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For complete text of the Notification visit: http://www.mca.gov.in/Ministry/pdf/Circular_11-2011 _7apr2011.pdf
Section 394A of the Companies Act 1956 requires Central Government [powers delegated to Regional Directors] to prepare report on schemes involving arrangement, mergers, amalgamation, etc. of companies for its submissions to Court. Recently, MCA has issued Circular No. 1/2014 dated 15 January 2014 requiring Regional Directors to also seek the representation of the Income-tax Department and/or other sectoral regulators while preparing the aforesaid Report. The learned author in this article explains the new requirements in the Circular, their impact on the schemes and comparison with the existing requirements under the provisions of the Act/ Rules and Companies Act, 2013.
New prescriptions
Mergers have just got a little more complicated and even more time consuming than earlier. Yet another round of notices/objections by statutory authorities have been added to even otherwise a fairly long existing list. Now, the Ministry of Corporate Affairs (MCA) requires that the Regional Director should invite, in certain cases, objections to a scheme of amalgamation/arrangement, etc. (Schemes) from other regulators like Income-tax department, SEBI, RBI, etc. – refer circular number F. No. 2/1/2014 dated 15th January 2014.
Abuse of Schemes
Mergers, demergers, schemes of arrangements/ reduction, etc. have often been used, with the incidental or even main object to circumvent various laws, avoid taxes, window dress accounts, etc. Carried forward losses may be made available to other profit making companies to help reduce their taxes. Reserves otherwise not “free” become so after such schemes. Items of expenditure/losses that should have gone to reduce profits are debited to reserves. The rules relating to listing of shares on stock exchanges may also be sought to be bypassed. Even shareholders’ wealth have been found to be expropriated by schemes such as that for forced buybacks of shares and so on.
The impression – and this is only partly correct – is that the ‘scheme’ing parties are often able to convince the court that, since shareholders/creditors have duly approved the scheme and that there is nothing wrong on the face of the scheme, it should be approved. The court is also sought to be persuaded that its role is limited in such cases and, particularly when the interested parties have not objected before the court, the court should sanction the Scheme. Belated objections are also sought to be rejected.
Interestingly, existing provisions for sanction of such schemes already require a series of approvals under direct supervision of the high court. This is without considering several specific approvals/clearances/filings required under other laws. The schemes almost always require approvals of shareholders/creditors at meetings conducted under court’s supervision. Depending upon the type of scheme, a detailed audit is required to be carried out by a specially appointed auditor. A notice has to be served to the Regional Director seeking his comments, on behalf of the Central Government. Finally, the Court has to sanction the scheme. Often, this ends up being a bureaucratic nightmare with the petitioners having to run from the proverbial pillar-to-post to expedite things.
To add to this, now, the MCA has added yet another window of delay and objections from multiple authorities. Let us understand what the new requirement is.
New requirement of inviting objections from other regulators including income-tax authorities
As stated above, a notice has to be served, as required by section 394A, on the Regional Director (RD) of the proposed scheme. The RD acts for this purpose on behalf of the Central Government. The Court is required into consideration the representations, if any, of the RD.
Other regulators/departments such as the Incometax department usually do not have a direct role in the proceedings though of course they may still object directly to the court. Such other regulators/ departments may of course also convey their views to the RD.
However, it was recently found,by the MCA (so the circular states), that the RD ‘did not project the objections of the income-tax department’ in a particular scheme. Considering this, certain obligations have been placed on the RD.
It is now prescribed that the RD should do two things. Firstly, when it receives such a notice of scheme u/s. 394A, it has to invite specific comments from the income-tax department. If no comments are received within 15 days of receipt of communication from the RD, the RD may presume that the Income-tax department has no objections.
Secondly, the RD should also examine the scheme to consider whether feedback from other sectoral regulators should be obtained. If yes, a similar opportunity should be given to them. Though not named, it appears that comments of regulators like SEBI, RBI, etc. may be invited in appropriate cases. It is quite possible that in practice, the RD may routinely send the scheme to various regulators for their comments.
What should the RD do if comments are received? Does it merely forward them like a post office? The answer is, generally, yes. The RD is not required to decide on the correctness or otherwise of the comments and rightly so. However, the RD is still given some discretion. If it has ‘compelling’ reasons to doubt the correctness of the comments, then it is required to make a reference to the MCA. The MCA, in turn, will take up the matter before the concerned other Ministry before taking a final decision on what approach to take before the Court.
Needless to emphasise, the individual regulators/ departments are free to appear directly before the court and make their objections.
However, the objections/comments of the regulators/ departments are binding on the court. The court has wide power and discretion to examine the specific objections on their merits and may accept or reject the same.
Impact on Schemes
In theory, it may appear that the new requirement is beneficial and does not create any fresh hurdle or delay. It ensures that that the interests of various stakeholders whom the regulator represents are taken into account. The 15-days period for submissions of comments may not, in practice, really add to the overall time taken for attaining sanction of the court. The court would also have the benefit of all views before sanctioning the scheme. The applicants may also have to worry less of regulators raising objection later when irrevocable steps of implementing the scheme may have been taken.
In practice, however, it is quite likely that this would add to the delay and possibly make the matter more litigious. Often, a scheme may involve serious tax implications. It will have to be seen whether the Income-tax department promptly replies with all its detailed objections in 15 days. What would happen if the income-tax department (or other regulator) seeks extension of time?
Interestingly (as also discussed later), there already exist specific requirements for inviting comments from certain authorities. For example, in case of certain schemes involving listed companies, the draft scheme has to be filed with the stock exchange 30 days in advance during which they may give their comments. Courts have held that if the stock exchange does not respond within 30 days, the scheme does not have to be held up and the court may still go ahead and sanction it. Thus, it is possible that the parties may represent before the court to go ahead and consider the scheme in case of delay in receipt of comments. Granting of time to a regulator is at the discreation of the court however in practice it is quite likely that extension of time will be granting resulting overall delay particularly in complex cases. One has also to remember that the delay may come from any of the various regulators/department to whom the RD has sent notice.
Existing requirements of approval/NOCs, etc.
As stated earlier, the new requirement is in addition to the several existing requirements by various authorities/regulators. In fact, there is a contradiction in approach in several provisions. On the one hand, several provisions give exemption if the restructuring is carried out through the court route. The SEBI Takeover Regulations, for example, give exemptions where the acquisition of shares is through specified schemes. The Income-tax Act, 1961 too grants exemptions to transfers made through specified Schemes. At the same time, there are provisions for obtaining clearances/approvals or just a notice
in some laws.
For example, under certain circumstances, prior approval of the Reserve Bank of India would be required in case of mergers of non-banking financial companies. The Listing Agreement requires listed companies, under certain circumstances, to file the proposed scheme 30 days in advance with stock exchanges. There is even an overriding requirement that schemes should not be used to circumvent securities laws.
However, the new requirement inreases one general layer of scrutiny whereby a specific notice is to be given to Income-tax department and the RD is also required to generally consider whether notice to other regulators should also be given.
Companies Act, 2013
The provisions of this Act, though not yet notified in this respect, provide for a generic, though ambiguously worded, requirement of giving notice. Section 230(5) of the Act requires that a notice with prescribed documents would have to be sent to ‘the Income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the Registrar, the respective stock exchanges, the official liquidator, the Competition Commission of India….. and such other sectoral regulators or authorities that are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by the authorities within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representation to make on the proposals’.
The scope of this prescription is different from that set out in the circular. It is wider in some aspects but narrower in others. It requires that a notice has to be given to all the specified authorities and others too which are likely to be affected by the scheme. It may sound strange that authorities like SEBI are to be notified even in cases where the companies involved may be unlisted or otherwise not affected by regulations governed by SEBI. Perhaps the intention is, as appears from latter words, that only those authorities. who are likely to be affected by a scheme should be so notified.
Conclusion
Authorities/regulators like SEBI, MCA, RBI, Income-tax, etc. do have powers to examine the merger and its implications even after the scheme is sanctioned. If the scheme results in violation of any requirements specified under the respective laws, they can take appropriate action. For example, the Reserve Bank of India can initiate action if a non-banking financial company is amalgamated in a manner that any of the requirements of the Act/Directions are contravened. Similarly, SEBI/stock exchanges have powers to examine the implications in case of a merger. Thus, it is not as if that a cheme, on approval, would make the provisions of such laws redundant.
However, at the same time, certain schemes may have consequences which cannot be annuled. For example, there have been schemes of forced buyback of shares whereby shares of even dissenting shareholders or those who have not positively consented have been bought at specified price. Once this is done, it may be too late for the regulators concerned to take corrective action.
Thus, this new requirement gives an opportunity, to the concerned authorities to examine and present their objections before the court, either directly or through the RD. This would/should avoid subsequent action by the Regulators who were given the requisite notice.
Only time will show whether these new requirement will save time and avoid subsequent action. I believe we don’t need more laws – what is required is better administration.
‘Joint tenancy’ and ‘tenancy in common’ are two apparently similar sounding but diametrically opposite modes of jointly owning immovable property. The Indian Law in this respect is not codified and is derived from English Law and decisions. This Article examines these concepts, their difference, their termination and their use in Hindu Law, Income-tax Act, Succession Law, etc.
Introduction
Immovable Property may be acquired singly or jointly, i.e., two or more persons together acquire the property. While joint owners are commonly referred to as co-owners, when the property is joint, then a question arises whether the purchasers are owning the property as Joint Tenants or as Tenants in Common? Both these terms may appear similar but in Law, there is a vast difference between the two. Depending upon how a property has been acquired the succession to the same would be determined. It may be noted that although the terms may indicate that this applies only to tenanted properties, they are also used for ownership properties. Hence, it becomes very important while acquiring a property that the document very clearly specifies the manner in which it is being jointly acquired. It is very interesting to note that inspite of this being a matter of such significance, neither the Transfer of Property Act, 1882 nor any other Indian enactment deals with these concepts. These are very popular under English Law and hence, we need to refer to English as well as Indian judgments to understand their essence. These concepts have been impliedly or expressly applied in various Laws. Let us examine some of the facets of these two important concepts in Property Law.
Joint Tenancy
A joint tenancy has certain distinguishing features, such as, unity of title, interest and possession. Each co-owner has an undefined right and interest in property acquired as joint tenants. Thus, no coowner can say what is his or her share. One other important feature of a joint tenancy is that after the death of one of the joint tenants, the property passes by survivorship to the other joint tenant and not by succession to the heirs of the deceased coowner. For example, X, Y and Z are owning a building as joint tenants. Z dies. His undivided share passes on to X and Y. Joint Tenancy is generally resorted to in case of a house purchased by a husband and wife. Hence, after the death of the husband, the wife would become the sole owner, and not the heirs of the husband. This is very popular in England. Property owned by a Hindu coparcenary in which rights of family members pass by survivorship is an example of joint tenancy – Bahu Rani vs. Rajendra Bux Singh, AIR 1933 PC 72. In case of a Will, where property is bequeathed to two or more beneficiaries in an undefined share, then it may be treated as a joint tenancy.
Tenancy-in-Common
This is the opposite of joint tenancy since the shares are specified and each co-owner in a ‘tenancy-in– common’ can state what share he owns in a property. On the death of a co-owner, his share passes by succession to his heirs / beneficiaries under the Will and not to the surviving co-owners. If a Will bequeaths a property to two beneficiaries in the ratio of 60:40, then they are treated as ‘tenantsin- common’.
Section 26 of the Income-tax Act provides that where property consisting of building and land appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, then the income under the head House Property shall not be taxed as if it were an AOP but in their individual hands in accordance with their respective shares. The Supreme Court in Indira Balkrishna, 39 ITR 546 (SC) has held that co-widows inheriting property from their husband in equal shares would be assessed u/s. 26. This section is a recognition of the concept of tenancy-in-common. However, for section 26 to apply, the shares must be fixed or clear. In Sh. Abdul Rahman, 12 ITR 302 (Lahore), it was held that due to a litigation it was impossible to determine the shares of co-owners and hence, the provisions of this section could not be applied.
Transfer of Property Act
Section 45 of the Act provides that where immoveable property is purchased two or more persons and the consideration for the same is paid out of a common fund, their share in the property is in the same ratio as their contributions to the funds. This however, is subject to a contract to the contrary. For instance, A and B’s share in common funds is in the ratio of 55:45 for buying a land. Their shares in the land would also be in the same ratio. If they contribute through separate funds then their share would be in the proportion of their funds. However, if there is no indication as to their share in the fund, then they shall be presumed to be equally interested in the property. Thus, if the shares in the funds are not known, then A and B would be presumed to hold the land equally.
However, this section does not yet fully address the issue as to whether the transferees buy as joint tenants or as tenants-in-common. In cases where the property has been acquired out of a common fund and the intention of the co-owners to own the property as joint tenancy, then it may be treated as one. In cases, where their shares in the fund are clear and demarcated, it may be treated as an acquisition by tenants in common.
What Prevails in India?
Unless a contrary intention appears from the Agreement, the Courts in India always lean in favour of tenancy in common and against joint tenancy. This is so whether the acquisition is by way of an Agreement or under a Will. The main clauses must make it very clear that the property is to be held as joint tenants or else the contrary would always be presumed – Mahomed Jusab Abdulla vs. Fatmabai Jusab Abdulla, 1947 BCI (O) 4 (Bom); Konijeti Venkayya vs. Thammana Peda Venkata Subbarao, 1955 AIR 1957 AP 619.
The Supreme Court in Boddu Venkatakrishna Rao vs. Boddu Satyavathi, 1968 SCR (2) 395 has held as follows in relation to a bequest under a Will to more than one beneficiary:
“The principle of joint tenancy appears to be unknown to Hindu law, except in the case of coparcenary between the members of an undivided family……………………..that there were indications in the will that the intention of the testatrix was that the foster children should take as joint tenants and that this was apparent from the clause in the will which provided that “the entire property should be in possession of both of them and that both of them should enjoy throughout their lifetime the said property and that after their death the children that may be born to them should enjoy the same ……
We do not think that from this one can spell out a joint tenancy which is unknown to Hindu law except as above stated. The testatrix did not expressly mention that on the death of one all the properties would pass to the other by right of survivorship. We have no doubt on a construction of the will that ‘the testatrix never intended the foster children to take the property as joint tenants. The foster children who became tenants in common partitioned the property in exercise of their right.”
The above position of HUF coparcenary property being joint tenancy property is subject to one important exception introduced by section 30 of the Hindu Succession Act, 1956. According to this section, any Hindu may dispose of by a Will his undivided interest in the coparcenary property. Under the uncodified Hindu Law, no karta/coparcener could dispose of his undivided share in the coparcenary property. His share passed by survivorship and not by succession (as is the case with all joint tenancies). Now, section 30 permits a coparcener to make a Will even for such joint property – Jayaram Govind Bhalerao vs. Jaywant Balkrishna Deshmukh 2008(3) Bom. CR. 585; CWT vs. Sampatrai Bhutoria & Sons, 137 ITR 868 (Cal). The Supreme Court in the case of Shyam Lal vs. Sanjeev Kumar (2009) 12 SCC 454, has held that:
“…In so far as the question whether under the custom governing the parties, a Will could be executed in respect of ancestral property is concerned, the same is no more res integra. ………in view of section 30 read with section 4 of the Hindu Succession Act, 1956 a male Hindu governed by Mitakshara system is not debarred from making a Will in respect of coparcenary/ancestral property….”
Even if there is anything contrary in the Act or any other custom, the interest in Mitakshara coparcenary property is capable of being disposed of by way of Will. The bar created by way of custom that the coparcenary property is not capable of being alienated by executing a will by one of the coparceners is taken away and rule of survivorship is finished to a limited extent. But the limitation continues to apply in the case of gift and other alienations which are inter vivos – Kartari Devi vs. Tota Ram, 1992(1) SLC 402 (HP).
After the 2005 Amendment to the Hindu Succession Act, even daughters who are coparceners can make a Will for their coparcenary property since they are now at par with sons.
The Indian Succession Act, 1925 states that where a legacy under a Will is given to two persons jointly and one of them dies before the person making the Will, then the other legatee takes the property in its entirety. But if the intention of the testator was to give them distinct shares (i.e., as tenants in common), then the surviving legatees gets only his share. These provisions even apply to a Will by a Hindu – Krishnadas Tulsidas vs. Dwarkadas aliandas, 1936 BCI (O) 47. Thus, unless the Will is very clear that the legatees must not have a determinate share, they will get their bequest as tenants in common.
Terminating Joint Tenancy
Joint tenancy can come to an end by any one of the following modes:
(a) One of the co-owners selling his undivided share to an outsider;
(b) Mutual Agreement amongst all the co-owners;
(c) Partition of joint tenancy
(d) A manner of dealing/conduct by all co-owners which indicates an end of joint tenancy
(e) Property vesting in the last surviving co-owner after which it becomes his sole property
Termination of joint tenancy by mutual agreement along with termination by conduct require special attention. Various old as well as very recent English decisions have dealt with this issue of termination of joint tenancy. Once joint tenancy comes to an end, the co-owners continue to hold the property as tenants in common. Some of the landmark English decisions in this respect are as follows:
(a) Williams vs. Hensman, 1861 EWHC Ch J87 / 70 ER 862 This is the most important decision which has laid down how joint tenancy can be severed. The High Court of Chancery held as follows:
“A joint-tenancy may be severed in three ways: in the first place, an act of any one of the persons interested operating upon his own share may create a severance as to that share. The right of each joint-tenant is a right by survivorship only in the event of no severance having taken place of the share which is claimed under the jus accrescendi. Each one is at liberty to dispose of his own interest in such manner as to sever it from the joint fund –losing, of course, at the same time, his own right of survivorship. Secondly, a joint-tenancy may be severed by mutual agreement. And, in the third place, there may be a severance by any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common………………for it must be borne in mind that a joint-tenancy is a right which any one of the joint-tenants may determine when he pleases; and, if all continue to deal on the footing of their interests not being joint, it would be most inequitable to treat it as a joint-tenancy when all the parties, whether in ignorance or not, have dealt with their interests as several.
I am of opinion, therefore, that the continuance of a joint-tenancy is not reconcilable with the covenant of indemnity to which I have referred; and I must, therefore, hold that all the shares were severed.”
(b) Rugh Burgess vs. Sophia Rawnsley, (1975) EWCA Civ 2
In this case, it was held that even if an agreement terminating joint tenancy was not in writing and was not specifically enforceable, yet it was sufficient to effect a severance. All that is required is a clear evidence of intention by both parties that the property should henceforth be held in common and not jointly.
(c) Wallbank vs. Price (2007) EWHC 3001 (Ch)
The essence of a joint tenancy in equity is that each joint tenant holds the whole of the beneficial interest jointly and holds nothing separately. In this case a declaration by a mother that her daughters should receive her ‘half share’ either on the disposal of the property or at the discretion of the father, was
treated as sufficient evidence to indicate severance of joint tenancy.
(d) Davis vs. Smith, (2011) EWCA Civ 1603
A married couple intended to serve on each other, a notice of severance of joint tenancy over their marital house, but did not. The Court held that, on carefully examining the correspondence between the parties’ solicitors, their conduct and actions, joint tenancy was severed through their course of dealings. The Court added that the conclusion of a split was inevitable and only appropriate considering the course of dealings between them. This is a very important decision since it held that even though there was no formal severance, tenancy-in-common can be created.
Termination of Tenancy in Common
Tenancy in Common can be terminated by any one of the co-owners buying out the shares of the other co-owners. Thus, after this the property becomes sole ownership. This is usually done by way of a Release Deed, under which the releasers release their share in favour of a co-owner, usually for some consideration.
The decision of the supreme Court in TN Aravinda Reddy, 120 IR 46(SC) dealt with a case of termination of a HUF’s joint tenancy property by way of a partition. By way of a partition deed, the HUF property was held by four brothers as tenants-in-common, with each having a 25% interest in the same. Subsequently, three brothers executed a release deed for their respective 25% share for a consideration in favour of the fourth brother, thereby making him the sole owner. The Court held that the acquisition of the shares by way of a release deed amounted to a purchase u/s. 54 of the Income-tax Act by the fourth brother.
In Maharashtra, a release deed attracts stamp duty as on a conveyance on the fair market value of the share released. However, if the property released is ancestral property and it is released in favour of certain defined relatives, then the stamp duty is only Rs. 200. Further, in case of a release of property without consideration, the provisions of section 56(2)(vii) of the Income-tax Act, must also be considered in all cases where the parties are not “relatives” within the meaning of the section. Conversely in cases where release is for consideration, capital gains tax incidence on the releaser must be kept in mind.
Tenancy in common can also be converted into joint tenancy by throwing such a property into the joint HUF hotchpotch after which date it would be treated as HUF property where no one member would have a determinate share. However, in such a case, the clubbing provisions u/s. 64(2) of the Income-tax Act should also be factored.
Conclusion
The Law in respect of jointly acquired immovable property is quite multi-faceted and complex. Since in India, it is entirely case law made, it becomes all the more unique. It would be advisable that while making an agreement for purchasing a property, making a Will, etc., the provisions relating to manner of joint acquisition is very clearly specified. If the intention is, for any reason, to acquire it as joint tenancy, then the wordings should be very clear.
• Vide RTI dated 31-08-12, Anil Bairwal had sought certain Information claiming copies of Income tax Returns with other documents of Biju Janata Dal for A.Y. 2002-03 to 2011-12.
CPIO/ITO Ward 1(2), Bhubaneswar, vide letter dated 12-09-12, informed the appellant that the information sought related to a third party, their views were sought and the third party had objected to any information being shared. It was pointed out by the party representative that since they do not receive any grant from the government directly or indirectly, u/s. 2(h) of the RTI Act, it is not a “Public Authority” and information regarding the party should not be supplied.
FAA upheld the decision of CPIO and relied on the order of the Hon’ble Supreme Court in the case of Girish Ramchandra Deshpande, [RTIR IV (2012) 216 (SC)], stating that no larger Public Interest is involved. Para of the said decision reads as under:
“14.The details disclosed by a person in his Income Tax Return are ‘personal information’ which stand exempted from disclosure under Clause (j) of section 8(1) of the RTI Act, unless it involves a larger public interest……………………………………”
CIC quoted Paras 38 & 47 of its earlier order of 29-4-2008 wherein Biju Janata Dal was also a party. Same reads as under:
“38.The laws of the land do not make it mandatory for political parties to disclose the sources of their funding, and even less so the manner of expending those funds. In the absence of such laws, the only way a citizen can gain access to the details of funding of political parties is through their Income-tax Returns filed annually with Income-tax authorities. This is about the closest the political parties get to accounting for the sources and the extent of their funding and their expenditure. There is unmistakable public interest in knowing these funding details which would enable the citizen to make an informed choice about the political parties to vote for. The RTI Act emphasises that “democracy requires an informed citizenry” and that transparency of information is vital to flawless functioning of constitutional democracy. It is nobody’s case that, while all organs of the State must exhibit maximum transparency, no such obligation attaches to political parties. Given that political parties influence the exercise of political power; transparency in their organisation, functions and, more particularly, their means of funding is a democratic imperative, and, therefore, is in public interest. Insofar as the Income-tax Returns of political parties contain funding details these are liable for disclosure.”
“47. Thus, information which is otherwise exempt, can still be disclosed if the public interest so warrants. That public interest is unmistakably present is evidenced not only in the context of the pronouncements of the Apex Court but also the recommendations of the National Commission for the Review of the Working of the Constitution and of the Law Commission.”
The Commission then ruled:
“In view of the fact that a larger public interest has been established by the Commission in the judgment referred to above, the disclosure of IT Returns of Biju Janata Dal does not fall in the exemption Clause of section 8(1) (j) of RTI Act. The CPIO is directed to provide the information sought within three weeks of receipt of this order.”
[Anil Bairwal vs. ITO, ward 1(2) and JCIT, Range-I, Bhubaneswar: Decided on 24-12-2013 Citation: RTIR I (2014) 58 (CIC)]
• Gurdev Singh had sought details of the Transfer cases and pending cases since 2005 under GPA/SUB GPA
Vide Order dated 4th July, 2013, CPIO informed the appellant that information sought is not specific in nature and is not available in the compiled form. CPIO further offered an opportunity for inspection.
FAA upheld the decision of CPIO. In the second appeal before the Commission, it decided as under:
“Both sides have presented their arguments. Appellant pleaded for disclosure of this information in the larger public interest as he has alleged that the policy benefits were extended in a most arbitrary fashion through pick-and-choose action and that those who were left out were not given any reasons for having been denied the benefits that were extended to other applicants who had applied along side with them thereby putting them unfairly to great disadvantage. This lack of transparency by the Public Authority in the exercise of its powers, it was argued is contrary to the letter and spirit of the RTI Act and breeds corruption. Commission shares the view that transparency is an essential ingredient for good governance. Decisions of the Public Authorities are required to be taken in the larger public interest and must be uniformly administered in a transparent manner. The present case defies these principles and is couched in the dark shade of secrecy. Therefore, as per the provisions of the section 8(2) of the Act, Commission determines that in this case, the disclosure of information outweighs all arguments made in favour of disproportionate diversion of the scare resources of the Public Authority and under the provisions of section 19(8)(a)(iii) requires the Public Authority through the Chairman, Chandigarh Housing Board to establish adequate infrastructure in terms of computers and manpower so that the information sought by the appellant in his RTI application of 17-06-2013 is compiled and placed on the official website of the CHB before 15-06-2014. Commission has given adequate time for completing this exercise as we accept the contention of the respondents that the information sought is maintained in many separate files and will have to be compiled and collated. Commission will review the compliance of the directions held herein above at a later date which will be intimated separately.”
[Gurdev Singh vs. Chandigarh Housing Board, UT Chandigarh: Decided on 11-12-2013: Citation: RTIR (2014) 51 (CIC)]
• FIEM Industries Ltd.:
FIEM industries Ltd. had challenged before the H.C. the Order of SIC, Haryana and Ors. directing PIO to furnish the information sought by the RTI applicant.
The information sought was details of a raid conducted on the petitioner by the VAT authorities and regarding alleged tax evasions by various companies including the petitioner company.
The petition company relied upon the judgment of the SC, in Girish Ramchandra Deshpande vs. CIC and others.
The Court ruled:
“To my mind the judgment could not be strictly applicable to the facts of the present case.” Consequently, the petition was dismissed.
[FIEM Industries Ltd vs. SIC, Haryana and Ors. Decided by the High Court of Punjab and Haryana on 18.12.2013: Citation RTIR I (2014)104 (P&H)]
BS/C/2012/000279/3569: RTIR IV (2013) 163 (CIC)]
The plaintiff after her marriage instituted a suit for declaration that the sale deed is not binding on her interest in the suit property and for partition of her share.
The trial court dismissed the suit holding that it is barred by limitation. It was of the opinion that Article 60 of the Limitation Act is applicable to the suit and it was not filed within 3 years from the date of attaining of majority by the plaintiff.
The Hon’ble Court observed that it is not in dispute that the suit property was gifted to Lingarajamma i.e., the mother of the plaintiff and defendants 2 and 3. The father of Lingarajamma, by name Gurusiddappa, had gifted the suit property under the Gift Deed dated 01-04-1975. Therefore, Lingarajamma was the absolute owner of the suit property on the basis of the gift. It is for this reason, it could be safely concluded that the suit land was not a joint family property. Hence, the provisions of sections 6 and 8 of the Hindu Succession Act, 1956 are not applicable as the said provisions either deal with a joint family property or succession to the property of a male. As Lingarajamma was the exclusive owner of the suit property on the basis of the gift by her father it is general rule of succession in the case of female, Hindu, apply, wherein on the death of Lingarajamma it is her husband, the sons and the daughters are entitled to succeed to her interest in the suit land.
The validity of a sale transaction in respect of the joint family property by ‘Karta’ or ‘adult member’ of a joint Hindu Family depends upon the existence of the legal necessity. At the time of its alienation, though a minor in the joint family has an undivided interest in the property alienated, if a suit is instituted challenging such alienation of a joint family property by a ‘Karta’ or an ‘adult member’ of the joint Hindu family and if it is proved that the same was not for legal necessity, the plaintiff who is not a party to the sale transaction could ignore the alienation and claim her share even in the property alienated. In such circumstances, it is the provisions of Article 109 of the Limitation Act which are attracted and the plaintiff can institute the suit within 12 years from date of alienee takes possession of the property.
Admittedly, the sale of the suit property in favour of the 1st defendant was on 04-06-1987. The suit instituted by the plaintiff is not within 3 years of her attaining the age of majority. Therefore, in view of the provisions of Article 60 of the Limitation Act, the suit was barred by time.
When the sale transaction is voidable transaction and it is for the plaintiff, to sue for possession of the property and it is incumbent upon him to pray for such a relief. Even otherwise, the plaintiff has prayed for a declaration that the Sale Deed is not binding on her interest in the suit property and this relief is similar to setting aside the sale, which is contemplated under Article 60 of the Limitation Act and in the absence of the said relief, the suit itself cannot be maintained.
The petition was filed u/s. 433(e), (f) and 436 read with section 434 of the Companies Act, 1956 seeking winding up of the respondent Company on the ground that it is unable to pay debt due to petitioner.
An objection was raised that alleged debt due to the petitioner by respondent was time barred. It was contended that invoices were raised by the petitioner during September, October and November, 2008 and present petition has been filed in 2013 and as such debt in question is barred by limitation. Elaborating the submissions it was contended that alleged acknowledgement of debt from respondent to petitioner by email dated 06- 04-2010 is not duly signed by respondent and as such it cannot be construed as an acknowledgement of debt since it does not satisfy the criteria prescribed u/s. 18 of The Limitation Act, 1963. Hence, the petitioner is not entitled to recover the amount alleged to be due from respondent.
The Hon’ble Court observed that the word ‘sign’ or ‘signed’ employed in explanation (b) to section 18(2) has not been defined under the Limitation Act, 1963. Explanation merely says ‘signed’ means either personally or by a agent duly authorised in this behalf. It requires to be noticed that even u/s. 3(56) of the General Clauses Act, 1897 the word ‘sign’ has not been defined but has its extended meaning with reference to a person who is unable to write his name to include mark with its grammatical variation and cognate expressions. Undisputedly, an email is a communication addressed to a definite person and it means a person who is intended by ‘originator’ to receive such electronic record as per section 2(b) of IT Act, 2000 and the ‘originator’ would mean a person who sends or transmits any electronic message to any other person as defined u/s. 2(za) of IT Act, 2000. Thus, if an acknowledgment is sent by a ‘originator’ to the ‘addressee’ by email, without any intermediary, it amounts to electronic communication by email which is an alternative to the paper based method of communication. This mode of transaction is legally recognised u/s. 4 of the IT Act, 2000.
A harmonious reading of section 4 together with definition Clauses would indicate that on account of digital and new communication systems having taken giant steps and the business community as well as individuals are undisputedly using computers to create, transmit and store information in the electronic form rather than using the traditional paper documents and as such the information so generated, transmitted and received are to be construed as meeting the requirement of section 18 of the Limitation Act, particularly in view of the fact that section 4 contains a non-obstante clause. Since respondent did not dispute the information transmitted by it is in electronic form to the petitioner by way of message through the use of computer and its network as not having been sent by it to the petitioner, the acknowledgement as found in the emails dated 14-01-2010 and 06-04-2010 originating from the respondent to the addressee namely, petitioner, such emails have to be construed and read as a due and proper acknowledgement and it would meet the parameters laid down u/s. 18 of the Limitation Act, 1963 to constitute a valid and legal acknowledgement of debt due.
Thus, the Hon’ble Court held that an acknowledgement of debt by email originating from a person who intends to send or transmit such electronic message to any other person who would be the ‘addressee’ would constitute a valid acknowledgment of debt and it would satisfy the requirement of section 18 of the Limitation Act, 1963 when the originator disputes having sent the email to the recipient.
The law laid down by the Supreme Court and the Division bench of the High Court will prevail and is binding on a single judge of the court. An order referring certain issues to be decided by a larger bench does not lay down any law. Only because the correctness of a portion of a judgement has been doubted by another bench, that would not mean that the court should wait for the decision of the larger bench.
RTI instrument completed six years of its glorious use to make India’s democracy participative and meaningful, in exposing many scams and for the first time in the history of our nation, put some of the MPs, MLAs, Ministers (including CM) and business magnets in jail.
BCAS foundation, PCGT and IMC held a function on 12-10-2011. The keynote address was delivered there by Justice (Retd.) Shri C. S. Dharmadhikari. We also brought out two-page supplement in MID DAY on 12-10-2011, the same is available to glance at in BCAS & PCGT Library.
This was followed by 6th Annual Convention 2011 on 14th & 15th October at Vigyan Bhavan, New Delhi.
I was invited by the Central Information Commission who organises this convention each year and I attended it.
Delegates from Maharashtra along with two Maharashtra Information Commissioners and a Central Information Commissioner here under at the 6th Annual Convention held a New Delhi.
Four speeches were delivered at the Inaugural session:
Welcome speech by Shri Satyananda Mishra, Chief CIC
Prime minister’s Inaugural Address
Address by Shri V. Narayanasamy, Hon’ble Minister of State (PMO & Personnel, Public Grievances & Pensions)
Vote of Thanks by Shri M. L. Sharma, CIC. There were 4 technical sessions as under:
Group I : Transparency and accountability: with special reference to Public-Private Partnership Projects
Group II : RTI Act: potential and efficacy in curbing corruption and grievance redressal
Group III : RTI Act, exemption provisions and Second Schedule
Group IV : Experiences and Prospects of Information Commissions
Finally, presentations were made by chair persons and panelists of each of 4 groups, mostly through power-point presentations.
The Convention concluded with valedictory address by Shri Nitish Kumar, Chief Minister of Bihar.
The appellant filed a writ petition before the Calcutta High Court. A Division Bench of the High Court heard and disposed of the said writ petition along with the connected writ petitions (relied by West Bengal Board of Secondary Education and others) by a common judgment dated 5-2-2009. The High Court held that the evaluated answerbooks of an examinee writing a public examination conducted by statutory bodies like CBSE or any University or Board of Secondary Education, being a ‘document, manuscript record, and opinion’ fell within the definition of ‘information’ as defined in section 2(f) of the RTI Act. It held that the provisions of the RTI Act should be interpreted in a manner which would lead towards dissemination of information rather than withholding the same; and in view of the right to information, the examining bodies were bound to provide inspection of evaluated answer books of the examinees.
Consequently, it directed CBSE to grant inspection of the answer books to the examinees who sought information. The High Court however rejected the prayer made by the examinees for re-evaluation of the answer-books, as that was not a relief that was available under RTI Act. The RTI Act only provided a right to access information, but not for any consequential reliefs.
On the above decision, CBSE came to the Supreme Court contending that they were holding the ‘information’ (in this case, the evaluated answer-books) in a fiduciary relationship and therefore exempted u/s.8(1)(e) of the RTI Act.
Decision:
Every examinee has the right to access his evaluated answer-books, by either inspecting them or taking certified copies thereof, unless the evaluated answer-books are found to be exempted u/s.8(1)(e) of the RTI Act.
Section 22 of RTI Act provides that the provisions of the said Act will have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Therefore the provisions of the RTI Act will prevail over the provisions of bye-laws/rules of the examining bodies in regard to examinations. As a result, unless the examining body is able to demonstrate that the answer-books fall under the exempted category of information described in clause (e) of section 8(1) of the RTI Act, the examining body will be bound to provide access to an examinee to inspect and take copies of his evaluated answer-books, even if such inspection or taking copies is barred under the rule/bye-laws of the examining body governing the examinations.
The SC then extensively discussed what is the meaning of ‘fiduciary relationship’ as in section 8(1)(e), dictionary meaning and as stated in number of Indian and US Court’s decisions and concluded: “We, therefore, hold that an examining body does not hold the evaluated answer-books in a fiduciary relationship. Not being information available to an examining body in its fiduciary relationship, the exemption u/s.8(1)(e) is not available to the examining bodies with reference to evaluated answer-books. As no other exemption u/s.8 is available in respect of evaluated answer books, the examining bodies will have to permit inspection sought by the examinees.”
The SC then also extensively and beautifully analysed the provisions of the RTI Act and its real purport, scope and meaning and concluded: “In view of the foregoing, the order of the High Court directing the examining bodies to permit examinees to have inspection of their answer-books is affirmed, subject to the clarification regarding the scope of the RTI Act and the safeguards and conditions subject to which ‘information’ should be furnished. The appeals are disposed of accordingly.
[The above decision was delivered on 9-8-2011: Central Board of Secondary Education and Anr. v. Aditya Bandopadhyay and Ors. It is reported in number of law magazines/journals, etc. including at 2011(8) SCALE 645]
[As it is one of the finest decisions to read and understand the real scope of the RTI Act, photo copy of the full decision will be made available both at BCAS and PCGT]
[This decision is followed by another very interesting, decision in the case of Institute of Chartered Accountants of India v. Shaunak H. Satya & Ors. delivered on 2-9-2011 by the same two judges. It will be reported next month.]
Approval is now waived if managerial personnel do not have any interest in the capital of the company or its holding company, directly or indirectly or through other statutory structures or related to the directors or promoters of the company or its holding company at any time during the period of two years prior to the date of appointment and have a graduate-level qualification with expertise in the field of their profession.
? or wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crore rupees;
? or wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India. Cost records need to be maintained for all units and branches thereof in respect of each of its financial year commencing on or after the 1st April, 2011.
For further information:
http://www.mca.gov.in/Ministry/notification/pdf/ Common_Record_Rules_03jun11.pdf
(2) All companies having a paid up capital of Rs. 5 cores and above
(3) All companies having a turnover of Rs.100 crores and above. Further all the above companies as above whose balance sheets are adopted at AGM’s held before 30-9-2011 are permitted to file up to 30-9-2011 without additional filing fees but those that hold the meeting in September 2011, will file within 30 days from date of adoption in the AGM.
For further information:
http://www.mca.gov.in/Ministry/pdf/Circular_37-2011 _07jun2011.pdf
This Circular permits these foreign nationals, subject to certain terms and conditions, to redesignate their resident accounts with banks in India as NRO account on leaving the country. Only bona fide dues of the account holder, when he/ she was resident in India, can be deposited in the NRO account. Debits to the account should only be for the purpose of repatriation of funds to the overseas account of the account holder under the US $ 1 million per financial year scheme and after payment of appropriate taxes.
(1) Performance Guarantees issued by the Indian Party:
Presently, ‘financial commitment’ of the Indian Party includes contribution to the capital of the overseas Joint Venture (JV)/Wholly-Owned Subsidiary (WOS), loan granted to the JV/WOS and 100% of guarantees issued to or on behalf of the JV/WOS.
This Circular provides that only 50% of the amount of performance guarantee will be reckoned for the purpose of computing financial commitment to its JV/WOS overseas, within the 400% of the net worth of the Indian Party as on the date of the last audited balance sheet. Further, the time specified for the completion of the contract may be considered as the validity period of the related performance guarantee.
In cases where invocation of the performance guarantee breaches the ceiling for the financial exposure of 400% of the net worth of the Indian Party, the Indian Party will have to obtain prior approval of RBI before remitting funds from India, on account of such invocation.
(2) Restructuring of the balance sheet of the overseas entity involving write-off of capital and receivables:
Presently, there is no provision for restructuring of the balance sheet of the overseas JV/WOS not involving winding up of the entity or divestment of the stake by the Indian Party.
This Circular provides that Indian promoters who have set up WOS abroad or have at least 51% stake in an overseas JV, can write off capital (equity/preference shares) or other receivables, such as, loans, royalty, technical know-how fees and management fees in respect of the JV/WOS, even while such JV/WOS continue to function as under:
(i) Listed Indian companies are permitted to write off capital and other receivables up to 25% of the equity investment in the JV/WOS under the Automatic Route; and
(ii) Unlisted companies are permitted to write off capital and other receivables up to 25% of the equity investment in the JV/WOS under the Approval Route.
The write-off/restructuring have to be reported to the Reserve Bank through the designated AD bank within 30 days of write-off/restructuring. The Indian Party must submit the following documents along with the applications for write-off/restructuring to the bank under the automatic as well as the approval routes:
(a) A certified copy of the balance sheet showing the loss in the overseas WOS/JV set up by the Indian Party; and
(b) Projections for the next five years indicating benefit accruing to the Indian company consequent to such write off/restructuring.
(3) Disinvestment by the Indian Parties of their stake in an overseas JV/WOS involving write-off:
Presently, all disinvestments involving ‘write-off’, i.e., where the amount repatriated on disinvestment is less than the amount of original investment, need prior approval of RBI. However, in the following cases disinvestment is permitted under the automatic route, subject to the following conditions:
(i) In cases where the JV/WOS is listed in the overseas stock exchange;
(ii) In cases where the Indian promoter company is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore; and
(iii) Where the Indian promoter company is an unlisted company and the investment in the overseas venture does not exceed US $ 10 million.
This Circular: (i) Has expanded the list of corporates eligible for disinvestment under the automatic route. As a result, listed Indian promoter companies with net worth of less than Rs.100 crore and investment in an overseas JV/WOS not exceeding US $ 10 million, can now go for disinvestment under the automatic route. They are however, required to report the disinvestment to RBI through their designated bank within 30 days from the date of disinvestment.
(ii) Clarifies that disinvestment, in case of eligible corporates, under the automatic route will also include cases where the amount repatriated after disinvestment is less than the original amount invested.
(4) Issue of guarantee by an Indian Party to step down subsidiary of JV/WOS under general permission:
Presently, Indian Parties are permitted to issue corporate guarantees only on behalf of their first level step-down operating JV/WOS set up by their JV/WOS operating as a Special Purpose Vehicle (SPV) under the automatic route, subject to the condition that the financial commitment of the Indian Party is within the extant limit for overseas direct investment.
This Circular provides that:
(i) Indian Party may extend corporate guarantee on behalf of the first generation step-down operating company under the automatic route, within the prevailing limit for overseas direct investment, irrespective of whether the direct subsidiary is an operating company or an SPV.
(ii) Indian Party may issue corporate guarantee on behalf of second generation or subsequent level step-down operating subsidiaries under the approval route, provided the Indian Party directly or indirectly holds 51% or more stake in the overseas subsidiary for which such guarantee is intended to be issued.
This Circular permits FII to, in addition to the above, hedge risk related to transient capital flows in respect of their applications to Initial Public Offers (IPO) under the Application Supported by Blocked Amount (ASBA) mechanism, subject to the following:
(i) FII can undertake foreign currency — rupee swaps only for hedging the flows relating to the IPO under the ASBA mechanism.
(ii) Amount of the swap should not exceed the amount proposed to be invested in the IPO.
(iii) Tenor of the swap should not exceed 30 days.
(iv) Contracts, once cancelled, cannot be rebooked. (v) No rollovers will be permitted under this scheme.
However, in the interest of stakeholders, certain event-based information/changes were being accepted by the Registrar from such defaulting companies. Now, on the requests received from various quarters of the corporates & professionals, certain forms will be accepted by the Registrar as per the General Circular No. 63/2011, dated 6th September 2011 for:
(a) Filing by Directors of defaulting Companies in respect of such companies.
(b) Filing by Directors of defaulting Companies in respect of Companies having the status of Dormant Companies.
(c) Filing by Directors of defaulting Companies in respect of Companies having the status as active in progress companies.
This Circular shall be effective from 18th Sept., 2011.
This Circular has expanded the meaning of ‘services related thereto’ as stated in Regulation 2(i) of Notification No. FEMA 16/2000-RB, dated May 3, 2000 by including medical expenses therein. As a result, a resident individual can now pay for the medical expenses incurred in India by his NRI close relative (relative as defined in section 6 of the Companies Act, 1956).
This Circular permits a resident close relative (relative as defined in section 6 of the Companies Act, 1956), of the NRI to repay the loan availed by the NRI by crediting the borrower’s (NRI) loan account through the bank account of such relative.
(1) The loan amount must be within the overall limit under the LRS of US $ 200,000 per financial year. The lender has to ensure that the amount of loan is within the LRS limit.
(2) The loan can be utilised for meeting the borrower’s personal requirements or for his own business purposes in India.
(3) The loan must not be utilised, either singly or in association with other person(s), for any of the activities in which investment by persons resident outside India is prohibited, namely:
(a) The business of chit fund, or
(b) Nidhi Company, or
(c) Agricultural or plantation activities or in real estate business, or construction of farm houses, or
(d) Trading in Transferable Development Rights (TDRs).
Explanation: For the purpose of item (c) above, real estate business shall not include development of townships, construction of residential/commercial premises, roads or bridges.
(4) The loan amount must be credited to the NRO account of the NRI/PIO.
(5) The loan amount must not be remitted outside India.
(6) Repayment of the loan must be made by way of inward remittances through normal banking channels or by debit to the Non-resident Ordinary (NRO)/Non-resident External (NRE)/ Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.
The gift amount must be within the overall limit of US $ 200,000 per financial year as permitted under the Liberalised Remittance Scheme (LRS) for a resident individual. The resident donor will have to ensure that the gift amount being remitted is under the LRS and all the remittances under the LRS during the financial year including the gift amount have not exceeded the limit prescribed under the LRS.
This Circular has extended the said facility of credit of sale proceeds of Foreign Investments in India to NRE/FCNR(B) accounts, where the purchase consideration was paid by the Non-resident Indians/ Persons of Indian Origin out of inward remittance or funds held in their NRE/FCNR(B) accounts and subject to applicable taxes, if any, to NRI/PIO under Regulation 11 of the said Notification.
This Circular has increased the said limit from US $ 25,000 to US $ 50,000. As a result, a person resident in India can now transfer, by way of gift, to a person resident outside India any security including shares/convertible debentures up to the value of US $ 50,000 per financial year after obtaining prior approval of RBI.
This Circular has increased this limit from 2% to 10% with immediate effect. As a result, FII can now cancel and rebook up to 10% of the market value of the portfolio as at the beginning of the financial year.
Presently, listed companies or unlisted companies with a minimum net worth of Rs.100 crore, subject to certain conditions, are eligible to use OTC structures/strategies.
As per the new criteria, listed companies and their subsidiaries/JV/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs.200 crore, subject to certain conditions, are eligible to use OTC structures/strategies.
This Circular permits, banks to open and maintain, without prior approval of the Reserve Bank, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions. Similarly, permission has been granted to SEBI authorised Depository Participants, to open and maintain, without prior approval of the Reserve Bank, Escrow accounts for securities.
These facilities will be applicable for both issue of fresh shares to the non- residents as well as transfer of shares from/to the non-residents and is subject to the terms and conditions given in the Annex to this Circular.
This Circular has given powers to banks to permit pledge of shares of an Indian company held by non-resident investor(s) in accordance with the FDI policy in the following cases, subject to compliance with the conditions indicated below:
(i) Shares of an Indian company held by the non-resident investor can be pledged in favour of an Indian bank in India to secure the credit facilities being extended to the resident investee company for bona fide business purposes subject to the following conditions:
(a) In case of invocation of pledge, transfer of shares should be in accordance with the FDI policy in vogue at the time of creation of pledge;
(b) Submission of a declaration/annual certificate from the statutory auditor of the investee company that the loan proceeds will be/have been utilised for the declared purpose;
(c) The Indian company has to follow the relevant SEBI disclosure norms; and
(d) Pledge of shares in favour of the lender (bank) would be subject to compliance with the section 19 of the Banking Regulation Act, 1949.
(ii) Shares of the Indian company held by the non-resident investor can be pledged in favour of an overseas bank to secure the credit facilities being extended to the non-resident investor/nonresident promoter of the Indian company or its overseas group company, subject to the following conditions:
(a) Loan is availed of only from an overseas bank;
(b) Loan is utilised for genuine business purposes overseas and not for any investments either directly or indirectly in India;
(c) Overseas investment should not result in any capital inflow into India;
(d) In case of invocation of pledge, transfer should be in accordance with the FDI policy in vogue at the time of creation of pledge; and
(e) Submission of a declaration/annual certificate from a Chartered Accountant/Certified Public Accountant of the non-resident borrower that the loan proceeds will be/have been utilised for the declared purpose.
This Circular has increased this limit of US $ 100,000 to US $ 200,000 or its equivalent, with immediate effect for importers. However, in the case of a Public Sector Company or a Department/ Undertaking of Central/State Governments special permission from the Ministry of Finance, Government of India, for advance remittances exceeding US $ 100,000 or its equivalent where the requirement of bank guarantee is to be specifically waived.
(i) all companies listed with any stock ex-change(s) in India and their Indian subsidiaries; or
(ii) all companies having paid-up capital of rupees five crore or above; or
(iii) all companies having turnover of rupees hundred crore or above.
It is provided that the companies in banking, insurance, power sectors and non-banking financial companies are exempted for Extensible Business Reporting Language (XBRL) filing for the financial year 2010-11.
XBRL reports (instance documents) would be an attachment to the new e-forms. The MCA has also released a revised validation tool aligned to the recently revised taxonomy and business rules. This validation tool provides a human-readable output for companies to review in addition to conducting validation checks on the XBRL output.
The XBRL filing should include the directors’ report except the management discussion and analysis and the corporate governance report. These are required to be attached in pdf format. Chartered accountants, company secretaries and cost accountants in whole-time practice are required to certify the financial statements prepared in XBRL mode for filing on the MCA-21 portal. The certificate wordings are a part of the new e-Forms.
The Annexure for Extensible Business Reporting Language (XBRL) Taxonomy for Balance Sheets and Profit and Loss Accounts as required u/s.220 of the Companies Act, 1956 from the year 2010-11 can be accessed at IMCA website.
The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India has issued Circular No. 2 containing the Consolidated FDI Policy. The Policy has come into effect from October 31, 2011 and subsumes and supersedes all Press Notes/Press Releases/ Clarifications/Circulars issued by DIPP, which were in force as on September 30, 2011.
Application in Form 83 for allotment of loan registration number (LRN) must be made within 7 days from the date of signing the loan agreement. In case the borrower fails to obtain LRN within the above period, the approval granted by RBI will stand cancelled.
(i) For ECB up to US $ 5 million — minimum paidup equity of 25% held directly by the lender.
(ii) For ECB more than US $ 5 million — minimum paid-up equity of 25% held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e., the proposed ECB does not exceeds four times the direct foreign equity holding).
This Circular clarifies that:
(i) Now onwards the term ‘debt’ in the debtequity ratio will be replaced with ‘ECB liability’ and the ratio will be known as ‘ECB liability’ — equity ratio to make the term signify true position as other borrowings/debt are not to be considered in working out this ratio.
(ii) Presently, only the paid-up capital contributed by the foreign equity holder is taken into account for the purpose of calculation of equity for ECB of or beyond USD 5 million from direct foreign equity holders. Henceforth, besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet will be considered for the purpose of calculating the equity of the foreign equity holder. However, where there are more than one foreign equity holders in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned will only be considered for calculating the ECB liability-equity ratio for reckoning quantum of permissible ECB.
(iii) For calculating the ECB liability, not only the proposed borrowing but also the outstanding ECB from the same foreign equity holder lender should be considered.
Henceforth, ECB proposals from foreign equity holders (direct/indirect) and group companies will be considered under the Approval Route as under:
(i) Service sector units, in addition to those in hotels, hospitals and software, will also be considered as eligible borrowers if the loan is obtained from foreign equity holders. This would facilitate borrowing by training institutions, R & D, miscellaneous service companies, etc.
(ii) ECB from indirect equity holders may be considered, provided the indirect equity holding by the lender in the Indian company is at least 51%.
(iii) ECB from a group company may be permitted, provided both the borrower and the foreign lender are subsidiaries of the same parent.
However, it must be ensured that total outstanding stock of ECB (including the proposed ECB) from a foreign equity lender does not exceed 7 times the equity holding, either directly or indirectly of the lender (in case of lending by a group company, equity holdings by the common parent will be reckoned).
This Circular permits direct foreign equity holder(s) holding a minimum of 25%t of the paid-up capital and indirect foreign equity holder, holding at least 51% of the paid-up capital, to provide credit enhancement to Indian companies engaged exclusively in the development of infrastructure and to IFC. As a result, credit enhancement by all eligible non-resident entities will henceforth be permitted under the automatic route and no prior approval will be required from RBI.
(i) Enhancement of ECB limit under the automatic route
(a) Eligible borrowers in real sector, industrial sector, infrastructure sector can now avail of ECB up to US $ 750 million or equivalent per financial year under the automatic route as against the present limit of US $ 500 million or equivalent per financial year.
(b) Corporates in specified service sectors viz. hotel, hospital and software, can avail of ECB up to US $ 200 million or equivalent during a financial year as against the present limit of US $ 100 million or equivalent per financial year, subject to the condition that the proceeds of the ECBs should not be used for acquisition of land.
(ii) ECBs designated in INR
(a) ‘All eligible borrowers’ can now avail of ECB designated in INR from foreign equity holders under the automatic/approval route, as the case may be, as per existing ECB guidelines.
(b) NGO engaged in micro-finance activities can continue to avail of ECB designated in INR, as hitherto, under the automatic route from overseas organisations and individuals as per existing guidelines.
(iii) ECB for Interest During Construction (IDC)
Interest During Construction (IDC) will be considered as a permissible end-use for Indian companies which are in the infrastructure sector, under the automatic/approval route, as the case may be, subject to the following conditions: (a) That the IDC is capitalised; and (b) Is part of the project cost.
(i) The bridge finance must be replaced with a long-term ECB;
(ii) The long-term ECB must comply with all the extant ECB norms; and
(iii) Prior approval must be obtained from RBI for replacing the bridge finance with a long-term ECB.
The Ministry of Corporate Affairs has vide Circular No. 57/2011, dated 28th July 2011, has allowed the filing of Balance Sheet and Profit and Loss account in XBRL mode for companies falling in Phase-I without any additional fee up to 30th November 2011 or within 60 days of their due date, whichever is later. Further in supersession of the Circular No. 43/2011, dated 7th July 2011, it is informed that the verification and certification of the XBRL document of financial statements on the e-forms would continue to be done by the authorised signatory for the company and professionals like Chartered Accountant, Company Secretary or Cost Accountant in whole-time practice. [Circular_58-2011 _01aug2011.pdf]
The plaintiffs instituted a suit for declaration and cancellation of a registered sale deed dated 11-08- 2004 and mutation No. 1216 dated 20-08-2004 in favour of Bithaldas and consequential injunction. It was the claim of the plaintiff that the suit property was ancestral in nature and hence their predecessor Ballabhdas, arrayed as defendant No. 1 in the suit, had no right to execute the release deed dated 11-08-2004 in favour of Bithaldas defendant No. 3 in the suit.
The plaintiff claimed that this document was a partitition deed and for want of stamp and registration was inadmissible in evidence. According to the plaintiff, from the language of this document, it clearly emerged that it was not a recording of a past event but partition was effected through the document itself and hence as per the provisions of the Stamps Act and Registration Law, the document ought not only to be liable to be properly stamped but registered as well and as the document fell short of both these mandatory requirements, it was inadmissible for all purposes.
The defendant claimed that the document in question was not a partition deed but merely a memorandum of family arrangement and hence was neither required to be stamped nor registered and was admissible for all purposes. It was further contended that the family arrangement had already been acted upon and consequently a second family arrangement was executed and hence the plaintiff cannot challenge the validity of the document dated 23-09-1972.
The court observed that for a document, to be termed as an instrument of partition, leviable to be stamp duty it must be a document effecting transfer. The title to the property in question has to be conveyed under the document. The document has to be a vehicle for the transfer of the right, title and interest. The document has to be the sole repository for the ascertainment of the rights. Each and every document involving the fact of partition cannot be included within the expression ‘instrument of partitition’. A paper, which is recording a fact or attempting to furnish evidence of an already concluded transaction under which the title has already passed, cannot be treated to be such an instrument.
In the instant case, the writing in question was merely a memorandum of family arrangement and not an instrument of partititon requiring levy of stamp duty or required to be compulsorily registered. The property involved was the joint family property of ‘B’ and his three sons and the said fact was admitted in the writing. So, the rights of sons were not created for the first time through this document. The document was not the vehicle for transfer of rights. By the mere fact that the document contained the word like ‘today’ does not make it an instrument of partition, therefore, the writing has held to be a memorandum of family arrangement and admissible in evidence without it being stamped or registered.
The respondents opposed the petition and submitted that the representative of the petitioner did appear before the Assessing Officer on 24th June, 2013 as mentioned in the ‘roznama’ for the aforesaid two asst. years, 2005-06 and 2008-09, and has therefore received the notice for the asst. years 2005-06 and 2008-09.
The Learned Counsel for the petitioner submits that those two authorisations for the asst. years 2006-07 and 2007-08 were purportedly issued on 28th June 2013, but according to the AO, the said Chartered Accountant appeared for the petitioner on 24th June, 2013 without any authorisation having been produced at the hearing before him.
The Hon’ble Court observed that the petitions involve serious disputed questions of fact as well as questions of law on merits of the controversy and, therefore, it would be appropriate for the petitioner to avail the alternative remedy of filing appeal before the Dy. Commissioner of Sales tax (Appeals). The court directed the petitioner to file appeals before the Dy. Commissioner of Sales Tax (Appeals) within 2 weeks and directed the appellate authority to entertain the appeals and examine all contentions without raising the plea of limitation as far as the filing of appeals was concerned and decide the appeals in accordance with law as expeditiously as possible.
The court further directed that till the appellate authority decided the appeals, the impugned demand notices shall not be implemented or enforced.
As regards the contention of the petitioner that the petitioner had not received any notice for the aforesaid years and had not issued any authorisation in favour of the concerned Chartered Accountant, learned counsel for the respondents has relied upon the authorisation issued by the petitioner in favour of the said Chartered Accountant for the asst. years 2006-07 and 2007-08. The Learned Counsel for the respondents submitted that since the Chartered Accountant was appearing for the petitioner for those two years, the AO proceeded on the basis that the same Chartered Accountant was appearing for the petitioner for the two years under consideration, i.e., 2005-06 and 2008-09.
Presently, Foreign Direct Investment (FDI), up to 100%, under the automatic route, is permitted in the pharmaceuticals sector. This Circular has made the following changes, with immediate effect, to the said policy:
(i) FDI, up to 100%, under the automatic route, will continue to be permitted for greenfield investments in the pharmaceuticals sector.
(ii) FDI, up to 100%, will be permitted for brownfield investments (i.e., investments in existing companies), in the pharmaceuticals sector, under the Government approval route. As a result, ‘Circular 2 of 2011 — Consolidated FDI Policy’, dated 30-9-2011, issued by the Department of Industrial Policy & Promotion stands amended with the insertion of the following new Para
6.2.25:
6.2.25 Pharmaceuticals
6.2.25.1 Greenfield 100% Automatic
6.2.25.2 Existing companies 100% Government
(a) The import is as per the Foreign Trade Policy in force.
(b) Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the bank.
(c) Payment for the import is still outstanding in the books of the importer.
(d) The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted/received.
(e) The ‘set-off’ of export receivables against import payments must be in respect of the same overseas buyer and supplier and that consent for ‘set-off’ must have been obtained from him. (f) Export/import transactions with ACU countries are not covered by this arrangement.
(g) All relevant documents are submitted to the concerned bank which will have to comply with all the regulatory requirements relating to the transactions.
This Circular provides that issue/transfer of ‘participating interest/rights’ in oil fields to a non-resident will be treated as a Foreign Direct Investment (FDI) transaction under the FDI policy and FEMA regulations. Hence, transfer of ‘participating interest/rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS (the same is Annexed to this Circular) and issuance of ‘participating interest/rights’ will be reported as ‘other’ category of instruments under Para 4 of Form FC-GPR.
Maturity period All-in-cost over 6 month LIBOR*
Existing Revised
Up to one year 200 bps 350 bps
More than one year and up to three years
* For the respective currency of credit or applicable benchmark
The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/processing charges, out-of-pocket and legal expenses, if any. This increased all-in-cost ceiling is applicable up to March 31, 2012.
1. Financial Action Task Force (FATF) has issued a Statement on June 24, 2011 calling its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and Democratic People’s Republic Korea (DPRK). However, Authorised Persons (Indian Agents) are not precluded from entering into legitimate trade and business transactions with Iran.
2. FATF has also identified the following countries — Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey — as Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies and calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction. Authorised Persons (Indian Agents) are advised to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.
1. Financial Action Task Force (FATF) has issued a Statement on June 24, 2011 calling its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and Democratic People’s Republic Korea (DPRK). However, Authorised Persons are not precluded from entering into legitimate trade and business transactions with Iran.
2. FATF has also identified the following countries — Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey — as jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies and calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction. Authorised Persons are advised to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.
Takeover Regulations hit the front pages of newspapers for wrong reasons. Takeover of companies in India is relatively lesser in number but takeovers have a glamour attached to them, hence changes to law relating to takeovers get disproportionate attention. At the same time, the manner in which the Regulations are framed ensure that not only the listed company and its promoters are affected but even the shareholders are affected. Promoters and other specified persons have to carry out certain regular or ad hoc compliances, reporting, etc., though even at that stage there is no takeover involved. Non-compliance of these requirements can result in stiff penalties and even an open offer. Further, many corporate restructuring transactions are structured keeping these Regulations in mind.
Now that SEBI has notified the long-awaited revised Regulations last month, listed companies, their promoters and those concerned with legal aspects of corporate laws relating to listed companies need to examine them closely.
In this article, some important changes are highlighted. It must be emphasised though that the Regulations are substantially rewritten and hence it is not as if there is a list of specified amendments that can be identified and discussed. And though the outline of the Regulations remains the same, there have been changes, major and minor, at several places. To begin with, it is worth reviewing generally what the Regulations are concerned with. The Regulations essentially intend that if there is a change of control of a listed company, whether through acquisition of controlling interest or otherwise or even a substantial acquisition of its shares, the public shareholders should be given an option to exit. This usually happens when a new promoter acquires the controlling stake from the existing promoter(s). However, the acquirer may simply acquire substantial shares in the company. The public shareholders are required to be paid a minimum price which is not less than what the outgoing promoters get, but the price for public shareholders can be higher. There are requirements of disclosure when a person acquires substantial quantity of shares and generally many other related requirements to ensure that this basic intent is achieved.
The Takeover Regulations were originally issued in 1994 and then revised in 1997. Several amendments were made from time to time and, recently, a committee was set up to recommend draft new Regulations under the leadership of Late Shri C. A. Achuthan who gave a detailed and elaborate report (‘the Committee Report’) but, sadly, left the world soon thereafter.
The new Regulations should be seen in the light of this Report. However, care should be taken since some of the recommendations have not been accepted or accepted only partially.
The most significant change is that the minimum threshold for making an open offer has been increased from 15 to 25%. The link of 25% with the percentage required to block a special resolution is obvious. Taking into account the fact that, in most Indian companies, the Promoters hold much more than 25%, even this 25% limit may sound low. For strategic investors, this higher limit would help and thus this increase would help the Company, its Promoters and shareholders since the Company can accept higher strategic investments without such investors having to make an open offer.
The other major change is that the minimum open offer percentage has been increased from 20 to 26%. Again this 26% can be logically understood as if we add 25 and 26%, we get a majority holding of 51%, though one could have argued that 1 share above 50% is sufficient to have a majority. Public shareholders would be rightly disappointed as the Committee Report recommending making an open offer for 100% of the public holding has not been accepted. This, in my view, is unfair as while the whole of the holding of the Promoters is usually acquired, only partial acquisition of public holdings is made. The argument made is that this would make the open offers unduly expensive for an acquirer. However, this can not be a sufficient reason to deprive public shareholder of getting a price that the Promoters receive. If an acquirer seeks to acquire, say, 51%, he can simply acquire such percentage from all shareholders including the Promoters by offering to acquire 51% of each person’s holdings. It is sad that the main purpose of these Regulations of protecting the interest of the public shareholders has been sidelined.
Certain regular and ad hoc compliances are required to be made under the Regulations. They mainly serve the basic objective of protecting shareholders’ interests in case of significant change in shareholding. Thus, an early intimation system provides that if a person acquires more than 5% shares, he should inform the Company and the stock exchanges immediately. Such person should thereafter keep informing if his holding changes by 2% in either direction. This provision has been substantially maintained. However, it is now made explicit — which was otherwise confirmed by court decisions under the 1997 Regulations — that it is the holding of the acquirer along with persons acting in concert as a whole that would be counted and not just the separate holding of an individual acquirer.
Creeping acquisition is a popular term, though not a legal one, to refer to the slow and gradual increase in holding allowed by law to a substantial holder of shares without being required to make an open offer. A substantial shareholder consolidates its holding by acquiring more shares and the law believes that such consolidation should also require an open offer under certain situations. The 1997 Regulations allowed 5% increase per financial year for acquirers who held more than 15% shares provided that the cumulative holding is not more than 55%. Beyond 55%, an additional 5% can be acquired in specified manner but no further without an open offer. The amended law allows creeping acquisition of the same 5% every financial year but all the way up to the maximum holding they can hold without reducing the minimum public holding required under law. Thus, for example, where minimum public holding is prescribed to be 25%, an acquirer can make creeping acquisitions up to 75% by acquiring 5% each financial year.
There was a minor controversy as to whether the 5% incremental acquisition was allowed as a net or gross increment. For example, if an acquirer acquires 7% in a year but sells 3%, has he acquired 4% or 7% ? The Regulations now specifically clarify that it will be the gross acquisition and not net and thus in the above example, the acquisition will be considered as 7% and thus beyond the 5% limit.
It is also clarified that in case of acquisition by issue of fresh shares (e.g., preferential allotment) where the capital of the Company also expands, the percentage in the expanded capital will be considered.
This leaves one group of existing promoters in a strange situation. There are Promoters, albeit small in number, who hold between 15% and 25%. As explained above, the 1997 Regulations allowed creeping acquisition of 5%. However, as the minimum threshold of 15% has been raised to 25%, such Promoters now would have to make an open offer if they cross 25% even if they are holding, say, 23% and acquire another 3%. Under the 1997 Regulations, they would not have been so required. Of course, the other side is that a person holding, say, 14% can acquire another about 11% without being required to make an open offer.
An important concept of Takeover Regulations is of ‘persons acting in concert’. This concept is a part of the Regulations to ensure that if a group of persons acquires shares with a common understanding or agreement, all such acquisitions are counted together to check whether the Regulations are attracted or not. Further, reporting of shareholding is also to be made of the total holding of such group. The question then is whether transfers within such group should be allowed or should such inter se transfers be considered as acquisitions. Logically, a transfer within the group is a zero sum transaction if the group as a whole is considered. Even the wording — of the 1997 Regulations as well as the 2011 Regulations — on the face of it should not apply since the holding of the acquirer along with persons acting in concert does not increase in such a case. However, SEBI has, by curious reasoning, which is upheld in appeal, taken a view that since inter se transfers are exempt under certain circumstances, then it must be held that inter se transfers otherwise amount to acquisition ! This reasoning is likely to continue even under the new Regulations though it would have been more elegant in law if the Regulations had expressly provided for this. However, what has been now changed is that inter se transfers, to qualify for exemption, need to comply with stricter conditions. For example, inter se transfers between persons acting in concert or Promoters will require that both parties should have been declared in relevant filings as such for at least three years. The exemption to inter se transfers within the ‘group’ has been dropped.
Earlier, there was an exemption from open offer for acquisition of control, without the minimum acquisition of shares, of a company if such acquisition was approved by the shareholders by a special resolution. Now this exemption is dropped. Perhaps this was necessary as the threshold limit has been increased from 15 to 25%.
A change worthy of appreciation is that non-compete fees are now to be counted as part of the acquisition price paid by an acquirer to the existing promoters. Earlier, the law allowed an acquirer to pay up to 25% of the acquisition price as non-compete fees to existing promoters and such amount was not to be counted as part of the acquisition price. To give an example, say, an acquirer pays Rs.100 as price for acquisition of shares and Rs.25 as non-compete fees to the Promoters. The law, which otherwise requires that the open offer should be made at a price that is at least the price paid to the Promoters, allows in such a case the open offer to be made at Rs.100. This resulted in cases where on the face of it, an exact non -compete fee of 25% was paid and was excluded from the open offer price. The new Regulations have rightly dropped this exemption to non-compete fees.
A major new feature is the voluntary open offer that is allowed. Normally, an acquirer is required to make a minimum open offer of 26% if he crosses the specified threshold limit or creeping acquisition. However, if a person, who is already having 25% shares and desires to increase his holding by more than 5% a year can now make a voluntary open offer of at least 10% to all the shareholders. This also ensures that all shareholders are able to participate and not just a selected few.
Then there is an infrequent but interesting situation that arises which earlier SEBI handled it a little arbitrarily. This is a situation where a Company carries out a buyback of shares. Simple mathematical calculation will show that if a Company carries out buyback of shares, the shareholding of a person who did not participate in the buyback increases though he has not acquired a single share. For example, if the Company’s share capital is Rs.10 crore and a person is holding Rs.2.40 crore. If the Company carries out a buyback of 20% with such person not participating, his new percentage holding would be higher at 30% (Rs.2.40 crore as a % of Rs.8 crore) without he having acquired a single share. SEBI took a view that open offer was required to be made by such person. This was of course absurd and even if SEBI intended that an open offer should be required, it should have provided for it. The new Regulations now provide that such an increase will not result in open offer provided certain conditions are satisfied failing which the differential percentage of shares should be sold within 90 days.
Visit the IASB website for a list of the illustrative examples and the IFRS Taxonomy 2011 guide.
The IFRS Foundation has announced that it will publish supplementary tags for the IFRS Taxonomy that reflect disclosures that are commonly reported by entities in their IFRS financial statements.
For complete text of the Notification visit:
http://www.mca.gov.in/Ministry/pdf/Circular_12- 2011_7apr2011.pdf
To be more specific, to start a business as a private limited company, a client has to apply for the following registrations, licences and numbers:
In my view all the above are possible through a single-window (SW) registration website. This Single Window Registration website will be an attempt to expedite and simplify information flows between trade and the government and bring meaningful gains to all parties.
(Paper formalities for registrations, licensing, etc. in the proposed system is illustrated in Annexure.)
A QFI can purchase, on repatriation basis:
(1) Up to INR620 billion in Rupee-denominated units of equity schemes of SEBI-registered domestic Mutual Funds.
(2) Up to INR186 billion in units of debt schemes which invest in infrastructure (‘Infrastructure’ as defined under the extant ECB guidelines) debt of minimum residual maturity of five years, within the existing ceiling of 25 billion for FII investment in corporate bonds issued by infrastructure companies.
They can invest under two routes:
(i) Direct Route — SEBI-registered Depository Participant (DP) route.
(ii) Indirect Route — Unit Confirmation Receipt (UCR) route.
Similarly, foreign entities who may have established LO or BO with the permission from the Government of India, must also approach RBI along with a copy of the said approval for allotment of a Unique Identification Number (UIN).
These applications/requests must be submitted to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai-400001 in form FNC and should be routed through the bank where the account of such LO/ BO is maintained. A.P. (DIR Series) Circular No. 3, dated 21-7- 2011 —Facilitating Rupee Trade — Hedging facilities for non-resident entities.
This Circular permits non-resident importers and exporters to hedge their currency risk in respect of exports from India and import to India, respectively, where invoices are raised in Indian Rupees. The operational guidelines, terms and conditions, etc. are annexed to this Circular.
One of the stated purposes is of course that such comprehensive Regulations covering all types of funds will help them being granted exemptions from other statutes. However, the detailed control over them as proposed seems disproportionate to the needs of the exemptions. The other benefit of registration and regulation stated is that such control and supervision of SEBI may increase the credibility of such funds in the eyes of the investors in such funds.
Alternative Investment Fund (‘AIF’) means funds other than which are governed by specific Regulations such mutual funds, Collective Investment Schemes, etc. Many of such AIF are specifically identified, such as private equity funds, real estate funds, private pooled investment vehicle (‘PIPE’), etc. But generally, it is an inclusive definition covering all such funds except those specifically excluded.
Take the example of the proposed framework for Venture Capital Funds. The total fund size shall not be more than Rs.250 crore. Investment is permitted only in companies at an early stage of their busi-ness life by way of seed capital or minority stake in new ventures using new technology or innovative business ideas. Investment is not permitted in any company promoted by any of the 500 top listed companies or their promoters. At least 2/3rd of the investments shall be in equity shares of unlisted companies. There are further restrictions regarding investments of the remaining 1/3rd. Investment in Share Warrants is not permitted.
Debt Funds need to invest at least 60% of its corpus in debts of unlisted companies and not more than 25% of which shall be in convertible For each of the categories of AIFs, detailed requirements have been laid down. How much minimum percentage shall be invested in certain types of industries, in what type of investment such investment shall be made, etc. are specified. The aim seems to be that each category should specialise in a particular type of investment. At the same time, investment in some industries are barred. Certain types of instruments are also restricted for investment.
There are similar quite rigid conditions on what should be the investment mix for various types of funds. Further, an AIF cannot change the nature/ category of its fund mid-way. Thus, a set of fairly rigid conditions apply to each AIF even though the funds are raised from large and knowledgeable investors and on a private-placement basis after due disclosure.
Unfortunately, there is no free category in which, even if agreed between the AIF and its investors, the AIF could invest in any type of securities in any mix/proportion it desires.
It is stated in the introductory note to the proposed Regulations that portfolio managers who pool their clients’ assets would also be required to be registered as an AIF. However, this is not part of the Regulations. Apparently, this provision will come through separately by an amendment to the Regulations relating to portfolio managers.
The AIF Regulations will also give relief from certain possibly unintended technical violations of law by some funds. For example, having access to inside information during diligence process by PIPE funds shall not be deemed to be violation of the SEBI Regulations prohibiting insider trading. However, an important condition is that the investment made pursuant to such diligence shall be locked in for five years.
An interesting category is of Social Venture Funds. These are for those types of investments where a useful social purpose, rather than merely profit, is the theme of the fund. The nature of such social purposes is left for the AIF to decide with the investors.
A glaring omission is of the so-called art funds where investments are made in paintings, antiques, etc. These have come under scrutiny in recent years for various reasons. It is not one of the specific categories of AIF under the Regulations. It is not totally clear whether they would be governed under the SEBI Regulations for Collective Investment Schemes (‘CIS’) or whether SEBI intends to cover them under these AIF Regulations. Earlier, SEBI had taken a view that these are governed under the SEBI CIS Regulations. However, there is a residuary category for registration and perhaps under such category, they may be required to be registered. However, the conditions of investment, etc. of such funds are not specified.
To conclude, the draft Regulations show the tendency to overregulate. Without any need, all funds, without a basic exemption are sought to be covered. The control over investment pattern is perhaps too restrictive and in some aspects even too minute. The Regulations instead could have provided an overseeing role for SEBI to ensure transparency as well as avoidance of systemic risks. That has not happened and one hopes that the final Regulations achieve these objectives instead of micro-regulating this sector.
This Circular advices banks to exercise due caution and be extra vigilant in respect of remittances under scheme so as to avoid payments towards margin money for online foreign exchange trading transactions as these derivative transactions can only be undertaken by persons resident in India based on the presence of an underlying price risk exposure.
Further, any person resident in India collecting and effecting/remitting such payments directly/indirectly outside India would make himself/herself liable to be proceeded against with for contravention of FEMA, 1999 besides being liable for violation of regulations relating to Know Your Customer (KYC) norms/Anti Money Laundering (AML) standards.
(a) Jurisdictions subject to FATF call on its members and other jurisdictions to apply countermeasures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from the jurisdiction: Iran
(b) Jurisdictions with strategic AML/CFT deficiencies that have not committed to an action plan developed with the FATF to address key deficiencies as of October 2010. The FATF calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction: Democratic People’s Republic of Korea (DPRK).
This Circular advices banks to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.
This Circular advices banks to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.
(a) Jurisdictions subject to FATF call on its members and other jurisdictions to apply countermeasures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/ FT) risks emanating from the jurisdiction: Iran
(b) Jurisdictions with strategic AML/CFT deficiencies that have not committed to an action plan developed with the FATF to address key deficiencies as of October 2010. The FATF calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction: Democratic People’s Republic of Korea (DPRK).
This Circular advices banks to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.
This Circular clarifies that this practice adopted by foreign airlines is not in conformity with the provisions of the Foreign Exchange Management Act, 1999 and foreign airlines are advised to immediately discontinue the same.
(i) Pricing of convertible instruments:
Instead of specifying the price of convertible instruments upfront, companies will now have the option of prescribing a conversion formula, subject to FEMA/SEBI guidelines on pricing.
(ii) Inclusion of fresh items for issue of shares against non-cash considerations:
The existing policy provides for conversion of only ECB/lump-sum fee/Royalty into equity. This Circular now permits issue of equity, under the Government Route (Approval Route), in the following cases, subject to specific conditions:
(a) Import of capital goods/machinery/equipment (including second-hand machinery)
(b) Pre-operative/pre-incorporation expenses (including payments of rent, etc.)
(iii) Removal of the condition of prior approval in case of existing joint ventures/technical collaborations in the ‘same field’:
With a view to attract fresh investment and technology inflows into the country and to also reduce the levels of Government intervention in the commercial sphere the Government has decided to abolish this condition of obtaining prior approval in case of existing joint ventures/technical collaborations in the same field.
(iv) Guidelines relating to down-stream investments:
The guidelines have been comprehensively simplified and rationalised. Companies will now been classified into only two categories — ‘companies owned or controlled by foreign investors’ and ‘companies owned and controlled by Indian residents’. The earlier categorisation of ‘investing companies’, ‘operating companies’ and ‘investingcum- operating companies’ has been done away with.
(v) Development of seeds:
In the agriculture sector, FDI will now be permitted in the development and production of seeds and planting material, without the stipulation of having to do so under ‘controlled conditions’.
This Circular has relaxed the six months’ rule for a further period up to 30th September, 2011, subject to review. Hence, export proceeds in respect of export of goods and software (except in cases of exports from units in SEZ or exports to exporters’ own warehouses outside India) up to 30th September, 2011 can be realised and repatriated within twelve months from the date of export.
However, there is no change in the provisions in regard to period of realisation and repatriation to India of the full export value of goods or software exported by a unit situated in a Special Economic Zone (SEZ) as well as exports made to exporters’ own warehouses outside India.
In the September issue of BCAJ, I covered a decision of three-member Bench of Maharashtra State Information Commission. In this issue, I cover one more.
Under the RTI Act, there are two types of authorities to which the Act is applicable: Public Authority and Competent Authority. The latter is defined u/s.2(e) as under:
“Competent authority means —
(i) the Speaker in the case of the House of the People or the Legislative Assembly of a State or a Union Territory having such Assembly and the Chairman in the case of the Council of States or Legislative Council of State;
(ii) the Chief Justice of India in the case of the Supreme Court;
(iii) the Chief Justice of the High Court in the case of the High Court;
(iv) the President or the Governor, as the case may be, in the case of other authorities established or constituted by or under the Constitution;
(v) the Administrator appointed under Article 239 of the Constitution;
This case deals pertains to the Bombay High Court, Mumbai. It is the decision of three-member Bench comprising the then State Chief IC (Shri Vilas Patil), SIC, Amravati (Shri M. L. Shah) and SIC, Aurangabad (Shri D. B. Deshpande).
Shri Anandnatraj submitted an RTI application to PIO, in the office of the Registrar, Bombay High Court (BHC) seeking the information in respect of writ petition Nos. 2650 of 95 and 2689 of 95. He asked for photocopies of all papers filed and orders issued in respect of the petition.
The PIO expressed his inability to furnish the information, stating that “the application was not complete in all respects as received as per the Bombay High Court Right to Information Rules, 2006. As per the said Rules, a Court Fee Stamp of Rs.12 is required on the application, however, Rs.10 Court Fee Stamp is affixed. Hence there is deficit of Court Fees of Rs.2. As per the said Rules, the applicant has to submit the application in prescribed format. Please see High Court website ‘bombayhighcourt.nic.in’ for the said Rules. Moreover, in view of the provision to Rule 9 and Rule 19 of the Bombay High Court Right to Information Rules, 2006 the information in respect of judicial proceeding or records cannot be supplied under Right to Information, but you may obtain the said Information as per the procedure prescribed in the Bombay High Court Rules and Orders”.
The applicant preferred an appeal to the First Appellate Authority (FAA). The grounds of appeal were: “the BHC RTI Rules, 2006 are not consistent and in agreement with the provisions of the Right to Information Act, 2005. As provided in Rule 9 of the said Rules, that is, Rule 9 in para 1 obtaining information in respect of third party is permissible by submission of application in Form ‘A’ as per Rule 3, the same rule in para 2 forbids the information of 3rd party in respect of judicial proceedings and records. The said contradiction in clause 9 needs proper interpretation/classification by the Public Information Officer in his reply.”
FAA responded “it is clear that the reply sent by the Public Information Officer cannot be faulted with. The information sought is relating to record of judicial proceedings and copies of the same can be obtained by applying at the facilitation centre of the High Court.” The appeal was disposed of accordingly.
The applicant then furnished the second appeal to Maharashtra Information Commission. First the appeal was heard by a single member by one SIC, Shri Ramanand Tiwari. However he passed on order that “since the issues involved are very important, I suggest that the case should be heard by the full Bench of the Commission or least a Bench consisting of three Commissioners and directed to the Secretary of the Commission to obtain the orders of the CIC and do the needful.”
Accordingly a three-member Bench heard the matter on 14-3-2011. The appellant submitted his written statement and argued also as briefly noted hereinafter.
The respondent PIO also submitted written statement and argued that the PIO and FAA have acted according to BHC RTI Rules which are made by the Chief Justice of the HC, being the ‘Competent Authority’ u/s.28 of the RTI Act.
The main contention before the Commission was that “rules framed by the Competent Authority u/s.28 of the Act, can only be for giving effect to and for carrying out the provisions of the Right to Information Act and cannot be contrary to the provisions of the Right to Information Act. They would be ultra vires and illegal and consequently unenforceable in view of the provisions of section 22 of the Act”.
“The Chief Justice of the Bombay High Court cannot negate the provisions of the Right to Information Act, since neither section 8, nor section 24 gives exemption in respect of providing information related judicial proceeding and records.”
The Commission made the following decision:
“Hence, it is necessary to examine the rules of Interpretation of the statutes.
Once the Legislature has passed the Act, it is subject to judicial review in respect of the constitutionality and the implementation of the provisions of the said Act.
No doubt, the rules made in exercise of the powers delegated under the principal Act, for carrying out the purpose laid down in the principal Act, cannot travel beyond the scope of the Act, nor can they, themselves, enlarge the scope of statutory provisions. They cannot also militate against the provision under which they were made (AIR 1956 SC, AIR 1957 SC 532).
However, the Rules framed under the Act have the force of the Law. (AIR 1954 All 639).
Therefore, the function of the Court is to apply the law as it stands. It is not for the Court to re-write the law, even though the Court notices anomalies and omission and considers the provision as they stand unreasonable (AIR 1982 Ker. 126).
In view of such principles of interpretation of statutes, the Commission has to give the decision as per the rules framed by the Chief Justice High Court of Judicature of Bombay as a Competent Authority u/s.28 of the Act.
Therefore, the decision of the First Appellate Authority is upheld and there is no necessity to interfere with the order of the First Appellate Authority.
However, in view of the points raised by the appellant, the Commission, in view of provisions of section 25(5) of the RTI Act, recommends to the Public Authority, that is the High Court to examine judicially the rules framed by the Chief Justice of the Bombay High Court, whether they are in conformity with the provisions or spirit of the RTI Act, and if found not to be in conformity with the provisions or spirit of the Act, then take such steps to promote such conformity”.
[Shri S. Aanandnatraj, Mumbai v. FAA and PIO of High Court of Mumbai, decision dated 29-4-2011 under Appeal No. 5842/02]
It is a case where matter was fixed for the plaintiff’s evidence in which the plaintiff submitted affidavit. She could not appear in the Court for cross-examination. In her place, her husband filed affidavit in the capacity of power of attorney. Objection was taken by the respondents that her husband can be examined as a witness, but cannot be examined as the plaintiff. The application aforesaid was allowed. The only rider was that he should not be treated as the plaintiff. The Court observed that if the interpretation of Order 3, Rules 1 and 2 is to mean that appearance of recognised agents or pleader is permissible for all purposes including deposition of statement in place of the principal, then it would mean that the pleader can also depose for the principal.
The Court should give interpretation to the provisions which are not only harmonious, but remain applicable in all situations with same interpretation. If the interpretation of Order 3, Rules 1 and 2 is that power of attorney can depose in place of principal in all circumstances, then the same interpretation will apply to the pleader, in view of the heading of the provision.
The purpose of Order 3, Rule 1 is not for appearance of a recognised agent or pleader as witness in place of the principal. They are authorised to appear as representative of the party to the extent it is permissible, but not in the manner that they may replace the principal itself. If the power of attorney has acted in place of principal prior to filing of the suit, he can depose for the principal, but not in all circumstances.
The
Slum Rehabilitation Authority (SRA) is empowered to prepare a Slum
Rehabilitation Scheme for areas within its purview. This would cover all
slums and hutment colonies within such area. The actual mechanics of
the Slum Rehabilitation Scheme are prescribed under the Development
Control Regulations of Greater Bombay, 1991 (‘DCR’) issued under the
Maharashtra Regional & Town Planning Act, 1956. Two types of Slum
Rehabilitation Schemes are permissible under the DCR and they are known
by the Regulations under which they are approved. These are:
The salient features of a transit scheme are as follows:
Appendix IV to DCR
The
ratio is as follows:
A typical Slum Rehabilitation Scheme involves the following steps:
(a) All slum/pavement inhabitants on electoral rolls on or before 1st January 1995 and who are actual occupants are eligible.
(b)
70% of such eligible occupants must come together to form a
co-operative housing society and pass a resolution appointing a chief
promoter who can apply for name reservation for the society. The chief
promoter can collect share capital of Rs.50 per member for slum
societies and Re.1 as entrance fees and to open a bank account in any
co-operative bank.
(c) The proposed society should get the plot surveyed and a map prepared showing the slum structures.
(d)
The proposed society must then take a decision to appoint a competent
developer for the society. He would act as the promoter.
(e) The
promoter can enter into an agreement with every eligible slum-dweller
while putting up a slum rehabilitation proposal to SRA for approval.
(f)
The Promoter has to appoint an architect to prepare the plans under DCR
33(10). He would submit the plans and proposal along with the scrutiny
fee. The SRA has recently decided that it would only permit contractors
registered with them to carry out slum rehabilitation schemes. The
decision follows complaints by slum-dwellers and non-government
organisations about the poor quality of construction in the
rehabilitation buildings.
(g) SRA would then scrutinise the plans and the proposal.
(h) SRA would give the letter of intent conveying approval to the scheme, approval to the layout, building-wise plan approval (Intimation of approval) and commencement certification. Earlier, these 4 were issued in instalments but now to speed up the process, they are issued in one go at least for the rehab proposal. The approval is valid for three months.
(i) The scheme must provide for temporary transit accommodation to the slum-dwellers, during the construction of rehab portion.
(j) Transit camp accommodation is provided by drawing of lots. Slum-dwellers are shifted to transit camps and huts are demolished. If these members do not agree to participate within 15 days of the approval of the proposal, they are physically evicted from the site under the provisions of sections 33 and 38 of Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971, to ensure that there is no obstruction to the scheme.
(k) After demolition of the structures, work up to plinth is completed. After checking the plinth dimensions, further permission to carry out construction beyond plinth is granted.
(l) The architect submits the building completion certificate.
(m) While applying for the occupation certificate of the rehab building, the architect is expected to give the details of tenement allotments done by the society by drawing lots in the joint names of the household head and his spouse. SRA issues computerised ID cards.
(n) Sale building construction is taken up.
(o) Separate property cards are issued for the rehab and sale portion.
(p) Once all the buildings are constructed, the land is leased to the society of slum-dwellers.
In a very important decision in the case of Lokhandwala Infrastructure P. Ltd. & Others v. Om Omega Shelters & Others, Writ Petition No. 95 of 2011, the Bombay High Court has held that it was not open to the slum-dwellers’ proposed society to enter into agreements with developers as per their whims and fancies.
The High Court did not accept arguments made by two proposed societies of 500 slum-dwellers in Worli that they were entitled to enter into or terminate development agreements without scrutiny or regulation by government bodies. The Court held that “Such a proposition would lead to a chaotic situation in the implementation of slum rehabilitation schemes. Managing committee members of proposed societies would then be at liberty to pursue their private ends and switch loyalties between rival builders on considerations of exigency. Many slum rehabilitation projects land in Court with disputes over the appointment of rival builders by slum-dwellers, with each developer claiming majority. The HC said these development agreements are not purely private contracts and have a ‘public character’ to them as the aim is to rehouse slum-dwellers with dignity. “Often the land belongs to the state, the BMC or the housing board. The state has a vital public interest in ensuring that the schemes are not trammelled by private interests,” the court observed. “Once a developer has made a proposal to redevelop a slum, authorities have to scrutinise whether a proposal involving change of developer is in the interest of slum-dwellers and whether or not the new developer would fulfil the needs and requirements of the scheme and has the necessary capacity to do so and whether the new developer has the consent of 70% of slum-dwellers,” said the Judges, adding that the authorities have to determine if the new developer would be able to fulfil all the requirements. “The second developer cannot ride on the 70% consent given to the first developer as it would only lead to ‘misuse of the scheme.’ “The dispute between a society and the developer does not lie purely in the realm of a private contractual dispute. The dispute has an important bearing on the proper implementation of the slum rehabilitation scheme and its consequences go beyond the private interests of the society and the developer. The scheme involves other stakeholders, including public bodies which own the land, whose interest ought to be protected too.”
In the present case, the dispute was between Lokhandwala Infrastructure Pvt. Ltd. and Om Ome-ga Shelters. In 2002, Lokhandwala was appointed to redevelop a plot in Mumbai. 500 slum-dwellers, who resided on the plot, formed two societies. In 2003, it applied for sanction.
Nothing moved for six years. In 2009, the two societies issued a letter terminating their agreement with Lokhandwala. The SRA called for a meeting of the slum societies in February 2010. In November 2010, the two societies, at a general body meeting, claimed that 343 of 401 eligible slum-dwellers present had consented to Omega. Based on this, the SRA CEO approved Omega as the developer instead of Lokhandwala. Lokhandwala, which challenged the SRA order, as ‘perverse’ said its proposal had never been rejected. It argued, and the Court up-held, that the new developer cannot do away with the requirement of 70% majority consent. Omega said it had individual agreements with over 80% slum-dwellers. The slum-dwellers argued that they were entitled to make a proposal and that the “developer is merely an agent of the cooperative society” to provide tenements.
The Bombay High Court held that the SRA order left much to be desired and set aside the SRA’s order favouring Omega and asked the SRA to again hear both sides and decide whether Lokhandwala continues to enjoy the support of 70% slum-dwellers and, if not, whether Omega does.
Income-tax concession
Section 80-IB(10) of the Income-tax Act, 1961 provides for a deduction from the gross total income of profits derived by an undertaking from developing and building housing projects approved before 31st March 2008. The following two conditions which are normally applicable for claiming such a deduction are not applicable in the case of a slum rehabilitation project which has been notified by the CBDT:
(a) such undertaking completes the construction in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.
(b) the project is on the size of a plot of land which has a minimum area of one acre.
Thus, the Act provides a relaxation to slum rehabilitation schemes.
The CBDT has by Notification No. 67/2010 [F.No. 178/37/2006-IT(A-I)]/SO 1898(E), dated 3-8-2010 notified the Scheme contained in Regulation 33(10) of Development Control Regulation for Greater Mumbai, 1991 read with the provisions of Notification No. TPB-4391/4080(A)/UD-11(RDP), dated 3rd June, 1992, as a scheme for the purposes of the said section subject to the following conditions, —
(i) slum development falling in Category VII mentioned in Notification No. TPB-4391/4080(A)/UD-11(RDP), dated 3rd June, 1992 shall be excluded from the Scheme;
(ii) slum development falling within clause 7.7 of the Appendix IV of regulation 33(10) which provides for joint development of slum and non-slum areas shall be excluded from the Scheme; and
(iii) any amendment in the Scheme hereby notified shall be required to be re-notified by the Board.
The CBDT has by Notification No. 01/2011 [F. No. 178/35/2008-IT(A-I)]/SO 14(E), dated 5-1-2011 notified, the Scheme for slum redevelopment prepared by the Maharashtra Government under sub-section (2) of section 37 of the Maharashtra Regional Town Planning Act, 1966 and published vide Notification No. TPS-1893/973/CR-49/93A/UD-13, dated the 26-2-2004, as a scheme for the purposes of the said section subject to the condition that any amendment to the Scheme hereby notified shall be required to be re-notified by the CBDT.
By a subsequent Notification, the CBDT has clarified that as the provisions of section 80-IB(10) apply only to housing projects approved before 31st March, 2008, the above Notifications would also be deemed to apply to housing projects approved by a local authority under the aforesaid scheme on or after the 1st April, 2004 and before 31st March, 2008.
Stamp duty concession
Under the Bombay Stamp Act, 1958, the Maharashtra Government has reduced the stamp duty chargeable under Article 5(g-a) (Development Rights Agreement), Article 25 (Conveyance) and Article 36 (Lease) executed for the purpose of rehabilitation of slum-dwellers as per the Slum Rehabilitation Schemes. The duty is reduced to Rs. 100 instead of the ad valorem rates specified under these Articles. However, the reduction of duty is permissible only in respect of instruments relating to tenements allotted to the slum-dwellers for residential purpose under the Slum Rehabilitation Schemes and is not allowed for the sale/free component buildings.
Service tax concession
No service tax is payable on the taxable service of construction of residential complex referred to in section 65(105)(zzzh) of the Finance Act provided to the Rajiv Awaas Yojna. Thus, any construction for slum rehabilitation under the RAY is exempt from service tax.
FDI
Foreign Direct Investment in companies engaged in slum rehabilitation schemes is governed by the conditions specified in the Consolidated FDI Policy of 2011/ erstwhile Press Note 2 of 2005. No relaxations or concessions are provided from these conditions to a company engaged in slum rehabilitation and any FDI in a company engaged in slum redevelopment needs to comply with the following key conditions:
(a) The minimum area to be developed under each project would be as under:
(i) In case of development of serviced housing plots, a minimum land area of 10 hectares/25 acres.
(ii) In case of construction-development projects, a minimum built-up area of 50,000 sq.mts
(iii) In case of a combination project, any one of the above two conditions would suffice.
(b) Minimum capitalisation of US$10 million for wholly-owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the company.
(c) The original investment cannot be repatriated before a period of three years from the completion of minimum capitalisation.
Property tax concessions
The BMC has granted a concession in property taxes to any building constructed under a slum rehabilitation scheme under the Act. The concession was given in a phasewise manner. For the period of 2011 to 2015 the property taxes levied on such buildings would be 80% of the rate levied in a particular year.
Auditor’s duty
The Auditor should enquire of the auditee, in case the auditee is into slum rehabilitation, whether the terms and conditions of the Act have been duly complied. In case of any doubts, he may ask for a legal opinion. Non-compliance with this could have serious repercussions for the developer.
By broadening his peripheral knowledge, the Auditor can make intelligent enquiries and thereby add value to his services. He can caution the auditee of likely unpleasant consequences which might arise. It needs to be repeated and noted that the audit is basically under the relevant law applicable to an entity and an auditor is not an expert on all laws relevant to business operations of an entity. All that is required of him is exercise of ‘due care’.
The plaintiffs were residents of Bangalore. They claim that the suit properties were their joint family properties. The family consisted of over one hundred and twenty members. It was the case of the plaintiffs that in order to enjoy the family properties separately a ‘panchayath partition’ was effected and was reduced to writing on 20-2-1990. The particulars of the items of the property allotted to the plaintiffs’ branch forms the suit properties. The plaintiffs as well as the other members of the several branches of the family had subscribed their hand to the family arrangement and settlement and the respective parties had over a period of time enjoyed their respective shares. The revenue records were similarly effected in the names of the respective parties. It is the plaintiffs’ claim that they have secured one acre of land as their share. The defendant No. 4, who is a stranger to the family sought to interfere with the a part of land. It was found that the claim of the fourth defendant was that he had purchased the same from the first defendant without the knowledge or consent of the plaintiffs, though it was allotted to the share of the plaintiffs. The first defendant had no right or interest which he could convey in favour of the fourth defendant. It was in that background that the suit was filed for declaration in respect of the said item of land. The moot question was whether the document of panchayath partition was a memorandum of partition or it was to be construed as a partition deed, and whether it was invalid for want of registration, in which event, it could not be relied upon in evidence and could not be the basis for the appellant’s case.
The Court observed that as per the tenor of the document in question, it is not as if there was an oral arrangement between the parties several years prior to the execution of the document. Such an agreement preceded the execution of the document. Therefore it was a continuous process whereby the parties had discussed the terms of settlement and had reduced it into writing, dividing the properties amongst themselves and therefore, it was in the nature of a partition deed and cannot be construed as a memorandum of oral partition. If that position is accepted, the law of the land would require that the document be registered. Though partition amongst the Hindus may be effected orally, if the parties reduce it in writing to a formal document which is intended to be evidence of partition, it would have the effect of declaring the exclusive title of the coparcener to whom a particular property was allotted in partition and thus the document would be required to be compulsorily registered u/s. 17(1) (b) of the Registration Act, 1908. However, if the document did not evidence any partition by metes and bounds, it would be outside the purview of section 17(1)(b) of the Registration Act.
In view of the above, there is no substance in the contention put forth that the document in the case on hand was a mere record of a family arrangement that had taken place much earlier. It was a partition deed which was compulsorily registerable u/s. 17(1)(b) of the Indian Registration Act, 1908. Therefore, it was inadmissible in evidence for want of registration and could not have been relied upon as the basis to claim that there was an earlier partition.
A production sharing contract was executed between the 5 parties in regards to exploration of natural resources. As per the contract, the seat of arbitration was Kuala Lumpur (Malaysia). In 2000, disputes arose between the respondents and the contractor with respect to correctness of certain cost recoveries and profit. Since the parties could not resolve their disputes amicably, the same were referred to the Arbitral Tribunal as per the contract. The Arbitral Tribunal fixed the date of hearing at Kuala Lumpur (Malaysia), but due to outbreak of epidemic SARS, the Arbitral Tribunal shifted the venue of its sittings to Amsterdam in the first instance and, thereafter to London where on 31-3-2005 partial award was passed. The respondent No. 1 (Govt. of India) challenged the partial award by filing a petition in the High Court of Malaysia at Kuala Lumpur. The appellant questioned the maintainability of the case before the High Court of Malaysia by contending that in view of the contract, only the English Courts have the jurisdiction to entertain any challenge to the award. At that stage, the respondents filed a petition u/s. 9 of the Arbitration and Conciliation Act, 1996 in the Delhi High Court for stay of the arbitral proceedings. The High Court held that it had jurisdiction to entertain the petition filed u/s. 9 of the Act. The said order was challenged before the Supreme Court.
The first issue which arose for consideration was whether Kuala Lumpur was the designated seat or juridical seat of arbitration and the same had been shifted to London. The issue was important as the procedure for the conduct of arbitral proceeding would depend upon the procedural law of the country where the seat of arbitration is seated. The Court observed that as per the terms of the contract entered into by five parties, the seat of arbitration was Kuala Lumpur, Malaysia. However, due to outbreak of epidemic SARS, the Arbitral Tribunal decided to hold its sittings first at Amsterdam and then at London and the parties did not object to this. In the proceedings held at London, the Arbitral Tribunal recorded the consent of the parties for shifting the juridical seat of arbitration to London. Whether this amounted to shifting of the physical or juridical seat of arbitration from Kuala Lumpur to London?
As per the terms of agreement, the seat of arbitration was Kuala Lumpur. If the parties wanted to amend clauses of the contract they could have done so only by written instrument which was required to be signed by all of them. Admittedly, neither any agreement was there between the parties to the contract to shift the juridical seat of arbitration from Kuala Lumpur to London, nor was any written instrument signed by them for amending clause of the contract. Therefore, the mere fact that the parties to the particular arbitration had agreed for shifting of the seat of arbitration to London cannot be interpreted as anything except physical change of the venue of arbitration from Kuala Lumpur to London. Under the English law the seat of arbitration means juridical seat of arbitration, which can be designated by the parties to the arbitration agreement or by any arbitral or other institution or person empowered by the parties to do so or by the Arbitral Tribunal, if so authorised by the parties. In contrast, there is no provision in the Act under which the Arbitral Tribunal could change the juridical seat of arbitration which, as per the agreement of the parties, was Kuala Lumpur. Therefore, mere change in the physical venue of the hearing from Kuala Lumpur to Amsterdam and London did not amount to change in the juridical seat of arbitration.
The next issue for consideration was whether the Delhi High Court could entertain the petition filed by the respondents u/s. 9 of the Act. It was held that once the parties had agreed to be governed by any law other than Indian law in cases of international commercial arbitration, then that law would prevail and the provisions of the Act cannot be invoked questioning the arbitration proceedings or the award. The parties had agreed that the arbitration shall be governed by the laws of England. This necessarily implies that the parties had agreed to exclude the provisions of Part I of the Act. It was held that the Delhi High Court did not have the jurisdiction to entertain the petition filed by the respondents u/s. 9 of the Act and the mere fact that the appellant had earlier filed similar petitions was not sufficient to clothe that the High Court had the jurisdiction to entertain the petition filed by the respondents. The appeal was allowed.
In a criminal matter an accused was remanded to police custody. When the order of the police remand was not found favourable, his advocate started hurling abuses and detrogatory remarks against the Magistrate. The advocate uttered unparliamentarily words and also threatened the Magistrate with dire consequences. The Magistrate requested fellow advocates who were called, also abused the Magistrate and wanted to assault him physically.
The High Court initiated contempt proceedings. The High Court found the advocates guilty of criminal contempt and convicted them u/s. 12 r.w.s. 15 of the Contempt of Court Act, 1971. On appeal, the Supreme Court accepted the unconditional apology and discharged the contemnors.
The Court observed that a Court, be that of a Magistrate or the Supreme Court, is sacrosanct. The integrity and sanctity of an institution which has bestowed upon itself the responsibility of dispensing justice is ought to be maintained. All the functionaries, be it advocates, Judges and the rest of the staff, ought to act in accordance with morals and ethics.
An advocate’s duty is as important as that of a Judge. Advocates have a large responsibility towards the society. A client’s relationship with his/her advocate is underlined by utmost trust. An advocate is expected to act with utmost sincerity and respect. In all professional functions, an advocate should be diligent and his conduct should also be diligent and should conform to the requirements of law by which an advocate plays a vital role in preservation of society and justice system. An advocate is under an obligation to uphold the rule of law and ensure that the public justice system is enabled to function at its full potential. Any violation of the principles of professional ethics by an advocate is unfortunate and unacceptable. Ignoring even a minor violation/ misconduct militates against the fundamental foundation of the public justice system. An advocate should be dignified in his dealings to the Court, to his fellow lawyers and to the litigants. He should have integrity in abundance and should never do anything that erodes his credibility. An advocate has a duty to enlighten and encourage the juniors in the profession. An ideal advocate should believe that the legal profession has an element of service also and associates with legal service activities. Most importantly, he should faithfully abide by the standards of professional conduct and etiquette prescribed by the Bar Council of India in Chapter II, Part VI of the Bar Council of India Rules.
As a rule, an advocate being a member of the legal profession has a social duty to show the people a beacon of light by his conduct and actions rather than being adamant on an unwarranted and uncalled for issue.
Compilers Comment — The ratio is equally applicable to other professionals.
An agreement was entered to sell a house by all co-owners except one. As the parties failed to execute the sale deed, a suit for specific performance by the plaintiff purchaser was filed. The co-owner who was not party to the agreement proposed to purchase shares of other co-owners. The counsel for the plaintiff gave consent to such purchase by the co-owner, not party to agreement, at reasonable market value within a stipulated period. The valuation of property at reasonable market value was agreed to, by both parties. Order was passed to execute sale deed in favour of the co-owner not party, by a consent order. Against this, an appeal was filed before the Supreme Court.
The Court observed that apart from both parties including the plaintiff-appellant had agreed for a reasonable market valuation. The statement made by the counsel before the High Court, as recorded in the impugned judgment and order, cannot be challenged before this Court. It was also clear that the High Court had recorded in the impugned judgment that the counsel agreed with instructions from the plaintiff. A concession made by a counsel on a question of fact is binding on the client, but if it is on a question of law, it is not binding.
It is a consent order. As per section 96(3) of the Code of Civil Procedure Code, no appeal lies from a decree passed by the Court with the consent of the parties. For all the reasons, more particularly, the statement of fact as noted in the impugned judgment under Article 136, the Apex Court would not interfere with the order of the High Court which has done substantial justice.
