Subscribe to the Bombay Chartered Accountant Journal Subscribe Now!

Category: Corporate And Other Laws

Tenancy : Tenant can be evicted if subletting is done without the consent in writing of the landlord

New Page 1

10 Tenancy : Tenant can be evicted if
subletting is done without the consent in writing of the landlord.

The appellant No. 1 was inducted as a tenant in the year 1956
by the erstwhile owners of the suit shop. He was all along in continuous
possession of the suit shop and was conducting the business from the same along
with his brother, under the name and style of M/s. Mitra Book Depot. The rent
receipts issued by the landlord were in the name of M/s. Mitra Book Depot as
tenant.

Subsequently, a business was started in a portion of the suit
shop in the name of M/s. Mitra Stores and M/s. Lucky Confectioners being
appellants 2 to 4. In the year 2000, the owners sold the suit shop to one Anil
Anand. However, the rent of the suit shop was continued to be paid to erstwhile
owners by the appellant. Mr. Anil Anand sold the suit shop to the respondent by
a registered deed of sale in year 2000. However, the appellant No. 1 went on
depositing the rent in the name of the original landlord. Finally, in February,
2002, the respondent filed an eviction petition before the Rent Controller,
Delhi u/s.14(1)(b) of the Act on the ground of subletting by the appellant No.
1. The Rent controller passed the order of eviction by holding, inter alia,
that the case of subletting was duly proved as from the evidence on record, both
oral and documentary, it was clear that an independent business was run by the
appellants and that they were in exclusive possession of a portion of the suit
shop.

The appellants filed a writ petition before the High Court of
Delhi and the High Court dismissed the same.


 S. 14(1)(b) of the Act, reads as under :

“That the tenant has, on or after the 9th day of June,
1952, sublet, assigned or otherwise parted with the possession of the whole or
any part of the premises without obtaining the consent in writing of the
landlord.”

On further appeal the Supreme Court observed that if a tenant
had sublet or assigned or otherwise parted with the possession of the whole or
any part of the premises without obtaining the consent in writing of the
landlord, he would be liable to be evicted from the said premises as per S.
14(1). That is to say, the following ingredients must be satisfied before an
order of eviction can be passed on the ground of subletting :


(1) the tenant has sublet or assigned or parted with the
possession of the whole or any part of the premises;

(2) Such subletting or assigning or parting with the
possession has been done without obtaining the consent in writing of the
landlord.

 


In Kailasbhai Shukaram Tiwari v. Jostna Laxmidas Pujara
and Anr., Manu/SC/2529/2005, while dealing with a case of subletting under
the Bombay Rules, Hotel and Lodging House Rates Control Act, 1947 (57 of 1947),
the Apex Court observed that the question as to whether a person is a member of
the family of the tenant must be decided on the facts and circumstances of the
case. It observed in paragraph 14 as follows :

“Apart from the parents, spouse, brothers, sisters, sons
and daughters, if any other relative claims to be a member of the tenant’s
family, some more evidence is necessary to prove that they have always resided
together as members of one family over a period of time. The mere fact that a
relative has chosen to reside with the tenant for the sake of convenience,
will not make him a member of the family of the tenant in the context of rent
control legislation.”

 


In the facts of the case, the appellant No. 1 had parted with
the exclusive possession of a part of the suit premises in favour of the
appellant Nos. 2 to 4 without obtaining the consent in writing, either of the
erstwhile landlord or the purchaser respondent, nor the appellant could prove
that appellant nos. 2 to 4 being the family members were assisting him it the
business, hence the appeal was dismissed.

[Vaishakhi Ram & Ors. v. Sanjeev Kumar Bhatiani, Civil Appeal No. 1559
of 2008, dated 25-2-2008, Supreme Court of India.]

levitra

Stamp duty : Cousins not being members of the family do not fall with definition of word ‘family’ under Stamp Act : S. 45(a).

New Page 1

9 Stamp duty : Cousins not being members of
the family do not fall with definition of word ‘family’ under Stamp Act : S.
45(a).


The respondents herein are the sons of two brothers. They
entered into a deed of partition in respect of certain properties and presented
the same for registration. The respondents paid the fixed stamp duty as per
Article 45(a) of the Act. The District Registrar did not agree with the stamp
duty and held the said document as a pending document.

 

On appeal for release of documents, the Madras High Court
observed that the document presented for registration though titled as partition
deed was not actually a partition deed between two blood brothers. The
respondents were first cousins and the document was one falling under Article
45(b) of the Act. The word ‘family’ means as defined under Article 58 and reads
as under :

“Father, mother, husband, wife, son, daughter, grandchild.
In the case of any one whose personal law permits adoption, ‘father’ shall
include an adoptive father, ‘mother’ an adoptive mother, ‘son’ an adopted son
and ‘daughter’ an adopted daughter.”

 


Thus, it is seen that the word, ‘family’ is given a
restrictive meaning in its application to Article 58 and the same meaning is
imported to the word ‘family’ appearing in Article 45 of the Act. Consequently,
the respondents would be entitled to claim the benefit of concessional rate of
stamp duty under Article 45(a) only if both of them are members of a family,
within the meaning of the definition of the word, ‘family’ under Article 45(a).
Therefore, prima facie, the objection raised by the appellants i.e.,
District Registrar with regard to the nature of the document is well founded.
Under such circumstances, it was not possible to order the release of the
documents.

[ District Registrar, Tindivanam and Anr. v. V.
Ranganathan & Anr., AIR 2008 Mad 73.]

 


levitra

Deficiency in services by airline

New Page 1

7 Deficiency in services by airline :

Consumer Protection Act. 2(1)(g).

The airline unilaterally cancelled the ticket without
intimating to the passenger prior to cancellation of tickets of onward journey.
Notice on ticket stipulated that passenger if breaks journey for more than 72
hours had to reconfirm the onward reservation. Telephones of the airline were
busy when passengers tried to reconfirm, nor emails of passenger were replied.

 

In these circumstances it was held that as the telephone
system was not functioning, the clause mentioned on ticket cannot be applied.
The airline was held deficient in its services.

[ Air India v. Prakash Singh & Anr., AIR 2008 (NOC)
666 (NCC)]

 


levitra

Maintenance : Mother can claim maintenance against her son : S. 125 of Cr. P.C.

New Page 1

8 Maintenance : Mother can claim maintenance
against her son : S. 125 of Cr. P.C.


The respondent herein is the mother of the present applicant
Rafiuddin. The respondent was divorced in the year 1973. She had no source of
income and nobody was ready to maintain her. Therefore she claimed maintenance
from the present applicant i.e., son.

The Court relying on the decision in case of Mahendrakumar
Ramrao Gaikwad v. Golbhai Ramrao Gaikwad and Anr., 2000(2) Mh. L. J. 378 (Bom.)
held that the son cannot be absolved from his responsibility to maintain his
mother; even though the husband may be alive, son is one of those persons from
whom a woman can claim maintenance u/s. 125 of Cr. P.C.

 

The mother would be entitled to claim maintenance from the
son u/s.125 of Cr. P.C., irrespective of the fact that the husband is alive.

[ Rafiddin v. Smt. Salecha Khatoon, AIR 2008 NOC 776
(Bom.)]

 


levitra

Co-operative Housing Society : A member of tenant co-partnership housing society is not a tenant of the society : Rent Act 1947, S. 5(11) and Maharashtra Co-operative Societies Act, 1961, S. 29.

New Page 1

6 Co-operative Housing Society : A member of
tenant co-partnership housing society is not a tenant of the society : Rent Act
1947, S. 5(11) and Maharashtra Co-operative Societies Act, 1961, S. 29.


The respondent No. 1 Belfer Co-op. Housing Society Ltd. was a
tenant co-partnership housing society which held both land and flats constructed
thereon and Dr. Gopal Mahadevo Dhadphale respondent No. 2 was admitted as member
of the society. The said respondent No. 2 inducted M/s. Anita Enterprises and
M/s. Anita Medical Systems P. Ltd. being appellants no. 1 and 2 in Room No. 1
and 2 of the said premises on monthly rent. Both the appellants were put in
possession of the aforesaid premises. Thereafter certain dispute arose between
respondent No. 2 and the appellants. The appellants filed two separate suits for
a declaration that they were tenants with regard to the aforesaid premises. The
suit was dismissed by Trial Court.

 

Meanwhile the society raised a dispute before the
Co-operative Court u/s.91 of the Maharashtra Co-op. Societies Act, 1960 for
evicting the appellants from the premises. The Co-op. Court decided the dispute
in favour of the society and passed eviction order against the appellant. The
Division Bench of the High Court upheld the orders of the Co-op Court.

 

S. 12 of the Maharashtra Co-op. Societies Act lays down that
the Registrar shall classify all societies into one or other of the classes of
societies defined in S. 2 and also into such subclasses thereof, as may be
prescribed. Rule 10 prescribes such classification of the societies and under
Rule 10(1)(5) three types of housing societies have been enumerated.


Class

Sub-class

Examples of societies falling in the class or subclass,
as the case may be

1. 2. 3
Housing society (a) Tenant ownership
housing society		 Housing societies
where land is held either on leasehold or freehold basis by societies and
houses are owned or are to be owned by members.
(b) Tenant
Co-partnership housing society.		 Housing societies
which hold both land and buildings either on leasehold or freehold basis and
allot them to their members.
(c) Other housing
societies.		 House mortgage
societies and House construction societies.

 

In the case of tenant co-partnership housing society, it is
clear from the rules that the ownership of the land and building both remains
with the society and a member cannot be said to be co-owner, but in the case of
tenant ownership housing society, the ownership of the land remains with the
society, but ownership of the building/flat vests in the member. So far as
tenant within the meaning of S. 5(11) of the Rent Act is concerned, he has a
mere right to occupy. He is entitled to the protection of the statute so long as
grounds for eviction are not made out and can be evicted only by instituting a
suit in a Court enumerated u/s.28 of the Rent Act.

 

The concept of tenant co-partnership housing society was
considered by the Apex Court in the case of Sanwarmal Kejriwal v. Vishwa
Co-operative Housing Society Ltd., (1990) 2 SCC 288, wherein it was noticed
that the title to the property, i.e., the land and building/flat both,
vests in the society.

 

The status of a member in a tenant co-partnership housing society is very peculiar. The ownership of the land and building both vests in the society and the member has, for all practical purposes, right of occupation in perpetuity after the full value of the land and building and interest accrued thereon have been paid by him. Although dejure, he is not owner of the flat allotted to him, but, in fact, he enjoys almost all the rights which an owner enjoys, which includes right to transfer in case he fulfils the two pre-conditions, namely, he occupies the property for a period of one year and the transfer is made in favour of a person who is already a mem-ber or a person whose application for membership has been accepted by the society or whose appeal u/ s.23 of the Societies Act has been allowed by the Registrar or to a person who is deemed to be a member U/ss.(IA) of S. 23 of the Societies Act. In case any of these two conditions is not fulfilled, a member cannot be said to have any right of transfer. Thus, the law laid down by the Apex Court in the case of Sanwarmal (supra) is that a member has more than a mere right to occupy the flat, meaning thereby higher than tenant, which is not so in the case of a tenant within the meaning of S. 5(11) of the Rent Act. Therefore the status of a member in the case of tenant co-partnership housing society cannot be said to be that of a tenant within the meaning of S. 5(11) of the Rent Act, as such there was no relationship of landlord and tenant between the society and the member. Thus the appellants were not entitled to protection of the Rent Act. In view of the above, the appeals were dismissed.

[M/s. Anita Enterprises & Anr. v. Belfer Co-op. Hsg. Society Ltd. & Ors., AIR 2008 SC 746]

Registration of a partnership firm — Actual starting of business prior to registration not a condition precedent — Partnership Act, 1932 S. 4.

New Page 1

[The Registrar of Firms, Societies and Non-Trading
Corporations, West Bengal & Anr. v. Tarun Manna & Ors., AIR 2010 Calcutta
79]

The Registrar of Firms had declined to grant registration of
the firm which was desirous of carrying on business in foreign liquor as
wholesaler on the ground that the firm had not yet obtained any valid licence
from the concerned authority to start the business.

The Court observed that the partnership is the relation
between persons created by contract whereby the parties to such contract have
agreed to share the profits of a business with further condition that the
proposed business must be carried on by all or any of them acting for all.
Therefore the first condition of existence of a partnership is that there must
be an agreement by the partners to share the profits of a business. The other
condition is that such business must be agreed to be carried on by all or any of
them acting for all; in other words there must be existence of agency among the
partners of the proposed business as specifically recognized in S. 18 of the
Act.

Although a partnership firm can come into existence and
function without being registered at its own risk and at the risk of a third
party who deals with it, it is not the law that in order to have registration of
the firm the partners must be first exposed to risk of loss by dealing with the
third party without having any registration and then can only acquire the right
to apply for registration. There are various types of businesses which cannot be
even undertaken without first taking licence from appropriate authority.
Partnership is the relation among partners created by agreement and the
objection of S. 58 of the Act is to register such agreement by keeping note of
the particulars of the agreement arrived at by the parties for the benefit of
the partner as well as third parties who propose to deal with such firm. If
other formalities u/s.58 are satisfied the Registrar is bound to register the
firm.

levitra

Right to Information — Decision of Tribunal by nature is in public domain and ought to be ordinarily accessible to any applicant — Right to Information Act, 2005, S. 6 and S. 7.

New Page 1

[R. K. Jain v. Appellate Tribunal For Foreign Exchange,
2010 (252) ELT 366 (CIC)]

The applicant sought information from the Asst. Registrar of
the Appellate Tribunal For Foreign Exchange, namely :

“please provide inspection of all orders passed by ATFE
during the year 2008 and from 1-6-2009 to 15-8-2009.”

“Please provide list of cases in which orders are reserved
but not yet pronounced till 10-8-2009.”

The CPIO and the Appellate Authority declined to disclose the
information to the applicant on the ground that the applicant had not mentioned
the public interest for inspecting the records.

On further appeal the Central Information  Commission
held that it is inconceivable why an  applicant should be required to state
the public interest for receiving information which was so obvious as the orders
of a legally constituted authority. Such decisions are by their very nature in
the public domain and ought to be ordinarily accessible to any applicant.

The information relates to an essential function for which
this public authority was constituted, and there can be no reason why an
information about hearings of cases, their dates, reserving orders for
pronouncement, and pronouncement of the orders after these were reserved —
should be declined to a citizen. It was, in fact, expected of the public
authority that such essential information about its functioning should be
centrally tabulated and kept available for anyone seeking inspection.

It was held that the CPIO and the Appellate Authority had
been grossly errant in discharging their responsibilities under the RTI Act.

It was directed that the information be disclosed to the appellant through
inspection of the documents mentioned in the appellant’s RTI application.

levitra

Power of attorney — Registration — Registration Act, — S. 17.

New Page 1

[Mrs. B. Maragathamani & Ors. v. Member Secretary, Chennai
Metropolitan Development Authority & Ors., AIR 2010 Madras 61]

The petitioners 1 to 5 were holder of a valid power of
attorney.

The application for permission of construction of building
was rejected on the ground that the building was owned by several others holding
undivided shares of land and they have not given any registered power of
attorney in favour of the applicant.

The Court observed that S. 17 of the Registration Act, 1908
provides for compulsory registration of documents. S. 18 relates to the
documents of which registration is optional. S. 17 contemplates compulsory
registration of documents whenever some interest over immovable property or some
non-testamentary instruments transferring or assigning any decree or order of a
Court. None of the clauses contemplated under that Section requires a
registration of a power of attorney, which does not convey or confer any title
or interest whether vested or contingent.

As against S. 17, S. 18 gives an option to the executant of a
document to register the documents. The document in question is in respect of an
authorisation to some of the purchasers in an apartment seeking for
regularisation.

The authorisation does not indicate any transfer of title or
interest or any other matter covered u/s.17 and for that matter even u/s.18 of
the Registration Act. The power of attorney had been notarised by one Advocate
and Notary, Chennai. S. 85 of the Indian Evidence Act contemplates a presumption
to be drawn by the Court as to certain powers of attorney. By that Section the
Court shall presume that every document purporting to be a power of attorney and
to have been executed before and authenticated by a Notary Public was so
executed and authenticated. Certainly the power of attorney in question would be
considered to be a valid and legal document for the purpose of making an
application for regularisation and such application cannot be rejected solely on
the ground that it is not registered.

The Court held that the power of attorney does not create any
interest in immovable property. It is further held even on the question of
compulsory registration of the power of attorney, which is not covered u/s.17,
that only when the document creates an interest in immovable property, it is
compulsorily registrable.

Hence, the order rejecting the application for regularisation
solely on the ground that the power of attorney had not been registered was set
aside.

levitra

Certified copy — Document more than 20 years old — Admissibility — Evidence Act, 1872 S. 90, S. 90A.

New Page 1

[Dani Ram (deceased by L.Rs) v. Jamuna Das
(deceased by L.Rs) AIR 2010 (NOC) 524 (All) 2010 (1) ALJ 706]

The plaintiff had claimed rights as co-sharer by way of
inheritance from one Mr. Girdhar who was one of the co-sharers. The sale deed
dated 20-10-1914 was reference in evidence, however it was not the basis of
plaint, neither was it relied upon by the plaintiff in pleading. On
admissibility of certified copy of the said sale deed, the Court held that S. 90
and S. 90-A of the Indian Evidence Act as applicable to the State of U.P.
provide that where a document which is more than 20 years old is produced from
proper custody, the Court may presume that the signature and every other part of
such document, which purports to be in the handwriting of any particular person,
is in that person’s handwriting and in case executed and attested, that it is
duly executed and attested by the persons by whom it is said to be so executed
and attested. Similarly, S. 90-A of the Act provides that where any registered
document or a duly certified copy thereof is produced from the proper custody,
the Court may presume that the original was executed by the person by whom it
purports to have been executed. In other words, a certified copy of a document
which is more than 20 years old and is produced in evidence from the proper
custody, the presumption would be that it bears the signature of the person and
that it is duly executed and attested by such a person. Therefore, in such
circumstances, it is not necessary to produce the original of such document and
to prove it. However, Ss.(2) of S. 90-A places a rider and provides that such a
presumption shall not be available where the document is the basis of the suit
or of defence or is relied upon in a plaint or written statement. On perusal of
the plaint it reveals that the plaintiff had claimed rights as co-sharer in the
offerings by way of inheritance from Girdhar who was admittedly one of the
co-sharers and whose rights devolved upon his daughter’s son Dulli, who happened
to be the father of the plaintiff. There was no mention in the plaint about the
sale deed dated 20-10-1914 or that the plaintiff is claiming rights on the basis
of the sale deed. A reference of the said sale deed had come only in evidence.
Therefore the sale deed was neither the basis of the plaint, nor had it been
relied upon by the plaintiff in the pleadings. Hence, Ss.2 of S. 90-A of the
Evidence Act would not be attracted, and as such the presumption drawn in favour
of the sale deed by the lower Appellate Court was legally correct. Even though
the original of the said sale deed was not produced and only a certified copy
thereof was brought on record coupled with the fact that its production from the
proper custody is not disputed, it was admissible in evidence u/s.90 and
u/s.90-A of the Act.

levitra

Power of attorney : Evidence through power of attorney cannot be given : Power of Attorney Act, 1882 S. 2.

New Page 1

[Rajiv Dinesh Gadkari v. Smt. Nilangi Rajiv Gadkari,
AIR 2010 (NOC) 538 (Bom.), 2010 (1) AIR Bom R. 45]

The husband had asked for exemption from attending the Court
as he was residing in foreign country. As per provisions of S. 13 of the Family
Courts Act, 1984 no party to a suit or proceeding before a Family Court shall be
entitled, as of right, to be represented by a legal practitioner, though
normally the Court may give permission in the interest of justice for taking
assistance of legal expert. He cannot be permitted to give his evidence through
his power of attorney. It was held that in matrimonial matter, presence of
spouses before the Court was vital as there were certain aspects which are only
within the personal knowledge of the spouse. In fact, it was the duty of the
Family Court u/s.9 of the Act to make efforts for settlement. The power of
attorney holder cannot give evidence regarding the facts which were only within
the personal knowledge of either of the husband or wife.

levitra

Deficiency in service by Doctor — Consumer Protection Act 1986.

New Page 1

  1. Deficiency in service by Doctor — Consumer Protection Act
    1986.


Smt. Harjit Kaur, the wife of complainant received
accidental burns while making tea on the stove. She sustained 50% burns
involving both upper limbs, part of trunk and most of both lower limbs. The
wife was taken to Daya Nand Medical College and Hospital, Ludhiana where she
responded to the treatment well. Subsequently she was shifted to PGI Hospital
Chandigarh where Senior Resident Dr. Varun Kulshrestha attended to her. The
condition of wife started improving at PGI.

 

She was transfused A+ blood which was her blood group.
Subsequently, the patient was transfused B+ blood group although her blood
group was A+. In the night the urine of the patient was reddish like blood and
the attendant nurse was informed accordingly. As to the bad luck of Smt.
Harjit Kaur, on the next day, again one bottle of B+ blood group was
transfused. Because of transfusion of mismatched blood, the condition of Smt.
Harjit Kaur became serious; her hemoglobin levels fell down. and urea level
went very high. Later on, it transpired that due to transfusion of mismatched
blood, the kidney and liver of the patient got deranged. The complainant made
a written complaint to the Head of the Department of Plastic Surgery for
mismatched transfusion of blood to the patient whereupon an inquiry was
conducted through senior doctor and wrong transfusion of the blood to the
patient was found. The condition of Smt. Harjit Kaur started deteriorating day
by day and she ultimately died. In the complaint before the State Commission,
the complainants alleged that the death of Smt. Harjit Kaur was caused due to
the negligence of Dr. Varun Kulshrestha and the medical staff at PGI.

 

The State Commission after hearing the parties and upon
consideration of the materials made available to it, came to the conclusion
that there was serious deficiency and negligence on the part of PGI and its
attending doctor(s)/staff in transfusion of wrong blood group to the patient
which resulted in death of Smt. Harjit Kaur. The State Commission in its order
held that PGI was liable to pay sum of rupees two lac to the complainant.

 

The National Commission upheld the above order. On further
appeal the Court observed that the term negligence is often used in the sense
of careless conduct. In Grill v. General Iron Screw Collier Co. (1866)
L.R. 1 C.P. 600 at 612, Wills J. referred to negligence as “. . . the absence
of such care as it was the duty of the defendant to use.”

 

The Court further observed that insofar as civil law is
concerned, the term negligence is used for the purpose of fastening the
defendant with liability of the amount of damages. To fasten liability in
criminal law, the degree of negligence has to be higher than that of
negligence enough to fasten liability for damages in civil law.

 

As for the distinction between negligence in civil law and
in criminal law, it has been held that there is a marked difference as to the
effect of evidence, namely, the proof, in civil and criminal proceedings. In
civil proceedings, a mere preponderance of probability is sufficient, and the
defendant is not necessarily entitled to the benefit of every reasonable
doubt; but in criminal proceedings, the persuasion of guilt must amount to
such a moral certainty as convinces the mind of the Court, as a reasonable
man, beyond all reasonable doubt.

 

With regard to the professional negligence, it is now well
settled that a professional may be held liable for negligence if he was not
possessed of the requisite skill which he professed to have possessed or, he
did not exercise, with reasonable competence in the given case the skill which
he did possess. It is equally well settled that the standard to be applied for
judging, whether the person charged has been negligent or not, would be that
of an ordinary person exercising skill in that profession. It is not necessary
for every professional to possess the highest level of expertise in that
branch which he practises.

 

The Supreme Court held that the available material placed
before the State Commission shows that at the time of her admission, Smt.
Harjit Kaur was taking medicine orally and passing urine. Her condition had
substantially improved at PGI and she had no signs of septicemia. It was only
after mismatched blood transfusion B+ on two consecutive days, that she became
anemic (her hemoglobin level was reduced to 5 per gram) and her kidney and
liver were deranged. Although she survived for about 40 days after mismatched
blood transfusion but from that it cannot be said that there was no causal
link between the mismatched transfusion of blood and her death. Wrong blood
transfusion is an error which no hospital/doctor exercising ordinary care
would have made. Such an error is not an error of professional judgment but in
the very nature of things a sure instance of medical negligence.

Precedent — Different view amongst Co-ordinate Benches of Tribunal — Matter has to be referred to larger Bench.

New Page 1

  1. Precedent — Different view amongst Co-ordinate Benches of
    Tribunal — Matter has to be referred to larger Bench.


A dispute arose before the Tribunal in the context of sales
tax liability towards development charges received by the appellant builders.

 

The Tribunal observed that it was not in agreement with the
view expressed by its earlier Co-ordinate Bench. Despite the existence of the
regulation 54(a)(i) of Karnataka Appellate Tribunal Regulations stipulating
that in the event of conflict of decisions, the matter is required to be
referred to the Chairman, that was not done in this matter. Thus the matter
referred to Tribunal to constitute a special bench in view of the conflicting
opinions of the co-ordinate benches of the Tribunal in terms of regulation
54(a)(i) of the Act.


[ Continental Builders & Developers v. State of
Karnataka, (2009) 21 VST 74 (SC)]

 


levitra

Co-owner sale — Release of share by co-owner to other co-sharer did not amount to sale or conveyance — S. 2(10) Stamp Act 1899.

New Page 1

  1. Co-owner sale — Release of share by co-owner to other
    co-sharer did not amount to sale or conveyance — S. 2(10) Stamp Act 1899.


The collector passed an order u/s.47-A of the Indian Stamp
Act by which he had imposed stamp duty on the respondents by coming to the
conclusion but the release deed dated 7-6-2002 was not a release deed but was
a conveyance within the meaning of S. 2(10) and stamp duty was attracted on
it. The court held that Release deed made by two co-sharers to other
co-sharers who had existing right in the property and it was simply an
extension of their existing share and no stranger had been admitted to the
property. Therefore it did not amount to a transfer of the property at all and
the release deed would be covered by the Full Bench decision of this Court in
the case of Balwant Kaur v. State reported in AIR 1984 Allahabad 107.

 

The co-owners in this case had transferred their shares to
other co-sharers who had pre-existing right in the property. It did not amount
to any transfer, rather it only amounted to an extension of their existing
share. Since there was no transfer to any outsider, it would not amount to a
sale or conveyance within the meaning of S. 2(10) even if the explanation is
taken into account.

[ State of UP v. Dharam Pal & Anr., AIR 2009 (NOC)
1372 (All.)]


 



levitra

Appearance of retired members of CESTAT — Prohibition of practice by Ex-president, vice-presidents or members of CESTAT, before it held to be reasonable restriction : Constitution of India Art. 14, 19(1)(g) and 21.

New Page 3

  1. Appearance of retired members of CESTAT — Prohibition of
    practice by Ex-president, vice-presidents or members of CESTAT, before it held
    to be reasonable restriction : Constitution of India Art. 14, 19(1)(g) and 21.


The issue before the High Court was in respect of the right
of a member/president/vice-president of the Customs Excise Service Tax
Appellate Tribunal (‘CESTAT’) to appear, act and/or plead on their demitting
office before the very same Tribunal. The Legislature had sought to debar all
such like persons, by insertion of Ss.(6) to S. 129 of the Customs Act, 1962.
The aid provision was introduced by S. 110 of the Finance Act 2007 w.e.f.
11-5-2007.

The petitioners being aggrieved, have challenged the said
provision, on grounds that S. 129(6) of the Customs Act is ultra vires
Articles, 14, 19(1)(g) and 21 of the Constitution of India. Secondly that, in
any event, S. 129(6) of the Act has no applicability to the petitioners in
view of the fact that at the time when they were appointed to CESTAT and also
at a point in time when they demitted the office, the said provision was not
on the statute book.

The High Court observed that there was a time when a son
would appear in the court presided over by his father and no questions were
asked. The validity of a statute cannot be judged on the basis of rights of an
individual when an individual’s rights are pitted against a greater public
weal. Indi-vidual rights have to give way to a greater public interest.

The charge of violation of Article 14 was levelled on the
ground that provision was discriminatory, inasmuch as members of other
Tribunals, such as, the Income-tax Appellate Tribunal and the Appellate
Tribunal for Foreign Exchange were not barred from appearing, acting or
pleading before Tribunals of which they have been members.

The Court held that the purported discrimination claimed by
the petitioners on account of the fact that members of Tribunals such as the
Income-tax Appellate Tribunal and the Appellate Tribunal for Foreign Exchange
were not visited with such disability, was untenable. The fact that a
beginning had been made by incorporating such like provisions in respect of
some tribunals, such as, the CESTAT, the Central Administrative Tribunal
constituted under the Administrative Tribunal Act, 1985 would only conclude
that the impugned provision was not discriminatory. In the opinion of the
Court the step was taken towards insertion of the impugned provision was
reformatory and not discriminatory, as contended by the petitioners. Before
inserting the impugned provision, inputs were taken from various sources,
including the sitting president who was none else than a retired judge of a
High Court. The recommendation must have been made by a high functionary such
as the President of CESTAT, with a keen sense of responsibility after taking
into account his experience gained both on the judicial and administrative
side in the working of CESTAT.

The predominant rationale for introduction of this
provision is to strengthen the cause of administra-tion of justice then the
restriction cannot be said to be unreasonable under Article 19(6) of the
Constitu-tion. The petitioners have acquired expertise in the field of law
pertaining to customs, excise and ser-vice tax. Therefore the impugned
provision does not completely prohibit the petitioners from practising their
profession. The prohibition is with respect to a forum. The petitioners’
expertise can and is sought to be applied in superior forums, such as the High
Courts and also the Supreme Court. It would help to develop and foster entry
of fresh blood and talent at the level of the tribunals and at the same time
make available much needed expertise in the superior forums. There is no
denying that there is pauctity of lawyers who are experts in fields such as,
customs, excise and service tax in superior courts. The amendment meets
various facets of public interests and hence cannot be dubbed as one which was
unreasonably restrictive or one which completely forecloses all opportunities
available to the petitioners to exercise their profession.

There was a single tribunal, that is CESTAT which
adjudicates upon matters which pertain to customs, excise and service tax. The
members, vice-president and president are the same persons who hear and
adjudicate upon the matter involving the aforementioned three streams of law.
That being the position, the prohibition contained in the impugned provision
gets attracted no sooner the person who has held the office of the
president/vice-president or a member of the Appellate Tribunal which is a
common tribunal, that is, the CESTAT, seeks to appear, act or plead before the
CESTAT. It makes no difference that corresponding amendments have not been
brought about in the Excise Act or the Finance Act, 1994, because the
prohibition is not attached to the stream of law which is practised before
CESTAT. The prohibition or the bar on appearance is vis-à-vis the forum
and the trigger for invoking the bar is that the person concerned should have
held the office of a member, vice-president or president of the said forum.

Further there was no reason to draw a distinction between
persons who have demitted office prior to the insertion of the impugned
provision, and those who would demit office thereafter. The writ petition was
accordingly dismissed.

[ P. C. Jain v. UOI, 2009 (236) ELT 737 (Del.)
itatonline.org]

levitra

Sale becomes absolute and title vests in auction purchaser on issuance of sale certificate : Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

New Page 1

20 Sale becomes absolute and title vests in
auction purchaser on issuance of sale certificate : Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 (SARFAESI Act).


As the borrowers have not complied with the notice of demand
issued under 13(2) of SARFAESI Act, the second respondent/bank directed the
borrowers to discharge the loan amounts with interest within 60 days. The
borrowers invoking S. 17 of the SARFAESI Act filed application before the Debts
Recovery Tribunal II, Chennai, challenging the said notices issued by the second
respondent/bank, but the same were dismissed.

 

In view of the default in discharging the loans by the
borrowers, the second respondent/bank, exercising its powers u/s.13(4) of the
SARFAESI Act issued notice informing the borrowers that constructive possession
of the secured assets were taken over by them and the same would be through for
sale after the expiry of 30 days from that date, by way of public auction. In
the absence of any headway by the borrowers in re-payment, the third respondent,
who is the authorised officer of the second respondent bank, brought the
property for public auction.

 

The SARFAESI Act is a Special Act which aims to accelerate
the growth of economy of our country, empowering the lenders, namely,
nationalised banks, private sector banks and other financial institutions to
realise their dues from the defaulted borrowers who are very lethargic in
repayment of the loans borrowed by them, by exercising their right of
expeditious attachment and foreclosure for the enforcement of security.

 

The High Court observed that Ss.(8) of S. 13 of the Act gives
an opportunity to the borrowers to redeem the property given in security to the
secured creditor by paying the dues on or before the date fixed for sale and if
the payment is made, the secured creditor shall not proceed with the sale or
transfer. But, in the case on hand, the borrowers did not come forward to settle
the dues on or before the date fixed for sale. The borrowers approached the
secured creditor, by way of three cheques after the sale was confirmed in favour
of the appellant, who was the highest bidder and therefore, the secured creditor
rightly returned those cheques stating that the sale was already over and sale
certificate alone was to be issued, which would be done shortly. Subsequently,
the sale certificate came to be issued by the third respondent authorised
officer as per sub-rule (7) of Rule 9 of the SARFAESI Rules.

 

The borrowers should have approached the secured creditor or
the authorised officer before the date fixed for sale and not after the sale as
provided U/ss.(8) of S. 13 of the SARFAESI Act. Only if the borrowers approach
the secured creditor or the authorised officer before the date fixed for sale or
transfer and tender or pay all the dues to the secured creditor, the Section
creates a bar on the secured creditor or authorised officer to proceed further
with the proposed sale or transfer. In this case, admittedly, the date fixed for
the sale was 19-12-2005. But, even according to the version of the borrowers,
they approached the secured creditor only on 2-1-2006. In such circumstances,
the contention of the borrowers is without any basis and contrary to the
provisions contained in Ss.(8) of S. 13 of the Act.

[ K. Chidambara Manickam v. Shakeena & Ors., AIR 2008 Madras 108]

levitra

Appeal : Territorial jurisdiction of Court — Where significant part of cause of action arises : S. 20 of CPC

New Page 1

  1. Appeal : Territorial jurisdiction of Court — Where
    significant part of cause of action arises : S. 20 of CPC.


The issue that arose for consideration was whether the
Delhi High Court ought to exercise jurisdiction in respect of the impugned
order passed by CESTAT, New Delhi.

The respondent had raised preliminary objection pertaining
to lack of territorial jurisdiction of the High Court of Delhi. The appellant
operates from plot at Bareilly, U.P. The Commissioner of Central Excise,
Meerut-II issued show-cause notice; after adjudication the Commissioner
confirmed the demand and directed recovery of cenvat together with penalty. It
was that order which was appealed before CESTAT, New Delhi.

The Court observed that the significant part of the cause
of action should have arisen within the territorial sway of the Court which is
chosen by the Petitioner for ventilation of his grievances. The Court relied
on the decision in the case of Kusum Ingots and Alloys Ltd. v. Union of
India, AIR 2004 SC 2321 which clarifies the law as under :

“When an order, however, is passed by a Court or Tribunal
or an executive authority whether under provisions of a statute or
otherwise, a part of cause of action arises at that place. Even in a given
case, when the original authority is constituted at one place and the
Appellate authority is constituted at another, a writ petition would be
maintainable in the High Court within whose jurisdiction it is situate
having regard to the fact that the order of the appellate authority is also
required to be set aside and as the order of original authority merges with
that of the appellate authority.”

…….

“We must, however, remind ourselves that even if a small
part of cause of action arises within the territorial jurisdiction of the
High Court, the same by itself may not be considered to be a determinative
factor compelling the High Court to decide the matter on merit. In
appropriate cases, the Court may refuse to exercise its discretionary
jurisdiction by invoking the doctrine of forum convenience.”


In Stridewell Leathers (P) Ltd. v. Bhankerpur Simbhaoli
Beverages (P) Ltd., (1994) 1 SCC 34, the issue concerned was which High
Court would be the appropriate forum to adjudicate an appeal from the Company
Law Board, Principal Bench, New Delhi. The Supreme Court opined that — “the
expression “the High Court’ in S. 10-F of the Companies Act means the High
Court having jurisdiction in relation to the place at which the registered
office of the company concerned is situate as indicated by S. 2(11) read with
S. 10(1)(a) of the Act. Accordingly, the appeal against the order of the
Company Law Board would lie in the Madras High Court which has jurisdiction in
relation to the place at which the registered office of the company concerned
is situate and not the Delhi High Court merely because the order was made by
the Company Law Board at Delhi.

Similarly the Division Bench of the High Court of
Judicature at Bombay in Sun Pharmaceutical Inds. Ltd. v. Union of India,
2007 (218) ELT 495 (Bom.) held that even though the Settlement Commission was
physically located at Mumbai, since it was dealing with a case arising in
Tamil Nadu, it could be deemed to be located in that State and accordingly
amenable to the writ jurisdiction of the Madras High Court; the Bombay High
Court declined to exercise writ jurisdiction primarily because only a small
part of the cause of action had arisen within its jurisdiction.

The Court further observed that on a reading of Article
226(1) of the Constitution it will be palpably clear that without the next
following provision, that is, sub-clause (2) a High Court may not have been
empowered to issue a writ or order against a party which is not located within
the ordinary territorial limits of that High Court. The power to issue
writs against any person or Authority or government even beyond the
territorial jurisdiction of any High Court is no longer debatable. The rider
or prerequisite to the exercise of such power is that the cause of action must
meaningfully arise within the territories of that particular High Court. It
does not logically follow, however, that if a part of the cause of action
arises within the territories over which that High Court holds sway, it must
exercise that power rather than directing the petitioner to seek his remedy in
any other High Court which is better suited to exercise jurisdiction for the
reason that the predominant, substantial or significant part of the cause of
action arises in that Court. In other words any High Court is justified in
exercising powers under Article 226 either if the person, authority or govt.
is located within its territories or if the significant part of the cause of
action has arisen within its territories. The rationale of S. 20 of the Code
of Civil Procedure would, therefore, also apply to Article 226(2) of the
Constitution.

Thus the High Court should not exercise jurisdiction only
because the Tribunal whose order is in appeal before it, is located within its
territorial boundaries.

Merely because the order that is impugned has been
challenged by the CESTAT, New Delhi, the High Court at New Delhi ought not
exercise jurisdiction. The appeal was returned to be filed in the appropriate
court in accordance with law.

[Brindavan Beverages P. Ltd. v. Commissioner of C.
Ex., Meerut (2009) 237 ELT 658 (Del.)]




levitra

Gift of share in immovable property in a co-operative society requires registration : Registration Act S. 17(1)(A)

New Page 1

19 Gift of share in immovable property in a
co-operative society requires registration : Registration Act S. 17(1)(A)


The gift of share in immovable property in a co-operative
society or a gift of share in the society, which has the effect of transfer of
rights over the immovable property, is not exempt from being registered.

[ Brigadier Harjit Singh v. M/s. Rangmahal Theatre,
AIR 2008 (NOC) 1334 (Bom.)]

 


levitra

Nomination — Law relating to nomination u/s.109A of Companies Act and S. 9.11 of Depositories Act, 1996.

New Page 2

18. Nomination — Law
relating to nomination u/s.109A of Companies Act and S. 9.11 of Depositories
Act, 1996.


[Harsha Nitin Kokate v.
The Saraswat Co-op. Bank Ltd. & Ors., Notice of Motion No. 2351 of 2008 in
Suit No. 1972 of 2008, dated 20-4-2010, Bombay High Court.]

The plaintiff, wife of the
late Shri Nitin Kokate claimed right and interest in the shares of her husband
held in Demat Account. Her husband had executed a nomination in the prescribed
form in favour of his nephew which was filed with the depository participant
and so registered. The nephew had also claimed right title and interest in the
shares pursuant to the nomination executed in his favour. The nomination had
been executed well prior to the death of the deceased and well after his
marriage with the plaintiff.

The issue arose for
consideration as to the effect of such nomination. The Court observed that the
nomination form itself shows that the rights of transfer and/or the amount
payable in respect of the securities held by the late Nitin Kokate, vests in
the said nominee. The law relating to nomination is set out in S. 109A of the
Companies Act pursuant to the amendment which came into effect on 31st October
1998. It is common knowledge that prior to 1996, shares were not held in
dematerialised form. Consequent upon the dematting of the shares the share
certificates in physical form are not mandatorily required to be issued by the
limited companies listed on the Stock Exchanges. Shares can be transferred by
word of mouth or on the Internet from person to person. Upon such transfer the
membership rights of the holder of the shares change. Since the share is an
intangible movable property, it is bequeathable estate. The nomination in
respect of the shares is, therefore, important. S. 109A sets out the rights of
the holder of shares to nominate as well as the rights of the nominees.

The Depositories Act 1996,
S. 9.11 thereof relates to transmission of securities in the case of
nomination. Upon such nomination the dematted securities automatically get
transferred in the name of the nominee upon the death of the holder of shares.
The nomination is required to be duly registered with the depository
participant (Bank) in accordance with the Business Rules. On death of the
holder of the shares the nominee would be entitled to elect to be registered
as a beneficiary owner by notifying the Bank along with the certified copy of
the death certificate. The Bank would be required to scrutinise the election
and nomination of the nominee registered with it. Such nomination carries
effect notwithstanding anything contained in a testamentary disposition or
nominations made under any other law dealing with the securities. The last of
the many nominations would be valid. Under the said Section the holders of the
shares would nominate any person in whom the securities would vest in the
event of his death.

The nomination would have
the effect of vesting in the nominee complete title in the shares. He would be
entitled to elect to be registered as a beneficial owner of the shares or he
would have the right to transfer the shares. These are inter alia the rights
of every shareholder of listed companies. These rights show that the vesting
of the shares is upon the death of the shareholder, provided only that the
nomination is made as per the procedure set out by the Depository Participant.
The purpose and object of this Section is to simplify the procedure relating
to the transmission of shares which is otherwise an intangible movable
property.

Under the Insurance Act,
the nomination entails payment by the insurance company to the nominee to
obtain a complete discharge. Once the amount under the policy is paid to the
nominee, the nominee would hold it in trust or the estate, because under the
Insurance Act there is no legislative provision that the nominee would obtain
any other right.

It may be mentioned that
the position u/s.30 of the Maharashtra Cooperative Societies Act is similar
for nominees in respect of shares in a housing society. Hence in a cooperative
society also the shares of the member can be simplicitor transferred to the
nominee which transfer would effectually discharge the society as against any
other person making a demand. Such a transfer, therefore, cannot and does not
result in vesting of the flat in such nominee. Hence such nominee is merely a
trustee for the estate of the deceased. The society is not concerned with the
dispute amongst the heirs of the deceased.

The provision pursuant to
the amendment of the Companies Act is quite the contrary. The nomination
u/s.109A of the Companies Act does not entail mere payment of the amount of
shares. It specifically vests the property in the shares in the nominee, in
the event of the death of the holder of the shares.

It is observed that the
word ‘vest’ is a word of variable import even under Indian Statutes. Under the
Insolvency Act which provides that the property vests in the Receiver. Such
vesting is held to be temporary and only for the purpose of management of the
properties of the insolvent for payment of his debts after distributing his
assets. Consequently, the Receiver would have no interest of his own in the
property vested in him. The vesting under the Land Acquisition Act is shown to
be different. Under that Act the property would vest ‘absolutely in the
Government, free from all encumbrances’. Hence upon such vesting the property
acquired becomes the property of the Government without any conditions or
limitations either as to its title or possession. A reading of S. 109A of the
Companies Act and S. 9.11 of the Depositories Act makes it abundantly clear
that the intent of the nomination is to vest the property in the shares which
includes the ownership rights thereunder in the nominee upon nomination
validly made as per the procedure prescribed, as has been done in this case.
These Sections are completely different from S. 39 of the Insurance Act which
requires a nomination merely for the payment of the amount under the Life
Insurance Policy without confirming any ownership rights in the nominee or
u/s.30 of the Maharashtra Cooperative Societies Act which allows the society
to transfer the shares of the member which would be valid against any demand
made by anydemand made by any other person upon the society.

Since the nomination is shown to be correctly made by her husband who was the holder of the suit shares, the plaintiff wife would have no right to get the shares of her deceased husband sold or to otherwise deal with the same.

Parking spaces — Interpretation — Meaning ‘Flat’ — Separate self-contained part of building — Promoter has no right to sell ‘Stilt parking spaces’.

New Page 2

19. Parking spaces —
Interpretation — Meaning ‘Flat’ — Separate self-contained part of building —
Promoter has no right to sell ‘Stilt parking spaces’.


[Nahalchand Laloochand
P. Ltd. v. Panchali Co-op. Housing Society Ltd., AIR 2010 SC 3607]

The issue which arose for
consideration was in respect of encroachment on the parking spaces in the
stilt portion of the building by the promoter/developer of the building. The
promoter set up the case that under the agreement for sale it has sold flats
in its building and no other portion. The High Court had held that the stilt
parking spaces cannot be put on sale by the developer as he ceases to have any
title on the same and it becomes the property of society. The appeal arises
from the aforesaid order of the High Court which have effect on rights on
several developers.

The Supreme Court observed
that the stilt car parking spaces is part of the common amenities and it
cannot be treated to be a separate premises/garage which could be sold.

The definition of ‘flat’
occurring in S. 2(a-1) of MOFA includes an ‘apartment’. It must be a separate
unit conforming to the description capable of being used for one of these
purposes, namely, residence, office, showroom, shop, godown or for industrial
or business purposes. Alternative uses in S. 2(a-1) of MOFA do expand the
ordinary meaning of the term ‘flat’, but nevertheless such premises that form
part of building must be separate and self-contained.

The words ‘and includes a
garage’ in definition of word flat in S. 2(a-1) are put in brackets. The
bracketed phrase is indicative of the legislative intention to include a
‘garage’ as appurtenant or attachment to a flat which satisfies the
ingredients of S. 2(a-1). The open parking space does not tantamount to a
‘garage’ within the meaning of S. 2(a-1). The word ‘garage’ may not have
uniform connotation, but definitely every space for parking motor vehicles is
not a garage. A roofless erection could not be described as garage. What is
contemplated by a ‘garage’ in S. 2(a-1) is a place having a roof and walls on
three sides. It does not include an unenclosed or uncovered parking space.
That being so,
open parking space cannot be sold as flat or along with flat.

Stilted portion or stilt
area of building is not a garage under the Act. A stilt area is a space above
the ground and below the first/floor having columns that support the first
floor and the building. It may be usable as a parking space, but for the
purposes of the Act, such portion could not be treated as garage. The 1963 Act
(MOFA) does not define nor does it explain ‘common areas and facilities’
though said phrase is used at various places in that Act. This expression is
however defined in S. 3(f) of the 1970 Act (MAOA). Looking to the scheme and
object of MOFA, and there being no indication to the contrary, there is no
justification to exclude parking areas (open to the sky or stilted portion)
from the purview of ‘common areas and facilities’ under MOFA.

It is true that under MOFA
it is for promoter to prescribe and define at the outset the ‘common areas’,
but it cannot be said that the parking area cannot be termed as part of
‘common areas’ if they are not so defined by promoter. The fact that as
open/stilt parking space is treated as part of ‘common areas’, every flat
purchaser will have to bear proportionate cost for the same although he may
not be interested in such parking space at all cannot be a consideration
relevant for the consideration of term ‘common areas and facilities’ in MOFA.
It is not necessary that all flat purchasers must actually use ‘common areas
and facilities’ in its entirety. By treating open/stilt parking space as
common area, the promoter is not put to any prejudice financially since he is
entitled to charge price for the common areas and facilities from each flat
purchaser in proportion to the carpet area of the flat.

MOFA mandates the promoter
to describe ‘common areas and facilities’ in the advertisement as well as the
‘agreement’ with the flat purchaser and the promoter is also required to
indicate the price of the flat including the proportionate price of the
‘common areas and facilities’. If a promoter does not fully disclose the
common areas and facilities, he does so at his own peril. The ‘stilt parking
space’ is not covered by the term ‘garage’ much less a ‘flat’ and that it is
part of ‘common areas’. The only right that the promoter therefore has, is to
charge the cost thereof in proportion to the carpet area of the flat from each
flat purchaser. Such stilt parking space being neither ‘flat’ under S. 2(a-1)
nor ‘garage’ within the meaning of that provision is not saleable at all. The
promoter has no right to sell any portion of such building which is not ‘flat’
within the meaning of S. 2(a-1) and the entire land and building has to be
conveyed to the organisations; the only right remains with the promoter is to
sell unsold flat. Promoter has no right to sell ‘stilt parking spaces’ as
these are neither ‘flat’ nor appurtenant or attachment to a ‘flat’.

levitra

Binding precedents — Tribunals are bound by the judgment of the High Court in absence of any contrary judgment of the jurisdictional High Court.

New Page 2

17. Binding precedents —
Tribunals are bound by the judgment of the High Court in absence of any contrary
judgment of the jurisdictional High Court.


[C.C.E. Mumbai-III v.
Valson Dyeing Bleaching & Printing Works, 2010 (259) ELT 33 (Bom.)]

In the instance case the
adjudicating authority had determined the annual capacity of production (ACP)
and accordingly basic duty liability of the assessee was determined. The CIT(A)
upheld the said order. The assessee preferred the appeal to the Tribunal.

The respondent during the
course of hearing had relied on judgment of the Madras High Court in the case
of Beauty Dyers v. Union of India, 2004 (166) ELT 27 (Mad.) with one more
judgment in the case of respondent assessee itself, reported in 2004 (163) ELT
28. In the case of Beauty Dyers (supra), Madras High Court had declared the
Notification No. 42/98, issued in exercise of powers u/s.3A of the Act, under
which ACP was determined, as constitutionally invalid. The said judgment of
the Madras High Court was followed by the Tribunal in the case of Raji Thangam
Textiles Ltd. v. C.C.E., Coimbatore, 2006 (205) ELT 631 (Tri.). The Tribunal
in the present matter had relied upon the aforesaid judgments and set aside
the impugned orders of the Appellate as well as that of the adjudicating
authorities. The aforesaid order had given rise to the present appeal.

The question involved in
this case was whether or not the Tribunal was justified in relying upon the
judgment of the Madras High Court. The Court held that the judgment of the
Madras High Court in case of Beauty Dyers (supra) was very much binding on the
Tribunal. The Tribunal could not have brushed aside the said judgment of the
Madras High Court since there was no other judgment of the jurisdictional High
Court much less of any other High Court taking contrary view. The law on the
subject is absolutely clear, wherein various High Courts and the Apex Court
have ruled from time to time that the Tribunals are bound by the judgment of
the High Court in absence of any contrary judgment of the jurisdictional High
Court. Thus, the Tribunal was bound by the judgment of the Madras High Court.
Reliance was placed on the Division Bench judgment of the Court in the case of
CIT v. Smt. Godavaridevi Saraf, (1978) 113 ITR 589.

levitra

Appellate Tribunal order — Non-consider-ation of facts.

New Page 2

16. Appellate Tribunal order
— Non-consideration of facts.


[C.C.E. Coimbatore v.
Kwality Fun Foods & Restaurant P. Ltd., (2010) (259) ELT 641 (SC)]

In the instance case the
CESTAT without adverting to the basis facts and without making any independent
analysis of the agreement between the parties relied on a decision and allowed
the appeal of the assessee.

On appeal by the Revenue
the Supreme Court observed that though the Tribunal has referred to the
findings of the said judgment but without saying anything as to how those
findings are applicable to the facts of the present case. The issue whether
the parties are related person within the meaning of S. 4(4)(e) of the Central
Excise Act is to be considered with reference to facts in each case.

The Tribunal had failed to
advert even to the basic facts and disposed of the appeals in a summary
manner. The impugned order of the Tribunal was set aside and remitted for
fresh consideration.

levitra

Arbitration — Resolution of dispute through arbitration cannot be initiated by a debtor — Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 S. 11.

New Page 1

  1. Arbitration — Resolution of dispute through arbitration
    cannot be initiated by a debtor — Securitisation and Reconstruction of
    Financial Assets and Enforcement of Security Interest Act, 2002 S. 11.

[Smt. Pushpalatha S. v. State Bank of Travancore & Anr.,
AIR 2009 Kerala 181]

The petitioner availed a loan from the first respondent,
under the available financial assistance scheme of the second respondent,
Khadi and Village Industries Commission. The petitioner states that the second
respondent recommended her application and forwarded it to the first
respondent bank. However, the bank did not duly honour its commitments and
hence margin money and other amounts payable by the second respondent, the
Commission, was not appropriately released.

On default in repayment, the bank initiated action under
the Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (in short, SARFAESI Act). A notice u/s. 13(2) was
issued. The petitioner replied stating that in view of the disputes between
the petitioner and the first respondent regarding the total amount outstanding
from her to the bank, the parties have to go for arbitration in terms of S. 11
of the SARFAESI Act read with the provisions of the Arbitration and
Conciliation Act, 1996.

The petitioner’s challenge is to the bank’s decision that
it does not agree for arbitration in terms of S. 11 of the SARFAESI Act.

The Court observed that a reading of S. 11 of the SARFAESI
Act shows that the disputes which could be resolved by recourse to that
provision are disputes relating to securitisation or reconstruction or
non-payment of any amount due including interest. Such a dispute could be
resolved only when that arises amongst any of the parties stated in that said
provision. They are the bank or the financial institution or the
securitisation company or the reconstruction company or a qualified
institutional buyer. Therefore any dispute between a secured creditor and a
debtor in relation to the security interest or secured debt does not fall for
arbitration under that provision. For that clear reason, S. 11 of the SARFAESI
Act cannot be initiated by a debtor. Hence the decision of the bank to that
extent is sustainable. Therefore, the petitioner’s plea based on S. 11 of the
SARFAESI Act was rejected.

Power of attorney — Sale of immovable property through execution of sale agreement/general power of attorney/will instead of execution and registration of regular deeds of conveyance deprecated as illegal and irregular — Transfer of Property Act, S. 54.

New Page 1

  1. Power of attorney — Sale of immovable property through
    execution of sale agreement/general power of attorney/will instead of
    execution and registration of regular deeds of conveyance deprecated as
    illegal and irregular — Transfer of Property Act, S. 54.

[Suraj Lamp & Inds. (P) Ltd. Thru DIR v. State of
Haryana & Anr., AIR 2009 SC 3077]

This case is a typical example of an irregular process
spreading across the country.

The petitioner, a company incorporated under the Companies
Act, claims that one Ramnath and his family members sold two and half acres of
land in Gurgaon to them by means of an agreement of sale, General Power of
Attorney (for short ‘GPA’) and a ‘Will’ in the year 1991 for a consideration.
It was further alleged that the petitioner verbally agreed to sell a part of
the said property measuring one acre to one Dharamvir Yadav for Rs.60 lakhs in
December 1996. It was stated that the said Dharamvir Yadav, and his son Mohit
Yadav (an ex MLA and Minister), instead of proceeding with the transaction
with the petitioner, directly got in touch with Ramnath and his family members
and in 1997 got a GPA in favour of Dharamvir Yadav in regard to the entire two
and half acres executed and registered and illegally cancelled the earlier GPA
in favour of the petitioner. The petitioner claims that when its Director, S.
K. Chandak, confronted Dharamvir Yadav in the year 1999 in this behalf, the
said Yadav apologised and issued a cheque for Rs.10 lakhs towards part payment
and agreed to pay the balance of Rs.50 lakhs shortly, but that the said cheque
was dishonoured. It was further alleged that in the year 2001, the petitioner
lodged a criminal complaint against Ramnath and members of his family who
executed the sale agreement/GPA/will in favour of the petitioner and another
complaint against Dharambir Yadav and his son in the District Court, Gurgaon.
The petitioner claims that as no action was taken on its FIR by the
Investigation Officer, the petitioner filed an application under the Right to
Information Act, 2004 seeking the status. An appeal filed by the petitioner
was disposed of by the Chief Information Commissioner, merely directing that
the Police should re-investigate the FIR. The petitioner filed a writ petition
challenging the order of the Chief Information Commissioner and seeking
initiation of proceedings u/s.20 of the RTI Act and imposition of penalty. The
said writ petition was disposed of by the High Court by the impugned order
holding that S. 20 was directory and not mandatory.

The Court observed that the issue was in respect of
avoidance of execution and registration of deeds of conveyance as the mode of
transfer of freehold immovable property by increasing tendency to adopt ‘Power
of Attorney Sales’, that is execution of sale agreement/ general power of
attorney/will (for short ‘SA-GPA-Will transactions’) instead of execution and
registration of regular deeds of conveyance, on receiving full consideration.

The ‘Power of Attorney Sales’ as a method of ‘transfer’ was
evolved by lawyers and document writers in Delhi, to overcome certain
restrictions on transfer of flats by the Delhi Development Authority (for
short ‘DDA’). DDA had undertaken large-scale development by constructing of
flats. It is stated that when DDA allotted a flat to an allottee, any transfer
of the assignment by the allottee required the permission of DDA and such
permission was granted only on payment to DDA of the ‘unearned increase’, that
is the difference between the market value/sale price and the original cost of
allotment. To avoid the cumbersome procedure in obtaining permission and to
avoid payment of the huge part of the price to the DDA as unearned increase, a
hybrid system was evolved whereby the allottee/holder of the flat, on
receiving the agreed consideration would deliver the possession of the flat to
the purchaser and execute such power of attorney sales/will, etc. Such
transactions were obviously irregular and illegal being contrary to the rules
and terms of allotment. Further, in the absence of a registered deed of
conveyance, no right, title or interest in an immovable property could be
transferred to the purchaser.

The Registration Act, 1908, was enacted with the intention
of providing orderliness, discipline and public notice in regard to
transactions relating to immovable property and protection from fraud and
forgery of documents of transfer. This is achieved by requiring compulsory
registration of certain types of documents and providing for consequences of
non-registration. S. 17 of the Registration Act clearly provides that any
document (other than testamentary instruments) which purports or operates to
create, declare, assign, limit or extinguish whether in present or in future
‘any right, title or interest’ whether vested or contingent of the value of
Rs.100 and upwards to or in immovable property. S. 49 of the said Act provides
that no document required by S. 17 to be registered shall, affect any
immovable property comprised therein or received as evidence of any
transaction affected such property, unless it has been registered.
Registration of a document gives notice to the world that such a document has
been executed. Registration provides safety and security to transactions
relating to immovable property, even if the document is lost or destroyed. It
gives publicity and public exposure to documents, thereby preventing forgeries
and frauds in regard to transactions and execution of documents.

Whatever be the intention, the consequences are disturbing
and far-reaching, adversely affecting the economy, civil society and law and
order. Firstly, it enables large-scale evasion of income tax, wealth tax,
stamp duty and registration fees, thereby denying the benefit of such revenue
to the government and the public. Secondly, such transactions enable persons
with undisclosed wealth/income to invest their black money and also earn
profit/income, thereby encouraging circulation of black money and corruption.
Such power of attorney sales indirectly lead to growth of real estate mafia
and criminalisation of real estate transactions.

Power of attorney — The holder of power of attorney can only conduct case — Cannot be allowed to depose on behalf of his principal on matters which would be within his personal knowledge — Civil Procedure Code, Order III Rule 1 & 2.

New Page 1

  1. Power of attorney — The holder of power of attorney can
    only conduct case — Cannot be allowed to depose on behalf of his principal on
    matters which would be within his personal knowledge — Civil Procedure Code,
    Order III Rule 1 & 2.

[ Usha Ranganathan v. N. K. V. Krishnan & Anr., AIR
2009 Madras 178]

The respondents are defendants, they were represented by
one Mr. C. Ramesh, who was conducting their case on their behalf, as their
power of attorney. The respondents filed application stating that the Power of
Attorney Mr. C. Ramesh suddenly left them, which necessitated to cancel the
power of attorney given to him and on the same day they executed Power of
Attorney deed in favour of one Mr. D. Nagarajan and hence he may be recognised
as power of attorney holder for the defendants and be permitted to give
evidence and prosecute the above case on the behalf of defendants by
substituting his name in the place of Mr. C. Ramesh. The said petition was
resisted by filing the counter application by the respondent/plaintiff. The
learned District Munsif allowed the application.

The petitioner contended that the prayer in the application
contains a request for examination of power of attorney in place of the
defendants, which is not recognised by law and the application ought to be
dismissed.

The Court while dealing with Order III Rules 1 and 2 of CPC
explained the scope of the phrase ‘to act’ and held that the word ‘act’ would
not include adducing oral evidence on behalf of his principal for the acts
done by the principal and not by him and that he cannot depose for the
principal in respect of the matter which only the principal can have a
personal knowledge.

Order III, Rules 1 and 2 CPC, empowers the holder of power
of attorney to ‘act’ on behalf of the principal. The word ‘acts’ employed in
Order III, Rules 1 and 2 CPC, confines only in respect of ‘acts’ done by the
power of attorney holder in exercise of power granted by the instrument. The
term ‘acts’ would not include deposing in place and instead of the principal.
In other words, if the power of attorney holder has rendered some ‘acts’ in
pursuance to power of attorney, he may depose for the principal in respect of
the matter of which only the principal can have a personal knowledge and in
respect of which the principal is entitled to be cross-examined.

Thus the new power of attorney holder Mr. D. Nagarajan can
conduct the case on behalf of the respondents/defendants except giving oral
evidence on their behalf.

Property — Right of Guardian to sell the property of minor — Permission of the Court u/s.8 of the Hindu Minority and Guardianship Act read with the provisions of Guardian and Wards Act would not be necessary where an interest in the joint family is sought

New Page 1

  1. Property — Right of Guardian to sell the property of minor
    — Permission of the Court u/s.8 of the Hindu Minority and Guardianship Act
    read with the provisions of Guardian and Wards Act would not be necessary
    where an interest in the joint family is sought to be disposed of.

[Prakash Ramkrishna Khadse, Vilas Ramkrishna Khadse and
Smt. Shakuntala wd/o Ramkrishna v. Manikrao Ramaji Sonwane and Ors., 2009
Vol. 111(9) Bom. L.R. 4137]

The appellant defendants, owners of suit property, entered
into an agreement of sale with the respondent plaintiff. Allegedly, the
plaintiff failed to perform his part of contract by providing evidence as to
payment of requisite consideration under agreement of sale. Therefore, the
defendants refused to register the sale deed in favour of the plaintiff and
entered into sale with the defendants No. 4-5 and later on with the defendants
6-7. The plaintiff had filed suit for specific performance.

One of the contentions raised by the appellant/defendants
was that there is no averment in the plaint that the contract was entered into
by the defendants 1 and 2 i.e., elder brother and mother for the
benefit of the minor defendant No. 3 or that it will so benefit the minor. He
submits that a guardian has no right to sell the property of minor without
obtaining permission of the District Judge and admittedly in this case the
permission was not obtained.

The suit property is admittedly the ancestral property of
the defendants No. 1 to 3 i.e., vendors of the plaintiff. S. 6 of the
Hindu Minority and Guardianship Act says that in the absence of the father,
the mother shall be the guardian of the person and property of the minor,
excluding his undivided share in the joint family property. S. 8 speaks of
powers of natural guardian in respect of separate property of the minor. S. 8
has no application to cases where the minor has an interest in Hindu undivided
family.

The Court observed that the permission of the Court u/s.8
of the Hindu Minority and Guardianship Act read with the provisions of the
Guardian and Wards Act would not be necessary where an interest in the joint
family is sought to be disposed of. In the instant case the elder brother who
was the Karta of the joint family and the mother have joined the execution of
the agreement.

The question that arose for consideration was whether a
contract entered into by a guardian of a Hindu minor for sale or for purchase
of immoveable property was specifically enforceable against the minor.

It was held that a minor has no legal competency to enter
into a contract or authorise another to do so on his behalf. A guardian,
therefore, steps in to supplement the minor’s defective capacity. The limit
and extent of the guardian’s capacity (authority) are conditioned by Hindu
law. They can only function within the doctrine of legal necessity or benefit.
The validity of the transaction is judged with reference to the scope of his
power to enter into a contract on behalf of the minor. Even the personal
liability arising out of the guardian’s contract is a liability of the minor’s
estate only. Since the guardian under the Hindu law has the legal competency
to enter into a contract on behalf of the minor for necessity or for the
benefit of the estate, the contract is valid from the time of its inception,
and since either party can enforce any contract, the test of enforceability is
satisfied.

The Court therefore held that a contract to purchase
immoveable property by a competent guardian acting within his authority on
behalf of a minor is specifically enforceable by or against the minor. Thus a
guardian has power to enter into a contract on behalf of a minor and it could
be so enforced against the minor. It will always be for the minor to repudiate
or not to repudiate on attaining majority. The contract is therefore not void.

Enforcement of security interest — It is open to a secured creditor to move against any secured asset and it is not essential that all the secured properties should be put to sale simultaneously — Securitisation and Reconstruction of Financial Assets and


  1. Enforcement of security interest — It is open to a secured
    creditor to move against any secured asset and it is not essential that all
    the secured properties should be put to sale simultaneously — Securitisation
    and Reconstruction of Financial Assets and Enforcement of Security Interest
    Act, 2002 : S. 13(2) and S. (4).

[M/s. Wasan Shoes Ltd. & Ors. v. Chairperson, Debts
Recovery Appellate Tribunal, Allahabad & Ors., AIR 2009 Allahabad 163]

The respondent-bank filed a claim application in the year
2004 before the Debts Recovery Tribunal for recovery of Rs.14.97 crores plus
interest. During its pendency, a demand notice was issued u/s.13(2) of the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002. It was alleged in the said notice that the
petitioners were required to discharge their liabilities within sixty days
and, in the meanwhile, the petitioners were restrained from dealing with the
secured assets, in any manner, whatsoever. The secured assets were at Agra and
the other at Noida.

The petitioners submitted their reply to the notice denying
any liability to pay, and contended that no amount was due or payable by them,
and that, the notice was liable to be withdrawn. A possession notice u/s.13(4)
of the Act was issued, intimating the petitioners that possession of plot at
Agra had been taken.

The Debts Recovery Tribunal, disposed of the interim
application holding that the sale of the property at NOIDA could not be made
by the respondent-bank, inasmuch as the possession of this plot was not taken
u/s.13(4) of the Act, but permitted the respondent-bank to proceed with the
sale of the plots located at Agra. The petitioners, being aggrieved by the
said order, filed an appeal u/s.18 of the Act, which was dismissed.

The petitioner contended that the notice u/s.13(2) of the
Act was with regard to the two properties located at Agra and NOIDA, and that,
possession u/s.13(4) of the Act was only confined to one property located at
Agra, and this procedure, adopted by the respondent-bank, was patently
illegal.

The Court observed that there was no error in the issuance
of notice u/s.13(2) of the Act. It is open to a secured creditor to move
against any secured assets and it is not essential that all the secured
properties should be put to sale simultaneously. If by sale of one property
substantial recovery could be made, it is not necessary that all the
properties should be sold or possession be taken u/s.13(4) of the Act. Thus
the Court did not find any error in the procedure adopted. Insofar as Rule
8(2) of the Rules is concerned, the publication had been made in two
newspapers, and that substantial compliance had been made under Rule 8(2) of
the Rules. Therefore, the petition was dismissed.

levitra

Hindu Marriages Act : After decree of divorce is passed, relation between husband and wife with respect to matrimonial premises becomes that of licencesor and licensee : Easement Act S. 52.

New Page 4

20 Hindu Marriages Act : After decree of divorce is passed,
relation between husband and wife with respect to matrimonial premises becomes
that of licencesor and licensee : Easement Act S. 52.


The present petitioner filed suit against the respondent, who
is his divorced wife, on the ground that she is residing in a portion of the
same building in which he has been residing and her stay is continued even after
his marriage with her came to be dissolved by a decree granted by the Family
Court.

The Trial Court held that since no right has been conferred
upon the wife in the divorce decree to stay in the said premises, after
dissolution of her marriage with petitioner, the relationship between the
petitioner and the respondent became that of licensor and licensee and therefore
the husband claimed possession of it by filing the said ejectment suit.

The High Court observed that it is the settled principle of
law that once a decree of divorce is passed by the competent Court, dissolving
the marriage between the husband and wife, they cease to be husband and wife and
consequently they cease to have any right or obligation against each other,
which they had during the subsistence of their marriage. Such rights and
obligations include the right of the wife to reside with her husband and the
obligation on the part of the husband to live with her under the same roof; her
right to succeed to his properties. Therefore, after obtaining a decree of
divorce, though the husband would be liable to pay alimony towards maintenance
of his divorced wife till she remarries or till she dies, he would not be liable
to make arrangement for her stay by securing an accommodation when she has to
leave his residence by reason of dissolution of his marriage with her. At best,
his obligation would extend to enhance the alimony payable by him to her so as
to enable her to meet the additional expenses towards rent of the residential
premises wherein she has to reside after leaving his residence. This being so,
the respondent herein cannot claim against the petitioner any right to reside in
the said premises after dissolution of her marriage with him. The relationship
between the petitioner and the respondent with respect to the said premises has
been that of licensor and licensee, but not that of husband and wife, so that
the respondent could exercise her right to residence in the said premises. She
has no alternative but to quit the said premises, stay in any other premises
suitable to her and claim from the petitioner enhancement in the monthly
alimony.

[B. Krishnappa v. Smt. Chandrika G., AIR 2008
Karnataka 175]


levitra

Powers of Revenue authority : Revenue authority cannot decide question relating to genuineness of document : Stamp Act, 1899, S. 38(2).

New Page 4

21 Powers of Revenue authority : Revenue authority cannot
decide question relating to genuineness of document : Stamp Act, 1899, S. 38(2).


When a document is sent to Revenue authority or District
Collector, for the purpose of impounding, levying the stamp duty and penalty he
is expected to decide the same in accordance with provisions of the Stamp Act
and cannot travel beyond that by entering into controversy whether document sent
by the Civil Court is genuine or not. It is for the competent Civil Court to
decide the question in relation to genuineness or otherwise of document
concerned. The authority or jurisdiction of Revenue authority/District Collector
would be limited for the purpose of deciding the question of impounding i.e.,
levying the stamp duty and penalty.

[Mohd. Qamruddin & Ors. v. Masula Narsimhulu, AIR 2008 Andhra Pradesh
249]

levitra

Dishonour of cheque issued on behalf of a company : Negotiable Instruments Act, 1881 S. 141 and S. 138.

New Page 4

19 Dishonour of cheque issued on behalf of a company :
Negotiable Instruments Act, 1881 S. 141 and S. 138.


The appellant filed a complaint u/s.138 read with S. 141 of
the Negotiable Instruments Act, 1881, against the accused Company on whose
behalf the bounced cheque was issued. The cheque in question was a post-dated
cheque. The cheque was signed by the respondent in April 1995, when he was
Director of the accused Company, but the cheque was post-dated as 28-1-1998.
However, before bouncing of the cheque in January 1998 or thereafter, the
respondent had already resigned from the accused Company on 25-5-1996, and had
also given intimation to all concerned including the appellant. Despite this
intimation the respondent was impleaded as co-accused, but no specific averment
was made in the complaint, as to in what capacity he was being impleaded.

The Trial Court accepted the respondent’s plea that he should
be deleted from the array of the accused persons for the reason that he had
already resigned from directorship when the cheque bounced. The High Court also
dismissed the appellant’s criminal revision petition.

The Apex Court held that S. 141 of the Act provides for a
constructive liability. A legal fiction has been created thereby. The statute
being a penal one should receive strict construction. It requires strict
compliance with the provision. Specific averments in the complaint petition so
as to satisfy requirements of S. 141 of the Act are imperative. Mere fact that
at one point of time some role had been played by the accused may not by itself
be sufficient to attract the constructive liability u/s.141 of the Act.

A person who had resigned within the knowledge of the
complainant in 1996 could not be a person in charge of the Company in 1998 when
the cheque was dishonoured. He had no say in the matter of seeing that the
cheque is honoured. He could not ask the Company to pay the amount. He as a
director or otherwise could not have been made responsible for payment of the
cheque on behalf of the Company or otherwise.

When post-dated cheques are issued and the same are accepted,
although it may be presumed that the money will be made available in the bank
when the same is presented for encashment, but for that purpose, the harsh
provision of constructive liability may not be available except when an
appropriate case in that behalf is made out.

S. 140 of the Act cannot be said to have any application
whatsoever in this case. Reason to believe on the part of a drawer that the
cheque would not be dishonoured cannot be a defence. But, then one must issue
the cheque with full knowledge as to when the same would be presented. It
appears to be a case where the appellant has taken undue advantage of the
post-dated cheques given on behalf of the Company. The statute does not envisage
misuse of a privilege conferred upon a part to the contract. Accordingly the
appeal was dismissed.

[ DCM Financial Services Ltd. v. J. N. Sareen and
Another, (2008) 8 Supreme Court Cases 1]


levitra

Accident claim : Compensation awarded under Motor Vehicle Act is not a ‘debt’, nor a succession, therefore production of succession certificate by heirs of deceased not necessary : Motor Vehicles Act, S. 168, Succession Act, 1952, S. 214(1)

New Page 4

17 Accident claim : Compensation awarded under Motor Vehicle
Act is not a ‘debt’, nor a succession, therefore production of succession
certificate by heirs of deceased not necessary : Motor Vehicles Act, S. 168,
Succession Act, 1952, S. 214(1)


Original claimant Abdul Razak Gulam Rasul Bhurwala had
sustained grave injuries in a vehicular accident and therefore, he had moved the
M.A.C. Tribunal for compensation. Ultimately, the said original claimant
succeeded in the claim petition and the Tribunal awarded amount of Rs.3,48,020
with cost and interest. Consequently, the insurance company deposited amount of
Rs.7,72,741 with the Tribunal. However, before the original claimant Abdul Razak
Gulam Rasul Bhurawala could realise the amount, he died of natural death. When
the heirs of the deceased claimant applied for disbursement of the amount, they
were asked to produce succession certificate.

The High Court observed that the Apex Court in the case of
Smt. Rakhsana and Others v. Nazrunnisa (Smt.) and Anr., reported in 2000 AIR
SCW 4941, held that the succession certificate as envisaged under the Indian
Succession Act was only granted in respect of ‘debts’ or ‘securities’ to which
the deceased was entitled and the compensation awarded under the Motor Vehicles
Act was not a debt, nor a succession. Therefore, a certificate was not required
to be obtained in order to claim the compensation awarded under the Motor
Vehicles Act. However, it would be open for the Tribunal to make appropriate
disbursement if there are any disputes amongst the heirs qua quantum of
compensation payable to each of the heirs.

[ Aktharbibi Abdul Razak Gulam Rasul & Ors. v. United
India Insurance Co. Ltd., AIR 2008 Gujarat 146]


levitra

Condonation of delay of 4 years : Pendency of representation filed before State Government against alleged order, sufficient ground to condone delay : Constitution of India Article 226

New Page 4

18 Condonation of delay of 4 years : Pendency of
representation filed before State Government against alleged order, sufficient
ground to condone delay : Constitution of India Article 226.


The petitioner had filed a writ petition before the High
Court against the decision of the State Government after 4 years from the date
of passing of such order. The High Court dismissed the petition on ground of
delay and laches.

The Supreme Court observed that the petitioner had filed a
representation/review of the decision of the State Government, and was expecting
that an order would be passed on the said representation. Therefore, the delay
in moving the writ petition was sufficiently explained by the petitioner and the
petition ought not to be dismissed on the ground of delay and laches. The High
Court was directed to decide the writ petition on merits in accordance with law.

[Ashok Kumar v. State of Bihar & Ors., AIR 2008
Supreme Court 2723]

levitra

Recovery : Loan taken by cooperative society cannot be recovered from secretary of the society : Bihar Co-op. Societies Act, S. 52.

New Page 1

25 Recovery : Loan taken by cooperative society cannot be
recovered from secretary of the society : Bihar Co-op. Societies Act, S. 52.


The petitioner Jay Mangal Singh was at the relevant time
secretary of the Ajanta Tel Utpadak Sahyog Samiti Ltd. duly registered under the
Bihar Co-op. Societies Act, 1935. The co-op had taken a loan from Central Co-op
Bank Ltd, Aurangabad. Having taken
the loan, it defaulted in repayment, the consequence, thereof, was that for
recovery of outstanding dues a certificate proceeding was initiated against the
said co-op. While doing so, petitioner was made a party to the certificate
proceeding and shown as a certificate debtor. This was done specifically
mentioning that the petitioner was the secretary of the said co-op. when the
loan was granted.

A co-operative is a body incorporate and an independent
juristic entity. That being so, it is distinct from not only its member but
members elected as office bearers. This distinction as between the co-operative
and its constituents is well established. That being so, the loan having been
taken by the co-operative, it cannot be recovered from petitioner who was
secretary of society. Especially, as petitioner was being proceeded against only
because he happened to be elected secretary of co-operative. He was not being
proceeded against on ground of having underwritten or guaranteed repayment of
loan. He had no personal liability in the matter, except, to the extent he may
be liable for any loan or advance taken and remaining unpaid from his
co-operative. That was not the case of the respondents. That being so, the
certificate proceedings as against the petitioner cannot be sustained and would
be wholly without jurisdiction.

[Jay Mangal Singh v. Bihar State Co-op. Bank Ltd.,

AIR 2008 Patna 192]


levitra

Precedent : Non-challenge of order by Revenue preclude from challenging similar order passed in respect of another unit.

New Page 1

23 Precedent : Non-challenge of order by Revenue preclude
from challenging similar order passed in respect of another unit.


The respondent M/s. Surcoat Paints (P.) Ltd. is engaged in
the manufacture of paints and varnishes. A show-cause notice was issued for
short payment of duty to the tune of Rs.40,33,903.73 on the goods cleared by the
manufacturer. As per the show-cause notice the SSI benefit is not available to
the respondents on the ground that SSI registration certificate was not
correctly given to the respondent.

The assessee being aggrieved by the order, filed an appeal
before the Tribunal. The Tribunal reversed the order passed by the Commissioner
of Central Excise, Allahabad, primarily relying upon the earlier decision of the
Tribunal in CCE v. Agra Leather Goods P. Ltd., (2000 (39) RLT 674 (T).

This appeal has been filed by the Revenue against the
judgment and order passed by the Customs, Excise and Gold (Control) Appellate
Tribunal, New Delhi.

The Court held that since the Revenue has accepted the
decision given by the Tribunal in Agra Leather Goods case (supra), the
Revenue is precluded from challenging the similar order passed in respect of
another unit. Since the order passed in Agra Leather Goods case (supra)
has attained finality, the present appeal deserves to be dismissed on this
ground alone and accordingly dismissed the appeal.

[Commissioner of Central Excise, Allahabad v. Surcoat
Paints (P) Ltd., 2008 (232) ELT 4 (SC)]


levitra

Appeal : Condonation of delay : High Court is empowered to condone delay in filing appeals u/s.35G of the Central Excise Act, 1944.

New Page 1

22 Appeal : Condonation of delay : High
Court is empowered to condone delay in filing appeals u/s.35G of the Central
Excise Act, 1944.


In view of conflicting decisions of two Division Benches of
the Bombay High Court on the issue of whether this Court is empowered to condone
the delay in filing appeals u/s.35G of the Central Excise Act, 1944, which are
filed beyond the prescribed period of 180 days, a Full Bench of three judges was
constituted.

One Division Bench in the case of Commissioner of Customs
v. M/s. Sujog Fine Chemicals (India) Ltd., by a judgment and order dated
13th August 2008 held that in the light of S. 29(2) of the Limitation Act, 1963,
in any appeal filed u/s.130 of the Customs Act, 1962, this Court is empowered
u/s.5 of the Limitation Act, 1963 to condone the delay.

Whereas another Division Bench in a group of cases in
Commissioner of Central Excise v. M/s. Shruti Colorants Ltd., by a judgment
and order dated 29th August 2008 involving appeals u/s.35G of the Central Excise
Act, 1944 held that this Court is not empowered to condone the delay taking
recourse to S. 5 of the Limitation Act, 1963.

The Full Bench after analysing the aspect in depth, came to a
conclusion that in such appeals, the High Court is empowered to have recourse to
S. 5 of the Limitation Act.

Unfortunately the two judgments of the Supreme Court in the
case of Mukri Gopalan v. Chepplat Puthanpurayil Aboobacker, AIR 1995 SC
2272 and also of State of West Bengal & Ors v. Kartik Chandra Das, (1996)
5 SCC 342 were not brought to the notice of the Division Bench which decided the
Shruti Colorants Case. In fact the above two judgments of the Supreme Court deal
with the scope and purport of S. 29(2) of the Limitation Act exhaustively,
clearly holding that unless expressly excluded, Civil Courts are empowered to
have recourse to S. 5 of the Limitation Act to condone the delay.

Similarly the Full Bench judgment of the Bombay High Court in
the case of Commissioner of Income-tax v. Velingkar Brothers, (2007) 289
ITR 382 (Bom.) (FB) was not brought to the notice of the above Division Bench
which dealt with the case of Shruti Colorants. In fact in that case the
expression appeal ‘shall’ be filed within 120 days was interpreted to mean that
it did not take away the Court’s power to condone delay having recourse to S. 5
of the Limitation Act.

The Full Bench observed that the High Court being the
Superior Court, the power to condone the delay in filing the appeal must be read
to be existent, more so by virtue of S. 29(2) of the Limitation Act, unless
there is a clear indication of its exclusion by implication.

The Full Bench also held that the word ‘shall’ and the longer
period of limitation (120 days) were not indicators of such exclusion.

In Mukri Gopalan’s case, it was found that there was no
express exclusion anywhere in the Rent Act, taking out the applicability of S. 5
of the Limitation Act. In the present case also there is no express exclusion of
S. 5 of the Limitation Act in S. 35G of the Central Excise Act, and the same
cannot be lightly implied or inferred.

Thus the Full Bench held that S. 5 of the Limitation Act will
be applicable to appeals filed u/s.35G of the Central Excise Act, 1944.

[The Commissioner of Central Excise v. M/s. Shree Rubber
Plast Co. P. Ltd. Notice of Motion No. 1485 of 2008 in CEXAL No. 88 of
2008 Bombay High Court (Full Bench), dated 19-12-2008. Source : itatonline.org]



levitra

Recovery of debts — Tribunal has no power to control physical movement of defendant borrower — It cannot impound passport — Recovery of Debts due to Banks and Financial Institution Acts, 1993 S. 19, S. 22.

New Page 1

[Prafulchandra V. Patel & Ors. v. State Bank of India &
Ors., AIR 2010 Gujarat 46]

The respondent-bank had filed a petition against the
petitioners for recovery of amount of Rs.37 crores with accrued interest.
Simultaneously an application for interim injunction by the bank to restrain the
petitioners, to transfer of the property and the petitioners from leaving India
without prior permission. The Tribunal granted interim injunction in respect to
properties, however, it did not grant any injunction for restraining the
petitioners from leaving India. Later in another application the Tribunal
restrained the petitioner from leaving India without prior permission of the
Tribunal. The said order was challenged before the High Court on the limited
issue of restraining the petitioner from leaving India.

The Court held that the Debt Recovery Tribunal has no power
to control the physical movement of the defendant-borrowers in absolute, merely
because suit for recovery or the proceedings for recovery of amount, if filed,
in capacity as the mortgagee by the plaintiff bank.

The Tribunal under the RDB Act has power to command and
control the properties of the defendants, may be in its possession or in
possession of third party, and the powers are to be used for grant of injunction
for such purpose. It is only when the Tribunal satisfactorily finds that the
defendant is obstructing the Tribunal or its officers from having command and
control over properties of the defendant, in possession of the defendant or in
possession of third party, the powers may be exercised by the Tribunal to
control and restrict physical movement of the defendant, but not otherwise. But
the Tribunal has no power in absolute to prohibit the physical movement of the
defendants beyond its territorial jurisdiction or to prohibit the defendants
from leaving the country. Thus, the Tribunal has no power to direct impounding
of the passport.

levitra

Precedents — One Bench cannot differ from the view of another Co-ordinate Bench — In case of difference in views, matter must be referred to a Larger Bench.

New Page 1

[Mercedes Benz India Pvt. Ltd. v. UOI, 2010 (252) ELT
168 (Bom.)]

One Bench of the Tribunal decided an appeal in favour of the assessee. However, another Bench refused to follow that decision
even though the facts were the same, on the ground that the earlier decision did
not address the grievance of the Revenue and did not consider all the facts and
did not lay down a clear ratio. The assessee filed a writ petition complaining
of breach of propriety on the part of the Tribunal by not referring the issue to
a
Larger Bench.

The Bombay High Court observed that in a multi-Judge Court,
the Judges are bound by precedents and procedure. They could use their
discretion only when there is no declared principle to be found, no rule and no
authority. The judicial decorum and legal propriety demand that where a learned
single Judge or a Division Bench does not agree with the decision of a Bench of
co-ordinate jurisdiction, the matter should be referred to a Larger Bench. It is
a subversion of judicial process not to follow this procedure. In the system of
judicial review which is a part of the Constitutional scheme, it is held to be
the duty of the Judges of the Courts and Members of the Tribunals to make the
law more predictable. The question of law directly arising in the case should
not be dealt with apologetic approaches. The law must be made more effective as
a guide to behaviour. It must be determined with reasons which carry convictions
within the Courts, profession and public. Otherwise, the lawyers would be in a
predicament and would not know how to advise their clients. Subordinate Courts
would find themselves in an embarrassing position to choose between the
conflicting opinions. The general public would be in dilemma to obey or not to
obey such law and it, ultimately, falls into disrepute.

The Court further held that the view taken by the Tribunal
was not the correct approach. If the Tribunal wanted to differ to the earlier
view taken by the Tribunal in an identical set of facts, judicial discipline
required reference to the Larger Bench. One Co-ordinate Bench finding fault with another Co-ordinate Bench is not a healthy way of dealing with the matters.

Note : In UOI v. Paras Laminates Pvt. Ltd., (1990) 186 ITR
722 (SC) it was held that an order which did not follow a Co-ordinate Bench
decision was ‘per incuriam’ i.e., not a binding judicial precedent.

levitra

Torts : Person losing his right hand due to electrocution — Electricity Board liable to compensate.

New Page 1

  1. TORTS : Person losing his right hand due to
    electrocution — Electricity Board liable to compensate.

Petitioner got electrocuted on account of a live wire which
snapped due to strong wind and fell on roof of petitioner’s house, which had
C1 sheet roofing. It was held that Electricity Board ought not to have carried
electrical wire over a dwelling house. A person undertaking activity involving
generation or transmission of electricity which is inherently dangerous to
human should take extra care and precaution to avoid harm. However, the
Electricity Board authorities have not shown that they have taken all
necessary care to avoid harm. The petitioner being sole bread-earner of his
family and has lost his right hand being amputed, is entitled to be
compensated for his sufferings and loss of earning and earning capacity.
Compensation of Rs.3,00,000 awarded including medical expenses.

[Md. Sahajuddin vs. ASEB & Ors., AIR 2009 (NOC) 1072 (Gau.)].

levitra

Appellate Tribunal — Passing of order — Reasonable time — Order passed after six months — Order set aside on ground of delay — S. 129B of Customs Act, 1962.

New Page 1

[Shantilal Jain v. UOI, 2010 (252) ELT 326 (Bom.)]

In this case the impugned order was passed by the Customs,
Excise and Service Tax Appellate Tribunal practically after a period of six
months from the date of hearing. The Bombay High Court set aside the order
without examining merits or demerits thereof and the appeal was restored to the
file of the
Tribunal for de novo hearing and decision afresh. The Court relied on the case
of Dewang Rasiklal Vora v. Union of India, 2003 (158) ELT 30 (Bom.); wherein it
was held that the judgment passed after considerable gap of time from the date
of hearing was
liable to be set aside, observing that justice should not only be done, but must
manifestly appear to
be done.

The Court also showed displeasure on the conduct of the
advocates signing the minutes of the order on behalf of the Revenue, which was
found to be not as per consensus between the advocates. The Court observed that
it was the obligation on the part of the advocate for the Revenue to protect the
interest of the Revenue and to be more diligent.

See Shivsagar Veg Restaurant v. CIT, (2009) 317 ITR 433 (Bom.)

levitra

Translation of document : Filing of translated copy of document in Court is not additional evidence — Only requirement is that counsel should certify that translation is correct : Civil Procedure Code : O.13, R.4, General Rules (Civil) 1986, Rule 37.

New Page 1

  1. Translation of document : Filing of translated copy of
    document in Court is not additional evidence — Only requirement is that
    counsel should certify that translation is correct : Civil Procedure Code :
    O.13, R.4, General Rules (Civil) 1986, Rule 37.

The plaintiff filed a suit for permanent injunction. In the
suit the plaintiff relied upon a registered sale deed dated 26.7.1926,
executed by one Bhanwaria and based his title in the property upon the said
sale deed. The said registered sale deed was in Urdu script and language.

After filing of the appeal against the dismissal of suit by
the learned trial Court, the plaintiff-appellant submitted an application with
prayer that the plaintiff had during the trial filed a copy of the registered
sale deed which was written in Urdu script and with a view to facilitate the
Court to peruse and go through the contents of the said document, the
appellant is filing a correct translation of the same in Devanagari script
having translated the document from Urdu script to Devanagari script (in
Hindi).

The appellant further submitted that so far as the
application was concerned, it was not one under O. 41, R. 27, C.P.C. of
leading any additional evidence but in fact the appellant was only submitting
the translated version of the document, the registered sale deed of the year
1926 which has already been filed before the learned trial Court and admitted
in evidence of the plaintiff and since the parties were not conversant with
Urdu language or the script, the appellant could not state before the Court as
to what were the contents of the said documents. When the suit was dismissed
by the learned Trial Court the appellant with a view to overcome the aforesaid
difficulty, produced before the Court the translated version which cannot be
said to be by means of an additional evidence strictly in accordance with the
provisions of O. 41, R. 27, C.P.C. It was evident from the document that the
counsel had certified and put an endorsement.

The Hon’ble Court held that the provisions of O. 14, R.27,
C.P.C. were not strictly applicable as it was not a case where any additional
evidence was sought to be produced by the appellant which had not been filed
before the learned trial Court and was being sought to be filed for the first
time in the appeal. By the application, all that the petitioner sought to do
was to file a translated copy of sale deed which is in Urdu language by filing
a translation in Devanagari script in Hindi for being appreciated by the Court
and it is for this purpose that the application was filed by the plaintiff.

The Rule 37 of the General Rules (Civil), 1986 requires (1)
that a correct translation of the document which is not written in Hindi or
English to be accompanied by a translation of the same into Hindi written in
Devanagari script; (2) that the translated document must bear a certificate of
the party’s counsel to the effect that it is a correct translation; and (3)
that if the party filing the same is not represented by a counsel, the Court
shall have the same certified by any person appointed by it at the cost of the
party seeking to produce the document.

The document which had been filed before the Appellate
Court showed that it was signed by the advocate who had endorsed the same to
be the true translated copy from Urdu script into Devanagari script. It was
not the case that the aforesaid document was not a correct translation, but
the application had been rejected by the learned Appellate Court on the ground
that it does not bear endorsement and the name of the person who has
translated the said document.

A look at Rule 37 of the General Rules (Civil), 1986, goes
to show that the requirement is that “the translation shall bear a certificate
of the party’s counsel to the effect that the translation is correct.” The
Rule does not require an endorsement by the counsel that he has translated the
document into Hindi but only requires a certificate ‘the translation is
correct’.

In view of the matter, the learned Appellate Court which
did not advert to the provisions of Rule 37 of the General Rules (Civil),
1986, while passing the order committed an error of jurisdiction.

[Prahlad Singh vs. Suraj Mal & Ors., AIR 2009
Rajasthan 53].

levitra

Public document : Certified copy of power of attorney which is registered document on file of Sub-Registrar is a public document : Evidence Act Sec. 74(2).

New Page 1

  1. Public document : Certified copy of power of attorney which
    is registered document on file of Sub-Registrar is a public
    document : Evidence Act Sec. 74(2).

The suit had been instituted by the petitioner on the
factual premise that as per the power of attorney executed by the respondent
on 29.01.1993, he was permitted to develop the land belonging to the
respondent, having an extent of 1.50 acres and a certified copy of the said
power of attorney was produced along with the plaint. However, the suit was
contested by the respondent on the ground that only an extent of 50% of
property were given as per the said power of attorney and the petitioner with
the connivance of the officials of the Registration Department fraudulently
changed the extent as 1.50 acres instead of the original extent of 50%.
Subsequently, during the course of trial, the petitioner attempted to mark the
certified copy of the power of attorney as a document on his side. The same
was objected to by the respondent mainly on the ground that loss of original
has not been properly accounted in terms of Section 65 of the Indian Evidence
Act.

The document produced by the petitioner was rejected by the
learned District Munsif on the ground that certified copy of power of attorney
cannot be admitted in evidence. The petitioner had contended before the Trial
Court that the original was lost and the same was also mentioned in the plaint
as well as in the proof affidavit and as such, he was entitled to lead
secondary evidence.

The Hon’ble Court observed that the document produced by
the petitioner as document No.1 is found to be a certified copy of the power
of attorney registered as document No.13/1993 on the file of Sub-Registrar.
Admittedly, the document was a registered document and what was produced by
the petitioner was only a certified copy of the said document. Section 74 of
the Indian Evidence Act, 1872 indicates as to what are all the documents which
could be termed as public documents. As per Sub-Section 2 of Section 74,
public records kept (in any State) of private documents are public documents.
Section 76 mandates that every public officer having the custody of the public
document, which any person has a right to inspect, shall give that person on
demand a copy of it on payment of the legal fees therefor, together with a
certificate written at the foot of such copy that it is a true copy of such
document or part thereof, as the case may be, and such certificate shall be
dated and subscribed by such officer with his name and his official title, and
shall be sealed, whenever such officer is authorised by law to make use of
seal; and such copies so certified shall be called certified copies.

As per Section 77, such certified copies may be produced in
proof of the contents of the public documents or parts of the public documents
of which they purport to be copies. Section 79 of the Indian Evidence Act
gives a statutory presumption with respect to the genuineness of certified
copies.

Therefore, it was evident that the certified copy of the
power of attorney produced by the petitioner is a public document within the
meaning of Section 74(2) of the Indian Evidence Act and the same is admissible
in evidence as provided under Section 76 of the Act.

The alleged alteration in the original deed was a matter
for evidence. It would be open to the respondent to summon the office copy of
the document sought to be marked and to take steps to send the same for expert
opinion. It is also possible for the respondent to take steps to prove her
contention that there were alterations made in the document subsequent to the
registration.

[P. K. Pandian vs. Komala, AIR 2009 Madras 51].

levitra

Additional evidence : Permission to bring additional document can be granted in exercise of discretion of Court to achieve ends of justice

New Page 1

10. Additional evidence : Permission to bring additional
document can be granted in exercise of discretion of Court to achieve ends of
justice.

The plaintiffs had challenged an order passed by the
learned Single Judge, dated 15th January, 2008 allowing the Chamber Summons
which is taken out by the defendants seeking liberty to lead evidence and to
place on record all documents referred to in the affidavit of documents which
was filed by the defendants. Grievance of the plaintiffs is that after they
had led their evidence, the defendants had specifically informed the Court
that they did not wish to lead any evidence. It is the contention of the
plaintiffs that after having taken a stand not to lead evidence, it was not
open for the defendants to subsequently file application seeking permission of
the Court to lead evidence.

The power to permit the party to lead additional evidence
had been given to the Appellate Court under Order XLI Rule 27. It is settled
position in law that the purpose of procedural law is not to frustrate the
rights of the parties, but the law is primarily to achieve the ends of justice
and fully and finally decide the controversy between the parties.

While interpreting the provisions of the Code, care should
be taken that substantial justice is not sacrificed for hypertechnical pleas
based on strict adherence to procedural provision. In this context, reference
be made to the Apex Court in the case of Ghanshyam Dass and Ors vs.
Dominion of India and Ors., reported in (1984) 3 SCC 46. Thus the Appeal
Court is entitled to allow the party to lead additional evidence.

In view of provisions of Order VIII Rule 1 & Order XLI Rule
27, the learned Single Judge has exercised a discretion vested in him and has
permitted the defendants to bring on record any such documents. In the present
case, it has to be noted that affidavit of documents was filed by the
defendants. The documents could not be traced and, subsequently, the
defendants were in a position to procure the said documents and, after an
application for amendment which was filed by the plaintiff was allowed and
permission was granted to the parties to file additional written statement,
the application for production of documents was made and the learned Single
Judge was pleased to allow the said application. Therefore, the order passed
by the learned Single Judge was upheld.

[Smt. Shantibai K. Vardhan & Ors. vs. Ms. Meera G. Patel
& Anr. AIR 2009 (NOC) 904 (Bom).]

levitra

Family arrangement : If Family arrange-ment is for relinquishment of any immovable property it requires registra-tion — Registration Act, Sec. 17.

New Page 1

  1. Family arrangement : If Family arrange-ment is for
    relinquishment of any immovable property it requires registra-tion — Registration
    Act, Sec. 17.

In a suit for partition an alleged oral family arrangement
was relied in the written statement of the defendants. It was not known as to
when and on which date such oral arrangement took place and in whose presence.
There was no clinching evidence in that regard. The Hon’ble Court observed
that the law was clear on the point that family arrangement could be oral, but
if it was to be recorded it should be by way of memorandum so as to dispel
hazy notion about such oral arrangement and it should not be in evidence of
it. If it is in evidence of relinquishment of any immovable property it would
require registration within the meaning of Section 17 of the Registration Act.

[D. V. Narayana Sah & Ors. vs. A. G. Nagammal & Ors.
AIR 2009 (NOC) 1061 (MAD.)].

levitra

Share broker and Stock Exchange render ‘services’ to the investors and investor would be ‘consumer’ : Consumer Protection Act S. 2(1)(d) and S. (2)(1)(o).

New Page 1

15 Share broker and Stock Exchange render
‘services’ to the investors and investor would be ‘consumer’ : Consumer
Protection Act S. 2(1)(d) and S. (2)(1)(o).


The respondent share broker who was a member of the DSE
committed default in making payment or delivery of shares for which demand had
to be made by the complainant investor.

U/s.19 of Securities Contracts (Regulation) Act, 1956, no
person can organise or assist in organising or be a member of any stock exchange
other than a recognised stock exchange for the purpose of assisting in, entering
into or performing any contracts in securities. In view of aforesaid bar on
doing business as a share broker, a person has to become a member of a
recognised stock exchange. Without
becoming member of a stock exchange, share brokers are not permitted to have any
transaction in purchase and sale of shares. Therefore, the stock exchange is
apparently a service provider for purchase and sale of shares and not only does
the broker render ‘service’ in the purchase and sale of listed securities but
the stock exchange is also required to render service to the investors.

Further, the Delhi Stock exchange (DSE) is also a service
provider as stated in the memorandum and articles of Association because it
controls the mode, manner, time and place of performance of contract between the
broker member and the investors. DSE is required to establish and had
established Delhi Stock Exchange Customer Protection Fund. Every Member of the
DSE is required to become a member of the fund and contribute annually to the
Fund. If a member of DSE is declared as defaulter, the trustee of the fund step
into the shoes a defaulter member. This fund is established to protect and
safeguard interests of investors, particularly small investors from losses other
than that of speculative nature arising out of default of member brokers of the
stock exchange.

It was held that the complainant investor would be a consumer
who is affected by the services provided by the share broker and therefore he
would be eligible to be paid from the fund of the Stock Exchange.

[Senior Manager, Delhi Stock Exchange & etc. v. Ravindar Pal Singh & Anr.,
AIR 2008 (NOC) 962 (NCC); 2008 (1) ALJ 560]

levitra

Recovery of debts : Recovery of debts due to Banks and Financial Institutions Act : S. 19(7).

New Page 1

13 Recovery of debts : Recovery of debts due
to Banks and Financial Institutions Act : S. 19(7).


The petitioner, his father and brother had jointly and
severally taken a loan from State Bank of India. On default the State Bank of
India initiated certificate proceedings against the three. At the time of
initiation of the proceeding itself the father and the brother had died. The
certificate was issued against all the three. The certificate officer later
dropped the proceedings and on appeal the collector remanded the matter back to
certificate officer to proceed against the petitioner.

On writ by the petitioner, it was held by the Court that the
certificate proceeding against the two dead person was void and unenforcecable.
But so far as the petitioner is concerned, the certificate issued was valid and
binding.

The loan was taken ‘jointly and severally’. The expression
‘jointly and severally’ implies their joint liability as well as individual for
entire loan amount. It was open for the creditor to proceed either against one
of the joint loanees or against all of them.

In view of the above the writ petition of the petitioner was
dismissed.

[Anand Mohan Singh v. State of Bihar & Ors., AIR
2008 Patna 53]

 


levitra

Void Agreement : Tenancy Rights cannot be attached and auctioned — Consequent auction and sale certificate issued to purchaser would be void. Contract Act S. 24 and S. 65.

New Page 1

14 Void Agreement : Tenancy Rights cannot be
attached and auctioned — Consequent auction and sale certificate issued to
purchaser would be void. Contract Act S. 24 and S. 65.


The defendant No. 2 is a private limited company and because
of non payment of income tax, the recovery officer had issued a proclamation
which was published in govt. Gazette for sale of the property. The property
included the business alongwith the tenancy rights of the defendants over the
disputed premises.

The original plaintiffs bid was accepted in the auction and
the later on he deposited the amount with the income tax department. Nobody had
taken any objection nor had applied for setting aside the same within 30 days
from the date of auction. The defent No. 1 through income tax officer issued
sale certificate in favour of the original plaintiff. The suit premises was
actually property of LIC and defendant No. 2 was a tenant over the same.

The income tax authorities failed to put the plaintiff in
possession of the suit premises. Therefore, the original plaintiff filed suit
for possession of the suit premises alongwith movable articles. The trial court
held that the sale certificate in favour of the plaintiff was illegal, null,
void and unenforceable in law.

Before the Court the plaintiff alternatively contended that
if the sale was illegal the Union of India (Income tax Dept.) was liable to pay
compensation to him or atleast refund the amount alongwith interest.

S. 23 of the Indian Contract Act provides that the
consideration or object of an agreement is lawful, unless it is forbidden by
law; or is of such a nature that, if permitted, it would defeat the provisions
of any law. S. 24 provides that if the consideration is for an object which is
unlawful, the agreement is void.

Transfer of tenancy is not permitted under the law and,
therefore the object of the auction being the sale of tenancy rights was
unlawful and, therefore, auction as well as the sale certificate are void and
unenforceable.

S. 65 of the Indian Contract Act provides that when an
agreement is discovered to be void, or when a contract becomes void, any person,
who has received any advantage under such agreement or contract is bound to
restore it, or to make compensation for it to the person from whom he received
it. In view of this clear legal position, income tax authorities, who had
received the consideration amount from the plaintiff for the contract of sale,
which turned out to be void, was liable to restore and refund the said amount to
the plaintiff.

The defendant No. 1 Union of India was liable to refund that
amount to the plaintiff with interest at the rate of 18% per annum from the date
of suit till the realization of the amount to the plaintiff.

[Smt. Chandan Mulji Nishar & Ors. v. UOI & Ors., AIR
2008 (NOC) 396 (Bom.); 2007 (6) AIR Bom R 698]

 


levitra

Family arrangement or partition deed : For the purpose of stamping & Registration the contents of document are to be taken into consideration and not nomenclature — Transfer of Property Act; S. 5, Stamp Act, S. 35.

New Page 1

12 Family arrangement or partition deed :
For the purpose of stamping & Registration the contents of document are to be
taken into consideration and not nomenclature — Transfer of Property Act; S. 5,
Stamp Act, S. 35.



The father and mother of the plaintiff owned properties
comprising of houses, shops and vacant sites and they died intestate leaving
behind the plaintiff and defendants as their legal heirs. The defendant
attempted to partition the properties with the help of local people and
panchayatdars which was not agreed to by the plaintiff. After prolonged
negotiation the defendants ultimately agreed for an amicable partition of
movable and immovable properties. When the plaintiff claimed for division of
ard
share the defendants resisted the same and the plaintiff filed the suit.


 

According to the defendant the agreement for partition was
reduced to writing before the panchayatdars and signed by the plaintiff and
defendants. The trial judge rejected the document produced by the defendants on
the ground that it was a partition deed and unless it is stamped and registered
the same cannot be admitted.

 

The Court held that to decide about the nature of a document
whether it requires to be stamped or to be registered, it is the contents of the
document, that are to be taken into consideration and not the nomenclature
alone.

 

The law is well settled that in cases where partition among
the joint owners had already taken place and the factum of the partition
effected earlier was put in writing on a later point of time and the properties
are enjoyed as per the said partition, the same can be termed as a family
arrangement and need not be treated as a partition deed and therefore, the
question of stamping and registering the same does not arise. On the other hand,
if an agreement itself creates a right for the first time as a document, then
one has to consider the contents of the agreement, instead of the nomenclature.
Merely because it is stated in the agreement that in respect of the gold, jewels
and silver utensils the same have already been divided among the family members
in the presence of panchayatdars, it does not mean that all other immovable
properties have also been divided already. A reading of the entire agreement
clearly showed that there was no recital to the effect that it was for recording
the earlier partition which had already taken place that the said agreement was
entered into. In that view of the matter, the said agreement cannot be marked as
a document, since it requires to be stamped and registered so as to be admitted
in evidence.

 

In this regard the Hon’ble Court relied on the Division Bench
decision in case of A.C. Lakshmipathy v. A. M. Chakrapani Reddiar & Ors.,
2001 (1) Law Weekly 257 wherein the legal position is summed up as under :

(a) “I. A family arrangement can be made orally.

(b) If made orally, there being no document, no question of
registration arises.

(c) If the family arrangement is reduced to writing and it
purports to create, declare, assign, limit or extinguish any right, title or
interest of any immovable property, it must be properly stamped and duly
registered as per the Indian Stamp Act and Indian Registration Act.

(d) If the family arrangement is stamped but not
registered, it can be looked into for collateral purposes.

(e) A family arrangement which is not stamped and not
registered cannot be looked into for any purpose in view of the specific bar
in S. 35 of the Indian Stamp Act.” and applying the above guidelines to the
facts of the case and contents of the document which is sought to be marked,
concluded that the agreement was purported to create, declare, assign, limit
and extinguish right, title and interest over the immovable properties and
therefore, the document was required to be properly stamped and duly
registered under the Indian Stamp Act and the Indian Registration Act.
Therefore, the document requires execution on proper stamp papers and
registration as per the Indian Registration Act.

[Vincent Lourdhenathan Dominique v. Josephine Syla
Dominique, AIR 2008 (NOC) 1173 (Mad.)]

levitra

Audio CD admissible in evidence

New Page 1

11 Audio CD admissible in evidence :

Evidence Act 1875 S. 65B

In a matrimonial proceeding for dissolution of marriage the
husband had produced an audio CD wherein the wife had abused and theatered the
husband on a cell phone which was recorded on audio CD and produced in Court.
The trial court admitted the audio CD as evidence; against the said order the
wife filed the present revision petition.

 

The petitioner wife had contended that the audio CD was
fabricated and inadmissible as evidence because the cell phone which was primary
evidence was not produced.

 

The Court dismissed the petition on the ground that the trial
court allowed the audio CD to be admitted reserving the right of the petitioner
to cross examine the respondent husband of its contents. The court directed the
trial court to consider the objection raised by the petitioner regarding
admissibility of the audio CD and decide the same.

[G. Shyamala Ranjini v. M. S. Tamizhnathan, AIR 2008
(NOC) 476 (Mad).]

 


levitra

Electricity tariff : Advocates running office from commercial place liable to be charged at Commercial basis : Electricity (Supply) Act, 1948 : S. 49.

New Page 1

  1. Electricity tariff : Advocates running office from
    commercial place liable to be charged at Commercial basis : Electricity
    (Supply) Act, 1948 : S. 49.

[ J.V.V.N. Ltd. & Ors. v. Smt. Parinitoo Jain & Anr.,
AIR 2009 Rajasthan 119]


The controversy involved is in regard to the electricity
tariff levied by the appellants on the offices of Advocates under category of
non domestic service.


The Single Judge relying on the judgement of Sajjan Raj
Surana v. JVVNL, AIR 2002 Raj 109 held that categorisation and inclusion
of profession of a lawyer as a commercial establishment or non domestic
services for the purpose of payment of electricity consumption at commercial
rate was illegal.


On further appeal it was held that the decision of Sajjan
Raj Surana (supra) had been overruled by Larger Bench and the Advocates
running their office from their residences cannot be charged the additional
tariff on the commercial basis. However, in case advocates are running their
office at independent commercial place, then the advocate cannot be exempted
from the same. A distinction has been made between the office in a residence
and office in a commercial place.



levitra

Choice of one reasonable course of treatment to other — Not medical negligence : Consumer Protection : S. 2(1)(g).

New Page 1

  1. Choice of one reasonable course of treatment to other — Not
    medical negligence : Consumer Protection : S. 2(1)(g).

[ Martin F. D’souza v. Mohd. Ishfaq, AIR 2009 SC
2049]


The respondent who was suffering from chronic renal failure
was referred by the Director, Health Services to the Nanavati Hospital, Mumbai
for the purpose of a kidney transplant.


On or about 24-4-1991, the respondent reached Nanavati
Hospital, Bombay and was under the treatment of the appellant Doctor.
Investigations were underway to find a suitable donor. The respondent wanted
to be operated by Dr. Sonawala alone who was out of India.


The respondent approached the appellant Doctor. At the
time, the respondent, who was suffering from high fever, did not want to be
admitted to the Hospital despite the advice of the appellant. Hence, a broad
spectrum antibiotic was prescribed to him. The appellant constantly requested
the complainant to get admitted to hospital but the respondent refused. On
29-5-1991 the respondent who had high fever of 104 F finally agreed to get
admitted to hospital due to his serious condition.


The blood culture report of the respondent was received,
which showed a serious infection of the blood stream. The respondent insisted
on immediate kidney transplant even though the appellant had advised him that
in view of his blood and urine infection no transplant could take place for
six weeks. The respondent was administered Amikacin injection. On 8-6-1991,
the respondent, despite the appellants advice, got himself discharged from
Nanavati Hospital. The respondent received haemodialysis at Nanavati Hospital
and allegedly did not complain of deafness during this period. On 25-6-1991,
the respondent, on his own accord, was admitted to Prince Aly Khan Hospital,
where he was also treated with antibiotics. The complainant allegedly did not
complain of deafness during this period and conversed with doctors normally,
as was evident from their evidence. The respondent returned to Delhi on
14-8-1991. After discharge. The respondent filed a complaint before the
National Consumer Disputes Redressal Commission, New Delhi, claiming
compensation of an amount of Rs.12,00,000 as his hearing had been affected.
The appellant filed his reply stating, inter alia, that there was no material
brought on record by the respondent to show any correlation between the drugs
prescribed and the state of his health.


The case of the respondent, in brief, was that the
ap-pellant was negligent in prescribing Amikacin to the
respondent of 500 mg twice a day for 14 days as such dosage was excessive and
caused hearing impairment. It is also the case of the respondent that the
infection he was suffering from was not of a nature as to warrant
administration of Amikacin to him.


The Commission allowed the complaint of the respondent and
awarded Rs.4 lakhs with interest @ 12% as well as Rs.3 lakhs as compensation
as well as Rs.5000 as costs.


On appeal the Supreme Court observed that law, like
medicine, is an inexact science. One cannot predict with certainty an outcome
of many cases. It depends on the particular facts and circumstances of the
case, and also the personal notions of the Judge concerned who is hearing the
case. However, the broad and general legal principles relating to medical
negligence need to be understood.


A medical practitioner is not liable to be held negligent
simply because things went wrong from mischance or misadventure or through an
error of judgment in choosing one reasonable course of treatment in preference
to another. He would be liable only where his conduct fell below that of the
standards of a reasonably competent practitioner in his field. It is not
enough to show that there is a body of competent professional opinion which
considers that the decision of the accused professional was a wrong decision,
provided there also exists a body of professional opinion, equally competent,
which supports the decision as reasonable in the circumstances.


The standard of care has to be judged in the light of
knowledge available at the time of the incident and not at the date of the
trial. Also, where the charge of negligence is of failure to use some
particular equipment, the charge would fail if the equipment was not generally
available at that point of time.


As regard the impairment of hearing of the respondent is
concerned it was observed that there is no known antibiotic drug which has no
side effect. Hence merely because there was impairment in the hearing of the
respondent that does not mean that the appellant was negligent.


The Court further observed that some times despite best
efforts the treatment of a doctor fails. For instance, sometimes despite the
best effort of a surgeon, the patient dies. That does not mean that doctor or
the surgeon must be held guilty of medical negligence, unless there was some
strong evidence to that effect. The appellant was held not guilty of medical
negligence.

levitra

Nomination by Member of Society empowers nominee to hold property in trust for real owner : Maharashtra Co-op. Societies Act, S. 30.

New Page 1

  1. Nomination by Member of Society empowers nominee to hold
    property in trust for real owner : Maharashtra Co-op. Societies Act, S. 30.

[Ramdas Shivram Sattur v. Rameshchandra alias Ramchandra
Popatlal Shah & Ors., AIR 2009 (NOC) 2058 (Bom.)]


One Shri Shivram had purchased a plot of land in his own
name from co-op. hsg. Society. He nominated his wife Smt. Tarabai the original
defendant No. 1 as his nominee pursuant to S. 30 of the Mah. Co-op. Societies
Act, r/w. Rule 25 of the Rules framed thereunder.


They had 4 children namely Ramdas, Krishnadas, Vithaldas
and Sangita. After death of Shivram, Tarabai sold the property to Ramchandran
Popattlal Shah. The respondent No. 1 instituted suit against Tarabai for
specific performance and declaration. The society was also impleaded as party.


In the above litigation inter alia among other issue
one issue that came up for consideration was about the status of a nominee who
has been validly nominated as a member of Co-op. society u/s. 30 of
Maharashtra Co-op. Society Act.


The Court observed that by virtue of nomination of wife by
her deceased husband u/s.30 of the Maharashtra Co-op Societies Act, 1960, she
does not become absolute owner of the property, however, was only empowered to
hold the property in trust for the real owners that too for the purpose of
dealings with the society. Wife as such, had no power, authority and title to
alienate the property to the exclusion of the other legal heirs of her
deceased husband. Wife as such, was not competent to enter into an agreement
for sale of the suit plot as she along with her four children were class I
heirs of her deceased husband.


S. 30 of the Maharashtra Co-op. Societies Act does not
provide for a special rule of succession altering the rule of succession laid
down under the personal law.



levitra

Liability of a surety or a guarantor to repay loan of principal debtor arises only when a default is made by the latter : State Financial Corporation Act 1951 : S. 29(1) and S. 31.

New Page 1

  1. Liability of a surety or a guarantor to repay loan of
    principal debtor arises only when a default is made by the latter : State
    Financial Corporation Act 1951 : S. 29(1) and S. 31.

[ West Bengal Industrial Development Corpn. Ltd. & Anr
v. Niccon Electronics Devices P. Ltd. & Ors., AIR 2009 Calcutta 193.]

The appellant had given financial assistance of Rs. 55 lacs
to the respondent No. 1 a Pvt. Ltd. Company @ interest 14% p.a. for setting up
of a plant. The respondent 2 to 7 executed a deed of their personal guarantee.


On the failure on part of respondent No. 1 to pay dues a
notice u/s.29(1) read with S. 30 of the State Financial Corporations Act, 1951
was issued, asking the respondent No. 1 to liquidate the dues within a
stipulated period, but as the respondent No. 1 failed to liquidate its dues in
accordance with the said notice, the appellant took over all secured assets of
the respondent No. 1.


The assets were auctioned and after adjusting the sale
proceeds of the fixed assets of respondent No. 1 amounting to Rs.12,00,000 in
the loan account of respondent No. 1, the appellant sent demand notices dated
7th June, 2005, invoking guarantee of respondent Nos. 2 to 7. By the said
notices, the appellant called upon the said respondents to pay the sum.


The Single Judge by an order appointed Jt. Receivers to
sell the properties and assets of respondents 2 to 7. The respondent submitted
that the auction by financial corporation in terms of S. 29 of the Act must be
exercised only on a defaulting party. Only when there was a default on the
part of the principal debtor that the separate provision could be invoked
against a surety or a guarantor for repayment of loan.


The Court observed that S. 29 of the Act nowhere states
that the corporation can proceed against the surety even if some properties
are mortgaged or hypothecated by it. The right of the financial corporation in
terms of S. 29 of the Act must be exercised only on a defaulting party. There
cannot be any default as is envisaged in S. 29 by a surety or a guarantor. The
liabilities of a surety or the guarantor to repay the loan of the principal
debtor arise only when a default is made by the latter.


The demand was, therefore, specifically made and default
had admittedly not occurred on the part of the ‘industrial concern’, as on
date of the said notice, so as to enable the appellant to invoke the provision
of S. 31 of the Act for enforcing the liability of any surety.

levitra

Tackling Corruption Through Corruption Audits

Cancerous Corruption

In a mock trial, despite repeated questioning by the
prosecution attorney on his accepting slush money to compromise a case, a
witness maintained a stoic silence. When the judge asked him to reply to the
question, the witness replied that he thought the attorney was talking to the
judge.


Global phenomenon :

Corruption is as old as modern civilisation and has made
Bofors, 2G auctions, IPL and Commonwealth Games household names. Presently,
corruption has hogged the limelight in the country because of the sheer
magnitude of the amounts involved. It is anybody’s guess that the revenue
deficit of India would have reduced substantially had a major portion of the
money above been routed through normal channels and taxes paid on them. The
phenomenon is universal as evidenced by the statistic that over a third of the €
35.5 billion allocated by the European Union in 2009 for regional infrastructure
projects were affected by errors either unintentional or by fraud. In EU new
member state Romania, journalists have uncovered that two cross-border centres
funded with over € 840,000 are actually being used by regional authorities for
private parties and weddings. The role of auditors in tackling corruption has
been debated for long, but nothing concrete could be legislated due to the
specific nature of an auditors’ responsibility (commenting on the accuracy of
the financial statements) and the fact that the financial statements audited
would inevitably be post the corruption event. A Corruption Audit seems
necessary and inevitable.

Corruption Audit :

A Corruption Audit should be distinguished from a Forensic
Audit, which is a specialised branch of audit that principally covers fraud and
the findings of the audit are courtworthy. The common purpose of both the audits
is to ensure that the economic resources of the entity are not misused for the
personal benefit of either insiders or outsiders. The Institute of Internal
Auditors (IIA) has a publication on Corruption Audit. The publication lists 10
indicators of corruption- general administration, procurement, capital works,
human resource management, privatisation, ministries, government departments,
revenue collecting departments, the judiciary and education. Specific names can
be assigned to each of these indicators in India. In the criteria for Corruption
Auditing, the publication lists procurement of goods and services, consultancy
services and spaces on lease as significant areas. A Corruption Opportunity Test
(COT) is performed on the criteria and indicators to hone specific areas. Just
as in a normal Internal Audit, a detailed audit programme is prepared. A
Corruption Audit is executed with the assistance of a lot of surveys — client
surveys, public surveys and employee surveys being popular methods. The
International Organisation of Supreme Audit Institutions (INTOSAI) has been
active in building anti-corruption awareness, but the sheer scale of the problem
and the fact that they focus on Government Audits ensures that these measures
take time to fructify. The Corruption Audit Report would highlight specific
areas that are prone to corruption and would provide recommendations to prevent
recurrence. A Corruption Audit would be the responsibility of the Internal
Auditor who has the time and resources to scale up his audit to meet these
specific requirements. The audit would draw upon the existing policies of the
company such as whistle-blower policies, employee and contractor referral
procedures and past experience in dealing with outside agencies and specific
issues therein. The critical part of the audit would be to ensure that such
policies are drafted, implemented and made to work. The findings of the audit
could throw up specific names or departments that are parties to transactions.
To make such audits work, it would be imperative to question and initiate action
against confirmed cases of corruption and make the findings public.

Tackling Corruption :

The Comptroller and Auditor General of India in collaboration
with the Institute of Chartered Accountants of India could consider introducing
Corruption Audits in select entities and for specific projects. Like dope tests
on athletes, they should be surprise forays and should be conducted on all
participating entities. History has taught us that corruption-prone areas are
government tenders, large contracts, auctions and bidding processes. The results
of such an audit could be noteworthy.

A whistle-blower policy on corruption can be thought of as a
remedial measure. Corruption invariably involves two or more parties and is
contractual in nature. Being contractual, there could be individuals or persons
aware of the contract who could be rewarded for whistle-blowing the deal.

Chartered Accountants constitute a key part of the service
economy of India and could be privy to a lot of information on dubious
contracts. They would be under pressure to be a part of the contract or give
their assent to it. They should resist the temptation to succumb and lodge their
disagreement in writing. There could be uncomfortable and embarrassing moments
the first time, which if overcome, will yield tangible benefits over the long
term.

Eradicating an issue that gives the Indian economy a run for its money could
take time, effort and persistence. The key is to make a start.

Extract from the Address by the President, Pratibha Patil, to
the Parliament on 21st February 2011.

Hon’ble Members,

12. Our citizens deserve good governance; it is their
entitlement and our obligation. My government stands committed to improving the
quality of governance and enhancing transparency, probity and integrity in
public life. A Group of Ministers is considering all measures, including
legislative and administrative, to tackle corruption and improve transparency.
The Group will consider issues relating to the formulation of a public
procurement policy and enunciation of public procurement standards, review and
abolition of discretionary powers enjoyed by Ministers, introduction of an open
and competitive system of exploiting natural resources, fast-tracking of cases
against public servants charged with corruption, and amendments to the relevant
laws to facilitate quicker action against public servants. It will also consider
issues relating to the state funding of elections. The report of the Group of
Ministers is expected soon. A bill to give protection to whistleblowers has been
introduced in Parliament. My government has also decided to ratify the United
Nations Convention Against Corruption.

   13. The subject of electoral reforms has been de-bated over the years. I am sure that all parties across the political spectrum support the need for bringing about such reforms. I am happy to share with the Hon’ble Members that my government has constituted a committee on electoral reforms to fast-track the process. The committee has held regional conferences with the concerned stakeholders. This will culminate in a national conference in April this year. It is expected that this process of consultation would lead to a consensus on an acceptable agenda of reforms.

   14. My government attaches high priority to improving the delivery of justice and reducing delays in the disposal of cases. The details of the National Mission for Delivery of Justice and Legal Reforms are expected to be finalised soon. This should result in re-engineering of procedures, improving of human resources in this sector and leveraging of information technology. The Judicial Standards and Accountability Bill, already introduced in Parliament, is intended to enhance the accountability of the judiciary, thereby improving its image and efficiency.

Hon’ble Members,

    15. The issue of black money has attracted a lot of attention in the recent past, especially that allegedly stashed away in foreign banks. The government fully shares the concern about the ill-effects of black money whether generated by evasion of taxes on income earned legitimately or through illegal activities. My government stands committed to tackling the menace frontally. It requires diligent, sustained effort by all law enforcement agencies, including those of state governments.

    16. My government has taken many steps to strengthen the legal framework, build new institutions, and improve capacity to tackle this problem. A multidisciplinary study has been commissioned to study its ramifications for national security and recommend a suitable framework to tackle it. The government is also working closely with the international community, especially through the G-20, to expedite the process of identification and recovery of such money. India is now a member of the Financial Action Task Force in recognition of its anti-money laundering and anti-tax evasion measures. India has also gained membership of the Eurasian Group and the Task Force on Financial Integrity and Economic Development. My government has taken steps to facilitate exchange of information for tax purposes with such countries and entities where Indian citizens may have parked their money. The early results have been encouraging. These steps have led to additional collection of taxes of Rs. 34,601 crore and detection of additional income of Rs. 48,784 crore. My government will spare no effort in bringing back to India what belongs to it and to bring the guilty to book.

News report

Cancerous Corruption

Top service tax officer arrested for attempt to extort Rs.2 lakh


A Service Tax Superintendent, who attempted to extort Rs.2
lakh from a city transporter by threatening him of penal action for alleged
Service Tax evasion, was arrested by the CBI on Friday
night. A person who acted as facilitator on behalf of the tax official has also
been arrested.

According to CBI sources, Service Tax Superintendent, S. G.
Desai, 45, and his accomplice Neerav Mayekar, were arrested from a hotel
opposite Vile Parle railway station when they accepted the bribe of Rs.1 lakh,
being the first instalment of Rs.5 lakh bribe demanded by the tax official.

The complainant runs a ‘packers & movers’ service in Goregaon.
Desai whose office scrutinises Service Tax payment by business establishments
had sent a notice to the complainant saying he had
paid Service Tax at the rate of 3.65 per cent, though he was supposed to file it
at the rate of 12.63 per cent.

When the complainant objected, Desai asked him to furnish
accounts for the past five years and later allegedly demanded Rs.5 lakh to
settle the matter. The amount was finally settled at Rs.2 lakh, of which Rs.1
lakh was to be paid on Friday night. The CBI laid a trap and arrested the duo
while accepting the money.

(Source : Mumbai Mirror Bureau)

levitra

SC judge puts ex-CJI in dock over Raja Ex-CM Vilasrao shielded MLA’s money lender family : SCWhistleblower cop had no posting for eight months

Cancerous Corruption

Justice H. L. Gokhale of the
Supreme Court has accused former Chief Justice of India K. G. Balakrishnan of
misrepresenting facts to conceal sacked telecom minister A. Raja’s attempt to
influence Justice R. Reghupathy of the Madras High Court on behalf of two murder
accused known to the DMK leader.

Justice Gokhale, who was
Chief Justice of the Madras High Court at the time of the incident, asserted
that contrary to Justice Balakrishnan’s claim, he had forwarded to the former
CJI Justice Reghupathy’s letter identifying Raja as the Union minister who tried
to lobby for anticipatory bail to the murder accused.

Rebutting the former CJI’s
statement that he had never received Justice Reghupathy’s letter naming Raja,
Justice Gokhale said, “I may point out that Justice Reghupathy’s letter was
already with him (Justice Balakrishnan) and in the second paragraph thereof,
Justice Reghupathy had specifically mentioned the name of minister Raja.”

When asked on December 8 why
he had not told Prime Minister Manmohan Singh about the former minister’s
attempt to influence the judiciary, Justice Balakrishnan had told TOI that he
had received no complaint from Justice Reghupathy mentioning Raja’s attempt to
fix a judicial order.

Justice Balakrishnan’s
account was repudiated by Justice Gokhale who took the unusual step of issuing a
press release on Tuesday to “clear the erroneous impression about his role in
the matter”. The Supreme Court judge said, “I also informed the former CJI about
the petitions filed in the Madras High Court concerning the incident. Continuity
of correspondence clearly shows that the incident related to advocate
Chandramohan and minister Raja had been brought to the notice of the former CJI.”
‘Chandramohan’ refers to a lawyer, R. Chandramohan who, on June 12 last year, is
believed to have told Justice Reghupathy about Raja’s interest in the
anticipatory bail petition of the two murder accused, a father-son duo.
Chandramohan had handed over a mobile to Justice Reghupathy in his chamber
saying that Raja wanted to speak with him.

Clearly wrongfooted by
Justice Gokhale’s public clarification, Justice Balakrishnan partly retracted
his version to acknowledge that “I had indeed received Justice Reghupathy’s
letter forwarded to me by Justice Gokhale.” He, however, insisted that the
letter did not name Raja or, for that matter, any minister. The former CJI also
argued that “since Justice Reghupathy had addressed his letter to Justice
Gokhale, I as CJI could not have made the contents public”.

But Gokhale’s version was
boosted by the endorsement from Justice Reghupathy himself. “I am thankful to
Justice Gokhale,” the former judge of Madras High Court said.

Though he did not elaborate,
his ‘thank you’ seemed to tip the balance in favour of the SC judge’s version of
the contents of the letter. The episode is yet another blow to judiciary’s
image. It comes at a time when other institutions — from the executive to the
army to the media — are under scrutiny, and can aggravate the unease with the
establishment.

When told that Justice
Gokhale’s press release has put him in the embarrassing position of being called
a ‘liar’, Justice Balakrishnan laughed it off.

This is what Justice
Balakrishnan had told TOI on December 8 : “I had asked for a report from Justice
Gokhale. Justice Reghupathy had also given a report to Justice Gokhale. In turn,
Justice Gokhale sent a report to me narrating how a lawyer had whipped out a
phone in his chamber saying a Union minister was on the line to talk to him. The
report mentioned that Justice Reghupathy did not take the call but it did not
identify who the minister was.”

Asked during the same
conversation why he did not take up the matter with the Prime Minister, the
National Human Rights Commission chief had said, “The report of Justice Gokhale
is still there in the files with the present Chief Justice of India (S. H.
Kapadia). He can initiate action even now on the basis of that
report.”

(Source:Extracts from a story
by Dhananjay Mahapara in
Times of India dated 15-12-2010)

(Comments:Whether the Ex-CJI
should continue as

Chairman of NHRC)

Ex-CM Vilasrao shielded MLA’s money lender family : SC

In a stinging criticism of
Maharashtra chief minister-turned Union cabinet minister Vilasrao Deshmukh, the
Supreme Court on Tuesday said he had abused his constitutional position to
prevent the police from registering a criminal case against a Congress MLA’s
money-lender father and slapped a Rs.10 lakh fine on the state government.
Deshmukh was accused of interfering with registration of complaints and
investigation of an illegal racket in the state’s Vidarbha region in which money
lenders were alleged to have been squeezing debtridden farmers dry, forcing them
to commit suicide.

Shocked by the ‘gross misuse
of power’, a Bench of Justices G. S. Singhvi and A. K. Ganguly said :
“Considering the entire matter in its proper perspective, this court is of the
view that the way interference was caused from the office of the CM by his
private secretary by two telephone calls on May 31, 2006, and the manner in
which the district collector was summoned by the CM on the very next day, June
1, 2006, for giving instructions to specially treat any complaint filed against
MLA Dilip Kumar Sananda and his family members has no precedent either in law or
in public administration.”

In a no-holds-barred
criticism of Deshmukh, the bench not only upheld the Bombay High Court order
directing filing of cases against the accused in the illegal money lending ring
but even enhanced the cost imposed on the state government from Rs.25,000 to
Rs.10 lakh.

A petition before the High
Court had alleged that though there were around 50 complaints against one family
related to Sananda for an illegal money-lending racket collecting interest up to
10% per month from poor farmers in Vidarbha, the police had refused to take
action owing to consistent interference and instructions from CM and his office.

The SC Bench said: “The message conveyed in this case is shocking and it shocks the conscience of this court about the manner in which the constitutional functionaries behaved in the state.” Ripping apart the politically dramatised pro-farmer face projected by the Cong-led coalition government, the SC said the complaint while seeking action against money lenders was categorical — farmers do not get the benefit of various packages announced by the government and the state machinery is ruthless with farmers.

It said the orders passed by Deshmukh asking the authorities to bestow special treatment to Sananda’s family members and protect them from the normal legal process came as a shock as close to two lakh farmers committed suicide in India between 1997 and 2008. “This is the largest sustained wave of suicides ever recorded in human history. Two-thirds of the two lakh suicides took place in five states of Ma harashtra, AP, Karnataka, MP and Chhattisgarh. Even though Maharashtra is one of the richest states in the country and in its capital Mumbai 25,000 of India’s one lakh millionaires reside, the Vidarbha region of Maharashtra, in which is situated Budhana, is today the worst place in the whole country for farmers,” it said.

The Bench said: “This being the grand reality, as the CM of the state and as holding a position of great responsibility as a high constitutional functionary, Vilasrao Deshmukh certainly acted beyond all legal norms by giving direction to the Collector to protect members of a particular family who are dealing in money-lending business from the normal process of law.”

”This amounts to bestowing special favour to some chosen few at the cost of the vast number of poor people who as farmers have taken loans and who have come to the authorities of law and order to register their complaints against torture and atrocities by the money lenders. The instructions of the CM will certainly impede their access to legal redress and bring about a failure of the due process,” the judges said. The state represented by counsel Uday Lalit and Sanjay Kharde argued that it had already filed about 25 cases against Sananda under the Indian Penal Code and the Money Lending Act of 1946 and counsel Abhishek Manu Singhvi for Deshmukh said the then CM only asked to verify the genuineness of the complaints through a committee and did not ask them to be stayed.

                         Whistleblower cop had no posting for eight months

It was assistant police inspector Ganesh Aney’s firm refusal to bow to ‘indecent proposals’ by the state’s highest political office that resulted in the indictment of former chief minister Vilasrao Deshmukh by the Supreme Court.

In defiance of Deshmukh’s ‘illegal verbal instructions’ to ignore complaints by farmers against the practices indulged in by Congress MLA Dilip Sananda’s father Gokulchand Sananda, Aney had recorded the exact orders from the CM’s office in their police diary.

“It was on May 31, 2006, that an FIR was filed against Sananda for kidnapping, extortion and illegal money-lending on a complaint of a farmer, Rajendra Kavadkar. At around 1.15 p.m., Ajinkya Padwal, private secretary to the CM, called up the police station and enquired about the case. I told him that an FIR had been registered at 12.15 p.m. Ten minutes later, Padwal called again and said the CM has instructed that no further cases be registered against Sananda,’’ Aney said.

Determined to book the guilty, Aney along with his superior officer Chandrakant Sugandi recorded Pad-wal’s conversation in the police diary. It is learnt that the very next day, Aney was summoned at Varsha (CM’s residence), where Deshmukh enquired about his tenure and was alleged to have expressed his displeasure about the police action against Sananda, who was the Congress’s lone MLA in Buldhana district.

“A week after the FIR, I was transferred to the police training school in Akola. I went on medical leave. On June 5, 2006, the district collector issued orders that any case against the Sananda family should be first reported to the district-level committee and only after legal scrutiny of the allegations should a case be registered,’’ Aney said. The police officer was denied any posting for nearly eight months after he reported back from his medical leave. The is-sue was sorted out after Aney’s wrote to the deputy CM, stating that she would immolate herself in front of CM’s residence.

At present, Aney is posted at Kotwali police station at Amravati, while his then superior, Sugandi, is posted as vigilance officer, caste verification, Nandurbar.
(Source : The Times of India, dated 15-12-2010)

Global Indian CAs

[Beware ! Corruption is injurious to the economic health of our nation]

No bribes for audits :

    Additional Commissioner and Registrar Manohar Bhagaji Tribhuvan (54) of the State Co-operation Department was on Monday evening caught red-handed by ACB officials, Pune unit, while accepting a bribe of Rs.1.5 lakh from a chartered accountant near the Pune railway station. Tribhuvan, in charge of inspection and election in the department, will be produced before a special Court on Tuesday afternoon. Tribhuvan’s arrest has sent ripples across the Co-operative Department as he is ranked second in the Department after the Co-operative Commissioner.

    ACB Superintendent of Police Vishwas Pandhare said the complainant, Jaywant Baburao Chavan (65) of Satara, was a member of the panel of auditors at the state and divisional level, which audits cooperative societies and banks.

    According to Pandhare, Tribhuvan was responsible for allotting auditing work to chartered accountants on the panel. He had allotted the work of auditing the Jankalyan Co-operative Credit Society in Karad to Chavan on May 14, 2009.

    Pandhare said Chavan’s fee depended on the turnover of the co-operative society, which in this case came to Rs.9 lakh.

    “Tribhuvan would allegedly collect 30% of the auditor’s fee as commission for giving work to chartered accountants. Tribhuvan allegedly demanded Rs.2.7 lakh from Chavan, which he was supposed to receive after submitting the audit report,” Pandhare said.

    “On Monday, Tribhuvan called Chavan and asked him to bring the money to his office in Central Building. But Chavan filed a case against him with the ACB. Chavan then visited Tribhuvan’s office around 6 p.m., but Tribhuvan asked him to wait downstairs for him. After some time Tribhuvan came downstairs, sat in Chavan’s car and asked him to stop the vehicle near Hotel Woodland. After collecting the bribe, he got out of the car and was caught redhanded by the ACB officials who had followed Chavan’s car,” Pandhare said.

    (Source : www.taxguru.in dated 9-6-2009)

Leading citizens speak up on graft, lack of governance

CANCEROUS CORRUPTION

The current crisis of confidence in institutions of
governance is an opportunity for reform. Ill fares the land, to hastening ills a
prey, where wealth accumulates, and men decay.

— Oliver Goldsmith


A group of 14 prominent and well-regarded citizens have
written an ” Open Letter To Our Leaders” to express alarm at the “governance
deficit” in “government, business and institutions”, and underline the “urgent
need” to tackle the “malaise of corruption, which is corroding the fabric of our
nation.”

It is a rare move and goes to show how quickly the mood of
the nation appears to have shifted from a sense of satisfaction with political
stability and high growth rates, to one of grave concern over the recent spate
of scandals and the sense of drift in the government which, it is feared, could
affect the growth story.

The letter, which follows a meeting in Mumbai, has been
signed by businesspersons Azim Premji of Wipro, Keshub Mahindra of Mahindra &
Mahindra, Jamshyd Godrej of the Godrej Group and Anu Aga of Thermax; HDFC
chairman Deepak Parekh; ICICI chairman emeritus N Vaghul; former Hindustan Lever
chairman and now Rajya Sabha MP Ashok Ganguly; former Reserve Bank of India
governors Bimal Jalan (also an RS MP) and M Narasimham; Justices Sam Variava and
B N Srikrishna, who heard the Harshad Mehta and Mumbai riots cases respectively;
chartered accountant and architect of key SEBI and RBI regulations Yezdi Malegam;
member of the PM’s Economic Advisory Council Prof A Vaidyanathan and
banker-turned-social worker Nachiket Mor.

Many in this group have played crucial roles towards the
India Story, advising successive governments and at critical junctures, playing
conscience-keepers. Some of them are, in fact, said to be close to Prime
Minister Manmohan Singh.

The group has said that among “several urgent steps to tackle
corruption”, the most critical is to make the “investigative agencies and
law-enforcing bodies independent of the Executive… in order to ensure citizens
that corruption will be most severely dealt with”.

“In the last few months, the country has witnessed the
eruption of a number of egregious events, thanks to an active media eagerly
tracking malfeasance. There are, at present, several loud and outraged voices,
in the public domain, clamouring on these issues, which have deeply hurt the
nation,” the letter says.

On the crisis of governance, the letter says, “Widespread
discretionary decision-making has been routinely subjected to extraneous
influences… The judiciary is a source of some reassurance but creation of
genuinely independent and constitutionally constituted regulatory bodies, manned
by persons who are judicially trained in the concerned field, would be one of
the first and important steps to restore public confidence.”

The group has called for the setting up of “effective and
fully empowered Lok Ayuktas” in every state and “early introduction of the Lok
Pal Bill at the national level for the purpose of highlighting, pursuing and
dealing with corruption issues and corrupt individuals”.

Without naming environment minister Jairam Ramesh, the group
appears to tilt in favour of industry in the raging development vs conservation
debate. “It is widely acknowledged that the benefits of growth are not reaching
the poor and marginalised sections adequately due to impediments to economic
development. This is because of some critical issues like environmental concerns
and differences in perspectives between central and state governments,” the
letter says.

The group is also implicitly critical of the opposition for
blocking almost the entire Parliament
session gone by. It says elected representatives need to “distinguish between
dissent and
disruption”.

The G14 has decided to meet again later this month and come
up with suggestions on economic issues should there be a positive response from
the political leadership to its offer, a member of the group told TOI.

(Source: Times of India dated 18-01-2011)

Many parties are being floated to launder money, warns
Election Commission

The Election Commission believes fraudulent political parties
are being floated to launder money which finds its way into the stock market and
is also used to buy jewellery, but has little to do with electoral campaigning
or any other political expenses.

It says tax evasion and dubious donations could be behind a
high number of defunct political parties. The commission says only 16% or 200 of
1,200 registered parties are actually involved in political activities. Most of
the other parties are floated to park money illegally as donations to exploit
the tax exemptions enjoyed by registered political outfits.

Although not all inactive parties are dodgy, several
instances of cash transfers ranging from Rs 15 lakh to Rs 30 lakh, have been
detected by the commission which, it feels, were for non-political purposes.

Chief Election Commissioner S Y Quraishi told TOI, ” We have
repeatedly written to the government about defunct political parties asking for
powers to strike them off the rolls.” He said the commission had proof about
party funds being “channelled into the stock market and also used to purchase

jewellery.” But little has been done to check
fraudulent parties.

Documents accessed through the RTI Act show the EC has been
raising the alarm over a rise in dud parties since 2006.”

The then CEC N Gopalaswami had in a letter to the PM
expressed concern over donations collected by political parties. “The commission
has reason to believe there could be something more than what meets the eye in
these donations,” he said in a communication on July 31, 2006.

The letter said, “Recently the commission has come across
many cases of little known unrecognised political parties receiving donations
running into lakhs of rupees, many times in cash, from individuals and
companies.”

The commission had also asked the Finance Ministry and the
Central Board of Direct Taxes (CBDT) to examine the accounts of some parties.
RTI documents, accessed by the Association for Democratic Reforms (ADR), shows
two registered unrecognised political parties — Parmarth Party and Rashtriya
Vikas Party — received cash and came under scrutiny.

On March 3, 2006 EC secretary K F Wilfred asked CBDT to
scrutinise the transactions.

Parmarth Party received Rs 15 lakh in just one transfer in 2004 while Rashtriya Vikas Party received two “donations” of Rs 75 lakh and Rs 50 lakh from one company within two months.

(Source: Extracts from News Story by Himanshi Dhawan in Times of India dated 14-01-2011)

Property : Minor : Permission for sale of immovable property of minors can be granted only if in the interest of minors : Hindu Minority and Guardianship Act 1956, S. 8.

New Page 1

24 Property : Minor : Permission for sale of immovable
property of minors can be granted only if in the interest of minors : Hindu
Minority and Guardianship Act 1956, S. 8.


The petitioner filed a petition u/s.8 of the Hindu Minority
and Guardianship Act seeking permission to sell immovable property belonging to
her minor sons, which came to their share by inheritance. The daughter of the
petitioner was also having right by birth in the property inherited from Babu
Aade, husband of the petitioner and father of the minor children Krishna,
Ratansingh (Sons) and Mangala Aade (daughter). Permission was refused by learned
District Judge on the ground that besides the two sons, one daughter of the
petitioner also had share in the property, but the petitioner signed on her
behalf as a consenting party without the permission of the Court, which was
mandatory and as such excluding the name of the minor daughter was an attempt to
ignore her interest.

Perusal of the provisions of S. 8 of the said Act would show
that natural guardian of a Hindu minor has power, subject to the provisions of
this Section. to do all acts which are necessary or reasonable and proper for
the benefit of the minor or for the realisation, protection or benefit of the
minor’s estate. The import of this Section is that protection of the interest of
minors alone should be the necessary criteria. Further, Ss.(2) of S. 8 of the
said Act specifically bars the natural guardian to mortgage or charge, or
transfer by sale, gift, exchange or otherwise, any part of the immovable
property of the minor, or lease out any part of such property for a term
exceeding five years or for a term extending more than one year beyond the date
on which the minor will attain majority or disposal of the immovable property,
etc., without permission of the Court.

On appeal the Court observed that the petitioner had signed
as consenting party on behalf of daughter who is minor. It is nowhere the say of
the present petitioner that she sought permission u/s.8 of the Hindu Minority
and Guardianship Act, 1956 before signing as consenting party, because such
permission was mandatory.

The Court held that the claim of the petitioner that she
wants to sell the property which is standing in the name of her minor two sons
is erroneous because apart from these two sons, daughter of the petitioner,
namely, Mangal Aade has also right in the said property.

While giving consent on behalf of the minor daughter Mangal
Aade in the partition deed, the petitioner had not sought any permission from
the Court and the permission which is applied for the sale showing only two
minor sons as holders of the property and excluding the minor daughter, is also
an attempt by the petitioner to ignore completely the interest of the minor
daughter. The petition which was filed by the petition u/s.8 of the said Act
totally ignoring the interest of the minor daughter was rightly rejected by the
District Judge. The petitioner had acted in suspicious manner and excluded the
interest of the minor daughter.

[ Smt. Dropadabai, Aurangabad, v. State of Maharashtra, 2008 Vol.
110 (10) Bom L.R. 3600]


levitra

Core Investment Companies: A Tight Leash ?

Article

Introduction :


One of the perennial questions plaguing holding companies has
been whether or not they are Non-Banking Financial Companies (‘NBFCs’) under the
Reserve Bank of India, Act, 1934 (‘the Act’) and hence, should they get
registered with the RBI? Most of India’s top corporate houses, such as the Tata,
Birla, Bajaj, GMR, UB, etc., have holding company structures that are
quintessentially family-owned parent companies which have equity stakes in all
group companies. An example of a listed holding company is Pilani Investment &
Industries Corp. Ltd. which owns stakes in most of the


B. K. Birla and Aditya Birla group companies.

Earlier, the RBI on a case-by-case basis exempted a holding
company from being registered as an NBFC if a company invested in equity shares
as a holding company of the investee companies. The exemption was granted
provided the investor company complied with the following four conditions :




  • Not less than 90% of its
    assets are in the form of investment in equity shares for the purpose of
    holding stake in the investee companies.




  • It is not trading in
    those shares except for block sale (to dilute or divest holding).


  • It is not carrying on any
    other financial activities.


  • It is not
    holding/accepting public deposits.


    Thus, if a company was a Holding Company owning investments in the shares of its group companies, as a promoter, which investments are equal to or more than 90% of its total assets, and it satisfied the other conditions mentioned above, then it was granted an exemption from registration as an NBFC with the RBI u/s.45-IA of the RBI Act.

    To address some of these issues, last year, the RBI introduced a new concept of Core Investment Companies (‘CICs’) by virtue of its Guidelines issued vide DNBS (PD) CC

    No. 197/03.10.001/201-011 dated 12th August 2010. According to these Guidelines all CICs were required to be registered with the RBI. The Guidelines mentioned that investment companies which were predominantly holding shares in group companies and not for trading purposes deserved a differential treatment as compared to other NBFCs.

    Recently, the RBI came out with the Core Investment Companies (Reserve Bank) Directions, 2011 (Directions), issued vide Notification No. DNBS. (PD) 219/CGM(US)-2011, dated 5th January, 2011. These Directions lay down the regulatory framework for CICs and have also modified the Guidelines introduced earlier on. Let us examine this very vital development in the NBFC sphere and the implications which it would have on corporate India !

Definition of a CIC :

The Directions define a CIC as follows :


  • It is a
    non-banking financial company carrying on the business of acquisition of
    shares and securities. Thus, in the first place it must be a non-banking
    financial company. Would merely owning shares as investments in group
    companies make a company an NBFC? Section 45-I(c) of the RBI Act provides that
    in order to become an NBFC, the company must carry on the business of
    acquisition of securities    . It is submitted that a company which is a mere
    holding company should not be classified as an NBFC and one would have to
    apply the tests laid down under the RBI Act to determine whether or not a
    company is an NBFC. However, it should be borne in mind that this a litigious
    issue since the RBI regards any investment in shares of other companies, even
    for the purposes of holding stake as a business of acquisition of shares in
    terms of section 45-I(c) of the RBI Act;

  • As on the date of its
    last audited balance sheet, it holds more than or equal to 90% of its net
    assets in the form of investment in equity shares, preference shares, bonds,
    debentures, debt or loans in group companies (as defined below). Net assets
    for this purpose means the total of all assets appearing on the assets side of
    the balance sheet as reduced by the cash and bank balances, investment in
    money market instruments and money market mutual funds, advance tax paid and
    deferred taxes paid. All direct investments in group companies, as appearing
    in the CICs balance sheet will be taken into account for this purpose.
    Investments made by subsidiaries in step-down subsidiaries or other entities
    will not be taken into account for computing 90% of net assets. The RBI has
    clarified that the 10% of net assets  which can be held outside the group
    would include real estate or other fixed assets which are required for
    effective functioning of a company, but should not include other financial
    investments/loans in non-group companies. It would however include investments
    in other group entities that are not companies e.g., trusts etc. Only
    investments in companies registered u/s. 3 of the Companies Act, 1956 would be
    regarded as investments in group companies for the purpose of calculating 90%
    investment in group companies. Thus, investments in LLPs, partnerships, AOPs,
    would be excluded.


  • As on the date of its
    last audited balance sheet, its investments in the equity shares (including
    instruments compulsorily convertible into equity shares within a period not
    exceeding 10 years from the date of issue) in group companies constitutes 60%
    or more of its net assets as mentioned above;


  • It does not trade in its
    investments in shares, bonds, debentures, debt or loans in group companies
    except through block sale for the purpose of dilution or disinvestment. Thus,
    it should not be carrying on any trading in its investments. The RBI has
    clarified that the term used is block sale and not block deal which has been
    defined by SEBI. Thus, a block sale would be a long-term or strategic  sale
    made for purposes of disinvestment or investment and not for short-term
    trading. Unlike a block deal, there is no minimum number/value defined for the
    purpose;

    It does not carry on any other financial activity referred to under the Act, such as financing, borrowing or lending, acceptance of public deposits, hire purchase, leasing, etc.

    It can carry on the following activities:

    a) investment in bank deposits, money market instruments, including money market mutual funds government securities, and bonds or debentures issued by group companies.

    b) granting of loans to group companies, and

    c) issuing guarantees on behalf of group companies.

Group companies:
For the above definition, two or more companies are treated as group companies if they are related to each other through any one or more of the following relationships:

  •     they are Subsidiary and Parent as defined in Accounting Standard 21;


  •     they are Joint Venture partners as defined in Accounting Standard 27;


  •     they are Associates as defined in Accounting Standard 23;


  •     if they are listed companies, they are Pro-moter-Promotee as defined in the SEBI (Sub-stantial Acquisition of Shares and Takeover) Regulations, 1997;


  •     they are Related Parties as defined in Accounting Standard 18;


  •     they share a common Brand Name. What is meant by common brand name has not been defined, for instance, if two or more companies have the same first name but since they have different lines of businesses they have different brands/logos, would it be considered that they share a common brand name? E.g., Apex Finance Ltd. and Apex Chemicals Ltd. are two companies within a group. Would they be considered as sharing a common brand name?;


  •     one company has made an investment of 20% or more in the equity shares of another company.


The definition of group companies was not given in the earlier Guidelines and hence, was the subject matter of great debate. Now the Directions have defined this term. This is a very wide definition encompassing several relationships within its ambit.

Registration of CICs:
Depending upon whether or not the CIC is a Systemically Important Non-Deposit (‘SIND’) taking company it needs to register with the RBI. A systemically important non-deposit taking core investment company means a Core Investment Company which fulfils all the following three conditions:

  •     it has total assets of Rs.100 crore or more either individually or in aggregate along with other Core Investment Companies in the group. The RBI has clarified that if a single group has four to five prospective CICs with an aggregate asset size of more than Rs.100 crore, then all the companies in the group that are CICs would be regarded as CICs-ND-SI and would be required to obtain a Certificate of Registration from the RBI.


  •     it raises or holds public funds. Public funds have been defined to include funds raised either directly or indirectly through public deposits, commercial papers, debentures, inter-corporate deposits and bank finance, but excludes funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue. The RBI has clarified that if in a single group there are various prospective CICs with an aggregate asset size of more than Rs.100 crore and only one of the companies has raised/holds public funds, then only the specific entity which has raised/holds public funds would be regarded as CIC-ND-SI, and thus would be required to seek registration as CIC-ND-SI with the Bank. For example : HoldCo is the parent group CIC holding 100% equity capital of A, B and C, all of which are also CICs. In such a case only C has to be registered as a CIC, provided C is not being funded by any of the other CICs either directly or indirectly;


  •     it does not accept public deposits.


This definition of SIND is different from the definition contained in the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. According to those Directions, a SIND is one which individually has total assets in excess of Rs.100 crores and which is not accepting public deposits. There is no additional criteria of holding these assets in excess of Rs.100 crores in aggregate along with other CICs in the Group. Further, there is no condition of raising or holding public funds under those Directions. Thus, one has to consider the definition of a SIND differently under differ-ent Directions. The additional criteria added by these Directions is a departure from the earlier Guidelines issued on CICs.

Every Systemically Important Core Investment Company (‘CIC-ND-SI’) shall latest by 5th July 2011, apply to the Reserve Bank of India for grant of Certificate of Registration, irrespective of any contrary guidelines issued in the past by the Reserve Bank of India. The application form for CICs- ND- SI is available on the RBI’s website and is to be submitted to the Regional Office of the Department of Non-Banking Supervision (DNBS) in whose jurisdiction the Company is registered along with necessary supporting documents mentioned in the application form.

According to the RBI, a holding company not meeting the criteria for a CIC would require to register as an NBFC. However, if such company wishes to register as CIC-ND-SI/be exempted as CIC, then it would have to apply to RBI with an action plan achievable within the specific period to reorganise its business as CIC. If it is not able to do so, it would need to comply with NBFC requirements and prudential norms.

A CIC-ND-SI which applies for grant of Certificate of Registration to the Reserve Bank of India by the above period shall be entitled to continue to carry on its existing businesses as a Core Invest-ment Company, till the RBI disposes its application. This is a beneficial provision.

Every company which becomes a CIC shall apply to the Reserve Bank of India for grant of Certificate of Registration within a period of three months from the date of becoming a CIC-ND-SI.

    CIC which is a CIC-ND-SI is not required to maintain net owned funds of Rs.2 crore, subject to the condition that it meets with the capital requirements and leverage ratio as specified in the said directions. NBFCs already registered with the RBI as Category ‘B’ Companies whose asset size is below Rs.100 crore, and fulfil the crite-ria for exemption as a CIC, can seek voluntary deregistration (as such companies are not otherwise required to get registered with the Bank under the new norms). Audited balance sheet and auditors’ certificate are required to be submitted for the purpose.

The CIC registration requirements can be sum-marised in as given Table 1.

The Directions require a company to own 90% of its total assets in group companies, whereas according to the RBI any activity of owning shares in compa-nies is a non-banking business. Hence, the question which arises is that how can a company shore up its assets to include group company shares without first obtaining registration with the RBI as an NBFC ? It is a perennial chicken-and-egg problem ! According to the RBI, such a company would have to apply for a Certificate of Registration to the RBI, giving a business plan within a prescribed time period of one year in which it would achieve CIC-ND-SI status. In case the company is unable to do so, then the exemptions would not apply and the company would be regarded as an NBFC and it would have to comply with NBFC capital adequacy and exposure norms.
 

Capital Adequacy Norms:

The Adjusted Net Worth of a CIC-ND-SI shall always be greater than or equal to 30% of its aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items as on the date of the last audited balance sheet as at the end of the financial year.

The adjusted net worth is computed as given in Table 2.

Thus, CICs would now have to factor in losses made in the quoted investments.

The method for computing the on-balance sheet items and the off-balance sheet items are laid down in the Directions.

The outside liabilities of a CIC-ND-SI must not ex-ceed 2.5 times its Adjusted Net Worth as on the date of the last audited balance sheet as at the end of the financial year. Thus, such companies would now have to limit their borrowings and access to outside funds and in order to increase their borrowings by CICs, the promoters would have to increase the proportion of owned funds. Outside liabilities have been defined to mean the total liabilities appearing in the balance sheet excluding ‘paid up capital’ and ‘reserves and surplus’, instruments compulsorily convertible into equity shares within a period not exceeding ten years from the date of issue, but including all forms of debt and obligations having the characteristics of debt, whether created by issue of hybrid instruments or otherwise, and value of guarantees issued, whether appearing on the balance sheet or not. Current liabilities, deferred tax liability, advance tax due and provision for income tax will also form part of outside liabilities.

Every CIC-ND-SI must submit an annual certificate from its statutory auditors regarding compliance with the requirements of these directions within a period of one month from the date of finalisation of the balance sheet.

Applicability of other provisions:

The Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 will not apply to an NBFC which is a CIC but which is not a CIC-ND-SI.

The provisions of Paragraphs 15, 16 and 18 of the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 will not apply to a CIC-ND-SI. However, it must submit the Annual Auditors Certificate and meet with the capital requirements and leverage ratio, as specified above. These paragraphs relate to the Capital Adequacy Norms and the Limits on Investments/Loans by a SIND. Thus, the other parts of these Directions would apply to a CIC-ND-SI. These relate to accounting norms, provisioning requirements, constitution of an audit committee, disclosure requirements, etc.

A CIC which is not a CIC-ND-SI is not required to get registered with the RBI or maintain net owned funds of Rs.2 crores.

CIC-ND-SI would require a clearance from the RBI in case it wants to invest abroad in terms of Regulation 7 of the FEMA (Transfer or Issue of Any Foreign Security) Regulations, 2004.

Epilogue:

While the intent behind the Directions is good, in the sense that it seeks to free up investment companies from the onerous regime associated with pure NBFCs, the general presumption that ‘all investment companies are NBFCs requires a rethink. Further, the RBI has imposed several stiff norms on CICs. The RBI may have opened up a few Pandora’s boxes and plugged a few leaks by creating a few new ones. One hopes that the RBI would address these leaks soon by taking a cue from Aristotle :

‘Even when laws have been written down, they ought not always to remain unaltered!’

Service of Arbitration Award — On Advocate — Not proper service — Arbitration and Conciliation Act, 1996 — S. 31(5), S. 2(4).

New Page 1

15. Service of Arbitration
Award — On Advocate — Not proper service — Arbitration and Conciliation Act,
1996 — S. 31(5), S. 2(4).


[Karmyogi Shelters P.
Ltd. v. Benarsi Krishna Committee & Ors., AIR 2010 Del. 156]

The petition u/s.34 of the
Arbitration and Conciliation Act, 1996 had been filed which was barred by time
and hence was dismissed. It was admitted fact that the Award had been made
available to the counsel for the appellant, and had not been directly served on
the appellant. The learned Single Judge dismissed the petition as being
time-barred. On further appeal it was observed that if an action has to be taken
in a particular manner it must be in that manner only, else will be held not to
have been done at all. The Court observed that so much judicial time had been
wasted in entertaining arguments which would have been unnecessary, had the
Award been served on the party concerned, namely, the appellant. In view of S.
2(h) of the Act, there was no justifiable reason to depart from succinct and
precise definition of the word ‘party’, which means a party to an arbitration
agreement. Factually, these words cannot take within their sweep an ‘agent’ of
the party which is incompetent to take the requisite action envisaged under the
statute.

In these circumstances, the
view of the learned Single Judge that service of the Award on the Advocate of
the appellant was sufficient compliance with the statutory provision could not
be sustained and was set aside.

levitra

Power of Attorney executed out of India — Adjudication of stamp duty — Kerala Stamp Act S. 31, S. 18.

New Page 1

13. Power of Attorney
executed out of India — Adjudication of stamp duty — Kerala Stamp Act S. 31, S.
18.


[Anitha Rajan v. The
Revenue Divisional Officer, Thrissur District & Ors., AIR 2010 Kerala 153]

The petitioner purchased
land at Thrissur District, from the legal heirs of late Gangadharan as per the
original sale deed dated 16-3-2009, registered at Sub-Registrar’s office,
Triprayar. The property conveyed to the petitioner as per the sale deed belonged
to late Gangadharan. The sale deed was executed by his wife Smt. Rathnabhai and
his children Sri. Ajayan, Smt. Jisha, Smt. Usha, Smt. Ajitha and Smt. Anitha.
Sri. Ajayan, one of the vendors was employed in Dubai. Sri. Ajayan had executed
the original power of attorney on 1-3-2009 on non-judicial stamp paper of the
value of Rs.150 appointing his mother Smt. Rathnabhai as his power of attorney
to execute a sale deed in respect of the lands conveyed to the petitioner. The
original power of attorney was executed at Dubai in the presence of the
Vice-Counsel in the Indian Consulate at Dubai and is attested by him.

After the sale deed was
executed, the petitioner moved the respondent for effecting mutation in the
Revenue records. The respondent thereupon sent letter to the petitioner
informing her that the original power of attorney executed at Dubai had to be
produced before the Revenue Divisional Officer, Thrissur for adjudication. The
petitioner moved the application to condone the delay in producing the document
for adjudication. The Revenue Divisional Officer, Thrissur passed order
rejecting application on the ground that it was not produced before her within
the time limit of three months stipulated in S. 18(1) of the Kerala Stamp Act,
1959.

The petitioner challenged
the said order.

The petitioner contends that
it was not mandatory to produce every power of attorney executed out of India
before the Revenue Divisional Officer and that only instruments executed out of
India which are chargeable with duty, but are not duly stamped, that require to
be stamped within three months and that only such documents are required to be
produced before the Collector for adjudication u/s.31 of the Kerala Stamp Act,
1959.

The Court held that S. 31 of
the Kerala Stamp Act, 1959 (which is para materia with S. 31 of the Indian Stamp
Act, 1899) empowers the District Collector to adjudicate on the proper stamp
duty payable on an instrument which is brought before him for the purpose of
adjudication of the stamp duty. U/s.32 of the Kerala Stamp Act, 1959, the
District Collector is empowered to determine the duty payable on that
instrument. However, the second limb of the proviso to Ss.(3) of S. 32 of the
Kerala Stamp Act stipulates that nothing contained in that Section shall
authorise the Collector to endorse any instrument executed or first executed out
of India and brought to him after the expiration of three months after it has
been first received in the State. Power of attorney is executed on Indian
non-judicial stamp paper of the value of Rs.150 which was the proper stamp duty
payable during the relevant time on that power of attorney under Article 44(f)
of the Schedule to the Kerala Stamp Act, 1959. As the power of attorney was duly
stamped, it was not necessary for the power holder or the petitioner to produce
the original before the Collector as required u/s.18 and u/s.31 of the Kerala
Stamp Act, 1959 for the purpose of adjudication. It is only in cases where an
instrument is brought before the Collector u/s.31 that the Collector is
empowered to adjudicate whether it is properly stamped or not.

In the instant case, the
respondents have no case that the proper stamp duty payable on the power of
attorney has not been paid. Since power of attorney, though executed at Dubai is
engrossed on Indian non-judicial stamp paper of the value of Rs.150 which
represents the proper stamp duty payable in respect of the said instrument, it
was not necessary to produce the said instrument before the Revenue Divisional
Officer, who has been appointed by the Government of Kerala to exercise all the
powers of the Collector u/s.18, u/s.31 and u/s.32 of the Kerala Stamp Act, 1959.
The restrictions imposed in S. 18(1) and proviso (b) to Ss.(3) of S. 32 of the
Kerala Stamp Act do not therefore apply. Further, the said
power of attorney was acted upon by the Sub-Registrar, Triprayar when he
registered the original sale deed.

levitra

‘Spouse’ — Does not include second wife — Hindu Marriage Act — S. 5.

New Page 1

14. ‘Spouse’ — Does not
include second wife — Hindu Marriage Act — S. 5.


[Lagadapati Raja Gopal v.
Sunkara Krishna Murthy, AIR 2010 (NOC) 881 (A.P.)]

The issue before the High
Court was in respect of filing of false affidavit by a returned candidate in
respect of disclosure of his assets. Election petition was filed alleging the
non-disclosure of assets of second wife by the returned candidate. The word
‘spouse’ has been understood to connote a husband or wife, which term itself
postulates subsisting marriage. Therefore, the word ‘spouse’ in Ss.(1) of S. 5
of Hindu Marriage Act cannot be interpreted to mean a latter spouse when a
second marriage is contracted if the former spouse is living.

The second wife can be said
to be a spouse only when her marriage is performed in accordance with law. Even
if the returned candidate contracted second marriage, such marriage is void
ipso jure and second wife cannot come within the meaning of spouse in view
of the fact that her marriage with the returned candidate was void as the first
marriage of the returned candidate was subsisting. Therefore, the column where
the affidavit was to be furnished by the returned candidate, the word ‘spouse’
would only mean a legally wedded wife. Admittedly, the returned candidate had
given the particulars required in the nomination affidavit about the details of
his first wife. Therefore, for not showing the assets of the second wife, it
cannot be said that the returned candidate gave false affidavit. The allegation
of not furnishing the assets of the second wife cannot be said to be a false
affidavit under any one of the provisions under the Representation of the People
Act, 1951 or under the Constitution or under any other law from the time being
in force.

levitra

Appellate Tribunal — Jurisdiction of Benches — Appeal wrongly placed before Single Member while Division Bench having jurisdiction — Order to be recalled. Central Excise Act, 1944 — S. 35D.

New Page 1

11. Appellate Tribunal —
Jurisdiction of Benches — Appeal wrongly placed before Single Member while
Division Bench having jurisdiction — Order to be recalled. Central Excise Act,
1944 — S. 35D.


[Commissioner of C. Ex.
Jammu v. Ultra Home Care Coils P. Ltd., (2010) (258) ELT 249 (Trib.-Del.)

An application for recall of
the order and for vacating the stay order was filed. It is the contention of the
applicant that the stay application in appeal was wrongly placed before the
Single Member when the matter clearly involves the issue in relation to
interpretation of exemption Notification and consequently, the jurisdiction to
deal the same is vested with the Division Bench and therefore, the order passed
by the Single Member is without jurisdiction.

The Tribunal observed that
the records apparently disclosed that the matter involves interpretation of
exemption Notification No. 56/2002-CE, dated 14-11-2002. The provision of S.
35D(3) reads thus :

“The President or any other
member of the Appellate Tribunal authorised. On this behalf by the President
may, sitting singly, dispose of any case which has been allotted to the Bench of
which he is a member where —

(a) in any disputed case,
other than a case where the determination of any question having a relation to
the rate of duty of excise or to the value of goods for purposes of assessment
is in issue or is one of the points in issue, the difference in duty involved
or the duty involved.”

Records apparently disclosed
that the matter was placed before the Single Member merely because the amount
involved was less than Rs.10 lakhs. There was no specific order by the President
allotting the matter to the Single Member. Thus, the same could not have been
heard and decided either on merits or for any interim relief by the Single
Member. Therefore, the order in stay application had to be recalled and the said
stay application was restored and fixed for fresh hearing.

levitra

Adjournment of hearing — Genuine ground for adjournment necessary — Central Excise Act, 1944, S. 35B.

New Page 1

12. Adjournment of hearing —
Genuine ground for adjournment necessary — Central Excise Act, 1944, S. 35B.


[Commissioner of C.Ex.
Jaipur-II v. Shri Ram Steel Inds., (2010) 258 ELT 154 (Trib.) (Del.)]

When the case was adjourned
by the Tribunal on the last occasion the parties were represented by their
advocates and the date was given with the consent of the advocates. It was
specifically made known to the representatives of the parties that the matter
would not be adjourned any further. On the next date of hearing none were
present on behalf of the assessee. The Tribunal proceeded with the matter ex-parte
and decided the Department’s appeal on merits.

A letter seeking adjournment
was received after completion of the hearing and delivery of order in the open
Court. The adjournment was sought on the ground that ring ceremony of niece had
to be attended on the day fixed for hearing.

The Tribunal held that the
application was without substance as date was fixed with the consent of the
parties and adjourned on several occasions. The Tribunal also observed that the
ground disclosed in application can never be a ground for adjournment.

Further, the representatives
of parties were not entitled to presume that the Tribunal would be obliged to
adjourn the matter the moment request for the same is sent. The practice of
seeking adjournment by sending application by post or by courier or by faxing
was highly objectionable. Adjournment is not a matter of right. Nobody can take
the Tribunal for granted and presume and assume that matter would be adjourned
the moment request for the same is made. Genuine ground for adjournment is
necessary. Further, the order on adjournment is always in the discretion of the
Tribunal and the same is to be exercised judiciously. Application for
adjournment was rejected.

levitra

Deficiency in service by builder : Consumer Protection Act, 1986 S. 2(1)(g).

New Page 3

  1. Deficiency in service by builder : Consumer Protection Act,
    1986 S. 2(1)(g).

[ Madan Builders v. R. K. Saxena, AIR 2009 (NOC)
2551 (NCC)]

Complainant purchased two shops in commercial complex. The
builder instead of providing two lifts as promised in advertisement and
brochure provided only one lift and that too was not a glass capsule lift as
promised. The reason was stated that glass capsule lift was not approved by
local administration. The Commission held that there was false representation
for luring complainant to make investment. Even the two shops booked by
complainant were changed by builder, without his consent and were allotted to
some other party. It was held that the deficiency in service was apparent as
builder failed to provide facilities as promised in representation made as per
advertisement and brochure. Thus the complainant was entitled to compensation
with interest.

levitra

Memorandum of understanding — Void contract : Civil Court cannot refuse to entertain suit even if based on void contract.

New Page 3

  1. Memorandum of understanding — Void contract : Civil Court
    cannot refuse to entertain suit even if based on void contract.

[ Govind Goverdhandas Daga and Mohan Brindavan Agrawal,
Field Mining and Ispat Ltd., (2009) Vol. 111(8) Bom L.R. 3524]

Plaintiffs No. 1 and 2 entered into Memorandum of
Understanding with Defendant No. 2 who was a director of Defendant No. 1
company. As per the MOU it was agreed that each family was to hold equal
shares in Defendant No. 1 company either directly or through family members.

The Plaintiffs paid Rs.3 lacs each as share application
money. As defendants failed to abide by the MOU the plaintiffs filed suit for
specific performance and permanent injunction. Defendants filed application
under Order 7 Rule 11 CPC for rejection of plaint contending that Memorandum
of Understanding was never acted upon by the parties and was entered into by
the director i.e. Defendant No. 2 in his individual capacity. Defendant
No. 1 had nothing to do with the said memorandum of understanding, no cause of
action disclosed and suit hit by provisions of Companies Act and Coal Mines
Act. Civil Judge rejected the plaint.

On further appeal the Court held that even if we assume
that the Memorandum of Understanding is void and illegal yet there was no law
which prohibits institution of suits and taking of its cognisance. Assuming
Memorandum of Understanding to be void that still does not prohibit plaintiffs
from approaching the court and deciding the question of its validity on merit.

The Court will always have to consider the facts, evidence
and the law to find out if the contract between the parties is enforceable or
not. The court may ultimately refuse its specific performance and may also
hold the contract to be void but there is nothing which prohibits the civil
court from entertaining such a suit.

Thus a party to void contract is still entitled to
institute a suit for enforcement of the contract and in the alternative to
pray for refund of the money.

levitra

Award — Enforcement of foreign award.

New Page 3

  1. Award — Enforcement of foreign award.

[ Hugo Neu Corporation v. M/s. Llyods Steel Inds. Ltd.,
AIR 2009 (NOC) 2483 (Bom.); 2009 (5) AIR Bom R. 158]

A petition was filed u/s.47 of the Arbitration and
Conciliation Act, 1996 seeking Enforcement of an Award dated 10th October
1999, made in United States of America.

The question raised for consideration was whether the party
viz., the petitioner applying for enforcement of a Foreign Award has at
the time of the application produced before the Court the documents stipulated
by S. 47(1)(a) to (c) and whether the petitioner has produced a copy of the 26
Award duly authenticated in the manner required by the law of U.S.A.

There was no dispute that the Award is a foreign Award. To
that extent the evidence had also been produced. There was no dispute that
there was an agreement for Arbitration.

It was held that the petition should be accompanied by the
Award or a duly authenticated copy thereof. As per Rule 803-C of the Bombay
High Court O.S. Rules. Reading S. 47(1) so also Rule 803(C)(c) together, all
that was required was that the party applying for enforcement of Foreign Award
shall at the time of the application produce before the Court, the original
Award or copy thereof.

In facts of present case admittedly, the petitioner had
produced a copy of the Award duly authenticated under the law prevailing in
U.S.A.

The petitioner had also filed the affidavit to satisfy the
Court that the copy of the Award accompanying the Arbitration petition was
duly authenticated in the manner required by the law of the country in which
it was made. Respondent does not dispute the manner in which the
authentication has been done.

The Court held that a duly authenticated copy of the Award
was already filed and what was lacking was proof of the manner in which it was
authenticated but even that aspect has now been clarified by the affidavit and
the objection raised was overruled.

levitra

Total disablement. Tanker driver said to have suffered 100% disability due to amputation of right leg up to knee joint in an accident : Workmen’s Compensation Act, 1923 S. 2(1)(e)

New Page 2

16 Total disablement. Tanker driver said to have suffered
100% disability due to amputation of right leg up to knee joint in an accident :
Workmen’s Compensation Act, 1923 S. 2(1)(e)


The claimant-appellant, a tanker driver, while driving his
vehicle from Ayanoor towards Shimoga met with an accident with a tractor coming
from the opposite side. As a result of the accident, the appellant suffered
serious injuries and also amputation of the right leg up to the knee joint. He
thereupon moved an application before the Com-missioner for workmen’s
compensation, praying that as he was 25 years of age and earning Rs.3,000 per
month and had suffered 100% disability, he was entitled to a sum of Rs.5 lacs by
way of compensa-tion. The Commissioner determined the same at Rs.2000 per month.
The Commissioner also found that as the claimant had suffered an amputation of
his right leg up to the knee, he was said to have suffered a loss of 100% of his
earning capacity as a driver and accordingly determined the compen-sation
payable to him at Rs.2,49,576 and interest @ 12% p.a. thereon from the date of
the accident.

On appeal by the insurance company the High Court held that
the loss of a leg on amputation amounted to a 60% reduction in the earning
capacity and as the doctor had opined to a 65% disability, this figure was to be
accepted and accordingly reduced the compensation. The claimant on further
appeal placed reliance on Pratap Narain Singh Deo v. Srinivas Sabata & Anr.,
(1976) 1 SCC 289, wherein a carpenter who had suffered an amputation of his left
arm from the elbow, the Court held that this amounted to a total disability as
the injury was of such a nature that the claimant had been disabled from all
work which he was capable of performing at the time of the accident. The
expression ‘total disablement’ has been defined in S. 2(1)(e) of the Act as
follows :

“(1) ‘total disablement’ means such disablement whether of
a temporary or permanent nature, as incapacitates workman for all work which
he was capable of performing at the time of the accident resulting in such
disablement.”


The question for consideration before the Court was whether
the disablement incapacitated the respondent for all work which he was capable
of performing at the time of the accident. The appellant herein had also
suffered a 100% disability and incapacity in earning his keep as a tanker driver
as his right leg had been amputated from the knee. Additionally, a perusal of S.
8 and S. 9 of the Motor Vehicles Act, 1988 would show that the appellant would
now be disqualified from even getting a driving licence.

The appeal was allowed and the judgment of the High Court was
set aside and order of the Commissioner restored.

[ K. Janardhan v. United India Insurance Co. Ltd. & Anr., AIR 2008 SC
2384]

levitra

Adjournment of hearing — Unaware of decision.

New Page 3

  1. Adjournment of hearing — Unaware of decision.

[Sunil Shipping Agency v. Commissioner of Customs (ACC &
Exports) Mumbai, 2009 (242) ELT 541 (Trib.-Mumbai)]

An application was moved before the Tribunal for waiver in
relation to the requirement of pre-deposit of the amount ordered to be paid
under the impugned order. The appellant had relied on the decision of Bombay
High Court in Commissioner of Customs (E.P.) v. Jupiter Exports, (2007)
213 ELT 641 (Bom.). The DR also submitted its arguments and relied on various
decisions of High Court and Tribunal.

With reference to the decision relied on by the DR. the
Advocate for the appellant submitted that he was not aware of the said
decision and therefore, time should be granted to him to go through the same
and to make submissions and for that purpose matter should be adjourned.

The Tribunal rejecting the request for adjournment held
that merely because the advocate for a party is unaware of the decisions cited
by the opposite party that cannot be a ground for adjournment of the hearing.
The advocate for the party very well can go through the judgment and make his
submission. Therefore, the question of adjournment of the matter on the said
ground cannot arise. On merits the application were disposed of directing the
appellants firm to deposit the amount.

levitra

Stamp duty : Transfer of agricultural land by great grandfather in favour of great grandson, exempted from payment of stamp duty : Indian Stamp Act, 1899.

New Page 2

15 Stamp duty : Transfer of agricultural land by great
grandfather in favour of great grandson, exempted from payment of stamp duty :
Indian Stamp Act, 1899.


The petitioner was a minor and great grandson of one Shri
Bhag Singh. The petitioner is son of pre-deceased father Shri Kuldeep Singh who
expired on 31-8-1999. The petitioner was also son of a pre-deceased grandfather
Shri Baldev Singh, who died on 24-7-2002. Shri Bhag Singh, great grand-father of
the petitioner executed a transfer deed, dated 23-1-2003 registered with sub-Tehsil
in respect of agricultural land. The value of the land disclosed was Rs.30 lacs.
The petitioner being the transferee did not affix any stamp duty on the ground
that Notification dated 21-12-2001 issued u/s.9(1)(a) of
the Indian Stamp Act, 1899 granted exemption in case transfer of immovable
property is made by the great grandfather to the great grandson. The collector
issued notice to the petitioner and held that he was liable to pay stamp duty
holding that the petitioner was not covered in the category of class I – heirs.

The High Court observed that no stamp duty would be
chargeable in case of transaction or transfer by an owner of agricultural land
or rural residential property to his class I heirs as defined in the schedule
u/s.8 of the Hindu Succession Act, 1956. The schedule u/s.8 of the Succession
Act specifies heirs in class I, which includes son of a pre-deceased son of a
pre-deceased son. The aforementioned schedule reads thus :

“Heirs in class I and class II

class I

Son; daughter; widow; mother; son of a pre-deceased son;
daughter of a pre-deceased son; son of a pre-deceased daughter, daughter of a
pre-deceased daughter; widow of pre-deceased son; son of a pre-deceased son of
a pre-deceased son; widow of a pre-deceased son of a pre-deceased son.”


Therefore, the petitioner was covered by the phrase ‘son of a
pre-deceased son of pre-deceased son’. In other words, the transfer made in this
case was by a great grandfather in favour of a great grandson, which was covered
by the phrase used in the Schedule of Class I heirs. Therefore, notification
dated 21-12-2001 would cover the case of the petitioner and it would fully apply
to the transfer deed, which was registered on 23-1-2003.

[ Gurdial Singh v. State of Punjab and Ors., AIR
2008 Punjab and Haryana 146]



levitra

Hindu Law : Daughter of coparcener in Joint Hindu Family governed by Mitakshara Law gets right of coparcener from the year 2005: Hindu Succession Act, 1956, S. 6 (as amended in 2005)

New Page 2

14 Hindu Law : Daughter of coparcener in Joint Hindu Family
governed by Mitakshara Law gets right of coparcener from the year 2005: Hindu
Succession Act, 1956, S. 6 (as amended in 2005)


Respondent No. 1 the plaintiff filed the suit for partition
of the properties. The plaintiff and defendant No. 1 are brothers, defendant
Nos. 4 and 5 are their sisters, defendant Nos. 2 and 3 are the sons of defendant
No. 1. Krushna, the father of the plaintiff and defendant Nos. 1, 4 and 5 died
in the year 1991 while living jointly with his sons. There had been no partition
of the suit properties by metes and bounds. As defendant No. 1 avoided the
request of the plaintiff for amicable partition of the suit properties, the
plaintiff filed the suit.

The lower Court decreed the suit preliminarily in part on
contest against defendant Nos. 1 to 4 and ex parte against defendant No.
5 with costs.

The Court held that the (Amendment) Act, 2005 was enacted to
remove the discrimination as contained in S. 6 of the Hindu Succession Act, 1956
by giving equal rights and liabilities to the daughters in the Hindu Mitakshara
Coparcenary property as the sons have. The said Act came into force with effect
from 9-9-2005 and the statutory provisions create new right. The provisions are
not expressly made retrospective by the Legislature. Thus, the Act itself is
very clear and there is no ambiguity in its provisions. The law is well settled
that where the statute’s meaning is clear and explicit, words cannot be
interpolated. The words used in provisions are not bearing more than one
meaning. The amended Act shall be read with the intention of the legislation to
come to a reasonable conclusion. Thus, looking into the substance of the
provisions and on conjoint reading, Ss.(1) and (5) of S. 6 of the said Act are
clear and one can come to a conclusion that the Act is prospective. It creates
substantive right in favour of the daughter. The daughter got a right of
coparcener from the date when the amended act came into force i.e.,
9-9-2005.

The contention that the daughters, who are born only after
2005, will be treated as coparceners, is not accepted. If the provision of the
Act is read with the intention of the legislation, the irresistible conclusion
is that S. 6 (as amended by Act 39 of 2005) rather gives a right to the daughter
as coparcener, from the year 2005, whenever they may have been born. The
daughters are entitled to a share equal with the son as a coparcener.

[Pravat Chandra Pattnaik & Ors v. Sarat Chandra Pattnaik
and Anr., AIR 2008 Orissa 133]


levitra

Dowry : Gifts given at time of customary thread-changing ceremony on birth of girl not dowry : IPC, 1860]

New Page 2

13 Dowry : Gifts given at time of customary thread-changing
ceremony on birth of girl not dowry : IPC, 1860]


Three accused, viz., Narayana Murthy (A-1), his father
Kannappa (A-2) and mother Shivabhushan-amma (A-3), were tried by the Sessions
Judge, Bangalore City, u/s.498-A and u/s.304-B of IPC and S. 3, S. 4 and S. 6 of
the Dowry Prohibition Act, 1961. During the pendency of trial A-2 died. The
learned Trial Judge found the evidence of prosecution witnesses insufficient and
lacking for holding A-1 and A-3 guilty of the offences alleged against them and,
accordingly, they were acquitted of the charges.

On appeal by the State, the Division Bench of the High Court
convicted A-1 for offences u/s.498A and u/s.304-B of IPC and sentenced him to
suffer rigorous imprisonment for a period of seven years u/s.304-B, IPC. The
High Court, however, acquitted A-1 for offence u/s.3, u/s.4 and u/s.6 of the DP
Act, 1961, whereas the judgment of acquittal passed by the learned Trial Judge
in favour of A-3 has been upheld. On 3-9-1989 the marriage of Jagadeshwari, was
celebrated. An amount of Rs.4,000 in cash and five sovereign gold ornaments
allegedly were given to A-1 in dowry at the time of the marriage. After the
marriage, Jagadeshwari started living with A-1, A-2 and A-3 in their house. It
was alleged that after marriage, A-1 to A-3 started harassing Jagadeshari for
not bringing sufficient dowry and were compelling her to bring more dowry from
her parental house. Jagadeshari during her pregnancy period stayed at the house
of her parents for about five months. She gave birth to a female child. It was
alleged that on the day fixed by the parents of Jagadeshari for performing the
customary thread-changing ceremony of the child, A-1 refused to participate in
the said ceremony and he made demand of a gold ring, silver plate and silver
panchpatre as dowry. Since the father of Jagadeshari was not financially sound
to fulfil the demanded articles, he gifted a steel panchapatre and steel plate
to A-1. A-1 expressed his displeasure and went back
to his house. After a few days, Ravichandra (brother) took his sister
Jagadeshwari and her child to the house of A-1, A-2 and A-3 and told them that
his parents would try to meet their demand of dowry articles within a short
time, but still they continued to ill treat and harass Jagadeshari.

Jagadeshari alleged to have bolted the door of the kitchen
from inside and poured kerosene on her body and set herself on fire. Parents of
the deceased, on receipt of information of the death of their daughter through
one of the relatives, rushed to the house of the accused and on visual
inspection they noticed extensive burn injuries on the dead body of Jagadeshari.
On the following day, the father of the deceased lodged a complaint with Police
Station.

The Supreme Court observed that there was no evidence to show
that there was any cruelty or harassment for or in connection with the demand of
dowry. The complaint does not reveal that the accused had raised demand of dowry
either in cash or kind at the time of marriage. Further, the Court observed that
gift given at the time of performing customary thread-changing ceremony in
connection with birth of girl child is prevalent in the society and such gifts
cannot come within the ambit of dowry.

[ Narayana Murthy v. State of Karnataka and Anr.,
AIR 2008 SC 2377]


levitra

Auction sale of property by bank held illegal and arbitrary — Valuation of house by bank at much lower rate than it was valued at time of taking loan : Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, S. 13.

New Page 2

12 Auction sale of property by bank held illegal and
arbitrary — Valuation of house by bank at much lower rate than it was valued at
time of taking loan : Securitisation & Reconstruction of Financial Assets and
Enforcement of Security Interest Act, S. 13.


The petitioner and his wife had taken a loan of Rs.4,80,000
from State Bank of Patiala for purchasing a double-storey constructed house. The
approved valuer of the bank valued the house at Rs.6,14,294. There was default
committed by the petitioner in payment of instalments and the account of the
petitioner and his wife was classified as NPA illegally and no satisfactory
explanation was given as to why the valuer gave the valuation of house in
question at Rs.4,16,000 in Sept. 2005 when the same was valued by the bank’s
approved valuer in June 2003 at Rs.6,14,294 and thereafter conducted auction
sale of property at throw-away price.

The Court held that wide powers have been given to the banks
under the provisions of the Act for selling the secured asset itself without
invoking adjudicatory process. Even the action taken by the bank under this Act
cannot be challenged in the Civil Court. Therefore, the statutory powers vested
under this Act with the banks and the financial institutions must be exercised
reasonably and bona fide. The presumption that public officials will
discharge their duties honestly, reasonably, bona fide and in accordance
with the law may be rebutted by establishing circumstances which reasonably
probabilise the abuse of that power. If there is no credible explanation
forthcoming, the Court can assume that the impugned action was improper.

The Courts observed that in the last five years the prices of
real estate have increased day by day. When a house was purchased in 2003 for
Rs.6,00,000, how its value was assessed at Rs.4,16,000 in the year 2005. The
valuation report was apparently a procured one. No reason has been given for
difference of valuation with the earlier report, and the house in question had
been sold for less than the value of valuation report given at a time when loan
was obtained by the borrower. Therefore, the above facts with unexplained
circumstances was sufficient to hold that the auction/sale was conducted
illegally, unreasonably, unfairly and mala fide and consequently the same
was declared to be illegal and void. In the instant case, the borrower was a
poor mason belonging to the lower strata of society and he had taken the small
house loan for purpose of purchasing the house in question and he was ready to
regularise his account with agreed interest within four months. The borrower
must therefore be given an opportunity to clear the defaulted instalments within
a period of four months; accordingly the auction sale of property conducted by
the bank, held illegal and arbitrary.

[ Bhupinder Singh v. State Bank of Patiala & Ors.,
AIR 2008 Punjab and Haryana 148]



levitra

Marriage — Marriage between Christian and Hindu according to Hindu rituals — Void and Null — Hindu Marriage Act, 1955, section 5, section 7 and section 11.

New Page 1

2 Marriage —
Marriage between Christian and Hindu according to Hindu rituals — Void and Null
— Hindu Marriage Act, 1955, section 5, section 7 and section 11.


[Nilesh Narin Rajesh Lal v.
Kashmira Bhupendrabhai Banker, AIR 2010 Gujarat 3]

The appellant, a Christian,
had married the respondent, a Hindu. The marriage was solemnised according to
the Hindu rituals. The marriage was registered under the Hindu Marriage Act. A
baby girl was born to the appellant and the respondent. The respondent deserted
the appellant. The appellant filed a family suit u/s.11 of the Hindu Marriage
Act, 1955 for a declaration that the marriage between the appellant and the
respondent was void. It was alleged that at the time of her marriage to the
appellant, the respondent was already married and the first
marriage was subsisting.

The Trial Court refused to
declare the marriage void as prayed for. However the Court held that the
marriage between the appellant and the respondent was not valid and was not in
consonance with section 5 read with section 7 and section 11 of the Act of 1955.
The suit for declaration under the Act of 1955 was, therefore, not maintainable.

On appeal the Court observed
that the appellant, a Christian, had married the respondent, a Hindu lady.
According to the Hindu rituals, therefore, such marriage is a void marriage
u/s.5 read with section 7 and section 11 of the Act of 1955.

The Act was enacted to
codify the law relating to marriage amongst Hindus. section 5 of the Act makes
it clear that a marriage may be solemnised between any two Hindus if the
conditions contained in the said Section were fulfilled. The usage of the
expression ‘may’ in the opening line of the Section, does not make the provision
of section 5 optional. On the other hand, it in positive terms, indicates that a
marriage can be solemnised between two Hindus if the conditions indicated were
fulfilled. In other words, in the event the conditions remain unfulfilled, a
marriage between two Hindus could not be solemnised.

The Court therefore held
that the marriage between the appellant and the respondent was a nullity. The
said marriage was void ab-initio. The marriage between the appellant and the
respondent was not a legal and valid marriage, therefore, the appeal was
allowed.

levitra

Family settlement — Can be among not only heirs of particular class, but also can take in its fold, persons outside purview of succession — Family settlement — Non-registration — Cannot be treated as inadmissible — Transfer of Property Act section 5, Stam

New Page 1

5 Family
settlement — Can be among not only heirs of particular class, but also can take
in its fold, persons outside purview of succession — Family settlement —
Non-registration — Cannot be treated as inadmissible — Transfer of Property Act
section 5, Stamp Act, 2(24). Registration Act section 27.


[Zaheda Begum & Anr. v. Lal
Ahemed Khem & Ors., AIR 2010 Andhra Pradesh 1]

One Mr. Ghouse Khan had
three brothers i.e., respondent Nos. 1 to 3 and two sisters, the first appellant
and late Malika Begum, the mother of the second appellant. Ghouse Khan did not
marry and remained a bachelor. He purchased the suit schedule property through a
registered sale deed dated 29-7-1981. After the death of Ghouse Khan, the
appellants and the respondents effected a family settlement through document
dated 7-2-1992. According to this, the second appellant was to be given part of
the suit schedule house and the first appellant and the respondent Nos. 1 to 3
were to be allotted ¼th share each in the rest of the property. The appellants pleaded that in spite of repeated demands, the respondents did not
agree for partition of the property in accordance with the settlement.

In the light of the
arguments advanced on behalf of the parties, the question raised for
consideration was as under; whether there can be a family
settlement among the persons who are not sharers according to Law of Succession.

The Court observed that the
settlement in family is not confined to any particular category of people. The
medium of settlement is chosen to resolve the disputes among the family members.
It is resorted to not only when the disputes as such exist, but also when there
exists a possibility for them to surface.

A family settlement need not
be confined to only one among the legal heirs, or successors. If the aim is only
to provide for arrangement in accordance to succession, the whole exercise would
be redundant. The reason is that the Law of Succession would take its course. It
is only when an arrangement, in slight or major deviation from natural
succession, as a price for bringing about comity and harmony is chosen, that a
settlement comes into existence.

The connotation of the word
‘family’ changes depending upon the context. For instance, its purport under the
Income-tax Act may not be the same as the one under the Urban Land (Ceilings and
Regulation) Act or other similar Enactments. Much would depend upon the context
in which the term is used. Where the concept of joint family exists, the family
may comprise persons of 3 to 4 generations. In a narrow sense, the family may
comprise the spouses and their children. In the context of settlement, the
family takes in its fold several persons, some of whom may be a bit distantly
related to those who constitute the core of the family.

Sub-section (24) of section
2 of the Indian Stamp Act defines the term ‘settlement’. Thus settlement,
particularly within a family need not be restricted to the members of the family
up to a particular degree. Therefore, the irresistible conclusion is that a
family settlement can be among not only heirs of a particular class, but also
can take in its fold persons outside the purview of succession.

As regard to registration of
family settlement, it was observed that though the object underlying the
settlement is to bring about harmony among the parties to it, the legal
implications arising out of settlements are not uniform. In some cases, the
settlement may bring about transfer or conferment of rights instantly upon the
parties to it, vis-à-vis movable or immovable properties. If the
settlement confers rights upon the individual, vis-à-vis on items of immovable
property, which he is not otherwise entitled to, under the relevant Law of
Succession, a transfer comes into existence, and thereby the deed of settlement
becomes liable to be registered.

It is not uncommon that
settlements provide for arrangements which would materialise at a future date.
In such cases, the manner in which the rights are to be conferred on various
parties is defined, and the actual transfer of rights takes place at a future
date.

In Tek Bahadur Bhujil v.
Debi Singh Bhujil and Ors., AIR 1966 SC 292, it was held by the
Supreme Court that there can be oral family arrangements also and that the gist
of the same can be recorded in writing.

Family arrangement as such
can be arrived at orally. Its terms may be recorded in writing as a memorandum
of what has been agreed upon between the parties. The memorandum need not be
prepared for the purpose of being used as a document on which future title of
the parties be founded. It is usually prepared as a record of what has been
agreed upon, so that there be no hazy notions about it in future. It is only
when the parties reduce the family arrangement in writing with the purpose of
using that writing as proof of what they had arranged and, where the arrangement
is brought about by the document as such, that the document requires
registration, as it is then that it would be a document of title declaring for
future what rights in what properties are possessed by whom.

Thus, a settlement which does not create any
right ‘in praesenti’ cannot be treated as inadmissible on the ground that
it is not registered.

levitra

‘Literary work’ and ‘dramatic work’ Copyright Act. S. 2(o), (h).

New Page 1

‘Literary work’ and ‘dramatic work’ Copyright Act. S. 2(o),
(h).

[Academy of General Education, Manipal & Anr. v. B.
Malini Mallya, AIR 2009 SC 1982]

One Dr. Karanth, a Jnanapeeth awardee had developed a new
form of ‘Yakshagana’ (a form of ballet dance). He was a director of the
appellant institute. Before he expired, he had executed a will in favour of
the respondent.

The said Yakshagana ballet dance was performed in New
Delhi. Respondent filed a suit for declaration, injunction and damages
alleging violation of the copyright in respect of the said dance vested in her
in terms of the said will and thus the appellants infringed the copyright
thereof by performing the same at New Delhi without her prior permission. The
respondent had claimed copyright in respect of literary and artistic works in
her favour in terms of the said will. The appellant denied and disputed any
copyright of the said dance in Dr. Karanth alleging that whatever work he had
done was in a capacity of a director of the Kendra and assistance of finance
and staff of the organisation.

S. 2(c) of the Act defines ‘artistic work’ to mean (i) a
painting, a sculpture, a drawing (including a diagram, map, chart or plan), an
engraving or a photograph, whether or not any such work possesses artistic
quality; (ii) a work of architecture; and (iii) any other work of artistic
craftsmanship.

The word ‘author’ is defined in S. 2(d) to mean, (i) in
relation to a literary or dramatic work, the author of the work; (ii) in
relation to a musical work, the composer; (iii) in relation to an artistic
work other than a photograph, the artist; (iv) in relation to a photograph,
the person taking the photograph; (v) in relation to a cinematograph film or
sound recording, the producer; and (vi) in relation to any literary, dramatic,
musical or artistic work which is computer generated, the person who causes
the work to be created.

S. 2(o) defines ‘literary work’ to include computer
programmes, tables and compilations including computer databases. S. 2(qq)
defines ‘performer’ to include an actor, singer, musician, dancer, acrobat,
juggler, conjurer, snake charmer, a person delivering a lecture or any other
person who makes a performance.

The Court observed that a dramatic work may also come
within the purview of literary work being a part of dramatic literature.
However, provisions of the Act make a distinction between the ‘literary work’
and ‘dramatic work’. Keeping in view the statutory provisions, there cannot be
any doubt whatsoever that copyright in respect of performance of ‘dance’ would
not come within the purview of the literary work but would come within the
purview of the definition of ‘dramatic work’.

The Court dismissed the appeal by modification of the
injunction order granted by High Court.

levitra

Buildings in city of Mumbai are entitled to extra Floor Space Index : Development Control Regulation Act, 1991.

New Page 1

5. Buildings in city of Mumbai are entitled
to extra Floor Space Index : Development Control Regulation Act, 1991.


In an appeal before the Supreme Court, there was challenge to
the judgment of the Bombay High Court which, while holding that Regulation 33(7)
of the Development Control Regulations, 1991 (in short the ‘Regulations’) for
the city of Mumbai as amended in the year 1999 does not suffer from any
illegality, further observed that the same applies only to dilapidated buildings
of ‘A’ category which satisfy the requirement and those declared prior to the
monsoon of 1997 under 3rd proviso are covered under Regulation 33(7) and are
entitled to extra ‘Floor Space Index’ (‘FSI’). It also directed that certain
side space has also to be provided.

 

The Supreme Court allowing the appeals held :

1. The Scheme under Regulation 33(7) involves landlords
with the consent of 70% of the occupiers. There is no acquisition for
redevelopment under this Scheme. Therefore to bring in ‘old and dilapidated
buildings’, which is a
prerequisite for acquisition and reconstruction under the other Scheme,
namely, under Chapter VIII of the MHADA Act cannot be included in the
provisions of Regulation 33(7) read with Appendix III.

2. The provisions relating to buildings which have been
declared unsafe are specifically covered by Regulation 33(6) and
reconstruction by MHADA is covered by Regulation 33(9). When the situation has
been differently expressed in different Sections, the Legislature must be
taken to have
intended to express a different intention if this building belongs to ‘A’
category.

3. Hence landlord of buildings of ‘A’ category need not
wait for the building to get dilapidated as he is entitled to reconstruct.

4. Under Regulation 33(10) the open space is 5 feet and to
insist on 12 feet as per the High Court judgment would make the same
unreasonable and prevent even buildings which are on the verge of collapse
from being redeveloped.

5. The above being the position, the inevitable conclusion
is that the High Court was not justified in reading additional requirements
into Regulation 33(7) after holding the same to be valid.

[Jayant Achyut Sathe v. Joseph Bain D’Souza and Ors.,
Civil Appeal Nos. 2970 to 2979 of 2006 & others, dated 4-9-2008
(unreported)]

 


levitra

Deficiency in service by Development Authority : Consumer Protection Act, S. 2(1)(g)]

New Page 1

6. Deficiency in service by Development
Authority : Consumer Protection Act, S. 2(1)(g)]


 

The Development Authority was not able to allot the
commercial flat under the second Self-Financing Scheme 1985. Even after expiry
of 20 years the Scheme failed to take off. The petitioner opted out of the
Scheme. The Hon’ble Commission held that the Scheme was not earnest act on part
of DDA and it cannot be allowed to thrive on money of registrants. Petitioner
entitled to refund along with 12% interest and DDA cannot deduct cancellation
charges.

levitra

Firm : Personal liability and liability of partnership firm to repay debts : SARFAESI Act. S. 35.

New Page 1

3. Firm : Personal liability and liability of
partnership firm to repay debts : SARFAESI Act. S. 35.


The appellants and the respondents were partners in
partnership business. The respondents allegedly took a loan from a bank by
forging documents. Thereafter, the bank initiated recovery proceedings against
partnership assets. Meanwhile, the appellants and the respondents became parties
to arbitration proceedings as per partnership clause and the appellants opposed
proceedings by the bank. However, the Trial Court rejected the appellants’
application and allowed the bank to continue with recovery proceedings.

 

The bank had instituted proceedings under the SARFAESI Act.
There is a specific provision in S. 35 of the said Act, which lays down that the
provisions of the Act would have overriding effect over other laws.

 

It is open for the appellants to oppose the application and
proceedings which are initiated by the bank under the SARFAESI Act and seek
discharge of their personal liability, as also the liability of the firm to
repay the said bank loan. The subject matter of the arbitration proceedings,
essentially, is the statement of accounts between the partners, whereas the
subject matter of the proceedings which are initiated by the bank are in respect
of recovery of loan which was taken by the partnership firm from the bank. These
proceedings being distinct and separate, the subject matter of both these
proceedings, therefore, is different and, therefore, is was justified in
rejecting the application filed by the appellants for impleading the bank as
party.

[Ravindra Vithal Prabhu and Laxmibai Ramchandra Pai v.
Umesh Martappa Prabhu, Deepak Rajaapa Prabhu, Annasaheb Sambhaji Patil and
Kolhapur Janta Sahakari, (2008) Vol. 110 (7) Bom. L.R. 2401]

 


levitra

Recovery agents cannot resort to activities of using criminal force against card holders for recovery of dues : Banking Regulation Act, 1949.

New Page 1

1. Recovery agents cannot resort to
activities of using criminal force against card holders for recovery of dues :
Banking Regulation Act, 1949.


The Chief Justice of Andhra Pradesh High Court received a
telegram from the president of All India Credit Card Members Association,
Hyderabad complaining that the recovery agents of HDFC Bank have illegally
detained one Prof. Murthy and the officer of Police Station has illegally acted
in that regard. Acting on the telegram, the Court observed that harassment by
the recovery agents of banks for recovery of amount due under the credit cards
is not the solitary instance.

 

The Court further held that recovery of any amounts due from
customers of banks should be by method known to law or a fair practice of debit
collection, which has approval of Reserve Bank of India, which enjoins the
overall supervisory and monitoring power over all banks in the country. Taking
notice of the criticism about the illegal methods being adopted by certain banks
issuing credit cards for recovery of debts due under credit cards, Reserve Bank
of India issued certain guidelines to be adopted by all commercial banks issuing
credit cards and which are employing recovery agents for collection of dues. It
was categorically observed in guidelines that banks or recovery agents should
not resort to intimidation or harassment of any kind, either verbal or physical,
against any person in their debt collection efforts, including acts intended to
humiliate publicly or intrude the privacy of credit card holders’ family
members, referees and friends, making threatening and anonymous calls or making
false and misleading representations. Therefore, banks or recovery agents
employed by them have to scrupulously follow the guidelines issued by Reserve
Bank of India in the matter from time to time and they cannot resort to
activities of using criminal force against the cardholders for recovery of the
amounts due. If any such criminal force or harassment is made by the banks or
the recovery agents employed by them for recovery of amounts due under credit
cards, the affected card holders will have a right to take recourse to law by
lodging a complaint with police or can move competent Criminal Court having
jurisdiction by filing a complaint as required u/s.190 and u/s.200 of the
Criminal P.C. Whenever such complaints are lodged by credit card holders
suffered at hands of gundas/recovery agents employed by banks for recovery of
amounts due to banks under credit cards, the concerned police shall register
complaint and after due investigation file necessary reports before competent
Court having jurisdiction over matter.

[B. V. S. P. Choudary v. The Station House Officer
Mahankali Police Station, Secunderabad & Ors., AIR 2008 A.P. 147]

 


levitra

Redevelopment — Belated withdrawal of No objection or consent and opposition to eviction by society member — Not proper — BMC Act, 1888, MHAD Act, 1976 S. 75 and S. 95A.

New Page 1

[Sushila Digamber Naik & Ors. v. MHADA & Ors., 2010
Vol. 112(2) Bom. L.R. 639]

In the year 2003 majority of members of the
respondent-society including petitioners issued consent letters in support of
redevelopment of the society. The society applied to MHADA for its NOC. MHADA
also issued NOC for redevelopment. The authority issued order for temporary
eviction of tenements for redevelopment, wherein petitioners who had earlier
given consent withdrew the same and challenged the eviction order by the
respondent-authority.

The Court observed that in any redevelopment scheme where the
co-operative housing society/developer appointed by the co-operative housing
society has obtained no objection certificate from the MHADA/Mumbai Board,
thereby sanctioning additional balance FSI with a consent of 70% of its members
and where such NOC holder has made provision for alternative accommodation in
the proposed building (including transit accommodation), then it shall be
obligatory for all the occupiers/members to participate in the redevelopment
scheme and vacate the existing tenements for the purpose of redevelopment. In
case of failure to vacate the existing tenements, the provisions of S. 95A of
the MHADA Act mutatis mutandis shall apply for the purpose of getting the
tenements vacated from the non-co-operative members.

Thus as per the amended provisions of DCR 33(5), the
respondent-authority are empowered to invoke the provisions of S. 95A of the
MHADA Act and the petitioners are not correct in their submission that the
respondent-authority had no jurisdiction to pass the impugned order u/s.95A of
the MHADA Act. The petition was dismissed.

levitra

Nomination under an insurance policy only indicates hand which is authorised to receive the insured amount — Insurance Act, 1938.

New Page 1

[Anita Dilip Gaidhane and Anr. v. Bajirao Madhavrao
Gaidhane and Ors., 2010 Vol. 112(3) Bom. L.R. 1065]

The respondent No. 1 — father was nominated by the deceased
Dilip while effecting the insurance policies. The appellant i.e., wife and
daughter of the deceased Dilip applied for succession certificate. The Trial
Court refused to grant succession certificate to the appellants on the ground
that the respondent No. 1 — father was nominated by deceased while effecting
insurance policies. The appellants contention was that admittedly they were
class-I heirs, therefore entitled to one-third share in the money payable under
various policies, which could be declared by the Court instead of undergoing
another round of litigation.

The Court held that the amount assured shall be paid to the
nominee in order to give discharge to the insurer, but it does not mean that the
nominee becomes the owner of the amount and that S. 39 cannot operate as a third
kind of succession and the nominee cannot be treated equivalent to an heir or
legatee. At the same time, it also held that the nomination only indicates the
hand which is authorised to receive the amount, on the payment of which the
insurer gets a valid discharge of its liability under the policy. The amount,
however can be claimed by the heirs of the assured in accordance with the law of
succession governing them.

The Court further held that even after remarriage to another
person in a different family, a widow, having acquired absolute interest in the property of her deceased husband, is
not divested of the same. To avoid multiplicity of litigation, the Court
directed the insurance company to release the amount payable under the policies
to the father and on receipt of the amount payable under the policies, the
father shall distribute the same to the appellants in equal proportion.

levitra

Business Valuations – An Important Part of M&A

Mergers and Acquisitions (M&A) is a buzz word in current business environment. It refers to that area of corporate strategy which deals with buying, selling, combining, splitting, restructuring, etc. of an enterprise to enhance shareholder value.

In India, the liberalisation process which started in early nineties provided the impetus for M&A transactions involving large businesses. In the initial years, the transactions were domestic but in last couple of years cross border transaction activity has increased. One of the first such large transactions was acquisition of Tetley by Tata Group. Barring last one year, M&A activity has shown constant growth over last many years. It is observed that M&A activities are at a peak in boom period. In the down-turn, such activities take back seat though it is probable that M&A in a downturn may yield higher returns to shareholders. At the same time, one cannot forget that risk attached to M&A activities is also very high during downturn.

M&A activity may be carried out through mergers, demergers, acquisitions, sale of business, spin offs, etc. Any transaction to get finally consummated needs to be settled by flow of consideration from the acquirer to the seller. The consideration may be discharged by actual payment or through any other financial instrument. The determination of consideration carries more weight as stakeholders would like to ensure that the transaction is done in most fair and transparent manner.

In any M&A transaction, valuation of the business being transferred becomes very critical from all angles. In view of this, the current article covers certain basic features of financial valuations along with practical issues connected thereto.

The importance and purpose  of valuation:

The stakeholders will always ask following questions on valuation when a business or an asset is transacted:

What  is the value  at which it is sold?

Is it a fair value?

What are the principles applied to determine the fair value?

The professional who is carrying out the valuation needs to keep purpose of valuation constantly in mind. The methodology of valuation may differ according to the purpose. For example, in case of valuation for merger, relative valuation of the companies involved is more relevant than the absolute valuation. As against this, in case of valuation for sale of business, absolute value of the company / business is more relevant.

The date of the valuation is also very relevant. A valuation done today may not be valid after passage of time as underlying factors such as price earning multiple, market price of the share, the return expectation, etc. may change from time to time. It is always advisable that the valuation is finalised near to the date of the transaction; otherwise the conclusions may undergo a material change.

Business Value would also differ from the point of view of the Buyer and that of the Seller, depending on one’s own perception, vision, strategy and future projections made by each of them independently.

Some of the purposes for which valuation may be required are as follows:

Determining the Portfolio Value of Investments  by Venture Funds or Private Equity Funds:

In the current environment, when funds are deployed in investee company through private equity or venture capital funds, it becomes important that at regular interval the basket of investments held by such funds is valued and reported to the concerned forum (investment committee or trustees) so that performance of the fund managers as well as return generated for the investors can be determined.

Determining the consideration for Acquisition/Sale of Business or for Purchase/Sale of Equity stake:

When a business or shares are proposed to be divested, valuation becomes very relevant as the consideration has to change hands between buyer and seller based on agreed valuation. It is general practice that both buyer as well seller undertakes the valuation exercise which becomes base for the negotiation process. Only in very few instances it is observed that a common valuer is appointed by both the parties to arrive at the fair value.

Determining the swap ratio for Merger:

In case of merger of two companies the role of valuer is to recommend fair exchange ratio (number of shares of Transferee Company to be issued to the shareholders of the transferor company). If the companies involved are listed on the stock exchanges, it is required that the valuation is also followed by a fairness opinion by a category I merchant banker. It is required that valuation of both the companies involved is carried out on a like to like basis to the extent applicable. It may be inappropriate to use asset-based valuation for company A and earnings-based valuation for company B, unless there are justifiable reasons to follow such different methodologies.

Determining  the swap ratio for Demerger :

There is misconception that every demerger requires valuation of the division being demerged. In case of vanilla demerger where beneficial ownership of the two entities post-demerger remains with the same set of shareholders, valuation may not be required as both the companies will be held by the same shareholders in the same inter se proportion as they were owning the company prior to the demerger. (Example: Demerger of Reliance Industries Limited.) As against this, when a division is demerged from a company into an operating company with a different set of shareholders, valuation of the division as well as the company to which the division is being transferred are required to be carried out. (Example: Demerger of farm input division of E.I.D.-Parry (India) Limited into Coromandel Fertilisers Limited. Demerger of scheduled airlines business of Kingfisher Airlines Limited into Deccan
Aviation  Limited)

Determining the Fair value of ESOPs as per the ESOP guidelines:

Generally  such valuation is carried  out using Black Scholes model  for ‘option  Valuation.

Determining the value offamily owned business and assets in case of Family Separation:

This is generally required when family  members decide to part ways. Here the valuation exercise becomes sensitive as one of the parties involved will always feel that fair treatment is not given. There are instances where valuers are dragged to court of law in case of valuation for family separation.

Sale/purchase of Intangible assets including brands, patents, copyrights, trademarks, rights:

In case of acquisition of a business for a lumpsum price, the identification and valuation of intangible assets becomes a requirement. In recent times, many transactions of intangibles are carried out. (Example sale of certain brands by Pfizer to Jhonson and Jhonson)

Liquidation  of company:

When a company is liquidated valuation of each and every asset and liability is carried out and cost required to be incurred for closure is reduced from such values.

Determining the fair value of shares for Listing on the Stock Exchange:

when a company decides to offer its security for public participation, an estimation of the fair valuation of the security is required to guide the promoters and merchant bankers to decide the offer price. There are instances where shares are issued at a discount to the fair value to encourage public at large to invest.

Other reasons:

Many times valuations are required for litigation, buyback of shares, raising of funds, open offer in case of takeover, approval under the FEMA regulations, etc.

The above list is not exhaustive but only indicative of the purposes for which valuation is attempted.

Methods of valuation:

As discussed earlier that the value changes with the change in the purpose holds true also for the use of methodologies of Valuation. A valuer may use different methods to value the Shares of a Company / Business. In practice, however, the valuer normally uses different methodologies of valuation and arrives at a fair value for the entire business by combining the values arrived, using various methods and giving appropriate weights to the values so arrived to opine on fair value.

Each method proceeds on different fundamental assumptions, which have greater or less relevance, and at times even no relevance to a given situation. Thus, the methods to be adopted for a particular valuation must be judiciously chosen.

Commonly  used methods  of valuation  are as under:

A. Asset Based Approach:

i. Net Assets  Method:

Valuation of net assets is calculated with reference to the historical cost of the assets owned by the company. Such value usually represents the minimum value or a support value. of a going concern. It is also necessary to make adjustments for market value of non operating assets, contingent liabilities likely to materialise, outstanding warrants, appreciation/ diminution in the value of investments, etc. This method is mainly applicable for investment companies or companies which are yet to commence their operations. For a manufacturing concern the value under this method is a floor value below which a transaction may not be carried out.

ii.  Net Realisable Value Method:

Where the business of the company is being liquidated, its assets have to be valued as if they were individually sold and not on a going concern basis. This method is generally used in case of liquidation. One has to take a note of liabilities that would arise on account of closure, tax implications, and dividend distribution tax, etc.

iii. Remainder Replacement Value Method:

Under this method, the replacement value of assets and not the book value is captured. Net replacement value of the assets indicates the value of an asset similar to the original asset whose life is equal to the residual life of the existing asset. The term replacement cost refers to the amount that a company would have to pay, at the present time, to replace anyone of its existing assets.

B.  Earnings-based    Approach:

i. Profit Earning Capitalisation Value Method (PECV) :

Earnings-based methods are generally regarded as more appropriate in case of ‘going concern’ valuation. Capitalisation of future maintainable earnings on a post tax basis is carried out under Earnings Approach. For this purpose past profitability generally gives the indication. However, for a company where past profits are not representative of future maintainable earnings then, future expected profitability may be used after taking into account present value of future expected profits. Any extraordinary item of income/ expenditure is adjusted for arriving at future maintainable profit. The most common example of such adjustments are profit/loss on sale of assets/investments, impact of VRS, one time write off of stocks / debtors, loss on account of natu-ral calamities, etc. The price earning multiple is to be carefully chosen taking into account multiples enjoyed by similar quoted companies.

ii.  Discounted  Cash flow Method  (DCF) :

DCF method considers cash flow and not the profits of the business. The DCF method values the business by discounting its free cash flows for the explicit forecast period and the perpetuity value thereafter. The free cash flows represent the cash available for distribution to both the owners and the creditors of the business. The cash flows are considered keeping in mind the projections, horizon period, growth rate, and the residual value. Discounting is done taking into account the weighted average cost of capital which is based on the cost of equity and cost of capital and after taking into account the proportion of debt and equity used to fund the business.

iii. EBITDA  Multiple  Method:

The EBITDA multiple is the ratio of Enterprise value to EBITDA. It involves determination of maintainable EBITDA.

This method ensures that the valuation is not affected by the pattern of funding adopted by the company or comparable companies. One has to keep in mind that value of debt is reduced from the enterprise value to arrive at the equity value.

iv. Sales Multiple  Method:

Sales multiple may be used to arrive at the enterprise value particularly if the business is not making profits. The information needed is annual sales and an industry multiplier, which will depend on industry. The industry multiplier can be obtained from public sources including data relating to listed comparables. This method is easy to understand and use. However, this method is generally used to cross check the values arrived at under other methods of valuation.

C.  Market-based Approach:

Market Price Method :

The Market Price Method takes into consideration prices quoted on the stock exchange. Average of quoted price is considered as indicative of the value perception of the company by investors operating under free market conditions. Adjustments have to be made for issue of bonus shares or right shares during the period. Regulatory bodies often consider market value as important basis – Preferential allotment, Buyback, Open offer price calculation under the Takeover Code. Market Price Method is not relevant where the shares are not listed or are thinly traded etc.

Market  comparables :

This method is generally applied in case of unlisted entities. This method estimates value by relating the same to underlying elements of similar companies. It is based on market multiples of ‘comparable companies’. e.g.

  • Earnings/Revenue Multiples (Valuation of Pharmaceutical Brands)

  • Book Value Multiples (Valuation of Financial Institution or Banks)

  • Industry-Specific Multiples (Valuation of cement companies based on Production capacities, Valuation of BPO companies based on number of seats)

  • Multiples  from Recent M&A Transactions.

Though this method is easy to understand and quick to compute, it may not capture the intrinsic value and may give a distorted picture in case of short term volatility in the markets. There may often be difficulty in identifying the comparable companies or comparable transactions.

Data used  to carry out valuations :

Valuation starts with collection of relevant and optimal information required for valuing Share or Business of a company. Such information can be obtained from one or more of the following sources:

Historical    results:

Annual Reports for atleast 3 years of the Company are required for valuation exercise. Apart from review of detailed financials, it is necessary to

carefully consider the Directors Report, Management Discussions, Corporate Governance Reports, Auditors’ Report and Notes to accounts. A detailed analysis of the past performance is starting point in any valuation exercise. From the past results various important aspects can be worked out such as one time non-recurring income, expenditure, change in Government/Tax regulations affecting business, tax benefits enjoyed, etc.

Projections:

Future expected Profitability, Balance Sheet and Cash Flows along with detailed assumptions underlying the projections are required. The projections considered for valuation should not be at variance with the outlook discussed in the Annual Report. It is important to cover the period which will comprise the entire cycle of the business. In certain industry even 3 year period will cover the cycle whereas in certain industries like heavy engineering or cement, a longer period of 5 to 7 years may capture the cycle. It is impossible to predict the future in a precise way particularly considering the dynamic nature of the economy. One should ensure that the assumption behind the future projections is reasonable at a point of time when they are prepared. A few common mistakes which are found in the projections are: assuming production much higher than the capacities without capturing additional capital cost, showing unreasonable changes in selling price of the final products or of raw materials, showing unreasonable change in the working capital movements, capturing tax benefits even after sunset clause under the Tax laws, unreasonable changes in manpower cost, etc.

Discussions with the Management:

Discussions with management may sometimes reveal issues that may drive the valuation. It is very important that open, fair and detailed discussions are carried out between the valuer and the management. The discussions should not be restricted to only representatives of Finance Department but involve other key functional heads.

It is advisable to obtain written confirmation of the inputs provided by the Management. This helps the valuer in defending the valuation in the eventuality of its being challenged by any Authority.

Market surveys, other publicly available data:

A valuer carries out market surveys and obtains publicly available information. It may pertain to the industry as well as the Company being valued. Due to technology advancement, most 6£ these data are available on the net. Various newspaper reports are also available on the subject. It is advisable to double check the accuracy of these data before relying on such data. Various software packages that have the relevant data are available. It should be ensured that updated version of such data is used.

Data on comparable companies:
Review of data on comparable companies is an important feature in any valuation exercise. Area of operations and the extent of the market share also play an important role in considering the comparable companies. It is possible that geographically the companies are located in different areas because of which there are substantial differences in the operational cost. For example cement companies located near to limestone reserve and those which are located far off are not strictly comparable. Further, different funding pattern of two companies and investment also makes them non-comparable.

Steps in valuation:

Obtaining information:
It is always experienced that the time available to carry out the valuation is short as the parties want to complete the transaction as fast as possible. In view of this, it is very critical that one seeks relevant information. Obtaining and processing unrelated data may take away precious time without obtaining desired result. For example if the transaction is only for an intangible asset, processing the data for working capital of the business may not be required. At the same time there should not be compromise on obtaining critical data on the ground of shortage of time. It goes without saying that this stage comes only after appropriate Engagement letter setting out scope of work, time lines and fees is in place.

Reviewing data provided:
Having obtained the relevant information, next step is to process the same. Some of the items on which extra emphasis should be given are analysis of various ratios, comparison with comparable companies, current Regulatory environment, future plans, contingent liabilities, surplus assets, outstanding warrants, etc. Use of technologies and other software will be maximum during this stage of valuation.

Review of underlying assumptions of projections:
Depending on the facts of the case, one can decide whether projections should be used or not. If one is using the future projections, review of underlying assumption for various critical items such as growth in turnover, raw material consumption, inflation rate, foreign exchange rate, working capital movement, capital expenditure needs, etc. will be important. One should always keep in mind the requirement of the Institute of Chartered Accountants of India while dealing with future projections.

Selecting method(s) :
Having obtained and processed the data, the valuer will have to decide on methods to be used for valuation. There is no fixed rule or principle regarding methods to be used for valuation. It is more dependent on valuer as to which method is relevant in a particular case. The selection of method(s) may differ from valuer to valuer as it a very subjective issue. The valuer should be in a position to justify the method(s) used as well as factors considered in case the valuation is challenged by any Authority. If multiple methods are used for a particular valuation, it is a common practice to assign weights to different methods to arrive at the fair value. Guidance may be taken from past decided case laws as to the selection of methods and weights.

Reporting:
Once the valuer concludes on his opinion as to the fair value, the next step will be Report of valuation. The typical contents of the report should be purpose of valuation, date of valuation, background of the Company, sources of information, methods of valuation used alongwith major adjustments, conclusions and disclaimers. There are some valuers who attach entire workings with the report where as some valuers just mention the final value.

Conclusion:
It may be relevant to mention that valuation is not at all a rocket science. It is always seen as a very specialised field. However it is more an application of common sense. The more you practise a particular work, more conversant and proficient you become. It is always seen that the easiest target in any transaction to get challenged is valuation. The reason is that valuation is very subjective. The discount rate, the price earnings multiple, the selection of methods, determination of maintainable profits, etc. will differ from one individual to other. There is no single correct answer to any valuation. That is why it is considered more an art and not an exact science.

Rewriting and Revising Securities Laws – Highlights of some recent amendments

This series of articles introducing securities laws for listed companies to the lay reader continues …

1) SEBI has been busy in recent times and several revisions/amendments have been made, some of which are highlighted here.

2) SEBI rewrites  and replaces  the DIP Guidelines 2000 with  ICDR Regulations  2009

a. While not comparable to the Direct Taxes Code which seeks to rewrite the direct taxes laws into what is hoped to be an easy to understand law, SEBI too has undertaken a comparable exercise and has replaced the almost one-decade old DIP Guidelines with a re-written (though not overhauled) Regulations – the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 or ‘the Regulations’.

b. Readers may recollect that the DIP Guidelines mainly regulate issue of securities to the public, shareholders and others. They regulate initial pubic offers, rights issues, preferential issues, etc. They provide for very detailed provisions which border on micro-regulation of every aspect of the process of such issues. These Guidelines are very frequently amended. For listed companies, their promoters and merchant bankers, these guidelines are literally like a Bible which they need to keep handy for regular reference.

c. As can be expected, frequent changes have made the Guidelines unwieldy and complex. Further, when one writes a set of clauses, one may have a central theme in mind. However, as new clauses and provisos and explanations are inserted and amended, the new set of clauses represent neither the original harmo-nious theme nor a new one but represent a hotch potch of ideas.

d. Another aspect of these Guidelines was that they were not, in my opinion and also as held in decisions, law in the strictest sense of the word. These guidelines were obviously not Parliament-made law nor could they be compared to Regulations and Rules which the Act provides for and which are also laid before Parliament later. Rather, they represented the provisions made by SEBI from time to time. While there is nothing wrong in SEBI prescribing such Guidelines – indeed this manner is inevitable and required in dealing with the dynamics of the capital market, a question often arises as to what their legal status is and what could be the penal consequences of their violations.

e. Thus, the replacement of the Guidelines with Regulations at least removes this concern over their legal status. Incidentally, though, the SEBI Act will now need to be amended to provide for specific punishment for violation of these Regulations since otherwise, the violation of these newly notified Regulations will fall under the residuary provisions and this mayor may not achieve the object that SEBI may have in mind. In fact, it may make sense if different provisions of these new Regulations are treated differently and thus separate punishment is provided for violations having differing intensity or seriousness. However, that would require a Bill to amend the SEBI Act itself.

f. In any case, to reiterate, the Guidelines are now replaced by Regulations whose violations can be punished with significant penalty and/or prosecution.

g. While it would be a mammoth exercise to compare the old Guidelines and the new Regulations and even to highlight the changes, suffice it to say that the intention has not been to completely rehaul the provisions. Future articles here may highlight some interesting implications particularly arising out of change in wording.

h. Further, the Regulations represent the DIP Guidelines rewritten but in most cases without any intention of changing the law. However, how well this intention of keeping the substantive law intact will be successful will be shown by time and experience in varying situation since the wording would often show up differently when one tries to apply and interpret them.

i. On first appearances, the substantive provisions and clauses have been trimmed and made more compact. However, part of the reason for the substantive clauses appearing more compact is also because the Regulations are now divided into substantive clauses and drafts of various precedents, forms, agreements, etc.

j. Consequential changes have been made in the SEBI ESOPs Guidelines and the Listing Agreement.

3) Ban on issue of shares with superior voting rights:

a. SEBI has issued a circular dated July 21, 2009, to make amendments to prohibit issue of shares with superior voting rights by listed companies. Earlier to this, SEBI had a Press Release announcing the decision to make such changes. Incidentally, the actual amendment covers all superior rights as to voting as well as dividends. The original decision as per the Press Release read that “No listed company can issue shares with superior voting rights.”.

b. The amendment is by way of insertion of a new clause 28A to the Listing Agreement. The amendment is to come into immediate effect though because of the peculiar status of Listing Agreement, one will also have to wait for amendment of the Listing Agreement by the respective stock exchanges.

4) The new clause is brief and is reproduced for ready reference:

“28A. The company agrees that it shall not issue shares in any manner which may confer on any person, superior rights as to voting or dividend vis-a-vis the rights on equity shares that are already listed.”

5) The following are some quick comments and concerns :

a) The prohibition is on issue of shares with ‘superior’ rights and not on ‘inferior’ rights.

b) A corollary from the earlier point, if a company issues shares with ‘inferior’ rights, those shares will then become the new benchmark. If one takes this further logically, then, thereafter, even ‘normal’ equity shares cannot be issued since these normal shares would have ‘superior’ rights as compared to the existing shares with ‘inferior rights’ assuming such latter shares are also listed !

c) Can the amendment affect issue of preference shares which have priority of dividends and at times even rights of sharing further dividends? Or can one say that the intention is to cover issue of equity shares only since the comparison is made to existing equity shares?

d) To bring the change into effect, the Listing Agreement is amended. This is curious. One would have thought the SEBIDIP Guidelines/ ICDR Regulations could have been a better place.

e) Would special rights given to certain investors/ promoters under the Articles of Association such as veto rights, special rights, etc. be deemed to be ‘superior rights as to voting’ ? Can it be said that the ban applies only where the superior rights are given to the ‘shares’ and not to the ‘persons’ holding such shares?

6) SEBI issues circular to formalise clarifications on 5% additional creeping acquisition

a) It may be recollected that late last year, SEBI had amended the Takeover Regulations to provide for a creeping acquisition window between 55-75%. These amendments permitted acquisition of further shares upto 5% for persons who held shares between 55-75%. A circular has been issued recently to clarify on some of the concerns expressed.

b) The circular is fairly self explanatory. A few quick comments though.

i) The clarifying circular is issued under Regulation 5 which permits SEBI to, inter alia, issue directions to remove difficulties in interpretation. S. 11 of SEBI Act is also relied on.

ii) It is seen that some of the interpretations so given go clearly beyond the plain wording and meaning. It is possible that in the future, a legal issue may come up whether such ‘clarification’ can go beyond the express and unambiguous wording of the Regulations.

iii) It is clarified that the 5% acquisition may be made in one or more tranches and also without any time limit.

iv) For calculating the 5% acquisitions, sales cannot be netted off. Thus, only gross purchases would be counted. For example, the acquirer cannot purchase 4%, then sell 3% and then acquire another 4% and claim that the net purchases are within the 5% limit.

v) The cumulative holding of the acquirer cannot exceed 75%. Thus, a person holding, say, 73% can acquire only a further 2%.

vi) The cumulative holding limit of 75% is irrespective of the minimum public share-holding that is required to be maintained under the Listing Agreement. Thus, e.g., in respect of a company having a 10% minimum public shareholding, the upper limit for this Regulation will still be 75% and not 90%.

7) SEBI clarifies on Insider Trading Regulations amendments of November 2008.

a) SEBI had amended the Insider Trading Regulations 1992 vide a Notification dated November 19, 2008. SEBI has now released a set of ‘Clarifications’ on 24th July 2009 on certain issues arising out of the amendments made.

b) Curiously, the ‘clarifications’ have no formal standing or reference. It is neither a circular, nor a notification, nor even a press release. It is neither signed nor dated. But it seeks to ‘clarify’ and give meaning to the Regulations that have legal standing and where such ‘meaning’ is quite contrary – as we will see to the plain reading of the text. Having said that, the ‘clarifications’ mostly relax the requirements and hence, being gift horses, one should not examine them in the mouth too closely!

C) Let us consider  the clarifications  given.

i. lt may be recollected that specified persons were banned from carrying out opposite transactions’ (banned transactions’) for six months of original buy/sale (‘original transactions’). The question was whether acquisition of shares under ESOP scheme and sale of such shares would be considered as transactions that trigger off such ban and whether these themselves are banned. It is clarified that exercise of ESOPs will neither be deemed to be ‘original transaction’ nor ‘banned transaction’. Thus, by acquiring shares under ESOPs, you don’t trigger a ban and if you are banned for six months, you can still exercise ESOPs. The reasoning given is that the ban is only on transactions in secondary market.

ii. Sale of shares acquired through ESOPs is covered but it will only be deemed to be an ‘original transaction’ and not a ‘banned transaction’. In other words, even if you are under a ban, you can still sell shares acquired under ESOPs but once you sell such shares, you have triggered a ban of six months. On this aspect, I do not understand the basis of clarifying that the sale of shares acquired under ESOPs scheme will not be an ‘original transaction’ – the logic of covering secondary market transactions should apply here also.

iii. Then, it is clarified that every later transaction triggers a fresh six month ban. A purchase on 1st February results in ban till 1st August. However, if there is a fresh purchase on 15th March, there is a ban now till 15th September. Effectively, this means that the ban period is from 2nd February till 15th September.

iv. What about transactions before this amendment – will the amendment create ban in respect of them too – this is an academic issue now at least as the six month period is now complete. It is clarified though that the transactions before the amendment are not to be considered. On a similar note, unwinding of positions in derivatives held on the date of this amendment is possible.

v. A crucial clarification is that the ban on ‘sale’ of shares for personal emergencies is permissible by waiver by the Compliance Officer. This is not evident from a plain reading of the provision. But SEBI thinks it is so evident and hence let us accept this gift without creating legal niceties! Note that this clarification applies only to sales and there can be no purchases within these six month ban period – obviously there cannot be any personal emergency to purchase shares !

vi. It is also clarified that tile ban on derivatives does not apply to NIFTY/SENSEX futures.

Limited Liability Partnerships Part-III

1. Winding-up of an LLP:

1.1 There are two ways in which an LLP can be wound-up, by an order of the Court or voluntarily.

1.2 An LLP can be wound-up by an order of the High Court under any of the fall owing circumstances:

    a) If the LLP decides that it should be wound-up by a Court Order.

(b) If the minimum number of partners reduces to less than two and remains sa far mare than 6 months,

    c) If it is unable to pay its debts. The Act does not prescribe any minimum amount of debts or any conditions under which an LLP is deemed to be unable to pay its debts. All these are contained in the draft Concept LLP (Winding-up and Dissolution) Rules.

    d) If it has acted against the interests of the sovereignty and integrity of India, security of the State or public order.

    e) If it has made a default in filing the Statement of Account and Solvency or the Annual Return far any 5 consecutive years.

    f) If the Court is of the opinion that it is just and equitable to wind-up the LLP.

1.3 The above section is similar in its operation to S. 433 of the Companies Act. However, unlike the Companies Act, the LLP Act does not contain any provisions far the compulsory or voluntary winding-up of an LLP. All these provisions are contained in the draft Concept LLP (Winding-up and Dissolution) Rules. The final Rules have yet not been notified. It is interesting to note that while normally Rules only contain the procedures and the substantive portion is contained in the Act, the Winding-up Rules, even deal with the substantive portion of winding-up of LLPs. One would expect that such an important provision is passed by the Parliament rather than notified by the Ministry of Corporate Affairs.

1.4 S. 51 of the Act also provides that if an LLP’s affairs are under investigation if, based an an inves-tigatian report made u/s.49, the Central Covernment is of the view that it is expedient to do sa, then the Gavernment may present a winding-up petition to the High Court, The petition may be presented an the ground that it is just and equitable to wind-up the LLP.

2. Investigation of an LLP:

2.1 S. 43 of the Act empawers the Central Government to appoint an inspector to investigate the affairs of an LLP in any of the following circumstances:

    a) If partners having at least 20% voting pawer apply to the Tribunal far an investigation and the Tribunal passes an order to that effect. An application should be accompanied with a security of an amount calculated based an the turnover. The amount of security ranges from Rs.2 to 25 lakhs.

    b) If the Tribunal sua moto passes an order far an investigation into the affairs of an LLP.

    c) Any Court passes an Order that the affairs of an LLP should be investigated.

    d) If in the opinion of the Central Gavernment, there are circumstances suggesting that the business of the LLP is being conducted :

  •     with an intent to defraud  creditors, partners
  •     otherwise far a fraudulent/unlawful purpase
  •     in a manner .oppressive or unfairly prejudicial to its partners

    e) If in the opinion of the Central Gavernment, there are circumstances suggesting that the LLP was farmed far any fraudulent or unlawful purpase.

    f) If in the opinion of the Central Gavernment, there are circumstances suggesting that the LLP’s affairs are not being conducted in accordance with the provisions of the Act.

    g) If in the opinion .of the Central Gavernment, there are circumstances suggesting that, based an a rep art of the RaC, there are sufficient reasons that the affairs of the LLP should be investigated.

2.2 The inspector may make interim reports and on conclusion of the investigation make a final report.

2.3 If based on this report, the Central Government is of the view that any person named in the report is guilty of any offence, then it may launch crimi-nal prosecution against him. The Government may also initiate proceedings:

a) for the recovery  of damages;  or

b) for the recovery of any property of the LLP/ any entity which has been misappropriated or wrongfully retained.

3. Defunct  LLPs :

3.1 The RoC may strike off the name of an LLP from its register. It can do so, where an LLP is not carrying on any business or operation:

    a) For a period of 2 years or more and the RoC has reasonable cause to believe the same, for taking suo moto action for striking off the LLP’s name; or

    b) For a period of 1 year or more and it has made an application to the RoC in Form 24 with the consent of all the partners for striking off its name from the register.

3.2 The RoC shall in all cases of suo moto action provide an opportunity of being heard to the LLP. After that if the RoC is satisfied that the name should be struck off then it will publish a notice in the Gazette and from that date, the LLP shall stand dissolved.

4. Offences  and penalties:

4.1 The LLP Act lays down various penalties and prosecutions for non-compliance with the provisions of the Act. It also lays down penalties for various procedural offences such as not filing forms on time. Further, where any document or return is required to be filed and if it is not so done on time, then it may be filed within 300 days from the original date of filing along with a daily fine of Rs. 100 for every day of delay.

4.2 In offences where no penalty has been pre-scribed, the punishment shall be a fine ranging from Rs.50,000 to Rs.5 lakhs along with a further fine which may extend to Rs.50 per day for every day after which the default continues.

4.3 A petition for compounding of offences can be made in From 31 to the RoC. Only those offences can be compounded for which the punishment is only a fine. Thus, offences which are punishable with imprisonment are not compoundable. This is different from the provisions of S. 621A of the Companies Act. Under this Act, offences for which the punishment is a fine or imprisonment are compoundable. One reason for the same is that there are no offences under the LLP Act for which the punishment is a fine or an imprisonment. The punishments under the Act are in the form of fines and imprisonment. Where any offence by an LLP is compounded no prosecution would be launched against the offender.

4.4 Offences in relation to the Incorporation Document, carrying on of a fraudulent business, making of false statements under the Act, matters arising out an Inspection Report and non-compliance of any Order of the Tribunal, are offences under the Act which also attract imprisonment as a punishment.
Thus, these offences would not be compoundable.

4.5 Where any offence by an LLP is proved to be because of the consent or connivance of a partner or attributable to the neglect of any partner, then such person shall be proceeded against and punished under the Act.

5. Whistle blowers:

5.1 A Court or Tribunal is empowered to reduce or waive any penalty leviable against any partner or employee of an LLP who is a whistle blower, if :

  •     he provided useful information during the investigation of the LLP; or

  •     he provided some information which lead to the LLP or its partner / employee being convicted under any Act.

5.2 The Act also contains a safeguard against harassment of such a whistle blower by providing that he would not be discharged, demoted, suspended, threatened, harassed or discriminated against merely because he provided the above information.

RBI/FEMA

4. Press Note No. 6 (2009) dated September 4, 2009 – Foreign Direct Investment (FDI) into Small Scale Industrial Under-taking (SSI)/Micro & Small Enterprises (MSE) and in industrial undertaking manufacturing items reserved for SSI/MSE – clarification

This Press Note relaxed the limit for FDI in SSI/MSE and clarified issues relating to FDI in industrial undertaking manufacturing items reserved for SSI/MSE.

1. FDI in SSI/MSE :


The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, has removed the ceiling for equity participation (both domestic and foreign) in the micro and small enterprises, by other enterprises. Under this Act Micro and Small Enterprises (MSE) (earlier small scale industries) are defined solely on the basis of investment in plant & machinery (for micro and small enterprise engaged in manufacturing) and equipment (for micro and small enterprise engaged in providing or rendering of services).

The Press Note amends Press Note 18 (1997 Series) but stating that FDI in MSE is subject only to the sectoral equity caps, entry routes and other relevant sectoral regulations.

2. FDI in an Industrial Undertaking manufacturing items reserved for SSI/MSE

This Press Note clarifies the position, as stated at Part III (ii) of Annex to Press Note 7 (2008), in respect of FDI in an industrial undertaking manufacturing items reserved for SSI/MSE. Accordingly, any industrial undertaking, with or without FDI, which is not an MSE, manufacturing items reserved for manufacture in the MSE sector (presently 21 items) as per the Industrial Policy, would:

a) Require an Industrial License under the Indus-tries (Development & Regulation) Act, 1951, for manufacture of the reserved items.
 
b) Apart from fulfillment of certain general conditions, the undertaking will have to export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years.

c) The export obligation will be applicable from the date of commencement of commercial production.

d) Such an industrial undertaking would also require prior approval of the Government (FIPB) where foreign investment is more than 24% in the equity capital.

5. A.P. (DIR Series) Circular No. 8 dated September 14, 2009 — Foreign Currency Account by diplomatic missions — Credit of Visa Fees.

Notification No. FEMA 193/2009-RB dated June 2, 2009 — Foreign Exchange Management (Deposit) (Amendment) Regulations, 2009.

Presently, Diplomatic Missions are permitted to credit proceeds of inward remittances received from outside India through normal banking channels to their foreign currency accounts.

This circular, in addition to the existing permission, permits Diplomatic Missions to transfer visa fees collected in India in Indian rupees from their rupee accounts to their foreign currency accounts.

Part D : Miscellaneous

The Government of India has signed a Social Security Agreement with the Government of Switzerland on 3rd September, 2009. The said agreement is intended to benefit cross-border operations in the two countries by avoiding the hardship of double payment of the social security (by employer and employee) in India and Switzerland. The same will come into effect after the fulfillment of the necessary requirements in both  the countries.

Succession Issues In Family-Run Companies — How to Deal With Them

Introduction and scope
Succession to leadership is common to any organisation, a professionally-run or a family-run company, and other organisations. Succession issues are more pronounced in a  family-owned and family-run company  because the promoter holding 100% or a majority stake may want his son or daughter to succeed him as a birth-right or his children may think that they have a birth-right to succeed him.

In the past, we have witnessed succession issues even amongst kings. For example, we have seen diametrically opposite succession issues in our epics Ramayana and Mahabharata.

Majority of the private sector listed companies in India are family-owned and family-run companies.

According to an  empirical  study conducted in 2008, in India, there were 224 billion $ listed companies accounting for 81% of the total market cap of all the companies listed on the Bombay Stock Exchange (BSE). Further, the promoters’ stake in those billion-dollar companies was 67% of the total market cap of those companies. Moreover, only about six companies (ICICI Bank, L&T, HDFC, IDFC, ITC and IFCI) have no identifiable individual promoter or promoter group.

(Source: Building Billion $ Indian Companies by Market Cap, by Dr. Pravin P. Shah, Growth Publishers, 2008)
 
Worldwide, majority of the businesses in number as well as in value are family-run and family-managed. Hence, the succession issues are a global phenomenon.

In India, we have witnessed that wealth does not pass in the family beyond the third or fourth generation or business does not remain with the family beyond the third or fourth generation. One of the main reasons for this is that the succession issues are not properly managed.

To illustrate various issues and challenges involved in succession management, various  real-life examples are given at appropriate places. The purpose is not to criticise any particular person, group or family, but to learn from the way they handled succession issues and/or their mistakes.

In this article, masculine pronouns are used for brevity and refer to both males and females. Hence, ‘he’ also means ‘she’ and vice versa.

Can succession be managed?
The basic question is can you manage succession, just as you manage a project or a business?

Yes, it is possible to manage succession, just as managing a project or a business. The basic principles are the same. In  Kautilya’s Arthashastra, Rajguru Chanakya explains how the succession in the kingdom from generation to generation should be handled.

Let us discuss some of the important ingredients of effective succession management in family-run companies and how to achieve them.

Step-1: Awareness and recognition
The present leader should recognise the reality and be aware of various events which are likely to happen, such as the following:

  •     Some day, he will have to retire and somebody will have to succeed him.

  •     He should recognise that succession can be managed and if he approaches the issues systematically, he can implement succession more effectively and smoothly.

  •     Succession management requires long-term planning and execution: there are no quick-fix solutions. For example, it has been reported that Captain Nair, Chairman of the Leela Group of Hotels has decided a succession plan to avoid any family feud in the future. According to his plan, his elder son, who looks after finance and day-to-day operations will get the hotel business while his sibling will spearhead the group’s new ventures.

  •     A leader should also be aware that sudden emergency may arise because of his untimely death or severe disability.

  •    In Succession management, things may not happen as planned. However, if the succession is systematically managed, then the outcome would be much better than if it is handled haphazardly.

Step-2: Define vision–mission–goals for succession management

It is essential for the present leader to define his vision, mission and then set the goals. For example, his mission statement could be: “Have a smooth and effective succession consistent with the family values and harmony”.

Step-3: Understand pre-requisites for effective succession management

Following are the major pre-requisites for effective succession management:

  •    The leaders should take care of all the members of the family.

  •     He should have a proper mindset and provide appropriate opportunity and wealth to every member of the family.

  •    There must be fairness in his handling of succession management.

Step-4: Understand what influences succession decisions

A leader should learn the factors which may influence the effective and smooth succession management and decisions. Some of them are summarised below:

  •    Emotional vs. Rational Thinking: e.g., my children should succeed me whether they have merits or not.

  •     The family often thinks that a well-established family business can be run successfully by anyone in the family.

  •    The family members may have an incorrect perception/view about the capabilities of the next generation, even though it may not be in tune with the reality. For example, the parents may think that their child is very capable of being a successor to the present leader.

Culture, personal value systems and family tradition: For example, elder son always succeeds the father.

  •     Ego Trip: The outside perception by relatives, friends, and executives in the organisation, etc. For example, if an elder son is not given a responsible position in the organisation and the younger one is given a responsible position or a better title, then it may be a subject-matter of gossip, evaluation, criti-cism.

  •     The thinking regarding females: Whether females can work in the family companies and can females succeed to a family business?

A problem would arise if the female members do not agree to the thinking that they cannot work in the family companies or they cannot succeed to the family businesses.

Step-5: Identify succession challenges/issues

In India, we are witnessing the succession issues in more and more family-run companies, such as Birla, Tata, Bajaj and Reliance, and even in a professionally-run company like ICICI.

For example, in the Birla group, Mr. G. D. Birla was succeeded by his grandson Mr. Aditya Birla, bypassing his father.

In the Bajaj family, because the brothers, sons and cousins are contenders, there are succession disputes among them.

In the Tata group, presently the successor-Chairman is being selected, who may or may not be from the Tata family.

The present leader should identify the challenges that he is likely to face in effective succession management. For this purpose, he should proceed systematically. He should list out the family members, their present ages, and the likely major future events and their timings, e.g., children’s education and training, their entry in the family business, his retirement and the succession. Based on this, he should prepare a list of likely succession challenges he will face in years to come.

One of the major problems in a family-run company is to decide about the succession criteria. For example, whether the succession should be based on merits or on seniority.

Hence, every family should define the family values and the personal values system it wants to follow in this respect. This requires tough decisions on the part of the family, particularly, in a family-run listed company.

If there is only one potential successor, the question may be about his present capability, his potential to be a leader, his age, his will-ingness, etc.

Sometimes, a potential successor is capable of succeeding, but he may not be interested in the family business and he may want to set up his own business or profession. The present business may not measure up to his ambitions and aspirations. Post liberalisation and globalisation of the Indian economy, a vast number of opportunities have opened up for starting new businesses.

Further, a potential successor may not be interested in being in any business; he may want to be a doctor or a professor or a social activist.

Let us suppose that the father wants to retire in one or two years, and therefore, the succession question has arisen.

Let us further suppose that he has one son who is actively involved in the management of some of the companies in the group. He is capable of succeeding the father, but he is not ready to take over the full rein of the group because he is not willing to devote full time and attention required for managing the business.

If an outside person is brought in as a CEO, then the question of working relations between the son and the outside CEO would arise.

In several wealthy families, it is witnessed that some children do not have a fire in their belly or they just want to enjoy life with the family wealth.

The potential successor may have the technical competence, but he may not have leadership quality or skills which may also be very important for a particular business.

In a knowledge-based business, the potential successor may not have the required knowledge as well as skills and he may not be willing to acquire the same. That would really pose a challenge because a person cannot manage or control a function which he cannot himself do.

The problem is more complex in a knowledge-based service company (e.g., financial services, IT software, etc.) than in a manufacturing company.

In some cases, where the present leader is relatively young or is not likely to, or willing to, give up his rein in a timely manner, then also there may be a conflict with the potential successor even if there is a single successor. He may not be willing to wait for a longer time required for succession.

In such cases, one solution may be that the existing leader gradually delegates more and more responsibilities to the potential successor, so that the potential successor is able to do worthwhile work commensurate with his abilities.

If the potential successor does not have the capability as well as potential, but the promoter insists that his family member should be a successor, then it may adversely affect the functioning of the company.

If the son (or daughter) of the promoter has no capability at present, but has the potential to succeed, and if he takes over the reins today, then he may become diffident or he may not be able to properly manage the company.

If in a family, there is more than one contender for succession, then also there may be a problem. E.g., brothers, uncle and nephew, cousins, son and nephew may be contenders in which case the conflict may arise (e.g., Bajaj family). Further, if an elder brother is less capable than a younger brother, the problem of selecting the successor may be a vexed issue.

If a successor is very much younger to the top one or two senior executives, there may be an issue of whether the younger promoter would be able to lead very senior executives.

The management style of the present leader and the potential successor may be diametrically opposite. Therefore, he may not be interested in working under him or following his footsteps. This may create a potential conflict between them.

Several families have decided that the equity shares held in the listed company will pass on only to the male members, and the female members will get the wealth in monetary terms. This raises several vexed issues. For example, how to monetize the shares in the family-controlled listed company to give the monetary value to the female members in the family? When should this be done? What if at the time of inheritance, the other male members in the family do not have adequate liquidity to buy the shares from the female members who will inherit the same?

Succession issues are there even in a professional firm of chartered accountants and lawyers. However, in a partnership concern the issues involved are different from those in a limited company because in a partnership concern there may not be hierarchy of positions.

Step – 6 : Develop appropriate solutions to challenges

One should develop appropriate solution(s) for each issue. It may not be possible to develop a solution immediately. But one should periodically think of the solutions, may be with the help of others.

If there are two possible contenders, then both may be given a title of joint managing director and then a division of functional responsibilities be made between them according to their capabilities.

Real-life examples: Some real-life examples will illustrate the point.

Real-life example-1

Facts

Some 20 years ago, a promoter of an unlisted software company recognised that he has 2 sons studying in a college and one day they may enter his business. At that time, succession issues may arise, and therefore, he wanted to plan in advance. For that purpose, he decided to start another business in the same line which would gradually become of equal value.

He also wanted that during his active life, he should have the final say in respect of both the businesses. Once his sons become capable, he would gradually give the responsibilities to them. He wanted that the succession should be very smooth and tax-efficient.

Issues

  •     The first issue involved in this case was of the ownership, present ownership and passing of the ownership to the next generation.

  •    The second issue involved was of the present management control and gradual passing of the control to the next generation. The control in legal sense arises from the ownership of the equity shares and if the ownership is to be passed on to the next generation during the lifetime of the present leader, then the tax issues may arise because at that time gift tax was in force.

Solution

An appropriate solution which would meet his requirements from a taxation angle as well from a business angle was developed by his chartered accountant. This demonstrates the role a chartered accountant can play in the succession planning.

Outcome

Today, his both the sons are involved in managing two different businesses which have synergies, but each one is running the business independently. This has avoided the potential conflict between the father and his two sons which could have arisen if there was a single business.

Similarly,  it  is  also  reported  that  the  RPG Group has divided its companies between the two brothers.

Real-life example-2

Compare this with the case of Dhirubhai Ambani Group where RIL is the company and there are two contenders to succession, Mukesh and Anil. Everyone is well aware about the legal battle which was fought between the two brothers regarding the succession and division of the RIL businesses, their assets and related issues.

Should succession be to the same business?

  •     The first objective should be the preservation of the wealth in the family and the second objective should, if possible, be the preservation of the same business in the family.

  •     If the next generation is not interested in the same business, the succession need not be to the same business. In such a case, the existing leader should provide support in developing the business of the choice of the potential successor, and at appropriate time sell the existing business.

  •     An interesting case of succession is of two sons of Dr. Parvinder Singh who inherited Ranbaxy Laboratories Limited and later on sold it to Daiichi of Japan. With that money, they have started new businesses in the field of financial services (Fortis Financial and Religare Financial Services) and healthcare (Fortis Hospitals).

Is it possible to separate ownership and management: In India, it is very uncommon. But in developed countries, it is very common.

Step-7: Have code of family governance

In a family-run company, the succession management, governance of the company and governance of the family go hand in hand. Hence, every wealthy family should have a code of family governance or family code of conduct and preferably, it should be in writing. Examples of corporate houses which have adopted such a code, include, GMR, Lanco, etc.

The family code of conduct should cover division of assets/businesses amongst the family members, rules for business decisions, succession criteria, training and grooming of the family members to a defined carrier path, inheritance, separation from the family, misconduct, etc.

The code should also cover all other major aspects, such as code of conduct in public, various decision-making rules, remuneration policy for family members, the personal lifestyle related issues, such as residence, type and number of cars each member could have, club membership, etc.

Every family member should be required to read and understand them. There should be a characteristic approach. Those who follow the family code of conduct should be appropriately rewarded and those who do not follow it should be appropriately punished.

Step-8: Is it possible to develop entrepreneurs/ leaders?

It is often debated whether it is possible to develop entrepreneurs or leaders, or are they born and not made? The answer is Yes and No.

It is not possible to develop or train a person to be an entrepreneur or a leader to deal with every aspect. However, there are a number of areas where he could be given proper and appropriate education and training to make him a better entrepreneur and leader.

Secondly, it is not a question whether it is doable or not because in a family-run company if a successor has to be from the family, then it is essential that he is given proper education in this respect, so that his chances as a successful leader are improved.

Step-9: Build capability of potential successors: train and groom

It is very important to groom the potential successor for taking over the rein when the existing leader would retire. This requires proper education and training of the potential successor. The potential successor should not assume that because he is from the promoter family, he has a birth-right to succeed or that he can manage the family-run business.

For effective succession management, efforts must be made on building the capability of every potential successor. The capability-building exercise should begin from home and right from the childhood.

Every child in the family must be given basic education and appropriate higher education. Nowadays, recognising the need for this aspect, many management colleges have Family-Business Management courses.

Besides the formal college education, the potential successor should be properly trained and groomed in being a next generation leader.

The training and grooming should be not only at the Board level. He should be given a thorough training in all the key result areas of the business, though eventually he may select one or more of those areas for him to play a major role in years to come.

Step-10: Determine suitability of potential successors: match-making

A potential successor would have certain skill sets and knowledge base. He would also have his likes/dislikes and his ambitions/inspirations.

Moreover, his present strengths and weaknesses should be identified.

Similarly, every business has Key Result Areas or Critical Success Factors for being successful in that business. Hence, it is necessary to compare the Key Result Areas of the family business and compare them with the knowledge and skill sets and the likes and dislikes of a potential successor.

Thereafter, identify the gap and determine whether it is possible and if yes, how to bridge the gap.

In one company, we suggested that the group should set up a separate unlisted company for those members in the family whose background and skill sets were not appropriate for the listed company’s business. These family members are allowed to run the business of that company independently, so that they do not adversely affect the business or activities of the listed company. This recommendation has worked very well with that group.

Step-11: Involve independent directors/mentors/ consultants

The leader should keep in mind that many times an outsider can play a better role as a mentor for the next generation than he himself can. The mentor(s) may be an independent director, close relative, family friend or a consultant.

The mentor(s) should be carefully selected. He should act in an impartial, unbiased and objective manner. He may act as the situation demands, e.g., as a guide, a mediator, provide assistance in objective analysis of the issues, alternatives and their consequences, an arbitrator, etc.

In a listed company, independent directors should ensure that there is a proper succession planning and execution, particularly, where the present leader is approaching retirement or is not keeping good health.

If in case of a listed company, there are several contenders from the family for succession, then ideally the Board or its committee should make the final selection of the successor.

Step-12: Periodical review and revision

Succession management is not a one-time exercise; it is a life-long journey. The decisions taken in the past may require a change or the actions taken in the past may not work out, and therefore, changes may be required in the past succession planning.

Further, if there is an untimely death of the leader, or if he develops some health problem, then a change in the succession timing may required. For example, Mr. Ashok Birla died in an accident at a relatively young age, and therefore, his son Yash Birla had to succeed him at a much younger age.

An annual review of the performance of the key family members should be conducted which will also make the potential successor(s) aware about his (their) progress. For this purpose, the group should establish the evaluation process and the specific criteria.

Step-13: Decide entry and exit timing

One of the important aspects of effective succession is to determine the timing of retirement of the present leader and succession of the successor.

The succession timing should be well planned: it should not be too abrupt so as to leave a vacuum during the transition phase or too late to de-motivate the potential successor.

The potential successor should enter the family-run business as soon as possible. The leader should gradually delegate more and more responsibilities so that the appropriate opportunities are provided to the next generation for taking up the baton.

The present promoter-in-charge may continue as a mentor (e.g., as a non-executive chairman) for a few years until the successor is fully ready to take over the reins of the company. For example, Mr. Narayan Murthy at Infosys did so for a few years. Thus, the practice of having separate persons as CEO and chairman may be followed.

What role can chartered accountants play?

For most family-run companies, particularly small and medium enterprises, chartered accountants are the first point of contact for any issue. At minimum, a chartered accountant can play the following roles:

  •     He can draw the attention of the present promoter-leader about the need for succession management.

  •     He can list out for him the tough decisions required for succession management and assist him in reaching those decisions wherever he could.

  •    He could also suggest the relevant business consultant or the relevant business management courses, which could help the leader and the successor.

  •     Any effective success management may involve restructuring of the ownership or the businesses. In this area, a chartered accountant can play a significant role in working out the most tax-efficient and legally effective methods.

Epilogue

A good and effective succession management is achieved through a judicious combination of various factors, such as planning, structure, discipline, mindset, culture, determination, training, implementation, and the like.

Succession management involves ethical and moral issues rather than legal issues. Hence, the approach to this aspect would vary from family to family depending upon its concepts, views and value systems.

Proper succession management, like many other projects, requires thinking and, as Henry Ford put it, “Thinking is the hardest thing there is and that is why very few engage in it”.

Corruption — The scourge of India

Article

Corruption is the lack of integrity. This could be lack of
financial integrity, moral integrity or intellectual integrity. When we talk
about corruption in our country we are generally referring mostly to the lack of
financial integrity.


The world bank defines corruption as ‘the use of public
office for private gain’. In this sense only the holders of public office can be
corrupt. The Prevention of Corruption Act, 1983 also defines corruption only in
the context of cases of public servants who hold public office. Corruption in
the private sector is legally considered to be cheating u/s.420 IPC or criminal
breach of trust. Corruption exists in the private sector and the public sector.
It is the root and cause of suffering practically in all spheres of our life
today. Corruption is therefore a scourge of India.

The word scourge is defined by the Oxford Dictionary as
follows : ‘scourge’ as a noun means : a whip for flogging or a person or thing
regarded as the cause of suffering. As a verb it means flog with a whip :
afflict greatly, punish. In short, ‘scourge’ is an act of causing suffering and
inflicting punishment. Our country is being punished by corruption by way of
lack of progress.

When Ms. Indira Gandhi was asked about the problem of
corruption, she qualified that it was a global phenomenon and avoided a direct
reply. Even if we look at corruption as a global phenomenon which is seen in
every society and country, the level of corruption varies from country to
country.

The latest report of Transparency International has focussed
on the sad fact that even the programmes for ‘aam admi’ and those who are
involved in these programmes are prone to corruption.

The Transparency International India Centre for Media Studies
conducted Indian corruption study 2007, a national survey of graft patterns
affecting BPL — ‘below poverty line’ households, categorised the States into
four levels to explain the extent and level of corruption — alarming, very high,
high and moderate. While levels of corruption were deemed alarming in Assam,
Bihar, Jammu & Kashmir, Madhya Pradesh, Uttar Pradesh, Goa, & Nagaland, it was
very high in TN, Rajasthan, Meghalaya and Sikkim. It was deemed high in
Chhattisgarh, Delhi, Gujarat, Jharkhand, Kerala, Orissa, Arunachal Pradesh,
Manipur. If it is any consolation, corruption levels were moderate in the Union
Terrorities of Chandigarh and Puducherry and the nine States Andhra Pradesh,
Haryana, Himachal Pradesh, Maharashtra, Punjab, Uttaranchal, WB, Mizoram and
Tripura. The survey covered 22,728 randomly selected BPL households across the
States between 2007 and January 2008.

The Below Poverty Line (BPL) households in India paid Rs.883
crore as bribe to avail basic needs during the last one year, according to
Transparency International India (TII) — CMS corruption study 2007. The Police
Department tops the chart with total bribe paid by the BPL households to the
tune of Rs.215 crore, while land records and service comes second at Rs.123.4
crore and housing comes third with a total bribe of Rs.156.6 crore.

The press report gives the details :

Corruption is not new to India, but what is shocking is
that the situation is getting worse, if a global watchdog is to be believed.
India has this year been ranked worse than China on a corruption scale devised
by Transparency International, compared to the last year when the two
countries were on par.

In a report that was released simultaneously in cities
worldwide, the organisation said the marginal slide could have had something
to do with television images of currency notes being displayed in the
Parliament during the recent debate on the trust vote.

India is ranked 85 on the corruption perception index-2008,
while China is ranked 72. Last year both the countries were ranked 72. The
index is prepared on the basis of surveys conducted in 180 countries by 13
international agencies that are associated with the organisation.


The index puts India’s integrity score at 3.4 as against 3.5
in 2007. China on the other hand has a marginally higher integrity score 3.6
this year, while Pakistan with a 2.5 integrity score has been ranked at 134 in
the list and Sri Lanka is ranked at 92 with integrity score of 3.2.

Corruption in our country is a vicious cycle starting with
political corruption, leading to bureaucratic corruption, resulting in
criminalisation of politics.

The question is whether India can continue to live with this
level of corruption. Corruption is anti economic development, anti-nation and
anti-poor. Can something be done to eliminate corruption or at least drastically
reduce the level of corruption in our day-to-day life ?

There is a silver lining that even our worst politicians so
far have not come out openly and said that corruption is good.

Information technology and communication has recorded a
healthy development in recent times. The availability of camera mobile phones
and 24X7 news channels always on the look out for sensational news has increased
significantly.

The most important tools of combating corruption are the
judiciary, the Election Commission and the media.

On the issue of remedial measures we can begin with banning all political candidates against whom criminal charges have been framed in courts from contesting elections, we can certainly stop ‘law-breakers becoming law-makers’. The media and photo camera phones can be used to catch the corrupt and punish them. The RTI Act can be used to expose corruption. I believe the use of RTI Act and use of technology will bring in greater transparency in government and semi-government organisations. Other measures would involve the following:

  • Inculcating value-based education.
  •  Educating the citizens of their rights.
  • Increased use of our judicial system and institutions like the Election Commission and the Ombudsman.

Corruption challenges us, let us confront corruption rather than accept corruption.

Sale deed is chargeable with stamp duty on market value of property, consideration fixed by Court in compromise decree is irrelevant : Stamp Act 1899, S. 47A.

New Page 1

18 Sale deed is chargeable with stamp duty
on market value of property, consideration fixed by Court in compromise decree
is irrelevant : Stamp Act 1899, S. 47A.


A sale deed was presented to the Sub-Registrar
(Registration), whereby a land was transferred for a consideration of Rs.8,000
to the respondent being legal heir of Smt. Dayalaxmi Sanghi. The sale deed was
executed pursuant to the compromise decree passed by the Civil Court between the
parties in a suit.

 

The registering authority proposed to value the property at
Rs.8,79,000. The Collector of Stamps issued a show-cause notice u/s.47A of the
Indian Stamp Act, 1899. The respondent had submitted that the sale deed has been
executed in compliance of decree, hence the provisions of S. 47A not applicable.
The Collector of Stamps after considering total facts and circumstances, valued
the property at Rs.7,83,000 and directed the respondent to pay the deficit stamp
duty.

On appeal by the respondent the Board of Revenue held that
the stamp duty and registration paid by the respondent was in accordance with
law.

The stamp authorities challenged the aforesaid order an the
ground that the stamp duty and registration fee were payable on the market value
of the property on the date of registration of the sale deed and this had no
concern with the date of agreement or consideration paid therein.

The High Court held that the sale deed is covered under the
definition of conveyance u/s.2(10) and stamp duty is chargeable as applicable to
such instrument as per Item No. 23 of Schedule I-A on the market value of the
property.

In facts of the case, there was a difference between market
value and the price as agreed in the agreement or subsequently fixed in the
compromise petition. The suit was decided on the basis of compromise arrived at
between the parties and as per compromise decree, consideration as settled
between the parties was to be paid by the vendee to the vendor. For
consideration, the aforesaid amount is binding between the parties, but for
payment of stamp duty, market value on the date of execution of the document was
a decisive factor and the stamp duty was payable on the market value of the
property at the time of registration of the sale deed and not as per the price
fixed under agreement to sell or in the decree of the Court.

The valuation of the property for the purpose of stamp duty
is the market value at the time of its execution. The Indian Stamp Act is a
taxing statute and is to be construed strictly. In the case of a decree of the
Civil Court, it may be on the basis of compromise; for the purpose of payment of
stamp duty, provision of S. 3 of the Act shall be applicable, which specifically
provides that stamp duty shall be chargeable with duty of the amount indicated
in the Schedule. Therefore on the sale deed, stamp duty was payable as per
market value and it had no concern with the consideration shown or paid to the
vendor.

 

In view of the aforesaid, the order passed by the Board of
Revenue was not sustainable under the law.

[ State of Madhya Pradesh v. Dilip Kumar Sangni, AIR
2008 Madhya Pradesh 133]

 


levitra

Establishment of Offices of the Registrar of Companies-cum-Official Liquidator.

Vide Notification date 13th November 2011, the Central Government has established the following Offices of the Registrar of Companies-cum-Official Liquidator at the places having territorial jurisdictions as stated below for discharging the functions of the Registrar of Companies as well as Official Liquidator under the various provisions of the said Act:
Pursuant to the above, the existing Office of the Official Liquidator at Ranchi shall stand upgraded as the Office of the Registrar of Companies-cum-Official Liquidator and the separate Offices of Registrar of Companies and Official Liquidator at Cuttack, Patna and Jaipur shall stand merged as the Office of the Registrar of Companies–cum-Official Liquidator.

Priority of claim : State due has first charge over the dues of banks, financial institutions and other secured creditor. Constitution of India Articles 254, 245, 246]

New Page 1

  1. Priority of claim : State due has first charge over the
    dues of banks, financial institutions and other secured creditor. Constitution
    of India Articles 254, 245, 246]

[ Central Bank of India v. State of Kerala & Ors.,
(2009) 4 Supreme Court cases 94]

The question which arose for determination before the Apex
Court was whether S. 38-C of the Bombay Sales Tax Act, 1959 (the Bombay Act)
and S. 26-B of the Kerala General Sales Tax Act, 1963 (the Kerala Act) and
similar provisions contained in other State legislations by which a first
charge was created on the property of the dealer or such other person, who was
liable to pay sales tax, etc. were inconsistent with the provisions contained
in the Recovery of Debts due to Banks and Financial Institutions Act, 1993
(the DRT Act) for recovery of ‘debt’ and the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 (the
Securitisation Act) for enforcement of ‘security interest’ and whether by
virtue of non obstante clauses contained in S. 34(1) of the DRT Act and
S. 35 of the Securitisation Act, the two Central legislations had primacy over
State legislations.

The borrower, who had mortgaged his properties to the
creditor bank failed to repay the dues. The appellant bank therefore filed a
suit which was ultimately decreed by the Debts Recovery Tribunal.
Consequently, a recovery certificate was issued in favour of the bank and the
recovery officer issued notice for sale of the properties of the borrower. At
that stage the Tahsildar issued a notice to the borrower for recovery of a
certain sum as arrears of land revenue. The notice stated that the properties
had been attached and steps were being taken to sell the same by auction. The
Tahsildar claimed that by virtue of S. 26-B of the Kerala Act, the State Govt.
had got first charge over the attached properties. The bank filed a writ
petition contending that being a Central legislation, the DRT Act would
prevail over the Kerala Act. The writ petition was dismissed. The bank
appealed therefore to the Supreme Court.

Similarly a company borrowed a certain sum from the
appellant bank by creating an equitable mortgage of its properties in favour
of the bank. Due to the company’s failure to repay the amount, its account was
classified as a non-performing asset and the bank initiated proceedings under
the Securitisation Act by issuing notice u/s.13(2). The bank took possession
of the properties of the company and sold the same. The ACST informed the bank
that sales tax dues constituted a first charge against the company and,
therefore, the bank could not have taken possession of the mortgaged
properties and sold them. The bank filed a writ petition contending that in
view of the conflict between S. 38-C of the Bombay Act and S. 35 of the
Securitisation Act, the latter being a Central legislation, the first charge
created by the State Act could not have priority over debts of the bank. The
High Court held that since there was no provision in the Securitisation Act
providing for first charge in favour of the banks, S. 35 of the Securitisation
Act would not be held to override S. 38-C of the Bombay Sales Tax Act.

The Supreme Court held that Article 245 of the Constitution
is the source of legislative power of Parliament and the State Legislatures.
The legislative fields of Parliament and the State Legislatures have been
specified in Article 246. The combined effect of the different clauses of
Article 246 is that in respect of any matter falling within List I, Parliament
has exclusive power of legislation, whereas the State Legislature has
exclusive power to make laws for such State or any part thereof with respect
to any of the matters enumerated in List II in Schedule VII and with respect
to the matters enumerated in List III, both Parliament and the State
Legislature have power to make laws.

Article 254 contains mechanism for resolution of conflict
between the Central and State legislations enacted with respect to any matter
enumerated in List III of Schedule VII.

There is no provision in the DRT Act or the Securitisation
Act by which first charge has been created in favour of banks, financial
institutions or secured creditors qua the property of the borrower.

U/s.13(1) of the Securitisation Act, limited primacy has
been given to the right of a secured creditor to enforce security interest
vis-à-vis S. 69 or S. 69-A of the Transfer of Property Act. In terms of S.
13(1), a secured creditor can enforce security interest without intervention
of the Court or Tribunal and if the borrower has created any mortgage of the
secured asset, the mortgagee or any person acting on his behalf cannot sell
the mortgaged property or appoint a receiver of the income of the mortgaged
property or any part thereof in a manner which may defeat the right of the
secured creditor to enforce security interest.

In an apparent bid to overcome the likely difficulty faced
by the secured creditor which may include a bank or a financial institution,
Parliament incorporated the non obstante clause in S. 13,
Securitisation Act, 2002 and gave primacy to the right of secured creditor
vis-à-vis other mortgagees who could exercise rights u/s.69 or u/s.69-A of
the Transfer of Property Act. However, this primacy has not been extended to
other provisions like S. 38-C of the Bombay Act and S. 26-B of the Kerala Act
by which first charge has been created in favour of the State over the
property of the dealer or any person liable to pay the dues of sales tax, etc.
S. 13(7) which envisages application of the money received by the secured
creditor by adopting any of the measures specified u/s.13(4) merely regulates
distribution of money received by the secured creditor. It does not create
first charge in favour of the secured creditor.

The non obstante clauses contained in S. 34(1) of
the DRT Act and S. 35 of the Securitisation Act give overriding effect to the
provisions of those Acts only if there is anything inconsistent contained in
any other law or instrument having effect by virtue of any other law. In other
words, if there is no provision in the other enactments which are inconsistent
with the DRT Act or the Securitisation Act, the provisions contained in those
Acts cannot override other legislations. S. 38-C of the Bombay Act and S. 26-B
of the Kerala Act also contain non obstante clauses and give statutory
recognition to the priority of the State charge over other debts, which was
recognised by Indian High Courts even before 1950. In other words, those
Sections and similar provisions contained in other State legislations not only
create first charge on the property of the dealer or any other person liable
to pay sales tax, etc., but also give them overriding effect over other laws.
Thus the appeals were dismissed.

Stock exchange — Membership card — Not personal property of member — Cannot be attached and sold in execution of a decree against member.

New Page 3

24 Stock exchange —
Membership card — Not personal property of member — Cannot be attached and sold
in execution of a decree against member.


[ Cochin Stock Exchange
Ltd v. Dhanalakshmi Bank Ltd & Ors., (2010) 159 Comp. Cas. 365 (Ker.)]

In a suit filed by the bank
against the second and third respondents, the petitioner stock exchange was
impleaded as a party. A decree was sought against it for realisation of the
plaint claim by sale of the membership card of the second respondent in it and
it was granted. The bank i.e., decree holder applied for sale of the
membership card of the second respondent. The petitioner stock exchange filed
objections to the execution contending that the membership card was not a
private property which could be attached and sold in execution of a decree and
that the petitioner stock exchange could not be compelled to sell the card of
the second respondent.

The High Court allowing the
petition held that since the membership was only a personal privilege, which on
a declaration that he was a defaulter vested with the stock exchange, the
direction issued in the decree was without jurisdiction and in violation of the
statutory provisions. Even though the stock exchange failed to challenge the
decree, the directions issued in violation were not executable. The bank was
free to realise the decree debt from the property of the second and third
respondents in accordance with law and also against their person, if the decree
provided so.

levitra

Substituted service — Only when the Court is satisfied that defendants cannot be served personally — Civil Procedure Code, Order 5, Rule 20.

New Page 3

25 Substituted service —
Only when the Court is satisfied that defendants cannot be served personally —
Civil Procedure Code, Order 5, Rule 20.


[ Harbhajan Singh & Anr.
v. L.Rs. of Gardhara Singh, AIR 2010 Raj 170]

In the year 1983, the
respondent/plaintiff filed a suit for specific performance of the contract
against the appellants/defendants. The summons issued by the Court could not be
served in the ordinary course and therefore, on an application preferred on
behalf of the respondent/plaintiff, the service upon the appellants/defendants
was directed to be effected by way of substituted service i.e., by
publication of the summons in the daily newspaper. On publication of the summons
as directed by the Court, the service upon the appellants/defendants was treated
to be complete and since nobody appeared on their behalf when the matter was
called out, ex parte proceedings were ordered against them. Ultimately,
the suit was decreed ex parte.

The appellants/defendants
filed an application under Order IX, Rule 13, CPC for setting aside the ex
parte decree. It was stated therein that at the relevant time, when the suit
was filed, the appellant/defendant Harbhajan Singh was residing at Village
Rodala, Tehsil Ajnala, district Amristar and the appellant/defendant Amritpal
Singh was in defence service, however, the summons were not served upon
them personally.

The Court held that the mode
of substituted service can be resorted to only when the Court is satisfied that
there is reason to believe that the defendant is keeping out of way for the
purpose of avoiding service or that for any other reason, the summons cannot be
served in the ordinary way. The personal service of summons in the ordinary way
is a rule and the substituted service is an exception. Therefore before passing
any order for substituted service on the basis of the material on record, the
Court must be satisfied that the conditions stipulated in O.5, R.20 exists.
However, there is a presumption that service substituted by the order of the
Court shall be as effectual as if it had been made on the defendant personally.

In the instant case the
Court had directed for substituted service upon the defendants by way of
publication in the newspaper on mere asking of the plaintiff without recording
any finding as to in what circumstances the defendants could not be serviced in
the ordinary course. The substituted service being presumptive in nature should
not be resorted to by the Court unless on the basis of the material on record,
it stands satisfied that the defendants are avoiding the service or for any
other reason, the summons cannot be served upon them personally in the ordinary
way. On the facts and in the circumstances of the case, the Court could not have
proceeded to pass an order for substituted service in a casual manner solely on
the basis of the plaintiff’s desire to serve the defendants by substituted
service. Hence service of summons cannot be considered to be sufficient and in
accordance with law. The ex parte order was set aside.

levitra

Right to Information — Notes or jotting by Judges or their draft judgments cannot be said to be information held by public authority — Right to Information Act, 2005, S. 2.

New Page 3

23 Right to Information —
Notes or jotting by Judges or their draft judgments cannot be said to be
information held by public authority — Right to Information Act, 2005, S. 2.


[ Secretary General, SC
of India v. Subhash Chandra Agarwal, AIR 2010 Del. 159 (FB)]

The appeal is against the
order passed by the ld. Single Judge whereby the request of the respondent (a
public person) for supply of information concerning declaration of personal
assets by the Judges of the Supreme Court was upheld.

One of the issue that arose
for consideration was the meaning of term information u/s.2(f) of the Act. The
Court held that the preamble to the Act says that the Act is passed because
‘democracy requires an informed citizenry and transparency of information which
are vital to its functioning and also to contain corruption and hold Govt. and
their instrumentalities are accountable to the governed’. The Act restricts the
right to
information to citizens (S. 3). An applicant seeking in formation does not have
to give any reasons
why he/she needs such information except such details as may be necessary for
contracting him/her. Thus, there was no requirement of locus standi for
seeking information.

The Court further held that
the source of right to information does not emanate from the Right to
Information Act. It is a right that emerges form the constitutional guarantees
under Article 19(1)(a) of the Constitution of India. The Right to Information
Act is not repository of the right to information. Its repository is the
constitutional rights guaranteed under Article 19(1)(a). The Act is merely an
instrument that lays down statutory procedure in the exercise of this right. Its
overreaching purpose is to facilitate democracy by helping to ensure that
citizens have the information required to participate meaningfully in the
democratic process and to help the governors accountable to the governed. In
construing such a statute the Court ought to give to it widest operation which
its language will permit. The Court will also not readily read words which are
not there and introduction of which will restrict the rights of citizens for
whose benefit the statute is intended.

The words ‘held by’ or
‘under the control of u/s. 2(j) will include not only information under legal
control of public authority, but also all such information which is otherwise
received or used or consciously retained by the public authority in the course
of its functions and its official capacity. There are any numbers of examples
where there is no legal obligation to provide information to public authorities,
but where such information is provided, the same would be accessible under the
Act. For example, registration of births, deaths, marriages, applications for
election photo identity cards, ration cards, PAN cards, etc.

The apprehension that unless
a restrictive meaning is given to S. 2(1)(j), the notes or jottings by the
Judges or their draft judgments would fall within the purview of the Information
Act was misplaced. Notes taken by the Judges while hearing a case cannot be
treated as final view expressed by them on the case. They are meant only for the
use of Judges and cannot be held to be a part of a record ‘held’ by the public
authority. However, if the Judge turns in notes along with the rest of his files
to be maintained as a part of the record, the same may be disclosed. It would be
thus retained by the registry. Even the draft judgement signed and exchanged is
not to be considered as final judgments, but only tentative view liable to be
changed. A draft judgment therefore, obviously cannot be said to be information
held by a public authority.

levitra

Nominee rights — Bank account — Death of depositor — Banking Regulation Act, 1949 S. 45ZA(2).

New Page 3

21 Nominee rights — Bank
account — Death of depositor — Banking Regulation Act, 1949 S. 45ZA(2).


[ Ram Chander Talwar &
Anr. v. Devender Kumar Talwar & Ors., (2010) 159 Comp. Cas. 646 (SC)]

The appellant who was the
nominee in the bank account held by his deceased mother claimed full rights over
the money lying in the account, to the exclusion of the respondent who was none
else than his full brother. The claim is based on S. 45ZA of the Banking
Regulation Act, 1949, which according to him, made the nominee of the depositor
the sole beneficiary, vested himwith all the rights of the sole depositor.

The Supreme Court held that
S. 45ZA(2) of the Banking Regulation Act, 1949 merely puts the nominee in the
shoes of the depositor after his death and clothes him with the exclusive right
to receive the money lying in the account. It gives him all the rights of the
depositor so far as the depositor’s account is concerned. But by no stretch of
imagination does it make the nominee the owner of the money lying in the
account. The Banking Regulation Act, 1949 is enacted to consolidate and amend
the law relating to banking. It is in no way concerned with the question of
succession. All the monies receivable by the nominee by virtue of S. 45ZA(2)
would, therefore, form part of the estate of the deceased depositor and devolve
according to the rule of succession to which the depositor may be governed.

levitra

Partnership at will — Notice given by one partner specifically stating that thereby he was dissolving the firm — Partnership would stand dissolved — Partnership Act, 1932; S. 7 and S. 42.

New Page 3

22 Partnership at will —
Notice given by one partner specifically stating that thereby he was dissolving
the firm — Partnership would stand dissolved — Partnership Act, 1932; S. 7 and
S. 42.


[ Hukumchand Bhaulal
Patani & Ors. v. Dhanlal Premraj Kale & Ors., AIR 2010 (NOC) 1106 (Bom.)]

The Respondent Nos. 1 to 3
were the original plaintiffs. They had filed the suit for declaration that the
partnership firm in the name and style ‘H.B. Patani & Company’ had been
dissolved and for settlement of accounts with interest on the amount due. The
Trial Court decreed the suit declaring that the partnership had been dissolved
on 20-1-1980 and the share of the plaintiffs in the partnership firm was ½ and
that of the present appellants ( original defendants Nos. 1 to 5) was ½.

The partnership was for
dealing in kerosene and crude oil. Premchand Kale had ½ share and the appellant
Nos. 1 to 5 who formed a joint family had ½ share in the partnership. The
partnership was at will and therefore a partner had a right to terminate
partnership with three months’ notice. The appellant No. 1 Hukumchand had joined
the partnership as Karta of the Joint Undivided Hindu Family (‘HUF’) of the
appellant Nos. 1 to 5. By notice dated 26-10-1979, Premraj Kale terminated the
partnership. In the circumstances suit was filed. It was also stated that due to
death of Premraj Kale on 14-12-1980 also, the partnership had come to an end. It
was also said that after the dissolution of the partnership firm, the defendant
appellants did not have right to do business in the property of the plaintiffs.
The decree passed by the Trial Court for declaration and settlement of account
was confirmed, which was challenged in the second appeal. The Court held that S.
7 of the Indian Partnership Act, 1932 defines ‘partnership at will’ to mean that
where no provision is made by contract between the partners for the duration of
their partnership, or for the determination of their partnership, the
partnership is ‘partnership at will’. S. 43 prescribes the manner for
dissolution of partnership at will. It says that where the partnership is at
will, the firm may be dissolved by any partner by giving notice in writing to
all the other partners of his intention to dissolve the firm. As per S. 42(c),
subject contract between the partners a firm is dissolved by the death of a
partner. In the case, there was nothing to show that the partnership deed
indicates that even after the death of one partner, another partner was entitled
to continue the partnership firm. So, in the absence of any specific term in the
deed of partnership for its continuation after the death of one of the partners,
it is to be presumed that after the death of Premchand, the partnership firm
stood dissolved in terms of S. 42(c) of the Partnership Act.

There were only two partners
in the partnership firm, namely, Hukumchand who was admitted as Karta on behalf
of HUF and Premchand who was admitted in his individual capacity. There was no
provision in the partnership deed to include any new partner by either partner
or by the surviving partner. So, it does not appear that the partnership firm
was expected to continue even after the termination notice by Premchand or
subsequent to his death. There was no provision in the partnership deed for
taking a new partner in place of the retired or died deceased partner. The
partnership was at will and it had come to an end and stood dissolved as a
result of notice given by Premchand specifically stating that he was dissolving
the partnership firm, so also by his subsequent death.

levitra

Practice of Law – Foreign law firms are not eligible to open liaison offices or to practice law in India. Even giving an opinion on a legal matter amounts to “practise of law”: Advocates Act

New Page 2

25 Practice of Law – Foreign law firms are not eligible to
open liaison offices or to practice law in India. Even giving an opinion on a
legal matter amounts to “practise of law”: Advocates Act


Lawyers Collective vs. Bar Council
(Bombay High Court)
(itatonline.org)

White & Case, a foreign law firm, was granted permission by
the RBI, u/s 29 of FERA, to open a liaison office in India. A PIL was filed
contending that such permission was in contravention of S. 29 of FERA as well as
S. 29 of the Advocates Act. Upholding the challenge, the Hon’ble High Court held
as hereunder:


(i) The liaison offices opened by the foreign law firm to
act as a coordination and communications channel between the head office/
branch offices and its clients, in and outside India, related to providing
legal services to the clients.
Similarly, the
liaison activity of providing “office support services for lawyers of those
offices working in India on India related matters” and drafting documents,
reviewing and providing comments on documents, conducting negotiations and
advising clients on international standards and customary practices relating
to the client’s transaction etc. was nothing but the practice of the
profession of law in non litigious matters;

(ii) U/s 29 of FERA, the RBI has power to grant permission
to carry on “activities of a trading, commercial or industrial nature”. There
is a fundamental distinction between professional activity and the activity of
a commercial character. As the liaison activities of foreign law firms relate
to the profession of law, no permission could be granted to the foreign law
firm under Section 29 of FERA;

(iii) S. 29 of the Advocates Act which provides that there
shall “be only one class of persons entitled to practice the profession of
law, namely, advocates”, applies not only to persons practicing as advocates
before any court/authority in litigious matters, but also to persons
practicing in non litigious matters as well. Practising the profession of law
involves a larger concept while practising before the courts is only a part of
that concept.

(iv) The argument of the UOI that if it is held the
Advocates Act applies to persons practising in non-litigious matters, then no
bureaucrat would be able to draft or give any opinion in non-litigious matters
without being enrolled as an advocate is without merit because there is a
distinction between a bureaucrat drafting or giving opinion during the course
of his employment and a law firm or an advocate drafting or giving opinion to
clients on a professional basis. Further, while the bureaucrat is answerable
to his superiors, a law firm or an individual engaged in non litigious matters
is answerable to none. To avoid such anomaly, the Advocates Act has been
enacted so as to cover all persons practising the profession of law, be it in
litigious matters or in non-litigious matters.


Consequently, the RBI was not justified in granting permission to the foreign
law firms to open liaison offices in India u/s 29 of FERA. Further, the foreign
law firms were not entitled to practise in non litigious matters in India
without following the provisions of the Advocates Act.

levitra

Registration — Public auction — Sale certificate sent to the Registrar for filing in Book No. 1 would not attract stamp duty — Registration Act, 1908, S. 17 & S. 89.

New Page 1

30 Registration — Public
auction — Sale certificate sent to the Registrar for filing in Book No. 1 would
not attract stamp duty — Registration Act, 1908, S. 17 & S. 89.


[Shree Vijayalakshmi
Chartiable Trust v. Sub-Registrar, (2010) 155 Comp. Cas. 549 (Mad.)]

The petitioner was the
successful bidder of the property of the company in liquidation sold in public
auction in accordance with the directions of the winding-up Court. Possession of
the property was given to the petitioner and a certificate of sale was issued by
the official liquidator. The office of the official liquidator sent a copy of
the certificate of sale to the office of the Sub-Registrar of file it in Book
No. 1 as required u/s.89 of the Registration Act, 1908. The Sub-Registrar
directed the petitioner to pay a sum of Rs.10,39,122 towards deficit stamp duty
for entering the certificate in Book No. 1. The aforesaid order was challenged
in a writ petition.

The Madras High Court held
that the documents mentioned in S. 17 of Registration Act, 1908, are to be
registered by the Registrar as per the procedures mentioned in S. 52 to S. 67 of
Part XI of the Registration Act, 1908. On the other hand the procedure for
filing copy of the sale certificate finds place in S. 89 of the Act. Hence both
procedure are different. For registration, stamp duty is a must, whereas for
filing no stamp duty is necessary.

The Court further observed
that the Legislature consciously used the word ‘registrar’ in S. 17, whereas the
word ‘file’ was employed in S. 89 of the Act. Only when the purchaser goes for
registration of sale certificate issued by the Court Officer, Article 18 of
Schedule 1 of the Indian Stamp Act, 1899, would be attracted and stamp duty is
to be paid in accordance with Article 23 treating it as conveyance, i.e., market
value of the property. When the instrument is not submitted for registration and
is being sent to the Registrar only for the purpose of filing in Book No. 1, it
does not attract any stamp duty.

The Court auction sale
certificate sent to the Registrar for filing in Book No. 1 would not attract
stamp duty. In view of S. 17(2) and S. 89 of the 1908 Act, the Sub-Registrar had
no power and jurisdiction to demand stamp duty. Hence the order was liable to be
set aside.

levitra

Passenger — Person holding a valid platform ticket cannot be considered as passenger — Railways Act, 1989 S. 2(9).

New Page 1

28 Passenger — Person
holding a valid platform ticket cannot be considered as passenger — Railways
Act, 1989 S. 2(9).


[Smt. Puttamani and Ors.
v. UOI, AIR 2010 Karnataka 109]

A person holding a platform
ticket falls from a moving train and later dies. Whether the Railway
Administration can be fastened with the liability to pay compensation for the
death of such a person on an application filed by the wife and daughters of the
deceased. This was the question that had come up for consideration before the
Railway Claims Tribunal. The application filed by them was dismissed by the
Tribunal.

The Court held that the
definition u/s.2(29) of the Act makes it clear that in order to consider a
person travelling in train as a passenger, he must possess a valid pass or
ticket and a person who merely holds a valid platform ticket is not entitled to
travel in train as a passenger. S. 123(c)(2) makes it clear that if a person
travelling as a passenger in a train accidentally falls from a train carrying
passengers, such an act would come within expression untoward incident. In the
instant case deceased was not carrying any valid ticket or valid pass so as to
treat him as a passenger. Although S. 124A in explanation mentions that for
purpose of S. 124A, a person who had a valid platform ticket is also included
within meaning of ‘Passenger’, the said explanation (ii) also makes it clear
that even while including a person holding a platform ticket within expression
‘Passenger’, care is taken to also mention that the said expression also
includes a person who has purchased valid ticket for travelling a train carrying
passengers.

Expression untoward incident
which has been explained in S. 123(c) makes it clear that if any unfavourable
incident like Commission of Terrorist Act, making of a violent attack or
commission robbery or dacoity or indulging in rioting shoot-out or arson by any
person in or on any train carrying passengers, or in a waiting hall, cloak-room
or reservations or booking officer or on any platform or in any other place
within the precincts of a railway station would come within the said expression
‘untoward incident’ and also of passenger falling from a train carrying
passengers. Therefore, the Court held that if a person holding a platform ticket
becomes victim of untoward incident mentioned in S. 123(c) in such an event for
purpose of paying compensation in a respect of victim of a untoward incident
even a person holding platform ticket can be included within the expression
‘passengers’. Though accident is unfortunate one, having regard to provisions of
the Railways Act, the instant case the deceased who had a platform ticket and
fell from a moving train cannot be brought within hold of expression ‘accidental
falling of any passengers from a train carrying passengers’.

levitra

Registered document has lot of sanctity attached to it — Evidence Act, S. 74.

New Page 1

29 Registered document has
lot of sanctity attached to it — Evidence Act, S. 74.


[Shanti Budhiya Vesta
Patel & Ors v. Nirmala Jayprakash Tiwari & Ors., AIR 2010 SC 2132]

The dispute arose between
the parties in respect of suit property wherein the respondents claimed to be
the owner by adverse possession. There were several appeals and counter claims
filed before the High Court. One of the respondent No. 9 who was holding power
of attorney for the appellant entered into consent term with other respondents.
The High Court disposed of the appeals after taking on record the consent terms.
The appellant thereafter filed civil application praying for recalling the
aforesaid orders alleging that fraud had been played upon the High Court by
filing the consent terms. Stating that consent term was filed without knowledge
and consent of the appellants.

The Supreme Court held that
all the power of attorney were irrevocable and duly registered for valuable
consideration. By executing the power of attorney in favour of respondent No. 9
the appellants had consciously and willingly appointed, nominated constitute and
authorised respondent No. 9 as their lawful power of attorney to do certain
deed, thing and matter. The appellants could not be said to have any right to
assail the consent decree passed by the High Court.

It is settled position of
law that the burden to prove that a compromise arrived at under Order 23, Rule 3
of the Code of Civil Procedure was tainted by coercion or fraud lies upon the
part who alleges the same. However, in the facts and circumstances of the case,
the appellants, on whom the burden lay, have failed to do so. Although, the
application for recall did allege some coercion, it could not be said to be a
case of established coercion. Since the particulars in support of the allegation
of fraud or coercion have not been properly pleaded as required by law, the same
must fail.

Further, all the powers of
attorney executed in favour of respondent No. 9 as also all the deeds and
documents entered into between the predecessor-in-interest of the appellants and
respondent No. 9 were duly registered with the office of the Sub-Registrar.
Neither any document nor any of the powers of attorney was ever got cancelled by
the appellants.

The registered document has
a lot of sanctity attached to it and this sanctity cannot be allowed to be lost
without following the proper procedure.

levitra

Limitation — Pronouncement of order — Maximum period prescribed is 120 days from ‘date of communication of order’ of Tribunal — Electricity Act, 2003, S. 125.

New Page 1

27 Limitation —
Pronouncement of order — Maximum period prescribed is 120 days from ‘date of
communication of order’ of Tribunal — Electricity Act, 2003, S. 125.


[Chhattisgarh State
Electricity Board v. Central Electricity Regulatory Commission & Ors., AIR
2010 SC 2061]

S. 110 of the Electricity
Act provides for establishment of a Tribunal to hear appeals. S. 111(1) and (2)
lays down that any person aggrieved by an order made by an adjudicating officer
or an appropriate commission under this Act may prefer an appeal to the Tribunal
within a period of 45 days from the date on which a copy of the order made by an
adjudicating officer or the appropriate commission is received by him. S. 111(5)
mandates that the Tribunal shall deal with the appeal as expeditiously as
possible and endeavour to dispose of the same finally within 180 days from the
date of receipt thereof. S. 125 lays down that any person aggrieved by any
decision or order of the Tribunal can file an appeal to the Supreme Court within
60 days from the date of communication of the decision or order of the Tribunal.

The question which arose for
consideration was what is the date of communication of the decision or order of
the Tribunal for the purpose of S. 125 of the Electricity Act. The word
‘communication’ has not been defined in the Act and the Rules. Therefore, the
same deserves to be interpreted by applying the rule of contextual
interpretation and keeping in view the language of the relevant provisions. Rule
94(1) of the Rules lays down that the Bench of the Tribunal which hears an
application or petition shall pronounce the order immediately after conclusion
of the hearing. Rule 94(2) deals with a situation where the order is reserved.
In that event, the date for pronouncement of order is required to be notified in
the cause list and the same is treated as a notice of intimation of
pronouncement. Rule 98(1) casts a duty upon the Court Master to immediately
after pronouncement transmit the order along with the case file to the Deputy
Registrar. In terms of Rule 98(2), the Deputy Registrar is required to
scrutinise the file, satisfy himself that provisions of rules have been complied
with and thereafter, send the case file to the Registry for taking steps to
prepare copies of the order and their communication to the parties. If Rule
98(2) is read in isolation, one may get an impression that the registry of the
Tribunal is duty bound to send copies of the order to the parties and the order
will be deemed to have been communicated on the date of receipt thereof, but if
the same is read in conjunction with S. 125 of the Electricity Act, which
enables any aggrieved party to file an appeal within 60 days from the date of
communication of the decision or order of the Tribunal, Rule 94(2) which
postulates notification of the date of pronouncement of the order in the cause
list and Rule 106 under which the Tribunal can allow filing of an appeal or
petition or application through electronic media and provide for rectification
of the defects by e-mail or net, it becomes clear that once the factum of
pronouncement of order by the Tribunal is made known to the parties and they are
given opportunity to obtain a copy thereof through e-mail, etc., the order will
be deemed to have been communicated to the parties and the period of 60 days
specified in the main part of S. 125 will commence from that date.

The issue was also
considered from another angle. As mentioned above, Rule 94(2) requires that when
the order is reserved, the date of pronouncement shall be notified in the cause
list and that shall be a valid notice of pronouncement of the order. The counsel
appearing for the parties are supposed to take cognizance of the cause list in
which the case is shown for pronouncement. If title of the case and name of the
counsel is printed in the cause list, the same will be deemed as a notice
regarding pronouncement of the order. Once the order is pronounced after being
shown in the cause list with the title of the case and name of the counsel, the
same will be deemed to have been communicated to the parties and they can obtain
copy through e-mail or by filing an application for certified copy.

levitra