intestate”. The word “inherited” in
the above exception had not been used in a loose way and would not
include within its purview receipt of property from the father or mother
during their lifetime.

Similarly, the Andhra Pradesh High Court
in Babballapati Kameswararao vs. Kavuri Vesudevarao 1972 AIR(A.P.) 189,
has held that the exception only covers the acquisition of the property
by succession and not by way of a gift or under a will. The word
inherit thus can in the context only mean to receive property as heir
succession by descent. The view of the Gujarat High Court in Jayantilal
Mansukhlal vs. Mehta Chhanalal Ambalal, 1968 (9) G.L.R. 129 is also
similar.

The only persons covered by the exception are the
father’s heirs. If there are no heirs of the father then the normal
succession pattern would resume.

A very interesting question which arises is that what if the father of the Hindu female is alive? In such an event, would the property go to him or to his heirs, i.e., would the heirs of the father get the property in exclusion of the father? A Single Judge of the Andhra Pradesh High Court in Bhimadas vs. P. K. Kanthamma, ILR 1977 AP 418 held that the father was entitled to the estate during his lifetime. It is only if the father is no more that his heirs would be entitled to the estate of the female Hindu intestate. However, this decision of the Single Judge was overturned by the Division Bench of the Andhra Pradesh in Pinkana Pasamma vs. Bhimadas, 1993(1) KLT

174.    According to the latter decision, the law was very clear and the father’s heirs would get the estate as if the father was no longer alive (even though he was actually alive)!
The law created a deeming fiction whereby the father was deemed to have died intestate immediately after the death of the female Hindu. A similar decision was taken by the Kerala High Court in Sindhu Ajayan vs. Damodaran Pillai, 2011(3) ILR (Ker) 12.

Property from Father-in-law

A second exception in the Act is in respect of property inherited by a female intestate from her husband or her father-in-law. If she dies without leaving behind any children or children of pre-deceased children then the property would devolve not as per the normal succession order but would devolve upon her husband’s heirs. Thus, three conditions must be satisfied for this provision to apply and these are as follows:

d)    A female Hindu must die intestate;

e)    She must have inherited property from either her father-in-law or her husband; and
f)    She must not have any son, daughter or grandchildren from a predeceased son or daughter.

At first blush, it appears that this is a case of redundant drafting. Would not property inherited by a lady from her deceased husband or from her father-in-law in a case where her husband has predeceased her always devolve upon her husband’s heirs since that is the normal succession order under the Act? Her parents would come into the picture only under the 3rd list. Her husband’s heirs take precedence since they are in the 2nd list in the normal order. Why then was this exception inserted? However, consider a case of a female who has inherited property from her late husband or her late father-in-law and then she remarries. If she dies intestate and issueless, her second husband would claim a right to all her property, including the property which she inherited from her first husband or first husband’s father. To prevent this from happening, this exception has been enacted.

What if she has no children from the first marriage but has children from the second marriage then would this exception fail and these children and her second husband would get all her property including what she inherited from her first husband or first husband’s father? Alternatively, would the exception continue to apply since she does not have any children from the first marriage? This is a matter on which there is no express clarity.

Consider a third scenario where she has children from her first marriage but has also remarried. In such a case, this exception would surely fail and these children and her second husband would get all her property including that which she inherited from her first husband or first husband’s father.

Similarly, as in the first exception, the property must have been inherited by her and not received by will or gift or any other mode.

Conclusion

The succession law in the case of females has always been vexed and biased. While there have been some improvements over the years, there are miles yet to be covered. Should not all property received by her from her parents, by way of gift, will, succession, etc., go back only to her parents in the absence of children/husband? Should not the recommendations of the Law Commission be enacted? One often feels that instead of carrying out only amendments such as having a women director on the board (which in several cases is only symbolic), the personal succession law relating to women needs an urgent overhaul! Let us hope that one day the tide would turn for the good (instead of only sometimes as is the case today).

(Advisory practice and Code of Ethics)

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Arjun (A) — Hey Shrikrishna, you were explaining to me what professional scepticism is and why it is needed.
Shrikrishna (S) —And I told you many stories of how an auditor came into deep trouble for acting in good faith.
A — I feel like giving up this signing business and do only advisory work. No kitkit of disciplinary cases.
S — Do you feel, there is no risk in advisory practice? There are many cases where CAs were held guilty for giving wrong advice.
A — Don’t tell me! But we do everything for the benefit of our client only!
S — Agreed. But when he is exposed, he passes on the blame to you only. Moreover, nowadays the Regulators like revenue authorities, MCA and so on have also become very active in this regard.
A — But how would they know that we have advised?
S — Why? Many times, you give written advice or opinion; you raise invoice with that description; clients also tell the authorities to save their own skin.
A — I give my advice only orally. But client very often takes it only to suit his convenience. S — But then, when there are penalty proceedings like concealment of income, the client tries to take shelter that he was wrongly advised.
A — Yes. They say they are lay persons and everything is looked after by their CA. And quite often, they escape the penalty.
S — That is because the Tribunal often gives weightage to such a plea of client’s ignorance; and consultant’s advice. But sometimes, they rap the CAs for wrong advice.
A — Really?
S — Yes, really, one client rang his CA for advice; when he received a negative order from CIT(Appeals). The CA told him about further appeal to the Tribunal. In fact, his matters for earlier years were already before the Tribunal.
A — Then what happened?
S — Client told him that he had no money to spend on repetitive litigation. He enquired whether there was any alternative.
A — This happens quite often.
S — Actually, that client was no more with this CA and had gone to some other CA for routine work. He asked this CA only due to his old relations. The CA told him that since, on the same point, the matter was already before the Tribunal, he could wait and watch. If ITAT ’s order was in his favour, he could go for rectification for subsequent year’s orders. The issue was that of principle and not factual.
A — But rectification may get time-barred.
S — Actually, the CA meant rectification by CIT(A) of his appellate order. But the client by mistake approached the Assessing Officer for rectification.
A — But the Department never acts on our applications for rectification! They remain pending for years together unless you follow up.
S — That precisely happened here. So at a much later date, the client’s new CA filed an appeal to ITAT . It was delayed by 8 years!!
A — Oh my God! So much delay? S — In the condonation proceedings, the client’s counsel, as usual, pleaded that the client received wrong advice from his CA.
A — But I am told, nowadays the Tribunal insists on a sworn affidavit from the consultant or CA that he gave such advice.
S — Right you are. Here, the Tribunal did the same thing. This CA in good faith gave an affidavit that he had given such advice in the given circumstances at that point of time. He said that the advice was misunderstood by the client.
A — The Tribunal passed strictures not only against that CA but against the whole profession for lack of knowledge and lack of due diligence.
S — Yes, I have heard this case. It created a sensation a few months ago.
A — Your Council took serious note of this and initiated proceedings against the CA for bringing disrepute to the profession.
S — Baap re! But who complained?
A — Neither the Tribunal nor the client. In fact the client said he had nothing against the CA since the client knew the reality. The Disciplinary Directorate acted suo moto – on its own – since the ITAT order would certainly tarnish the image of the profession.
S — So far hundreds of cases of condonation might have escaped on the ground that the consultant gave wrong advice. But none of them went in this direction. Bad luck of that CA! But I heard that the Tribunal rectified its own order and deleted some para of strictures. Is it true?
A — Yes. But that may not help the CA. Let us watch how the case progresses now.
S — A good eye-opener once again!

Note:
The provisions of the Code of Ethics are equally applicable to advisory work undertaken by us professionals. The above dialogue tries to explain the same. The C.A. can also be charged under the Consumer Protection law.

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Precedents – Obiter Dictum – Is something said by a judge and has no binding authority: Constitution of India – Article 141

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Laxmi Devi vs. State of Bihar AIR 2015 SC 2710

The Hon’ble Court observed that an obiter dictum, of course, is always something said by a judge. It is frequently easier to show that something said in a judgment is obiter and has no binding authority. Clearly, something said by a Judge about the law in his judgment, which is not part of the course of reasoning leading to the decision of some question or issue presented to him for resolution, has no binding authority however persuasive it may be, and it will be described as an obiter dictum.

The term ratio decidendi, which in Latin means “the reason for deciding”. According to Glanville Williams in ‘Learning the Law’, this maxim “is slightly ambiguous. It may mean either (1) rule that the judge who decided the case intended to lay down and apply to the facts, or (2) the rule that a later Court concedes him to have had the power to lay down.” In G. W. Patons’ Jurisprudence, ratio decidendi has been conceptualised in a novel manner, in that these words are “almost always used in contradistinction to obiter dictum. An obiter dictum, of course, is always something said by a Judge. It is frequently easier to show that something said in a judgment is obiter and has no binding authority. Clearly something said by a Judge about the law in his judgment, which is not part of the course of reasoning leading to the decision of some question or issue presented to him for resolution, has no binding authority however persuasive it may be, and it will be described as an obiter dictum.” ‘Precedents in English Law’ by Rupert Cross and JW Harris states -“First, it is necessary to determine all the facts of the case as seen by the Judge; secondly, it is necessary to discover which of those facts were treated as material by the Judge.” Black’s Law Dictionary, in somewhat similar vein to the foregoing, bisects this concept, firstly, as the principle or rule of law on which a Court’s decision is founded and secondly, the rule of law on which a latter Court thinks that a previous Court founded its decision; a general rule without which a case must have been decided otherwise.

In other words, the enunciation of the reason or principle upon which a question before a court has been decided is alone binding as a precedent. The ratio decidendi is the underlying principle, namely, the general reasons or the general grounds upon which the decision is based on, the test or abstract from the specific peculiarities of the particular case which gives rise to the decision. The ratio decidendi has to be ascertained by an analysis of the facts of the case and the process of reasoning involving the major premise consisting of a pre-existing rule of law, either statutory or judge-made, and a minor premise consisting of the material facts of the case under immediate consideration. If it is not clear, it is not the duty of the court to spell it out with difficulty in order to be bound by it.

It is further trite that a decision is an authority for what it decides and not what can be logically deduced therefrom.

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Will – Execution – Mere non-registration of Will would not make it suspicious: Evidence Act Section 67 & 68.

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Dhameshwar vs. Gish Pati & Ors. AIR 2015 HP 77

The Appellant plaintiff had filed a suit against the Respondent-defendant, namely, Gish Pati and Proforma Respondents-defendants for declaration and for permanent prohibitory injunction as a consequential relief. According to the plaintiff, Smt. Drumati Devi had not executed the Will, dated 15.06.1985, Ex. DW2/A in favour of defendant, Sh. Gish Pati. Drumati Devi was 78 years of age in the year 1985 and the defendant No. 1 in collusion with the subordinate revenue staff and behind the back of the plaintiff and proforma defendants, got the mutation attested in his favour with regard to the share of late Smt. Drumati Devi. He came to know about this in the month of January, 1994. The Will is unregistered. Smt. Drumati Devi was an old, illiterate and simple lady. She had never expressed her will or desire to disentitle the plaintiff and other proforma defendants from her share in the suit property. The execution of the Will was result of undue influence, misrepresentation and coercion. The Will, dated 15.06.1985, was null and void. He also sought the decree of permanent prohibitory injunction against the defendant No. 1.

The suit was contested by the defendant No. 1. According to him, Smt. Drumati Devi was fully capable and sensible lady. She in lieu of the services rendered by him, executed a Will in his favour. Thereafter, on the basis of the Will, dated 15.06.1985, the mutation was also attested. The revenue entries were in accordance with the law.

What emerges after analysis of the statements of the witnesses, is that the Will is dated 15.06.1985. It was scribed by Dile Ram. The contents of the Will were read over and explained to Drumati Devi. She had put her thumb impression on the same. Thereafter, the marginal witnesses, Himan and Het Ram signed the same. The defendant No. 1 used to look after his mother. The plaintiff was out of village. The last rites were performed by defendant No. 1. Drumati was in her senses at the time of execution of the Will.

The counsel for the plaintiff contended that the marginal witnesses have used different ink. The Court held that merely the fact that the marginal witnesses have used different ink, will not make the Will suspicious.

The non registration of the Will will not make it suspicious. The Will has been executed strictly as per the provisions of the Indian Evidence Act and the Indian Succession Act.

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The petitioner filed a divorce petition u/s. 13 of the Hindu Marriage Act, 1955 before the Family Court. In that application, the petitioner alleged that Respondent No. 2 – wife caused mental cruelty to him by different means.

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Kalia Hati & Ors vs. State of Odisha & Ors. AIR 2015 Orissa 138 (FB)

The Court was concerned with the following question – What is the meaning of the expression “in particular, and without prejudice to the generality” appearing in section 14(ii) of the Industrial Infrastructure Development Corporation Act, 1980 (the Act)?

Section 14(i) of the Act deals with functions of the Corporation. It provides that the functions of the Corporation shall be generally to promote and assist in the rapid and orderly establishment, growth and development of industries, trade and commerce in the State. Section 14(ii) starts with “in particular, and without prejudice to the generality of Clause (i)”. Thereafter, it provides various particular purposes for which acquisition can be made.

In Shiv Kirpal Singh vs. Shri V. V. Giri, AIR 1970 SC 2097, the Supreme Court relying on the decision of the Privy Council in the case of King Emperor vs. Sibnath Banerji, AIR 1945 PC 156 held that when the expression “without prejudice to the generality of the provisions” is used, anything contained in the provisions following the said expression is not intended to cut down the generality of the meaning of the preceding provision.

Thus, the Court concluded that sub-section (i) of section 14 of the Act is independent and is couched in broad terms. The same cannot be in any manner whittled down by the language of sub-section (ii) of section 14 of the Act.

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Evidence – Tape Recorded conversation between spouses – Admissible in evidence – violates right to privacy – But not admissible if recorded without knowledge of spouse – If admitted it would amount to violation of “right to privacy”.

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Vishal Kaushik vs. Family Court & Anr. AIR 2015 Raj 146

The petitioner filed a divorce petition u/s. 13 of the Hindu Marriage Act, 1955 before the Family Court. In that application, the petitioner alleged that Respondent No. 2 – wife caused mental cruelty to him by different means.

The petitioner moved two applications on that very day. First application was filed for placing on record original cassette with a DVD. Second application was moved with the prayer that the original cassette and DVD be sent for FSL examination to determine their genuineness. The Family Court dismissed the application without seeking reply from the respondent.

The Hon’ble Court referred to section 122 of the Indian Evidence Act, 1872 and observed that:

The exception to privileged communication between husband and wife carved out in section 122 of Evidence Act, which enables one spouse to compel another to disclose any communication made to him/her during marriage by him/her, may be available to such spouse in variety of situations, but if such communication is a tape recorded conversation, without the knowledge of the other spouse, it cannot be, admissible in evidence or otherwise received in evidence, as recording of such conversation had breached her `right to privacy’.

Husband cannot be, in the name of producing evidence, allowed to wash dirty linen openly in the court proceedings so as to malign the wife by producing clandestine recording of their conversation.

Thus, recorded conversation between the husband and the wife, even if true, cannot be admissible in evidence and the wife cannot be forced to undergo voice test and expert cannot be asked to compare CDs, which conversation had been denied by her.

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Admission / Concession – Advocate – Senior Counsel – cannot settle and compromise claim without specific authorisation from his client. Advocates Act, 1961, Section 35:

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Himalayan Co-op. Group Housing Society vs. Balwan Singh & Ors. AIR 2015 SC 2867

One
of the most basic principles of the lawyer client relationships is that
lawyers owe fiduciary duties to their clients. As part of those duties,
lawyers assume all the traditional duties that agents owe their
principals and, thus, have to respect the clients’ autonomy to make a
decisions at a minimum, as to the objectives of the representation.
Thus, according to generally accepted notions of professional
responsibility, lawyers should follow the client’s instructions rather
than substitute their judgment for that of the client. The law is now
well settled that a lawyer must be specifically authorised to settle and
compromise a claim, that merely on the basis of his employment he has
no implied or ostensible authority to bind his client to a
compromise/settlement. A lawyer by virtue of retention, has the
authority to choose the means for achieving the client’s legal goal,
while the client has the right to decide on what the goal will be.
Despite the specific legal stream of practice, seniority at the bar or
designation of an advocate as a senior advocate, the ethical duty and
the professional standards insofar as making concessions before the
court remain the same.

Generally, admissions of a fact made by a
counsel is binding upon their principals as long as they are
unequivocal; where, however, doubt exists as to a purported admission,
the court should be wary to accept such admissions until and unless the
counsel or the advocate is authorised by his principal to make such
admissions. Furthermore, a client is not bound by a statement or
admission which he or his lawyer was not authorised to make. Lawyer
generally has no implied or apparent authority to make an admission or
statement which would directly surrender or conclude the substantial
legal rights of the client unless such an admission or statement is
clearly a proper step in accomplishing the purpose for which the lawyer
was employed. Neither the client nor the court is bound by the lawyer’s
statements or admissions as to matters of law or legal conclusions.
Thus, according to generally accepted notions of professional
responsibility, lawyers should follow the client’s instructions rather
than substitute their judgement for that of the client.

Therefore,
the Bar Council of India (BCI) Rules make it necessary that despite the
specific legal stream of practice, seniority at the Bar or designation
of an advocate as a Senior Advocate, the ethical duty and the
professional standards insofar as making concessions before the Court
remain the same. It is expected of the lawyers to obtain necessary
instructions from the clients or the authorised agent before making any
concession/statement before the Court for and on behalf of the client.

While
the BCI Rules and the Act, does not draw any exception to the necessity
of an advocate obtaining instructions before making any concession on
behalf of the client before the Court, this Court in Periyar and
Pareekanni Rubber Ltd. vs. State of Kerala (1991) 4 SCC 195 has noticed
the sui generis status and the position of responsibility enjoyed by the
Advocate General in regards to the statements made by him before the
Courts. The said observation is as under:

“19…Any concession
made by the government pleader in the trial court cannot bind the
government as it is obviously, always, unsafe to rely on the wrong or
erroneous or wanton concession made by the counsel appearing for the
State unless it is in writing on instructions from the responsible
officer. Otherwise it would place undue and needless heavy burden on the
public exchequer. But the same yardstick cannot be applied when the
Advocate General has made a statement across the bar since the Advocate
General makes the statement with all responsibility.”

The
Hon’ble Court conclude by noticing a famous statement of Lord Brougham:
“an advocate, in the discharge of his duty knows but one person in the
world and that person is his client”

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A. P. (DIR Series) Circular No. 21 dated 8th October, 2015

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Memorandum of Procedure for channeling transactions through Asian Clearing Union (ACU)

This circular permits the use of the Nostro accounts of commercial banks of the ACU member countries, i.e., the ACU Dollar and ACU Euro accounts, for settling the payments of both exports and imports of goods and services among the ACU countries and reiterates that all eligible export/import transactions with other ACU member countries (except in the case of certain countries where specific exemptions have been provided by the Reserve Bank of India) must invariably be settled through the ACU mechanism.

As a consequence, payments for all eligible: –

a) Export transactions must be made by debit to the ACU Dollar/ACU Euro account in India of a bank of the member country in which the other party to the transaction is resident or by credit to the ACU Dollar/ACU Euro account of the authorised dealer maintained with the correspondent bank in the other member country.
b) Import transactions must be made by credit to the ACU Dollar/ACU Euro account in India of a bank of the member country in which the other party to the transaction is resident or by debit to the ACU Dollar /ACU Euro account of an authorised dealer with the correspondent bank in the other member country.

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A. P. (DIR Series) Circular No. 20 dated 8th October, 2015

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Risk Management & Inter-Bank Dealings: Booking of Forward Contracts – Liberalisation

Presently,
to manage/hedge their foreign exchange exposures arising out of actual
or anticipated remittances, both inward and outward, resident
individuals, firms and companies, are allowed to book forward contracts,
without production of underlying documents, up to a limit of US $
250,000 based on self-declaration.

This circular has increased
the said limit to US $ 1 million. Hence, all resident individuals, firms
and companies, who have actual or anticipated foreign exchange
exposures, are now allowed to book foreign exchange forward and FCY-INR
options contracts up to US $ 1,000,000 (US $ one million) without any
requirement of documentation on the basis of a simple declaration.
Although contracts booked under this facility will normally be on a
deliverable basis, cancellation and rebooking of contracts is permitted.
However, depending upon the track record of the entity, the concerned
bank can call for underlying documents, if considered necessary, at the
time of rebooking of cancelled contracts.

The existing
facilities in terms of A.P. (DIR Series) Circular No. 15 dated 29th
October, 2007 for Small and Medium Enterprises (SMEs) will remain
unchanged.

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A. P. (DIR Series) Circular No. 19 dated October 6, 2015

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Investment by Foreign Portfolio Investors (FPI) in Government Securities

This circular has increased the investment limit in Government Securities as under: –

The
security-wise limit for FPI investments will be monitored on a day-end
basis and those Central Government securities in which aggregate
investment by FPI exceeds the prescribed threshold of 20% will be put in
a negative investment list. No fresh investments by FPI in these
securities will be permitted till they are removed from the negative
list.

There will be no security-wise limit for SDL for now.

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Notification No. FEMA. 353 /2015-RB dated 6th October, 2015

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Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Ninth Amendment) Regulations, 2015

This Notification has amended Schedule 5 of Notification No. FEMA 20/2000-RB dated 3rd May 2000 as under: –

(A) in paragraph 2,
(i) the existing sub-paragraph (3) shall be re-numbered as Paragraph 2C (ii) after the existing sub-paragraph (2), the following shall be added namely: –
“(3) A Non- Resident Indian may subscribe to National Pension System governed and administered by Pension Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The annuity/ accumulated saving will be repatriable.”
(iii) after adding sub-paragraph (3) in paragraph 2, the existing paragraph 2C shall be re-numbered as sub-paragraph (4) in Paragraph 2.

(B) In paragraph 3, after the existing sub-paragraph (2), the following shall be inserted namely: –
“(2A) A non-resident Indian who subscribes to the National Pension System, under sub-paragraph (3) of paragraph (2) of this Schedule shall make payment either by inward remittance through normal banking channels or out of funds held in his NRE/FCNR/NRO account.”

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DIPP Press Note No. 11 (2015 Series) dated 1st October, 2015

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Foreign Direct Investment (FDI) up to 100% in White Label ATM Operations under Automatic Route

This Press Note states that the Government of India has permitted 100% investment under the Automatic Route in White Label ATM Operations, with immediate effect.

Accordingly, a new sub-paragraph 6.2.18.8.3 has been inserted in paragraph 6.2.18.8 of the Consolidated FDI Policy as under: –

Other conditions: –
1. Any non-bank entity intending to set-up WLA should have a minimum net worth of Rs. 100 crore per the latest financial year’s audited balance sheet, which is to be maintained at all times.
2. In case the entity is also engaged in any other 18 NBFC activities, then the foreign investment in the company setting up WLA, shall also have to comply with the minimum capitalisation norms for foreign investments in NBFC activities, as provided in Para 6.2.18.8.2.
3. FDI in the WLAO will be subject to the specific criteria and guidelines issued by RBI vide Circular No. DPSS. CO.PD. No. 2298/02.10.002/2011-2012, as amended from time to time.

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A. P. (DIR Series) Circular No. 18 dated 30th September, 2015

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Notification No. FEMA . 348 /2015-RB dated 25th September, 2015 Regularisation of assets held abroad by a person resident in India under Foreign Exchange Management Act, 1999

This circular clarifies that in the case of persons resident in who have held assets abroad in violation of FEMA and who have made a declaration under the provisions of the Black Money Act, and have paid the tax and penalty due thereon: –

a) No proceedings will lie under the Foreign Exchange Management Act, 1999 (FEMA) against the declarant with respect to an asset held abroad for which taxes and penalties under the provisions of Black Money Act have been paid.
b) No permission under FEMA is required to dispose of the asset so declared and bring back the proceeds to India through banking channels within 180 days from the date of declaration.
c) In case the declarant wishes to hold the asset so declared, she/ he has to apply to RBI within 180 days from the date of declaration if such permission is necessary as on date of application. Such applications will be dealt by RBI as per extant regulations. In case such permission is not granted, the asset will have to be disposed of within 180 days from the date of receipt of the communication from RBI conveying refusal of permission or within such extended period as may be permitted and the proceeds brought back to India immediately through the banking channel.

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A. P. (DIR Series) Circular No. 17 dated 24th September, 2015

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External Commercial Borrowings (ECB) Policy – Issuance of Rupee denominated bonds overseas

This circular contains guidelines with respect to the overseas issuance of Rupee denominated bonds within the ECB Policy. The guidelines are as under: –

1. Eligibility of borrowers
Any corporate or body corporate is eligible to issue Rupee denominated bonds overseas. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) coming under the regulatory jurisdiction of the Securities and Exchange Board of India are also eligible.

2. Type of instrument
Only plain vanilla bonds issued in a Financial Action Task Force (FATF) compliant financial centres; either placed privately or listed on exchanges as per host country regulations.

3. Recognised investors
Any investor from a FATF compliant jurisdiction. Banks incorporated in India will not have access to these bonds in any manner whatsoever. Indian banks, however, can act as arranger and underwriter. In case of underwriting, holding of Indian banks cannot be more than 5 % of the issue size after 6 months of issue. Further, such holding shall be subject to applicable prudential norms.

4. Maturity
Minimum maturity period of 5 years. The call and put option, if any, shall not be exercisable prior to completion of minimum maturity.

5. All-in-cost
The all-in-cost of such borrowings should be commensurate with prevailing market conditions. This will be subject to review based on the experience gained.

6. End-uses
The proceeds can be used for all purposes except for the following: –
i. R eal estate activities other than for development of integrated township/affordable housing projects;
ii. Investing in capital market and using the proceeds for equity investment domestically;
iii. A ctivities prohibited as per the foreign direct investment (FDI) guidelines;
iv. O n-lending to other entities for any of the above objectives; and v. Purchase of land.

7. Amount
Under the automatic route the amount will be equivalent of USD 750 million per annum. Cases beyond this limit will require prior approval of the Reserve Bank.

8. Conversion rate
The foreign currency – Rupee conversion will be at the market rate on the date of settlement for the purpose of transactions undertaken for issue and servicing of the bonds.

9. Hedging
The overseas investors will be eligible to hedge their exposure in Rupee through permitted derivative products with AD Category – I banks in India. The investors can also access the domestic market through branches/subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence on a back to back basis.

10. Leverage
The leverage ratio for the borrowing by financial institutions will be as per the prudential norms, if any, prescribed by the sectoral regulator concerned.

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A. P. (DIR Series) Circular No. 16 dated 24th September, 2015

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Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers

Presently, banks are permitted to offer repatriation facility with respect to export related remittances pertaining to export of goods and services by entering into standing arrangements with Online Payment Gateway Service Providers (OPGSP).

This circular: –
1. Now permits banks to offer similar facilities for import payments by entering into standing arrangements with the OPGSP.
2. This circular contains revised guidelines for facilitating payments of exports and imports by entering into standing arrangements with OPGSP.

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A. P. (DIR Series) Circular No. 15 dated September 24, 2015

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Opening of foreign currency accounts in India by ship-manning/crew management agencies

Presently, ship-manning/crew managing agencies that are rendering services to shipping/airline companies incorporated outside India, are permitted to open, hold and maintain non-interest bearing foreign currency account with a bank in India for meeting the local expenses in India of such shipping or airline company.

This circular states that the under mentioned guidelines in respect of such accounts need to be strictly followed: –

a) Credits to such foreign currency accounts can only be by way of freight or passage fare collections in India or inward remittances through normal banking channels from the overseas principal.
b) Debits will be towards various local expenses in connection with the management of the ships / crew in the ordinary course of business.
c) No credit facility (fund based or non-fund based) must be granted against security of funds held in such accounts.
d) The bank must meet the prescribed ‘reserve requirements’ in respect of balances in such accounts.
e) No EEFC facility can be allowed in respect of the remittances received in these accounts.
f) These foreign currency accounts can be maintained only during the validity period of the agreement.

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DIPP – Press Note No. 6 (2015 Series) dated June 3, 2015

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Review of Foreign Direct Investment (FDI) Policy on Investments by Non-Resident Review of the investment limit for cases requiring prior approval of the Foreign Investment Promotion Board (FIPB) / Cabinet Committee on Economic Affairs (CCEA)

This Press Note has revised Paragraph 5.2 of the Consolidated FDI Policy issued on May 12, 2015, with effect from June 18, 2015: –

5.2 Levels of Approvals for Cases under Government Route

5.2.1 The Minister of Finance who is in charge of FIPB would consider the recommendations of FIPB on proposals with total foreign equity inflow up to Rs. 3000 crore.

5.2.2 The recommendations of FIPB on proposals with total foreign equity inflow of more than Rs. 3000 crore would be placed for consideration of Cabinet Committee on Economic Affairs (CCEA)

5.2.3 The CCEA would also condier the proposals which may be referred to it by the FIPB/the Minister of Finance ( in-charge of FIPB).

5.2.4 The FIPB Secretariat in Department of Economic Affairs will process the recommendations of FIPB to obtain the approval of Minister of Finance and CCEA.

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A. P. (DIR Series) Circular No. 110 dated June 18, 2015

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BEF statement – Submission under XBR L

This circular has made the following two amendments with regards to submission of BEF Statement: –

1. With effect from the half year ending June 2015, BEF has to be submitted online and Bank-wise (instead of the present system of branch-wise submission) to the respective Regional Offices of RBI.

2. Banks have to submit data in a single format giving details of all remittances for import exceeding USD 100,000, as on end of June and December of every year, in respect of which importers have defaulted in submission of appropriate document evidencing import within 6 months from the date of remittance.

Details of the same can be accessed at https://secweb. rbi.org.in/orfsxbrl/. The formats for the same are also Annexed to this Circular.

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A. P. (DIR Series) Circular No. 109 dated June 11, 2015

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External Commercial Borrowings (ECB) for Civil Aviation Sector

Presently, eligible borrowers in India could avail of ECB for working capital as a permissible end-use, under the Approval Route, up to March 31, 2015.

This circular has extended the period up to which ECB can be availed under the Approval Route by eligible borrowers in India from March 31, 2015 to March 31, 2016.

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A. P. (DIR Series) Circular No. 108 dated June 11, 2015

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External Commercial Borrowings (ECB) for low cost affordable housing projects

Presently, eligible borrowers in India could avail of ECB for low cost affordable housing projects, under the Approval Route, up to March 31, 2015.

This circular has extended the period up to which ECB can be availed under the Approval Route by eligible borrowers in India from March 31, 2015 to March 31, 2016.

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A. P. (DIR Series) Circular No. 107 dated June 11, 2015

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Notification No. FEMA.337/2015-RB dated March 2, 2015
Notification No. FEMA.338/2015-RB dated March 2, 2015
Subscription to chit funds by Non-Resident Indian on non-repatriation basis

Presently, a person resident outside India cannot make investment in India, in any form, in a company or partnership firm or proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage “in the business of chit fund”.

This circular now permits Non-Resident Indians (NRI) to subscribe to the chit funds, without limit, on non-repatriation basis, provided: –

i. The chit fund is authorized by the appropriate Authority to accept subscription from Non-Resident Indians on nonrepatriation basis.
ii. The subscription to the chit funds must be brought in through normal banking channel, including through an account maintained with a bank in India.

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A. P. (DIR Series) Circular No. 106 dated June 1, 2015

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Notification No. FEMA 341/2015-RB dated May 26, 2015
Ministry of Finance – Dept. of Economic Affairs – G.S.R. 426(E) dated May 26, 2015

I.
Liberalised Remittance Scheme (LRS) for resident individuals- increase
in the limit from USD 125,000 to USD 250,000 and rationalisation of
current account transactions
II. Remittance facilities for persons other than individuals

Notification
No. FEMA 341/2015 has substituted provisos to the existing
sub-regulation (a) of Regulation 4 of the Foreign Exchange Management
(Permissible Capital Account Transactions) Regulations, 2000.

G. S. R. 426(E) has substituted: –
a. Rule 5 of the Foreign Exchange Management (Current Account Transactions) Rules, 2000.
b. Schedule III of the Foreign Exchange Management (Current Account Transactions) Rules, 2000.

This circular has made the following changes: –

1. Limits & facilities under the Liberalized Remittance Scheme (LRS)

a.
A resident individual can now remit up to US $ 250,000 per financial
year (as against the present limit of US $ 125,000) for any permitted
current or capital account transaction or a combination of both (except
for making remittances for any prohibited or illegal activities such as
margin trading, lottery, etc.). If an individual has already remitted
any amount during the current financial year under the LRS, then the
amount so remitted has to be reduced from the present limit of US $
250,000 for the financial year and the individual can remit the balance
amount.

b. All facilities for remittances under the Schedule III
of the Foreign Exchange Management (Current Account Transactions)
Rules, 2000 (including drawal of foreign exchange for personal /
business visits overseas) have now been merged / subsumed within the
said limit of US $ 250,000.

c. Application-cum-declaration for
remittance / drawal of foreign exchange for personal / business visits
has to be made in the Form annexed to this circular.

d. No part
of the foreign exchange of US $ 250,000 can be used for remittance
directly or indirectly to countries notified as non-cooperative
countries and territories by the Financial Action Task Force (FATF).

2. Permissible transactions under LRS

Permissible capital account transactions by an individual under LRS are: –

i) Opening of foreign currency account abroad with a bank;

ii) Purchase of property abroad;

iii) Making investments abroad;

iv) Setting up Wholly owned subsidiaries and Joint Ventures abroad;

v)
Extending loans including loans in Indian Rupees to Non-resident
Indians (NRIs) who are relatives as defined in Companies Act, 2013.

Permissible current account transactions by an individual under LRS are: –

(i) Private visits to any country (except Nepal and Bhutan);
(ii) Gift or donation;
(iii) Going abroad for employment;
(iv) Emigration;
(v) Maintenance of close relatives abroad;
(vi)
Travel for business, or attending a conference or specialised training
or for meeting expenses for meeting medical expenses, or check-up
abroad, or for accompanying as attendant to a patient going abroad for
medical treatment / check-up;
(vii) Expenses in connection with medical treatment abroad;
(viii) Studies abroad;
(ix) Any other current account transaction.

However,
for the purposes mentioned at item numbers (iv), (vii) and (viii), the
individual can avail of exchange facility for an amount in excess of the
limit prescribed under the LRS if it is so required by the country of
emigration, medical institute offering treatment or the university,
respectively.

3. Facilities for persons other than individuals

As
per the provisions of amended Schedule III, persons other than
individuals can make remittances, within the limits and subject to
conditions laid down therein, for:
i) Donations to educational institutions;
ii) Commissions to agents abroad for sale of residential flats / commercial plots in India;
iii) Remittances for consultancy services and
iv) Remittances for reimbursement of pre-incorporation expenses.

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A. P. (DIR Series) Circular No. 103 dated May 21, 2015

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External Commercial Borrowings (ECB) denominated in Indian Rupees (INR) – Mobilisation of INR

Presently, residents can avail ECB in Indian Rupees from recognized non-resident lenders if the lenders have mobilized Indian Rupees through a swap undertaken with a bank in India.

This circular states that recognized non-resident lenders can now lend in Indian Rupees by entering into a swap transaction with their overseas bank which will, in turn, enter into a back-to-back swap transaction with any bank in India, subject to complying with KYC and other procedures as prescribed.

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A. P. (DIR Series) Circular No. 102 dated May 21, 2015

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Rupee Drawing Arrangement – Increase in trade related remittance limit

This circular has increased the limit for trade transactions under the Rupee Drawing Arrangements (RDA) with respect to Vostro Accounts of Non-resident Exchange Houses from Rs. 500,000 to Rs. 1,500,000 with immediate effect.

Banks have been authorized, subject to certain conditions, to regularize payments exceeding the prescribed limit under RDA if they are satisfied with the bonafide of the transaction. Banks are also required to take the following steps: –

1. Ensure the remittances received under RDA are from FATF compliant countries.

2. Take care of KYC / AML / CFT and other due diligence concerns.

3. Review individual Exchange Houses that are frequently sending large value trade related remittances and report them to RBI.

4. Contact their correspondents that maintain accounts for or facilitate transactions on behalf of Exchange Houses in order to request additional information regarding high value trade related transactions and the parties involved. The collected details must be kept on record and it must be made available for scrutiny,

5. Ensure that the proceeds of export payment through RDA is applied to the outstanding export finance if any, availed by the exporter from any bank for the concerned export transaction and obtain a declaration to that effect from the exporter.

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Will – Suspicious Circumstances – Minor mistake / error in Final Will – Nothing to show that signature on will was forged – Will would be valid: Hand writing Expert opinion is fallible : Succession Act, 1925 section 63

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Hoshang Pesi Hodiwala vs. Bonny Behramshah Bhathena & Ors; AIR 2015 (NOC) 473 (Bom.)

The plaintiff was the grandson of the deceased, one B.M. Bhathena who executed a will dated 27th November, 1985 and who expired on 25th May, 1989. The deceased left behind one son and two daughters as his only heirs. They would be entitled to an equal 1/3rd share in the estate of the deceased on intestacy. The plaintiff had sought to probate the will. The plaintiff was the son of one of the daughters. The son of the deceased challenged the will of the deceased sought to be probated by the plaintiff. He was survived by the defendants.

The defendant had contended that the signatures of the deceased on pages 1 and 2 were forged. He had shown some inaccuracies in the will. He claimed that the will was not genuine and was forged.

The will of the deceased was typewritten. It ran into three pages. It was prepared in the lawyers office. It was signed by one lawyer and the managing clerk of the lawyer who prepared it. It was deposited with the sub registrar of assurances. The plaintiff evidence shows that the will had been duly executed. The attesting witness has deposed about the specific attestation of the will in the presence of the deceased.

The defendants had shown several suspicious circumstances and certain errors in the typewriting of the will. The name of the deceased was not correctly shown on page one of the will as also in the execution clause. There was an error in the name of the father of the deceased which forms a part of full name of the deceased. In line two the full name of the deceased only shows two blanks in his father’s name. The remainder of the name was correctly shown.

The Hon’ble Court observed that the name of the deceased B.M. Bathena in execution clause shows only M. Bathena. These mistakes may creep into any document. A party reading the will may or may not notice such error. The will is not on a computer printout, it is typewritten. The draft was made earlier by the steno of the advocate. The final will was typed by attesting witness who was his managing clerk. There can be a mistake in the final draft even if there was no mistake in the first draft. If the deceased had read the first draft and approved it, he may not meticulously go through the final draft before its execution. He may execute the will upon cursorily going through the will which he had seen earlier. Hence the errors of such kind which are shown are neither germane nor can raise any suspicion.

It was seen that the will was most natural. The deceased has bequeathed a single immoveable property. He had three children. He has bequeathed it to all in equal shares. Even on intestacy they would be entitled to the same share of course, as on the date of the execution of the will the defendant would have been entitled to 50% share in the estate of the deceased and his two sisters would have been together entitled to 50% share of his estate. That was prior to the amendment to Chapter III of the Indian Succession Act, (ISA) 1991. Be that as it may, upon intestacy half the property would devolve upon the son of the deceased, his residence with family therein notwithstanding. Consequently making of the will for giving equal shares does not matter. It would show the impartial intention of the deceased.

The Court had considered each of the circumstances contended to be suspicious. The conscience of the Court has to be satisfied that the will sought to be propounded is the will of the deceased. This would depend upon the facts of each case. Various facts shown by the defendants to create suspicions are mere stray contentions none of which is such as to raise suspicion of the Court. The deposit of a will in the office of the sub registrar after its preparation upon a draft by an advocate and its execution before another advocate in the same office and another witness bequeathing the estate of the testator in equal shares to his heirs would show the due execution of the will. Consequently it is seen that the will of the deceased B.M. Bhathena dated 27th November, 1985 has been duly and validly executed.

The defendant had produced, before the handwriting expert photocopies of two money order receipts of 1982, 3 years prior to the execution of the will showing the signatures of the deceased. He has also produced one cheque signed by the deceased on 21st July, 1997, 14 years prior to the execution of the will. He had also produced a driving license of the deceased dated 28th February, 1956, about 30 years prior to the execution of the will showing his signature. The signatures at such distance in time are likely to be slightly different.

The handwriting expert’s evidence would be required to be considered. (See Ajay Kumar Parmar vs. State of Rajasthan, AIR 2013 SC 633) However, it was held that the opinion of the handwriting expert is as fallible/ liable to error as that of any other witness and hence the Court can compare the signatures as required u/s. 73 of the Indian Evidence Act. Consequently in a case such as this the Court would see the opinion of the expert and apply its own observation by comparing the signatures or handwritings for providing a decisive weight or influence to its decision. There was absolutely nothing to show that any of the signatures is forged.

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Stamp Duty – Several instruments in one transaction – Duty Chargeable on principal instruments so determined shall be highest duty chargeable in respect of any of said instruments: Bombay Stamp Act, 1958 section 4

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Prasun Developers vs. State of Maharashtra & Ors; AIR 2015 (NOC) 541 (Bom.)

Section 4 of the Bombay Stamp Act, 1958 inter alia, provides that where, in case of any specific instrument, i.e. development agreement, sale, mortgage or settlement, if several instruments are employed for completing the transaction, then the principal instrument only shall be chargeable with duty prescribed in Schedule – I and each of the other instruments shall be chargeable with duty of Rs.100/- instead of the duty, if any, prescribed for it in that schedule.

Sub section (2) of section 4 of the said Act enables the parties to determine for themselves which of the instruments so employed shall for the purposes of sub section (1), be deemed to be the principal instrument. Sub section (3) of section 4 of the said Act provides that where parties fail to determine the principal instrument between themselves, then the officer before whom the instrument is produced may, for the purposes of this section, determine the principal instrument.

The proviso to section 4, which governs the entire section provides that the duty chargeable on principal instrument so determined shall be the highest duty which would be chargeable in respect of any of the said instruments so employed. Thus, in order that the provisions of section 4 of the said Act are attracted, in the first place it will have to be established that several instruments were employed for completing one and the same transaction. In the context of present case therefore, it was for the petitioner to establish that the development agreement, power of attorney and the sale deed were nothing but several instruments employed for completing the transaction of the sale of the said property.

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Right to Representation – Duty of lawyer to defend every person – Professional ethics require that lawyer must not refuse a brief: Constitution of India

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A.S. Mohammed Rafi vs. State of Tamil Nadu; 2015 (319) ELT 10 (SC)

The Hon’ble Supreme Court while disposing a matter, commented upon a matter of great legal and constitutional importance.

The Hon’ble Court observed that the Bar Association of Coimbatore had passed a resolution that no member of the Coimbatore Bar could defend the accused policemen in the criminal case against them in this case. Several Bar Association all over India, whether High Court Bar Associations or District Court Bar Associations have passed resolutions that they could not defend a particular person or persons in a particular criminal case. Sometimes there were clashes between policemen and lawyers, and the Bar Association passes a resolution that no one will defend the policemen in the criminal case in court. Similarly, sometimes the Bar Association passed a resolution that they would not defend a person who is alleged to be a terrorist or a person accused of a brutal or heinous crime or involved in a rape case.

The Hon’ble Court opined that such resolutions are wholly illegal, against all traditions of the bar, and against professional ethics. Every person, however, wicked, depraved, vile, degenerate, perverted, loathsome, execrable, vicious or repulsive he may be regarded by society, has a right to be defended in a court of law and correspondingly it is the duty of the lawyer to defend him.

The Hon’ble Court gave some historical examples in this connection. When the great revolutionary writer Thomas Paine was jailed and tried for treason in England in 1792 for writing his famous pamphlet ‘The Rights of Man’ in defence of the French Revolution the great advocate Thomas Erskine (1750-1823) was briefed to defend him. Erskine was at that time the Attorney General for the Prince of Wales and he was warned that if he accepted the brief, he would be dismissed from office. Undeterred, Erskine accepted the brief and was dismissed from office.

However, his immortal words in this connection stand out as a shining light even today :

“From the moment that any advocate can be permitted to say that he will or will not stand between the Crown and the subject arraigned in court where he daily sits to practice, from that moment the liberties of England are at an end. If the advocate refuses to defend from what he may think of the charge or of the defence, he assumes the character of the Judge; nay he assumes it before the hour of the judgment; and in proportion to his rank and reputation puts the heavy influence of perhaps a mistaken opinion into the scale against the accused in whose favour the benevolent principles of English law make all assumptions, and which commands the very Judge to be his Counsel”

The Hon’ble Court observed that Indian lawyers have followed this great tradition. The revolutionaries in Bengal during British rule were defended by our lawyers, the Indian communists were defended in the Meerut conspiracy case, Razakars of Hyderabad were defended by our lawyers, Sheikh Abdulah and his co-accused were defended by them, and so were some of the alleged assassins of Mahatma Gandhi and Indira Gandhi. In recent times, Dr. Binayak Sen has been defended. No Indian lawyer of repute has ever shirked the responsibility on the ground that it will make him unpopular or that it is personally dangerous for him to do so. It was in this great tradition that the eminent Bombay High Court lawyer Bhulabhai Desai defended the accused in the I.N.A. trials in the Red Fort at Delhi (November 1945 – May 1946).

However, disturbing news was coming now from several parts of the country where bar associations were refusing to defend certain accused persons.

The Hon’ble Court observed that professional ethics requires that a lawyer cannot refuse a brief, provided a client is willing to pay his fee, and the lawyer is not otherwise engaged. Hence, the action of any Bar Association in passing such a resolution that none of its members will appear for a particular accused, whether on the ground that he is a policeman or on the ground that he is a suspected terrorist, rapist, mass murderer, etc. is against all norms of the Constitution, the Statute and professional ethics. It is against the great traditions of the Bar which has always stood up for defending persons accused for a crime. Such a resolution was, in fact, a disgrace to the legal community. The Court held that all such resolutions of Bar Associations in India are null and void and the right minded lawyers should ignore and defy such resolutions if they want democracy and rule of law to be upheld in this country. It is the duty of a lawyer to defend, no matter what the consequences, and a lawyer who refuses to do so is not following the message of the Gita.

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Can You Gift Without Giving?

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Introduction Is there an error with the Title – “Can You Gift Without Giving?” Is it possible for someone to make a gift of a property but at the same time not give the property? Illogical as this may sound this oxymoron has been upheld by a 3 Member Bench of the Supreme Court of India giving it the highest form of recognition! One would wonder what is the purpose of the donor gifting if he does not intend to give the property to the donee? Let us analyse this issue in more detail to answer some nagging questions.

What is Gifting without Giving?
This is a simple way of defining the legal phrase of “retaining a life-interest benefit”. For instance, say a father wants to gift his residential flat to his son instead of under his Will so as to avoid any bequest related challenges. However, at the same time, he wants to reside in the flat in his lifetime and ensure that the flat passes to the son only upon his death. Can he achieve both the objectives? Would it not be great to kill two birds with one stone – ensuring smooth succession on death thereby avoiding Probate related challenges and at the same residing in the flat in one’s lifetime?

An answer to the above challenge would lie in creating a gift deed in favour of the son wherein the father retains the possession of the flat during his lifetime and the same would pass to the son only upon the father’s death. Is this too good to be true, is the question one would ask? The Larger Bench of the Supreme Court in its decision in the case of Renikuntla Rajamma vs. K. Sarwanamma, (2014) 9 SCC 445 has said this is possible. Hence, a donor can gift without actually giving possession of the property.

What does the Law Provide?
The law in respect of Gifts, whether immovable or movable, is enshrined in Chapter VII of the Transfer of Property Act, 1882. Section 122 of this Act defines a gift as follows:

It is the transfer of certain existing movable or immovable property

It is made voluntarily and without consideration

By one person, called the donor, to another, called the donee

It must be accepted by or on behalf of the donee during the lifetime of the donor and while he is still capable of giving

If the donee dies before acceptance, the gift is void.

Section 123 of this Act lays down the manner in which the transfer of a gift may be made:

Gift of Immovable Property – the transfer must be made by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses
Gift of Movable Property – the transfer may be effected:

• either by a registered instrument signed as aforesaid or
• by delivery of the movable property

For gift of an immovable property only one mode of transfer is permissible, i.e., by a registered gift deed. However, the Act provides two alternative modes for transfer in case of gift of a movable property, i.e., either by a registered gift deed or by delivery and possession. If the first mode, i.e., registered gift deed is selected, for a movable property then section123 does not mandate that delivery and possession of the movable property must be given. Similarly, in the case of immovable property section123 does not mandate that delivery and possession of the immovable property must be given.

Another important provision is section 6(d) of the Act which states that if the enjoyment of any property is restricted to the owner personally, then he cannot transfer the same. Thus, if a person is not the absolute owner of a property he cannot transfer the same.

Judicial History
The reason for the matter to be referred to a Three Member Bench of the Apex Court was that there were two conflicting decisions of the Division Bench of Supreme Court. In Narmadaben Maganlal Thakker vs. Pranjivandas Maganlal Thakker, (1997) and 2 SCC 255 K. Balakrishnan vs. K Kamalam, (2004) 1 SCC 581.

In the earlier case of Narmadaben Maganlal Thakker, a conditional gift of an immovable property was made by the donor without delivering possession and there was no acceptance of the gift by the donee. There was no absolute transfer of ownership by the donor in favour of the donee. The gift deed conferred only limited right upon the donee and gift was to become operative after the death of the donor. The donor reserved permanently his rights to collect the mesne profit of the property throughout his lifetime. After the gift deed was executed, the donee violated certain conditions under the deed.

Hence, the Supreme Court held that the donor had executed a conditional gift deed and retained the possession and enjoyment of the property during his lifetime. Since the donee did not satisfy the conditions of the gift deed, the gift was void.

In the latter Supreme Court case of K. Balakrishnan, the donor gifted her share in land and a school building. However, the gift deed provided that the management of the school and income from the property remained with the donor during her lifetime and thereafter would be vested in the donee. The Supreme Court upheld the gift without possession and held that it was open to the donor to transfer by gift title and ownership in the property and at the same time reserve its possession and enjoyment to herself during her lifetime. There is no prohibition in law that ownership in a property cannot be gifted without its possession and right of enjoyment. It examined section 6(d) of the Transfer of Property Act, 1882 which states that an interest in property restricted in its enjoyment to the owner personally cannot be transferred by him. However, the Supreme Court held that Clause (d) of Section 6 was not attracted to the terms of the gift deed being considered by the Court because it was not merely an in property property, the enjoyment of which was restricted to the owner personally. The donor, in this case, was the absolute owner of the property gifted and the subject matter of the gift was not an interest restricted in its enjoyment to herself. The Court held that the gift deed was valid even though the donor had reserved to herself the possession and enjoyment of the property gifted.

Rajamma’s Case
Coming to the facts of the three Member Bench decision of the Supreme Court in Rajamma, in this case, the donor made a gift of an immovable property by way of a registered gift deed which was duly attested. However, she (the donor) retained the possession of the gifted property for enjoyment during her life time and she also retained the right to receive the rents of the property. The question before the Court was that since the donor had retained to herself the right to use the property and to receive rents during her life time, whether such a reservation or retention or absence of possession rendered the gift invalid?

The Supreme Court upheld the validity of the gift. It held that a conjoint reading of sections 122 and 123 of the Transfer of Property, 1882 Act made it abundantly clear that “transfer of possession” of the property covered by the registered instrument of the gift duly signed by the donor and attested as required was not a sine qua non for the making of a valid gift under the provisions of the Transfer of Property Act, 1882. Section 123 has overruled the erstwhile requirement under the Hindu Law/Buddhist Law of delivery of possession as a condition for making of a valid gift. The law today protects only the rules of Muhammadan Law from the provisions of Chapter VII relating to gifts.

In so far as the transfer of movable property by way of gift is concerned the same can be effected by a registered instrument or  by  delivery.  Transfer  by  way of gift of immovable property no doubt requires a registered instrument but the provision does not make delivery of possession of the immovable property gifted as an additional requirement for the gift to be valid and effective. Absence of any such requirement led the Court to the conclusion that delivery of possession was not an essential prerequisite for the making of a valid gift in the case of immovable property.

The Court also distinguished on facts, the earlier Supreme Court decision in the case of Narmadaben Maganlal Thakker. It held that in that case, the issue was of a conditional gift whereas the current case dealt with an absolute gift. The Court accepted the ratio laid down in the latter case of K. Balakrishnan.

Thus, the Supreme Court established an important principle of law that a donor can retain possession and enjoyment of a gifted property during his lifetime and provide that the donee would be in a position to enjoy the same after the donor’s lifetime.

How  is  This  principle  helpful? The principle laid down would be very helpful in case    of gifts amongst  family  members. The  donor  can  gift a property and retain possession during his lifetime thereby quelling any succession disputes post his demise which are typical in the case of a Will. Added to this is the recent relaxation under the  Maharashtra  Stamp  Act, 1958 whereby any residential property gifted to a spouse, children or grand children would attract a duty of Rs. 200 only. The Income-tax Act also exempts from taxation gifts received from certain defined relatives. If the gifted immoveable property is yielding income by way of rent, one needs to consider in whose hands such income will be taxed since the recipient of income will not be the owner of the property.

Thus, a person can have a simple, low-cost succession solution at least qua his residential property which often is a big asset for several families.

So the Moral of the Story is Gift Away But Don’t Give Away (for now)!!

Precedent – Conflicting decisions of Supreme Court – Later judgement in point of time will be followed

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The South Indian Sugar Mills, Bangalore & Ors vs. Govt. of Karnataka & Ors.; AIR 2015 (NOC) 559 (Kar.)

The Hon’ble Court observed that if this Court was confronted with two conflicting decisions of the Hon’ble Supreme Court by its Benches consisting of equal number of Judges, this Court would follow the judgment, which is later in point of time.

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Appellate Tribunal – Natural Justice – Relying on post hearing decision, not permissible – Central Excise Act, 1944 Section 35C.

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Garden Silk Mills Ltd. vs. UOI [2015 (323) ELT 717 (Guj.)(HC)]

The Commissioner, Central Excise, Customs and Service Tax, Surat-I, by his Order dated 28.9.2012, disallowed certain Cenvat Credits claimed by the petitioner company.
The said decision was challenged by the petitioner by way of filing an appeal before the Customs, Excise and Service Tax Appellate Tribunal, at Ahmedabad. The
matter was heard on 26.08.2014, however, the same was decided by order dated 27.11.2014. By the said order, the Tribunal remanded the matter on the basis of its own
decision dated 27.10. 2014 with regard to other group of appeals.

The petitioners, submitted that, though, the matter was heard on 26.8.2014, the decision has been rendered after about three months. The petitioner was not aware about
the order dated 27.10.2014 passed by the Tribunal itself which has been relied at the time of remanding the matter. He could submit that the case of the petitioner is different than the case decided by the Tribunal on 27/10/2014. The petitioner had no opportunity to make any submission with regard to the decision relied on by the Tribunal and, therefore, it is a breach of principle of natural justice.

The Hon’ble Court observed that it is an undisputed fact that the appeal preferred by the petitioner was finally heard on 26.8.2014 and the same is decided on 27.11.2014. If the impugned judgment and order is perused, it emerges that the Tribunal has relied upon its own decision dated 27.10.2014. It is equally true that the petitioner had no opportunity to plead their case before the Tribunal whether his case was covered as per the Tribunal’s decision dated 27.7.2014 or not. Therefore, the Appellate Tribunal ought to have given an opportunity of hearing to the petitioner before deciding the matter when the Tribunal had relied on its subsequent decision. Hence, the Court directed the Tribunal to decide the appeal after affording opportunity of hearing to the petitioner.

A. P. (DIR Series) Circular No. 5 dated 16th July, 2015

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Export factoring on non-recourse basis

This circular now permits banks to factor export receivables on a “non-recourse” basis (as against the present practice of factoring of export receivables on “with recourse” basis), subject to certain terms and conditions. The following is the gist of the terms and conditions: –

a) Banks must ensure that their client is not over financed and the invoices purchased must be genuine trade invoices.

b) Where export financing has not been done by the Export Factor, the Export Factor must pass on the net value to the financing bank/Institution after realising the export proceeds.

c) The bank that is the Export Factor, must have an arrangement with the Import Factor for credit evaluation & collection of payment.

d) Notation must be made on the invoice to the effect that the importer must make payment to the Import Factor.

e) After factoring, the Export Factor must close the export bills and report the same in the EDPMS to RBI.

f) When an Import Factor overseas is not involved, the Export Factor must obtain credit evaluation details from the correspondent bank abroad.

g) E xport Factor must conduct due diligence of the exporter.

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A. P. (DIR Series) Circular No. 4 dated 16th July, 2015

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Issue of shares under Employees Stock Options Scheme and/or sweat equity shares to persons resident outside India

Presently, an Indian Company can issue shares to its employees or employees of its joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, directly or through a Trust under Employees’ Stock Option (ESOP) Scheme, if: –

1. The scheme is drawn under the SEBI Act, 1992; and

2. The face value of the shares to be allotted under the scheme to non-resident employees did not exceed 5% of the paid up capital of the issuing company.

This circular now provides that an Indian company can issue “employees’ stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, if: –

1. The scheme has been drawn either under: – (a) The Securities Exchange Board of India Act, 1992; or (b) The Companies (Share Capital and Debentures) Rules, 2014.

2. The “employee’s stock option”/“sweat equity shares” are in compliance with the sectoral cap applicable to the said company.

3. Issue of “employee’s stock option”/“sweat equity shares” in a company where foreign investment is under the approval route will require prior approval of FIPB.

4. Issue of “employee’s stock option”/“sweat equity shares” under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/ Pakistan will require prior approval of FIPB.

5. The issuing company must furnish a return as per the Form-ESOP (Annexed to this circular) to the concerned Regional Office of RBI within 30 days from the date of issue of employees’ stock option or sweat equity shares.

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A. P. (DIR Series) Circular No. 2 dated 3rd July, 2015

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Investment in companies engaged in tobacco related activities

This circular clarifies that prohibition with respect to Foreign Direct Investment (FDI) applies only in case of manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. In case of other activities viz. wholesale cash and carry, retail trading, etc., concerning cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes, FDI will be governed by the sectoral restrictions laid down in the FDI policy as amended from time to time.

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A. P. (DIR Series) Circular No. 1 dated 2nd July, 2015

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Re-export of unsold rough diamonds from Special Notified Zone of Customs without Export Declaration Form (EDF) formality

This circular clarifies that: –
a. Unsold rough diamonds which were imported on free of cost basis at SNZ, when re-exported from the SNZ (being an area within the Customs) without entering the Domestic Tariff Area (DTA ), do not require compliance with any EDF formality.

b. In case of lot/lots cleared at the Precious Cargo Customs Clearance Centre, Mumbai, Bill of Entry must be filed by the buyer and banks can permit import payments after being satisfied with the bona-fides of the transaction.

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Master Circulars dated 1st July, 2015

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RBI has issued 15 Master Circulars on 1st July, 2015. These Master circulars are a compilation of the regulatory framework and instructions issued by RBI and are for general guidance.

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A. P. (DIR Series) Circular No. 112 dated 25th June, 2015

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Overseas Foreign Currency Borrowings by Authorised Dealer Banks

This circular grants general permission banks to borrow from international/multilateral financial institutions (including International/Multilateral Financial Institutions of which Government of India is a shareholding member or which have been established by more than one government or have shareholding by more than one government and other international organisations) for general banking business. The borrowings are subject to applicable prudential conditions and cannot be used for capital augmentation purposes.

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SEBI’s jurisdiction over entities/transactions/GDRs outside India – Supreme court decides

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Background
Does SEBI have jurisdiction over (i) persons/advisors abroad? (ii) transactions under taken abroad? (iii) more specifically, over Global Depository Receipts (GDRs) issued abroad? If a non-resident person commits a securities related fraud abroad, can SEBI act against such persons? If yes, what are the conditions under which SEBI has jurisdiction? Some of these and certain related questions have been answered by the Supreme Court in the case of SEBI vs. Pan Asia Advisors Ltd. (Dated 6th July 2015, unreported).

Securities markets of India have significant connection with non-residents and foreign countries. Numerous nonresident investors invest in Indian securities. Indian companies regularly issue various forms of securities abroad. There are certain securities like GDRs that are issued, traded and redeemed/cancelled abroad. There are nonresident advisors who advise Indian companies. There are also non-residents who invest/trade in securities outside India or in India. Thus, there are numerous cases in which entities located out of India carry out transactions in India or in securities issued by Indian companies or advise Indian companies, etc. The question is does SEBI have jurisdiction over such foreign entities and/or foreign transactions in respect of such matters? And thus, can SEBI take action against such persons including lead managers even if they are not registered with SEBI? The Supreme Court has dealt with some of these issues.

The case is important for other reasons too. The matter related almost wholly to GDRs that are governed by the Reserve Bank of India through the Foreign Exchange (Management) Act, 2000 (FEMA) and Regulations issued thereunder. Thus, the submission made was that RBI should have sole jurisdiction over it. The decision of the Supreme Court in Vodafone International Holdings BV vs. Union of India and Another ((2012) 6 SCC 613) in respect of transactions abroad and their implications under tax was also discussed. Whether the principles laid down in that case would apply here was also considered.

Facts of the case
In the present case, the dispute before the Securities Appellate Tribunal (SAT ) as well as the Supreme Court was jurisdiction of SEBI. Though the minority dissenting decision of SAT had ruled also on the facts, the majority decision of SAT as also of the Supreme Court was purely on jurisdiction. Thus, neither had examined the findings of facts as also other allegations made by SEBI. However, it will still be necessary to understand what is SEBI’s contention in this regard.

SEBI alleged that a conspiracy was hatched to create a charade that GDRs were issued and duly subscribed by foreign institutional investors. Such a charade would eventually help the issuing company to raise funds and that too at a higher price. Investors in India would be impressed that foreign institutional investors had invested at a certain price in the GDRs issued by the company. Certain parties allegedly acting together took a loan from a bank for investment in the GDRs of the Indian company. The GDR proceeds were required by the loan agreement to be deposited with the same bank and were pledged for the purpose of the repayment of such loan. The company itself was alleged to be a party/signatory to such agreements. The GDRs were then converted into equity shares of the company by cancellation and such shares sold on stock exchanges in India to outside investors. This modus operandi was employed by the same persons in six companies. Such persons including the lead manager were located abroad. The net result was that investors in India were deceived by such conspiracy. SEBI thus took action under the SEBI Act as well as the SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003 and debarred the lead manager and another person alleged to be primary persons behind the conspiracy from accessing the securities markets in India, rendering services in respect of securites in India, etc.

These parties appealed to SAT and raised the preliminary issue of jurisdiction of SEBI. The SAT by a majority decision held that SEBI had no jurisdiction in such a case. On appeal by SEBI, the Supreme Court reversed the order of SAT and restored the matter back to SAT holding that SEBI does have jurisdiction.

To arrive at its answer to this issue, the Supreme Court gave several reasons for its decision and interpretation of the law in this regard. These are discussed in the following paragraphs

Connection of GDRs with India
The submission made was that GDRs are created, traded and cancelled outside India – i.e., from “cradle-to-grave”, they are outside India. In that case, what is the connection with India which is required for an Indian regulator to exercise jurisdiction?

The Supreme Court identified the link as follows (emphasis supplied here and in later extracts):-

“Though it may appear that on the one hand underlying ordinary shares would be governed by the laws prevailing in India and the GDRs would be governed by the laws of the country in which such receipts are issued, the most relevant fact which is to be borne in mind is that the existence of GDRs is always dependent upon the extent of underlying ordinary shares lying with the Domestic Custodian Bank.”

GDRs could not be issued but for underlying shares in India. The issue of GDRs thus has close linkages with India and frauds, etc. in relation to GDRs and connected transactions in India would thus have concern with India.

Implications of a company being able to successfully issue GDRs
The Supreme Court highlighted the intangible aspect that investors associate with a company being able to issue GDRs. This of course goes to the core of the allegations. That the charade of issuing GDRs was made to give such recognition to the issuing company so that its shares will be bought and that too at higher prices. This aspect was recognized by the SAT as well in its minority decision.

GDRs are securities
For SEBI to have jurisdiction, an important issue is whether GDRs are “securities”. The other hurdle is that GDRs are issued abroad. The Supreme Court, considering the relevant definition of securities under the Securities Contracts (Regulation) Act, 1956 held that GDRs were securities. It observed that, “..even if GDR as such is not specifically referred to under the definition of `securities’ under Section 2(h) by virtue of sub-clause (iii) of the said section, any rights or interests in securities would also fall within the definition of securities.”.

Role of SEBI vis-à-vis protection of investors
GDRs have a base in and close connection with India. If there is a fraud, merely because the transactions were carried out outside India is not reason to disarm SEBI. In any event, the transactions that were entered into abroad were part of a total chain of transactions starting with issue of shares in India and culminating with transactions of securities in India. The Court observed:-

“Therefore, if there is going to be a false pretext or misleading information circulated with a view to lure both the foreign investors as well as Indian investors and in that process the very purpose of creation and trading in GDRs are found to be not true or bona fide, it cannot be said that simply because creation of such GDRs and its trading is in global market, SEBI should keep its mouth shut on the ground that it cannot extend its long statutory arm beyond Indian territory to control any such misdeeds deliberately committed with a view to defraud the Indian investors and thereby their interest in the investment of securities and its protection is at great stake.”

Applicability of FEMA does not prevent SEBI from exercising jurisdiction
A point strongly made was that GDRs are governed by the Foreign Exchange (Management) Act, 2000 and Regula-tions issued thereunder. It was even contended that this not only resulted in GDRs being solely governed by this law but it also gave the Reserve Bank of India exclusive jurisdiciton. Thus, SEBI has no jurisdiction, except purely in matters specifically stated in such law. The Supreme Court pointed out that these were two different issues. In particular, as far as frauds and the like were committed in respect of securities markets in India, SEBI did have juris-diction. The two regulators operate under different laws for different purposes and can thus act to further the objects of the respective laws they deal with.

Circumstances under which SEBI can exercise “extra-territorial” jurisdiction

It was claimed that SEBI was seeking to extend its powers beyond India. The transactions took place, and the parties were located, outside India. The question was whether action by SEBI in respect of such transactions/parties was extra-territorial and thus prohibited by law. Further, under what circumstances can SEBI exercise such powers.

Firstly, the decision in the case of GVK Industries Limited and another vs. Income Tax Officer and another – (2011) 4 SCC 36 was applied here. The following observations of the Supreme Court in that case were relied on:-

“…the Parliament may exercise its legislative powers with respect to extra-territorial aspects or causes, – events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like — that occur, arise or exist or may be expected to do so, natu-rally or on account of some human agency, in the social, political, economic, cultural, biological, environmental or physical spheres outside the territory of India, and seek to control, modulate, mitigate or transform the effects of such extra-territorial aspects or causes, or in appropri-ate cases, eliminate or engender such extraterritorial as-pects or causes, only when such extra-territorial aspects or causes have, or are expected to have, some impact on, or effect in, or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well being of, or security of inhabitants of India, and Indians.”

The “effects doctrine” was also applied. In other words, applying this doctrine, even if the transactions took place abroad, if the effect was that certain things prohibited by Indian law took place in India, the Indian regulator could have jurisdiction.The following observations in the case of Haridas Exports vs. All India Float Glass Manufacturers’ Assn. and Others – (2002) 6 SCC 600 were relied on and applied (emphasis supplied):-

“46. It is possible that persons outside India indulge in such trade practices, not necessarily restricted to the effectuation of prices within India, which have the effect of preventing, distorting or restrict-ing competition in India or gives rise to a restrictive trade practice within India then in respect of that re-strictive trade practice, the MRTP Commission will have jurisdiction. The counsel for the respondents is right in submitting that if the effect of restrictive trade practices came to be felt in India because of a part of the trade practice being implemented here the MRTP Commission would have jurisdiction. This “effects doctrine” will clothe the MRTP Commission with jurisdiction to pass an appropriate or-der even though a transaction, for example, which results in exporting goods to India at predatory price, which was in effect a restrictive trade practice, had been carried out outside the territory of India if the effect of that had resulted in a restrictive trade practice in India. If power is not given to the MRTP Commission to have jurisdiction with regard to hat part of trade practice in India which is restrictive in nature then it will mean that persons outside India can continue to indulge in such practices whose adverse effect is felt in India with impunity. A competition law like the MRTP Act is a mechanism to counter cross border economic terrorism. Therefore, even though such an agreement may entered into outside the territorial jurisdiction of the Commission but if it results in a restrictive trade practice in India then the Commission will have jurisdiction under Section 37 to pass appropriate orders in re-spect of such restrictive trade practice.”

The decision of Vodafone was cited to support the argument that without specific powers in the law, transactions could not be “looked through” to determine the alleged underlying transactions. The Supreme Court rejected this argument stating that SEBI had specific and adequate powers in law to examine such transactions of alleged frauds.

Conclusion

The ruling of the Supreme Court will surely have larger ramifications. Transactions/persons abroad will not be beyond SEBI’s long hand solely on the ground that SEBI cannot have extra-territorial jurisdiction. This would have implications not just for GDRs, but also for almost any type of transaction/person connected with securities markets in India directly or indirectly. However, the limits are also ob-vious and clear as per the decision. There will have to be connection to and implications in India of such transac-tions. The decision also would have to viewed in light of the special fact in this case – that the GDRs could not have been issued without underlying shares in India. The issue cycle of GDRs – even if cradle-to-grave as argued

– did have direct implications to the underlying shares as well as other shares in India. The fact that shares arising out of cancelled GDRs were sold in India was also a relevant factor.

Wife’s Share in an HUF, Et tu, Gender Equality?

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Introduction
In recent times, there has been an effort at gender equality in India across various legislations, such as, amending the Hindu Succession Act to give rights to daughters and sisters in their father’s Hindu Undivided Family (HUF), women’s representation on the board of directors of listed and large public companies, etc. However, surprisingly one of the most basic rights of women – share of a wife in her husband’s HUF has yet not undergone a change. This position has remained constant right from the times of Manusmriti, the father of the Hindu Law. Let us examine the position in this respect.

Concept of an HUF
Just to set the background and to jog our memory, an HUF is a joint family belonging to a male ancestor, e.g., a grandfather, father, etc., and consists of male coparceners and other members. Thus, the sons and grandsons of the person who started the HUF would automatically become coparceners by virtue of being born in that family. The wife of a coparcener is a member of the HUF. A unique feature of an HUF is that the share of a member is fluctuating and ambulatory which increases on the death of a member and reduces on the birth of a member. The share can be crystallised only on the partition of an HUF. A partition refers to the breaking up of the joint family and giving separate identifiable shares to all or some of the coparcerners/members of the HUF. Thus, the HUF as an entity ceases to exist and its constituents become the owners of the property which was earlier owned by the HUF. The crux of the issue is which female member of an HUF has a right to demand a partition of an HUF?

Share of a Daughter
After the Amendment on 9th September 2005 to the Hindu Succession Act, 1956, even daughters would have an equal right as sons and hence, now, even they would become coparceners in their father’s HUF. The Bombay High Court has held daughters have a right to claim partition in their father’s HUF and this applies even to daughters born before 9th September 2005 – Babu Dagadau Awari vs. Baby AIR 2015 (NOC) 446 (Bom). Thus, this has been a major relaxation in women’s rights. Grand-daughters would also become coparceners in the respective HUFs of their paternal and maternal grandfathers.

Share of a Wife
However, when it comes to the share of a wife in her husband’s HUF, the position is the opposite. Under the Hindu law, a wife does not have a right to demand a partition of her husband’s HUF. She cannot demand a partition. Her only right is to get a share in her husband’s HUF equal to her son’s share in the event of a partition of such HUF. The decision of the Bombay High Court in Anand Krishna Tate vs. Draupadibai Krishna Tate, 2010(4) All MR 834 is on this point.

The Karnataka High Court in Thabagouda Satteppa Umarani by LRs vs. Satteppa 2015(1) KCRR 1022, held that it was to be noted that the term coparcener of an HUF referred to a male issue i.e., a father or a son. The wives of coparceners did not get any interest by virtue of their marriage. A wife had no share, right title or interest in the Hindu Undivided Family in which her husband was a coparcener with his brothers, father or sons and after the amendment of section 6 of the Hindu Succession Act,1956, with his sisters and daughters also. The wife, may be a member of a joint Hindu Family, but by virtue of being a member in the joint Hindu Family she could not get any share, right, title or interest in the joint Hindu Family property which that family owned. A wife could not demand a partition unlike a daughter. She would get a share only if partition was demanded by her husband or sons and the property was actually partitioned. The claim by a wife during lifetime of the husband in the share and interest which he had as a coparcener in his HUF was wholly premature and completely misconceived. Thus, though the wife was entitled for an interest i.e., share, it was only along with her husband.

Share of a Widow
Is the position of a widow different from that of a wife whose husband is alive? Things start getting murkier now. Prior to the Hindu Succession Act, 1956, the position was different. Section 3 of the Hindu Women’s Right to Property Act, 1937 provided that when a Hindu male died intestate having behind his share in an HUF, then his widow had the same interest in the HUF as he himself had. Further, any such interest devolving on his Hindu widow was a limited interest known as a Hindu woman’s estate, and she had the same right of claiming partition as a male owner. Interestingly, this Act was repealed by the Hindu Succession Act, 1956. So an earlier law gave better protection to a widow as compared to the latter law! A Single Judge of the Bombay High Court in Anand Krishna Tate vs. Draupadibai Krishna Tate, 2010(4) All MR 834 has analysed the impact of this repeal and held that post-repeal, the 1937 Act affords no protection to widows. The Bombay High Court held that section 3, no doubt, gave a right to women to seek partition. However, this Act was repealed by Hindu Succession Act, 1956. Therefore, it was no longer possible to take advantage of section 3 of the Hindu Women’s Right to Property Act. If the provisions of Hindu Succession Act, 1956 are read, it would be clear that there is no provision similar to section 3 of the Hindu Women’s Right to Property Act. The legislature in its wisdom had not thought it fit to continue this right in a woman. However, another Single Judge of the Bombay High Court in the case of Smt. Kalawati Balasaheb Karne vs. Smt. Chandra Hanmant Karne, SA 405/2013, Order dated September 15, 2014, has considered this decision and held that in the wake of the revolution for emancipation of women and for recognising their rights as human beings equal to the males in respect of the properties in a Hindu family, depriving a widow simply because no other coparcerners demand partition would clearly be destructive of the movement. It must be noted that both the decisions are of Single Judges of the same High Court and hence, one cannot be said to have dominance over the other. However, both of these decisions have not considered a very old Full Bench judgment of the Bombay High Court in Sushilabai Ramchandra Kulkarni vs. Narayanrao Gopalrao Deshpande, AIR 1975 Bom 257 (FB). Although this decision dealt with the share which a widow would receive in a partition of her deceased husband’s HUF, it also held that a widow’s heir is entitled to have a partition of the HUF and separate possession thereof secured to her.

Several Courts have expressly held that a widow can claim a partition of her husband’s HUF. The Gujarat High Court in Vidyaben vs. JN Bhatt AIR 1974 Guj 23 states that she can claim a partition. It analysed section 6 of the Hindu Succession Act, 1956, which states that when a male Hindu dies leaving behind Class I female relatives (such as, wife, mother, daughter), then his interest in the HUF property shall devolve by testamentary (i.e., by Will) or intestate – succession (i.e., by law), as the case may be, under this Act and not by survivorship. It further provides that the interest of a Hindu male coparcener shall be deemed to be the share in the HUF property that would have been allotted to him if a partition of the property had taken place immediately before his death, irrespective of whether he was entitled to claim partition or not. The Court held that section 6 itself by implication gives a right to the female heir mentioned therein to claim partition of the joint family property and the moment the deceased coparcener left behind him his heirs who included a female relative specified in Class I of the Schedule the law governing coparcenary property with regard to devolution of interest would no longer be applicable and the testamentary or intestate succession as provided by this Act would govern the case. It held that the moment the interest of the deceased in the joint family, property is severed, the joint family status would come to an end and it would be open to the widow to claim partition therein. it observed that it was difficult    to    envisage    a    position    that    even    though    the    share of the deceased has to be ascertained on the footing that the wife would get the share if there was partition of the huf property just prior to the death of her husband, she would not get any share after his death and that her son would take the remaining property by survivorship. the gujarat high Court also cited with approval a very old decision of the Bombay high Court in Ranubai vs. Laxman Lalji Patil, AIR 1966 Bom 169 which was on somewhat similar lines. a similar view has been expressed by the gauhati high Court in CIT vs. Mulchand Sukmal Jain, 200 ITR 528 (Gau.) where it held that the rule of pristine Mitakshara law that when, in a family consisting of father, mother and son , partition takes place between the male members, the mother may be entitled to a share equal to that the son in lieu of her claim for maintenance, but she herself cannot demand partition, cannot apply to a state of affairs reached on the death of her husband. the widow as an heir of her husband would certainly be entitled to claim the share inherited by her and, for that purpose, compel a partition. even the Karnataka high Court in Thabagouda Satteppa Umarani by LRs vs. Satteppa 2015(1) KCRR 1022 has held that a widow can demand partition of the interest in an huf which her deceased husband would have been entitled to.

It is respectfully submitted that the decisions   upholding right of a widow to demand partition appear   more reasonable.

The supreme Court in Gurupad Khandappa Magdum Vs. Hirabai Khandappa Magdum, 129 ITR 440 (SC) dealt with what would be share of a widow in a partition of    her    deceased    husband’s    HUF?    The    Court    held     that    a widow would not only be entitled to share in the portion coming to her husband but she will also have to be allotted her own share in the coparcenary property along with son upon death of husband, i.e., she would get her own share equal to her son and also a part in her husband’s share.   

Position of Different Female Relatives

Based on the above discussion, it would be interesting to note that the law provides for a different treatment as to whether a female can ask for a partition in an huf depending upon her relationship. this is better explained by the following table:

So we have a situation where a married daughter can partition    her     father’s    HUF    even     if    she    got    married    years several moons ago but she cannot ask for partition of her    husband’s    HUF    with    whom    she     is     living?    Moreover,     she    can    demand    partition    after    her    husband’s    death    but not during his lifetime!  is this not a singularly unique   proposition?

Conclusion
One wonders in these times of talk about women empowerment and so many recently launched initiatives for the girl child, why has this legal right of a married lady has not been changed? is it not high time that the Legislature walks the talk and focuses on ironing out such creases from our archaic laws? the law relating to hufs especially is one which is fraught with confusion and complexity. Would it not be desirable to have one consolidated law relating to all aspects concerning an huf instead of having    some    portions    codified    and    some    uncodified?    Ease    of doing business should also be coupled with     the    ease    of    exercising    one’s    personal rights. only then can we say that India    is    a    fair    and    equal    rights’    democracy!

Attitude – Professional Skepticism

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Attitude – Professional Skepticism

Arjun (A) — He Bhagwan, in the last few meetings, you have been explaining to me our Institute’s disciplinary mechanism and its procedures.

Shrikrishna (S) —Yes, dear. It is governed by Chartered Accountants (Procedure of Investigations of Professional and other Misconduct and Conduct of Cases) Rules, 2007 published in the official Gazette of India dated February 28, 2007 (‘Enquiry Rules’).

A — Quite a longish name! Difficult to remember. We have discussed so many disciplinary cases so far. But frankly, I have lost track of what you had told me in the beginning – a couple of years ago.

S — H a! Ha! Ha! It does happen. Actually, the principles should be hammered every day.

A — I agree. We are so much engrossed with our dayto- day worries of the practice that we tend to forget the basic things. Please give me some tips that we should always keep in mind.

S — I was also thinking on the same lines. See I explained the Bhagwad Geeta to you thousands of years ago. Many people are still reading and trying to understand it. But very rarely any one practices it. Same is with your ethics.

A — That is precisely the trouble. In school also, we are taught so many good things. But when we grow old, we compromise on everything under the fond excuse of ‘practical approach’.

S — I don’t preach idealism. Even in the Mahabharata war, I had advised you a few loopholes in the rules of war. So one has to be practical. But one has to be careful in balancing the rules of ethics and practical life.

A — True. Thanks to your advice, I could get rid of Karna, Jayadratha and others. Otherwise, it would have been a tough time for all of us.

S — Anyway! There are a few guiding principles which you CAs should constantly keep in mind.

A — What are they?

S — First and foremost, you should never do anything in ‘good faith’. It is very dangerous. We are now in kaliyug. Total faith in anything and anyone is bound to invite trouble.

A — Yes, I remember the case where the CA wife filed a complaint against her CA husband when their relations got strained. And another incidence of a CA, who signed the balance sheet in good faith that the director would sign subsequently!

S — There are hundreds of such cases where there was a breach of trust. In difficult times, clients conveniently forget all the good things done by their CA for them. At times, he even risks his certificate of practice to accommodate them.

A — But you had told me a few High Court decisions – where it was held that for holding anyone guilty of gross negligence, there has to be some dishonesty or ill-motive on his part that is established. You said, even a blunder is not negligence and every negligence is not gross negligence.

S — Arjun, you are very smart ! You remember only what is convenient to you. Firstly, the law and court decisions are at their own place. Facts and circumstances are more important. And with due respect to the courts, you must note that now clause (7) of Part I of 2nd schedule is amended.

A — In what way?

S — Apart from ‘gross negligence’, even ‘lack of due diligence’ is added. This is a very wide expression.

A — Oh!

S — And moreover, if someone brings his financial statements, and you sign without much verification, can you say you are not negligent? You may not be dishonest or your motives may not be bad !

A — I see your point!

S — Again, you may not be dishonest to any person. But then, are you not dishonest to yourself? Are you not failing in your duty?

A — Yes; if we were just to sign in good faith, the audit profession has no meaning! It is abuse of our signature. It is not audit at all!

S — Moreover, if you simply endorse what client says – without verification, without asking any questions, then why is audit required at all? How can others trust the correctness of the balance-sheet?

A — But what about the principle of ‘watch-dog’ as opposed to ‘blood-hound’?

S — Now that principle is diluted. Remember, now the society and regulators expect you to be blood-hounds only. You cannot and should not accept anything at its face value. That is professional skepticism.

A — You mean, should we not trust anybody? Everything we should see with suspicion?

S — Not exactly that! But doing your duty truthfully and religiously does not mean distrust or suspicion. The question is your credibility. You are the financial police! Can you have police who do not suspect anybody? Or security personnel who does not check you. Does it mean, they suspect you? After all, the duty should be performed strictly – without fail.

A — I agree. But I would like to know more such principles when we meet next.

S — Om Shanti !

Note: This dialogue is based on the same simple but basic principles which we professionals should religiously follow.

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Limitation – Settlement of Accounts on dissolution of partnership firm – After 3 years right to sue would become time barred: Limitation Act Article 5:

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Smt. Shanti Bai Agrawal & Ors vs. Smt. Uma Bai Agarwal & Ors AIR 2015 Chhattisgarh 80

The undisputed facts were that a house was recorded in name of M/s. Gajadhar Prasad Kashi Prasad, a partnership firm. The firm had four partners including the plaintiff. The said property was in name of the firm M/s. Gajadhar Prasad Kashi Prasad and the plaintiff was residing in the said property from the year 1943. The partnership firm was dissolved on 02.11.1956. After dissolution of the firm, the plaintiff, who was a partner continued to reside in the house and was in possession thereof . The house also had also a shop in a portion thereof. It was case of the plaintiff that he was/in exclusive possession of the suit property for last 12 years after the dissolution, as the suit was filed in the month of September, 1994. The plaintiff/appellant pleaded that by ouster of the title of the defendants after dissolution, the plaintiff was in possession and therefore had acquired the right and title over the suit property by way of adverse possession. It was therefore for such reason, the title of the plaintiff was denied as the plaintiff had acquired the title over the suit land by way of adverse possession. Consequently, the suit for declaration and permanent injunction was filed.

The substantial question of law was thus framed as under: “Whether, the immovable property brought into partnership by partners, on dissolution, remained to continue to be immovable property in the hands of the partners ?”

The Hon’ble Court observed that on reading of section 46 it was clear that on dissolution of a firm, first the property of the firm was to be applied for payment of debts and liabilities of the firm and the surplus to be distributed among the partners according to their rights. Section 47 provides that the authority of the partners will continue only so far “as it may be necessary to wind up” the affair of the firm and to complete transactions begun but unfinished at the time of the dissolution, “but not otherwise”.

The Supreme Court in (AIR 1996 1300) Addanki Narayanappa & Another vs. Bhaskara Krishnappa & Others, had an occasion to interpret the share of the partner and the nature thereof. It is stated that the share of a partner is nothing more than his proportion of the partnership assets after they have been turned into money and applied in liquidation of the partnership, whether its property consists of land or not. Further, on dissolution the debts and liabilities should first be met out of the firm property and thereafter assets should be applied in rateable payment to each partner of what is due to him firstly on account of advances as distinguished from capital and, secondly on amount of capital, the residue, if any, being divided rateably among all the partners. It is obvious that the Act contemplates complete liquidation of the assets of the partnership as a preliminary to the settlement of accounts between partners upon dissolution of the firm.

The Court further observed that it is well settled that the firm is not a legal entity, it has no legal existence, it is merely a compendious name and hence the partnership property would vest in all the partners of the firm. Accordingly, each and every partner of the firm would have an interest in the property or asset of the firm but during its subsistence no partner can deal with any portion of the property as belonging to him, nor can he assign his interest in any specific item thereof to anyone.

Therefore, according to section 47 of the Indian Partnership Act, 1932, after the dissolution of a firm, the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners continue notwithstanding the dissolution, “so far as may be necessary to wind up the affair of the firm” and further to complete transactions begun but unfinished at the time of the dissolution, “but not otherwise”. In this case the dissolution is not in dispute, therefore, the partners had only inter se right between them in terms of section 47 and 48(b)(iv) of the Indian Partnership Act to claim for the right as per the provisions of the said section.

Therefore, in view of the aforesaid discussion, it is held that after dissolution of the property, the immovable property i.e. the subject suit land which was of a partnership firm became “a movable assets” in the hand of the partners inter se of M/s. Gajadhar Prasad Kashi Prasad. The partners have their inter se right in terms of section 48 of the Indian Partnership Act which could have been enforced by filing a suit to claim a share of dissolved partnership firm. Further, as per Article 5 of the Indian Limitation Act, the suit could have been filed by either of the partners within three years of the dissolution.

Admittedly the dissolution happened on 02.11.1956, therefore, by application of (Article 106 of the Limitation Act, 1908) Article 5 of the Limitation Act, 1963, the defendants having not claimed any right for settlement of account and share in the partnership, it would be barred as the period of three years has lapsed. Taking into consideration the totality of the facts, the immovable property of firm M/s. Gajadhar Prasad Kashi Prasad, was a property of the firm and the firm having been dissolved on 02.11.1956 as per the Partnership Act, it fell into shares of the partners as a movable assets for which the partners could have sued for their part of share after the discharge of dues and other settlement within a period of three years from the date of dissolution. Having not done so, the right to sue for account and the share in the partnership property became barred by limitation

The Court dismissed the suit on ground that a suit is not maintainable on the basis of adverse possession, it can be used as a shield/defence.

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Coparcenary property -Right given to daughters to claim partition – Constitutionally valid-Hindu Succession Act 1956 section 6:

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Dr. G. Krishnamurthy vs. The UOI & Anr. AIR 2015 Madras 114

On 20th day of December, 2004, the Hindu Succession Amendment Bill 2004 was introduced, inter alia, seeking to amend the erstwhile section 6 and to omit sections 23 and 24 of the Hindu Succession Act, 1956. Ultimately, the Amendment Act, 2005 was passed as Act 39 of 2005 on 09.09.2005. This Act was introduced pursuant to the recommendation made by the Law Commission to alleviate the gender bias caused by the then existing Act.

By the Amendment Act, not only section 6 was amended apart from omission of sections 23 and 24, but consequent thereon, an insertion was made by way of Amendment to Schedule in Clause-I.

The petitioner submitted that by the amendment made to section 6, the entire concept governing the Hindu Law was sought to be overturned in one stroke. The principle governing “Sapinda” and ”coparcener” as existed in the Shastric and Customary Law has been obliterated . Upon deletion of section 23, it is likely that a Hindu woman after remarriage would continue in the dwelling house wholly occupied by the members of a family of a Hindu intestate. There is also a possibility of a non Hindu residing therein in view of the possible remarriage of the widow. The Petitioner filed a Petition seeking to declare the aforesaid Amendment Act, 2005 as Ultra Vires.

The Court observed that the enactment has been made on the recommendation made by the Law Commission to remove the discrimination meted out to women. Therefore, in order to uphold the protection given under Articles 14, 15 (2) and (3) and 16 of the Constitution of India, the amendment was brought forth. It is trite law that the provisions of the Act would prevail over the old Hindu Law. Though the conferment of the rights to a Hindu woman is belated, it is also gradual through different enactments.

By the Hindu Law of Inheritance Act 1929, inheritance right to three family heirs-son’s daughter, daughter’s daughter and sister was conferred on them

The next legislation “A Hindu Woman’s Right to Property Act , 1937” provided for the right of the Hindu widow to succeed along with the son of the deceased in equal share to the property of a deceased husband. Though the Hindu Succession Act, 1956, (hereinafter referred to as “the Act”) came into being, u/s. 6 the rights of women were restricted. Thus, the new amendment Act was introduced to bring forth an element of equality between a Hindu man and woman. The enactment has been made to implement the fundamental rights enshrined in the Constitution of India.

Coming to section 23 of the Act, it has been omitted to remove the disability to female heirs. The said decision was made keeping the larger public purpose in mind. By virtue of the amendment section 6, the difference between the son and daughter has been removed, and consequently section 23 of the Act has been rightly taken away from the statute book.

Section 24 of the Act also created a statutory discrimination against widows remarrying qua inheritance. This was rightly removed as a woman cannot be deprived of her right to get a property on her remarriage. In other words, by such a remarriage, the entitlement of the widow cannot be extinguished. Accordingly, section 24 was rightly removed from the text.

The petitioner had sought to challenge sections 23 and 24 of the Act on mere presumption and conjunctures. The petitioner had also submitted that a discrimination is sought to be made with respect to Class-II. He had also submitted that Class-I by the inclusion of certain categories of heirs has to be declared as unlawful. The court held that there was no merit in the said submission. In fact, the petitioner had admitted that the laudable object in treating a Hindu man and woman on par had to be appreciated. If that is so, there cannot be any challenge to Class-I of the schedule. Class-I of the Schedule is only consequent upon the amendment made to section 6. It only qualifies the heirs, who are entitled to a property as in Class-I in consonance with section 6. Class-I has never been amended and there is no challenge to it. Therefore, the challenge to the said inclusion made to Class-I of schedule is also rejected.

The Court further observed that a challenge to the constitutionality of an enactment is to be made on the touchstone of the Constitution. It cannot be done based upon mere presumptions. Equally, a mere hardship cannot be a ground to declare a valid legislation to be ultra vires. The court therefore declined to declare the Amendment of 2005 as unconstitutional.

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Consumer – Builder –Agreements are prepared in a one-sided-Delay in handing over of possession – Liable to pay interest and compensation: Consumer Protection Act, 1986.

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Shri Satish Kumar Pandy & Anr. vs. M/s. Unitech Ltd.; Consumer Case No. 427 of 2014 alongwith others (NCDRC, New Delhi) dated 8/6/2015

The complainants group of matters, booked apartments with the opposite party in a complex known as ‘vistas’ which was being developed in sector 70 of Gurgaon, and they entered into individual “Buyers Agreement” with the opposite party. The possession of the apartments was agreed to be delivered to them within 36 months from the date of their respective agreements. The grievance of the complainants was that neither the possession of the apartments has been given to them nor was the construction complete though the last date stipulated in the Buyer’s Agreement for delivery of the possession to them had already expired more than 2 years ago. The complainants therefore, approached the Commission seeking delivery of the possession of the flats agreed to be sold to them or in the alternative payment of current market value of such houses. They were also seeking payment of compensation on account of loss of rental income to them with effect from the stipulated date of possession and compound interest @18% p.a. with effect from the stipulated date of possession. The complainants were also seeking compensation on account of their mental torture, agony etc.

The Commission observed that the learned counsel for the complainants stated, on instructions, that the complainants were not interested in taking refund of the money paid by them to the opposite party and they wanted to have possession of their respective flats even if the said possession was to be delivered in terms of the revised date of possession indicated in the abovereferred letter of opposite party. Thus the only question which survived for consideration in these complaints was as to what interest/compensation was to be paid to the complainants by the opposite party, till the date the possession being delivered to them.

The Hon’ble Commission observed that for the exceptional circumstances mentioned in Clause 4 of the agreement the opposite party was required to hand over the possession of the apartment to the flat buyers within 36 months from the date of signing the agreement with them. The exceptional circumstances which could justify delay in hand over the possession of the apartments were:-

(a) Lock-out
(b) Strike
(c) Slow-down
(d) Civil Commotion
(e) War, enemy action, terrorist action, earthquake or act of God and
(f) any reason or circumstance beyond the control of the developer.

The delay in handing over the possession of the apartments would also be justified if there was to be a new legislation, regulation or order suspending, stopping or delaying the construction of the complex and the apartments.

The Commission observed that neither any new legislation was enacted nor an existing rule, regulation or order was amended stopping suspending or delaying the construction of the complex in which apartments were agreed to be sold to the complainants. There was no allegation of any lock-out or strike by the labour at the site of the project. There was no allegation of any slow-down having been resorted to by the labourers of the opposite party or the contractors engaged by it at the site of the project. There was no civil commotion, war, enemy action, terrorist action, earthquake or any act of God which could have delayed the completion of the project within the time stipulated in the Buyers Agreement.

The word ‘slow down’ having been used along with the words lock-out and strike, it has to be read ejusdem generis with the words lock-out and strike and therefore, can mean only a slow down if resorted by the labourers engaged in construction of the project.

Therefore, the plea of the opposite party that the completion of the project was delayed due to non-availability of water, sand and bricks in adequate quantity was rejected.

Since the delay in construction of the apartments could not be justified by the opposite party, it was required to pay compensation to the flat buyers. The contention of the learned counsel for the opposite party was that such compensation had to be calculated @ Rs. 5/- per sq. ft. of the super built area of the apartment for the period of delay in offering the possession beyond the period indicated in clause 4 of the Buyers Agreement, the complainants having agreed to the aforesaid term while agreeing to purchase the apartments. This was also the contention of the learned counsel for the opposite party that the terms of the contract are binding on the parties and cannot be altered by a consumer forum.

The Hon’ble Commission observed that a person who, for one reason or the other, either cannot or does not want to buy a plot and raise construction of his own, has to necessarily go in for purchase of the built up flat. It is only natural and logical for him to look for an apartment in a project being developed by a big builder such as the opposite party in these complaints. Since the contracts of all the big builders contain a term for payment of a specified sum as compensation in the event of default on the part of the builder in handing over possession of the flat to the buyer and the flat compensation offered by all big builders is almost a nominal compensation being less than 0.25% of the estimated cost of construction per month, the flat buyer is left with no option but to sign the Buyer’s Agreement in the format provided by the builder. No sensible person would volunteer to accept compensation constituting about 2-3% of his investment in case of delay on the part of the contractor, when he is made to pay 18% compound interest if there is delay on his part in making payment.

Thus the commission held that a term of this nature is wholly one sided, unfair and unreasonable. The builder charges compound interest @ 18% per annum in the event of the delay on the part of the buyer in making payment to him but seeks to pay less than 3% per annum of the capital investment, in case he does not honour his part of the contract by defaulting in giving timely possession of the flat to the buyer. Such a term in the Buyer’s Agreement also encourages the builder to divert the funds collected by him for one project, to another project being undertaken by him. He thus, is able to finance a new project at the cost of the buyers of the existing project and that too at a very low cost of finance.

The complainants have specifically alleged that some of the clauses in the Buyer’s Agreement were one sided and they were made to sign already prepared documents. It is also alleged that some of the clauses contained in the Buyer’s Agreement are totally unreasonable and in favour of the opposite party only. It is further alleged that the clause providing for compensation at the nominal rate at Rs.5/- per sq. ft. of the super built up area is unjust and exploits the complainants. It is also alleged that the opposite party has been utilising the money of the complainants for its own purposes. Therefore, the commission held that the opposite party should pay adequate compensation to the complainants which would not only take care of the additional financial burden on them on account of the delay in construction of the flat but would also give some compensation to them for the harassment and mental agony which they have suffered all along and were likely to suffer atleast for some more time on account of the opposite party having not delivered the possession of the flat to them by the date stipulated in the Buyer’s Agreement.

The cost of
the borrowing for individual home buyers was about 10% per annum though it had
gone upto 11.5% in last few years. Accordinfg to the commission, if the
opposite party, paid simple interest @ 12% per annum to the complainants, that
would not only take care of the additional financial burden on them but also
give some monetary compensation to them for their sufferings on account of the
delay in handing over possession of the flat purchased by them.

It transpired
during the course of arguments that the service tax has increased with effect
from 01.06.2015. Had the opposite party delivered possession in time, the
complainants would have paid service tax at the pre-revised rate. Therefore,
held that the increase in service tax with effect from 01.6.2015 should be
borne by the opposite party.

The
commission also directed a rate higher than 12% per annum should be paid by the
opposite party, if the revised date of delivery of possession is not honoured
by the opposite party.

CALCULATING TURNOVER – CHALLENGES & AMBIGUITIES

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Introduction
Accountants are often the most trusted advisers of businesses. It is therefore essential that accountants also understand when key disclosures need to be made to regulators. Among other things, the Competition Act, 2002 (‘the Competition Act’), regulates merger and acquisitions (combinations) of large enterprises. Combinations that satisfy the relevant asset/turnover thresholds prescribed in Section 5 of the Competition Act require mandatory prior notification to, and approval from, the Competition Commission of India (‘CCI’). While the Act provides a relatively detailed guidance on calculating the value of assets, the definition of ‘turnover’ is very wide. ‘Turnover’ is defined to include the value of sale of goods or services, excluding indirect taxes1. Beyond this skeletal definition, there is no other statutory guidance parties can rely on. To ensure compliance with the law, accountants should remain vigilant and work with lawyers to determine when notification to the CCI is required.

Importance of turnover
Turnover calculation is critical from a merger control perspective as the very requirement to notify a transaction often hinges on the turnover of the parties involved. Transactions where the parties fail to meet the asset and turnover thresholds under Section 5 of the Competition Act need not be notified. Further, to assess whether a transaction qualifies for the exemption under the Government of India notification S.O. 482(E) dated March 4, 2011 (‘Target Based Exemption’), parties need to assess if the target’s turnover in India is below INR 750 crores (or if target’s assets in India are below INR 250 crores). Computation of turnover by the parties will guide their decision on whether to notify transaction or not. Absent clarity on how to actually compute turnover for the purposes of the Act, businesses and their advisors face substantial uncertainty while deciding whether a transaction requires notifying to the CCI or not. Given the potentially substantial penalties that may be attracted for not notifying a transaction to the CCI, businesses and their advisors require clarity on how to calculate turnover so they can make the decision to notify or not notify with reasonable confidence.

The implications of getting it wrong are significant. A combination is void until it is cleared by the CCI as not being likely to cause an appreciable adverse effect on competition in India. In addition, substantial penalties of up to 1% of the turnover of the combination apply for failing to give the CCI notice of a notifiable combination.

Issues in turnover calculation

Here we examine 2 (two) questions which often surface in calculation of turnover while determining whether a transaction needs to be notified to CCI:

How to calculate turnover of enterprises which generate their revenue from commissions (i.e. enterprises which receive a gross amount which they subsequently transfer to another enterprise while retaining a percentage as their commission)? – It is possible that considering only the commissions earned while calculating turnover could lead to a decision not to notify a transaction to CCI whereas a turnover calculation based on gross receipts would require that a notification be made.

What constitutes turnover ‘in India’ for the purposes of the Competition Act? – Determining turnover ‘in India’ of an enterprise is crucial as both the turnover thresholds under Section 5 of the Competition Act as well as the de minimis thresholds under the Target Based Exemption have an India nexus requirement (i.e. a certain amount of turnover should be ‘in India’). Despite the critical importance of determining the residency of an enterprise’s turnover, when it comes to determining what constitutes turnover ‘in India’, there are no statutory guidelines at all.

Calculation of turnover for enterprises which generate their revenue from commissions
To determine the turnover of an enterprise, in practice, in most cases, the CCI looks at the audited books of accounts of an enterprise. However, in certain cases a simple reading of the books of accounts does not suffice and the CCI can and, in some cases, has gone beyond the books of accounts to determine the turnover.

In Fair Bridge/Thomas Cook2 , the CCI refused to consider the turnover figures for Thomas Cook (India) Limited (‘Thomas Cook’), as reflected in its books of accounts, as the ‘turnover’ for the purposes of the Competition Act. Considering the nature of Thomas Cook’s package tour operating business wherein Thomas Cook charges a consolidated amount for a packaged tour (which includes transportation, boarding, lodging, sightseeing and similar services). The CCI held that Thomas Cook’s turnover would include the gross amount charged to customers and not merely the commissions earned. In interpreting turnover to include gross receipts instead of commissions, the CCI relied on mainly two grounds – (i) Lack of a principal-agent relationship between Thomas Cook and the vendors who actually provided the lodging, boarding, sightseeing and similar services; and (ii) Provisions in Accounting Standards and Guidance Notes issued by the Institute of Chartered Accounts of India (‘ICAI’) as well as internationally accepted accounting practices followed by leading tour operators worldwide.

While Fairbridge/Thomas Cook decision does clarify the CCI’s stance on turnover calculation to a certain extent, the situation is still not completely clear. The CCI has considered commissions and not gross receipts to be the correct measurement of turnover of an enterprise acting as an agent for another entity, which is in line with the Indian Accounting Standards issued by the ICAI3. However, can this be interpreted to mean that in all situations where there is no principal-agent relationship, gross receipts are the correct measure of revenue? The answer is far from clear.

Thus, it appears that a mere lack of a principal-agent relationship need not necessarily imply taking the gross amounts which flow through an intermediary (such as an online retailer) as the turnover for the purposes of the Competition Act. However, absent any statutory clarification or definitive decisional observations by the CCI, calculation of turnover continues to remain an area of interpretive ambiguity.

We would suggest that accountants work closely with lawyers to determine whether the CCI is likely to treat commissions or gross receipts as the relevant turnover as the measure of revenue.

What constitutes turnover ‘in India’?
There are no statutory guidelines on determining what constitutes turnover ‘in India’. Calculating turnover ‘in India’ for an enterprise is crucial as: (i) parties involved in a transaction need to satisfy the asset/turnover thresholds u/s. 5 of the Competition Act to be considered ‘combinations’ and these thresholds have an India-nexus requirement, i.e. a certain amount of assets/turnover must be ‘in India’; and (ii) the applicability of the Target Based Exemption depends upon the target’s turnover ‘in India’.

Two issues which arise in determining an enterprise’s turnover ‘in India’ are: (i) whether the value of sales in the Indian market by a foreign company (i.e. a company not incorporated in India) cwonstitute turnover in India; and (ii) whether sales in non-Indian markets by Indian companies (i.e. companies incorporated in India) constitute turnover in India.

From the CCI’s decisional practice the following also constitute turnover in India:

  • revenue from sales in the Indian market by a foreign enterprise; and
  • revenue from export sales by an Indian enterprise.

Again, it is not always clear what the CCI would consider constitutes turnover ‘in India’.

Conclusion
While
the CCI is continually clarifying the rules, ambiguities in calculating the
turnover for certain enterprises which work on a commission based business
model remain. Further uncertainty also exists when it comes to determining what
constitutes turnover ‘in India’. Given these ambiguities, it is important that
accountants and lawyers use each others’ expertise to ensure that compliance
with the law is achieved.

Hindu Succession – Hindu female dying intestate – Her step son falls in category of heirs of husband – Hindu Succession Act 1956. Section 15(10)(b).

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S. A. Ramalingam vs. Elumalai AIR 2015 Madras 235

The suit was filed by the respondent/plaintiff for declaration of his right, title and interest in respect of and recovery of the suit items, which admittedly belonged to one Sampoornammal, who was none other than the stepmother of the plaintiff.

The facts that Sampoornammal, who was the senior wife of Ramasamy Padaiyachi, was the original owner of the property and during the subsistence of the first marriage, Ramasamy Padaiyachi married one Rajammal as his second wife. Rajammal gave birth to the plaintiff through Ramasamy Padaiyachi. Shri Ramasamy Padaiyachi predeceased the senior and junior wives and the senior and junior wives also died thereafter and after their death, the defendant (son of one of the paternal uncles of Sampoornammal – senior wife) has been in possession and enjoyment of the suit properties.

The dispute in respect of the suit items arose between the plaintiff/step-son of  Sampoornammal and the defendant,.

The Hon’ble Court observed that the relationship between the parties was not disputed. The plaintiff being the step son of the owner falls in the category of the heir of the husband as referred to in clause (b) of section 15(1) and will come as legal heir of female dying intestate.

The Hon’ble Apex Court in the decision reported in (1987) 2 SCC 547 (Lachman Singh vs. Kirpa Singh and others) has categorically laid down that the in the case of a female Hindu dying intestate, a step son, that is, the son of her husband by his another wife falls in the category of the heirs of the husband referred to in clause (b) of section 15(1) and will come in as her heir. That being the legal position, both the courts below by relying on the law so laid down by the Apex court, rightly held that the plaintiff being step son of Sampoornammal, under clause 15(1) (b) of the Hindu Succession Act, was entitled to succeed to her property, in the absence of other legal heirs and the denial of his right, title and interest by the defendant insofar as the suit items are concerned, is hence legally not sustainable. When the plaintiff is held to be entitled to the suit items, the possession of the suit items by the defendant without any right would amount to trespass and encroachment. Though the defendant sought to set up title on the strength of release deed executed by the plaintiff’s mother for her herself and on behalf of the plaintiff, who was the erstwhile minor son, the same for want of any right to do so by Rajammal and for want of registration was held to be not valid a document. When release deed is held to be invalid, the question of taking steps to set aside the same for the purpose of establishing the right of the plaintiff did not at all arise.

Part C | Information On & Around

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Attack on RTI activist in Latur:

The entire episode of this attack was recorded on cell and the video was circulated widely. When on my cell, I went through it for nearly 40 minutes. Tears flowed from my eyes. What inhuman activities by Shiv-Sena workers. (If any one desires to view the video, call me on 9821096052, I shall forward it).A Right to Information (RTI ) activist from Latur, Mr. M B, was brutally beaten and his face blackened allegedly by Shiv Sena activists on the premises of a college in the district in front of over 2,000 students, teachers, staff and onlookers. The activist had sought information through RTI queries, about unauthorised construction activity.Sena youth wing president Mr A.T said that those responsible for thrashing Mr. M B had been dismissed by the party. “Heard of the unfortunate incident in Latur. The party strongly condemns the disgraceful act. Those involved have been moved from the party,” he tweeted.

Senior member of the institution which runs the college, Mr. S B, has been arrested and the police have launched a manhunt for around 25 Sena activists.

Mr. M B told TOI , “A group of people with saffron scarves waiting in an SUV with a Shiv Sena emblem assaulted me. They dragged me into their car where they beat me, snatched my phone, and brought me to Shahu junior college campus. They kicked and showered blows on me while some assaulted me with belts and iron rods. They poured wangan lubricant on me.”

District Police Chief D C told TOI that they have photos of the incident and are trying to zero in on the culprits based on the pictures.

RTI activist receives 32kg of ‘replies’:

An RTI activist, who was denied information by panchayat officials for his queries under the Right to Information Act, finally received 32 kilos of papers as replies after waiting for eight months.

Mr. D J had requested information on the expenditure and details of work sanctioned by the executive officer of Vellalore town panchayat for a period of six months from August 2014 to February 2015.

He finally received the reply, costing the government more than Rs.11,000. As per the courier slip, courier charges alone were Rs.1,130 and the weight of the bundle was 32 kilos. “The panchayat officials told me they spent over Rs.9,000 just on photo copies,” he said.

3 RTI Activists sad story:

Three RTI activists were arrested in the last week of September on the charge of running an extortion racket targeting builders. The Mulund police said that Mr. L S, Mr. P C and Mr. A M had demanded Rs.2 lakh from a developer for not filing complaints with various government departments.

The developer, Mr. S G, had planned to refurbish an old house with the help of his relative. In January, Mr. L S allegedly met him and sought Rs.1 lakh for not blocking the repairs by filing a complaint with the local BMC ward office.According to the First information report (FIR), Gharat paid Rs.50,000. But a few months later, Mr. P C again approached Mr. S G and demanded Rs.1 lakh. The developer paid Rs.10,000.

Earlier this month, Mhaske allegedly tried to extract more money by saying that Mr. L S and Mr. P C were part of this group.

This time, Mr. S G alerted the Mulund police, who arrested the three men. Cops sought their remand for seven days, saying they wanted to find out if the trio was part of a bigger extortion ring that targeted builders. The court granted the request.

Mr. L S and Mr. P C have two previous criminal cases pending against them.

Part B | RTI Act, 2005

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Maharashtra Chief Information Commissioner Mr. Ratnakar Gaikwad has said:

Ten years after the Act was enacted, Gaikwad said the public authorities still do not think it necessary to put out all information, though section 4 of the RTI Act requires it. On the performance of information commissioners in Maharashtra, Gaikwad said there were two aspects:

Quantitative and qualitative. “In the last decade, around 44 lakh RTI queries were received across the state and 99% disposed of. Of the 1.54 lakh queries that have gone into appeal, 1.2 lakh have been disposed of. As on September 30, around 30,000 are pending,” he said.

The state information commissioner also wants a provision to be introduced in the Act to punish those who use it for blackmail. “Such persons must be blacklisted,” he said, adding that there must be a limit on the number of RTIs a person can file before the same PIO in a month.

Part A | Decision of CIC

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Whether PIO can file a Writ against order of the appellate authority – CIC:

The petitioner is the Public Information Officer, Syndicate Bank Regional Office at Mugulrajapuram, Vijayawada, under the Right to Information Act, 2005 (for short ‘the Act’).

The AP High Court held:
This court is of the opinion that the Writ Petition, filed by the Public Information Officer, is not maintainable because even though he is an employee, he is designated as Public Information Officer, who is charged with the duty of dealing with the requests of persons seeking information and render reasonable assistance to such persons. U/s. 7 of the Act, the Public Information Officer shall dispose of the requests received by him either by providing information on payment of the prescribed fee or by rejecting the request for any of the reasons specified in sections 8 and 9 of the Act. A person, who does not receive a decision within the time specified under sub-section 1 of section 7 of the Act or is aggrieved by the decision of the Central Public Information Officer or the State Public Information Officer, is entitled to file an appeal to such Officer, who is senior in rank of the Central Public Information Officer or the State Public Information Officer. A second appeal against such decision shall lie to the Central Information Commission or the State Information Commission as the case may be.

The scheme of the Act, discussed above would reveal that every Public Information Officer nominated as such under the Act has a dual role to play viz. as an officer of the Public Authority and also the Public Information Officer. While such Officer is loyal to his employer while acting in his role as the Officer, he acts as a quasijudicial authority while disposing of the request made for furnishing information. His orders are subject to further appeals. Therefore, in the opinion of this Court, the Public Information Officer cannot don the role of the Officer of the Public Authority in relation to the orders passed by the appellate authorities against the orders passed by him. If his order is reversed by the appellate authority, he cannot be treated as aggrieved party giving rise to a cause of action for him to question such Orders. It is only either the public authority, against whom the directions are given, or any other party, who feels aggrieved by such directions, that can question the orders passed by the appellate authorities. As such, the Public Information Officer, who filed this Writ Petition, is wholly incompetent to question the order of the appellate authority and the Writ Petition filed by him is not maintainable.

Even on merits, this Court has no hesitation to hold that the information sought for by respondent No. 2 does not fall within the exempted category u/s. 8 (1) (h) of the Act because that information, which respondent No. 2 has sought, relates to pending proceedings before the Debt Recovery Tribunal. However, what is exempted u/s. 8 (1) (h) is information, which would impede the process of investigation or apprehension or prosecution of respondent of offenders. It is not the pleaded case of the Bank that any investigation or apprehension or prosecution of respondent No. 2 will be impeded by furnishing information sought for by him. Even if the information relates to a pending dispute before a Court or Tribunal, that would not fall u/s. 8 (1) (h) of the Act.

For the above-mentioned reasons, the Writ Petition is dismissed.

[PIO, Syndicate Bank, Regional Office, Mugulrajapuram, Vijaywada vs. Central Information Commission: Writ Petition No. 28785 of 2011 before the Hon’ble Sri Justice C V. Nagarjuna Reddy]

Hindu Law – Suit for partition – Concept of dual ownership – Land and building or structure standing thereon

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Dattaram Waman Kambli vs. Shantaram Bapu Kambli & Ors.; AIR 2015 (NOC) 474 Bom.

The plaintiff and his two brothers namely, the defendant nos. 1 and 2 had equal share in the land. The dispute was about the entitlement of the plaintiff to any share in the house, which was constructed on the land in question. The plaintiff did not dispute that he had not contributed anything towards the construction of the house and the defendant nos. 1 and 2 were permitted to construct the house with their own funds. The house was constructed in the year 1977 in which the defendant nos. 1 and 2 were residing.

The learned counsel for the appellants submitted that the concept of dual ownership is recognised in India and it has been accepted by the Courts in India despite a contrary concept prevailing under the British law.

It was submitted that though, the share of the plaintiff in the land is not disputed, in view of the aforesaid position of law accepted by the Courts in India, the plaintiff is not entitled to get any share in the structure of the house constructed thereon. As against this, the learned counsel appearing for the respondent (Original Plaintiff) submits that the Hindu law does not recognise such a concept of dual ownership.

The Hon’ble Court observed that in Ramkrishna Girishchandra Dode & Others vs. Anand Govind Kelkar & Others delivered by this Court reported in (1999) 1 Bombay Case Reporter 63, it has been held as under:

“The concept of dual ownership one of the land and the other of the structure on the land has been recognised by several decisions of this Court. The consistent view taken by this Court is that where the landlord get a decree for eviction of a plot of land against a tenant the licensee or a sub-tenant inducted by the tenant on the structure put by him has no right against the landlord. If therefore the landlord is entitled to get vacant possession of the land, he is entitled to evict the occupant in the said structure erected by the tenant, in as much as the occupant of the structure has no legal right against the landlord in so far as the land is concerned. The land must be put in possession of the landlord, free from any encumbrance whatsoever.”

In view of the aforesaid position of law, it was apparent that the concept of the dual ownership, one of the land and the other in the building or structure standing thereon had been recognised and accepted by the Courts in India. The applicability of the principle would not be different even if it is a case between the real brothers and the law as has been laid down by the Courts in India would apply to the dispute between the real brothers also. Merely because, the plaintiff had share in the land beneath the building, it does not automatically follow that he would have share in the building constructed also. The plaintiff did not dispute that he has not contributed anything for construction of the house on the land in which he has a share. It is also not in dispute that he had permitted his brothers to construct building/house with their own funds. No objection was raised for such construction. Therefore, it had to be held that though the plaintiff has share in the land, he did not have any share in the structure or building erected thereon.

The plaintiff is not entitled to a partition and possession of the suit house.

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Hindu Law – Partition – Doctrine of throwing Property in common hotchpot – Assessment under the Wealth tax Act would be evidence : Hindu Succession Act section 23

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Vineeta Sharma vs. Rakesh Sharma & Ors. AIR 2015 (NOC) 895 (Del)

The
plaintiff had filed a suit for partition against her brothers and
mother in respect of constructed premises. The undisputed facts were
that the suit premises were purchased and constructed by the plaintiff’s
father, wherein he along with his family stayed for some time and also
let out a portion thereof to the tenants. The plaintiff’s case was that
since her father and brother died intestate, she was entitled to
one-fourth share in the suit premises. She stated that whenever she
visited her paternal home, she stayed in the suit premises. The
plaintiff averred that the suit premises were never treated as HUF
property and no Will was ever executed by their father.

The
defendants No. 1 and 2 (sons) contested the suit. Their case was that
the plaintiff being the married daughter, had only restricted rights in
the suit premises and could not seek its partition. They averred that
the plaintiff was also not entitled to any share, as the suit premises
was a HUF property, and was so assessed by the Income Tax Department as
also the Wealth Tax Authorities.

The plaintiff deposed that her
father acquired the suit premises from his own earnings, savings and
loans and had constructed the same in March, 1966, when all the
defendants were studying and they could not have contributed to the
construction expenses.

On the other hand, the defendants stated
that their father had abandoned his individual rights in the suit
premises by making a declaration on affidavit dated 23.05.1966,
submitted by him with the Income Tax Department, and which was accepted
as HUF property vide Assessment Order dated 31.03.1976 for the
Assessment Year 1972- 73. They stated that from the Assessment Year
1972-73 to 1988-90 and until the demise of their father, the premises
had been assessed to Income-tax as well as Wealth-tax, as HUF under the
provisions of Income-tax Act as well as Wealth-tax Act.

The
Hon’ble Court observed that as per the plaintiff, the suit premises was
self-acquired property of their father, whereas as per defendants No. 1
and 2, though, it was the self-acquired property of their father, he had
thrown it in the hotchpot of HUF.

The law relating to blending
of separate property with joint family property is well settled.
Property, separate or self-acquired of a member of a joint Hindu family
may be impressed with the character of joint family property, if it was
voluntarily thrown by the owner into the common stock with the intention
of abandoning his separate claim therein, but to establish such
abandonment a clear intention to waive separate rights must be
established.

The separate property of a Hindu ceases to be
separate property and acquires the characteristics of a joint family or
ancestral property not by any physical mixing with his joint family or
his ancestral property but by his own volition and intention, by his
waiving and surrendering his separate rights in it as a separate
property. The act by which the coparcener throws his separate property
in the common stock is a unilateral act. There is no question of either
the family rejecting or accepting it. By his individual volition, he
renounces his individual right in that property and treats it as a
property of the family. No sooner than he declares his intention to
treat his self-acquired property as that of the joint family property,
the property assumes the character of joint family property. The
doctrine of throwing into the common stock is a doctrine peculiar to the
Mitakshara school of Hindu law.

The Hon’ble Court observed that
from the Assessment Order dated 31.03.1972 of the Assessment Year 1972-
73, it is seen that the plaintiff’s father had declared some income
from the suit premises in the status of HUF. It is also seen therefrom
that the HUF came into existence under the assessee’s declaration made
on 23.05.1966 on an affidavit. The Income Tax record of the subsequent
year upto the Assessment Year 1999-2000 would evidence that the
plaintiff’s father had been filing Income Tax Returns and been assessed
to Income Tax as Karta of HUF. The incomes received from the suit
premises was being declared by the plaintiff’s father as of HUF and was
assessed as such during all these years. The Assessment Order under the
Wealth Tax Act of the years 1977-78 onward would also evidence the suit
premises having been assessed as HUF for the purpose of Wealth Tax. From
all this record, it was concluded that the plaintiff’s father, for all
purposes, had consciously abandoned his individual rights in the suit
premises to HUF with effect from 23.05.1966. The affidavit filed by the
plaintiff’s father with Income Tax Department declaring the suit
premises as HUF on 23.05.1966 was not the solitary step taken by him,
but, he continued to maintain the HUF status of the suit premises till
he died. In view of all this, even the payment of property tax by the
plaintiff’s father in his name and not that of HUF or even for that
matter, filing of eviction case against the tenant Bank of Baroda in his
own name than that of HUF would not make any difference. There is no
dispute that the suit premises was initially acquired by the plaintiff’s
father in his own name and it was in those circumstances that the suit
premises continued to be assessed to property tax in his individual name
rather than that of HUF. The payment of property tax by any means does
not create any right or title in the name of the assessee. Filing an
eviction case by the plaintiff’s father in his own name instead of the
HUF, can also be said to be only for the convenience. In any case, the
partition could only be filed by him in his name, being the Karta of
HUF. Thus it was held that the suit premises was of the HUF property of
the plaintiff’s father, with he being the Karta thereof till his death.

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Foreign Judgement – Enforceable before Court in India – Civil Procedure Code, section 13(b)

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Masterbaker Marketing Ltd vs. Noshir Moshin Chinwalla, AIR 2015 (NOC) 771 (Bom.)

A foreign Court which has jurisdiction over the subject matter and passes a decree, the same is conclusive u/s. 13 of the CPC. The plea of the defendant that judgement was obtained by playing fraud hence could not be conclusive could not be considered as it had not submitted to the jurisdiction of the competent Court in a foreign country. The defendant would not be allowed to raise up his hands after the plaintiff has gone through the process of trial and undertaken the execution by applying to the executing Court to retry the issue.

The plaintiff had filed his plaint. The defendant was given notice of the action. He was served a summon. He was called upon to answer the plaintiff’s claim. The trial Court was bound to hear the defendant and to dismiss the plaintiffs claim if it was fraudulent or perjurial. It was, therefore, not only the defendant’s right to get the action of the plaintiff dismissed if it was perjurial or fraudulent, but also its duty to bring perjurial act constituting fraud to the notice of the Court if it was known to the defendant at the time of the trial. If that was not done at the time of trial then and was sought to be done later after the judgment was passed, it would constitute a retrial issue. That retrial is forbidden by the salutary principle of resjudicata. If permitted, it would allow all defendants not to defend the claim and allow any decree to be passed which would then be challenged whilst being executed. That would be an abuse of the Court process.

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Territorial Jurisdiction – Infringement of Copyright and/or Trademark

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Introduction
A question that arises in almost every matter
pertaining to violation of intellectual property rights is – Which Court
would have the necessary territorial jurisdiction to try, entertain and
dispose of the present proceedings? By this article, an endeavour shall
be made to explain which Court/Courts would have territorial
jurisdiction in respect of matters of infringement of copyright and/or
trademark.

The determination of territorial jurisdiction of a
civil court is governed by the Code of Civil Procedure,1908(“CPC”)1
Section 20 of the CPC which would be the relevant Section with respect
to cases of infringement of copyright and/or trademark provides that a
Suit may be filed, inter alia, either where the Defendant actually and
voluntarily resides or carries on business or works for gain or where
the cause of action arises wholly or in part. An explanation appended to
the said Section provides that a Corporation is deemed to carry on
business at its sole or principal office in India or at a place, where
in respect of any cause of action arising at such place it has a
subordinate office.

Hence, under these provisions, a Plaintiff
would be obliged to travel to where the Defendant actually and
voluntarily resides or carries on business or works for gain or where
the cause of action has arisen, wholly or in part. To illustrate this
point, consider a a case where an owner of copyright in a musical work
resides in Delhi, however, his musical work is being infringed by a
Defendant in Chennai by causing unauthorised communication thereof in a
bar in Chennai itself and nowhere else. In such a case, the Plaintiff
copyright owner would be constrained to travel to Chennai to file a
proceeding to restrain the acts of infringement of copyright since both
the Defendant is residing in Chennai as also the cause of action has
arisen in Chennai. Such acts of infringement often take place in remoter
parts of the country, making it even more cumbersome for a Plaintiff to
travel to every nook and corner of the country to protect his
intellectual property rights.

These difficulties were noted by
the Joint Committee that was constituted prior to the passing of the
Copyright Act, 1957 (“CA”) in as much as it was observed that many
authors are deterred from instituting infringement proceedings because
the court in which the proceedings are to be instituted are at a
considerable distance from the place of their ordinary residence. The
Joint Committee recommended that such impediments should be removed and
the proceedings should be allowed to be instituted in the local court
where the person instituting the proceedings ordinarily resides, carries
on business etc2.

Hence, it was in this background that an
additional forum was provided for by Legislature in section 62 of the CA
to enable authors to file a suit for infringement of copyright where
they reside or they carry on business or work for gain3. Subsequently,
section 134 was also brought into effect in the Trade Marks Act, 1999
(“TMA”) to provide an additional forum even in case of infringement of
trademark at a place where the Plaintiff resides or carries on business
or works for gain.

It is the scope and purview of both these
provisions that is sought to be explained and commented upon in this
Article. In fact, the Supreme Court has in a recent judgment dated 1st
July, 2015 in the case of IPRS vs. Sanjay Dalia4 dealt extensively with
the ambit and scope of the said provisions. My effort shall be to
explain the ratio decidendi of the Apex Court and thereafter highlight
certain issues which may still need to answered by the Hon’ble Courts to
afford complete clarity on these provisions.

STATUTORY PROVISIONS
Before
adverting to the aforesaid decision of the Apex Court in the case of
IPRS vs. Sanjay Dalia5, it would be helpful to consider the actual text
of the relevant provisions which provide, inter alia, as under :-

CA
“Section
62. Jurisdiction of court over matters arising under this Chapter. —
(1) Every suit or other civil proceeding arising under this Chapter in
respect of the infringement of copyright in any work or the infringement
of any other right conferred by this Act shall be instituted in the
district court having jurisdiction.

(2) For the purpose of sub-section (1), a “district court having jurisdiction” shall,
notwithstanding anything contained in the Code of Civil Procedure, 1908
(5 of 1908), or any other law for the time being in force, include a
district court within the local limits of whose jurisdiction, at the
time of the institution of the suit or other proceeding, the person
instituting the suit or other proceeding or, where there are more than
one such persons, any of them actually and voluntarily resides or
carries on business or personally works for gain.”

TMA
“134. Suit for infringement, etc., to be instituted before District Court. —
(1) No suit– (a) for the infringement of a registered trade mark; or
(b) relating to any right in a registered trade mark; or (c) for passing
off arising out of the use by the defendant of any trade mark which is
identical with or deceptively similar to the plaintiff’s trade mark,
whether registered or unregistered, shall be instituted in any court
inferior to a District Court having jurisdiction to try the suit.

(2) For the purpose of cls. (a) and (b) of sub-section (1), a “District Court having jurisdiction” shall,
notwithstanding anything contained in the Code of Civil Procedure, 1908
(5 of 1908) or any other law for the time being in force, include a
District Court within the local limits of whose jurisdiction, at the
time of the institution of the suit or other proceeding, the person
instituting the suit or proceeding, or, where there are more than one
such persons any of them, actually and voluntarily resides or carries on
business or personally works for gain…”

It may be noted
that though the current TMA contains Section 134 which provides an
additional forum to a Plaintiff, the earlier Trade and Merchandise Marks
Act, 1958 contained no such provision. Under the Trade and Merchandise
Marks Act, 1958, a Plaintiff was constrained to follow the Defendant
and/or the cause of action for vindication of his rights as u/s. 20 of
the CPC. This position has, however, now changed u/s. 134 of the TMA. A
bare perusal of both section 62(2) of the CA and section 134(2) of the
TMA which are pari materia6 in nature would show that they make a
significant departure from the provisions of the CPC and provide for the
existence of an additional forum in a Suit relating to infringement of
copyright and/or trademark, before a Court, where the Plaintiff actually
and voluntarily resides or carries on business or works for gain.

Both section 62(2) of the CA and section 134(2) of the TMA are additional forums and do not take away or abridge the right of a Plaintiff, if he so chooses to follow the Defendant and/or the cause of action u/s. 20 of the CPC. Hence, a Plaintiff in a suit for infringement of copyright and/or trademark would be entitled to approach the appropriate Court either u/s. 20 of the CPC or u/s. 62(2) of the CA or u/s. 134(2) of the TMA, as the case may be. It is possible, in a given case, that the appropriate Court could be the same Court whether section 20 of CPC is applied or the provisions of the CA or TMA are applied. An illustration would be that, take a case where an owner of copyright in a musical work resides in Delhi. The Defendant is also residing in Delhi and is infringing the musical work by causing unauthorised communication thereof in a bar in Delhi itself and nowhere else. In such a case, the Courts at Delhi would have the necessary territorial jurisdiction to entertain such a Suit for infringement of copyright since firstly, as u/s. 62 of CA, the Plaintiff resides in Delhi. Secondly, u/s. 20 of CPC, the Defendant also resides in Delhi and thirdly, even the cause of action is arising in Delhi. Hence, in such a case, it would only be the Courts at Delhi which would have the necessary territorial jurisdiction.

The question however, is of cases where only section 62 of the CA and/or section 134 of the TMA are invoked as conferring territorial jurisdiction on the Court.

    IPRS VS. SANJAY DALIA7

The Apex Court was dealing with two appeals from the Delhi High Court in this case. In the first Appeal, the facts were that the the Plaintiff was carrying on business through a Branch Office situate at Delhi and it was on this basis that the territorial jurisdiction of the Delhi High Court had been invoked. In the second Appeal, also the territorial jurisdiction of the Delhi High Court was invoked on the basis that the Plaintiff had a branch office at Delhi. In both these matters, the admitted position was that the registered office of the Plaintiffs was not in Delhi nor had any cause of action arisen in Delhi at the time of filing the suits but only the Branch Offices were in Delhi. Proceedings had been filed on the basis, as a suit could be filed wherever the Plaintiff was carrying on business and since these Plaintiffs had a branch office in Delhi, they must be deemed to carry on business in Delhi thereby, rendering the Delhi High Court as the Court having the necessary territorial jurisdiction. Objections were however, raised by the Defendants to the territorial jurisdiction of the Delhi High Court, on the basis that in both these matters the Plaintiff had a registered office in Bombay where the cause of action had also arisen and hence, it should be the Courts at Bombay which would have the necessary territorial jurisdiction. A Division Bench of the Delhi High Court upheld the objection of the Defendant in the first matter whilst in the second matter, the Division Bench of the Delhi High Court, allowed an amendment to be made to the Plaint to add averments to the effect that the infringing magazines were being circulated in Delhi as well thereby showing that cause of action had arisen in Delhi, and on this basis rejected the plea of the Defendant of lack of territorial jurisdiction. It was against these two Orders of the Delhi High Court, that appeals were preferred before the Apex Court.

The Supreme Court was thus called upon to answer whether in light of section 62 of CA and section 134 of TMA could a Plaintiff Corporation file a Suit anywhere it chose to, based on the existence of a branch office or must the Plaintiff Corporation be constrained to file proceedings at a place where either its registered office is situated or at a place where it has a branch office and where the cause of action has also arisen akin to the Explanation to section 20 of the CPC. The Explanation to section 20 of the CPC as mentioned earlier provides that a Corporation is deemed to carry on business at its sole or principal office in India or at a place, where in respect of any cause of action arising at such place it has a subordinate office.

The Supreme Court after considering the legislative history and the purpose for which the provisions had been brought onto the statute book observed that if the provisions are not interpreted purposively, as is being suggested by the Supreme Court, it could lead to abuse of the provisions, in as much as the Plaintiff will institute a suit in a wholly unconnected jurisdiction based solely on the existence of a branch office. The Supreme Court illustrated the possible abuse and observed, inter alia, that “There may be a case where plaintiff is carrying on the business at Mumbai and cause of action has

arisen in Mumbai. Plaintiff is having branch offices at Kanyakumari and also at Port Blair, if interpretation suggested by appellants is acceptable, mischief may be caused by such plaintiff to drag a defendant to Port Blair or Kanyakumari. The provisions cannot be interpreted in the said manner devoid of the object of the Act.” It has also been observed that such a counter mischief to the defendant was unforeseen by Parliament and it is the court’s duty to mitigate the counter mischief.

Hence, the Supreme Court has held that the additional right to institute a suit at a place where the Plaintiff resides or carries on business has to be read subject to certain restrictions, such as in case plaintiff is residing or carrying on business at a particular place/having its head office and at such place cause of action has also arisen wholly or in part, plaintiff cannot ignore such a place under the guise that he is carrying on business at other far flung places also. The very intendment of the insertion of provisions in the CA and TMA is the convenience of the plaintiff. The interpretation of provisions has to be such which prevents the mischief of causing inconvenience to parties. The Supreme Court whilst interpreting these provisions was also of the view that the issue raised before it had not been raised in any of the earlier cases cited before it

It was in light of these findings that the Supreme Court was pleased to dismiss both the appeals by holding that the provisions of section 62 of the CA and section 134 of the TMA have to be interpreted in the purposive manner. There is no doubt about it that a suit can be filed by the plaintiff at a place where he is residing or carrying on business or personally works for gain. He need not travel to file a suit to a place where defendant is residing or cause of action wholly or in part arises. However, if the plaintiff is residing or carrying on business etc. at a place where cause of action, wholly or in part, has also arisen, he has to file a suit at that place.

Whilst this judgment, brings much required clarity to the issue as to the interpretation of these provisions of the CA and TMA, in my opinion, these findings of the Supreme Court amount to introducing an Explanation or a Sub-section (3) to both section 62 of the CA and section 134 of the TMA, which explanation or sub-section had not been provided even by the Legislature whilst passing the said statutes.

The effect of this judgment would be to limit the scope and effect of these provisions. Plaintiffs would now be obliged to file proceedings in accordance with these principles laid down by the Apex Court. The effect of this judgment will, in fact, be felt in several pending proceedings, which proceedings may have been initiated prior to this judgment at a place where the Plaintiff had only a branch office but no cause of action, based on the bare language of these provisions. Already in several proceedings in different High Courts, to my knowledge, applications have been moved for rejection/return of plaint on account of lack of territorial jurisdiction of that Court based on this judgment.

    CONCLUSION

Even though this judgment does bring forth a fair amount of clarity on the issue of territorial jurisdiction in cases of infringement of copyright and/or trademark, in my opinion, certain important issues still remain to be answered in connection with the interpretation of these provisions.

To illustrate an issue which still needs to be addressed and has not been conclusively determined by the Supreme Court, consider a situation, where the Plaintiff is having a branch office in Delhi and the cause of action has also arisen there whilst its registered office is at Bombay. In such a case, can it be said that the Plaintiff is precluded from approaching the Courts at Bombay and must only file his case in the Courts at Delhi or is it still his option to choose the forum of his convenience between these two forums.

It may be noted that the Supreme Court in the IPRS judgment, was dealing with two cases where factually this position did not arise and in both cases, jurisdiction had been invoked only on the existence of a branch office and not on the basis of a combination of branch office plus cause of action. It is trite law that a decision is an authority for what it actually decides8 and hence, considering the nature of the facts involved, it would be difficult to assert that this issue has been conclusively adjudicated upon.

In my opinion, however, in the IPRS case itself, the Supreme Court had referred to its earlier judgment in Patel Roadways vs. Prasad Trading Co.9 wherein the Court whilst explaining the provisions of Section 20 of the CPC had observed, inter alia, that “The clear intendment of the Explanation, however, is that, where the corporation has a subordinate office in the place where the cause of action arises, it cannot be heard to say that it cannot be sued there because it does not carry on business at that place.”

Thus, from the perspective of the convenience of the Defendant and not the Plaintiff, the Supreme Court has already opined that it is the location of the subordinate office, within the local limits of which a cause of action arises, which is to be the relevant place for the filing of a suit and not the principal place of business.

On an analogy of this principle of convenience of parties as explained by the Supreme Court, in my opinion, it could be urged that a Plaintiff corporation which has a subordinate office in the place where the cause of action arises, ought not to be heard to say that it will not sue there since it would like to sue at a place where it has its registered office. The obvious convenience involved of both parties would have to be considered as has been explained by the Supreme Court. Considering that the Plaintiff has a branch office at that place he can hardly be heard to complain that the place is not convenient and also from the perspective of the Defendant, considering cause of action is arising at that place, it would mean that the Defendant and/or its products and/or services are to be found at that place thereby indicating that such a place would be convenient to the Defendant also. Hence, on the basis of convenience of both parties, it ought to be held that it is only the Court where the cause of action has arisen and where the Plaintiff also has a branch office which is the Court having the necessary territorial jurisdiction.

Another issue which has remained unanswered is the effect of this judgment on the Chartered High Courts i.e. the High Courts of Bombay, Calcutta and Chennai. As explained herein above, the Supreme Court has in a sense incorporated the Explanation to section 20 of CPC into the provisions of the CA and the TMA, however, by virtue of section 120 of CPC, section 20 of CPC itself does not apply to the Chartered High Courts. The territorial jurisdiction of the Chartered High Courts is governed by their respective Letters Patent and not by section 20 of CPC10. Hence, in such a situation can it be said that this interpretation would apply to these Chartered High Courts or would these Courts be able to exercise a more unrestricted jurisdiction than the other High Courts.

Whilst in my opinion, the judgment in IPRS does leave door ajar for several new issues to be resolved upon to bring forth complete clarity on the subject, the judgment is an important step forward towards interpreting and laying down the contours of the territorial jurisdiction of a Court in respect of proceedings initiated u/s. 62 of the CA or section 134 of the TMA.

Appellate Tribunal – Difference of Opinion between Members of Bench on factual matters – Advice to Tribunal – Disagreement and dissent to be avoided by meaningful discussion and continuous dialogue.

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Commissioner of Customs (II) vs. Nitin Aminchand Shah 2015 (323) ELT 466 (Bom.)

In the initial order passed on 6-8-2013 by the CESTAT, there was difference of opinion between the Member (Judicial) and the Member (Technical). The Member (Judicial) was of the opinion that for the reasons indicated by him, the appeals of the assessee deserved to be allowed. Whereas the Member (Technical) passed a separate order upholding the Department’s stand, but yet remanded the case to the Commissioner for ascertaining the value of the impugned goods by constituting a Panel in accordance with the Departmental instructions.

On account of this difference of opinion, the matter was referred by the President, CESTAT to a Third Member. In the meanwhile, the importers filed rectification of mistake applications pointing out the alleged mistake in the initial order of the Tribunal dated 6-8-2013. As was expected, even when these applications for rectification were placed before the same Bench, the Members thereof differed. The applications were admitted by the Member (Judicial) whereas the Member (Technical) recorded a separate order. That separate order of the Member (Technical) did not conclude the applications for rectification of mistake. Thereafter, the rectification applications were finally decided on 8-12-2014 but recording a dissent and difference of opinion between the two Members.

Then, this difference of opinion was also marked and referred to the same Third Member who was to resolve the disagreement in the initial order dated 6-8-2013.

The Hon’ble Court observed that this was one more instance where the Members of the Bench have differed and recorded dissenting opinions. By consent of both sides, the appeals decided by the initial order dated 6-8-2013 were restored to the file of the CESTAT for being decided afresh in accordance with law. The Hon’ble Court further advised that the Tribunal should bear in mind the caution administered by the Court in case of the Starto Electro Equipments Pvt. Ltd. vs. UOI 2015 (318) ELT 55
(Bom) and all such decisions rendered prior thereto. Why should there be a difference of opinion on factual matters? By some meaningful discussion, continuous dialogue and by not demonstrating unnecessary haste, disagreements and dissents can be avoided.

Aadhar Card Scheme – Right to Privacy – Judicial Discipline – View expressed by smaller benches without explaining reasons for not following pronouncements of larger Benches – Matter referred to larger Bench – Constitution of India Article 141.

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Justice K. S. Puttaswamy & Anr. vs. UOI & Ors. AIR 2015 SC 3081

The collection by the Govt. of biometric data of residents under Aadhar Card Scheme challenged to be violative of the right to privacy.

The Court directed that the Union of India shall give wide publicity in the electronic and print media including radio and television networks that it is not mandatory for a citizen to obtain an Aadhar card. The production of an Aadhar card will not be a condition for obtaining any benefits otherwise due to a citizen. The Unique Identification Number or the Aadhar card will not be used by the Govt. for any purpose other than the PDS Scheme and in particular for the purpose of distribution of food grains, etc. and cooking fuel, such as kerosene. The Aadhar card may also be used for the purpose of the LPG Distribution Scheme. The information about an individual obtained by the Unique Identification Authority of India while issuing an Aadhar card shall not be used for any other purpose, save as above or as may be directed by a Court for the purpose of criminal investigation.

The Hon’ble Court was of the opinion that the cases on hand raise far reaching questions of importance involving interpretation of the Constitution. What is at stake is the amplitude of the fundamental rights including that precious and inalienable right under Article 21. If the observations made in M. P. Sharma (AIR 1954 SC 300) and Kharak Singh (AIR 1963 SC 1295) are to be read literally and accepted as the law of this country, the fundamental rights guaranteed under the Constitution of India and more particularly right to liberty under Article 21 would be denuded of vigour and vitality. The Hon’ble Court was also of the opinion that the institutional integrity and judicial discipline require that pronouncement made by larger Benches of the Court cannot be ignored by the smaller Benches without appropriately explaining the reasons for not following the pronouncements made by such larger Benches. The Hon’ble Court was of the opinion that there appeared to be certain amount of apparent unresolved contradiction in the law declared by the Court.

New SEBI Listing Regulations – revised requirements of corporate governance, disclosures, etc.

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Background

SEBI has recently notified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“the Listing Regulations”). They will primarily replace the Listing Agreement and certain related provisions. On the face of it, it may appear that the notification is old wine in a new bottle. A superficial review may even create an impression that the Listing Regulations make merely cosmetic/ aesthetic changes in that they organise into categories/ chapters the myriad of clauses that were messily placed in the Listing Agreement, being the result of random additions/deletions and endless amendments. However, a closer analysis reveals that there are several structural changes and new requirements/modifications. Primarily, the status of the provisions has been substantially elevated from a set of provisions that had a dubious legal status to a proper law with, as we will discuss later, severe consequences. The rights and obligations of various parties that were unclear and uncertain under the Listing Agreement are now clearer, well-defined and attributed directly and specifically. More important is the fact that the obligations of various persons such as the company, its directors, the Chief Financial Officer, Company Secretary, etc. and even the auditors and the Audit Committee have increased. The life of the already overburdened and underpaid independent directors will worsen further.

The new regulations are fairly lengthy, though this is also on account of the fact that they seek to cover the listing obligations of not just equity shares but also other types of securities. Still, the 111 page long regulations would need a deep study to understand their implications. In this article, some highlights are briefly discussed.

Nature of the Regulations

The Regulations largely compile, rewrite and re-organise at several places, the familiar Listing Agreement and certain related provisions, in the form of Regulations. The Listing Agreement primarily provide for certain obligations of companies whose securities have been listed on recognised stock exchanges. The requirements include disclosures of important developments in such companies, of periodic accounts, etc. The Listing Agreement is also the place where Clause 49 that covers the requirements relating to corporate governance are placed. There are several other requirements contained in other provisions. These are now gathered at one place in an organised manner in the new Listing Regulations. Thus, while the SEBI ICDR   Regulations pave the road to listing of securities of a company, the Listing Regulations
now provide for requirements of their continued listing.

A formal and very short Listing Agreement of course continues (which listed companies are required to execute) but the substantive provisions are now in the Listing Regulations. Further, the Listing Regulations provide for separate chapters for requirements in case of different type of listed securities.

Date when the regulations shall come into effect

The bulk of the regulations shall come into effect from 1st December 2015 (except, however, as will be seen later, for two sets of provisions that have come into effect immediately, i.e. from 2nd September 2015). This has given time for companies and others concerned to absorb the contents, changes and implications of the new
provisions.

More severe punishment for violations

The primary structural change is that, instead of the provisions being in the form of a listing agreement, which, at least conceptually, had a dubious legal status and hence implications, the Listing Regulations have a well recognised and well defined status and implications.

The Listing Agreement was of course not a mere private agreement where only the signing parties could act against each other. For example, section 23E of the Securities Contracts (Regulation) Act, 1956, provided for a stiff penalty for violation of listing conditions. The stock exchanges too ensured discipline and enforcement to considerable extent. Further, SEBI had direct control over the provisions. Nevertheless, the element of uncertainty remained. Moreover, the final recourse of contraventions of the Listing Agreement could, in theory, only be of terminating the Listing Agreement. This would mean delisting the shares in the present case which would obviously be counter productive as this would harm the shareholders for no fault of theirs. SEBI has of course been using its generic and wide powers to take action and pass fairly stringent orders. It has debarred directors, executives, etc. and generally taken penal action in various forms. However, this is not a happy situation. For one, such action is taken only in extreme cases. Further, the role and liability of various parties remains unclear.

Now that the provisions are in the form of regulations, there are clear penalties and other actions under the SEBI Act and the Listing Regulations. Parties such as directors, compliance officers, Auditors, Independent Directors, etc. are clearer on what their role is now.

Penalties are now specific and well defined. Penalties would be levied on specified parties, of defined amounts and as per specified transparent due legal process. It is clearer what the roles of the company (which is primary and generally comprehensive), the compliance officer (there are some provisions made for them directly), and the audit committee are.

Generally, as seen later, corporate governance provisions too have been elevated to status of law and the roles of individual parties or groups are now directly  defined.

Regulation 98 also provides specifically for various actions by the stock exchanges in case of contraventions of the Listing Regulations. These actions include levy  of fine, suspension of trading, etc. These actions are in addition to the penal and other actions under the SEBI Act. In many cases, there may be further action under the Companies Act, 2013 too.

Corporate governance now a law

Clause 49, as a legal term, is now history. Earlier, as a clause bearing that number, it was part of the Listing Agreement and thus had implications only as much as of the Listing Agreement. Now it is a specific component of the Listing Regulations.

While the requirements remain largely unchanged, considering that each requirement lays down what each person, committee, board, etc., has to do, the liability of parties is now specific and defined. These parties would now know what are the requirements statutorily expected of them and what are the consequences of non-compliance.

Chartered accountants and other professionals including auditors who are associated with listed companies in various ways will particularly need to pay heed to and understand the new provisions well.

Related party transactions

The requirements for approval, disclosure, etc. of related party transactions are largely carried over from Clause 49. The requirement of obtaining prior approval of the Audit Committee for all related party transactions continues. The relaxation for giving prior omnibus approval for certain types of recurring transactions as also for transactions up to a specified value under certain conditions also continues.

As earlier, material (as defined) related party transactions require approval of shareholders by way of a special resolution where related parties shall not vote. Two changes were expected. One was that the resolution required would be ordinary and not special. This change has been made and with immediate effect. Thus, now, only an ordinary resolution is required for  approval of material related party transactions. The other was that only the bar on voting on such resolutions should be on only those parties that are related for the purposes of the proposed transactions. This change has not materialised. All related parties are barred from voting at such resolution. The definition of related party transactions remains broader. To these and certain other extent, the requirements under the Regulations are different from the corresponding requirements under the Companies Act, 2013.

Disclosures of material developments

The new Regulations provide for substantially revised provisions for disclosures by companies. Investors and markets generally expect suo motu and prompt disclosure of developments by the company. However, there was uncertainty on what to report, when to report, who to report and how to report. Balance is required between sending a deluge of information where a few important things get hidden in a pile of information, and reporting arbitrarily selective aspects only at the last possible date. Balance is also required in reporting things too early and too late when rumours and leaks have already caused havoc to the markets.

The Regulations now provide for completely re-written requirements for disclosures of  material developments. They are divided broadly into two categories – disclosures of developments that are material as per certain specified guidelines and developments that are deemed to be material and hence to be reported. The stage at which the developments are to be disclosed has also been defined, and once that stage is reached, the requirement also is for prompt disclosure.

Of particular note are the deemed material items. For example, certain types of frauds are  deemed to be material developments irrespective of the amounts involved.

Obligations of the Board

The regulations now specify and define, even if largely general terms, the obligations and duties of the Board of Directors of a listed company. This is of course largely carried over from clause 49. However, again, considering that the requirements are now in the form of  regulations, they will have greater implications. They will need closer attention.

Accounts and financial Disclosures

The requirements of making periodic disclosure of results continue largely as earlier. This aspect would require greater study and analysis particularly by CFOs and Auditors.

Cessation of a person/group from the Promoter Group

Though relatively an infrequent happening, persons seeking to be excluded from the Promoter Group present not just a sensitive issue, but also remains uncertain in terms of legal provisions. For example, an individual or even a family/group may desire to be excluded from the Promoter Group. This may be because they no more hold partly or wholly any control or they wish to relinquish control. Being in control, even if it is joint, results in certain obligations which they wish to relinquish too, along with the control. At the same time, allowing such exclusion may result in persons having control or even a material connection being excluded from obligations. The Listing Regulations now contain fairly comprehensive and transparent requirements for permitting such exclusion. These requirements have come into effect from 2nd September 2015.

Conclusion

The lengthy Regulations provide for many things with far ranging implications that cannot be even highlighted in a short article. However, it is clear that the job of the board, director,  committees, compliance officer, etc. has increased substantially. While in the short term, the transition from the Listing Agreement to the isting Regulations may be smooth, in the longer term perhaps, as companies and others are regularly hauled up and penalised in various forms, the implications of the changes will be realised. It is becoming more and more difficult to exist as a listed company and to be associated with a listed company. In the longer term the question that will confront us is, whether and to whom it is financially and otherwise rewarding to be so?

Arbitration Law Amendments – Cuts Both Ways!

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Introduction

The Arbitration and Conciliation Act, 1996 (“the Act”) was enacted in 1996 to repeal and replace the Arbitration Act, 1940 and other ancillary Acts. It was considered a pathbreaking Act since, to a great extent, it institutionalised the forum of Arbitration in India and introduced various sweeping changes based on the UNCITRAL Model Law on International Commercial Arbitration and the UNCITRAL Conciliation Rules adopted by the United Nations Commission on International Trade Law (UNCITRAL). Arbitration was considered to be the saviour to a judiciary creaking from an alarming number of cases. It was considered to be a fast-track route to dispute resolution. However, the reality has been quite contrary.

Almost 20 years later, the Government felt that the Act requires urgent changes and since Parliament was not in session, it promulgated an Ordinance titled, The Arbitration and Conciliation (Amendment) Ordinance, 2015. This Ordinance was promulgated by the President on 23rd October, 2015 and is in force from that date. The Ordinance has  introduced several changes to the Act, which are intended to speed up the process and improve the quality of arbitration. Under the Constitution of India, an Ordinance must be laid before both the Houses of Parliament and shall cease to operate as an Ordinance after six weeks from the reassembly of Parliament. Thus, the Government must come out with an Amendment Act within this time or another Ordinance.

As is the case with several enactments, there is often a slip between the cup and the lip and the best of intent is set to naught! The Ordinance contains a few good amendments and a few not so good ones. Let us examine some crucial changes introduced by this Ordinance and how some of these could actually derail the process of arbitration!

Arbitrators’ Fees Capped

An extremely innovative concept introduced by the Ordinance is that of fixing the fees of the arbitrators. The High Court is empowered to frame Rules for the fees of the arbitrators after considering the rates specified in the Schedule to the Ordinance. The Schedule lays down model fees on an ad valorem basis with a cap on the maximum fees which can be charged. The sliding scale provides for a minimum fee of Rs.45,000 for a dispute in which the sum involved is up to Rs.5 lakh. The maximum slab is in case of a dispute in which the sum  involved is above Rs.20 crore, in which case the fees are Rs.19.87 lakh + 0.5% of the claim above Rs.20 crore. However, the maximum fees cannot exceed Rs.30 lakh. This is probably one of the few instances of a Central Enactment laying down fees. While the lawyers and other consultants appearing before the arbitrators can charge any amount of fees, the arbitrators are constrained by the Ordinance! Moreover, what happens if the arbitrators actually spend more time and effort in hearings, gathering evidences, etc., than the fees prescribed by the Ordinance? Would this in fact not reduce the supply of good arbitrators? Fees are a matter of demand and supply and commercial negotiation between the parties to the dispute and the arbitrators. One wonders where is the need for legislative intervention in this? Would this not disincentivise good arbitrators?

The Ordinance provides an escape route by stating that the limit on fees would not apply to international commercial arbitrations and those arbitrations which are as per the rules of an  arbitral institution. Thus, for instance, if parties to the dispute agree to hold the arbitration as per the Rules of the Indian Council of Arbitration, then the fee schedule prescribed by the Council would not apply.

No more Recusing oneself afterwards

The Ordinance seeks to lay down under what scenarios an arbitrator would be considered as having a conflict of interest scenario with the parties to the dispute. Thus, instead of allegations of conflict cropping up later on and the arbitrator recusing himself, the law upfront states what is a conflict.

Where there is existence of a direct or indirect past or present relationship of the arbitrator either with any of the parties to the dispute or in relation to the subject matter of the dispute, then he must disclose such interest, in writing, before accepting appointment. The interest could be financial, business, professional or any other kind which is likely to give rise to justifiable doubts as to his independence or impartiality.

While a good part of this was already contained in the Act, the Ordinance seeks to provide the grounds which shall guide in determining whether or not circumstances exist which give rise to justifiable doubts as to his independence or impartiality. A long list of 34 such circumstances has been given, classified under the following grounds:

  • Arbitrator’s relationship with the parties to the dispute or their counsel
  • Arbitrator’s relationship to the dispute
  • Arbitrator’s direct or indirect interest in the dispute
  • Previous services for one of the parties or other involvement in the case
  • Relationship between an arbitrator and another arbitrator
  • Relationship between an arbitrator and counsel
  • Relationship between an arbitrator and parties to the dispute or their affiliates
  • Other circumstances.

This specific list of circumstances would remove any ambiguity as to whether or not there is any conflict of interest in a given case. If the arbitrator is of the view that there exist  circumstances of the type specified in the Ordinance, then the format in which the disclosure is to be made has also been laid down.

Magical Time limit for completion

Just as in the fairy tale, Cinderella had a time limit of getting home by 12 midnight, an  arbitration award must now be made within a period of 12 months from the date of reference to the arbitral Tribunal! The date of reference is the date on which all the arbitrators have received written notice of their appointment. Thus, there is a maximum period of 12 months to dispose of the arbitration. If the parties consent, the 12 months period can be extended by a maximum further period of 6 months. Any extension beyond 6 months cannot be granted by the parties.

After this extended period of 18 months, only the Court would have powers to extend the period or else the mandate of the arbitrators would terminate. While the intent is to speed up the process, this may actually retard the process. Lobbing the ball back to the Court would be a step backwards.

While granting the extension, the Court may substitute one or all of the arbitrators and if such a substitution does take place, then the substituted arbitrators would be deemed to have been  appointed from inception and the proceedings would continue from the stage where they  ended before the earlier panel of arbitrators. Further, the new arbitrators would have deemed to have received the evidence and material already on record. Is this not an extremely strange position? What if all the arbitrators are replaced and all evidence / witnesses / submissions  were already heard by the earlier panel? The new panel would be expected to pronounce its award without examining the witnesses, without hearing the submissions once again, etc. They would have to rely solely on the papers before them. All the best to the new arbitrators for jumping on to a running train.

Carrot and Stick approach for Arbitrators

Another novel concept introduced is the success fee and penalty clause for arbitrators. If the arbitrators complete an arbitration within 6 months from the date of reference (instead of the available 12 months), then they shall be entitled to such additional fees as the parties decide. Thus, there is an incentive for completing the job earlier. The law also presents a stick to the arbitrators. If the Court extends the arbitration beyond 18 months but while doing so finds that the delay is attributable to the arbitrator’s fault, then it may reduce the arbitrator’s fees by a maximum of 5% for each month of delay. Thus, if the Court is of the view that  the entire delay over 12 months was due to the fault of the arbitrator, then it may deduct 5% * 6 = 30% of the fees! Who wants to be an arbitrator is going to be the name of the new game!

Fast Track Procedure

One good concept is that of a fast track arbitration. If the parties agree then they can opt for this instead of the regular procedure. In this case, there may be a sole arbitrator who shall only admit written submissions. There would not be any oral hearings unless all the parties so  request or unless the arbitrator considers it necessary for certain clarifications. Technical formalities may also be disposed of by the arbitrator. However, the award must be made  within a period of 6 months from the date of reference. The model fees and maximum fees would not apply in the case of a fast track procedure.

Award against Public Policy

One of the grounds for setting aside an arbitration award by a Court is, if it finds that the  award is in conflict with the public policy of India. The Act provided that this was a general phrase which could have several grounds. It only stated that an award made by fraud or induced by corruption would be one of them. This gave an open field to the parties to challenge the award, thereby delaying the dispute resolution process.

The Ordinance has come out with an exhaustive and restrictive meaning of the term ‘conflict with the public policy of India’ as a ground for challenging an award. Only where making of the award was induced or affected by fraud or corruption, or it is in contravention with the fundamental policy of Indian Law or is in conflict with the most basic notions of morality or justice, the award shall be treated as against the Public Policy of India.

Conclusion

Internationally, an arbitration is usually completed within a year (even though it may not be a legal binding to do so). In India, arbitrations are nefarious for lingering on. In this scenario, when the time limit is set by law, is it helpful? While the idea behind the Ordinance is a noble one, that of speeding up and improving the quality of arbitration so as to lessen the load of the judiciary, one wonders whether the pill may in fact be worse than the ill!

Is this a knee-jerk reaction to improving India’s ease of doing business ranking or is it a well-thought out longterm strategy is something which time will tell. Has the Government unwittingly unleashed a double-edged sword, one which would speed up the arbitration process but may also reduce the number of arbitrators? It would be worthwhile to remember that those who live by the sword, often perish by it!!

Will – Execution Proof – Both attesting witnesses not alive – Evidence Act should receive a wider purposive interpretation: Evidence Act Section 68, 69.

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C. G. Raveendran & Ors. vs. C. G. Gopi & Ors. AIR 2015 Kerala 250

The plaintiffs and defendants were the children of late Govindan and Bhanumathi. Govindan died on 28/8/1994 and Bhanumathi on 18/5/2004. The plaint schedule properties belonged to Govindan. He had constructed a building therein and was residing there with his family till his death.

According to the plaintiffs, after the death of Govindan, the right to the properties have devolved on the plaintiffs and the defendants equally and they were entitled to inherit. However, the plaintiffs came to know about a registered Will allegedly executed by Govindan.

It was contended that the Will was a fabricated one and Govindan had no occasion to execute such a Will. During the period of execution of the Will, Govindan was mentally ill and was undergoing treatment for partial paralysis. He had not executed the Will and was allegedly executed under suspicious circumstances. Hence the suit was filed seeking a declaration that the Will was null and void and for a consequential partition of the properties.

The Court below on an evaluation of the oral testimony on the side of the plaintiffs and the oral evidence on the side of the defendants held that Will was validly executed by Govindan.

The Hon’ble Court observed that the above evidence had to be evaluated to decide the genuineness of Will. It is pertinent to note that Will is registered. In the absence of any serious challenge regarding registration, it must be presumed that the Will was registered after complying with all the statutory formalities. Registration of a Will is a piece of evidence confirming its genuineness and can confer it a higher degree of sanctity. There seems to be a consensus in the judicial pronouncements that, though there is no requirement that Will should be registered, but if registered, it adds to its authenticity.

Section 68 of the Indian Evidence Act, provides that if a document is required by law to be attested, it shall not be used as evidence until one attesting witness at least has been called for the purpose of proving its execution. In the present case, the attesting witnesses are Parameswaran and Padmanabhan Nair. Parameswaran himself was the scribe. There is no legal bar in scribe himself being an attesting witness, provided he has actually seen the executant signing or affixing his mark or has received a personal acknowledgment from the executant and has consciously affixed his signature as an attesting witness, as a token of having witnessed the executant signing or affixing his mark. Evidence should prove that the scribe, apart from being so, had signed for the purpose of testifying to the signature of the executant and had the animo attestandi.

It is on record that both the attesting witnesses are no more alive. Hence, section 68 of the Indian Evidence Act cannot apply. The provision that governs the field can only be the section 69 of the Indian Evidence Act. It deals with a situation wherein no attesting witnesses can be found. Though the Statute prescribes that section 69 applies when the witness is not found, in the absence of any other provision dealing with cases wherein the presence of witnesses cannot be procured for various other reasons, like death of both attesting witness, out of jurisdiction, physical incapacity, insanity etc. Section 69 should apply and can be extended to such cases. Hence, the word “not found” occurring in section 69 of Evidence Act should receive a wider purposive interpretation than its literal meaning and should take in situation where the presence of the attesting witness cannot be procured. This view gets its support from Venkataramayya vs. Kamisetti Gattayya (AIR 1927 Madras 662) and Ponnuswami Goundan vs. Kalyanasundara Ayyar (AIR 1930 Madras 770).

It is settled that mode of proving a Will does not ordinarily differ from that of proving any other document except as to the special requirement of attestation prescribed by section 63 of Indian Succession Act. Section 69 imposes a twin fold duty on the propounder. It provides that if no such attesting witness can be found, it must be proved that attestation of one attesting witness at least is in his handwriting and also that the signature of the person executing the document is in the handwriting of that person. Hence, to rely on a Will propounded in a case covered by section 69 the propounder should prove i) that the attestation is in the handwriting of the attesting witness and ii) that the document was signed by the executant. Both the limbs will have to be cumulatively proved by the propounder. Evidently, the section demands proof of execution in addition to attestation and does not permit execution to be inferred from proof of attestation. However, section 69 presumes that once the handwriting of attesting witness is proved he has witnessed the execution of the document. The twin requirement of proving the signature and handwriting has to be in accordance with section 67 of the Indian Evidence Act.

Press Note No. 3 (2015 Series) dated March 2, 2015

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Review of Foreign Direct Investment (FDI ) Policy on Insurance Sector – amendment to ‘Consolidated FDI Policy Circular of 2014’

With immediate effect, Paragraph 6.2.17.7 of the Consolidated FDI Policy Circular of 2014 dated April 17, 2014 has been amended as follows: –



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DIPP, Ministry of Commerce & Industry, Government of India

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Clarification of Press Note No. 10 of 2014

DIPP has issued the following clarifications, in FAQ form, with regards to Press Note No. 10 of 2014 pertaining to FDI in construction & development projects. The clarifications are as under: –


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A. P. (DIR Series) Circular No. 83 dated March 11, 2015

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Notification No. FEMA.335/2015-RB dated February 4, 2015

Acquisition/transfer of immovable property – Prohibition on citizens of certain countries

Presently, citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan are not permitted acquire or transfer immovable property in India, other than lease not exceeding five years, without the prior permission of RBI.

This circular has expanded the list by including therein, from February 25, 2015, citizens of Hong Kong & Macau since they are Special Administrative Regions of China.

Hence, now citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong or Macau are not permitted acquire or transfer immovable property in India, other than lease not exceeding five years, without the prior permission of RBI.

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A. P. (DIR Series) Circular No. 81 dated March 3, 2015

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Trade Credits for Imports into India – Review of all-in-cost ceiling

This circular states that the present all-in-cost ceiling for trade credits, as mentioned below, will continue till March 31, 2015: –

The all-in-cost ceiling will include arranger fee, upfront fee, management fee, handling / processing charges, out of pocket and legal expenses, if any.

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A. P. (DIR Series) Circular No. 93 dated April 1, 2015

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Export of Goods and Services – Project Exports

Presently, Exim Bank in participation with commercial banks in India can extend Buyer’s credit up to US $ 20 million to foreign buyers in connection with export of goods on deferred payment terms and turn key projects from India.

This circular has done away with the said limit of US $ 20 million. Hence, Exim Bank in participation with commercial banks in India can now extend Buyer’s credit without any limit to foreign buyers in connection with export of goods on deferred payment terms and turn key projects from India.

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A. P. (DIR Series) Circular No. 92 dated March 31, 2015

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Notification No. FEMA.339/2015-RB dated March 2, 2015, Operational guidelines on International Financial Services Centre (IFSC)

This circular states that a financial institution or a branch of a financial institution set up in an IFSC permitted/ recognised as such by the Government or a Regulatory Authority will be treated as person resident outside India and their transaction(s) with any person resident in India will be treated as a transaction between a resident and non-resident and will be subject to the provisions of Foreign Exchange Management Act, 1999 and the Rules /Regulations/Directions issued thereunder.

Further, subject to the provisions of section 1 (3) of Foreign Exchange Management Act, 1999, nothing contained in any other Regulations will apply to a financial institution or a branch of a financial institution set up in an IFSC unless there is some express and specific provision to that effect in the Foreign Exchange Management (International Financial Services Centre) Regulations 2015 or any other Regulation.

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A. P. (DIR Series) Circular No. 90 dated March 31, 2015

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Risk Management and Inter-bank Dealings: Revised Guidelines relating to participation of Residents in the Exchange Traded Currency Derivatives (ETCD) market

This circular has made the following changes in the guidelines relating to ETCD, as contained in Notification No. FEMA. 25/RB-2000 dated May 3, 2000 (Foreign Exchange Derivative Contracts) and A.P. (DIR Series) Circular No. 147 dated June 20, 2014, as under: –

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A. P. (DIR Series) Circular No. 85 dated March 18, 2015

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Non-Resident Deposits – Stat 5 and Stat 8 Returns – Discontinuation

This circular states that from March 2015 banks dealing in foreign exchange need not send Stat 5 and Stat 8 Returns (both hard and soft copies) to the Department of Statistics and Information Management, RBI.

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Powers to arrest – SEBI’s wide exercise curtailed by the Bombay High Court

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Background

a) In an earlier article in this column, certain recent amendments to the SEBI Act were pointed out. One amendment that was noteworthy was of the powers given to SEBI to arrest any person for having defaulted in paying certain dues to SEBI. The dues to SEBI could be of several types – on account of penalty, on account of amounts ordered to be disgorged or even on account of fees, etc. SEBI could arrest and send to prison such a defaulter. Such arrest did not even require a court order. A relatively junior official of SEBI could arrest and send such person to prison for such a period. However, this is subject to conditions on the lines of and indeed borrowed from the Incometax Act, 1961.

b) Recently, however, on 18th December 2014, SEBI exercised this power for the first time and arrested a defaulter and sentenced him to prison for six months. The arrested person had to file a writ petition and the Bombay High Court set aside this order and released him. He was in prison for more than two and a half months. As will be seen later, the power to arrest was exercised by misconstruing and misapplying the provisions, in an arbitrary manner and, as the Court held, quite illegally too. The only silver lining to this episode was that the pre-conditions for such arrest were duly highlighted by the Court and thus, in future cases, hopefully, these pre-conditions will be observed.

c) Let us discuss the law first, as amended, and thereafter the SEBI Order and then the decision of the Bombay High Court that set it aside.

2) The Law

a) SEBI collects dues from various persons on several accounts. It collects fees for registration, fees for carrying out activities under securities laws such as public issues, open offers, buybacks, etc. It also levies penalties. It disgorges ill-gotten gains. And so on. Some of such amounts are remitted to the Consolidated Fund of India i.e., to the central government. Most of the others are used by SEBI. A person from whom amounts are due on such specified accounts may default for various reasons. He may not have the money or he may have the money but avoids paying it. He may even transfer his assets to his relatives/benami persons or others to avoid recovery. SEBI has several powers to deal with such defaulters. It can attach assets of the defaulter and recover the dues. It can even prosecute such defaulters (which is totally different from the new power discussed here) in court which may sentence such person to jail. However, vide the Securities Laws (Amendment) Act, 2014, a fresh power was given to deal with such defaulters. Vide the newly inserted section 28A, a defaulter can be, inter alia, arrested and detained in jail. The relevant provisions of this section have been reproduced below (certain words are highlighted which need review since the Court relied on these words to release the arrested in the case under discussion):-

Recovery of amounts
28A. (1) If a person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any direction of the Board for refund of monies or fails to comply with a direction of disgorgement order issued under section 11B or fails to pay any fees due to the Board, the Recovery Officer may draw up under his signature a statement in the specified form specifying the amount due from the person (such statement being hereafter in this Chapter referred to as certificate) and shall proceed to recover from such person the amount specified in the certificate by one or more of the following modes, namely:—

(a) attachment and sale of the person’s movable property;
(b) attachment of the person’s bank accounts;
(c) attachment and sale of the person’s immovable property;
(d) arrest of the person and his detention in prison;
(e) appointing a receiver for the management of the person’s movable and immovable properties, and for this purpose, the provisions of sections 220 to 227, 228A, 229, 232, the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time, in so far as may be, apply with necessary modifications as if the said provisions and the rules made thereunder were the provisions of this Act and referred to the amount due under this Act instead of to income-tax under the Income-tax Act, 1961.

…

(4) For the purposes of sub-sections (1), (2) and (3), the expression ‘‘Recovery Officer’’ means any officer of the Board who may be authorised, by general or special order in writing, to exercise the powers of a Recovery Officer.

b) As can be seen, the Recovery Officer exercises the powers under this Section. The Recovery Officer is any officer of SEBI who is authorised to act as such. In the present case, he was an Assistant General Manager.

3) SEBI order
a) The facts as stated in the SEBI Order are as follows. Certain penalties were levied against a person (“the Defaulter”) in respect of two companies where he was a non-executive Chairman. The cumulative amount was about Rs. 1.65 crore. The Defaulter failed to pay despite reminders. His bank accounts, etc. were attached but the amounts available were grossly insufficient. SEBI asked such Defaulter to submit a plan to pay such dues but he could not submit. He was finally asked to appear before the Recovery Officer to submit such a plan or be arrested. He appeared and could not either pay the dues nor submit a satisfactory plan. He was arrested u/s. 28A and sent to prison by the Recovery Officer for six months or till he paid the dues.

b) Interestingly, the provisions of Section 28A can be exercised irrespective of the nature of the dues. That is to say, the dues can be for having committed some malpractices or could even be dues on account of unpaid fees to SEBI.

c) The Defaulter filed a writ petition before the Bombay High Court.

4) Bombay High Court Order
a) In the Writ Petition before the Bombay High Court, an initial point was made that the Writ Petition was not maintainable since the Defaulter had a right of appeal to the Securities Appellate Tribunal. However, considering the facts of the case and precedents on this point, this point was rejected and the WP allowed.

b) The Court analysed the prerequisites for making an arrest u/s. 28A as clearly laid down in the section. It pointed out that the specified provisions of the Income-tax Act, 1961 (and specified Schedules/ Rules made thereunder) would apply. A review of such Schedule/Rules showed that it is a pre-requisite for arrest that at least one of two conditions should be satisfied. The Defaulter should have sought to obstruct the recovery by dishonestly transferring, concealing or removing his property. Alternatively, he should have refused or neglected to pay the whole or part of the dues despite having property to meet the dues. Apart from establishing such facts, the Recovery Officer should also record the reasons, etc. for the proposed arrest. The Court observed several things. Firstly, it was not shown at all that either of the two pre-conditions. Secondly, no inquiry was made giving a fair opportunity to the Defaulter to establish this. Finally, the reasons for arrest giving existence of these pre-conditions were not recorded. The reasons were sought to be put forth in the reply which obviously the Court found it to be too little and too late. The Court analysed Rule 73 to 77 of Second Schedule to the Income-tax Act, 1961 and made the following observations for setting aside the SEBI Order:-

23. A perusal of aforesaid relevant provision indicates that Part V of Second Schedule provides a detail procedure which is required to be complied with when the Tax Recovery Officer resorts to the mode of arrest and detention. Needless to state that the mode of arrest and detention though not a punitive action, is a drastic step which infringes upon the liberty of   a person. Hence, recourse to such mode has to be necessarily in strict compliance with the provisions stipulated in Part V of second Schedule.

28.    A bare reading of the notice and the impugned orders makes it abundantly clear that the power of arrest has not been exercised in the manner and for the circumstances provided for in Rule 73(1). It is to be noted that Rule 73(1) confers power of arrest  and  detention  only  in two situations i.e. when the Tax  Recovery  Officer is satisfied  that
(i)    the defaulter, with the object or effect of any obstructing the execution of the certificate, has dishonestly transferred, property or (ii) despite having means the defaulter, refuses or neglects to pay the dues. Rule 73(1) further mandates the Tax Recovery Officer to record in writing the reasons of his satisfaction.

29.    In the instant case, the Tax Recovery Officer had not recorded his satisfaction with reasons in writing, as regards the existence of two situations, which are specified in Clause (a) of Rule 73(1). The Tax Recovery Officer has not detained and arrested the petitioner on the ground that he had transferred, concealed or removed any part of his property. The respondent had stated in the affidavit that upon issuance of the attachment orders, none of the banks have reported any accounts in the name of the petitioner, except Punjab National Bank at Mira Road (E) branch and only an amount of Rs.5160.82 was recovered by the respondent Board. By these averments, the respondent has sought to justify the arrest. Needless to state that having failed to record the reasons as regards existence of the situation in clause (a), the respondent cannot rectify the lacuna by stating the reasons in the reply.

30.    It is also not the case of the Respondent Authority that the petitioner had failed to pay to dues despite having means to pay the arrears or some substantial part thereof. On the contrary, a bare perusal of the impugned order reveals that the petitioner was detained and arrested for non¬payment of dues and further for not giving a proposal of payment

32.    In the light of the aforesaid principles, the Tax Recovery could not have ordered detention of the petitioner solely on the ground that he had failed to pay an amount or give the proposal.

33.    The authority of the respondent had therefore not arrived at a satisfaction that the conditions specified in clause (a) and (b) of Rule 73(1) were satisfied and had further not complied with the mandate of Rule 73(1) of recording the reasons of satisfaction in writing. The absence of satisfaction as well as recording of reasons vitiates the exercise of power of arrest. We are, therefore, of the considered view that the detention and arrest is patently illegal and arbitrary.

c)    Thus,  the  defaulter  was  forthwith  released  from prison. however, he was ordered not to leave the country during pendency of the proceedings and his passport was retained with the EOW. The recovery Officer could pass a fresh order after due compliance of the procedures and establishment of the conditions as stated in the law.

5)    Concluding Comments
a)    The Court thus has confirmed the essential pre- requisites for making such an arrest u/s. 28a. Arrest of a defaulter merely for not having paid dues would thus not be possible even if such dues were on account penalty for misdeeds.

b)    Having said that,  some  other  provisions  of  the  act need to be noted since they too may result in imprisonment. Firstly, attention is invited to section 24(1) of the SeBi act which states that violation of any  of  the  provisions  of  the act,  regulations,  etc. may result in a fine or imprisonment upto 10 years. However, this would obviously require due prosecution proceedings before the Court, demonstrating to the Court that such violations deserve imprisonment, etc. there is also section 24(2) which states that if a person on whom a penalty has been levied fails to pay the same, he can be sentenced to imprisonment from one month to 10 years. Here too, this can only be after due prosecution proceedings before the jurisdictional Court.

c)    However, it is sad and curious that, with due respect, though the Court emphatically held that the arrest was arbitrary and illegal, the defaulter had to suffer more than two months in jail. But he was not awarded any compensation or even the costs of the legal proceedings.

Nominee vs. Will: The Tide Turns?

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Introduction
The problems of inheritance and succession are inevitable especially in a country like India where many businesses are still family owned or controlled. Many a times bitter succession battles have destroyed otherwise well established businesses.

A Will is the last wish of a deceased individual and it determines how his estate and assets are to be distributed. However, in several cases, the deceased has not only made a Will, but he has also made a nomination in respect of several of his assets.

Nomination is something which is extremely popular nowadays and is increasingly being used in co-operative housing societies, depository/demat accounts, mutual funds, Government bonds/securities, shares, bank accounts, etc. Nomination is something which is advisable in all cases even when the asset is held in joint names. Simply put, a nomination means that the owner of the asset has designated another person in his place after his death. A question which often arises is which is superior – the will or the nomination made by the deceased member. While the position was quite clear that a nominee was not superior to the legal heir, a judgment rendered in the context of shares in a company had taken a contrary view. A recent decision of the Bombay High Court suggests that the tide has turned, or has it?

Effect of Nomination
The legal position in this respect is crystal clear. Once a person dies, his interest stands transferred to the person nominated by him. Thus, a nomination is a facility to provide the society, company, depository, etc., with a face which whom it can deal with on the death of a person. On the death of the person and up to the execution of the estate, a legal vacuum is created. Nomination aims to plug this legal vacuum. A nomination is only a legal relationship created between the society, company, depository, bank, etc., and the nominee.

The nomination seeks to avoid any confusion in cases where the will has not been executed or where there are disputes between the heirs. It is only an interregnum between the death and the full administration of the estate of the deceased.

Which is Superior?
A nomination continues only up to and until such time as the will is executed. No sooner the will is executed, it takes precedence over the nomination. Nomination does not confer any permanent right upon the nominee nor does it create any beneficial right in his favour. Nomination transfers no beneficial interest to the nominee. A nominee is, for all purposes, a trustee of the property. He cannot claim precedence over the legatees mentioned in the will and take the bequests which the legatees are entitled to under the will.

The Supreme Court in the case of Sarbati Devi vs. Usha Devi, 55 Comp. Cases 214 (SC), had an occasion to examine this issue in the context of a nomination under a life insurance policy. The Court held, in the context of the Insurance Act, 1938, that a mere nomination made 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.

The Supreme Court, once again in the case of Vishin Khanchandani vs. Vidya Khanchandani, 246 ITR 306 (SC), examined the effect of a nomination in respect of a National Savings Certificates. The issue here was whether the nominee of a National Savings Certificate can claim that he is entitled to the payment in exclusion to the other heirs. The Court examined the National Savings Certificate Act and various other provisions and held that, the nominee is only an administrative holder. Any amount paid to a nominee is part of the estate of the deceased which devolves upon all persons as per the succession law and the nominee must return the payment to those in whose favour the law creates a beneficial interest.

Again, in Shipra Sengupta vs. Mridul Sengupta, (2009) 10 SCC 680, the Supreme Court upheld the superiority of a legal heir as opposed to a nominee in the context of a nomination made under a Public Provident Fund.

The Supreme Court again reinforced its view on a nominee being a mere agent to receive proceeds under a life insurance policy in Challamma vs. Tilaga (2009) 9 SCC 299.

In Ramesh Chander Talwar vs. Devender Kumar Talwar, (2010) 10 SCC 671, the Supreme Court upheld the right of the legal heirs to receive the amount lying in the deceased’s bank deposit to the exclusion of the nominee.

In Gopal Vishnu Ghatnekar vs. Madhukar Vishnu Ghatnekar, (1982) 84 Bom LR 41, the Bombay High Court, observed, in the context of a nomination made in respect of a flat in a co-operative housing society, that the purpose of the nomination was to make certain the person with whom the Society has to deal and not to create interest in the nominee to the exclusion of those who in law will be entitled to the estate. The persons entitled to the estate of the deceased do not lose their right to the same. Society has no power, except provisionally and for a limited purpose to determine the disputes about who is the heir or legal representative, it, therefore, follows that the provision for transferring a share and interest to a nominee or to the heir or legal representative as will be decided by the Society was only meant to provide for interregnum between the death and the full administration of the estate and not for the purpose of conferring any permanent right on such a person to a property forming part of the estate of the deceased. The idea was to provide for a proper discharge to the Society without involving the Society into unnecessary litigation which may take place as a result of dispute between the heirs’ uncertainty as to who are the heirs or legal representatives. Even when a person was nominated or even when a person was recognised as an heir or a legal representative of the deceased member, the rights of the persons who were entitled to the estate or the interest of the deceased member by virtue of law governing succession were not lost and the nominee or the heir or legal representatives recognised by the Society held the share and interest of the deceased for disposal of the same in accordance with law. It was only as between the Society and the nominee or heir or legal representative that the relationship of the Society and its member were created and this relationship continued and subsisted only till the estate was administered either by the person entitled to administer the same or by the Court or the rights of the heirs or persons entitled to the estate were decided in the Court of law. Thereafter, the Society was bound to follow such decision.

The Bombay High Court reiterated its stand on a nominee being subordinate to a legal heir in its judgments in the cases of Nozer Gustad Commissariat vs. Central Bank of India, 1993 Mh LJ 228 and Antonio Joao Fernandes vs. Assistance Provident Fund Commissioner, 2010 (4) Bom. CR 208, both rendered in the context of provident fund dues. Decisions of the other High Courts which have taken similar views include, Leelawati Singh vs. State of Delhi, 1998 (75) DLT 694; Hardial Devi Ditta vs. Janki Das, AIR 1928 Lah 773; D Mohanavelu Mudaliar vs. Indian Insurance & Banking Corporation, AIR 1957 Mad 115; Shashikiran Ashok Parekh vs. Rajesh Agarwal, 2012 (4) MhLJ 370.

Thus,  the  legal  position  in  this  respect  is  very  clear. Nomination is only a legal relationship and not a permanent transfer of interest in favour of the nominee. If the nominee claims ownership of an asset, the beneficiary under the will can bring a suit against him and reclaim his rightful ownership.

Companies act – Nominee is superior
Section 109a of the Companies act, 1956, was added by the amendment act of 1999. Section 109a provided that any nomination made in respect of shares or debentures of a company, if made in the prescribed manner, shall, on the death of the shareholder/debenture holder, prevail over any law or any testamentary disposition, i.e., a will. thus,  in  case  of  shares  or  debentures  in  a  company, the nominee on the death of the shareholder/debenture holder, became entitled to all the rights to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner. In case the nominee is a minor, then the shareholder/debenture holder can appoint some other person who would be entitled to receive the shares/debentures, if the nominee dies during his minority. This position continues under the Companies act, 2013 in the form of section 72 of this act read with rule 19 of the Companies (Share Capital and debentures) rules, 2014. a similar position is contained in Bye Law

9.11 Made under the depositories act, 1996 which deals with nomination for securities held in a dematerialised format.

A Single judge of the Bombay high Court explained this proposition in the case of Harsha Nitin Kokate vs. The Saraswat Co-op. Bank Ltd, 112 (5) Bom. L.R. 2014. interpreting section 109a of the Companies act, 1956 and the depositories act, the Court ruled that the rights of a nominee to shares of a company would override the rights of heirs to whom property may be bequeathed. In other words, what one writes in one’s will would have no meaning if one has made a nomination on the shares in favour of someone other than the heir mentioned in the will. The high Court ruled that securities automatically get transferred in the name of the nominee upon the death of the holder of shares. the nominee is required to follow the  prescribed  procedure  in  the  Business  rules.  Upon the death of the holder of shares the nominee would be entitled to elect to be registered as a beneficiary owner by notifying the Bank along with a certified copy of the death certificate. The bank would be required to scrutinize the election and nomination of the nominee registered with it. Such nomination carries effect notwithstanding anything   contained   in   a   testamentary   disposition (i.e. Wills) or nominations made under any other law dealing with Securities. the last of the many nominations would be valid.

The Court referred to and noted the provisions of section 39 of insurance act and section 30 of the maharashtra Cooperative act also. it held that these are totally different from the Companies act. the key is the use of the word “vest” in the provisions of section 109a of the Companies act, 1956, which the court interpreted as giving ownership rights and not just custody rights as is the case for an insurance  policy  or  shares  of  a  housing  society.  the Bombay high Court distinguished the Supreme Court’s judgment in the case of Sarbati Devi vs. Usha Devi, 55 Comp. Cases 214 (SC) citing a difference in the language of the applicable law. Section 109a of the Companies act, 1956 provided that upon the death of a shareholder, the shares would “vest” in the nominee. A nominee became entitled to all the rights attached to the shares to the exclusion of all others regardless of anything stated in any  other  disposition,  testamentary  or  otherwise.  The Court concluded that the Legislature’s intent u/s.109a of the Companies act, 1956 and Bye Law 9.11 made under the depositories act, 1996 was very clear, i.e., to vest the property in the shares in the nominee alone.

A similar view was also endorsed by a Single judge of the delhi high Court in the case of Dayagen P. Ltd. vs. Rajendra Dorian Punj, 151 Comp. Cases 92 (Del).

This decision has caused a lot of heartburn since the entire succession law in the case of shares has been thrown for a toss. It may be noted that while the Companies    act deals with nomination in the case of physical shares the depositories act deals with nomination in the case   of demat accounts/shares held in dematerialised format. it is submitted that a Bye Law under the depositories   act does not carry the same force as a section of the Companies act. hence, it may be a moot point whether this distinction could in any manner salvage the situation?

A Twist in The Tale?
another  Single  judge  of  the  Bombay  high  Court,  very recently, had an occasion to consider the above provisions of the Companies act and the earlier decision of the Bombay  high  Court  in  jayanand  Jayant  Salgaonkar vs. Jayashree Jayant Salgaonkar and others, Notice of Motion No. 822/2014 in Suit No. 503/2014 decided on 31st March, 2015. The Bombay high Court after an exhaustive study of all the Supreme Court and Bombay high Court decisions on the subject of superiority of will / legal heirs over nomination, concluded as follows:

a)    The  earlier  decision  of  Harsha  Nitin  Kokate  vs. The Saraswat Co-op. Bank Ltd was rendered per incuriam, i.e., without reference to several binding Supreme Court and Bombay high Court decisions.

b)    It wrongly distinguished the Supreme Court’s decision in the case of Sarbati Devi vs. Usha Devi whereas the reality was that the ratio of that decision was applicable even under the Companies act, 1956.

c)    Neither the Companies act, 1956 nor the depositories act provide for the law of succession or transfer of property. They must be viewed as being sub-silentio (i.e., as being silent on) of the testamentary and other dispositive laws.

d)    If a nomination is held as supreme then it cannot be displaced even by a Will made subsequent to the nomination. this obviously cannot be the case.

e)    The nomination would even oust personal law, such as, mohammedan Law and become all-pervasive.

f)    The  nomination  under  the  Companies  act  is  not subject to the rigour of the indian Succession act in as much as it does not require witnesses as mandated under this act.  It  cannot  be  assailed  on  grounds  of importunity, fraud, coercion or undue influence. there  cannot  be  a  codicil  to  a  nomination.  In  short, a nomination, if held supreme, wholly defenestrates the indian Succession act. According to the judgment in harsha nitin Kokate, a nomination becomes a “Super-Will” one that has none of the defining traits of a proper Will.

g)    Thus,   a   nomination,   even   under   the   Companies act only  provides  the  company  or  the  depository  a quittance. A nominee only continues to hold the securities in trust and as a fiduciary for the legal heirs under Succession Law.

Legal Issues
The recent Bombay high Court judgment may come as great solace for those who were severely impacted by the judgment in the case of Harsha Nitin Kokate. However, it is humbly submitted that it also raises a few interesting legal issues?

Could  a Single judge hold the judgment of another Single judge of the same high Court to be per incuriam or would it have been more appropriate if this question had been referred to and decided by a larger Bench?

Kanga & Palkhivala, in their commentary, the Law and Practice  of  income  tax,  10th  edition,  Lexisnexis,  state that a single judge of a high Court cannot give a decision contrary to an earlier judgment of a single judge of the same high Court.

In CIT vs. BR Constructions, 202 ITR 222 (AP FB) it was held that a single judge cannot differ from the earlier judgments of co-ordinate jurisdiction merely  because  he holds a different view on the question of law for the reason that certainty and uniformity in the administration of justice is of paramount importance. But if the earlier judgment is erroneous or adherence to the rule of precedents results in manifest injustice, differing from an earlier judgment will be permissible. Further, a precedent ceases to be binding when it is inconsistent with the earlier decisions of the same rank or when it is sub silentio or when it is rendered per incuriam. The Court even held that though a judgment rendered per incuriam can be ignored yet when a Single judge doubts the correctness of an otherwise binding precedent, the appropriate course would be to refer the case to a division Bench for an authoritative pronouncement. It also referred to Salmond on jurisprudence which held that the mere fact that the earlier decision misconstrued a Statute is no ground for per incuriam.

A similar view has been taken by the division Bench of the Bombay high Court in CIT vs. Thana Electricity Supply Ltd, 202 ITR 727 (Bom) wherein the Court held that a single judge of a high Court is bound by the decision of another single judge of the same high Court. It would be  judicial  impropriety  to  ignore  that  decision.  judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked. If he does not find himself in agreement with the same, the proper procedure is to refer the binding decision and direct the papers to be placed before the Chief justice to enable him to constitute a larger Bench to examine the question.  the Bombay high Court took this its view based on a Supreme Court decision in the case of Food Corporation of India vs. Yadav Engineer and Contractor AIR 1982 SC 1302.

Conclusion
While one would like to believe that the position as explained by the recent Bombay high Court decision is the correct legal position in law, it would be interesting to see whether this decision is challenged before a larger forum? one feels that we may not have heard the last on the issue of nomination versus legal heirs in the context of shares in a company!

Registration –Agreement to sell – Not required to be compulsorily registered: Registration Act, section 17(1A):

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Swarnendu Das Gupta vs. Smt. Sadhana Banerjee AIR 2015 Calcutta 46

The plaintiff filed a suit against the defendant and the plaintiff in such suit prayed that a decree be passed under Specific Relief Act directing the defendant to execute the sale deed in respect of the suit property in terms of the agreement for sale dated 26-04-2006 entered in between the plaintiff and the defendant. The plaintiff also prayed for a decree directing the defendant not to disturb the possession of the plaintiff from the suit property. The trial court, after hearing the parties and considering the evidence on record, dismissed the said suit and directed the defendant to refund the earnest money. The trial court dismissed the said suit mainly on the ground that the agreement for sale is not a registered instrument and therefore the plaintiff is debarred from getting any relief in the said suit. The plaintiff filed another Appeal. The learned District Judge affirmed the view of the learned Trial Court that since the said agreement for sale is not a registered instrument, the plaintiff is not entitled to get any relief by virtue of the agreement for sale dated 26-04- 2006. The learned First Appellate Court was of the view that since the said agreement for sale is not a registered document as per the provisions of section 17(1A) of the Registration Act, 1908, the plaintiff is not entitled to get any decree.

The Hon’ble High Court observed that a document which happens to be an agreement for sale does not by itself confer any right, title and/or interest in favour of the proposed transferee and it is only a document by which the parties entered into an agreement to create a further document which is called a deed of conveyance. There cannot be any dispute that such deed of conveyance is required to be compulsorily registered if the value of the immovable property is more than Rs. 100/- but since the agreement for sale does not create any such right, title and/or interest, there is no such provision in law which mandates that the said agreement for sale will also have to be registered excepting in cases where section 17(1A) of the Registration Act, 1908 applies. The provisions of the Registration Act, would also clearly indicate that an agreement for sale is not required to be compulsorily registered.

The Court further observed that, section 53A of the Transfer of Property Act stipulates that when a transferee has, in part performance of contract, taken possession of the property or any part thereof or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of contract and the transferee has performed or is willing to perform his part of the contract then in that event the transferor is debarred from enforcing against the transferee any right in respect of such property.

The plaintiff accordingly, gets a decree of specific performance of contract against the defendant/respondent in respect of the suit property in terms of the agreement for sale dated 26-04-2006 and the defendant was directed to execute an appropriate sale deed in favour of the plaintiff/ appellant in respect of the suit property and in terms of the said agreement for sale dated 26-04-2006.

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Partnership – Rights of outgoing partner – Firm continued its business – Retired partner cannot claim share in subsequent profits made by firm: Partnership Act, 1932 section 37.

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Mrs. Halima Bai vs. Sparkle Ads – Firm, Chennai, AIR 2015 Madras 58.

The case of the plaintiff is that the first defendant is the partnership firm comprising of four partners i.e. the plaintiff and defendant nos 2 to 4 by virtue of partnership deed dated 03-04-1992. The partnership firm was engaged in advertising business and allied matters. Each of the partner has contributed a sum of Rs. 10,000/- towards share capital and the partnership was one at will. While so, the plaintiff expressed her willingness to retire from the partnership firm and sent letter on 17-01-1994. The said letter was acknowledged by the defendants 2 to 4 by letter dated 24-01-1994, confirming that the plaintiff was deemed to have retired from the partnership firm with effect from 18-01-1994. Though the plaintiff retired from the partnership firm, the existing partners reconstituted the deed of partnership and carried on their business. It was contended by the plaintiff that the partnership firm did not settle her accounts on retirement despite several demands and that she demanded to settle all her share in respect of transactions from 03-04-1992 to 18-01-1994, till the date of settlement of her dues. The plaintiff also had given break-up of the amounts that she is entitled to from the partnership firm

The suit was contested by the defendants who are the other partners on the ground that the plaintiff was acting detrimental to the interest of the partnership firm. It was further contended that the suit was not maintainable as the plaintiff only retired voluntarily from the partnership firm and the partnership firm was not dissolved as alleged by her.

The Hon’ble Court observed that u/s. 37 of the Partnership Act, the court can grant relief to outgoing partner who has not been made a final settlement and the partnership is carrying out of the business with the surviving partners and the court has jurisdiction to grant such relief based on the findings of the fact. In the instant case plaintiff partner has categorically stated that she voluntarily resigned from the firm. Therefore, she cannot be expected to claim profits of the partnership firm subsequent to her exit as there was no contribution from her side. Share of the partner would be his/her proportion of the partnership assets after they have been all realised and converted into money, all the partnership debts and liabilities have been paid and discharged. Liability to pay arises when the partnership firm is dissolved and the legal existence is taken away. After voluntary resignation of partner from firm even presuming that immovable assets purchased from the plaintiffs participation in the firms as a partner and admittedly the partnership firm was continuing the business even after the exit of the plaintiff, the retired partner can only demand her share, be it an asset or liability based on the value on the date of her exit and she cannot claim profits of the firm.

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A. P. (DIR Series) Circular No. 79 dated February 18, 2015

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Guidelines on Import of Gold by Nominated Banks / Agencies This circular clarifies the operational aspects of the guidelines on import of gold consequent upon the withdrawal of 20:80 scheme as under: –

1. The obligation to export under the 20:80 scheme will continue to apply in respect of unutilised gold imported before November 28, 2014, i.e., the date of abolition of the 20:80 scheme.

2. Nominated banks are now permitted to import gold on consignment basis. All sale of gold domestically will, however, be against upfront payments. Banks are free to grant gold metal loans.

3. Star and Premier Trading Houses (STH / PTH) can import gold on DP basis as per entitlement without any end use restrictions.

4. While the import of gold coins and medallions will no longer be prohibited, pending further review, the restrictions on banks in selling gold coins and medallions are not being removed.

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A. P. (DIR Series) Circular No. 78 dated February 13, 2015

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Risk Management and Inter Bank Dealings: Foreign Currency (FCY) – INR Swaps

Presently, eligible residents who have entered into FCY-INR swaps to hedge their exchange rate and / or interest rate risk exposure arising out of long-term foreign currency borrowing or to transform long-term INR borrowing into foreign currency liability are not permitted to rebook or reenter into the swap once it is cancelled.

This circular permits residents borrowing in foreign currency to re-enter into a fresh FCY-INR swap to hedge the underlying after the expiry of the tenor of the original swap contract that had been cancelled, in cases where the underlying is still surviving.

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A. P. (DIR Series) Circular No. 77 dated February 12, 2015

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Foreign Direct Investment – Reporting under FDI Scheme on the e-Biz platform

This circular states that on and from February 19, 2015 recipients of FDI can now file the following returns using the e-Biz portal with RBI: –

1. Advance Remittance Form (ARF) – used by the companies to report the foreign direct investment (FDI) inflow to RBI.

2. FCGPR Form – which a company submits to RBI for reporting the issue of eligible instruments to the overseas investor against the above mentioned FDI inflow.

This online reporting on the e-Biz platform is an additional facility provided to Indian companies to undertake their ARF and FCGPR reporting and the manual system of reporting will also continue till further notice.

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A. P. (DIR Series) Circular No. 76 dated February 12, 2015

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Foreign Exchange Management Act, 1999 – Import of Goods into India

This circular states that importers are henceforth not required to submit Form A-1 to their banks at the time of making payments to their overseas suppliers for imports into India. However, banks need to obtain all the requisite details from the importers so as to satisfy themselves about the bonafides of the transactions before effecting the remittance.

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A. P. (DIR Series) Circular No. 74 dated February 9, 2015

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Delay in Utilization of Advance Received for Exports

This circular requires banks to: –
1. Follow up with their exporter customers to ensure that export performance (shipments in case of export of goods), in cases where advances have been received for exports from overseas buyers, are completed within the stipulated time period.
2. Undertake proper due diligence so as to ensure compliance with KYC and AML guidelines so that only bonafide export advances flow into India. Doubtful cases and instances of chronic defaulters must be referred to Directorate of Enforcement (DoE) for further investigation.
3. Submit a quarterly statement indicating details of doubtful cases and chronic defaulters (as per Annex) to the concerned Regional Offices of RBI within 21 days from the end of each quarter.

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A. P. (DIR Series) Circular No. 73 dated February 6, 2015

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Foreign investment in India by Foreign Portfolio Investors This circular clarifies the queries received by RBI with respect to investment by Foreign Portfolio Investors (FPI). The queries and the respective clarifications are as under: –

a. Query: The applicability of the directions to investment by FPIs in commercial papers (CPs). Clarification: In terms of the aforesaid directions, any fresh investments shall be permitted in any type of debt instrument in India with a minimum residual maturity of three years. Accordingly, FPIs shall not be allowed to make any further investment in CPs.
b. Query: The applicability of these guidelines on debt instruments having maturity of three years and over but with optionality clause of less than three years. Clarification: FPIs shall not be allowed to make any further investments in debt instruments having minimum initial / residual maturity of three years with optionality clause exercisable within three years.
c. Query: The applicability of these guidelines on amortised debt instruments having average maturity of three years and above. Clarification: FPIs shall be permitted to invest in amortised debt instruments provided the duration of the instrument is three years and above.

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A. P. (DIR Series) Circular No. 72 dated February 5, 2015

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Foreign investment in India by Foreign Portfolio Investors

This circular permits, with immediate effect, Foreign Portfolio Investors (FPI) to invest in government securities the coupons received by them on their existing investments in government securities. These investments will be outside the current limit of US $ 30 billion available for investments by FPI in government securities.

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A. P. (DIR Series) Circular No. 71 dated February 3, 2015

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Foreign investment in India by Foreign Portfolio Investors

This circular clarifies that, with immediate effect, in case of investment by Foreign Portfolio Investors (FPI): –

1. All future investments within the limit for investment in corporate bonds will have to be in corporate bonds with a minimum residual maturity of three years.

2. All future investments against the limits vacated when the current investment runs off either through sale or redemption, will have to be in corporate bonds with a minimum residual maturity of three years.

3. No further investment can be made in liquid and money market mutual fund schemes.

4. There will be no lock-in period and FPI can sell the securities (including those that are presently held with less than three years residual maturity) to domestic investors.

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A. P. (DIR Series) Circular No. 70 dated February 2, 2015

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Notification No.FEMA.334/2015-RB dated January 9, 2015, Foreign Direct Investment in Pharmaceuticals sector – Clarification

This circular states that in terms of Press Note No.2 (2015 Series) dated January 6, 2015 a special carve out has been made for medical devices. As a result: –

a. 100% FDI is permitted in the manufacture of medical devices.
b. Conditions applicable to both green field as well as brown field projects in the Pharmaceuticals Sector will not be applicable to FDI in manufacture of medical devices.

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Coparcenary Property – Right of daughters – Daughter born prior to 9-9-2005 has right to file suit for partition: Hindu Succession Act section 6-

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Babu Dagadau Awari vs. Baby W/o Namdeo Lagad & Ors AIR 2015 (NOC) 446 (Bom) (HC)

The suit was filed by respondent No. 1 – Smt. Baby for partition of Hindu joint family properties and for possession of her share from the properties. The suit was filed in respect of four agricultural lands and three house properties.

The applicant/defendant No. 1 is the father of plaintiff. Defendant Nos. 2 to 4 are also daughters of present applicant. It was contended by the plaintiff that the suit properties are the ancestral properties though they are in the hands of defendant No.1. It was contended that, in view of amendment made in Hindu Succession Act, the plaintiff needs to be treated as coparcener along with defendant No. 1 and other defendants and she has right to claim partition and possession of her share.

The Court relied on the following observations made by this Court in case of Vaishali Satish Ganorkar and Anr. vs. Satish Keshaorao Ganorkar & Ors (2012) (3) Mh. L.J. 669 “14. It may be mentioned, therefore, that ipso facto upon the passing of the Amendment Act all the daughters of a coparcener in a co-parcenary or a joint HUF do not become coparceners. The daughters who are born after such dates would certainly be coparceners by virtue of birth, but for a daughter who was born prior to the coming into force of the Amendment Act she would be a coparcener only upon a devolution of interest in coparcenary property taking place.”

Thus, the Court held that plaintiff has right to file suit for relief of partition in respect of co-parcenary properties though she was born prior to 09-09-2005 and the trial Court had not committed any error in rejecting the application filed by the applicant. In the result, the application stands dismissed.

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Appeal – Abatement– Death of defendant during pendency of appeal – Failure to bring his legal representative on record – Appeal would abate against deceased defendant CPC, C.22 R. 4

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Naveen Shanker Lokure vs. Nascimento Milgares Pereira & Ors AIR 2015 (NOC) 156 (Bom) (HC)

The original plaintiffs namely Jose Francisco Pereira and his wife Ana Francisca Dias had filed the said suit for a declaration that they were exclusive owners in possession of the property allegedly purchased by the defendants no. 1 and 2 namely Shankar Krishnappa Lokure and Shivagundappa Krishnappa Lokure from the defendant no. 3, Aniquinha Maria Apolonia Dias.

By judgment and order dated 29/04/1999, the said suit was dismissed. Plaintiffs filed Regular Civil Appeal No. 70/1999 against the judgment and decree of the trial Judge.

The original defendant no. 3 had died during the pendency of the suit and her legal representatives, namely Mrs. Catherina Ana Dias, along with other legal representatives were brought on record, in the said suit. However, the legal representative Mrs. Catherina Ana Dias had also expired during the pendency of the suit on 23/09/1994. However, her heirs were not brought on record. However, since the husband of the said Mrs. Catherina, namely Francisco Rosario Dias was already on record, there was no abatement of the suit.

In the Regular Civil Appeal No. 70/1999, the deceased Mrs. Catherina Dias was, however, impleaded as the respondent no. 7, as if she was alive. During the pendency of the said Regular Civil Appeal, the husband of the said deceased Catherina Dias, namely Francisco Rosario Dias impleaded as respondent no. 6, died on 01/02/2002. The legal representatives of the deceased Francisco Rosario Dias were not brought on record, in the said Regular Civil Appeal No. 70/1999. Thus the Regular Civil Appeal No. 70/1999, has been decided against two dead persons.

The learned Senior Counsel for the plaintiffs submits that the plaintiffs were not aware of the death of the said parties. In the circumstances above, it appears that in the Regular Civil Appeal No. 70/1999, the decree is passed in ignorance of death of two of the defendants/respondents, the respondent no. 7 having died during the pendency of the suit and the respondent no. 6 having died during the pendency of the said appeal, due to which the appeal had abated against the dead persons.

The High Court observed that in Second Appeal against such a decree, the court cannot itself set aside the abatement nor can it affirm the decree passed by the lower appellate Court. The proper course in such a case is to set aside the ineffective decree passed by the lower appellate Court and remand the case to the court where abatement has taken place leaving the parties to take necessary steps to have the effect of abatement set aside if they so desire and if they can satisfy the Court that parties are entitled to get the abatement set aside under law.

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Appeal High Court – Stricture against Department – Direction to replace advocates in old matters – Otherwise High Court would dispose old matters in their absence

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Commissioner of Central Excise, Thane II vs. Milton Polyplas (I) P. Ltd. (2015) 318 ELT 47 (Bom.)(HC)

In the Central Excise Appeals, the Hon’ble Court noted that the system of filing of Appeals and arguing them has undergone a drastic change. Now, each Commissionerate exercises discretion and chooses to engage an Advocate from a list of Advocates, for representing them. Any such Advocate practicing in this Court and authorised by the concerned Commissionerate to file the Appeal, keeps track of the same and argues it. The vakalatnama to act, appear and plead on behalf of these Commissioners located at various places, thus emanates from the said Commissionerates. At several Commissioners’ offices, there is a legal cell headed by an Assistant Commissioner level officer and either he or the staff of such cell keeps track of the cases pertaining to that Commissionerate, in addition to the Advocate engaged by that Commissionerate.

The Court observed that on several occasions, there is no indication as to who will argue the Appeals on behalf of the Commissioners. It was informed that some nodal officers were present in Court. However, the court cannot take note of their presence. The court is concerned with the Advocates, who have been engaged and authorised to argue cases.

The Advocates regularly appearing before the court informed the Bench that the concerned Commissionerate has not taken any decision as to who should replace one Mr. T. C. Kaushik and thereafter argue the Appeal.

The Hon’ble Court further remarked that when complaints are made, that old matters are not being taken up and given priority, then, firstly the Revenue/State should put its house in order. There are many old matters pending and for more than 10 years that have serious revenue implications. In the circumstances, the court directed the registry to send a copy of this order to the Office of the Chief Commissioner, Central Excise and Customs of each Commissionerate. The Court further observed that the high level officers may apply their mind so as to enable the Court to take up the old Appeals for hearing and disposal. Immediate steps should be taken to replace the old Advocates or else the court will be constrained to dispose off the matters in their absence.

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A. P. (DIR Series) Circular No. 68 dated January 27, 2015

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Anti-Money Laundering (AML) standards/ Combating the Financing of Terrorism (CFT) Standards – Money changing activities

This circular states that the FATF has updated its Statement on the subject and document ‘Improving Global AML/CFT Compliance: on-going process’ on October 24, 2014. Authorized Persons and their agents/franchisees can access the statement/document on the following URLs : http://www.fatf-gafi.org/documents/documents/ fatf-compliance-oct-2014.html & http://www.fatf-gafi. org/topics/high-riskandnon-cooperativejurisdictions/ documents/public-statement-oct2014.html.

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A. P. (DIR Series) Circular No. 67 dated January 28, 2015

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Anti-Money Laundering (AML) standards/ Combating the Financing of Terrorism (CFT) Standards – Cross Border Inward Remittance under Money Transfer Service Scheme

This circular states that the FATF has updated its Statement on the subject and document ‘Improving Global AML/CFT Compliance: on-going process’ on October 24, 2014. Indian Agents and their sub-agents can access the statement / document on the following URLs : http:// www.fatf-gafi.org/documents/documents/fatf-complianceoct- 2014.html & http://www.fatf-gafi.org/topics/high-riskandnoncooperativejurisdictions/ documents/public-statementoct2014. html.

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A. P. (DIR Series) Circular No. 64 dated January 23, 2015

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External Commercial Borrowings (ECB) Policy – Simplification of Procedure

This circular has made the following changes in ECB procedures both under Automatic Route as well as Approval Route with immediate effect: –

1. Banks can now allow: –
a. Changes / modifications (irrespective of the number of occasions) in the draw-down and repayment schedules of the ECB whether associated with change in the average maturity period or not and / or with changes (increase / decrease) in the all-in-cost.
b. Reduction in the amount of ECB (irrespective of the number of occasions) along with any changes in draw-down and repayment schedules, average maturity period and all-in-cost.
c. Increase in all-in-cost of ECB, irrespective of the number of occasions.

However, banks have to ensure that: –
a. The revised average maturity period and / or allin- cost is / are in conformity with the applicable ceilings / guidelines.
b. The changes are effected during the tenure of the ECB.
c. If the lender is an overseas branch / subsidiary of an Indian bank, the changes will be subject to the applicable prudential norms.

2. Banks can also permit : –
a. Changes in the name of the lender of ECB after satisfying themselves with the bonafides of the transactions and ensuring that the ECB continues to be in compliance with applicable guidelines.
b. Cases requiring transfer of the ECB from one company to another on account of re-organisation at the borrower’s level in the form of merger/ demerger/amalgamation/acquisition duly as per the applicable laws/rules after satisfying themselves that the company acquiring the ECB is an eligible borrower and ECB continues to be in compliance with applicable guidelines.

These changes have to reported to RBI within 7 days of the change taking place in Form 83 and also highlighted in the covering letter. Also, these changes have to be reflected in the ECB 2 returns.

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A. P. (DIR Series) Circular No. 95 dated April 17, 2015

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Foreign Direct Investment (FDI) – Reporting under FDI Scheme on the e-Biz platform

This circular provides details of the financial aspects necessary for using the Virtual Private Network (VPN) accounts obtained from National Informatics Centre (NIC) by banks for accessing the e-Biz portal of the Government of India. This e-Biz portal is to be used for reporting of Advanced Remittance Form and FCGPR Form under the FDI scheme.

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A. P. (DIR Series) Circular No. 94 dated April 8, 2015

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Notification No. FEMA.340/2015-RB dated March 3, 2015 Press Note No. 3 (2015 Series) dated March 2, 2015 Foreign Direct Investment (FDI) in India – Review of FDI policy – Sector Specific conditions – Insurance sector

With immediate effect, Paragraph 6.2.17.7 of the Consolidated FDI Policy Circular of 2014 dated April 17, 2014 has been amended as follows: –

Consequential changes have been made in Paragraph 6.2.17.2.2(4)(i)(c) of the Consolidated FDI Policy Circular of 2014 dated April 17, 2014 as under: –

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SEBI to govern commodity contracts too – implications of this Finance Bill proposal

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A long awaited & major change proposed in the Finance Bill 2015, is the merger of law relating to commodity contracts with that of securities contracts. Even the regulatory bodies governing both types of transactions will be merged. Thus, Forward Contracts Regulation Act, 1952 (FCRA) is effectively to be merged with the SEBI Act and Forward Markets Commission to be merged with SEBI. At a first glance, the amendments proposed sound superficial. After all, the definitions of commodity derivatives, commodity contracts, etc. are almost the same under the proposed new scheme, and what is permitted and banned is also similar. So, is it old wine in a new bottle? However, on closer reading, one finds that the changes in law and its implications on commodity trading would be quite significant.

Background
It is interesting to see that SEBI and Securities Laws generally, relatively late-comers to financial markets, saw development in leaps and bounds. Securities Laws developed generally and specifically. Elaborate – perhaps too elaborate in places; law and systems have been put into place. These include regulations, a sophisticated intelligence gathering mechanism, a relatively transparent investigation, adjudicating and enforcement system, etc. In comparison, the law relating to commodity contracts, put into place more than six decades earlier, looked almost ancient. This is despite having huge quantity and volumes in commodity trading.

The turnover on commodity markets is huge, even with the existing relatively rudimentary regulatory structure. The turnover on national commodity exchanges was nearly Rs. 1.80 crore crore during 2013. That is nearly half the turnover on equity markets.

The objective of commodity markets may be different from equity markets. The crop grower, for example, looks up to plan and even hedge his produce, decide what he will produce, what he will sell, when he will sell, what he will store, etc. The buyer too looks at it to decide his output pricing, his product mix, what and how much he will buy and when, how much he will store, etc.

However, perhaps one another reason for the hesitation in making major changes in law was the sensitivity to commodity trading since food crops also happened to be a significant part of commodity trading volumes. Speculation, price manipulation, hoarding, etc, was feared to play havoc to livelihood of farmers and consumers. However, finally, the realisation seems to have sunk in that the answer to that is not keeping hands off, or worse, a relatively poor set of ancient regulations under an ill-equipped regulatory body. The better recourse is to modernise and update the law. Or, as the law makers have chosen, merge it with a body that already has much expertise and infrastructure in a field that is in many ways quite similar to commodity contracts.

The recent massive scam in National Spot Exchange Limited exposed this regulatory gap like never before. What was even more interesting is that many of the players here were also brokers, investors, etc. who operated in the securities markets as well. The practices followed in the spot exchange were also similar. The only difference was that the rules of the game and the regulatory bodies were different. The scam and the subsequent unfolding of facts later showed how inadequate were the law and the systems.

Existing Law
The existing law relating to commodity derivatives was mainly contained in Forward Contracts Regulation Act (FCRA) and rules made thereunder. The governing body is Forward Markets Commission (FMC). FCRA itself has not seen many changes, the last change in 1970 (contrast that with the continuous amendments over the years in SEBI Act). However, significant details are given the Rules, Circulars, Notifications, etc. issued under that Act. Major amendments were sought to be made to give FMC more powers and include several provisions in law that were similar to provisions in Securities Laws. However, the changes could not be finally put in place.

In the existing FCRA, terms like forward contract, ready delivery contract, goods, options, ready delivery contract, etc, are defined. Commodity exchanges regulate the sale and purchase of “goods” and there is a system & criteria for their recognition/registration by the FMC/Central Government. There is a ban/restriction on forward contracts for which the object is to route them through the exchanges. Though drafted in a fairly broad way, there are brief clauses that prohibit making of false statements relating to forward contracts, price manipulation in forward contracts, etc. and provide for their punishment by way of forfeiture, fines and prosecution.

Broadly, the essence and scheme is similar with the Securities Laws such as SEBI Act, Securities Contracts (Regulation) Act (SCRA), and related laws. What is also apparent is the nature of commonality between commodity contracts/derivatives and contracts in securities. The system, the nature of contracts, and even the mathematical sophistication involved in their valuation are quite similar. It makes sense, therefore, that a body having such expertise governs both. The proposal in the 2008/2010 proposed amendments was to create a parallel body and law for commodities that would be quite similar to that under securities laws. Having said that, there are important differences too, warranting special treatment for commodity contracts, which will be discussed later.

Proposals under the Finance Bill, 2015
Part II and III of the Finance Bill, 2015 propose many changes. These are, as will be seen later, merely enabling and do not immediately bring about the change. The changes will come into effect from a date to be notified. The FCRA is sought to be repealed. FMC will be merged with SEBI. The SEBI Act and SCRA will be amended to include certain definitions relating to commodity contracts/ derivatives. Existing commodity markets/associations will become at par with stock exchanges. And so on.

However, it will be a full year before which they will come into effect, and maybe even longer. During this period, SEBI is expected to develop the necessary regulatory base specific to commodity contracts, adapt if needed some of existing law and systems, get the commodity markets/associations change their bye laws and systems to the extent needed similar to existing stock exchanges, etc.

Implications for the law
Clearly, the next one year (and I expect it will be more than a year considering the huge task ahead) would be very busy for SEBI and the commodity regulators/associations. SEBI may appoint one or more Committees to look into the matter and suggest appropriate regulations and/or modification in existing regulations for commodity markets. Model bye laws and similar provisions for commodity markets may be developed and existing commodity associations would be asked to change their bye laws or adapt their existing bye laws, etc. It is possible that considering some specialised aspects of commodity markets, a separate department may be formed.

There are many similarities between commodity contracts and contracts in securities. There are ready delivery contracts for commodities that are treated with less regulations just like spot delivery transactions for securities. The forward contracts and their valuation too have substantial mathematical and structural similarities. Their manipulations too have similarities.

However, there are substantial differences too. Securities are different from commodities in many ways. Commodities are mined, grown, processed, etc. they may have seasonal variation and limited or periodical supplies. they may be renewable or they may be not. they are eventually meant to be usually consumed. Commodities fall into numerous categories and their producers and consumers often fall into very distinct and non-homogenous categories. Many of these differences may eventually need to be reflected into not just the law regulating them but even in the structuring of their contracts. At the same time, considering that most commodities already have a track record of trading and existing well accepted contracts as well as their regulation, the process would not be so much from scratch. In most cases, it may be aligning to a large or small extent the existing contracts and systems into the new scheme. Still the job ahead is large.

The existing regulatory scheme for securities markets are tailor made for capital market operators/intermediaries. there are regulations for companies and listing, intermediaries like brokers/merchant bankers, etc, for mutual funds/alternate investment funds, etc. While there are some lessons to be learnt from these regulations, it is quite clear that commodity market specific regulations would have to be formulated for entities operating there.

Existing regulations for control of malpractices and/or for ensuring fairness are also substantially specific/unique to securities.  The  takeover  regulations  for  example  would have  no  relevance  for  commodity  markets.  the  insider trading regulations too may have very little commonality, if at all, with commodity markets (though curiously the earlier Bills did make provisions for insider trading). Similarly, buyback regulations, corporate governance, etc. would not have relevance. however, the regulations relating to unfair, fraudulent, manipulative practices may be quite relevant though it would need substantial adaptation for commodity markets. perhaps relatively sophisticated and directly applicable  set  of  regulations  would  be  the  regulations relating to adjudication and punishment of violations. The system for investigation, issuing show cause notices, giving a fair hearing, applying certain  well  accepted  principles for levy of penalty or other adverse actions ought to be substantially and directly applied o commodity markets too. So would the regulations relating to settlement by consent orders and compounding.

Implications for Chartered Accountants and other Professionals
This change offers both a new challenge and opportunity for Chartered accountants. Securities laws have welcomed the services offered by Chartered accountants in several ways. Be it audits, advisory, valuation, inspection and investigation, Chartered accountants have the requisite skills and expertise to provide these services. Commodity contracts and markets are likely to become more developed as well as more complex in laws. CAS will have an active role to play in their audits, in valuation, in tax and advisory, in compliance, reporting, and so on.

Conclusion
One might be tempted to argue that SEBI has not wholly removed malpractices in securities markets, even though it has over the years become very powerful. Insider trading  is said to be rampant, price manipulation and scams keep occurring, Satyam happened despite some of the best legal and corporate governance practices in place, etc. So question is while the most recent move will put a very large new market under SEBI it will inevitably make the law very complex. However, clearly, there have been substantial changes  in securities laws whose benefits, tangible or intangible, are  being  seen.  The  number  of  cases  where  violations have been detected and penalties levied is increasing. as perhaps a mark of the sturdiness of the investigation and adjudication process, as all of the law, the decisions of SeBi that are overturned on appeal are also lesser. Thus, in the short term as well as the long term, it would be fair to expect a similar improvement in commodity markets. Eventually, we ought to also see a developed law relating to commodity contracts/markets.

Stamp Duty Ready Reckoner

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Introduction Stamp duty is a significant cost which must be reckoned while entering into an immovable property transaction. Stamp duty is also the second most important source of revenue for the Maharashtra Government. The Maharashtra Government earns a revenue of around Rs. 20,000 crore from stamp duty, second only to VAT . Maharashtra has the distinction of covering maximum instruments within the ambit of the stamp duty net.

Stamp Duty in Maharashtra is leviable on every instrument (not transaction) mentioned in Schedule I to the Maharashtra Stamp Act, 1958 (“the Act”) at the rates mentioned in that Schedule. An Instrument as defined under the Act includes every document by which any right or liability is created, transferred, limited, extended, extinguished or recorded.

Under the Act, stamp duty on instruments relating to immovable property may be levied on any one of the following three basis :

the Fair Market Value of the property;

the Consideration mentioned in the instrument; or

the Area of the property involved.

Duty on certain instruments is on the basis of consideration recorded in the instrument or market value of property, whichever is higher. The term “market value” is defined under the Act to mean the higher of :

the price which the property covered by the instrument would have fetched if sold in an open market on the date of execution of the instrument; or

the consideration as stated in the instrument. The instruments where stamp duty is levied on the higher of the consideration or Fair Market Value are as follows:
Conveyance
Lease Deed
Gift deed
Transfer of lease
Development Rights Agreement
Power of Attorney granted for consideration and authorising to sell an immovable property
Power of Attorney which is for development rights
Trust deed
Partition deed
Release deed
Partnership deed – if the capital contribution is brought in by way of property
Dissolution/retirement deed – if a partner who did not bring in a property takes it on dissolution/retirement
Settlement deed
Instrument of Exchange of property

Section 32A of the Act read with Rule 4 of Bombay Stamp (Determination of True Market Value of Property) Rules, 1995 empowers the Joint Director of Town Planning and Valuation to prepare an Annual Statement of Average Rates of market value for different types of immovable properties situated in every tahsil, municipal corporation or local body area. Pursuant to this, the Joint Director of Town Planning and Valuation prepares an Annual Statement of Average Rates of market value for different types of immovable properties situated in every tahsil, municipal corporation or local body area. This Statement is prepared for a Calendar Year, i.e., 1st January to 31st December of every year and it remains in force for the entire year. The Statement is popularly known as the “Ready Reckoner”. While working out the Average Rates of land and buildings for the Ready Reckoner, the concerned officers are required to take into account the established principles of valuation and any other details that they deem necessary.

Hence, the Ready Reckoner is applicable for the valuation of immovable properties in case of certain instruments.

Ready Reckoner
The Ready Reckoner for Mumbai city divides Mumbai City/Suburbs into various `Village’ numbers and Names. Each Village is further sub-divided into Zones & Sub-Zones. Each Sub-Zone has different Cadastral/City Survey Numbers for various properties.

The Reckoner gives the market values for 5 different types of properties, namely:

Shops/Commercial
Offices
Industrial Property
Residential Property
Developed Land

There are 9 steps to using the Ready Reckoner which are as follows :

(i) F ind the Village Number and Village Name in which the property is located
(ii) A scertain the Zone and the Sub-Zone
(iii) F ind out the CTS No. of the property
(iv) D etermine the type of property, e.g., Residential, Office, etc.
(v) Calculate the Built-up Area of the Flat/Office.
(vi) F ind out the Market Value for the type of Property
(vii) A scertain if there are any Special Factors as prescribed in the Reckoner
(viii) M ake the prescribed Adjustments to the Market Value
(ix) T he Market Value of the Property for Stamp Duty purposes = Adjusted Fair Market Value Rate * Builtup Area of the Property

It is essential to note that the fair market values given in the Ready Reckoner are per square metre of Built-up Area. Hence, the area of the flat must also be converted from square feet to square metre and must be expressed in terms of the Built-up Area. The Reckoner calculates the Built-up Area as Carpet Area * 1.20. The Carpet Area in common parlance means the wall-to-wall area of the flat, whereas the Built-up Area also includes the area of the walls. In addition, there is the concept of Super Builtup /Saleable/Loading Area which is very popular amongst the Builders. It means the Built-up Area plus the pro-rata area for common facilities such as lift, lobby, staircase, passage, etc. It is very important to bear in mind that the stamp duty valuation is neither on the basis of the carpet area nor on the basis of the saleable/super builtup area. It is the built-up area alone which is relevant for this purpose. The conversion rate from sq. metre to sq. feet is 1 Sq. Mtr. = 10.764 Sq. Ft. The Maharashtra Flat Ownership Agreement Act, 1963 now makes it mandatory to mention the carpet area in the Agreement. Hence, arriving at the built-up area is a factor of 20% over the carpet area. However, if the built-up area is mentioned in the Agreement, then that alone must be considered. In cases where only saleable area is mentioned, it may be worthwhile to obtain a Certificate of the Carpet Area from a valuer or from the Municipal Tax Bills.

One of the Special Factors on account of which an adjustment is to be made is whether the building in which the property is located has a lift. Depending upon the number of floors in the building and the fact whether or not the building has a lift, an increase or decrease must be made in the value of the property.

Another adjustment is to be made on account of depreciation. The Reckoner prescribes different depreciation rates based on the age of the property. The lowest rate is Nil for a 2 year old structure and the highest depreciation rate is 70% for a structure which is 60 years old or more. Depreciation is calculated on the adjusted fair market value of the property as given in the Reckoner. The stamp authorities insist upon the proof of the age of the building before allowing the claim of depreciation. Some of the proofs relied upon are the Building Occupation Certificate (OC), Municipal Assessment, etc.

The example given below illustrates the method of calculating the fair market value of a residential flat by using the Ready Reckoner. The facts are as follows :

(i) R esidential Flat at Nepean Sea Road
(ii) The Carpet Area of the flat is 1,800 sq. ft.
(iii) T he Building was constructed in 1976 (38 years old) and it has 15 Floors.
(iv) The Agreement Value of the flat is Rs. 10.50 crore and the stamp duty on the basis of the Agreement Value @ 5% comes to Rs. 52.50 lakh.

The  fair  market  value  calculation  would  be  done  as under :
Village name and number : malabar hill & Khambala hill – no. 7
Zone/Sub-zone : 7/61 CTS no. of plot – 1/ 600
Built-up area of flat : carpet area 1,800×1.2  = 2,160 sq.ft
= 2,160/10.764 = 200 sq. mtr.
Built-up area rate/sq. mtr. : Rs. 8,50,100 depreciation as per table : 40%
add for lift : 10%
Basic   rate   +   10%   for   lift   (-)   40%   depreciation   : rs. 5,61,066 area (sq.mtr)    : 200 sq. mtr.
Value as per reckoner : Rs. 11.22  crore agreement Value    : Rs. 10.50 crore
Value for levying duty – higher of two Values:  Rs. 11.22 crore
Stamp duty on reckoner Value    : Rs. 56.10 lakh
Stamp duty on agreement Value    : Rs. 52.50 lakh
higher Stamp duty due to reckoner :Rs. 3.60 lakh

Closed garages or parking spaces under stilts are valued at 25% of the rate applicable to flats in that zone. Open (to sky) parking spaces are valued at a rate equal to 40% of developed land rate in that zone.

The  ready  reckoner  also  lays  down  the  method  of valuation of tenanted property. the accepted method of valuation  is  the  rent  Capitalisation  method.  there  are two methods of valuation depending upon whether the tenanted  area  is  less  than  the  fSi  available  or  equal to  or  more  than  the  FSI available.  Further,  in  case  the tenants are given any alternative accommodation, then an adjustment is required to be made for the same.  For instance, where tenanted area is equal to/more than FSI available, the valuation of the property is 112 times the monthly rent. however, this concessional valuation method is only available in case of those properties where there is documentary evidence of tenancy for 5 years or more  or  at  least  since  30th  march  2000.  The  tenancy proofs  considered  are  ration  Card,  tenancy  receipt, municipal tax Bills in name of tenant, telephone bills, etc.

The  ready  reckoner  Values  may  give  absurd  results in the event there is a fall in the property values in a particular  year.  For  instance,  under  the  current  ready Reckoner the value of all Office premises in a certain area at  nariman  point  is  Rs.  48,120  per  square  foot.  While some buildings may be able to command such prices, not all buildings and within them not all offices can get such an astronomical price!

Of late, there is a new trend in the reckoner. the same CTS  no.  appears  in  two  different  zones  of  the  same village with different rates for the same CTS no. to give an example, in the Colaba division, there is one CTS no. which has a rate of Rs. 6,13,100/square metre and also a rate of Rs. 3,44,700 per square metre, i.e., a variation of more than 170%! there are several such duplications in the reckoner. What does one do in such a scenario – adopt the lower of the two rates? the registrar’s answer is very clear – adopt the higher of the two rates!!

The average increase in the rates in the 2015 reckoner over the 2014 is 10%. thus, while the State Government has brought down the stamp duty rates to a maximum of 5%, it is increasing the reckoner rates every year.

Valuation of Development Agreements
A recent feature in the Ready Reckoner is a specific valuation  mechanism  for  development   agreements  or DAS. under a DA, a land owner grants a right to a developer to enter upon his land and develop the same. the  consideration  for  the  same  may  consist  of  one  or more or a combination of the following modes:

(a)    DA for Money – where the consideration paid by the developer is money. In this case, the valuation for stamp duty is straight forward since it is akin to  a  transfer  of  land  and  the  reckoner  rates  for developed land would be applicable.

(b)    DA for Area Sharing – where the consideration by the developer consists of built up area in the property under development. thus, under this case, the land owner would give a da of certain portion of the land retaining the balance area. on this balance area, the developer would carry out a construction for the owner. In this case, the valuation for stamp duty gets complicated. In cases of da with area Sharing, one question which always arose when working out the land owner’s taxation was that, how should the consideration be valued? Some decisions have held that the cost of construction of the building on the owner’s portion of the land should be treated as  the sale consideration – NS Nagaraj[TS-744- ITAT-2014 (Bang)].

The  Bombay  high  Court,  in  cases  of  Prabha  Laxman Ghate vs. Sub Registrar and Collector of Stamps, AIR 2004 Bom. 267 and Chandrakant B. Nanekar vs. State of Maharashtra, PIL No. 54 of 2011, has held that in a da with Area Sharing where flats are constructed by the developer on the owner’s land area, it is clear that there is no transfer of property or interest in property by the owner in favour of the developer. All that is provided is that the developer shall develop the property and reserve for the owner certain flats on the said property. The owner, therefore, continues to be the owner of the flats, which are reserved for him on his own land. Therefore, there was no question of the owner being called upon to pay stamp duty on such flats. The State Government has issued a Circular dated 1st March 2014 to the same effect.

accordingly, in the case of a da with area Sharing, the reckoner now provides for a valuation mechanism which adopts the higher of the following two values as the valuation:

(i)    Construction cost of land owner’s area; plus monetary consideration, if any, to the owner. in case any deposit is paid to the owner, then interest on the same must be considered @ 10% p.a. or a higher rate, if expressly provided in the DA.

or

(ii)    Area for which da given to developer * rate for developed land under the reckoner

In  working  out  the  above  values,  fungible  FSI  allowed under  the  development  Control  regulations  should  be added and fungible FSI premium payable for the same should be reduced. further, development fees payable by the developer to the BMC should be added in valuing the construction cost of land owner’s area.

Further, if the developer were to retain any flats/offices/ shops for his own personal use under a da, then from the market value of such premises based on the reckoner, the cost of construction  of  the  new  premises  would  be reduced. only the balance would be leviable with stamp duty.

(c)    DA for Revenue Sharing – where the consideration to the owner consists of a share in the revenue earned by the developer from selling the property. Under this case, the land owner would give a DA  for the entire land and receive a share of the gross revenue. In this case, the valuation for stamp duty also gets complicated and is explained below.

In the case of a DA with revenue Sharing, the reckoner provides for a valuation mechanism which adopts the higher of the following two values as the valuation:

(i)    Owner’s share as per allowable use as on date as per today’s selling price * 0.85; and monetary consideration, if any, to the owner.  In case  any deposit is paid to the owner, then interest on the same must be considered @ 10% p.a. or a higher rate, if expressly provided in the DA.

or

(ii)    Full area for which DA given to developer * rate for developed land under the reckoner.

Importance of Stamp Duty valuation
The  Stamp  duty  valuation  of  an  immovable  property  is increasingly becoming important also as a reference point under various other laws:

(a)    Section 50C of the income-tax act states that if the sale consideration  received for transfer of a land  or building or both, held as a capital asset, is less than the value adopted for payment of stamp duty, then the value adopted would be deemed to be   the sale consideration. in this context, the decision of the Kolkata itat in the case of Chandra bhan Agarwal, [2012] 21 taxmann.com 133 (Kol. iTAT) rendered in the context of fair market value u/s. 50C is very appropriate to our case:

“….The expression ‘fair market value’, in relation to any immovable property transferred, means the price the immovable property would ordinarily fetch on sale in the open market on the date of execution of the instrument of transfer of such property. The fair market value is the best price which vendor can reasonably obtain in the circumstances of the particular case and what is required to be done  for the ascertainment of such market value is to ascertain the price which a willing, reasonable and prudent purchaser would pay for the property. In ascertaining that, all factors having any depressing or appreciative effect on the value of the property have to be taken into account ….. The value of    a property cannot be stated in an abstract form and it varies from time to time and can only be stated with reference to so many factors, i.e., the locality, situation, general appearance in the area, availability of shopping and marketing facilities, condition of public ways and transportation, availability of utilities, and many other things. …….
The provisions of section 50C, in the present context, state the  fair  market  value  and  value  is estimation of a probable price of the property, i.e., the deeming fiction. The deemed value is to be ascertained and for that, as discussed above, section 50C has postulated certain conditions. In the instant case, the fair market value estimated by DVO has been challenged as DVO’s report has no basis, because it has not discussed any  of the factors, such as locality, situation, general appearance in the area, availability of shopping and marketing facilities, conditions of public ways and transportation, availability of utilities etc. and etc. The DVO’s report is a cryptic one, and the assessment is based on value as assessed by Registrar and that also on the basis of additional stamp duty asked for. …………..  In this case,  the DVO has not ascertained any market value which a willing, reasonable and prudent purchaser would pay for this property. Even the DVO has not considered the factors having any depressing or appreciative effect on the value of the property.”

Thus,  the  ITAT  has  very  clearly  stated  that  even  the valuation must consider all value depressing factors.

(b)    Similarly, section 43Ca of the income-tax act provides that if the sale consideration received for transfer of a land or building or both, held as stock- in-trade, is less than the value adopted for payment of stamp duty, then the value adopted would be deemed to be the sale consideration.

(c)    If an individual or an huf gets any immovable property without consideration, the stamp duty value of which exceeds Rs. 50,000 then the stamp duty value would be treated as his income u/s. 56(2). Similarly, if he buys any immovable property for a consideration which is lower than the stamp duty valuation by Rs. 50,000 or more, then the difference would be treated as the income of the buyer.

(d)    The  maharashtra  Vat act  levies  Vat  for  builders under the Composition Scheme @ 1% of the value adopted for payment of stamp duty or the agreement value, whichever is higher.

(e)    The property tax is levied based on the Stamp duty ready reckoner Valuation.

(f)    The final nail in the coffin is the Fungible FSI Premium payable to the BMC under the development Control regulations.  It is calculated as a percentage of the reckoner Value of the property.

Thus,  the  reckoner  value  is  becoming  an  increasingly important source of revenue not just for the Stamp Office but also for other revenue departments.  it is one arrow which Kills Six Sparrows!

Conclusion
Several Supreme Court and high Court decisions have held  that  the  ready  reckoner  Valuation  is  not  binding on the assessees and it is at best a prima facie guideline for  valuation.  inspite  of  that  the  registration authorities insist  upon   following  the  reckoner  with  the  result  that the property buyer has no option but to pay or litigate. an added consequence of this is now that the property seller could also end up paying tax on deemed income in respect of the property sold by him. hence, the reckoner is a very dangerous sword in the hands of the State Government which needs to be wielded with great discretion or else   it runs the risk of playing havoc in property transactions. the decision of the allahabad high Court in the case of Praveen Kumar Jain [TS-10-HC-2015(All)] against steep and  arbitrary  increases  in  the  Stamp  duty  reckoner values is an eye opener in this respect:

31.    The steep and mechanical increase or decrease in circle rates makes the life dearer. In a country where more than 35% population is below the poverty line, the power conferred by Stamp Act to provide circle rate for the purpose of minimum evaluation of property to ascertain stamp duty increases the living cost where the citizen    is the ultimate sufferer. In a welfare society, the District Magistrate or the Collector does not have got power to discharge their obligation mechanically without assigning reason, more so where the citizens have to pay from their pocket with regard to sale and purchase of property.

32.    In a welfare State, the Government is supposed to act or work in a just and fair manner and people should not be burdened to pay stamp duty by increase of circle rate every year mechanically. It should not be forgotten that the essential requisite for the levy of stamp duty by the State is the existence of an instrument evidencing a transaction by the citizens. The transaction is convened to the instrument whereby property is transferred. The provision does not seem to confer a power to increase stamp  duty  mechanically  to  generate  revenue   by  the State.

33.    Once a circle rate is provided after making necessary exercise in pursuance to Rules (supra), there appears to be no reason to revise it mechanically, that too without taking note of the ground realities and the poverty ridden society. …………
Life should not be made overburdened by swift change of law/circle rate to generate fund without utilising the available resources honestly with fairness to the last penny. Moreover, the purpose of Stamp Act does not seem to generate revenue as regular source of revenue like tax statutes and other alike enactments.

Decision must be conscious keeping in  view  the ground financial capacity/problem of the commoners or lower and middle class of society who constitute the bulk of the country.

….To sum up, while issuing the circular or order in pursuance to Stamp Act read with 1997 Rules(supra) framed thereunder, it shall be obligatory on the part of the Collector/District Magistrate to assign reason and do necessary exercise in view of Rule 4 read with Rule 5 of the Rules to ascertain necessity to increase or decrease circle rate. Since the impugned order does not contain any reference to the exercise done with reference to Rule 4 read with Rule 5, it does not seem to be sustainable and violative of statutory mandate.

34.    It appears that the Collectors/District Magistrates all over the State changed the circle rates mechanically without taking a note of the legal proposition discussed hereinabove, which does not seem to be justified.  It shall be appropriate that the Chief Secretary/Principal Secretary, Revenue should circulate the present judgment to all the District Magistrates/Collectors for future guidance during the course of revision of circle rates. Henceforth, circle rate shall not be revised except keeping in view the observation made in the body of present judgment.”

In conclusion, we may repeat the words of india’s former prime minister Dr. Manmohan Singh:

“I think as far as black money in real estate is concerned, unfortunately that is a reality and one way out of this would be to lower the stamp duties,…… stamp duties in the country are a big obstacle to cleaning the mess with regard to transactions in real estate…”

Is anybody listening?

Procedure of Enquiry (Continued) – Part III Shrikrishna

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Procedure of Enquiry (Continued) – Part III Shrikrishna

(S) — Oh Arjun. You are coming just now? I was about to leave.

A — Sorry. I was held up in the income tax office. S — So late in the evening? Surprising! Government officers have become so sincere?

A — N o. This is the result of not working sincerely when they should have worked. Now scrutiny assessments are getting timebarred. So they make us dance!

S — But that is upto 31st of March. Isn’t it?

A — Y es. But sometimes some ‘special work’ remains. That needs to be completed in April.

S — A nyway. You wanted to know something about disciplinary proceedings.

A — Y es. That my friend has sent a reply to the Institute. I mean, to Director-Discipline.

S — N ow, as I told you, it will be sent to the complainant. He will write a rejoinder. After that, the disciplinary directorate will decide whether the respondent – that means your friend – is prima facie guilty or not.

A — T hat much you told me last time. I want to know how the enquiry is conducted.

S — See, if you are prima facie guilty, you are again given an opportunity to submit your explanation to the prima facie opinion. Then you are called for enquiry.

A — I s it always at Delhi? S — I t depends. Usually the Disciplinary Committee (‘DC’) or Board of Discipline (‘BOD’) holds a camp of one or two days in all major cities by rotation.

A — Y ou mean, they go to various places with all the records?

S — Y es. Mumbai, Ahmedabad, Chennai, Bengaluru, Kolkata etc. They carry all the records. Their staff members also travel with the members of DC or BOD.

A — O h!

S — T he record they carry is massive! Nothing is left in the regional offices. It is totally centralised.

A — O K. How do they hold an enquiry?

S — See. If it is a First Schedule offence, it is before BOD.

A — Who are on BOD?

S — P resident, another Central Council Member (CCM) and a Government nominee. Two members form a quorum.

A — And DC?

S — D C deals with offences covered under Second Schedule or when there are offences under both the Schedules. I t consists of 5 members. President, 2 CCMs and 2 Government nominees. Quorum is of three. But at least one Government nominee’s presence is a must. That is not so for BOD.

A — Complainant is also present?

S — Yes. He and his counsel also, if any.

A — But what if complainant does not come?

S — Still, the enquiry is conducted.

A — Do they give adjournments?

S — Y es. But only once! You cannot repeatedly seek time unlike your tax proceedings.

A — R espondent also can take a counsel?

S — O f course, yes. He can be a lawyer or a CA or a CS or ICWA member.

A — What do they ask?

S — Firstly, all the parties present are asked to identify themselves. E verything is tape recorded. You have to speak into the mike.

A — O h! Everything is in English?

S — Y es. But sometimes, parties do not know English; or cannot speak in English. Then they can speak in Hindi or another language, which needs to be translated.

A — I see.

S — T hen, Complainant and Respondent are put on oath. The BOD and DC have the powers of a Civil Court. So they can administer oath. The complainant is asked to read out the charges. The Committee asks questions to the complainant to define the charges.

A — A nd what if the complainant is not there?

S — T hen, the Administration does that job.

A — T hen?

S — T hen the Respondent is asked whether he has understood the charges. After that, he is asked whether he pleads guilty or he denies the charges and would like to defend himself.

A — O bviously, he will try to defend himself. S — Sometimes, the guilt is so patent and self-evident that it is pointless to defend. The BOD or DC members appreciate if you candidly accept the guilt. That helps in softening the punishment.

A — T ell me the punishments again. You had told me once, but I forgot.

S — F or First Schedule item, the punishment is one or more of the following three: A reprimand or fine not exceeding Rs. 1 lakh and/or suspension of membership for a maximum period of 3 months.

A — A nd for Second Schedule offence?

S — A gain one or more of the three. A reprimand or maximum fine upto Rs. 5 lakh, and/or suspension of membership for any length of time.

A — O h! My God!

S — A rjun, now I am in a bit of a hurry. I will explain the further part when we meet next.

A — A s you please, Lord!

S — Tathaastu !

NOTE: This dialogue is based on the procedural rules contained in Chartered Accountants (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007 published in official Gazette of India dated February 28, 2007 (‘Enquiry Rules’).

levitra

Stay on Recovery – Appeal filed before first Appellate Authority – Stay Application pending – Recovery of the amount by attaching the bank account not justified: Central Excise Act, 1944.

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Patel Engineering Ltd. vs. UOI 2015 (315) ELT 533 (Bom.)

The
Revenue proceeded to recover the entire amount by attaching the bank
account towards demand on account of service tax and penalty even though
the stay application was pending.

The grievance of the
Petitioner is that though an appeal has been filed before the
Commissioner of Central Excise (Appeals) against an order of
adjudication and even the stay application was pending, the Revenue
proceeded to recover the entire amount by attaching the bank account.
This action was purportedly taken in pursuance of a circular dated 1st
January 2013 of the Central Board of Central Excise and Customs.

The
Court observed that the circular has been considered and has been dealt
with in a judgment of this Court in Larsen & Toubro Limited vs.
Union of India (2013) (288) ELT 481 (Bom) wherein the court observed as
under:

“….The impugned circular dated 1 January 2013 mandating
the initiation of recovery proceedings thirty days after the filing of
an appeal, if no stay is granted, cannot be applied to an assessee who
has filed an application for stay, which has remained pending for
reasons beyond the control of the assessee. Where however, an
application for stay has remained pending for more than a reasonable
period, for reasons having a bearing on the default or the improper
conduct of an assessee, recovery proceedings can well be initiated as
explained in the earlier part of the judgment…..”

The court
further observed that there was no reason or justification on the part
of appellate authority to keep the stay application pending and take
recourse to coercive remedies under the law.

The law laid by the
Court on the interpretation of the circular of the Central Board of
Central Excise and Customs would bind all authorities who are subject to
the jurisdiction of this Court. In this case, we are of the view that
the court directed the appeal which has been filed by the Petitioner, to
be disposed of expeditiously by the Commissioner of Central Excise
(Appeals) within a period of four weeks of the date on which an
authenticated copy of this order is produced on the record.

The
Court further directed that henceforth the controlling authority shall
issue a circular to all the authorities within his jurisdiction that the
directions contained in the judgment of this Court in Larsen &
Toubro Limited (supra) shall be duly observed.

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Document not compulsorily registerable– Irrevocable Power of attorney – Relating to transfer of immovable property is liable for compulsory registration- Registration Act, 1908, section 17(1)(g).

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Jai Kumar vs. Hanuman & Ors. AIR 2015 Rajasthan 24 The petitioner plaintiff Jai Kumar through his power of attorney holder brother Yogesh Chandra filed a suit for declaration and permanent injunction against the respondent defendant. When during the course of statement by the power of attorney holder Yogesh Chandra the power of attorney given by the plaintiff – Jai Kumar was sought to be exhibited, an objection was raised that the power of attorney was neither registered nor the same bear requisite stamp duty and therefore, the same was inadmissible in evidence.

In reply, it was contended that the document was not required to be registered and as the power of attorney was executed at Qatar before the Indian Embassy and requisite fee amounting to 75 Qatari Riyals was paid, the same was sufficient in terms of sections 32 and 33 of the Indian Registration Act, 1908 (`the Act’).

The trial court came to the conclusion that the power of attorney was required to be compulsorily registered u/s. 17(1)(g) of the Act and as the same was not registered, u/s. 49 of the Act, the same was inadmissible.

The Hon’ble Court observed that a bare look at the said provision reveals that the power of attorney relating to transfer of immovable property should be `irrevocable’ for the same to be liable for compulsory registration.

The power of attorney nowhere indicates that the same was irrevocable. The requirement of applicability for provision of section 17(1)(g) of the Act, i.e. the power of attorney must be irrevocable, not being present in the document, it cannot be said that the same was compulsorily registerable.

The trial court without considering the said aspect has presumed the power of attorney as irrevocable, which presumption on face of it is incorrect and as such the said finding cannot be sustained.

So far as the objection raised by learned counsel for the respondent regarding deficient stamp duty is concerned, the submission has substance. The document and the receipt alongwith the document, does not indicate payment of any stamp duty on the said power of attorney. The amount of 75 Qatari Riyals said to have been paid by the plaintiff Jai Kumar cannot be said to be a payment of stamp duty.

Even otherwise, under the provisions of section 20 of the Stamp Act, even if a stamp duty has been paid in another State and the document is brought within Rajasthan, the document is chargeable with the difference of duty in case the duty to be paid is higher and the duty should have been already paid on the document `in India’.

In that view of the matter, even if, any payment has been made by the Petitioner at Qatar, which though cannot be termed as payment of stamp duty, and the Power of Attorney is liable to payment of stamp duty under article 44 of the Schedule attached to the Stamp Act.

The document was, therefore, liable to be dealt with by the trial court u/s. 39 read with sections 37 and 42 of the Stamp Act for determination and payment of deficient stamp duty.

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Probate of Will – Will though not probated, that does not prevent vesting of property of deceased in executor-Succession Act, 1925 section 211,213.

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In the case of Subodh Gopal Bose, AIR 2015 Calcutta 27

One Subodh Gopal Bose, was the owner of substantial properties, both movable and immovable. He died on 1st August, 1975 after having made and published his last will and Testament dated 8th July 1975 leaving behind as his only legal heirs, his wife Kamala Bose, and four daughters. Who are the beneficiaries under the said Will and Testament? Kamala Bose expired in 1977. Gita Dutta, one of the daughters, expired in June 2012. The present petition has been filed by Dipak Sarkar in his capacity as the executor of the will and Testament dated 28th April 2012 made and published by Gita Dutta. Application for grant of probate of the said will of Gita Dutta is still pending.

Vesting of property of deceased in executor does not take place as a result of probate. On the executor accepting his office, the property vests in him and the executor derives his title from the Will and becomes the representative of the deceased even without obtaining probate. The grant of probate does not give title to the executor. It just makes his title certain. U/s. 213 of the Indian Succession Act, the grant of probate is not a condition precedent to the filing of a suit in order to claim a right as an executor under the Will. The vesting of right is enough for the executor to represent the estate in a legal proceeding. The right of action in respect of personal property of the testator vests in the executor on the death of the testator. S/s. 211 and 213 of the said Act have different areas of operation. Even if the will is not probated that does not prevent the vesting of the property of the deceased in the executor and consequently, any right of action to represent the estate of the executor can be initiated even before the grant of probate.

The present petitioner has made this application in his capacity as executor of the last will and Testament of Gita Dutta. However, no Court of competent jurisdiction has granted probate of such will as yet although application for such probate may be pending. As such, the present petitioner cannot exercise any right as executor of the will of late Gita Dutta.

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Precedent – Judicial Discipline – Conflicting decisions by CESTAT Benches – Appropriate Course for the second Bench is to refer the matter to the Larger Bench: Central Excise Act, 1944.

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CCE, Mumbai vs. Mahindra and Mahindra Ltd. 2015 (315) ELT 161 (SC)

There is a conflict of opinion between two Benches of the Customs, Excise and Service Tax Appellate Tribunal.

Since two Benches of the same strength of Members have taken two conflicting views, that judicial discipline requires that instead of disagreeing with the view taken by the First Bench, the appropriate course for the second Bench would have been to refer the matter to a Larger Bench. This is the basic requirement of judicial discipline. Since this has not been done, the orders were set aside and remand both the appeals back to the Tribunal and directly the President to constitute a larger bench of three Members to decide the issue.

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Co-operative Societies – Charge on immovable property of Member borrowing loan – Society to get charge recorded in record of rights: Maharashtra Co-op Societies Act, 1961, section 48.

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Gajanan Eknath Sonan Kar vs. Shegaon Shri Agrasen Co-op. Credit Society Ltd. Buldana & Anr. AIR 2015 (NOC) 163 (Bom.)

The appellant plaintiff purchased, admeasuring 2 acres by registered sale deed dated 19-04-2002 from Raju Gopikisan Rathi. Before purchasing the property, he had ascertained, by all known methods, the saleable interest of the vendor. He had verified 7/12 extract when he purchased the land in the year 2001-02 but there was no charge mentioned in the said 7/12 extract. The vendor Raju Gopikisan Rathi on 17-06-2002, i.e. after the execution of sale deed in favour of appellant, mortgaged the said property with respondent No.1 Credit Co-op. Society, which granted him loan by mortgage of the said property without verifying whether he had sold the property to the appellant. Raju Rathi was member of respondent No.1 Credit Co-op. Society since he obtained the loan but the appellant had no concern with the said society. Obviously, because he had purchased it even before it was mortgaged. The appellant plaintiff issued a notice on 27-08-2012 u/s.164 of the MCS Act and filed suit on 10-09-2012, i.e. before the expiry of two months period for perpetual injunction u/s. 38 of the Specific Relief Act against respondent No. 1 Society and claimed injunction against Society for attachment of suit property. Respondent No. 1 Society, i.e. defendant No.1 therein, filed an application with a prayer to dismiss the suit for non compliance of section 164 of the MCS Act. The application was heard and the trial Judge allowed the said application and dismissed the suit.

The Hon’ble Court observed that it is thus clear from the above facts that the mortgage was made two months after the sale deed was executed and actually mutuated on 25- 11-2003 in the revenue records. Therefore, the appellant was not at all aware about the future course of action which Raju Rathi had decided to adopt after execution of sale deed. He is, therefore, at all not concerned with the mortgage made with the respondent No. 1 Credit Society. What is relevant is the entry of charge and the date thereof in the revenue record of the Govt. and not in the office of the society. At any rate, mere filing of application for loan on 14-12-2001 cannot be said to be charge u/s. 48 and Rule 48(5) of the Act and the Rules.

A careful reading of section 48 of the MCS Act and Rule 48 of the Rules framed thereunder, establishes that for knowledge to the people at large about the charge over immovable property or for claiming protection of section 48 of the Act, it would be mandatory for the society to get the charge on immovable property created or recorded in the record of rights maintained by the village officers of the village where the property is situated. Sub-rule 5 clearly says that if such charge is shown in the record of rights the same shall be treated as a reasonable notice of such charge created u/s. 48. Therefore, unless and until there is compliance of these two provisions, namely section 48 and Rule 48(5), the people at large cannot be expected to know about the charge, if any, on immovable property. In other words, if a society wants to claim protection or benefit of section 48 of the MCS Act, the same can be obtained only from the date the charge is actually recorded in the record of rights and not otherwise. I hold that provisions of section 48 and Rule 48(5) are mandatory in nature for a cooperative society if a cooperative society wants to claim benefit/protection of the said provisions.

It is well settled legal position of interpretation that when a similar expression is used in different places in a statute, it carries the same meaning unless contrary intention is disclosed. The institution of the suit claiming perpetual injunction to protect the civil right of the appellant qua the suit property cannot be said to be either an `act’ touching the business of the society even for that matter, `dispute’ touching the business of the society. It must always be construed that the `act’ touching the business of the society means `legal’ act for attracting the provision of section 164 of the Act. The act of the society in mortgaging the suit property which was already sold to the appellant who was not even a member of the society cannot fall in the definition of section 164 of the Act. Therefore, the provisions of section 164 will have no application in addition because the plaintiff wants to exercise his independent civil right.

The Respondent No. 1 Society is unnecessarily harassing the appellant/plaintiff without even bothering to look that the fault clearly lay with the respondent No. 1 Society in not taking the search report in respect of execution of sale deed in favour of the appellant on 19-04-2002 as against the charge being recorded in the revenue records on the suit property on 25-11-2003 for the first time. The respondent No.1 society is not at all justified in harassing the appellant when he has innocently and bona fidely and with all care, caution and circumspection purchased the suit property. Respondent No.1 should be saddled with exemplary costs payable to the appellant in the sum of Rs.10,000/-.

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A. P. (DIR Series) Circular No. 63 dated January 22, 2015

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Notification No. FEMA331/2014-RB dated December 16, 2014] Export and Import of Indian Currency

This circular now permits individuals from India visiting Nepal or Bhutan to carry currency notes of Rs. 500 and / or Rs.1,000 denominations, up to Rs. 25,000.

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A. P. (DIR Series) Circular No. 101 dated May 14, 2015

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Export of Goods and Services- Declaration of Exports of Goods/Software

This circular states that in case of exports through the EDI ports declaration of export of Goods/Software in the SDF is not to be made as the necessary details are included in the Shipping Bill format.

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A. P. (DIR Series) Circular No. 98 dated May 14, 2015

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Foreign Currency (Non-Resident) Account (Banks) (FCNR (B)) Scheme

This circular clarifies that A2 Form is not required to be filled at the time of remittance of FCNR (B) funds. Also, to ensure hassle free remittance of funds to the account holder, banks, with the help of technology, will have to devise better alternatives/methods for ensuring bonafides of the transaction and not insist on physical presence of the account holder.

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DIPP – Circular F. No. 5(1)/2015-FC-1 dated the 12th May, 2015

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Consolidated FDI Policy

The DIPP has released the Consolidated FDI Policy on May 12, 2015. This circular subsumes and supersedes all Press Notes / Press Releases / Clarifications / Circulars issued by DIPP, which were in force as on May 11, 2015 and reflects the FDI Policy as on May 12, 2015. However, Press Note 4 of 2015, dated April 24, 2015, regarding policy on foreign investment in pension sector, will remain effective. This Circular will take effect from May 12, 2015 and will remain in force until superseded in totality or in part thereof.

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A. P. (DIR Series) Circular No. 97 dated April 30, 2015

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Merchanting Trade to Nepal and Bhutan

This circular states that, since Nepal & Bhutan are land locked countries, goods consigned to the importers of Nepal and Bhutan from third countries under merchanting trade from India would qualify as traffic-in-transit, if the goods are otherwise compliant with the provisions of the India-Nepal Treaty of Transit and Indo-Bhutan Treaty of Transit respectively.

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DIPP Press Note No. 5 (2015 Series) dated April 27, 2015

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Streamlining the Procedure for issue of Industrial Licenses

Presently, the initial validity of Industrial License for Defence Sector is 3 years, extendable to 7 years.

This circular has increased the initial validity of Industrial License in the Defence Sector to 7 years, further extendable up to 3 years. This change will be applicable to all existing as well as future Licenses.

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