BCAJ | Bombay Chartered Accountant Journal

PART B: RTI Act , 2005

Hunt For The Mole

An RTI activist got a shock of his life after he received a call soon after he submitted an application under the RTI Act. The activist had sought information in connection with the MLA Funds. The activist was removed from the organisation. Undeterred by the reprisal, the activist has approached Chief Information Commissioner Ratnakar Gaikwad to demand action against the information officer who disclosed his identity. It is not the first time that the identity of people seeking information under RTI Act has been revealed to a rival party. From the time an RTI activist submits an application to secure information on a new project; he receives threatening calls from the builder. In several cases the builder uses illegal means to ensure that the RTI application is not processed or delayed indefinitely. It’s high time that the Chief Information Commissioner issues fresh instructions on the secrecy, said Pune based RTI activist Vijay Kumbhar.

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PART A: ORDERS OF CIC & the court

Section 6 (1) of the RTI ACT:
The appellant submitted an RTI application dated 28th December 2012 before the CPIO, Health Department. UT Chandigarh seeking copies of his Casual Leave Applications w.e.f 1/1/2007 – 28/12/2012 along with Annexures. Appellant also sought Casual Leave Applications of Shri Harbans Singh for the same period.

Decision Notice:
“After hearing both the parties, Commission directs the CPIO, Malaria Wing (Health Department) to obtain the requested information from the holder of the information namely CPIO, Civil Dispensary, Sector – 38 where the appellant was previously posted and also from all the other Public Authorities where the appellant was during the period 2005 – 2010 pertaining to his C.L. record and to provide the same to the appellant within three weeks of receipt of the order.

Commission accepts the explanation of the CMO, In charge, Govt. Civil Block Hospital regarding the delay in providing information pertaining to the fourth C.L. application of the appellant and condones the same. Commission draws the attention of the CPIOs and the appellant to the observations of the Apex Court in the matter of Central Board of Secondary Education and Anr. vs. Aditya Bandopadhyay and Ors. (Civil Appeal No. 6454 of 2011 dated 9.8.2011, [RTIR III (2011)242 (SC)] where in it has been observed that:

“37. The right to information is a cherished right. Information and right to information are intended to be formidable tools in the hands of responsible citizens to fight corruption and to bring in transparency and accountability. The provisions of RTI Act should be enforced strictly and all efforts should be made to bring to light the necessary information under Clause (b) of Section 4 (1) of the act which relates to securing transparency and accountability in the working of public authorities and in discouraging corruption. But in regard to other information, (that is information other than those enumerated in section 4 (1) (b) and (c) of the Act), equal importance and emphasis are given to other public interests (like confidentiality of sensitive information, fidelity and fiduciary relationships, efficient operation of governments, etc.). Indiscriminate and impractical demands or directions under RTI Act for disclosure of all and sundry information (unrelated to transparency and accountability in the functioning of public authorities and eradication of corruption) would be counter – productive as it will adversely affect the efficiency of the administration and result in the executive getting bogged down with the non – productive work of collecting and furnishing information. The act should not be allowed to be misused or abused, to become a tool to obstruct the national development and integration, or to destroy the peace, tranquility and harmony among its citizens. Nor should it be converted into a tool of oppression or intimidation of honest officials striving to do their duty. The nation does not want a scenario where 75%of the staff of public authorities spends 75% of their time in collecting and furnishing information to applicants instead of discharging their regular duties. The threat of penalties under the RTI Act and the pressure of the authorities under the RTI Act should not lead to employees of a public authorities prioritizing ‘information furnishing’, at the cost of their normal and regular duties.”

Appellant was directed to desist from misusing the cherished right given to him under the transparency Act in future.

Appellant/Complainant: Ramesh Kumar vs. Health Department (Malaria), UT Chandigarh; appeal no: CIC/ DS/A/2013/000927 decided on: 11.12.2013: citation: RTIRI (2014) 49 (CIC)]

Section 19 (8) (a) of the RTI ACT:
Vishwas Bhamburkar the applicant had filed an application on14.5.2011 with the PIO in the Ministry of Tourism, PSW Division, seeking an authenticated photo copy along with the file nothings of the Project Report for Development of Ayurvedic Health Resort and Herbal Garden at Vgamon, which was submitted by the Department of Tourism, Government of Kerala in December, 2005 and was bearing file number 426/D(CN) dated 20.02.2006.

The PIO in his reply informed the applicant that the said project report had not been received in the Ministry of Tourism. Being dissatisfied with the reply furnished by the PIO, the respondent preferred an appeal before the First Appellate Authority. The following was the order passed by the First Appellate Authority:

“The noting initials on the cover page of the Project Report produced by Shri Bhamburkar suggest that the Report was received in MOT. However since it is only a photo copy, its authenticity cannot be taken for granted. CPIO& Asstt. DG (PSW) is directed to make thorough search for the said Project Report and records pertaining to its receipt and movement in the Ministry. If the report is traced, its authenticated copy will be supplied by the CPIO to the applicant. If the Report is not traceable, but records are found which confirm that the Report was received in the MOT, a report may be lodged with the Police regarding the missing documents. An intimation to this effect may then be conveyed to the applicant by the CPIO. In case neither the Project Report nor any records of its receipt in Ministry are available, the applicant may be so informed by the CPIO. Action has to be taken within 15 days”.

Being dissatisfied the applicant filed second appeal before the Central Information Commission.

In this regard, the Commission observed that either the PIO or some other officer could be hiding the information or the report being submitted could be forged or it could be a conspiracy by which the report and all associated papers were taken away from the Government. Being aggrieved from the order of the Commission, the Union of India is before the High Court of Delhi by way of the writ petition.

The order of the High Court of Delhi is summarised as under:

“The learned counsel for the petitioner assailed the order of the Commission primarily on the ground that the Right to Information Act does not authorize the Commission to direct an inquiry of this nature by department concerned though the Commission itself can make such an inquiry as it deems appropriate. Reference in this regard is made to the provisions contained in Section 19 (8) of the Act. A careful perusal of sub section (8) of Section 19 would show that the Commission has the power to require the public authority to take any such steps as may be necessary to secure compliance with the provisions of the Act. Such steps could include the steps specified in clause (i) to (iv) but the sub – section does not exclude any other step which the Commission may deem necessary to secure compliance with the provisions of the Act. In other words, the steps enumerated in clause (i) to (iv) are inclusive and not exhaustive of the powers of the Commission in this regard.”

“The Right to Information Act is a progressive legislation aimed at providing, to the citizens, access to the information which before the said Act came into force could not be claimed as a matter of right. The intent behind enactment of the Act is to disclose the information to the maximum extent possible subject of course to certain safeguards and exemptions. Therefore, while interpreting the provisions of the Act, the Court needs to take a view which would advance the objectives behind enactment of the Act, instead of taking a restricted and hyper – technical approach which would obstruct the flow of information to the citizens.”

“This can hardly be disputed that if certain information is available with the public authority, that information must necessarily be shared with the applicant under the act unless such information is exempted from disclosure under one or more provisions of the act. it is not uncommon in the government departments to evade disclosure of the information taking the standard plea that the information sought by the applicant is not available. ordinarily, the information which at some point of time or the other was available in the records of the government, should continue to be available with the concerned department unless it has been destroyed in accordance with the rules framed by that department for destruction of old record. therefore, whenever an information is sought and it is not readily available a thorough attempt needs to be made to search and locate the information wherever it may be available. it is only in a case where despite a thorough search and inquiry made by the responsible officer, it is concluded that the information sought by the applicant cannot be traced or was never available with the government or has been destroyed in accordance with the rules of the concerned department that the PIO would be justified in expressing his inability to provide the desired information. even in the case where it is found that the desired information though available in the record of the government at some point of time, cannot be traced despite best efforts made in this regard, the department concerned must necessary fix the responsibility for the loss of the record and take appropriate departmental action against the officers/officials responsible for loss of record. unless such course of action is adopted, it would be possible for department/office, to deny the information which otherwise is not exempted from disclosure, wherever the said department/office finds it inconvenient to bring such information into public domain, and that in turn, would necessarily defeat the very objective behind enactment of the right to information act.”

“Since the Commission has the power to direct disclosure of information provided, it is not exempted from such disclosure, it would also have the jurisdiction to direct an inquiry into the matter wherever it is claimed by the PIO that the information sought by the applicant is not traceable/readily traceable/currently traceable. Even in a case where the PIO takes a plea that the information sought by the applicant was never available with the government but, the Commission on the basis of the material available to it forms a prima facie opinion that the said information was in fact available with the government, it would be justified in directing an inquiry by a responsible officer of the department/office concerned, to again look into the matter rather deeply and verify whether such an information was actually available in the records of the government at some point of time or not. after all, it is quite possible that the required information may be located if a thorough search is made in which event, it could be possible to supply it to the applicant. fear of disciplinary action, against the person responsible for loss of the information, will also work as deterrence against the willful suppression of the information, by vested interests. it would also be open to the Commission, to make an inquiry itself instead of directing an inquiry by the department/office concerned. Whether in a particular case, an inquiry ought to be made by the Commission or by the officer of the department/office concerned is a matter to be decided by the Commission in the facts and circumstances of each such case.

In the case before the High Court of Delhi, the PIO, who appeared before the Commission admitted that the photo copy of the report made available to the Commission was signed by the concerned Joint Secretary and director at the relevant time. Prima facie, they would have signed the documents only if they had received either the original report or its copy. the endorsement made on the cover of the documents would show that the report /copy on which endorsement was made was signed by the Secretary, Tourism, Government of Kerala. Had a thorough inquiry been made by inquiring from the concerned officer to find out as to where, when and in what circumstances they had signed the documents, it could have been possible to locate the report in the records of the government.”

For the reasons stated hereinabove, the court found no merit in the writ petition and the same was dismissed. it is directed that a thorough and meaningful inquiry in terms of provisions of the directions of the Commission be carried out by an officer not below the rank of a Joint Secretary to the Government within eight weeks from today and a copy each of the said report to be provided to the Commission as well as to the respondent before the Court.

The petitioners were directed to circulate a copy of the order to all the CPIOs /PIOs of the Government of India and other Public Authorities, within four weeks for information and guidance.

BCAJ Admin

Company Law

1. Companies (incorporation) amendment rules, 2015

The Ministry of Corporate Affairs has vide Notification dated 1st May 2015, amended the Companies (Incorporation) Rules 2013. The Ministry has introduced eForm INC-29 – an integrated Incorporation form that deals with :
a) application for reservation of name (only 1 name is allowed),
b) incorporation of a new company and/or
c) application for allotment of DIN
d) application for PAN
e) application for TAN f) application for ESIC
in a single form. Along with the form, as attachments the following supporting documents are required:

1. Details of Directors & Subscribers,
2. Memorandum and Articles of Association

Once the eForm is processed and found complete, company would be registered and CIN would be allocated. Also DINs gets issued to the proposed Directors who do not have a valid DIN. This process allows upto three Directors to avail Din through the common application form while incorporating a company. Section-8 Company i.e. non-profit organisation cannot be incorporated through the eForm INC 29. Companies have option to go by route of e-form INC-29 or earlier route INC-1, INC-7, DIR-12 and INC-22. Filing Fees for the Form is Rs. 2000/-. Full text of the Rules can be accessed at http://www.mca.gov. in/Ministry/pdf/AmendmentRules_01052015.pdf

2. Secretarial standards notified
The Central Government has vide letter no. 1/3/2014/ CL/I dated April 10, 2015 approved the following standards specified by the Institute of Company Secretaries of India. The Standards become applicable from 1st July 2015. Adherence to the standards is mandatory as per the provisions of Companies Act, 2013

a) Standard on Meetings of the Board of Directors – SS-1 – It contains a list of General Business items and Specific items which can be passed by the Board only at a meeting and not passed by circulation.

b) Secretarial Standard on General Meetings – SS-2 – It contains a list of business which shall be passed only by postal ballot.

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Company Law

Companies (accounts) amendment rules, 2015

The Ministry of Corporate Affairs has vide Notification dated 16th January, 2015 amended the Companies (Accounts) Rules, 2014 with the Companies (Accounts) Amendment Rules, 2015. The following changes have been made:
i) A fter Rule 2 the following is inserted “2A. Notice of address at which books of account are to be maintained.—For the purposes of the first proviso to sub-section (1) of section 128, the notice regarding address at which books of account may be kept shall be in Form AOC-5” and

ii) in Rule 6, after the third proviso, the following proviso shall be inserted

“Provided also that nothing in this rule shall apply in respect of consolidation of financial statement by a company having subsidiary or subsidiaries incorporated outside India only for the financial year commencing on or after 1st April, 2014.”

Form AOC-5 is similar to eForm 23AA as per section 209(1) of the Companies Act, 1956 and if required to be filed when the Board of Directors decides by passing the resolution to keep all or any of the books of account at any other place in India besides the registered office then, the company shall, within seven days of passing the Board Resolution, file this form giving full address of that other place in form AOC-5.

2. Companies (cost records and audit) amendment rules 2014

The Ministry of Corporate Affairs has vide Notification dated 31st December, 2014 made the Companies (Cost Records and Audit) Amendment Rules, 2014 to amend the Companies (Cost Records and Audit) Rules, 2014.

It has inserted in Rule 2 (aa) a clarification that “Central Excise Tariff Act Heading” means the heading as referred to in Additional notes in First Schedule to Central Excise Tariff Act, 1985.

Accordingly, Companies are required to maintain Cost Records if turnover exceeds Rs. 35 crore or more during immediately preceding Financial Year in respect of the products and services specified;

Applicability of Cost Records: The Rules have categorised the entities into Regulated Sector (namely Telecommunication services; Power generation, Transmission, Distribution and Supply; Petroleum products; Drugs and Pharmaceuticals; Fertilisers; Sugar and Industrial alcohol) and Unregulated Sectors (i.e., steel, minerals oil, electrical, education services, health services, textiles, milk powder, medical devices etc businesses);

Applicability of Cost Audit: It will be applicable for entities under the Regulated sectors having overall annual turnover of Rs. 50 crore or more and the aggregate turnover of the individual products or services of Rs. 25 crore whereas Unregulated Sector Audit of Cost Records will be applicable for annual turnover of Rs. 100 crore or more and the aggregate turnover of the individual products or services of Rs. 35 crore or more have to get their Cost Records Audited; for financial years commencing from 01-04-2015.

Exemptions are provided to Companies whose revenue from exports, in foreign exchange, exceeds 75% of total revenue and Companies operating from Special Economic Zones.

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BCAJ Admin

Part C Information on & Around

CDR Cell:
Corporate Debt Restructuring Cell has refused to the RTI query about its operations saying RTI , transparency law, does not apply to it.

CDR is a self-empowered body, which provides broad guidelines and policies to be followed by itself and the administrative, operating and other costs of CDR cell is shared by all financial institutions and Banks.

Based on this, Shailesh Gandhi, former Central Information

Commissioner holds the view that RTI Act applies to them. However, CDR Cell holds the view that it is neither owned, controlled or substantially financed directly or indirectly by funds provided by the appropriate government. Hence, CDR Cell is not a public authority as defined u/s. 2(h) of the RTI Act.

In the first Appeal before FAA, he also ruled that “CDR Cell is not a public authority under the RTI Act, and hence, we are unable to entertain application under the RTI Act”.

Matter would now go to the Central Information Commission.

Information on Netaji Subhash Chandra Bose:

In Jan. 15 issue in Part C this item was carried. Now Mr. S. C. Agrawal, the RTI appellant has reacted on it and has said:

“According to section 8(2), Public interest definitely overweighs the protected as several committees have been formed by the Union government to probe the mystery behind Netaji’s death. The Central Public Information Officer did not even name the country with which relations are likely to be prejudicially affected”.

BCAS RTI Clinic:
Reproducing one letter received by me from one visitor, at BCAS RTI Clinic Aurobindo Das:

I approached your office in January 2014 to seek guidance regarding inflated water bills charged by P/S Ward, Goregaon West, BMC Water Department, for nearly two years to our housing society. The Asst. Engineer, Water Works refused to give us the information about the basis on which and the methods followed by the billing department. Adv. Anilkumar K. Asher has guided me since then till the hearing stage of my 2nd appeal. He accompanied me to the office of the MSIC on 24.09.2014. And I am pleased to inform you that the Order of the appeal was in my favour. Enclosed please find the copy of the Order.

Sir, I am personally grateful and thankful to all of you for the help & guidance that have been accorded to me”.

Note: Copy of the Order received in Marathi is not reproduced here. Many visitors get such positive results by acting on our advice but do not write on their success.

RTI & CPA :
There were conflicting judgements of the National Commission as to whether an applicant seeking information under the RTI Act would be a consumer or not. Certain two member benches had held that an RTI applicant who pays fees for the information would be a consumer, while other benches had held a consumer complaint would not be maintainable since the RTI Act provides its own channel of appeals.

Hence, a three-member bench was constituted to settle the law. The national commission addressed to two issuesfirstly, whether a person seeking information under RTI Act can be said to be a consumer and if it is held that he is a consumer, can a complaint to file under the Consumer Protection Act, or would this remedy be barred by the RTI Act provisions.

The national commission observed that it is a settled legal proposition that when a right is created by a statue which also provides for an adequate and satisfactory remedy to enforce that right, a person must avail of the mechanism available under the relevant act. The Public information officer is actually discharging a statutory function and not rendering any services. Besides, Section 23 of the RTI Act bars the jurisdiction of courts.

By its order of January 8, the national commission concluded that it is not permissible to have two parallel machineries for enforcement of the same rights created by the RTI Act, which a special statute. If a consumer complaint is permitted, it would defeat the purpose of providing a special mechanism under the RTI Act.

An RTI applicant is not entitled to file a consumer complaint for deficiency in service. He must follow the appeal procedure prescribed under the RTI Act.

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BCAJ Admin

Part B RTI act, 2005

In the last two issues of BCAJ, I had briefly summarised chapters 1 & 2 of “PEOPLES’ MONITORIN G OF THE RTI REGIME IN INDIA 2011-13”. Same is being serialised. However, I am postponing it to the next issue to continue on the same. This issue covers report on online RTI facility.

Maharashtra’s launch of facility for filing RTI Application online.

Earlier Central Government had prescribed online facility www.centralrtionline.gov.in.

That of Maharashtra is www.rtionline.maharashtra. gov.in .

Facility has started from 01.01.2015.

http://www.rtionline.maharashtra.gov.in/request/ request.php?lan=E is the site that is in Marathi and English, has the facility for filing application and for first appeal. It also has an option to know the status of one’s application. The mode of payment (RTI application fees) is internet banking, ATM cum debit card and credit card (Master/Visa).

Thirty one of the 37 departments in Mantralaya are shown on the site. All the departments within Mantralaya would be covered first. The facility would be expanded to other public authorities later. Once an application is filed, the applicant will be given a registration number through SMS and email.

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BCAJ Admin

Part A DECISION OF H.C. & CIC

Right of appeal Complaint u/s. 18(1) of the RTI Act :

In January 2015, in part A, I had referred to the Delhi High Court’s order and instead of analysing it, had reproduced an Analysis of that order by Mr. Venkatesh Nayak, Programme Co-coordinator of CHRI. Now I summarise the said HC’s order dated 05.12.2014.

The petitioner, R. K. Jain, inter alia, impugned an order dated 14.02.2014 passed by respondent no. 3 – Central Public Information Officer & Administrative Officer, Income Tax Settlement Commission, denying the information, which was earlier directed to be supplied to the petitioner under the provisions of the Right to Information Act, 2005.

The impugned order indicated that the order dated 26.09.2013 passed by PIO pursuant to an application filed by the petitioner under the RTI Act; and the order dated 21.10.2013 passed by FAA in an appeal preferred by the petitioner against the order dated 26.09.2013, were set aside as being void ab-initio by the Chairman, IT settlement Commission as an administrative head of the Income Tax Settlement Commission.

The principal Controversy to be addressed is whether, respondent no. 1 could declare by an administrative order, the orders passed by respondent nos. 2 (PIO) & 4 (FAA ) as being void ab-initio.

The petitioner had filed RTI application seeking information, inter alia, with respect to disposal and pendency of matters before the Income Tax Settlement Commission. In response to this application, CPIO and Joint Commissioner of Income Tax, the Income Tax Settlement Commission passed an order dated 26.9.2013 furnishing certain information to the petitioner. However, by the said order certain other information as sought for was denied. The petitioner preferred an appeal before the First Appellate Authority. The said appeal was partly allowed by an order dated 21.10.2013.

On response to the reminder letters to PIO by Mr. Jain, received the order from PIO in which he referred to an administrative order passed by the respondent no. 1; the extract of which as quoted in the impugned order reads as under:

“As there has been total no-compliance by the JDIT-II and DIT (Inv) of the provisions of the RTI Act, 2005 and notification by the Chairman, ITSC, New Delhi order no. C-26016/1/05/SC-RTI /1178 dated 29/31-07-2013, the orders of even numbers dated 26.09.2013 and 21.10.2013 passed by the JDIT and DIT (Inv) are ab initio void and are annulled. The RTI application will be disposed of in accordance with the provisions of the RTI Act, 2005 and notification by the Chairman, ITSC, New Delhi order no. C-26016/1/05/SC-RTI /1178 dated 29/31-07-2013 by the Administrative Officer, (CPIO), ITSC, Principal Bench, New Delhi at the earliest.”

The Judge, Hon. Vibhu Bakhru then wrote:

“I am unable to accept that such orders passed in exercise of statutory powers could be declared as a nullity or void by an administrative order without recourse to the hierarchy of authorities as specified in the statute – the RTI Act. In the event, the respondent no. 1 was of the view that the orders passed by PIO & FAA were without authority of law, the proper and the only course would be to file an appeal before the Central Information Commission (hereafter the ‘CIC’) or any other competent judicial forum. However, the said orders could not be nullified by an administrative order”.

“The learned counsel appearing for the respondents further submits that the present writ petition ought not to be entertained as the petitioner would have an alternative remedy to approach the CIC by way of a complaint u/s. 18(1) of the RTI Act”.

“Undoubtedly, the CIC would have the power to enquire into any complaint in respect of matters relating to access of information under the RTI Act. However, it is apparent, in the present, case that respondent no. 1 has acted without authority of law in nullifying orders passed under the RTI Act; thus, interference with the impugned order is warranted in these proceedings”.

The court then ruled:

“In view of the above, the impugned order is set aside. However, it will also be open for the respondents to approach the CIC to assail the orders dated 26.09.2013 and 21.10.2013 passed by PIO & FAA . Needless to mention that if an appeal is filed before the CIC by the public authority (the Income Tax Settlement Commission); the same would be considered in accordance with law”.

[R. K. Jain vs. Chairman, Income Tax Settlement Commission & Ors. in W.P. (C) 2939/2014, in HC of Delhi dated 05.12.2014]

Section 18 of the RTI Act :
The Complainant Raghubir Singh through his RTI application dated 25.09.2013 had sought for information on 2 Points, viz i) Which of the Government Secondary Schools in Delhi under the Directorate of Education, have introduced Punjabi teaching as a third language for the first time afresh in class VI in the academic year 2010- 2014; ii) the number of such students enrolled in Class VI, School-wise. The RTI application of the Complainant was returned to him stating that the Indian Postal Order (IPO) was not in order. Claiming non-furnishing of the information sought, the Complainant has approached the Commission u/s. 18 of RTI Act.

Both the parties made their submissions. The Complainant, Shri Raghubir Singh is a senior citizen of 75-years old and a law teacher who is associated with the making of the RTI Act before its enactment by the Government. The Commission heard him on the telephone as desired by him. He complained that the Directorate of Education had harassed him by raising meaningless technical issues. They returned the Indian Postal Order of Rs. 10/- saying that it is not properly drawn, when he claims to have rightly drawn in favour of the Accounts Officer. The Complainant objected to the returning of the Postal Order by PIO by speed post, for which he had to spend more than Rs. 25. He complained that the Directorate has not updated its web-site and appropriate against whom the Postal Order should be drawn or fee to be paid was not given.

The Commission then reproduced Full Bench Decision of CIC in S. C. Aggrawal vs. Ministry of Home Affairs dated 27.08.2013. Said decision is “a landmark”, very well written in the spirit of the RTI Act. I am posting it on BCAS website www.bcasoline.org and PCGT’s web www.rtiforyou.info . You may also go on CIC’s website to read it.

After the above, the Commission ruled:

The Commission directs the PIOs to check up whether every school has properly replied to the RTI application, if not fulfill the deficiencies. The Commission also directs them to contact the Complainant on the telephone number 011-23363510, given by him, and provide the complete information within 15 days from the date of receipt of this order. ? T he Commission directs the respondents, their PIOs and in charge officers to immediately update their official website as desired by the Complainant and compliance report be sent to the Commission, with a copy to the Complainant, within ten days from the date of receipt of this order.

The Commission directs all the PIOs of Directorate of Education, all other officers concerned, to accept the IPO without raising technical objections and follow all the directions issued in the above referred full bench order of CIC. They should not spend any amount instead of encashing the IPO for Rs. 10 as prescribed-fee.

The Commission directs all the PIOs of Public Authority to submit separate reports to this Commission explaining how many IPOs they have rejected so far and what are the grounds of rejection, from January 2014 to December 10, 2014. Within 15 days from the date of receipt of this order.

The Commission issues a show cause notice to PIO who refused and returned the IPO of appellant, why maximum penalty cannot be imposed against the spirit of RTI and harassing the applicant and for not updating the official website.

[Shri Raghubir Singh vs. Director of Education: CIC/ SA/C/2014/000038 dated 12.12.2014]

Notes:

I am happy to note that Mr. Raghubir Singh, senior citizen made this appeal to CIC. He was associated with the making of the RTI Act before its enactment. That put some more pressure on CIC to pass such favourable order. Same would improve the performance on matters related to RTI by Public Authorities. This judgement and the one referred to in this order need to be circulated widely.

Based on above decision, DOPT (www.persmin.gov.in ) has issued a circular dated 14.01.2015 on the subject “introduction of postal stamps as rti fee/cost – seeking comments from public regarding”. Comments were to be sent latest by 07.02.2015 through email only to Shri. R. K. Girdhar, under Secretary (RTI), at usrti-dopt@nic.in. this issue would reach the readers after that date. May be the date gets extended or DOPT may still accept late communication from you.

BCAJ Admin

Ethics and U

Procedure of Enquiry

Arjun (A) — Hey Shrikrishna! Hey Shrikrishna! Arey, where are you?

Shrikrishna (S) — Yes, yes, my dear. Why are you so panicky? I am here only.

A — Good Lord! Usually, you always arrive at the meeting place before me. Today, you were not to be seen.

S — I am omnipresent, present everywhere. I appear whenever a true devotee remembers me sincerely. Tell me, what is the matter?.

A — Y ou have so far explained to me many items of misconduct. I shared it with my friends. But today, my very close friend received a notice from the Institute. He was asking how to go about it.

S — T hen did you not refer the books?

A — I looked for the procedure in the CA Act as well as Regulations. But couldn’t get the detailed procedure.

S — Which Act you saw? That of 1949?

A — N o. I saw 2006 Act only. That much I know!

S — Good! Many of you may not have referred the CA Act and other books on Ethics ever since you guys passed your CA.

A — What you say is right. When we studied, it was Code of Conduct. Now, it is Code of Ethics. What really is the difference?

S — See, conduct is a generic term. Conduct may be good or bad; but ‘ethics’ denotes something positive. In the context of professionals, ‘ethics’ was thought to be a better word.

A — Y ou mean, the conduct may be ethical or unethical.

S — You are right. And remember; one is either ethical or not ethical. There is no in between stage! One cannot be contented that one is ‘by and large’ ethical!

A — Leave aside the philosophy. Tell me the procedure.

S — F or procedure, you must refer to Chartered Accountants (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007 published in the official Gazette of India dated February 28, 2007.

A — Baap re! Such a long name! Better call it misconduct rules?

S — Y es. But before going to these rules, you should know that there are basically four authorities stated in the Act of 2006.

A — What are those?

S — F irstly, the Director Discipline. Then the Board of Discipline and Disciplinary Committee. And thereafter, the Appellate Authority.

A — T ell me the functions of all these.

S — You see, if somebody files a complaint ………..

A — H ow does one do so?

S — I f somebody is not happy with a CA’s work or other behaviour, he has to fill up a very simple form – called Form I. It is to be accompanied by a fee of 2,500/- rupees.

A — But who usually complains?

S — A nybody! Complaint can come from a variety of people and agencies.

A — Such as?

S — R egulators – Tax authorities, ROC, MCA authorities, SEBI, RBI, Registrar of Co-operative societies, then bankers, financial institutions, clients, other members of the Institute.

A — Who else?

S — F urther, even your staff, articles, partners, relatives, friends ………

A — But should he be connected with your work?

S — Not necessarily. Even an altogether stranger can file a complaint. These are quasi –criminal proceedings. Locus standi of complainant is not relevant.

A — Surprising! So anybody under the sun can file a complaint against a member.

S — Y es. There are even professional blackmailers. Beware of them. A — O h God!

S — M oreover, the Council can take suo moto cognisance of any misconduct, based on the information received by it. Information can be received even from public domain and media. So, always be cautious.

A — Y ou were telling me about the functions of those authorities.

S — D isciplinary Directorate, basically receives the complaints; The Director Discipline (DD) acts as a Secretary to the Board of Discipline (BOD) as well as to the Disciplinary Committee (DC). People working in the Directorate are bureaucrats.

A — Oh! S — T hey receive the complaint and forward it to the Respondent. The Respondent is required to submit his explanation. That explanation is sent back to the complainant. He is asked to write his views on the explanation in the form of a rejoinder.

A — T ill that time, they don’t process anything?

S — N ot really. It is only after these three documents are received, that they scrutinise the case. Thereafter, the DD forms a ‘prima facie opinion’ as to whether the Respondent is guilty or not guilty.

A — T hen what happens? It is only a prima facie opinion. Not final. Right?

S — N ow, if it is an item of misconduct stated in the First Schedule, the BOD has jurisdiction. On the other hand, if it is a Second Schedule item, it is within the scope of DC.

A — A nd a mixed one?

S — T hen the DC’s jurisdiction. The prima facie opinion is placed before the BOD or DC as the case may be. BOD or DC may concur with and endorse the views of the DD; or they may disagree. If BOD/DC feel that there is no prima facie guilt, the fact is communicated to both the parties and file is closed.

A — And if they find him prima facie guilty, what next?

S — T hen they direct that a detailed enquiry be conducted. This is the point of time when the disciplinary proceedings are deemed to be commenced.

A — Bhagwan, excuse me. Let me first digest all that you told me just now. We will meet some other time as I wish to understand the whole process. Just now, I am in a little bit of a hurry.

S — Sure. But your friend has to send his explanation in 21 days.

A — See. We CAs never do anything well in time. Can he get extension of time?

S — I was sure, you would ask this question If there is a valid reason, you can get extra time; but not more than 30 additional days.

A — O h! Then I must hurry up. We will meet soon. Bye, Bye. ….. (To be continued)

Note:
This dialogue is based on the procedural rules contained in Chartered Accountants (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007 published in official Gazette of India dated 28th February, 2007 (‘Enquiry Rules’).

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Ethics and u

Shrikrishna (S) — Arjun, you are looking worried today.

Arjun (A) — Yes. This is September. Virtually a killing month for all CAs.

S — This is every year’s ‘crying’. Why don’t you plan well in advance?.

A — Very easy to say so. But in reality, every month there is some compliance or the other. And consequences of defaults are very harsh. You have to be on your toes constantly.

S — But the tax-audit date has been extended? Isn’t it?

A — T rue; but I am not sure whether the deadlines for filing returns will be extended. Then what is the use? I wonder why the Government does not clarify things well in time.

S — A ll CAs are sailing in the same boat. Granted that it worries you. But you are rather tensed up today. What is the matter?

A — A ctually, nowadays all the returns and other forms are to be submitted on-line. They are to be uploaded.

S — So what?

A — F or this, all the clients are keeping their digital signatures in our custody only.

S — Why?

A — Because all the returns are completed only in the last two days only. And when we are slogging, the clients are enjoying themselves abroad or at hill-stations.

S — Oh, I see. So you take all their tokens of digital signatures in your custody and use them! Is it not?

A — Exactly. And just now, my office informs me that two such signatures are misplaced. Not traceable!

S — O h! It is very risky. But why do you take such a risk? Is there any documentation for keeping it with you? Do you have any written instructions to use them? Otherwise, under the IT Act, it is an offence.

A — I didn’t come across any such provision in Income Tax Act. Is it in DTC?

S — N o Arjun. IT means Information Technology Act, 2000.

A — I have never read it.

S — Actually, using another person’s digital signature in his absence and without his specific consent is a serious offence. It is like a forgery. See section 42 of Information Technology Act. It says that the digital signature can be used only by the subscriber or person authorised by him to affix it.

A — O h, my God! Then what should we do?

S — E very time, you should take a letter from the client that he is handing over the token or the CD of digital signature to you. And there should be a specific instruction authorising you to use it. And when you return it, take his acknowledgement. It may be misused or wrongly used and the blame may come on you.

A — But now what should I do? Their returns are to be filed now. Fortunately, there is no proof that they have handed over to my office.

S — I t is embarrassing. Actually, you should have not only proper documentation but all signs should be kept under lock and key; under the control of a very responsible person.

A — What are the consequences under that Information Technology Act?

S — Penalty is in the form of compensation upto Rs. 25,000 to be paid to the affected person.

A — Baap Re!

S — N ot only that. But it amounts to negligence or lack of due diligence in discharging your duties.

A — I t is a double jeopardy.

S — Y es. And the tension that the misplaced digital signature may be misused is all the more disturbing.

A — I wonder how I will tell those clients that their digital signatures are not traceable! It is a question of my reputation.

S — That’s right. In Bhagavad Geeta also I told you the same thing. Loss of reputation is more harmful than even death. Now it is high time that you focus on systems in your office.

A — It is an eye-opener. Small lapses lead to heavy damage. Usually after our tax audits, we relax, and wake up only next year. But this year, I should change this. I must focus on housekeeping and get better organised. I am convinced that this is a serious professional misconduct and if I were in the client’s position, I would be very much upset.

S — Good. This is a lesson which should change your functioning. All the best to you.

Note: The above dialogue between Shri Krishna and Arjun is based on Clause (7) of Part I of Second Schedule which is reproduced below. This dialogue aims at bringing out those small things that we take for granted. Such small things and lack of documentation can lead to big problems in future. It thus becomes very important to inculcate a habit of documentation not only within us but also amongst our office staff.

Clause (7) of Part I of Second Schedule states that a CA in practice shall be deemed to be guilty of professional misconduct, if he –

“does not exercise due diligence, or is grossly negligent in the conduct of his professional duties”. Be very cautious and see to it that nothing is done in ‘good faith’ without proper documentation/safeguards.

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PART C: Information on & Around

Govt. to challenge SCIC order against CP Rakesh Maria :
The state government has decided to challenge Chief Information Commissioner Ratnakar Gaikwad’s order to institute a judicial probe against Police Commissioner Rakesh Maria for providing misleading information to the widow of a police officer gunned down by Pakistani terrorists in the November, 2008 attacks.

The CIC’s order against Maria had accepted slain officer Ashok Kamte’s wife, Vinita Kamte’s allegations, that there were discrepancies between two copies of call logs of wireless conversation between the control room and Kamte’s van, in which he was shot down by terrorists along with the then Maharashtra ATS chief Hemant Karkare and encounter specialist Vijay Salaskar.

She had charged that there was a delay in sending help to her injured husband and his colleagues and that the call logs were tampered with to hide this. She had also alleged that information about who directed her husband and his colleagues to follow the terrorists into the Cama Hospital lane, where they were ambushed, was denied to her.

RTI activist Anil Galgali said the CIC had exceeded its brief in ordering the judicial inquiry.”Gaikwad has been appointed by the state government to give information and thereby give justice. But he has no powers to order an inquiry. The job of the State Information Commission is to provide information. They have failed in that,” he said.

No plan to strip Saif of Padma Shri:
The home ministry denied any move to strip actor Saif Ali Khan of his Padma Shri award, conferred on him in 2010, in the wake of a Mumbai court framing charges against him for assaulting an NRI businessman at a city hotel.

“The home ministry’s reply to the RTI filed by SC Agarwal to know the status of his own complaint, stating that the matter is under examination, is a routine response to any query that relates to a pending complaint. The home ministry has to call for necessary records from the state government or the court to validate the charges made in the complaint… this takes time and the merits of the complaints are finally decided on the basis to be under examination,” a senior home ministry official said.

Above was in reply to SC Agarwals RTI application to the home ministry

Gifts to PM Manmohan Singh:
From a fancy Bose music system to a glittering Piaget ladies wrist watch, former PM Manmohan Singh took home some 101 unique pieces of gift items that were given to him by heads of states whose countries he visited in his official capacity, an RTI query has revealed. But the government has refused to share details of Singh’s pay and perks, his parting comments or names of countries that gave the presents. Singh is permitted to retain gifts under the Foreign Contribution (Acceptance or Retention of Gifts or Presentations) Regulations, 1978 and its Rules, 2012.

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PART B: RTI Act, 2005

RTI & Political Parties: On 3rd June 2013 full bench of CIC passed a detailed Order (53 pages) holding that 6 political parties:
1) Indian National Congress/ All IndiaCongress Committee (AICC)
2) Bhartiya Janata Party (BJP)
3) Communist Party of India (Marxist) (CPM)
4) Communist Party of India (CPI)
5) Nationalist Congress Party (NCP) and
6) Bahujan Samaj Party (BSP)

are covered as “public authority” under the RTI Act (Covered in my article of July 2013). Last para of the order reads as under:

93. The Presidents, General/Secretaries of these Political Parties are hereby directed to designate CPIOs and the Appellate Authorities as their headquarters in 06 weeks time. The CPIOs so appointed will respond to the RTI applications extracted in this order in 4 weeks time. Besides, the Presidents, General/Secretaries of the above mentioned Political Parties are also directed to comply with the provision of section 4(1) (b) of the RTI Act by the way of making voluntary disclosures on the subjects mentioned in the said clause.

It appears that none of the said 6 parties acted on the above direction.

The Commission had issued notices on 7th February and 25th March, to these parties seeking their detailed comments on the complaint by Agarwal that they had not complied with the orders of the CIC. The notice had been sent to the chiefs of Congress, BJP, BSP and NCP and to the general secretaries of CPI and CPI-M.

In what could spell trouble for Congress president Sonia Gandhi, the Delhi HC in August, 2014 issued direction on a petition accusing her failure to abide by a Central Information Commission directive.

HC directed the CIC to decide in six months a complaint against Gandhi that she hasn’t implemented the transparency panel’s direction making political parties answerable under the RTI Act. The court acted on a petition filed by RTI activist R. K. Jain who had earlier approached the Commission with his complaint against Gandhi saying that party had returned his RTI application without furnishing details that were asked.

Now in the month of September 2014, The Central Information Commission (CIC) has issued showcause notices to BJP President Amit Shah and Congress chief Sonia Gandhi, along with the heads of four other political parties, asking why an inquiry should not be instituted for non-compliance of its order to implement the RTI Act.

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PART A: Decision Of CIC & High Court

In this article, I cover a few decisions of CIC and one of H.C, basically to inform briefly the views of CIC/H.C on the subjects covered.

Section 2(f) – Information:
The Hon’ble Delhi High Court in WP(C) No. 7265/2007 dated 25th September 2009 has observed as follows:

“Information as defined in section 2(f) means details or material available with the public authority. The later portion of section 2(f) expands the definition to include details or material which can be accessed under any other law from others. The two definitions have to be read harmoniously. The term held by or under the control of any public authority in section 2(j) of the RTI Act has to be read in a manner that it effectuates and is in harmony with the definition of the term information in section 2(f) of the RTI Act. It is well settled that an interpretation which renders another provision or part thereof redundant or superfluous should be avoided. Information as defined in section 2 (f) of the RTI Act includes in its ambit, the information relating to any private body which can be accessed by any public authority under any law for the time being in force. Therefore, if a public authority has a right and is entitled to access information from a private body, under any other law, it is information as defined in section 2(f) of the RTI Act.”

[WP (C) No. 7265/2007 dated 25th September 2009]

Section 2(f) – Information:
After hearing both the parties and on perusal of documents, the Commission observes that as deserving as the appellant might be for the post of Social Worker, he cannot ask interrogative questions from a public authority under the Act. The public authority is not bound to answer queries like whether he would be considered for the post since he has crossed the age limit or whether he will be granted any age relaxation and whether his merit will be considered or not. Interrogative queries viz. “How/Why/ When” do not come under the ambit of the RTI Act.

In Dr. Celsa Pinto vs. Goa State Information Commission (W.P.No. 419 of 2007), the High Court of Bombay, in its order dated 03.04.2008, held:

“The definition (of information) cannot include within its fold answers to the question “why” which would be the same thing as asking the reason for a justification for a particular thing. The Public Information Authorities cannot expect to communicate to the citizen the reason why a certain things was done or not done in the sense of a justification because the citizen makes a requisition about information. Justifications are matter within the domain of adjudicating authorities and cannot properly be classified as information.”

[G. Senthil Kumar vs. Dr. Raman, DoH, Directorate of Health & Family Welfare Services, Puducherry – File No. CIC/SS/A/2013/000838-YA: Decided: 28.05.2014]

Section 6(1) &7(1) of the RTI Act:
This matter pertains to an RTI application dated 03-05- 2012 filed by the Appellant, seeking information on twelve points. The CPIO responded on 04-06-2012 and asked the Appellant to deposit photocopying charges, amounting to Rs. 48, to obtain the information running into 24 pages. The CPIO also asked the Appellant to deposit postal charges of Rs. 25.

We note that no further action pending on this RTI application on the part of the Respondents. We also note that the CPIO erred in asking for postal charge of Rs. 25. Accordingly, we direct the CPIO that in case the Appellant deposits the amount of Rs. 48, the information running into 24 pages should be provided to him, within 15 days of deposit of the above amount by him.

[Navneet Singhania vs. CPIO, Oriental Bank of Commerce, Regional Office: Ranjeet Avenue, Amritsar – File No. CIC/VS/A/2012/000711/SH: Decided 05-05-2014]

Section 7(1) of the RTI Act:
The Appellant stated that the FAA had not given him a personal hearing despite his request to that effect. In this context, we advice the FAA that in the interest of natural justice, he should give a personal hearing, in case requested by a person filing an appeal to him on an RTI matter.

The Appellant has drawn our attention to the fact that the CPIO has not been mentioning his name in his replies to RTI applications. In this context, we inform the Respondents the decision of the Commission that the CPIOs and FAAs should mention their name, address, telephone and fax number in all correspondence on RTI matters. The CPIO is directed to ensure compliance with the above decision of the Commission.

[Chayan Ghosh Chowdhury vs. CPIO, Union Bank of India, Lucknow – File No. CIC/VS/A/2013/001508/SH: decided on 23-05-2014]

If readers appreciate this kind of my write ups, I shall continue whenever any landmark decision is not available.

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PART C: Information on & Around

PM’s wife files an RTI application:
Jashodaben, wife of Prime Minister Narendra Modi, kicked up a storm by filing an RTI application seeking information about her security protocol and on whose order she was being provided armed guards.

She filed the application before the Mehsana Superintendent of Police, complaining that her guards have refused to share with her the official order directing them to protect her.

Her application seeks information about “all protocol and facilities, especially security details that is the right of a prime minister’s wife”.

Apart from the fact that the guards do not carry any official orders with them, there are two other points which the RTI application reveals that Jashodaben is miffed about:

While she travels by public transport, her guards tail her in air-conditioned cars.

The guards demand to be treated like family’s guests. Jashodaben has also sought to know what other privileges she is entitled to as the wife of the Prime Minister of India. “I am the wife of the Prime Minister of India and have been extended security as per protocol. What other service can be extended to me under the protocol? Please give me detailed description of the protocol,” her application reads.

Information on Netaji Subhash Chandra Bose:
The Prime Minister’s Office in a recent RTI reply accepted that there were 41 files related to Bose, of which two had been declassified, but refused to disclose them, taking a position similar to that of the erstwhile Congress-led UPA government.

“Disclosure of documents contained in these files would prejudicially affect relations with foreign countries. As such, these files are exempted from disclosure u/s. 8(1) (a) read with Section 8(2) of the Right to Information Act,” the PMO said in this reply to RTI activist Subhash Agrawal.

Vasectomy & Tubectomy:
Tubectomy is a permanent birth control surgical procedure. Fallopian tubes are blocked to prevent fertilised eggs from reaching the uterus and embedding there; it also prevents sperms from reaching the egg.

Vasectomy is a minimal invasive procedure from permanent birth control. The two tubes that carry sperms from testicles to urinary tract are surgically severed and sealed. Post surgery, sperms cannot pass through to fertilise a woman’s egg.

The RTI data accessed by activist Chetan Kothari bares the trend of teenage girls going for Tubectomy till five years ago. In 2002-03, 119 girls aged 15 to 19 underwent the procedure, with the instances dipping to 10 or 15 a year. In 2007, the minimum age for Tubectomy was raised to 22 years. A near double incentive for those opting for vasectomy has also failed to lure many men. The number temporarily rose to 4,661 in 2008-09 and 3,927 between 2008 and 2010, only to dip drives dwindled. Since then, it has been a steady downfall with Tubectomy again dominating family planning centers.

Black Money:
The government has denied disclosure of information under RTI on how many requests it has made to other countries with which India has Double Tax Avoidance Agreement (DTAA ) or a Tax Information Exchange Agreement, citing national interest and confidentiality.

CHRI’s Venkatesh Nayak had sought information on the subject from 2011 to October 2014.

However, in response to RTIs, the finance ministry said that it could not disclose the information citing section 8(1) (a) and 8(1) (f) of the Act.

The sections forbid disclosure if the information is against national interest or if the information has been given b a foreign government on condition of confidentiality.

Pointing out this anomaly, Nayak said the bar in the confidentiality clause in DTAAs was only about person-specific information and not for numbers, adding that the government had already made this information public in an international forum.
But when a citizen asks for the number of requests it has made to other countries and shows what is the public interest in disclosing such information, they invoke section 8(1)(a) and (f). So just like in the Ram Jethmalani case, the government thinks it is more loyally bound to foreign countries under its DTAA s and not to even the court or its own citizens in terms of transparency. These DTAA s are not ratified or even placed before Parliament,” Nayak said. Recently the SC ordered the government to hand over the names of accountholders who have stashed black money abroad.

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Company Law

The Central Government has on 27th February, 2014 notified the Companies (Corporate Social Responsibility Policy) Rules 2014 which shall come into force on 1st April, 2014. Corporate Social Responsibility Clause is applicable to every company having net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more or a net profit of Rs. 5 crore or more.

The Ministry of Corporate Affairs has amended Schedule VII to the Companies Act. The Schedule contains activities which may be included by Companies in their Corporate Social Responsibility Policies. In Schedule VII for items (i) to (x) and entries relating thereto, the following items and entries shall be substituted:

i. Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water;

ii. Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects;

iii. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
iv. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air & water;

v. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts;

vi. Measures for the benefit of armed forces veterans, war widows and their dependants;

vii. Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports

viii. Contribution to the Prime Minister’s National relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, Other Backward Classes and minorities and Women;

ix. Contributions or funds provided to technology incubators located with academic institutions which are approved by the Central Government;

x. Rural development projects.

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PART C: Information on & Around

Professional Information seekers:

In
a bid to ward off the alleged menace of “professional RTI
complainants”, four assistant commissioners of the BMC have adopted a
strategy. These officers, posted guards and got CCTV cameras installed
at various ward offices to check their entry into the premises.

These professional complainants have lodged their grievances on building violations at least 200 times in more than four wards.

Assistant
commissioners termed this as a moneymaking venture. “This has become a
business for them (professionals). They lodge complaints and extort
money from people. They try to create an atmosphere of fear by either
threatening the civic officials or the people.”

An advocate,
named and shamed in a list of “professional RTI complainant
(extortionist)”, prepared by the Brihanmumbai Municipal Corporation, has
been vindicated after the civic body apologised, saying that his name
had been wrongly included in the list.

“It is humiliating for me
to be branded as a professional complainant. I complained about this to
the BMC chief and the state’s chief information commissioner,” said
advocate, Pankaj Pande.

The BMC then gave a clean chit to Pande stating that his name was included in the list by mistake.

RTI Activists not dead:

AAP
Chief Arvind Kejriwal’s obituary reference to four RTI activists at a
large public gathering in Ahmadabad left his supporters red-faced as
three of them are alive.

He said the four were killed for asking
awkward questions and hailed them as martyrs for the cause of society.
Kejriwal got the first victim’s name right, Amit Jethava, who was killed
outside the high court, the other three- Bhagu Dewani (Porbandar),
Minakshi Goswami (south Gujarat) and M Bhambhani (Diu)-in fact survived
attacks provoked by their activism.

Sanjay Dutt’s parole:

The
Yerwada jail authorities have refused to disclose details of Sanjay
Dutt’s parole to an RTI applicant, saying the actor had requested that
the reasons supplied in his application for parole be kept private.

Oshiwara
resident, Ramesh Patil, had made an RTI application to the jail in
October last year, asking to know the specific illness for which Dutt
was granted a 14-day furlough in September, which was extended by
another two weeks.

The jail’s reply to Patil also said that Dutt
was a “third person” and that Patil had nothing to do with the actor,
and had no locus standi to ask for details of the actor’s parole.

This
forced Patil to move the Appellate Officer for RTI at the jail;
expressing his objection to the unsatisfactory reply he was given.

Following
this, Patil was called for an RTI hearing on 11th February at Yerwada
jail. At the hearing, the authorities merely repeated what they had
communicated to him earlier. According to Patil, he was also shown a
letter allegedly written by Dutt requesting that his personal details be
kept private from unknown persons.

“Dutt is not a third person
but a convicted criminal undergoing punishment in jail; how can the jail
authorities say he is a ‘third person’? On 21st March, when Dutt is due
to return to Yerawada Central Jail, he would have spent 118 of his 305
days of imprisonment-almost 40% of the time he is supposed to serve
either on furlough for the treatment of his leg pain, or on parole
sought citing his wife Manyata’s illness. This clearly means any convict
can now write a letter and can escape from imprisonment, and if this is
the law, then I think it needs to be amended immediately,” Patil said.

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PART B: RTI Act , 2005

RTI & CPA:

A City consumer forum has ruled that Complaints on RTI cannot be entertained under the Consumer Protection Act.

RTI & Political Parfies:

Political Parties, including the Congress and BJP, have ignored a four-week deadline set by the Central Information Commission (CIC) and could be liable for Rs. 25,000 fine or even de-registration.

The Commission had issued a showcause notice on 7th February to six national political parties – Congress, BJP, NCP, BSP, CPI and CPM – seeking an explanation on why they had not complied with its 3rd June order which mandated that the six parties came under the Information Act and must appoint public information officers to respond to RTI queries.

A full bench of the Commission had declared that the six political parties were substantially funded indirectly by the Central Government and they had the character of public authority under the RTI Act as they performed public functions.

The Commission had given them six weeks to comply with the RTI Act but so far none of the parties has followed the direction, prompting RTI activist Subhash Agrawal, who was one of the petitioners in the case, to file three non-compliance complaints before it.

Agrawal said the Commission should hold an early hearing and recommend stringent action, including deregistration of the parties, by the Election Commission.

The CIC can also fine the parties up to Rs. 25,000. The CIC inaction has been preceded by the government bringing a bill to exclude political parties from the ambit of RTI Act. Though the bill was tabled in Lok Sabha and received support from a House panel, it was finally not taken up.

The stringent opposition to “weakening” the Act and the message that political parties were against transparency led to the bill being put on hold. However, the CIC has dragged its feet in taking any action against parties clearly in violation its own order. (Courtesy: Times of India dated 10-03-2014)

Congress Manifesto:

Congress will release its election manifesto on 21st March; a document that the party believes will win it votes in the tough battle. Sonia Gandhi is scheduled to release the manifesto in the company of her son, Rahul.

One key issue is of reservation in the private sector, a poll promise from Congress in UPA-2. Congress also wants to hammer home its rights based approach like RTI, NREGA, etc., by promising those on health, pension and sanitation.

Maharashtra Information Commission:

With the appointment of new IC, Maharashtra now has 7 IC as under:

Maharashtra Information Commissioners

1. Ratnakar Gaikwad – Chief Commissioner, Mumbai
2. Ravindra Jadhav – Amravati
3. D. B. Deshpande – Aurangabad
4. Ms. T. F. Thekekara – Konkan
5. Ajitkumar Jain – Greater Mumbai
6. P. W. Patil – Nasik
7. M. H. Shah – Pune

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PART B: RTI Act, 2005

PEOPLES ’ MONITORING OF THE RTI REGIME IN INDIA 2011-13 RTI Assessment and Advisory Group (RAAG) Samya Center for Equity studies (SAMYA ) have published in October 2014 the work titled “PEOPLES’ MONITORING OF THE RTI REGIME IN INDIA: 2011-13.

Briefly looking into the contents of the above work, running into 177 pages of 11 chapters & 10 annexures, as noted in BCAJ December issue, I plan to serialise it and cover 1 & 2 chapters in each issue. In the last issue, chapter 1 was summarised. Hereunder is a summary of chapter 2:

METHODOLOGY:
Data Collection:

• Primary data collection through individual inter views:
A s a part of the Peoples’ RTI assessment 2011- 13, a total of 2,279 persons were individually interviewed across four states and the National Capital Region of Delhi.

• Primary data collection through street corner interviews:
2,000 people were individually interviewed in the capitals of the four sample states, and in Delhi.

• Primary data collection through focus group discussion:
In addition, a total of 95 focus group discussions (FSGs) were also organised.

• Primary data collection through focus public hearings:
A s part of the nationwide assessment on the implementation of the RTI Act, public hearings (PHs) were organized in the four sample states and in Delhi to documents peoples’ experience of using the RTI Act. The PHs were organised in collaboration with the state partners.

• Primary data collection through inspections:
Across the country, 69 public authorities and offices were inspected as a part of this assessment.

• Primary data collection through filing RTI applications:
Specifically, 462 RTI applications were filed and followed up with PIOs to get basic information from various public authorities across the country.

Data Analysis:

• Analysis of replies received to RTI applications:

Copies of 2,743 RTI applications were received from four states, the union territory of Delhi, and the Central Government, in response to the earlier mentioned RTI application filed with various public authorities.

• Analysis of published material:
Relevant papers, articles, studies and assessments on India and about other countries were identified and assessed for possible inputs into the design of methodology and process for this assessment. These have also been used to develop national and international contexts in which the findings of this assessment can be located.

• Analysis of the official websites of all ICs:
An analysis of the official websites of all ICs was undertaken with a view to ascertain whether the websites provide relevant and updated information on the functioning of the ICs, including number of commissioners in each commission, orders passed by the commissions, and their annual reports.

• Analysis of the official websites of PAs: T o check compliance with provisions of proactive disclosure, the websites of 30 public authorities were analysed.

Specially, the Peoples’ RTI Assessment 2011-13 sought to survey and otherwise access information from the following key RTI stakeholders:
Citizens
Applicants and appellants
Public Information Officers
Public Authorities

Scope and Sampling:
• States: T he assessment covered four states across the country, and the National Capital Region of Delhi. In each state, the state capital and two districts were surveyed.

• Public Authority:
A total of 69 public authorities (PAs) were surveyed across the country, by visiting them. Of these, 10 were from the Central Government, and four each from each of three states and one UT, and three from Bihar (total 19 – as permission to survey Bihar HQ police was not granted). In addition, in four states and one UT, four PAs were surveyed in each of the two sample district. This made it a total 40 PAs in ten district headquarters.

• Applicants:
A total of 192 applicants were interviewed as a part of this assessment. Of these, 12 were from rural areas and the remaining 180 were from urban areas. The rural applicants were identified by the rural field teams during their visits to the sample villages especially through the focus group discussions, and all the applicants identified, available and willing to talk to the team, were interviewed, irrespective of which PA they had applied to for information.

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BCAJ Admin

PART A: Decision Of CIC & High Court

Right of appeal to whom?
On 5th December, 2014, the Delhi High Court passed an order in a writ petition: R.K. Jain vs. Chairman, Income Tax Settlement Commission (ITSC) & others. The issue was whether ITSC, a Public Authority, has right to appeal to Information Commission.

Delhi High Court held as under:

The impugned order is set aside. However, it will also be open for the respondent (ITSC) to approach the CIC to assail the orders dated 26-09-2013 and 21-10-2013 passed by respondent no. 2(PIO) and respondent no. 4 (FAA ) respectively. Needless to mention that if an appeal is filed before the CIC by the public authority (the Income Tax Settlement Commission), the same would be considered is accordance with law.

[R. K. Jain vs. Chairman, Income Tax Settlement Commission & ors. in W.P. (C) 2939/2014, Delhi High Court Single Judge]

My Note: RTI activists are divided on the correctness of this order. One view is that Public Authority has no right to appeal to CIC [just like IT department (Assessing (AO) or CIT) has no right to appeal against the order of AO].

This view is held by Venkatesh Nayak, Programme coordinator of Commonwealth Human Rights Commission. His detailed analysis is as given below:

An Analysis of the Delhi high court order

1. Basic Facts:
1.1 In 2013, Mr. R. K. Jain, the Petitioner, sought some information under the Right to Information Act, 2005 (RTI Act) from the Income Tax Settlement Commission (Respondent #1) established under the Government of India. The information was in respect of disposal and pendency of matters before that public authority.

1.2 In September 2013, the Central Public Information Officer (CPIO) and Joint Commissioner of Income Tax passed an order furnishing the Petitioner, some of the requested information while denying other categories of information.

1.3 Aggrieved by the PIO’s refusal to furnish all the information sought in the RTI Application, the Petitioner submitted a first appeal under the RTI Act. The First Appellate Authority (FAA ) issued an order in October, 2013 partially allowing disclosure of some information which had been denied by the CPIO.

1.4 The Petitioner sent a letter to the Public Authority, two days later, demanding compliance with the FAA ’s order. Later in March 2014, he sent another reminder demanding that the information be disclosed as per the FAA ’s order. Less than a week later, the Petitioner received a communication from an officer of the public authority informing him that Respondent #1 had passed an order setting aside the order of the FAA and the CPIO on grounds of non compliance. The Petitioner challenged this action of Respondent #1 of passing an administrative order annulling the orders of the CPIO and the FAA , before the Delhi High Court through the instant Writ Petition.

2. J udgement of the Hon’ble Delhi High Court with Reasons:

2.1 T he Hon’ble Delhi High Court ruled that orders such as those passed by the CPIO and the FAA in exercise of their statutory powers cannot be declared as a nullity or void through an administrative order. The Court cited a couple of judgements to hold that even if an order is a nullity, it would continue to be effective unless set aside by a competent body or Court. It held that the Respondent was not authorised under the RTI Act to interfere with the orders passed under the RTI Act. The order issued by Respondent #1 was set aside.

2.2 The Court however left it open to Respondent #1 to approach the Central Information Commission (CIC) to assail the orders of the CPIO and the FAA . The Court held as follows:

“13. … Needless to mention that is an appeal is filed before the CIC by the public authority (the Income Tax Settlement Commission), the same would be considered in accordance with law.”

3. A Critical Analysis of the Decision and the Reasoning:

3.1 The Court’s decision to set aside the administrative order issued by the Respondent holding the orders of the CPIO and the FAA a nullity on account of non compliance is to be welcomed. Henceforth, any officer of a public authority having no statutory authority under the RTI Act will not be able to interfere with the process furnishing information under the RTI Act after a matter has been decided by the CPIO or the FAA .

3.2 H owever, it is respectfully submitted that the Court’s direction to the Respondent to approach the CIC amounts to creating a right of appeal which is contrary to the scheme of appeals provided for in Section 19(1) of the RTI Act. Before putting forth our detailed reasons for arriving at this opinion, it is necessary to point to a similar order of the Hon’ble Andhra Pradesh High Court (APHC) which seeks to create a right of appeal for the public authority under the RTI Act.

3.3 In the matter of Public Information Officer, Under RTI Act, Syndicate Bank, Regional Office, Mugulrajapuram, Vijayawada vs. Central Information Commission under Right to Information Act, New Delhi Etc., [2012 (2) ALT 348], the APHC ruled as follows:

“7. … in the opinion of this Court, the Public Information Officer cannot dawn [sic] the role of the Officer of the Public Authority in relation to orders passed by the appellate authorities against orders passed by him. If his order is reversed by the appellate authority, he cannot be treated as aggrieved party giving rise to a cause of action for him to question such Orders. It is only either the public authority, against whom the directions are given, or any other party, who feels application at hand. Aggrieved by such directions, that can question the orders passed by the appellate authorities.” [emphasis supplied]

3.4 The effect of the two judgments cited above is that a right of appeal is created for a public authority to challenge a decision of its own PIO or FAA before the CIC (or by logical extension before any other State Information Commission that may have jurisdiction in a given case).

3.5 In our humble opinion, Parliament had never intended for the appeals scheme to be used by other officers of a public authority to challenge the orders of their own PIO and FAA. Our detailed reasons are given below:

(I) Reason I, in our opinion, the two stage appeal process is created u/s. 19 of the RTI Act for the use of an aggrieved RTI applicant or any person who may be treated as a third party to an RTI application/ appeal. The relevant provisions are reproduced below:

“19. (1) Any person who, does not receive a decision within the time specified in sub section (1) or clause (a) of sub-section (3) of section 7, or is aggrieved by a decision of the Central Public Information Officer or State Public Information Officer, as the case may be, may within thirty days from the expiry of such period or from the receipt of such a decision prefer an appeal to such officer who is senior in rank to the Central Public Information Officer or State Public Information Officer as the case may be, in each public authority: …

(2) Where an appeal is preferred against an order made by a Central Public Information Officer or a State Public Information Officer, as the case may be, u/s. 11 to disclose third party information, the appeal by the concerned third party shall be made within thirty days from the date of the order.

(3) A second appeal against the decision u/s/s. (1) shall lie within ninety days from the date on which the decision should have been made or was actually received, with the Central Information Commission or the State Information Commission: …”

The scheme of section 19 is crystal clear leaving no room for ambiguity. Only two categories of persons may challenge the decision of a PIO a) an aggrieved RTI applicant and b) a third party who is aggrieved by a PIO’s decision to disclose information pertaining to he/she/ it which is treated as being confidential by that third party. the PIO is statutorily empowered u/s. 5(4) read with section 5(5) of the RTI act to seek the assistance of any other officer of the public authority to perform his/ her appointed functions under the act. So, any reservations or reasons that other officers of that public authority might have against disclosure of the information sought by an RTI applicant must be placed before the Pio to arrive at a reasoned decision. Such reservations and reasons against disclosure are not binding on the Pio who is required to make a decision by applying his/her own mind to the RTI application at hand.

Further, section 19(1) only permits an aggrieved RTI applicant to submit a first appeal to an FAA on two grounds only, i.e., if no decision has been received from the Pio or if he is aggrieved by a decision of the Pio, namely, rejection of the request or partial disclosure. a third party to an RTI application may also submit a first appeal to the FAA u/s. 19(2). So, in our opinion, the scheme of the first appeal process does not contemplate any other right of appeal vesting in any other person including any other officer of the public authority.

Further, the opening line of section 19(3) is crystal clear it refers to a second appeal and not a fresh appeal against a decision made u/s. 19(1). in other words, an appeal that may be submitted against the faa’s order by the aggrieved RTI applicant or an aggrieved third party. It is not open for any other person including any officer of the public authority such as the concerned Pio to approach the concerned information Commission challenging the order of the faa. So in our opinion, a public authority does not have any right of appeal at the first or second appeal stage u/s.19 of the rti act.

(ii) Reason ii, the PIO is a serving officer of a public authority designated to perform the statutory duties of receiving an rti application and making a decision whether or not to disclose any or all of the requested information. Next, the FAA is an officer senior in rank designated by the said public authority to examine the correctness and validity of an order passed by the Pio. in effect, both officers are acting on behalf of the concerned public authority, even though they may be performing administrative or quasi judicial functions while making a decision on an rti application or appeal. in a complaint or second appeal submitted to the relevant information Commission, the PIO and the FAA appear as representatives of the public authority which appointed them. the RTI rules, 2012 notified by the Government of India do permit any other officer to represent the public authority in a second appeal proceeding along with or in lieu of the PIO or the FAA. 4 however nothing in the RTI act or the RTI rules, 2012 recognize the right of any other officer or the public authority itself to challenge a decision of its own Pio or faa through the appeals process. The only course of action available to a public authority to demand the setting aside of an order of the CIC is the route of judicial review by invoking the writ jurisdiction of the concerned high Court under article 226 of the Constitution. to hold that the public authority or any of its officers may challenge an order of their own Pio or faa amounts to acknowledging that the statutory authorities under the RTI act were not provided the required assistance at the application/first appeal stage for the Pio or the faa as the case may be to arrive at a reasoned decision. The failure of the public authority cannot be used as a ground for creating a right of appeal which was not originally contemplated by Parliament when it enacted the RTI Act.

(iii) Reason iii, there is authority to support the above opinion expressed by us. in the matter of Chief Information Commr. And Another vs. State of Manipur and Another [(2011) 15 SCC 1], the hon’ble Supreme Court of india explained the scheme of appeals provided for in the RTI Act in the following words:

“35. Section 19 is an appellate procedure and a person who is aggrieved by refusal in receiving the information which he has sought for can only seek redress in the manner provided in the statute, namely, by following the procedure under Section 19. This Court is, therefore, of the opinion that Section 7 read with Section 19 provides a complete statutory mechanism to a person who is aggrieved by refusal to receive information. …

42. Apart from that the procedure under Section 19 of the Act, when compared to Section 18, has several safeguards for protecting the interest of the person who has been refused the information he has sought. Section 19(5), in this connection, may be referred to. Section 19(5) puts the onus to justify the denial of request on the information officer. Therefore, it is for the officer to justify the denial. …

43. There is another aspect also. The procedure under Section 19 is an appellate procedure. a right of appeal is always a creature of statute. A right of appeal is a right of entering a superior forum for invoking its aid and interposition to correct errors of the inferior forum. It is a very valuable right. Therefore, when the statute confers such a right of appeal that must be exercised by a person who is aggrieved by reason of refusal to be furnished with the information.” [emphasis supplied]

Nowhere in its detailed explanation of the scheme of section 19 does the Hon’ble Supreme Court recognise the right of a public authority to any of its officers to challenge a decision of their PIO or FAA made under the RTI Act.

(iv) Reason iv, the manner of recognition of the right of a public authority or any of its officers to appeal against a decision of the designated PIO or FAA amounts to recognising a right that the public authority or its public officers may have in the information sought by the RTI applicant (except where the information is personal information of the concerned officers whose disclosure may cause unwarranted invasion of their privacy). In the matter of Union of India vs. Namit Sharma [(2013) 10 SCC 389] the Supreme Court explained the nature of an RTI-related dispute in the following words:

“21. In the judgment under review, this Court after ex- amining the provisions of the act, however, has held that there is a lis to be decided by the information Commission inasmuch as the request of a party seeking information is to be allowed or to be disallowed and hence requires a judicial mind. But we find that the lis that the information Commission has to decide was only with regard to the information in possession of a public authority and the information Commission was required to decide whether the information could be given to the person asking for it or should be with held in public interest or any other interest protected by the provisions of the Act. The information Commission, therefore, while deciding this lis does not really perform a judicial function, but performs an administrative function in accordance with the provisions of the act.” [emphasis supplied]

In deciding an appeal under the RTI act neither the FAA nor the information Commission is making a determination about the right that a public authority orany of its officers may have (except personal information of an officer whose disclosure may cause unwarranted invasion of his/ her privacy) in the information sought. A public authority is only a custodian of the information that it holds in material form which is an extension of its legally appointed role as the custodian of the public interest. All that the public authority is permitted to do is to put forth arguments regarding the public interest that must be protected by keeping the information confidential. This too must be done in the course of the first appeal or second appeal submitted by an aggrieved RTI applicant. The RTI act does not recognise any special right of either the public authority or any of its officers with regard to the information under dispute (except when it is personal information whose disclosure will cause unwarranted invasion of the privacy of an individual) which can be protected by invoking the appeals procedure provided u/s. 19.

4. Conclusion: in light of the foregoing critical analysis it is respectfully submitted that there is a strong case for challenging through appropriate proceedings, the directive of the Delhi High Court as well as the Andhra Pradesh High Court regarding the right of a public authority or any of its officers to invoke the appeals process against an order of disclosure of information made by their PIO or FAA under the RTI Act.

Against the said analysis and view, many other RTI activists hold the view that Public authority has a right to appeal to the Central information Commission.

Let us see when ITSC appeals to CIC, what view CIC holds or when R.K. Jain files appeal against the above delhi high Court order what the Supreme Court rules.

BCAJ Admin

Ethics and u

Shrikrishna (S) — Arjun, you are looking relaxed and seem to be enjoying the chilled climate. Arjun (A) — Yes. At long last, we could upload all tax returns by midnight of 30th November. We paid advance taxes of all clients by 15th of December.
S — N ow, what is going on?
A — U sual running about for scrutiny assessments!
S — But tell me. You got so much of additional time for tax audit. Could you do it properly?
A — Please don’t ask me that! I know how we managed it. It is always a nightmare.
S — A re your audit papers organised properly? A — Who is going to see it now?
S — T hat’s the trouble with all of you. You have learnt many times that work should not only be done, but it should be seen that is done.
A — O f course, we have so many papers generated. But where to keep them? We don’t have space to keep all that record. We have to either scrap it or give back to the client!
S — T his is the folly. You somehow sign the audits. That too, backdated! And say that you don’t have working papers. I told you so many instances of complaints for misconduct.
A — But how to overcome this problem?
S — See, I cannot tell you the whole list of documents that you need to maintain. That you know better. Do you have at least the appointment letters of all audits?
A — N o. Only for companies we have started taking. It is compulsory to upload to ROC – with 23B. All these years we never did it.
S — I know, you people do it only when you have no option. That too, at the 11th hour.
A — A ll queries are also there. Now we send the queries on e-mail. So automatically, there is a record.
S — But when did you send the queries on mail?
A — Continuously during the last two to three months.
S — A nd when did you sign the audits?
A — Company audits in the beginning of September. And tax audits in November.
S — I had told you that a partner of even a large and reputed CA firm was held guilty since there were queries sent after the date of the audit.
A — O h! I need to see that. I don’t know what my assistants have done.
S — M oreover, there may be many queries raised. But have you put remarks as to how each one was resolved?
A — See. We just instruct our juniors to do the vouching etc. Some of the queries are solved. Some remain just hanging.
S — A nd you sign the balance sheet even when queries are unresolved. There are many cases where queries were not discussed at all. Obviously, it is a gross negligence. What about MRL?
A — T hat we rarely take. Everything is oral and in good faith.
S — I have told you how ‘good faith’ is the most dangerous thing in your profession. If you sign in good faith, why should there be an audit by qualified person like you?
A — I agree. But in practice, it is difficult.
S — No. Not very difficult. You lack will-power. And once you develop that habit among the clients, they take you for granted. Thereafter, it is difficult to insist on these things.
A — What you say is right.
S — A ctually, it is very wrong that you relax immediately after the deadline. The real work should be done at this stage. Organise the records, audit files, connect all loose ends. Your staff will be available. Do the right things when everything is fresh in the mind. Who will remember after four or five years? Where will you trace the records?
A — Y ou are frightening me. I have understood. But somehow, it does not happen. I tell you, a couple of audits I have given many adverse remarks. In fact, there are annexure containing adverse observations.
S — That is alright. But what is your final audit opinion?
A — T hat is a standard one – ‘subject to this ……. It is true and fair!’
S — T hat itself is highly objectionable. On the one hand, you give serious qualifications; and at the same time, you say it is true and fair. How do you reconcile these two things? There is a clear direction in SA 700. You either give a disclaimer or say it does not give true and fair view.
A — Y es. That’s a point. See, every time we discuss these ethics, we invariably refer to some live case, some actual story. Today it was general.
S — Y es. But your negligence like this will give rise to many stories! And remember, now the misconduct means not only ‘gross negligence’ but also ‘lack of due diligence’. And again, now you cannot take shelter from ‘watch-dog’, ‘blood-hound’ theory.
A — Good that you told me all this. I was wondering how I should keep all articles occupied after the tax-returns. I will make them arrange all papers properly.
S — Y es. It will also help you in peer review. This is a wake-up call for you, dear!

Note: The above dialogue between Shri Krishna and Arjun is based on clause (8) of Part I of Second Schedule which is reproduced below.

Clause (8) of Part I of Second Schedule states that a CA in practice shall be deemed to be guilty of professional misconduct, if he – ‘Fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion.

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BCAJ Admin

Ethics and You

Procedure of Enquiry (Continued) – Part V

Arjun (A) — Procedure of Investigations of Professional and other misconduct and conduct of cases – Rules, 2007 ….. (repeats 3 – 4 times)

Shrikrishna —Arey, Arey, Arjun. Why are you repeating the same name again and again?

A — The name of the Rules is so long! I am trying to memorise it –by heart!

S — Ha! Ha! Ha! You can always make it short – as Misconduct Enquiry Rules.

A — I know, but I was just killing time until you came. Last time you told me that once the hearing is concluded, one can get the minutes – verbatim, Notes of hearing.

S — Yes – Not only when concluded; but even in between if it is adjourned for further evidence or any other reason. And you need to apply for it.

A— Good. If there is a long gap between two hearings, one may lose track of what has transpired earlier.

S — Sometimes, after the hearing is half-done and adjourned, the Committee may undergo a change. Usually, every February, your Council Committee changes.

A — Oh! Then what happens?

S — The new Committee gives you an option whether you want a de novo hearing; or it can continue from where it ended last.

A — What is the implication?

S — See, sometimes, for strategic reasons, it would be worthwhile to have a fresh hearing. After all, there is always an element of subjectivity in any judicial proceedings. All are human beings!

A — That’s true. If an Assessing Officer or CIT is changed, it makes lot of difference; either way. But tell me, what precaution one should take during the hearing?

S — After all, you should always project yourself as a decent professional. Approach should be polite and co-operative. Handling of papers should reflect your preparedness. Temper should be cool. No agony, no irritation, no nervousness.

A — It is easy to advise. But very difficult when you are sitting there!

S — I agree. That is where an experienced Counsel can help. You should not get excited or argumentative. If there is a mistake that occurrs, it is appreciated if you candidly admit it. Remember, the panel consists of CA professionals. So you can’t fool them.

A — Yes. One should not act too smart. That’s what you mean. How many times can one seek adjournment?

S — In practice, there is no limit if there is a valid reason. They don’t tolerate dilatory tactics. Already they give you a lot of time.

A — Once the enquiry concludes, what happens?

S — They declare it as concluded. You are given fullest opportunity to plead your case. Even after conclusion, at your request or on its own, the Committee may direct you to place on record any document or submission within 8 to 10 days of time.Of course, that cannot be a new evidence. Otherwise, the other party can object.

A — What happens if the complainant does not remain present?

S — Even then, the Council proceeds with the enquiry. The Administration steps into the shoes of the complainant. There is no automatic escape for the respondent.

A — Do they declare the result immediately?

S — No! No! It takes more than 8 to 10 months for the Committee to release its report. It is a very detailed report with reasons. The conclusion is stated as to whether a respondent is guilty or not in respect of each charge or allegation.

A — And punishment?

S — For punishment, there is one more hearing before the BOD or DC – as the case may be, But in that hearing, the respondent has to appear alone, without any counsel. There, he can plead why the punishment should be less harsh! Usually, they orally inform the punishment there itself. A formal communication is sent after a few days. That is called the ‘order’. The first one, holding you guilty, is a ‘Report’.

A — Oh My God! It is a long procedure. How long all this takes?

S — After the enquiry is initiated ………….

A — (interrupts) That means, prima facie opinion?

S — Yes. Right. After that, there may be a period of even two to three years until you actually receive the order!

A — Is that the end of it?

S — No. There are many points. But we will discuss them when we meet next. Om shanti !!!!

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BCAJ Admin

PART C: Information on & Around

BMC’s reluctance to provide information:

A classic case of efforts by Brihanmumbai Municipal Corporation (BMC) officials to dissuade citizens from seeking details under the Right to Information (RTI) Act has come to light.

On 3rd September, Aftab Siddique, prominent activist from Khar, sent an RTI request to the municipal commissioner, seeking information about the number of Ganpati mandal permissions this year.

The commissioner’s office replied on 10th September, directing her to apply to the deputy commissioners. The deputy commissioner (removal of encroachment) and deputy commissioner Zone II.

Accordingly, she applied to both the deputy commissioners. The deputy commissioner (removal of encroachment) Anand Wagralkar informed her on November 8 that, as per a circular issued by the BMC, the information can be had only from the deputy commissioner Zone II, Kishore Kshirsagar.

Kshirsagar is the nodal officer for all matters related to Ganesh mandals.

Instead of collating the necessary information from the ward officers and providing it to Siddique, Kshirsagar gave copies of her application to all the 24 ward officers of Greater Mumbai. Siddique was shocked when 10 of the ward officers called her the same day – on 27th November.

“How am I supposed to be present at 10 ward offices the same day? This is nothing but an effort to sabotage my RTI, Kshirsagar has failed in his duty to obtain the information and pass it on to me,” she added.

Kshirsagar was unavailable for comment. His office said he was busy on a tour of the wards in zone II. Siddique said she wanted the information since several illegal Ganesh pandals were put up.

The spirit of the RTI Act is destroyed by such hostile attitude. Even though Kshirsagar may not be the primary Public Information Officer (PIO) under the law, he could have easily parted with the information, which must have been with him in his capacity as the nodal officer for Ganesh mandals.” she observed

Section 8 (1) (h) of the RTI Act:

The Prime Minister’s Office has refused to disclose communication exchanged between former Prime Minister Atal Bihari Vajpayee and Gujarat Chief Minister Narendra Modi during the 2002 Gujarat riots even after 11 years.

Responding to an RTI application, the PMO cited section 8(1) (h) of the RTI Act, which exempts information that would impede the process of investigation or apprehension or prosecution of offenders.

The PMO did not give any reasons as to how disclosure of the information would attract section 8(1) (h) of the RTI Act even though the Delhi High Court has made it clear that cogent reasons must be given while denying information under the clause.

Section 2(h) of the RTI Act:

The Supreme Court has admitted ADAG Relianceled power distribution companies’ appeals seeking quashing of the Orissa High Court order that declared them as ‘public authorities’, thus bringing them under the purview of the RTI Act.

Reliance Infrastructure owned three discoms, engaged in the distribution and retail supply of Electricity in 23 districts of Orissa since 1999, had challenged the order arguing they are exclusively private bodies, and not public authorities within the meaning of section 2 (h) of the RTI Act, 2005.

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BCAJ Admin

PART B: RTI Act, 2005

Withdrawals of the Orders of CSIC:

State information commissioner Ratnakar Gaikwad on 4th December withdrew an order issued last month that imposed certain qualifications on obtaining building plans approved by the BMC under the Right to Information (RTI) Act.

Gaikwad said the latest decision was taken “with a view to avoid confusion and practical difficulties in securing information about building plans”. Nonetheless, he urged that caution be exercised when demands for the plans of public utilities or buildings are made. “The authorities must consider if there may be some danger to national security or public safety if these plans are given.” If the answer is yes, the requests in such cases “should be declined as per the provisions of the RTI Act”.

This was the second time Gaikwad withdrew an order on the issue. Following criticism, an order dated 26th September was cancelled on 21st November and a new one issued. But that too met with disapproval. “The language and structure of both the orders perhaps made them look like blanket ban on disclosure of information relating to building plans, which was never the intention of the Commission and the Commission expresses regrets for it,” said Gaikwad.

While explaining the rationale behind the September order, Gaikwad said it was not taken suo motu. “Subhash Desai (Shiv Sena MLA) wrote to the Commission pointing out serious lapses committed by PIOs while furnishing information about building plans and violations of sections 8(a,d), 9 and 11 of the Act, which were dangerous for the country’s security.”

Desai enclosed news items that described how Maoists, through proxies, obtained information under RTI in Jharkhand and misused it for extortion, leading in some cases to the killing of contractors. The MLA requested the Commission not to provide information on public buildings. “Since the Commission was of the same opinion, an order was issued on 26th September.”

• Ms. Sushma Singh is appointed as chief central Information Commissioner w.e.f. 19-12-2013 Now the strength of the Commission is 9 memberschief CIC and 8 Information Commissioners as under:

• Shri Rajiv Mathur
• Shri Vijai Sharma
• Shri Basant Seth
• Shri Yasovardhan Azad
• Shri Sharat Sabharwal
• Mrs. Manjula Prasher
• Shri. M. A. Khan Yusufi
• Prof Madabhushanam Sridhar Acharyulu.

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BCAJ Admin

PART C: Information on & Around

Travel on Delhi Buses:

Data accessed through RTI has revealed that around 600 drivers of Delhi Buses are reportedly colour blind but are in service with the help of fake medical certificates. The issue has been highlighted by Information Commissioner M. Sridhar Acharyulu to Delhi CM Arvind Kejariwal.

RTI extortionists

The Brihanmumbai Municipal Corporation (BMC) has prepared a list of 77 regular complainants who file bulk applications under the Right to Information (RTI) Act, seeking details of building plans to allegedly extort money from property owners.

The P-North Malad ward office has compiled a list of individuals who send RTI applications seeking details of under-construction or existing buildings and shops. Ward officials have received complaints from shop-owners that these applicants then demand money from them or threaten them with action.

“Minor irregularities such as putting up a grill or extension of a shop’s entrance by a few feet can be demolished by the BMC or regularized after paying a penalty. But these professional complainants extort money in exchange of a promise that no BMC action will be initiated on the structure,” said a civic official from the ward.

Worse, in case ward officials initiate action against the structures, these very complainants write to politicians and municipal commissioners against their initiative.

He added that while RTI is a useful tool, several individuals have started misusing it. “We conducted this exercise since it is getting difficult for us to differentiate between genuine RTI applications and frivolous ones. After the list was prepared, these 77 people have stopped sending in their application.”

Pay Rs. 55.43 lakh to get information!

Two senior regional transport officials in Thane face disciplinary action for demanding a “fee” of Rs. 55.43 lakh for providing information that is supposed to be given out free of cost under the Right to Information Act.

The complainant, Anil Mahadik, filed an RTI application at the regional transport office, seeking details of the number of autos and permit-holders in Thane. All it required for Public Information Officer I S Muzumdar, who is the Assistant Commissioner and Deputy Commissioner Sanjay Dole was to take a printout of the details-73,993 autos of which 36,887 had permits-which were readily stored in their computers, and hand them over to Mahadik. Instead, the two officials chose to harass the RTI applicant and demanded Rs 55.43 lakh from him as a fee for the information that they promised to compile in a CD.

After being apprised of the incident, Chief Information Commissioner Ratnakar Gaikwad rebuked Muzumdar and Dole for “irresponsible behaviour and ignorance of law” while disposing the RTI application by Mahadik. He directed transport commissioner V N More to initiate disciplinary proceedings against the two RTO officials and inform his office of the action by next month. Also ruling that the information should be provided to Mahadik free of cost and that all RTOs should display details of vehicles in their areas on their websites. Gaikwad told More to comply with the orders and submit a compliance report to his office.

(From the Times of India dated 24.01.2014)

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PART B: RTI Act, 2005

Area	Appeals Pending	Complaints Pending
HQ	140	148
Greater Mumbai	5,394	550
Konkan	3,741	107
Pune	5,937	220
Aurangabad	3,262	493
Nashik	4,803	62
Nagpur	1,591	582
Amravati	4,184	1,256
Total	29,052	3,418

Above sad state of pendency worries all, specially, those who have to wait as long as two years to get hearing in one’s appeals or complaint. Chief information commissioner, Mr. Ratnakar Gaikwad has written to the Governor to prod the government to appoint Information Commissioners in five pending vacancies.

Public Concern for Government Trust has public interest litigation pending since more than a year in Bombay High Court in this connection.

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Company Law

Full version of the Circular/Notification can be accessed at http://www.mca.gov.in

1. Clarification on Rules relating to Appointment and Qualification of Independent Directors.

The Ministry of Corporate Affairs vide General Circular No 14/2014 dated 9th June, 2014 has issued Clarifications regarding –
a)
Pecuniary relationship of Independent Directors – in view of the
provisions of section 188 of Companies Act, 2013 (“the Act”),
transactions in the ordinary course of business at arm’s length price
are not to be considered under pecuniary relationship.
b) R eceipt
of remuneration by Independent Director – clarified after consultation
with SEBI that ‘pecuniary relationship’ u/s. 149(6)(c ) of the Act, does
not include receipt of remuneration from one or more companies, by way
of fee provided u/s. 197 (5) of the Act for reimbursement of expenses
for participation in the Board and other meetings and profit related
commission approved by the members.
c) It is clarified that any
tenure of an Independent Directors on the date of commencement of the
Act shall not be counted for his appointment/holding of office of
Director under the Act. In view of the transitional period of one year
it is necessary that if it is intended to appoint Independent Directors
under the new Act, it must expressly be made u/s. 149(10)/(11) read with
Schedule IV of the Act, within one year from 01-04-2014.
d) A
ppointment of Independent Director for less than five years: The
appointment of an Independent Director is for a term ‘upto five years’
and hence for shorter periods is permissible. However, terms of lesser
periods would be treated as ‘term’ and an independent Director cannot be
appointed for more than ‘two consecutive terms.’
e) A ppointments of Existing Independent Directors would also need to be formalised by a letter of appointment.

2. Clarification regarding Register of Loans/Guarantee/ Security/making acquisition in the new format u/s. 186(9).

With
regard to the Register of Loans/Guarantee/Security/ making acquisition
to be maintained u/s. 186(9), read with Rule 12 of the Companies
(Meeting of Board and its Powers), the Ministry of Corporate Affairs
vide General Circular No. 15/2014 dated 9th June, 2014 has clarified
that the register maintained u/s. 372A of the Companies Act, 1956 would
remain and the new format would be applicable w.e.f 01-04-2014.

3. Clarification regarding PAN of Foreign Nationals.

The
Ministry of Corporate Affairs vide General Circular dated 10th June,
2014 No 16/2014, has further to the Circular No. 12/2014, clarified that
the circular for the Pan No. of Foreign Nationals was applicable to
subscriber/ promoter at the time of incorporation of the Company. In
absence of PAN, he shall furnish an undertakingin the prescribed format
attached to the circular, as an attachment to Form INC7.

4. Clarification regarding Filing of Form MGT-10.

The
Ministry of Corporate Affairs has vide General Circular No. 17/2014
dated 11th June, 2014 has informed stakeholders to fill Form MGT 10
physically, signed/certified by a professional and file it alongwith
required attachments in GNL-2 as a temporary arrangement till the Form
MGT-10 is made available.

5. Clarification for Filing of Form
INC-27 – for Conversion of Company from public to Private under the
provisions of Companies Act, 2013.

The Ministry of Corporate
Affairs vide General Circular No. 18/2014 dated 11th June, 2014, has
clarified that since section 14 (1) and 14(2) of Companies Act, 2013
have not been notified, the relevant section 31(2A) shall remain in
force and the delegated powers shall continue to remain with the ROC’s.
Thus applications have to be filed and disposed as per the earlier
provisions.

6. Clarification regarding matters relating to Share capital and debentures under Companies Act, 2013.

The Ministry of Corporate Affairs vide General Circular No. 19/2014 dated 12th June, 2014 has clarified that:

a)
S hare transfer forms executed before 01-04-2014 – Form SH-4 is now to
be used as the new share Transfer Form w.e.f 01-04-2014 in place of
earlier 7B. It is clarified that where Form 7B is submitted to the
company within the period prescribed, it has to accept the registration
of transfers. In case of delay, the Company can decide to not accept the
transfer form and convey reasons for the nonacceptance as per
provisions of section 56(4) of the Act.
b) D elegation of powers by
Board under Rule 6(2)(a) – The Ministry has clarified that as per
section 179 and 180 and Regulation 71 of Table F of Schedule 1, for the
issue of duplicate share certificates can be delegated to a Committee of
Directors subject to regulations imposed by the Board.

7. Clarification with regard to voting through electronic means.

The
Ministry of Corporate Affairs vide General Circular No. 20/2014 dated
17th June, 2014 has decided not to treat the relevant provisions of
section 108 of Companies Act, 2013 read with Rule 20 of Companies
(Management and Administration) Rules 2014 dealing with the exercise of
vote by members by electronic means as not mandatory till 31st December,
20I4 as compliance with procedural requirements, engagement of
Depository Agencies and the need for clarity on matter like demand for
poll/ postal ballot etc., will take some more time. The e-voting
procedure, clarifications on issues by stakeholders are provided in the
Annexure to the Circular.

8. Clarifications with regard to provisions of Corporate Social Responsibility u/s. 135 of the Companies Act, 2013.

The
Ministry of Corporate Affairs, vide Circular No. 21/2014, dated 18th
June. 2014, issued clarifications with regard to provisions of Corporate
Social Responsibility u/s. 135 of the Companies Act, 2013. The
following is clarified for CSR:

i. T he statutory provision and
provisions of CSR Rules, 2014, is to ensure that while activities
undertaken in pursuance of the CSR policy must be relatable to Schedule
VII of the Companies Act 2013, the entries in the said Schedule VII must
be interpreted liberally so as to capture the essence of the subjects
enumerated in the said Schedule. The items enlisted in the amended
Schedule VII of the Act, are broad-based and are intended to cover a
wide range of activities as illustratively mentioned in the Annexure.

ii.
It is further clarified that CSR activities should be undertaken by the
companies in project/programme mode [as referred in Rule 4 (1) of
Companies CSR Rules, 2014]. One-off events such as
marathons/awards/charitable contribution/advertisement/ sponsorships of
TV programmes etc., would not be qualified as part of CSR expenditure.

iii.
Expenses incurred by companies for the fulfillment of any Act/Statute
of regulations (such as Labour Laws, Land Acquisition Act etc.) would
not count as CSR expenditure under the Companies Act.

iv. S
alaries paid by the companies to regular CSR staff as well as to
volunteers of thecompanies (in proportion to company’s time/hours spent
specifically on CSR) can be factored into CSR project cost as part of
the CSR expenditure.

v. “Any financial year” referred under s/s.
(1) of section 135 of the Act read with Rule 3(2) of Companies CSR
Rule, 2014, implies ‘any of the three preceding financial years.’

vi.
E xpenditure incurred by Foreign Holding Company for CSR activities in
India will qualify as CSR spend of the Indian subsidiary if, the CSR
expenditures are routed through Indian subsidiaries and if the Indian
subsidiary is required to do so as per section 135 of the Act.

viii. Contribution to Corpus of a trust/society/section 8 companies etc., will qualify as Csr expenditure as long as (a) the trust/ society/section 8 companies etc., is created exclusively for undertaking Csr activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in schedule Vii of the act.

9. Notification for Companies (Acceptance of deposits) Amendment Rules, 2014.

The ministry of Corporate affairs has on 6th june, 2014 has amended the Companies (acceptance of deposits) rules 2014, by insertion of proviso to rule 5(5) namely “Provided that the Companies may accept deposits without deposit insurance contract till 31st march, 2015.”

10. Notification of section 74(3) and 74(2) relating to repayment of deposits etc., accepted before commencement of the Act

The ministry of Corporate affairs has vide Notification dated 6th June, 2014 notified that the provisions relating to s/s. 2 and 3 of section 74 of Companies act, 2013 are in force from 6th june, 2014.

11. Amendment to Companies (Meetings and Powers of board) Rules, 2014.

The ministry of Corporate affairs has vide Notification dated 12th june. 2014 amended the Companies (meetings and Powers of Board) rules, 2014, by inserting rule 6 after explanation as follows:

“Provided that public companies covered under this rule which were not required to constitute audit Committee u/s. 292a of the Companies act, 1956 (1 of 1956) shall constitute their audit Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier:

Provided further that, public companies covered under this rule shall constitute, their nomination and remuneration Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier.”

12. Amendment to Companies (declaration and Payment of dividend) Rules, 2014.

The ministry of Corporate affairs has vide Notification dated 12th june, 2014 amended the Companies (declaration and Payment of dividend) rules, 2014 to substitute rule 3(5) as follows:

“3(5) no Company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the Company of the current year.”

13. Clarification with regard to format of annual return applicable for Financial year 2013-14 and fees to be charged by companies for allowing inspection of records.

As per the provisions of section 92 of the act, 2013 it is required for very company to submit the annual return in format as given in form MGT-7 containing the particulars as they stood on the close of the financial year where- as as per section 159 of the Companies act, 1956, the annual return gave the position from the date of last annual general meeting till the date of current annual general meeting.

To clear the confusion, the Ministry has now clarified that the format of annual return under act, 2013 (form – MGT-7) shall not be applicable to the Companies whose financial year ended on or before 1st April, 2014, i.e., the Companies are to file the Annual Return as per the old format (schedule V) as per act, 1956 within 60 days from the date of agm in form 20B. Fees for inspection of records and other documents.

Companies have also sought clarity on fees for allowing free of cost inspection of records under rule 14(2) and rule 16 of the Companies (management and administration) Rules, 2014. The ministry has clarified that until the requisite fee is specified by companies, inspections could be allowed without levy of fee.

14. Clarification relating to incorporation of a Com- pany, i.e., Company incorporated outside india.

The ministry of Corporate affairs has vide Circular dated 25th june, 2014 informed that as per sections 2(68), 2(71) and 2(87) of the Companies act, 2013 there is no bar in the new act for a company incorporated outside india to incorporate a subsidiary either as a public company or a private company. an existing company, being a subsidiary of a company incorporated outside india, registered under the Companies act, 1956, either as private company or a public company by virtue of section 4(7) of that act, will continue as a private company or public company, as the case may be, without any change in the incorporation status of such company.

15. Clarification with regard to holding shares in a fiduciary capacity by associate Company u/s. 2(6) of Companies Act, 2013.

The ministry of Corporate affairs has vide Circular dated 25-06-2013, in continuation of the general Circular no. 20/2013 dated 27-12-2013 clarified that the shares held by a company in another company in ‘fiduciary capacity’ shall not be counted for the purpose of determining the relationship of ‘associate company’ u/s. 2(6) of the Companies act, 2013. u/s. 2(6) “associate company,” in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. Explanation — For the purposes of this clause, “significant influence” means control of at least 20% of total share capital, or of business decisions under an agreement.

16. Clarification on applicability of residency requirements for resident director.

As per section 149(3) of the Companies act, 2013 every company must have at least one director who has stayed in india for a total period of not less than 182 days in the previous calendar year. The Ministry has clarified vide Circular dated 26th june, 2014 that the ‘residency requirement’ would be reckoned from the date of commencement of section 149 of the act, i.e., 1st april, 2014. The first ‘previous calendar year’ for compliance with these provisions would, therefore, be calendar year 2014. The period to be taken into account for compliance with these provisions will be the remaining period of calendar year 2014 (i.e., 1st april to 31st december). Therefore, on a proportionate basis, the number of days for which the director(s) would need to be resident in india, during calendar year 2014, shall exceed 136 days.

Regarding newly incorporated companies it is clarified that companies incorporated between 01-04-2014 to 30-09-2014 should have a resident director either at the incorporation stage itself or within six months of their incorporation. Companies incorporated after 30-09-2014 needs to have the resident director from the date of incorporation itself.

17. Clarification with regard to use of the words’ Commodity Exchange” in the Company registration.

The ministry of Corporate affairs vide Circular dated 27th June, 2014, has clarified that the words Commodity Exchange’ in the name of the Company can only be allowed when a “No Objection Certificate” from the Forward Markets Commission (fmC) is furnished by the applicant. Also clarified that the NOC would also be required in cases of Companies registered with the words ‘Commodity exchange’ before the issue of this circular.

18. Extension for filing of Form DPT 4 under Companies Act, 2013.

The ministry of Corporate affairs has granted extension of time for the period of two months, i.e., upto 31-08-2014 for filing of the Statement regarding deposits existing on the date of commencement of the Companies act, 2013 in form dPt 4 as per provisions 74(1) (a) under the act and Companies (acceptance of deposits) rules, 2014.

19. Clarification on Form MGT 14 through STP mode.

The ministry of Corporate affairs vide Circular dated 9th july, 2014 has tried to simplify procedures for timely disposal of e-forms by taking the form MGT-14 on record using the straight through Process mode in all cases except in cases of change of name, objects clause, resolution for further issue of capital and conversion of companies.

20. Registration of Names of Companies must be in Consonance with the Provisions of the Emblems and Names (Prevention of improper Use) Act, 1950.

The ministry of Corporate affairs vide circular dated 11th july, 2014, has directed ROC’s that when allotting names to Companies/LLP’s they must ensure that names of Companies must be in consonance with the Provisions of the emblems and names (Prevention of improper use) act 1950.

21. Clarification on matters relating to related party.

The ministry of Corporate affairs has vide Circular dated 17th July, 2014 clarified the following in relation to related parties:

i. For the second proviso of section 188(1), related party that cannot vote refers to the related party with reference only to the contract or arrangement for which the special resolution is being passed.

ii. U/s. 188 – it is clarified that the requirements of section 188 will not be attracted for transactions arising out of Compromises, arrangements and amalgamations, dealt with under specific provisions of Companies act, 1956 or 2013.

iii. Contracts already entered into by the Company u/s. 297 of Companies act, 1956 before the commencement of section 188 of the Companies act, 2013, i.e., before 01-04-2014 will not require fresh approvals till the expiry of the original term unless any modification thereto is made.

22. Extension of Validity of reserved Names.

The ministry of Corporate affairs has vide Circular no. 31/2014 dated 19-07-2014 intimated with respect to extension of time for the validity of reserved names made in form inC-1 under the Companies act, 2013 for which the service provider of mCa-21 has brought to the notice of ministry that there are numerous cases in this respect which allows the applicants to use the name approved within 60 days but that is at variance with the implementation at MCA thereby causing inconvenience to the stakeholders. Out of these cases, 1930 cases were those whose time limit expired on or before 19-07-2014, therefore it has been decided to extend the timeline upto 18th august, 2014. Further, those cases in which the names have been reserved but they are yet to be issued, the time period as indicated in the letters of intimation is allowed.

23. Clarification on transitional period resolution passed under Companies Act, 1956.

The ministry has vide general Circular no. 32/2014 dated 23rd July, 2014 clarified that resolutions approved or passed by companies under relevant applicable provisions of the old act during the period from 1st september, 2013 to 31st march, 2014, can be implemented, in accordance with provisions of the old act, notwithstanding the repeal of the relevant provision subject to the conditions (a) that the implementation of the resolution actually commenced before 1st april, 2014 and (b) that this transitional arrangement will be available upto expiry of one year from the passing of the resolution or six months from the commencement of the corresponding provision in New Act whichever is later. It is also clarified that any amendment of the resolution must be in accordance with the relevant provision of the new act.

24.    Applicability of Second Proviso to section 203(1).

The Central government vide Notification dated 25th July, 2014, has notified that for the purposes of applicability of second proviso to section 203 (1) of Companies act 2013 pertaining to individuals not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing directoror Chief Executive Officer of the company at the same time.
The following Class of companies:
•    Public companies with paid up capital of Rs. 100 core or more; and
•    With annual turnover of Rs. 1,000 crore or more (both as per the latest audited Balance Sheet); and
•    engaged in multiple businesses; and
•    have appointed Chief Executive Officer for each business shall be exempt.

25. Cost Records and Cost Audit.

The ministry of Corporate affairs has on 2nd july issued notification relating to the Companies (Cost Records and Audit) rules, 2014 u/s. 148 of the Companies act, 2013. the new rules specify four classes of companies, i.e.:
i. Companies engaged in the production of specified goods in strategic sectors,

ii. Companies engaged in an industry regulated by a sectoral regulator or a ministry or department of Central government,

iii. Companies operating in areas involving public interest,

iv. Companies (including foreign companies other than those having only liaison offices) engaged in the production, import and supply or trading of fol- lowing medical devices….

Which shall be required to maintain cost records and who will be subject to cost audit. relevant e-forms would be made available on the MCA portal shortly.

26. Amendment to the Companies (Prospectus and Allotment of Securities) Rules, 2014.

the ministry of Corporate affairs has vide Notification dat- ed 30th june, 2014 amended the Companies (Prospec- tus and allotment of securities) rules, 2014 whereby in rule 14, in sub-rule (2), in Clause (a), after the second proviso, the following proviso shall be inserted, namely:—

“Provided also that in case of an offer or invitation for non-con- vertible debentures referred to in the second proviso, made within a period of six months from the date of commencement of these rules, the special resolution referred to in the second proviso may be passed within the said period of six months from the date of commencement of these rules.”

27. Amendment to the Companies (Miscellaneous) Rules, 2014.

The ministry of Corporate affairs vide Notification dated 17th july, 2014, has amended the Companies (miscellaneous) rules, 2014, by inserting

“11. applications or forms pending before Central gov- ernment, regional director or registrar of companies.- Any application or form filed with the Central Government or regional director or registrar (hereinafter referred to as `the authority’) prior to the commencement of these rules but not disposed of by such authority for want of any information or document shall, on its submission, to the satisfaction of the authority, be disposed of in accordance with the rules made under the Companies act, 1956 (1 of 1956).”

28. Companies (Specification of definitions details) Amendment Rules 2014.

the ministry of Corporate affairs has vide Notification dated 17th July, 2014 specified that in Rule 3 to the Companies (Specification of Definitions Detail) Rules, 2014 after the words ‘a director’ the words ‘other than an independent director’ shall be inserted.

30. Amendment to the Companies (Management and Administration) Rules, 2014

the ministry of Corporate affairs has vide Notification dated 24th july, 2014 has amended the Companies (management and administration) rules, 2014. in rule 9, after sub-rule (3), the following proviso shall be inserted, namely:-
“Provided that nothing contained in this rule shall ap- ply in relation to a trust which is created, to set up a mutual fund or Venture Capital fund or such other fund as may be approved by the securities and exchange Board of india.”

In rule 13,- (a) the words “either value or volume of the shares” shall be omitted;
(b) The explanation shall be omitted.

In rule 23, in sub-rule (1), for the words “not less than five lakh rupees,” the words “not more than five lakh ru- pees” shall be substituted;

In rule 27, in sub-rule (1) and in the explanation, for the word “shall,” the word “may” shall be substituted.

BCAJ Admin

Ethics and u

Shrikrishna (S) — Arey Arjun, we are meeting after a gap of four months. Where were you?

Arjun (A) — I was on a vacation. Now the war of audit and tax returns has started. So I resumed.

S — T hat may not be the only reason. You are looking quite disturbed.

A — Y es, very much. I am very unhappy with you.

S — O h! Why? What have I done?

A — A fter Mahabharata, you said you are introducing Kaliyug. That is the era of evil.

S — Y es. That was the plan of Brahma – the Creator. I am also bound by that.

A — But it is rather too much! Things are unbearable.

S — I t was bound to happen. It was predicted thousands of years ago.

A — Y es. But my friend is having such a nightmarish experience! I have lost my sleep. Henceforth, I will not trust anyone and will not help anyone! Not even close relatives.

S — But we had discussed the hazards of ‘good faith’ many times in the past. As a professional, one should have some skepticism.

A — T rue. But one of my CA friends had earlier helped his cousin out of the way. The cousin was like a vagabond, never settled in life.

S — Quite normal. Then?

A — O nce this cousin came to my friend and said he would start some big venture. He said some financier was willing to finance 90% of cost if he showed that he had 10% of his own.

S — T his is also normal. What next?

A — S o he requested my friend to give him a cheque of about 40 lakhs so that he could show it to the financer.

S — A nd your friend in good faith must have obliged him!

A — Y es! And now he is in deep trouble!

S — I can guess!

A — He wandered for four to five months from one financer to the other. And after five months, before the validity expired, he simply put it into his bank.

S — S o, your friend lost 40 lakh.

A — N o! What has happened is even worse than that!

S — O h! The cheque bounced?

A — Yes. And the cousin filed a suit under section 138 of Negotiable Instruments Act.

S — But he has to prove why the cheque was given.

A — H e fabricated a story that my friend had agreed to employ him on a salary of Rupees two lakh – per month; and he never paid for about two years! Now he paid it and the cheque bounced!

S — But, he has to prove it.

A — I n fact, my friend told the court that he was a low profile practitioner and would never even dream of employing any person on such a high salary! He had a CA working for him at about 40000 rupees whereas his cousin was not even qualified!

S — T hen wasn’t the Magistrate convinced?

A — That is the Kaliyug! It is difficult to prove a truth! S — I agree. It is difficult. But ultimately, truth alone will triumph.

A — That is alright. But for that, one has to sacrifice one’s life. He is convicted with six months’ imprisonment!

S — H as he not contested it?

A — H e has. But God alone knows when he will get justice. And on top of it, our Institute has initiated disciplinary proceedings against him!

S — Oh! Adding fuel to the fire! Poor fellow.

A — N ow we don’t know what view the Institute will take. While issuing the cheque, obviously there was no balance in my friend’s account.

S — I t is a big lesson for all of us. One needs to be ultracautious!

A — But, I want to ask you, if you are God, then this is your ‘Leela’ only. Why do you do such things? What pleasure you get out of it?

S — M aybe, in his earlier birth, your friend might have ditched someone. I need to see the records!

A — But now, you are also my cousin!!

S — H a! Ha!! Ha!!!

Note: The above dialogue between Sri Krishna and Arjuna describes one of those instances where a simple act, done by Members in good faith, can prove fatal. This act, though done out of innocence, may be regarded as a misconduct under Clause(2) Part IV Schedule I by the Institute, i.e., bringing disrepute to the profession. Hence, one needs to be very cautious and see to it that nothing is done in ‘good faith’ without proper documentation/safeguards

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PART C: Information on & Around

Pending RTI Appeals & Complaints at Information Commission:

It is reported by Commonwealth Human Rights Initiative (CHRI) that huge pendency continues in various Commissions. The top two being:

Maharashtra – 34,158 as on 30-05-2014
Central – 21,946 as on 30-05-2014

Former Delhi CM Sheila Dikshit:
CM once had said: “If you cannot afford the electricity bill, then cut down your consumption.” Yet when it came to her electricity consumption, it was beyond imagination: She was using:
31 Air Conditioners
15 Desert Coolers
16 Air Purifiers
25 Heaters
12 Geysers

The above information was obtained by RTI query filed by RTI activist Mr. S.C. Agrawal. In reply the Central Public Works Department said that an expense of Rs. 16.81 lakh was incurred on the electrical renovation of the bungalow to customise it according to the needs of the then chief minister.

Sophisticated and Normal Weapons For Mumbai Police:
RTI activist, Chetan Kothari, procured following details in response to RTI query.

Sophisticated weapons acquired by state government for city cops, post 26/11:

40mm under barrel grenade launcher 391
Corner shot weapon system 15
Projector grenade 73
Rocket launcher 14
Automatic grenade launcher 50
Sniper rifle 8
51mm mortar 44
Cord detonating explosives (Meters) 475

Normal Arms and Ammunition procured after 26/11:
7.62 SLR Rifle 29,373
Glock pistols 1,277
AK-47 Rifle 3,975
9mm pistols 1,000
Stun Gun (N / E) 2,000
Tear Gas Gun 94
5.56 Insas Rifle 3,916
Machine gun (MP5, A3/%, SD6, KN) 2,061
9mm automatic pistols 1,029
Bullet Proof Jackets 4,500
5.56 Insas LMG 532

Reply also stated: These sophisticated weapons have been mainly procured from the US and Germany.

Mumbai police spokesperson DCP Mahesh Patil said the department has been using sophisticated weapons post 26/11. “These weapons provide the force with an added edge to combat any terror like situation. Experts from companies that deliver these weapons train the force in using them.

Deaths In 3 Civic Hospitals:
Right to Information query into the deaths in Mumbai’s civic – run hospitals threw up disturbing statistics – over the past 13 years one lakh patients died in Sion hospital, Ghatkopar’s Rajawadi Hospital and Mumbai Central’s BYL Nair Hospital.

RTI activists Anand Pargaonkar’s query was directed to all public hospitals in the city, but authorities of only three hospitals provided him with statistics of their mortality rate. Between 2001 to 2013, at Rajawadi hospital, 16,014 out of the 55 lakh patients (including out patients) died. At Nair hospital 29,650 out of 33 lakh admitted patients passed away. Most shockingly, 63,313 out of 1.94 crore patients admitted at Sion hospital died in this period. On an average, eight patients died in these hospitals every day.

Unit Trust of India:
In response to my RTI application, UTI provided me the information sought but also wrote:

In this connection, we wish to inform you that Hon’ble Bombay High Court has granted stay on the order dated 6th August 2008 passed by the Central Information Commission on applicability of the Right to Information Act, 2005 (RTI Act, 2005), on UTI Mutual Fund, UTI Asset Management Company Ltd and UTI Trustee Company Ltd. pursuant to a Writ Petition filed by these entities. As such the matter is sub-judice and the RTI Act, 2005 is not applicable on all the above entities.

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PART B: RTI Act, 2005

Note: out of 21 items of Western India RTI Convention 2014 Declaration, 1 to 9 were reported in July ’14 issue of BCAJ. 10 to 21 are reported here under:

As
citizens and activists committed to building a transparent and
accountable democracy we have gathered together from more than 15 States
and Union Territories across the country in the city of Mumbai to
celebrate our victories, and to discuss and strategies to squarely face
current challenges. In this Western India RTI Convention, we pledge our
commitment to protect our constitutionally guaranteed fundamental rights
and particularly emphasising the freedom of speech and expression which
is the bedrock of a free and democratic society in the absence of which
our right to information would lose much of its meaning and value. On
this day the 8th of June, 2014, we express our solidarity with all RTI
users, activists and their families who have suffered attacks on them
and resolve to defend our right to access information and express our
opinions without fear and pledge in particular to struggle to achieve
our collective vision as follows-

10. S everal serious problems
are plaguing the functioning of Information Commissions across the
country which must be urgently addressed by the appropriate authorities.
The Supreme Court’s direction in the Namit Sharma case which requires a
fair and transparent process for the appointment of information
commissioners from diverse fields of experience and expertise, must be
immediately implemented and shortlisted candidates be subject to
credible public scrutiny about their track record of supporting the
regime of transparency. The minutes of the selection committees must be
disclosed proactively. The number of Information Commissioners must be
determined through an assessment of the workload in each Information
Commission as the pendency is reaching alarming levels denying people
their fundamental right to information.

11. A ll Information
Commissions must set up a mechanism to monitor compliance with its
decisions and in particular with its orders imposing penalty on Public
Information Officers and recommendations for taking disciplinary action
against those who are violating the provisions of the Act persistently.
We express our deep concern over some pronouncements of High Courts
denying the appellant or complainant the opportunity to participate in
penalty proceedings before the Information Commissions. Appellants and
complainants must have the opportunity of participating and presenting
their views in all penalty proceedings which they have caused to be
launched and copies of all replies of the PIOs and deemed PIOs must be
shared with them in person as well displayed on the websites of
Information Commissions and the concerned public authorities.

12.
We are deeply concerned about several judgements of the Supreme Court
that are resulting in the curtailment of the scope of people’s right to
information and the express and implied powers of Information
Commissions. RTI users and activists in particular and the people in
general, must discuss and debate the implications of these judgements to
form a strong public opinion in favour of defending and expanding the
mechanism and processes of transparency established by the RTI Act.

13.
A s the exemptions u/s. 8 of the RTI Act are adequate for protecting
important public interests, all security and intelligence organisations
notified by the Central and State Governments u/s. 24 must be reviewed
immediately and such notifications should be withdrawn.

14. We
demand that all laws enacted by Parliament and the State Legislatures
conform to the regime of transparency established by the RTI Act. We
demand the immediate withdrawal of provisions that curtail the scope of
the people’s right to information in other laws and Rules such as the
Collection of Statistics Act, 2008, The National Investigation Agency
Act, 2008, The Foreign Contribution Regulation Act, 2010, and the
Information Technology Rules, 2009. All authorities must ensure that no
Bill, Act, rule, regulation, or executive order curtails people’s
fundamental right to information as guaranteed by the Constitution.

15.
We appreciate the Central Government’s recently instituted policy on
pre-legislative consultation and demand that all Governments immediately
adopt a legally mandated process for formulating any law or policy
through widespread consultation with and effective participation of the
people. All draft MOUs and leases that the governments propose to sign
must be proactively disclosed to the people to enable them to give their
suggestions for change. 16. We demand that appropriate constitutional
mechanisms be put in place requiring the Central Government to place all
international treaties it signs before ratification before Parliament.
After signing treaties, they should be put out in the public domain,
subject to the exemptions provided under section 8 of the RTI Act.

17.
We demand that information about the finances, expenditure and working
of all societies, trusts, trade unions, cooperative societies, religious
and charitable institutions be made accessible to people under the RTI
Act.

18. We believe that WE THE PEOPLE, are the rightful owners
of our country’s natural resources. We demand equity and people’s
participation in decision making combined with complete transparency,
accountability in the management and use of all natural resources.

19.
We demand transparency in the ownership and the source and manner of
funding of all mass media agencies. Methods of enforcing accountability
of the media sector to the people must be explored, while protecting the
right to freedom of expression and the freedom of the press guaranteed
by the Constitution.

20. We are deeply concerned about the
attacks on the attempts to curb people’s right to free speech and
expression, especially those who voice political dissent or raise issues
of public concern in a democratic and constitutional manner. We are
also anguished by recent targeted attacks on academics for publishing
their research. We protest against all attempts at criminalising the
legitimate expression of dissent under Section 66A of the Information
Technology Act and demand withdrawal of all actions launched against
persons with the motive of punishing them for exercising their right to
free speech and expression.

21. We affirm all resolutions passed
at the workshops (annexed to this Declaration) held at the Western
India RTI Convention 2014.

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PART A: Decision Of CIC

Section 8 (1) (i) of the RTI Act:
Facts:
Vide
RTI application dated 14-05-2013, the appellant sought copies of
documents including a copy of the cabinet decision in respect of certain
recommendation relating to pension of ex-servicemen and civilians.

CPIO/under secretary (pension policy) declined to provide the copies of documents sought as the same were graded as ‘secret’.

Before
the Commission, CPIO submitted that the Cabinet Secretary has made
certain recommendations dated 17-08-2012 relating to pension of ex –
servicemen and civilians, which was graded as ‘secret’. Orders accepting
these recommendations were issued on 17-01-13. However, as the document
was graded ‘Secret’ and the process of downgrading is pending, the
information sought was denied. Appellant submitted that there is no
secrecy involved and he should have been provided the information
sought.

Decision:
“Section 8 (1) (i) of the RTI Act
states that notwithstanding anything contained in this Act, there shall
be no obligation to give any citizen, Cabinet papers including records
of deliberations of the Council of Ministers, Secretaries and other
officers, provided that the discussions of Council of Ministers, the
reasons thereof and the material on the basis of which the discussions
were taken, shall be made public after the decisions have been taken and
the matter is complete.”

“In the instant case, the
recommendations of the Committee have been accepted and formal orders
issued on17-01- 13. As such, the matter is complete as per the
provisions of section 8 (1) (i) and denial of information not tenable.”

The
Commission directed the CPIO to provide the information sought to the
appellant within two weeks from date of receipt of the order.

[P.K.
Bhargavan Pillai vs. Ministry of Defence, (Dept. of Ex Servicemen
Welfare (Pension Policy), New Delhi, File No. CIC/SS/A/2013/002508/RM,
Decided on: 24.04.2014, Citation: RTIR II (2014) 242(CIC)].

Substantially Financed
Vide
Clause 5 of the Finance (No. 2) Bill, 2014 certain amendment in section
10 of the Income- tax Act has been made which shall be effective from
the first day of April 2015. Relevant item therein is Clause (23 C) of
section 10.

Said Clause 5 (a) reads as under:
(a) In Clause (23C), –
(i) after sub-Clause (iiiac), the following Explanation shall be inserted, namely –

“Explanation,
– For the purposes of sub Clauses (iiiab) and (iiiac), any university
or other educational institution, hospital or other institution referred
therein, shall be considered as being substantially financed* by the
Government for any previous year, if the Government grant to such
university or other educational institution, hospital or other
institution exceeds such percentage of the total receipts including any
voluntary contributions, as may be prescribed, of such university or
other educational institution, hospital or other institution, as the
case maybe, during the relevant previous year”.

Section 2(h) of the RTI Act, defines the term “public authority”. Relevant provisions read as under:
(h) “public authority” means any authority or body or institution of self – government established or constituted-
(a)……..
(b)……..
(c)……..
(d) By notification issued or order made by the appropriate Government, and includes any –
(i) body owned, controlled or substantially financed*;
(ii) non – Government organisation substantially financed*,
directly or indirectly by funds provided by the appropriate Government;

Recently,
CIC in the case of Madan Mohan Priva vs. Jan Kalyan Shiksha
Samiti/Samkalp has opined on sub Clause (d) of section 2 (h). I
reproduce some relevant paragraphs from the order:

“As per the
above definition before an NGO can be held to be Public Authority u/s.
2(h) (d) (ii), it has to satisfy the condition that it is “Substantially Financed.”

The Hon’ble Delhi High Court in Indian Olympic Association vs. Veeresh Malik and Ors (2010) IL R 4 Delhi 1] with regard to substantial financing has observed that the term “substantially financed” has not been defined.

*Highlighted by the author
According to the Legal Glossary – 1992 (published by the Govt. of India) the term means: finance:

1. the pecuniary resources of a government or a company.

2.
to provide with necessary funds. Oxford’s Shorter English Dictionary
defines the term “substantial” as follows: S ubstantial…. An adjective…

3. Of ample or considerable amount or size; sizeable, fairly large.

4. Having solid worth or value, of real significance; solid, weighty; important, worthwhile…

The
term “substantial” denotes something of consequence, and contrary to
something that is insignificant or trivial. It implies a matter of some
degree of seriousness. The question is whether the term itself suggests,
in the context of “substantial financing” a predominant or overwhelming
financing. In other words, does “substantial” read with “financing”
mean that the major funding should from the relevant source, i.e., state
or governmental source”.

The Hon’ble Supreme Court in
Thalappalam Ser. Coop Bank Ltd & Ors. vs. State of Kerala [2013 (12)
SCALE 527] as to what is “substantial financing” has observed that:

“36.
The words “substantially financed” have been used in sections
2(h)(d)(i) and (ii), while defining the expression public authority as
well as section 2(a) of the Act, while defining the expression
“appropriate Government”. A body can be substantially financed, directly
or indirectly by funds provided by the appropriate Government. The
expression “substantially financed”, as such, has not been defined under
the Act. “Substantial” means “in a substantial manner so as to be
substantial”. In Palser vs. Grimling (1948) 1 All ER 1, 1 (HL), while
interpreting the provisions of Section 10(1) of the Rent and Mortgage
Interest Restriction Act, 1923, the House of Lords held that
“substantial” is not the same as “not substantial” i.e. just enough to
avoid the de minimis principle. The word “substantial” literally means
solid, massive etc. Legislature has used the expression “substantially
financed” in sections 2(h)(d)(i) and (ii) indicating that the degree of
financing must be actual, existing, positive and real to a substantial
extent, not moderate, ordinary, tolerable etc.

38. Merely
providing subsidiaries, grants, exemptions, privileges etc., as such,
cannot be said to be providing funding to a substantial extent, unless
the record shows that the funding is so substantial to the body which
practically runs by such funding and but for such funding, it would
struggle to exist. The state may also float many schemes generally
for the betterment and welfare of the co operative sector like deposit
guarantee scheme, scheme of assistance from NABARD etc., but those
facilities or assistance cannot be termed as “substantially financed” by
the State Government to bring the body within the fold of “public
authority” under section 2(h)(d)(i) of the Act. But, there are
instances, where private educational institutions getting 95% grant – in
– aid from the appropriate government, may answer the definition of
public authority under section 2(h)(d)(i).”

[Madan Mohan Priva
vs. Jan Kalyan Shiksha Samiti/Samkalp, File No.: CIC/AD/A/2013/000269 –
SA, Decided on: 30-05-2014, citation RTIR II (2014) 262 (CIC), Order
delivered by M. Sridhar Acharyulu, Central Information Commissioner].

[Ch. Rama Krishna Rao vs. Naval Ship Yard, Port Blair, (third Party: shri r. ajit Kumar) decided by the full bench on 05-05-2014. file no. CiC/Ls/a/2012/002430/rm.]

BCAJ Admin

Ethics and u

Arjun (A) — Prabho! I am sorry, I could not meet you during Diwali; nor could I return your calls. I was so busy!

Shrikrishna (S) — What kept you so busy – even after your extended tax-deadline? I thought, you would be relaxing during Diwali.

A — Actually, I have a few assignments of transfer pricing. Most meaningless exercise! Nothing but deceiving oneself.

S — It may be true. But having accepted the work, one should do justice to it.

A — That is manageable. Actually, my main engrossment was our Institute’s elections.

S — Are you contesting? Nobody told me.

A — No, no… that’s not my cup of tea. I would prefer to remain away from politics. I have many other worthwhile things to do.

S — Good. But then what are you busy with? Where are you running?

A — My friend is standing for Central Council. Poor fellow, he lost his deposit last time even in WIRC elections. Why is he attempting Central Council – God alone knows.

S — But didn’t you advise him?

A — They don’t listen to such advice. I think, even there, there is some dirty politics or some ulterior motive which I will never be able to understand. And he is insisting that I should run along with him everywhere! Including outstation. I have to do it out of courtesy.

S — He must be spending quite a lot! Printing of brochures, posting them, etc. – a massive exercise. And expensive too!

A — Most important is, it is wasteful. And about our members – so called voters – the less said the better!

S — Why? Are they not interested?

A — Interested? Most indifferent. As good as illiterate.

S — Don’t tell me! Very strange!

A — Many of them don’t even know what is Central Council and what is Regional Council. They don’t even know what is the term of the Council. Many believe that the election is directly for the post of President.

S — Do they at least know who is the President?

A — I am doubtful about that also. You will be shocked that during the last election, the percentage of invalid votes was also high.

S — That means they don’t even know how to vote. But you circulate all instructions. Don’t you?

A — Of course, yes. But who bothers? They just throw all such letters into dust-bins! Many in industry are least concerned about Institute. They don’t even take membership.

S — What do these Council members gain?

A — Very few are sincere and dedicated. They don’t have personal agenda. But many of them do it just for publicity, position, public relations. The fact is that they have time and money to spend.

S — That means there is not much difference between our public body elections and your professional elections!

A — You said it! Many candidates spend so lavishly on publicity. Real talented people cannot afford it. They either remain away from the whole activity; or very few good people win it purely on merit. But the situation is worsening.

S — A nd what about their preferences? Do they vote judiciously?

A — Ha! Ha! Ha! – They go by caste, community, language and all such factors that exist in general polls.

S — Oh! That’s very sad.

A — I ndeed, disgusting. All those who have never met you before, suddenly develop so much affection! And they abuse the electronic media – cell-phones, whatsapp, facebook, email! One gets mad. And in that process, even good communications of genuine candidates are overlooked.

S — There should be greater regulation and close monitoring. Printing and stationery is a national waste! I think, we should discuss issues of ethics pertaining to such candidates and representatives.

A — I agree. But now it is too late! We will do it later. Bye. I need to go on my friend’s campaign. Remember, his serial number is 25. Do tell your devotees who are CAs. Please!

Om shanti !!!!!

Note

The above dialogue is intended to reflect the harsh reality of our Institute’s elections. It’s high time that we, particularly the voters, rethink about the whole process of election.

BCAJ Admin

Part C Information on & Around

Mumbai VC Rajan Welukar spent without sanction:
Rajan Welukar has used over Rs. 12 lakh of Mumbai University’s funds to pay lawyers defending his appointment as the varsity’s vice-chancellor in the Bombay High Court, a Right to Information (RTI) request has revealed. Activist Anil Galgali, who obtained the details, alleged that Welukar has roped in lawyers who were not part of the university-approved panel of legal experts, and used varsity funds to pay their fees without official sanction.

“The university’s funds are meant to be used for the benefit of students. In fact, there are so many issues that require financial consideration,” Senate member Sudhakar Tamboli said. “The case against Rajan Welukar questions his appointment as the vice-chancellor, and not the decisions he has taken. Why is the university then bearing his legal expenses?”

Registrar Khan, however, said that the varsity was also a party to the legal challenge. “The case is also against the University of Mumbai. We have taken the management council’s approval for legal expenses,” he said.

An RTI enquiry revealed 165 pilots were found to have high blood alcohol levels between Jan 2009 and Feb 2014:
According to a Right to Information (RTI) enquiry filed by a serving Jet Airways pilot, between January 2009 and February 2014, 165 pilots in the country were found to have high blood alcohol levels.

“It is important to take post-flight breath analyser test because a pilot will be considered as having tested positive on skipping the test. It will not be possible to explain that the test was missed inadvertently,” the Jet Airways pilot said. He added that the airlines was currently hiring additional doctors to carryout the checks.

Twelve crew members of an Air India flight from London to Mumbai have been sent on compulsory leave for 15 days as punishment for not undergoing post-flight alcohol check implemented by Directorate General of Civil Aviation (DGCA) recently.

As required under tougher rules for alcohol tests with effect from July 2014, the 12 crew members, including six air hostesses, fails to report for the post-flight breath analyser checks on their return to Mumbai from London last month. Not reporting for tests as per the modified rules is considered as being alcohol-positive.

Centre spent Rs. 320 cr on R-Day last year:
Ever wondered how much the Republic Day ceremony at Rajpath, with all its smart marches, colorful tableaus and performing artists, costs to put together? A query under the RTI Act has elicited a response from the Central Public Works Department (CPWD) that says the Centre spent Rs. 320 crore in the four-hour parade in 2014.

Over the years, the expenses on Republic Day celebrations have risen quite substantially. In 2001, the expenditure was Rs. 145 crore.

The Rs. 145 crore that was incurred by the Centre in the financial year 2000-01 rose to Rs. 226 crore in 2003-04. For the next three years, though, expenditure decreased somewhat, in step with a not-so-healthy economy. In 2006- 07, the government spent Rs. 149 crore on the celebrations.

The budget for the R-day function was then increased by 34.16% in 2007-08, and the Centre spent Rs. 227 crore that year. In 2009-10, it went up to Rs 285 crore.

There were slight decrease in the budget in 2011 and 2013, but the Centre ended up spending robust Rs. 320 crore in 2014. In comparison to the amount spent in 2001, the budget for the parade last year shot up by 54.51%.

Man refuses to stay standing, arrested:
The Tamil Nadu State Information Commission (TNSIC) had an RTI applicant arrested for taking a chair in front of a two-member bench hearing his appeal. There is no rule preventing an RTI applicant from sitting during an appeal.

Chief information commissioner K. S. Sripathi and commissioner S. F. Akbar had NGO Legal Panchayat Movement president Siva Elango arrested as he sat even as they refused to accede to his request for a chair during the hearing of his appeal against rejection of an RTI application.

Elango was booked under IPC Section 353 (preventing a government servant from discharging his duty), 294 (b) (obscenity) and 506 (1) (criminal intimidation).

Police presented Elango before a magistrate, which remanded him in judicial custody for 15 days.

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Part A DECISION OF H.C. & CIC

Information, Section (2):
The Appellant, Shri Ramesh Kumar, submitted RTI application dated 20th September 2012 before the Central Public Information Officer (CPIO), Punjab National Bank, Lucknow; seeking information regarding challans through which Income Tax had been deducted from his salary and was deposited with the Income-Tax Department through wrong PAN number etc., through a total of 5 points.

The appellant preferred an appeal dated 10th November 2012 to the first appellate authority (FAA) when he did not receive any information from the CPIO concerned within stipulated time period. Vide reply dated 27th November 2012, CPIO furnished information on point no. 1 and informed on point nos. 2 to 5 that the requested information was 5 to 6 years old, due to which they were facing problems in retrieving the same, and they will furnish the same one they retrieve it. Vide order dated 17th December 2012, FAA held that CPIO has already furnished the information vide letter dated 27-11-2012 and also upheld the CPIO’s decision.

The appellant submitted that he is an ex-employee of the public authority and he retired on 31-3-2012. The Incometax Department had contacted the appellant information him that the public authority had failed to deposit his Income-tax for the years 2006-2011, as they had quoted wrong PAN number in the Form 16 of the appellant. Hence, he sought information under the RTI Act, about the details of the income tax deductions and deposit challan copy for the years 2006-2011. However, the CPIO had only provided information pertaining to years 2009-2011. The information for the year 2006-2009 had not been provided. The appellant submitted that the information would help in settling up the tax issues with the Income Tax Department.

In the second appeal before CIC, the appellant did not inform the bank about the wrong PAN number when the matter came to their notice they corrected the PAN number and submitted revised I.T. return. The tax deducted was not deposited on an individual basis but in consolidated manner (branch wise) by the public authority, hence information sought is not held by the office in the format sought in the RTI application. The copies of month wise bank certificates can be provided to the appellant for the years 2006-2011. They have provided all Form 16 asked for by the appellant. The challan copies for depositing the tax were not available so they provided the copies of acknowledgement for that period.

The CPIO’s submissions are accepted by the Commission that information as held has been provided. However, the CPIO is directed to provide additional information to the appellant regarding the copies of month wise certificate of Income-Tax deducted for the years 2006-2011 within one week of the receipt of the order of the Commission.

[Shri Ramesh Kumar vs. Punjab National Bank, Lucknow & Ors. in CIC/VS/A/2013/001377/MP, in CIC of Delhi dated 23rd July 2014]

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Ethics and U

Procedure of Enquiry (Continued) Arjun

(A) — Where is this Lord Shrikrishna gone? He says he is omnipresent. But often makes me wait! Shrikrishna

(S) — Arey, Arjun. You have already reached! Sorry, I was held up.

A — Don’t worry. We are quite used to such waiting in the tax department. Anyway, you were explaining to me the procedure for enquiry of disciplinary cases.

S — Yes. Your friend was to apply for extension of time to send a reply. Did he do that?

A — Yes, he did. But there is no response from the Institute.

S — That does not mean that he should just wait for reply and do nothing till then. Usually, they do grant additional time of 15 to 20 days.

A — Ok. He has prepared some reply. He is alleging that the complainant himself is a bad person and the complaint is frivolous.

S — Y our friend must be feeling that he had helped the complainant in the past, and now the complainant is acting vindictively! Right?

A — Yes, precisely. How can he complain when he is himself a defaulter? One should come with clean hands before the Court for justice.

S — You are right. But that is in general jurisprudence. Here, your Council has no jurisdiction over nonmember.

A — So, anybody can complain? The Council cannot do anything to outsiders? They will catch hold of only the members?

S — Unfortunately, yes. There are other fora where you can seek justice by retaliating. But your Council is concerned only with the good behaviour of members.

A — Why so?

S — Because the Council has to uphold the reputation of the whole profession. Misconduct of any member adversely affects the image of the profession and it is harmful to all other members.

A — I appreciate what you mean. Then what should my friend do?

S — He should write a proper reply to the point. Each and every point alleged by the complainant should be tackled systematically. One should write objectively and not emotionally. All paragraphs should be serially numbered.

A — So, a counter-attack on the complainant will not help?

S — Exactly. You may point out in a decent language as to how the complainant himself is a wrong-doer. But emphasise that you have acted properly. That is what the Council wants to see.

A — So his errors do not justify mine, right?

S — Obviously. Otherwise, how will the profession have credibility?

A — OK. What happens after he sends the explanation?

S — That explanation is simply forwarded to the complainant. He gets an opportunity to send a rejoinder.

A — Why? Even if my reply is convincing, it has to go to him?

S — Yes. They cannot close it merely on your explanation.

A — Ok. Then to his rejoinder, I can send sur-rejoinder? S — N o. You have no second inning.

A — Ah! This is unfair.

S — Under the new system, you have no further opportunity at this stage. Once these three documents are received, that is, the complaint, your reply and rejoinder, then only the Directorate examines the case.

A — Oh. Nothing till then!

S — But while scrutinising, if they want any further information or document, they will write to either party and get it.

A — After examining the case, they give the final verdict?

S — No. The Director forms what is called as a prima facie opinion; as to whether you are ‘prima facie’ guilty; or not guilty.

A — So, it is the Director who decides this? That means, the justice is left to the bureaucrats?

S — No. The Director has to present the prima facie opinion before the Board of Discipline if it is Schedule I offence.

A — And to Disciplinary Committee if it is 2nd Schedule. Correct?

S — Yes. And if mixed one, then also to DC. BOD or DC may concur or not concur with the prima facie opinion. Or even partly agree or disagree on certain items.

A — What I have understood at this stage is that your first reply itself should be as exhaustive as possible.

S — It should be supported by documentary evidence also.

A — Then what?

S — If you are not prima facie guilty, you receive an intimation that your case is closed. Otherwise, they inform you that there will be a detailed enquiry.

A — I think, this much is enough for the time being. I will explain to my friend all that you have told me. But I need to know more. Next time, you please explain to me how the enquiry is conducted. But please give your blessings to my friend so that he will not be held even prima facie guilty.
S — Tathaastu!

Note: This dialogue is based on the procedural rules contained in Chartered Accountants (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007 published in official Gazette of India dated February 28, 2007 (‘Enquiry Rules’).

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Ethics and u

Negligence – Failure to disclose a material fact

Arjuna (A) – Hey Bhagwan, last so many occasions you have been telling me the instances of negligence of a chartered accountant. Surely, it is a misconduct.

Shrikrishna (S) – Yes. That is clause (7) of Part I of Second Schedule. But remember that it covers not only gross negligence, but also the lack of due diligence.

A – I understood. But I am now tired of listening to the stories of negligence. Tell me something else today.

S – Actually, although this is one of the most serious misconduct, this clause rarely operates alone. Quite often, alongwith this clause 7, one or both of the other two items are invoked.

A – What are they?

S – First is clause (5); and then (8). These are invoked simultaneously although the net result is clause (7).

A – Tell me one by one. Don’t confuse me by explaining all of them together.

S – OK. Let us start with clause (5). It says that if the auditor is aware of a material fact which is not disclosed in a financial statement; but disclosure of it is necessary, then it is a misconduct. In short, it is a failure in performing his duty.

A – But the primary duty of disclosure is that of Management. Our Council specifically makes us write such a remark in our audit report.

S – Agreed. But that does not absolve the Auditor of his duty to comment on such deficiencies. That is the very job of an auditor. Otherwise, on what basis can you say that the accounts give true and fair view?

A – But you know, many times, clients do not tell us the full facts. Or they pressurise us not to mention certain things.

S – If you start accepting such requests from the management, then you are not fit to be an auditor. Moreover, it is also your duty to ask for information.

A – We do ask; but often, we do not insist on it. And if we report certain things, we feel the client would be in deep trouble.

S – That is a mistake. Heavens are not going to fall if you report certain discrepancies.

A – I can tell you, in many companies, fixed assets register is never maintained properly. In fact, it is not maintained at all!

S – Yet, you write a standard remark in CARO report.

A – Yes. But tell me of some other instances.

S – I must have told you of a case of an auditor of an educational trust. A very prominent educational institution had schools and colleges at multiple locations. Highly placed people were on its governing body.

A – Then what happened?

S – It had opened many bank accounts required from time to time. Sometimes, accounts were opened for temporary purpose of receiving some grants; or for particular projects which were then completed.

A – Yes. It is quite normal.

S – One junior professional was their auditor. They told him that out of some 16 bank accounts, statement of 5 accounts were not available despite follow-up with respective banks.

A – That is a common difficulty. Accounts must have been inoperative.

S – They told him that there were hardly any transactions except perhaps a few internal transfers. He believed them and did not put any remark.

A – We also avoid putting any qualification in such cases. We feel shy of doing so!

S – That’s the trouble. In the subsequent year, there was some other auditor. He found the bank statements and noticed that there was an impact of about Rs. 30,000/-. Remember, the total collection of that Trust was more than Rs. 8 crore!

A – Oh. Then the impact was negligible!

S – Subsequent year’s auditor adjusted it in the Trust Fund in the next year and again did not put any remark. The adjustment was shown in the balance sheet without any explanation.

A – Actually, for educational trusts, there is no revenue impact. Who complained in this case?

S – Surprisingly, the Income Tax department complained! This again was not revealed in scrutiny assessment; but while processing the application for renewal of section 80 G certificate, the Director of Income Tax noticed it!

A – But why is the tax department bothered about such trivial things?

S – That’s your fate! Many times, even big blunders go unnoticed; and a small thing proves fatal. I also told you long back that whether any person’s interests are adversely affected or not is not material. Council wants to ensure that its member performed his duty diligently!

A – That is all right; but why small people are victimised? So in this case, what happened?

S – Unfortunately, auditors for both the years were held guilty of professional misconduct.

A – Oh my God! The first auditor should have mentioned the fact that bank statements were not made available. He should have stated a disclaimer to that effect.

S – Yes. Thus, it is a failure to disclose a material fact. Its impact on quantum may not be material; but in principle, it is a lapse when statements of 5 out of 16 banks accounts are not available.

A – Had he taken Management Representation Letter?

S – Yes, he had obtained MRL. But his ‘stars’ were unfavourable.

A – How then, are other clauses attracted?

S – Clause (8) talks about failure to obtain sufficient information which is necessary for expression of an opinion. The negligence or lack of due diligence is the resultant failure. One has to take care of all these clauses.

A – Yes. We often consider only ‘gross negligence’ as a misconduct.

S – Important point is when a punishment is awarded; it may be for each such clause. Thus, if one’s membership is suspended, it may be one or two months for each of these clauses!

A – Then I should be more vigilant and should write the report without any such psychological inhibitions. Without fear or favour!

S – For small lapse, consequences may be too harsh!

A – God, only you can save the audit profession!

Om Shanti!

NOTE :

The above dialogue between Shrikrishna and Arjun deals with the Clause (5) and (8) of Part 1 of the Second Schedule which are often invoked alongwith Clause (7):

Clause (5): fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity.

Clause (8): fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion

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Ethics and u

Certification of projections:

Arjuna (A) – Oh God! I am really fed up. I feel I should not sign any document at all.

Shrikrishna (S) – What happened? You have been signing so many things – reports, certificates and what not!

A – Yes. But that is inviting trouble for myself.

S – If you sign diligently and carefully, why should there be any trouble. That is your very profession. That is your bread and butter.

A – I know. But people expect us to sign anything and everything under the sun! Regulators, Bankers make us sign any kind of certificate.

S – If you are not comfortable, don’t sign it. Who is forcing you to do so?

A – The relationship, Bhagwan, our relationship with client creates pressure on us.

S – Don’t make general statements. What exactly is your worry?

A – Now see, many of our clients apply for bank loans. They submit project reports. Quite often, it is prepared by us only.

S – Nothing wrong about it. Then?

A – Bankers insist that we should sign the projections.

S – How can you certify the projections? You should refuse.

A – That’s the difficulty. We CAs have not been taught to say ‘No’ at all. We try to help the client anyhow.

S – True. But client also should appreciate your difficulty.

A – That does not happen. It is a one-way traffic. They always expect us to compromise and oblige.

S – But they never reciprocate! Is it not?

A – You said it! The client sits on our head because he is impatient for the loan. The Banker also pressurises us. And many of us succumb to it.

S – Client takes the loan and in due course, becomes an NPA. Right?

A – Yes. And then the first scapegoat is the chartered accountant! Banks routinely file complaint to our Institute. We are trapped!

S – So clients emotionally blackmail you that they are not getting the loan because of your unwillingness to sign. In such a case, you should clearly tell them that your Institute does not permit you to sign any projections.

A – But I don’t understand why bankers insist on our doing irregular things?

S – Because that helps them save their skin. If anything goes wrong, they can pass the blame on you people.

A – But why can’t we sign the projections?

S – You are asking an elementary question. Paarth, you can certify only what is factual. That is the very meaning of ‘certificate’. Projections are essentially based on assumptions; and are always uncertain. If you venture to do that, you will be a ‘fortuneteller’ and not a chartered accountant.

A – Tell me, is there is no way out at all? Because if I refuse to sign, client says he can obtain signature from hundreds of other CAs.

S – You people lack unity. That is why people take you for a ride. The quacks bring disrepute to your profession. They can sign anything.

A – And that spoils our relationship with the client. He feels unhappy with us!

S – You should read and understand AAS-35 – now SAE 3400. It does permit you to sign projections if you fulfil certain conditions.

A – What are those conditions?

S – I can’t explain all the details. But broadly, the assumptions should be realistic and reasonable. They should be clearly stated. Even hypothetical assumptions should be consistent with the purpose of the information.

A – What other things should we see?

S – If any study or survey is done by some agency, you should obtain the report. You should also study the track record and history of the entity. Moreover, projections should be restricted to a reasonable time period in future. Further, you should also judge the management’s competence to prepare proper projections.

A – I think I should also read that SAE 3400 and show it to the client.

S – Most important, you should ensure a clear engagement letter and also insist that all the representations of the management are in writing and signed by them.

A – My friends at district level areas find it all the more difficult to tackle such situations. They have very limited work opportunities and have to compromise on many things.

S – And there is often an unhealthy rivalry.

A – I feel the Council or its Committee should take up the matter with the managements of the Banks and ask them not to insist on such things.

S – Yes. And your local associations and study circles also can make representations to the Banks.

A – There is yet another problem. One bank asked a CA to give a certificate that all statutory dues have been paid. How can one certify that? In our country, there are hundreds of laws. It is impossible to visualise all of them.

S – Very true. In such cases, you should specify the various laws that are commonly applicable to such entities and restrict your certificate to only those statutes. There cannot be a generalised certificate. Even under CARO, only specific laws are covered.

A – But tell me. If one gives such certificate, who is going to see that? Banks say it is just for their record.

S – So long as everything is smooth, there is no problem. But once the unit starts defaulting in servicing the loans, banks will take out all these certificates. And it is a serious misconduct. It is gross negligence as well as lack of due diligence. Many disciplinary cases are coming up on this count! And not following the accounting and auditing standards is clearly a misconduct.

A – I will take up this issue in our study circle and do something concrete to save our fellow-members.

S – Good. That is why you are so dear to me!

Om Shanti!

NOTE :

The above dialogue between Shrikrishna and Arjun deals with the Clause (3) of Part 1 of the Second Schedule which are often invoked alongwith Clause (7). It states that:

A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he-

Clause (3): permits his name or the name of his firm to be used in connection with an estimate of earnings contingents upon future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast.

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Allied Laws

14.
Duty to Court – Advocates not to cite wrong judgments & mislead the
Court – No excuse for lawyers for not cross-checking status of judgments – Task
of an advocate is perhaps more onerous – Duty to the court, duty of fidelity to
the law, if anything, it is higher now. [Principles of Law, Code of Ethics for
Professionals]

Heena Nikhil Dharia vs. Kokilaben Kirtikumar Nayak NOTICE
OF MOTION (L) NO. 3117 of 2016 (Bom) (HC) (unreported)

The learned judge has cited several instances where the
learned counsel appearing for one of the parties cited judgements as being
binding authority even though the said judgements had been overruled.

The learned Judge records with “profound sadness” that before
pronouncing the judgement, he specifically asked the counsel whether he still
maintained that the judgements cited by him were good law and that the counsel
confirmed that he did and that both are binding precedents. “It was clear that
Mr. Shah was completely unaware of the appeal court orders, and, too, the
subsequent orders in Sajanbir Singh Anand,”

As Lord Denning MR in Randel vs. W. (1996) 3 All E. R. 657
observed:

“The Code which obligates the Advocate to disregard the instructions
of his client, if they conflict with his duty to the Court, is not a code of
law — it is a code of honour. If he breaks it, he is offending against the
rules of the profession and is subject to its discipline.”

The Judge made it clear that whatever may have been the
position in the past, there is today no excuse for the casual and careless
approach of Advocates given the fact that all judgements are available in
online databases.

Conveying the message that, Don’t make the Court lose its
way, the Court stated :

“Judges need the Bar and look to it for a dispassionate
guidance through the law’s thickets. When we are encouraged instead to lose our
way, that need is fatally imperilled,”

15.
Family – Does not include mother of unmarried deceased employee – Entire
pension to be payable to widow of employee – However, the assets may be
distributed amongst mother and widow, if employee died intestate [Employees
Provident Fund and Miscellaneous Provisions Act, 1952; Section 6A – Family
Pension Scheme, 1964; Cl. 4(ii)].

Nitu vs. Sheela Rani And Ors AIR 2016 SUPREME COURT 4552

The learned counsel appearing for the appellant-widow
submitted that the appellant-widow is the only person who is entitled to the
pension as per the provisions of the Family Pension Scheme. It was also
submitted that pension is paid in pursuance of the afore-stated Scheme and
therefore, pension cannot be treated as other assets of the deceased and
according to the provisions of the Scheme, only the appellant-widow is entitled
to the pension.

On the other hand, the learned counsel appearing for the
respondent-mother submitted that she being a class-I heir of a Hindu of the
deceased who died intestate, she is entitled to one-half share of the
properties of the deceased, as he was survived by his widow and the mother.

The learned counsel appearing for the State supported the
case of the appellant-widow and submitted that in the Scheme, the term “family”
has been defined and in the instant case, the widow of the deceased is the only
person who is entitled to pension and therefore, the impugned order deserves to
be quashed and set aside so that the entire amount of pension can be paid to
the appellant.

Clause 4(ii) of the Scheme defines the term “family”, which
reads as under :-

4(ii). “Family” for the purpose of this scheme includes the
following relatives of the officer:-

– wife, in the case of a male officer;

– husband, in the case of a female officer;

– minor sons;

– unmarried minor daughters;

– widowed/legally divorced daughters; and the
parents of an unmarried officer.”

So far as the respondent mother is concerned, she has not
been included in the definition of the term “family” for the reason that as per
the provisions of sub-clause (f), parents of an unmarried officer would be a
part of the family and therefore, the respondent mother would not be included
in the family of deceased as he was married.

So far as the provisions of the Hindu Succession Act, 1956,
are concerned, it is true that the properties of a Hindu, who dies intestate
would first of all go to the persons enumerated in class I of the schedule as
per the provisions of Section 8 of the said Act and therefore, so far as the
properties of the deceased are concerned, they would be divided among the
respondent mother and the appellant wife, provided there is no other family
member of late Shri Yash Pal alive, who would fall within class 1 heirs, but
the position in this case, with regard to pension, is different.

16.
Legal Practitioners – Publicity for Judges and Legal Practitioners must
not be encouraged – Amounts to breach of Professional Ethics and Professional
Conduct – Only the name of High Court should be used by Print Media and not the
names of Judges or the legal Practitioners. [Constitution of India – Art 217,
Advocates Act, 1961, Section 35; Law Reports Act, 1875, S.4]

S. Baskar Mathuram vs. The State of Tamil Nadu and Ors.
AIR 2016 MADRAS 178

The whole basis for seeking extravagant reliefs through
filing a Writ Petition appears to be an act of obtaining gaining popularity and
publicity, so that the law practitioner filing such a writ, could attract more
number of clients.

Such a practice would amount to an unethical practice of
soliciting one’s work. If the code of conduct prescribed by the Bar Counsel is
not adhered to, whether directly or indirectly, it must attract corrective actions.

Hence, the Registrar was directed to initiate necessary
action for breach of Code of Ethics and Professional Behaviour.

The court also directed the Registrar (Administration) to
request the Print, Electronic and Media House, not to publish the individual
names of the Judges, unless it is so essentially required. The reason being,
every Judge of the High Court is carrying on with his work sitting in a
particular division/roster as assigned by the Hon’ble Chief Justice. The Judges
do perform their duties dispassionately and to the extent possible by not
allowing their individual notions and philosophies to be a guiding factor in
deciding the causes brought before them. Therefore, we feel that the names of
the Judges should not be published and on the other hand, the name of the High Court alone should be published.

17.
Limitation on filing suit – Suit instituted within 3 years of attaining
majority – Not barred by limitation – Plaintiffs even though majors were not
managers/karta of Joint
family – Not capable of discharging without concurrence of other members of the
family [Hindu Minority and Guardianship Act, 1956; Section 8, Limitation Act,
1963; Section 7, Constitution – Article 60, 109, 110, 113]

Narayan vs. Babasaheb and Ors. AIR 2016 SUPREME COURT 1666

The Hon’ble Court was of the considered opinion that a quondam
minor Plaintiff challenging the transfer of an immovable property made by
his guardian in contravention of section 8(1)(2) of the Hindu Minority and
Guardianship Act 1956 which states the powers of a natural guardian, and who
seeks possession of property can file the Suit only within the limitation
prescribed under Article 60 of the Limitation Act and Articles 109, 110 or 113
of the Limitation Act are not applicable to the facts of the case.

In view of the above discussion, the limitation to file the
present Suit is governed by Article 60 of the Limitation Act and the limitation
is 3 years from the date of attaining majority. When once the Court arrives at
a conclusion that Article 60 of the Act applies and the limitation is 3 years,
the crucial question is, when there are several Plaintiffs, what is the
reckoning date of limitation?

A reading of section 7 of the Limitation Act, 1963, makes it
clear that when one of several persons who are jointly entitled to institute a
suit or make an application for the execution of the decree and a discharge can
be given without the concurrence of such person, time will run against all of
them but when no such discharge can be given, time will not run against all of
them until one of them becomes capable of giving discharge.

In the case on hand, the 1^st Plaintiff was 20
years old, the 2^nd Defendant was still a minor and the Plaintiffs 3,
4 and 5, who are married daughters, were aged 29, 27 and 25 respectively on the
date of institution of the Suit in the year 1989. As per Explanation 2 of
section 7 of the Limitation Act, 1963, the manager of a Hindu undivided family
governed by Mithakshara law shall be deemed to be capable of giving a
discharge without concurrence of other members of family only if he is in
management of the joint family property. In this case, Plaintiffs 3 to 5 though
major as on the date of institution of Suit will not fall under Explanation 2
of Section 7 of the Limitation Act as they are not the manager or Karta
of the joint family.

The 1^stPlaintiff was 20 years old as on the date
of institution of the Suit and there is no evidence forthcoming to arrive at a
different conclusion with regard to the age of the 1^st Plaintiff. In
that view of the matter, the Suit was instituted well within three years of
limitation from the date of attaining majority as envisaged under Article 60 of
the Limitation Act.

Hence, in view of the above discussion, the Court held that
the appeal was devoid of merits and it deemed it appropriate to dismiss the
appeal.

18.
Registered Document – Operates from date of its execution – Not from the
date of its Registration [Registration
Act, 1908; Section 47]

Principal Secretary, Government of Karnataka and Ors. vs. Ragini Narayan and Ors. AIR 2016 Supreme Court 4545

One of the Disputes which arose was with respect to the date
from which the document is said to start to operate when the document
registration was on a date subsequent to date of execution.

It was contended that the
Deed of Nomination dated 16.01.1995 was not a valid document. It was pointed
out that the amended deed based on Resolution dated 10.12.1994 was not
registered, by the date 16.01.1995 as the registration is said to have been
done only on 30.01.1995. As such, delegation of power in favour of the
Plaintiff on 16.01.1995 is not valid. It was vehemently argued that since the
amendment registered on 30.01.1995 was a non-starter as such the same was non-effective.

Section 47 of Registration Act, 1908 reads as under:

Time from which registered document operates. – A registered
document shall operate from the time at which it would have commenced to
operate if no registration thereof had been required or made, and not from the
time of its registration.

In view of the above provision of law, the
Hon’ble Court held that if there is a document registered on a subsequent date,
it starts to operate from the date of execution and not from the date of
registration.

BCAJ Admin

RBI /FEMA

Given below are the highlights of certain RBI Circulars &
Notifications

53. A. P. (DIR Series)
Circular No. 6 dated October 20, 2016

Review of sectoral caps and simplification of Foreign Direct
Investment (FDI) Policy

This circular highlights the salient features of various
amendments made to the Consolidated FDI Policy by the Central Government from
time to time. The effect of these changes to the Consolidated FDI Policy, on
Notification No. FEMA. 20/2000-RB dated 3^rd May 2000 – Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident outside
India) Regulations, 2000, have been notified by RBI vide the following 3
Notifications: –

1. Notification No.
FEMA.354/2015-RB dated October 30, 2015, (c.f. G.S.R No.823 (E) dated October
30, 2015).

2. Notification No. FEMA
361/2016-RB dated February 15, 2016 (c.f. G.S.R No 165(E) dated February 15,
2016).

3. Notification No. FEMA
362/2016-RB dated February 15, 2016, (c.f. G.S.R No. 166 (E) dated February 15,
2016).

54. A. P. (DIR Series)
Circular No. 7 dated October 20, 2016

Notification No. FEMA 363/2016-RB dated April 28, 2016

Investment by a Foreign Venture Capital Investor (FVCI) registered
under SEBI (FVCI) Regulations, 2000

This circular states that Schedule 6 of Notification No. FEMA.
20/2000-RB dated 3^rd May 2000 – Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) Regulations,
2000, dealing with Investment in India by SEBI registered Foreign Venture Capital
Investors (FVCI) has been amended.

The amendments provide that SEBI registered FVCI: –

1. Will not have to obtain
RBI permission for making investments under this Schedule.

2. Can invest in equity or
equity linked instruments or debt instruments issued by an Indian company whose
shares are not listed on a recognised stock exchange at the time of issue of
the said securities / instruments provided the Company is engaged in any of the
following sectors: –

i)
Biotechnology

ii)
IT related to hardware and software
development

iii)
Nanotechnology

iv)
Seed research and development

v)
Research and development of new chemical
entities in pharmaceutical sector

vi)
Dairy industry

vii)
Poultry industry

viii)
Production of bio-fuels

ix)
Hotel-cum-convention centres with seating capacity of more than three thousand

x)
Infrastructure sector.

3. Can invest in equity or
equity linked instruments or debt instruments issued by an Indian ‘startup’
irrespective of the sector in which the startup is engaged.

4. Can invest in units of a
Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund
(Cat-I AIF) (registered under the SEBI (AIF) Regulations, 2012) or units of a
Scheme or of a fund set up by a VCF or by a Cat-I AIF. However, the VCF or
Cat-I AIF, which has received investment from FVCI, will have to comply with
the provisions for downstream investment as laid down in Schedule 11.

5. Can open a foreign
currency account and / or a rupee account with a designated bank branch for the
purpose of making transactions only and exclusively under this Schedule.

6. Must pay for all
investments out of inward remittance from abroad through normal banking
channels or out of sale / maturity proceeds of or income generated from
investment already made as per details mentioned above.

7. Can, without restriction,
transfer any security / instrument held by it to any person resident in or
outside India.

The entity receiving investment directly from a registered FVCI
must report the investment in form FCGPR.

55. A. P. (DIR Series)
Circular No. 8 dated October 20, 2016

Notification No. FEMA 375/2016-RB dated September 9, 2016

DIPP Press Note No. 6 (2016
Series) dated October 25, 2016

Foreign investment in Other
Financial
Services

Para 5.2.26 – “Non-Banking Financial Companies” – of the
Consolidated FDI Policy for 2016 has been replaced as under: –

Sector/Activity

% of Equity/

FDI cap

Entry Route

Other Financial Services

Financial Services
activities regulated by financial sector regulators, viz., RBI, SEBI, IRDA,
PFRDA, NHB or any other financial sector regulator as may be notified by the
Government of India.

100%

Automatic

Other Conditions

i. Foreign investment in ‘Other Financial Services’ activities
shall be subject to conditionalities, including minimum capitalization norms,
as specified by the concerned Regulator/Government Agency.

ii. ‘Other Financial Services’ activities need to be regulated by
one of the Financial Sector Regulators. In all such financial services
activity which are not regulated by any Financial Sector Regulator or where
only part of the financial services activity is regulated or where there is
doubt regarding the regulatory oversight, foreign investment up to 100% will
be allowed under Government approval route subject to conditions including
minimum capitalization requirement, as may be decided by the Government.

iii. Any activity which is specifically regulated by an Act, the
foreign investment limits will be restricted to those levels/limit that may
be specified in that Act, if so mentioned.

iv. Downstream investments by any of these entities engaged in
“Other Financial Services’ will
be subject to the extant sectoral regulations and provisions of Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2000, as amended from time to time

56. A. P. (DIR Series)
Circular No. 9 dated October 20, 2016

Rupee Drawing Arrangement – Trade related remittance limit

This circular states that the maximum value per trade transaction
under the Rupee Drawing Arrangement cannot be more than Rs. 15 lakh.

57. A. P. (DIR Series)
Circular No. 10 dated October 20, 2016

External Commercial Borrowings (ECB) –
Extension and conversion

Presently, banks are permitted to approve changes in repayment
schedule of ECB prior to its maturity only if the average maturity and
all-in-cost are in conformity with applicable ceilings / norms.

This circular provides that banks can, subject to applicable
guidelines, also (a) grant extension and (b) permit conversion into equity – of
matured but unpaid ECB if: –

i. No additional cost is incurred.

ii. Lender’s
consent is available.

iii.
Reporting requirements are fulfilled.

58. A. P. (DIR Series)
Circular No. 11 [(1)/14(R)] dated
October 20, 2016

Foreign Exchange Management (Manner of
receipt and payment) Regulations, 2016

This circular highlights the changes made to the Foreign Exchange
Management (Manner of receipt and payment) Regulations, 2016 which have been
notified vide Notification No. FEMA 14 (R)/2016-RB dated May 02, 2016.

The changes pertain to: –

1. Manner of receipt in
foreign exchange from: –

a. Members of the Asian
Clearing Union (ACU).

b. All other countries.

2. Manner of payment in
foreign exchange from: –

a. Members of the Asian
Clearing Union (ACU).

b. All other countries.

59. A. P. (DIR Series)
Circular No. 13 dated October 27, 2016

External Commercial Borrowings (ECB) by Startups

This circular contains the framework for raising ECB by Startups
recognised as such by the Central Government. The main highlights of the
framework are: –

Maturity: Minimum average maturity period must be 3 years.

Recognised lender: Lender / investor must be a
resident of a country who is either a member of Financial Action Task Force
(FATF) or a member of a FATF-Style Regional Bodies. However, the lender /
investor must not be: –

1. From a country identified
in the public statement of the FATF as: –

i. A jurisdiction having a
strategic Anti-Money Laundering or Combating the Financing of Terrorism
deficiencies to which counter measures apply; or

ii. A jurisdiction that has
not made sufficient progress in addressing the deficiencies or has not
committed to an action plan developed with the Financial Action Task Force to
address the deficiencies.

2. An Overseas branch /
subsidiary of an Indian bank and / or overseas wholly owned subsidiary / joint
venture of an Indian company.

Forms of Borrowing: Borrowing can be in the form of
loans or non-convertible, optionally convertible or partially convertible
preference shares. Also, the funds must come from a country which qualifies as
a Recognised Lender as mentioned above.

Currency: The borrowing must be denominated in any freely convertible
currency or in Indian Rupees (INR) or a combination of both. In case of
borrowing in INR, the non-resident lender, is required to mobilize INR through
swaps / outright sale undertaken through a bank in India.

Amount: Borrowing per Startup is limited to US $ 3 million or equivalent
per financial year either in INR or any convertible foreign currency or a
combination of both. However, provisions on leverage ratio and ECB liability:
Equity ratio will not be applicable.

All-in-cost: Must be mutually agreed between the borrower
and the lender.

Permitted End-uses: For any expenditure in connection
with the business of the borrower.

Conversion into equity: Subject to applicable Regulations
for foreign investment in Startups, conversion into equity is freely permitted.

Security: The choice of security to be provided to the lender is left to
the borrowing entity. Security can be in the nature of movable, immovable,
intangible assets (including patents, intellectual property rights), financial
securities, etc., and shall comply with foreign direct investment / foreign
portfolio investment / or any other norms applicable for foreign lenders /
entities holding such securities.

Corporate and personal guarantee: Issuance of corporate or
personal guarantee is allowed. Guarantee issued by non-resident(s) is allowed
only if such parties qualify as recognised lender(s) as mentioned above. However,
issuance of guarantee, standby letter of credit, letter of undertaking or
letter of comfort by Indian banks, all India Financial Institutions and NBFC is
not permitted.

Hedging: Where ECB is in INR the overseas lender can hedge its INR
exposure through permitted derivative products with banks in India. The lender
can also access the domestic market through branches / subsidiaries of Indian
banks abroad or branches of foreign bank with Indian presence on a back to back
basis.

Conversion rate: In case of borrowing in INR, the
foreign currency – INR conversion must be at the market rate on the date of
agreement.

Other provisions: The Startup will have to comply
with existing provisions like parking of ECB proceeds, reporting arrangements,
powers delegated to banks, borrowing by entities under investigation, etc.

60. Circular No.
FMRD.DIRD.10/14.03.01/2016-17 dated October 28, 2016

Money Market Futures

Presently, only futures based on the 91-day Treasury Bill, which
is a money market instrument are permitted.

This circular now permits futures based on any money market
instrument or money market interest rate. Notification regarding the same is
enclosed with this Circular.

61. A. P. (DIR Series)
Circular No. 14 dated November 03, 2016

Issuance of Rupee denominated bonds overseas by Indian banks

This circular now permits Indian banks, subject to certain
conditions and within the overall limit for foreign investment in corporate
bonds of Rs. 244,323 crore, to issue: –

i. Perpetual Debt
Instruments (PDI) qualifying for inclusion as Additional Tier 1 capital and
debt capital instruments qualifying for inclusion as Tier 2 capital, by way of
Rupee Denominated Bonds overseas; and

ii. Long term Rupee
Denominated Bonds overseas for financing infrastructure and affordable housing.

62. A. P. (DIR Series)
Circular No. 15 dated November 07, 2016

External Commercial Borrowings (ECB) – Clarifications on hedging

This circular, with respect to hedging of ECB, clarifies as under:
–

i. Coverage: Wherever hedging has been mandated by the RBI,
the ECB borrower will be required to cover principal as well as coupon through
financial hedges. The financial hedge for all exposures on account of ECB
should start from the time of each such exposure (i.e. the day liability is
created in the books of the borrower).

ii. Tenor and rollover: A minimum tenor of one year of
financial hedge would be required with periodic rollover duly ensuring that the
exposure on account of ECB is not unhedged at any point during the currency of
ECB.

iii. Natural Hedge: Natural hedge, in lieu of financial hedge, will be considered only to
the extent of offsetting projected cash flows / revenues in matching currency,
net of all other projected outflows. For this purpose, an ECB may be considered
naturally hedged if the offsetting exposure has the maturity/cash flow within
the same accounting year. Any other arrangements/ structures, where revenues
are indexed to foreign currency will not be considered as natural hedge.

Further, it will be the banks responsibility to verify that 100%
hedging requirement is complied with.

63. A. P. (DIR Series)
Circular No. 16 dated November 09, 2016

Government of India Notification published in the Gazette of India
vide S.O.3408(E) dated November 08, 2016

Withdrawal of the legal tender character of the existing and any
older series banknotes in the denominations of ? 500 and ? 1000

This circular provides that older series banknotes in the
denominations of ? 500 and ? 1000 will continue to be legal tender until
November 11, 2016 to the extent of transactions specified below: –

(i) At international airports, for arriving and departing
passengers, who possess specified bank notes, the value of which does not
exceed ? 5,000 to exchange them for notes which are legal tender; and

(ii) For foreign tourists to exchange foreign
currency or specified bank notes, the value of which does not exceed ? 5,000,
to exchange them for notes which are legal tender.

64. A. P. (DIR Series)
Circular No. 17 dated November 11, 2016

Issue of Pre-Paid Instruments to foreign tourists

This circular permits Authorized Persons may
issue Pre-paid instruments to foreign tourists in terms of the instructions
issued by Department of Payments and Settlement System, Reserve Bank of India,
in exchange of foreign exchange tendered. Passport of the foreign tourist will
be a valid document for issuance of the said instruments.

65. A. P. (DIR New Series)
Circular No. 18 [(1)/12 (R)]dated November 17, 2016

Notification No. FEMA. 12(R)/2015-RB dated December 29, 2015

Foreign Exchange Management (Insurance) Regulations, 2015

This Notification repeals and replaces the earlier Notification
No. FEMA 12/2000-RB dated May 3, 2000 pertaining to Foreign Exchange Management
(Insurance) Regulations, 2000.

Annexed to this circular are: –

a. Memorandum of Foreign
Exchange Management Regulations relating to General/Health Insurance (GIM) in
India.

b. Memorandum of Foreign
Exchange Management Regulations relating to Life Insurance (LIM) in India.

66. A. P. (DIR Series) Circular No. 19 dated
November 17, 2016

Notification No. FEMA 374/2016-RB dated October 24, 2016

Investment by Foreign Portfolio
Investors (FPI) in corporate debt securities

This circular permits FPI to invest
in the following additional instruments: –

1. Unlisted corporate debt
securities in the form of non-convertible debentures/bonds issued by public or
private companies subject to minimum residual maturity of three years and end
use-restriction on investment in real estate business, capital market and
purchase of land.

2. Securitised debt
instruments as under: –

(a) any certificate or instrument
issued by a special purpose vehicle (SPV) set up for securitisation of asset/s
where banks, FIs or NBFCs are originators; and/or

(b) any certificate or instrument
issued and listed in terms of the SEBI Regulations on Public Offer and Listing
of Securitised Debt Instruments, 2008.

However, investment by FPI in the
unlisted corporate debt securities and securitised debt instruments must not
exceed Rs. 35,000 crore and must be within the extant investment limits
prescribed for corporate bond – the present limit is Rs. 2,44,323 crore.
Further, investment in securitised debt instruments will not be subject to the
minimum 3-year residual maturity requirement. _

BCAJ Admin

Ethics And U

Shrikrishna (S) — Arey Arjun, I am waiting here for you since long. You were to come at 5. It is already 5.45.

Arjun (A) — Very sorry, Bhagwan. Got held up in income tax office.

S — Why? Now all scrutiny assessments must be over. April is a relaxing month. Isn’t it?

A — For CAs, there is no relaxation at all. We have to work like donkeys. There is so much harassment for recovery of tax.Clients’ accounts are attached, prosecution notices are being issued like a child’s play.
.
S — Is it? Why prosecution?

A — The less said the better. I.T. authorities have innovative brains. They are always searching for new avenues to harass the assessees. And the entire burden falls on CAs – with no fees!

S — Anyway! That’s a permanent headache of our country.

A — I feel, bureaucracy does not want transparency. They don’t want discipline and digitalisation.

S — Why? That will reduce their workload.

A — But they may be having vested interests in allowing the state of confusion to continue. They may be interested in manual intervention, for reasons best known to them!

S — That’s an endless subject. Last time, we discussed the preliminaries of NFRA.

A — Yes. I remember. Now I am worried about bank audits. Days are very bad for CAs.

S — I agree. CAs are projected to be main culprits in all financial frauds. That’s unfortunate. But sometimes, you CAs also behave very loosely.

A — What do you mean? We work round the clock – with no family life. And we are the most underpaid profession.

S — May be! But you don’t follow even simple systems. First and foremost is the time discipline. You people are never on time!

A — It is partly true. But we are always at the mercy of others!

S — You have made yourselves vulnerable; always a soft target. You have allowed yourselves to be taken for granted.

A — What to do? Business community is so dominant! We can’t afford to say ‘no’ to them. They simply go away and catch hold of another CA.

S — That’s the pity. You lack unity. You come together for academic discussions; but never for collective action! And you have developed a habit of ‘managing’ everything.

A — Yes. Even CPE hours we try to ‘manage’. But the recent episode of bank frauds has caused turmoil in the profession. I wonder whether I should do any bank audit at all!

S — If you act methodically, you should have nothing to fear from.

A — But they don’t allow us to work systematically. There are strict timelines. A big branch to be audited in barely 3 to 4 days. And no one co-operates. Poor branch manager alone has to face the music.

S — But what prevents you from keeping your own papers right? Tell me, do you write to previous auditor?

A — Why should we write? Appointment is made by RBI or the Board of a nationalised bank.

S — My dear, Arjun. There is no exception to clause (8). Whosever appoints you, whatever be the organisation, and whatever be the type of audit, writing to previous auditor is a must.

A — But then how can we meet the deadline if we wait for his reply?

S — In this particular context, you need not wait; but writing you cannot avoid.

A — I must keep this in mind.

S — Moreover, you don’t keep working papers. You know that the work should not only be done; but it should be seen to be done. And while doing audit, you should always have professional skepticism.

A — What is that? You mean we should suspect everything?

S — No. Not that way. But you cannot afford to accept everything in good faith and at face value.

A — But when reputed organisations produce documents before us, how can we disbelieve that?

S — But you should learn to verify independently the truth of every statement of a client. He should get a feeling that you verify every document, it has a psychological impact. And when there is slightest of suspicion, you should take it to its logical end.

A — What you say is right. Very often, we just leave it like that. We avoid to escalate the matter.

S — Do you ensure that your assistants are properly trained? Tell me, have you ever read the Standards on Auditing?

A — You mean SAs?

S— Yes. I believe, most of you carry out the audit just by common sense, without studying the relevant material properly. You never make efforts to upgrade yourselves. Do read SA 200 and SA 240 before you do any audit now.

A — But we really slog. We do the work sincerely. And there is no time for documentation and correspondence.

S — That is precisely where you lack. Documentation is a must.

A — I know. There are many big firms. They do not really do much indepth audit; but merely compile thick files of working papers.They command fat fees. All these laws and ethics, I feel, apply only to small people like us. After all, might is right.

S — Don’t say so.

A — I have a few friends who have affiliations with some foreign firms and they enjoy the brand, they do advertising under the corporate shield, they do anything they like. Nobody is going to ask them in our country.

S — Arjun, I understand your grievance. But don’t worry. Now Supreme Court has taken serious cognizance of all these activities of Multinational firms.

A — Oh! When was that? Good, Good. Tell me some details.

S — Supreme Court delivered its decision on 23rd February, 2018. Very detailed discussion. I suggest you read it yourself. But don’t read it just for fun. Learn something from it and try to implement the basic principles of ethics.

A — O Lord! I always obey your commands!

!!OM Shanti!!

Note:
This dialogue is in the context of recent scandal of PNB, ensuing bank audits and also the Hon’ble Supreme Court decision in respect of Multinational Accounting Firms (MAFs). – Civil Appeal No. 2422 of 2018 [Arising out of Special Leave Petition (civil) no. 1808 of 2016].

BCAJ Admin

Corporate Law Corner

1. Yenugu Krishna Murthy vs. UOI

W.P. Nos. 7819, 7820/2018 and 7821/2018 (GM-RES)

Date of Order: 26^th February, 2018

Section 164(2) read with section 167 of the
Companies Act, 2013 – The said section is constitutionally valid – Validity of
provision of law cannot be questioned merely because it operates a little
harshly on the directors of defaulting company

FACTS

Y was a director under the
Companies Act, 2013. His DIN status appeared as “disqualified” on the website
of Ministry of Corporate Affairs. The reason for the same in brief was
“Violated Section 164(2)(a)”. Y admittedly, did not seek a copy of
the order from the Registrar Of Companies (“ROC”). Further neither had he approached
ROC nor was he served any show cause notice or adjudication order u/s. 164(2)
of Companies Act, 2013 (“the Act”).

Before the High Court, it
was urged that directors were put in a very piquant and irreparable situation
and even if, disqualification on account of non-filing of financial statements
and Annual Returns in one company does take place for which they may not be
personally liable, they incur the ‘disqualification’ u/s. 164(2)(a) of the Act
and they are deemed to have vacated the office of the director in other such
companies also as per section 167 of the Act.

HELD

The High Court held that
the writ petitions in the instant case were premature as the directors did not
even try to approach the appropriate authority under the Act, namely, the ROC,
seeking even a copy of the order u/s.164(2)(a) of the Act, which might have
been passed by it. In absence of adequate facts the High Court could not
conclude whether Y was at fault or not; whether he had brought the relevant
facts to the notice of the ROC or not.

If Y had approached the ROC
with the relevant facts, it would be duty bound to pass a reasoned and speaking
order. ROC has the quasi-judicial powers and an obligation under the Act to
pass such appropriate orders in the matter.

As far as constitutional
validity of sections were concerned, the High Court observed that provisions
could not be held to be illegal, unconstitutional or ultra vires merely
because they may operate harshly against the Directors of the defaulting
company. It observed that the academic questions or the legislative wisdom is
not the subject matter to be decided by the Courts of law unless such questions
are raised in properly instituted cases, based on proper factual foundation of
the case.

Accordingly, the writ
petitions were dismissed by the Court.

2. Dr. Reddy’s Research Foundation vs. Ministry of Corporate
Affairs

[2018] 142 CLA 351 (AP HC)

Date of Order: 6^th October, 2017

Rule 14 of the Companies (Appointment and Qualification of
Directors) Rules, 2014 – There is a lacuna in the procedure that is required to
be followed by the Companies, which are defaulted in filing their annual
returns and the consequent disqualification of the Directors to rectify the
defect.

FACTS

D Co had failed to furnish
annual returns for the years 2011-12 to 2015-16 and financial statements for
the years 2012-13 to 2015-16. Consequently, the directors of the company were
disqualified to act as directors under the provisions of Companies Act, 2013.

Rule 14 of the Companies (Appointment
and Qualification of Directors) Rules, 2014, prima facie provides for
rectifying the defect by enabling the defaulting companies to file their
returns. The company will have to act through its Directors in order to do so.
However, as the directors are disqualified, they are not able to file these
returns because the e-platform through which this is required to be done cannot
be accessed owing to the disqualification.

D Co thus, approached the
High Court seeking remedy for the inherent inconsistency.

HELD

The High Court observed
that there is a lacuna in the procedure that is required to be followed by the
Companies, which are defaulted in filing their annual returns and the
consequent disqualification of the Directors to rectify the defect.

Taking a note of the
anomalous situation, the High Court directed that the DIN of the directors be
restored in respect of D Co so that they are able to submit the returns in
accordance with Rule 14.

3. Power Grid Corporation of India Ltd. vs. Jyoti Structures Ltd.

[2018] 142 CLA 285 (Del HC)

Date of Order: 11^th December, 2017

Section 14 of the Insolvency & Bankruptcy Code, 2016 read with
section 34 of Arbitration And Conciliation Act, 1996 – Proceedings u/s. 34 of
Arbitration Act which are in favour of corporate debtor would not be stayed
even though a moratorium has been granted to such corporate debtor.

FACTS

Arbitral tribunal had given
an award dated 20.05.2016 which was in the nature of pure money decree in
favour of J Co. Counter claim of P Co had been rejected by the Arbitrator and
claim of J Co was upheld. During the pendency of these proceedings u/s. 34 of
the Arbitration And Conciliation Act, 1996, (“Arbitration Act”) an application
u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) was filed by a
financial creditor against J Co. Through an order dated 04.07.2017 the National
Company Law Tribunal (“NCLT”) admitted the application and declared a
moratorium in terms of section 14 of the Code.

P Co filed a petition u/s.
34 of the Arbitration Act claiming that proceedings under said section be kept
in abeyance in terms of embargo contained under section 14(1)(a) of the Code.

HELD

The High Court having read
the provisions of section 14(1) of the Code observed that the term ‘proceedings’
as is mentioned in section 14(1)(a) of the Code is not preceded by the word
‘all’ to indicate the moratorium provisions would apply to all the proceedings
against the corporate debtor. The High Court relied on the report of the
Bankruptcy Law Reforms Committee which demonstrated that moratorium is to apply
to recovery actions and filing of new claims against the corporate debtor and
the purpose behind moratorium is that there should be no additional stress on
the assets of the corporate debtor.

It was argued that once the
moratorium comes into effect, no proceedings against the corporate debtor may
continue. However, the High Court held that it was important to consider the
nature of these proceedings. Stay of
proceedings against an award in favour of the corporate debtor would rather be
stalking the debtor’s effort to recover its money and hence would not fall in
the embargo of section 14(1)(a) of the Code.

It was held that
proceedings would not be hit by section 14 of the Code due to following
reasons:

(a) “ ‘proceedings’ do not mean ‘all proceedings’;

(b) moratorium under section 14(1)(a) of the Code
is intended to prohibit debt recovery actions against the assets of corporate
debtor;

(c) continuation of proceedings under section 34
of the Arbitration Act which do not result in endangering, diminishing,
dissipating or adversely impacting the assets of corporate debtor are not
prohibited under section 14(1)(a) of the Code;

(d) the term ‘including’ is clarificatory of the
scope and ambit of the term ‘proceedings’;

(e) the term ‘proceeding’ would be restricted to
the nature of action that follows it i.e. debt recovery action against assets
of the corporate debtor;

(f) the use of narrower term “against the
corporate debtor” in section 14(1)(a) as opposed to the wider phase
“by or against the corporate debtor” used in section 33(5) of the
Code further makes it evident that section 14(1)(a) is intended to have
restrictive meaning and applicability;

(g) the Arbitration Act draws a distinction
between proceedings under section 34 (i.e. objections to the award) and under
section 36 (i.e. the enforceability and execution of the award). The
proceedings under section 34 are a step prior to the execution of an award.
Only after determination of objections under section 34, the party may move a
step forward to execute such award and in case the objections are settled
against the corporate debtor, its enforceability against the corporate debtor
then certainly shall be covered by moratorium of section 14(1)(a).”

Once the
moratorium is declared the decision to continue with the objections need to be
taken only by the Resolution Professional. The High Court observed that in the
peculiar circumstances of this case where a counter claims was preferred by the
objector, though rejected, it would be appropriate if the interim resolution
profession be made aware of the proceedings and he consents to its
continuation.

BCAJ Admin

Allied Laws

1.
Naina Kala Sharma and Ors. vs.
Deepak Kumar Rai AIR 2018 (NOC) 4 (SIK.)

Hindu Law – Coparcenary – Suit for
Partition – Cannot demand share in Father’s property when self acquired. [Hindu
Succession Act, 1956 S.6]

The case of the Appellants is that the
Appellant No. 1 was married to the Respondent in the year 1993 and Appellants
No. 2 and 3 were born from the wedlock. A property(suit land) was gifted to
Appellant no. 1 by her father.

The issue was whether the Appellants no. 2
and 3 have any right, title or interest over the Suit land and the building
constructed thereon?

It was argued that the Mitakshara concept of
coparcenary is based on the notion of the birthright of son, son’s son and
son’s son’s son.

It was observed by the Court that the
daughter has also been made coparcener by virtue of Hindu Succession
(Amendment) Act, 2005.

It was held that the Law laid down in
Mitakshara in regard to father’s right of disposition of his self acquired
property, held that the father of a joint Hindu family governed by Mitakshara
law has full and uncontrolled powers of disposition over his self-acquired immovable
property and his male issue could not interfere with these rights in any way.

Hence, no rights were conferred to
Appellants No. 2 and 3 for partition, in view of the property being the self
acquired property of the Respondent.

2.
Naveen Kumar vs. Vijay Kumar
And Ors Civil Appeal No. 1427 of 2018 (Arising out of SLP (C) No.18943 of 2016)
(SC)

Owner – As appearing on records – Liable to
pay compensation. [Motor Vehicles Act, 1988, S.2(30)]

In the present case, an accident had taken
place where the Tribunal had granted an award holding the first
respondent(original owner/first owner) responsible together with the driver. It
was contended that there were a series of transfers which took place, however,
the name in the records were not changed/altered.

It was observed by the apex court that the
expression ‘Owner’ in section 2(30), it is the person in whose name the motor
vehicle stands registered who, for the purposes of the Act, would be treated as
the ‘owner’. However, where a person is a minor, the guardian of the minor
would be treated as the owner. In a situation such as the present where the
registered owner has purported to transfer the vehicle but continues to be
reflected in the records of the registering authority as the owner of the
vehicle, he would not stand absolved of liability.

The principle underlying the provisions of
section 2(30) is that the victim of a motor accident or, in the case of a
death, the legal heirs of the deceased victim should not be left in a state of
uncertainty. A claimant for compensation ought not to be burdened with
following a trail of successive transfers, which are not registered with the
registering authority. To hold otherwise would be to defeat the salutary object
and purpose of the Act. Hence, the interpretation to be placed must facilitate
the fulfilment of the object of the law.

It was held that since in the present case,
the First respondent was the ‘owner’ of the vehicle involved in the accident
within the meaning of section 2(30), the liability to pay compensation stands
fastened upon him.

3.
Gurbax Singh vs. Harminderjit
Singh AIR 2018 (NOC) 136 (P. & H.)

Registration – Period of Lease –
Admissibility. [Transfer Of Property Act, 1882, S.106, 107]

It was contended that since the lease
agreement was not specifically shown to be for a period of more than one year,
it was therefore not required to be compulsorily registered.

It was observed that a perusal of section
107 of the T. P. Act shows that any instrument by which a lease of immovable
property is created, either from year to year, or for any term exceeding one
year, or by which a yearly rent is reserved, must only be a registered
instrument.

Any other lease may either be by way of a
registered instrument or even by oral agreement accompanied by delivery of
possession. The proviso to section 107 does stipulate that the State Government
may by notification in the official gazette direct that leases of immovable
property other than leases from year to year or even for any term exceeding one
year or reserving an yearly rent, may be made by unregistered instrument, or
orally, even without delivery of possession. However, no notification issued by
the Government of Punjab has been brought to the notice of this Court by
learned counsel for the appellant, by which any lease as is required to be
registered u/s. 107, is exempted from being so registered.

In the facts of the case, since there was a
rent increase every 15 years by 3%, it was deemed that the lease agreement was
executed for a term exceeding 1 year and hence was supposed to be compulsorily
registered.

4.
The State of Jharkhand and Ors.
vs. Lalita Devi Kejriwal and Ors. AIR 2018 JHARKHAND 7

Registration – Where properties are
situated. [Registration Act, 1908 (S.30)]

It was held that the registration of
properties in Mumbai, which were situated in Ranchi, was in utter violation of
section 30 of the Indian Registration Act 1908 as amended by Bihar Amended Act,
1991. By virtue of this amendment in Indian Registration Act, 1908, the
documents of sale or transfer of the properties must be registered at the place
where the immovable property is situated.

5.
The State of Jharkhand and Ors.
vs. Lalita Devi Kejriwal and Ors. AIR 2018 JHARKHAND 7

Sale – Late mutation of name – Non-joinder
of co-sharer – Unregistered Letter – Invalid [Transfer of Property Act, 1882, S.47]

It was observed that mutation of the names
after registration did not take place for as long as a period of 5 years.
Further, a letter written by the owner of the plots in question was also relied
upon, of which no evidence was provided. Neither the co-sharers joined as
parties to the suit. After taking into consideration the factual matrix as
above, it was held that the sale deed was not valid.

BCAJ Admin

Part c Iinformation on & Around

6,000 RTI cases pending in Assam
A total of 6,220 cases of RT I complaints and appeals are pending in the office of the Assam Information Commission where the post of information commissioner remains vacant.

The Assam Information Commission has three sanctioned posts – a chief information commissioner and two information commissioners. However, one post of information commissioner has been lying vacant since the tenure of Mohan Chandra Malakar, a retired principal chief conservator of forests (wildlife), expired in March 2014, he added.

Das, a retired additional chief secretary in the Assam government, had assumed charge on December 1, 2014. His post had been lying vacant since January 2011, when his predecessor D.N. Dutt’s term expired. When Das took charge, both the posts of information commissioners were vacant, following the expiry of the tenures of the previous incumbents, and more than 6,000 cases were pending. .

265 officers fined over Rs 22 lakh for refusing information under the RTI Act
As many as 265 public information officers across Karnataka have been penalised for a total of Rs 22,44,500 during the last 10 months for denying information under the RT I Act. As per the RT I Act 2005, public information officers have to provide information u/s. 7(1) within 30 days. RT I Commissioner Shankar R. Patil has recommended disciplinary action against the officers, including many senior officers of urban development, revenue and education departments, BBMP, BDA, AC’s, Additional Deputy Commissioners and tahsildars for their failure to provide information without any valid reason. .

Delhi HC imposes costs on RTI applicant for filing vague and irrelevant RTI queries

The Delhi High Court, in Shail Sahni vs. Valsa Sara Mathew, took an RTI applicant to task for filing vague and irrelevant RT I queries. Justice Man Mohan of Delhi High Court imposed costs of Rs. 25,000 on the applicant who approached had High Court seeking compensation of Rs. 4 lakh. The RT I applicant had approached the High Court challenging the CIC order refusing to intervene in denial of RT I replies to the queries she posed to Ministry of Defence. He submitted that CIC has committed an error in holding that Commission’s interference is not required in the matter. The Court, after perusing the applications filed by him, opined that that they are general, wide, ambiguous and vague. The Court also observed that the petitioner-applicant had approached High Court earlier too, in which the Court had dismissed his petition and observed that the “misuse of the RTI Act has to be appropriately dealt with, otherwise the public would lose faith and confidence in this “sunshine Act”. A beneficent statute, when made a tool for mischief and abuse must be checked in accordance with law”. Despite the aforesaid judgment, the petitioner continued to file filing general, irrelevant and vague queries, which was dismissed by the court with costs of Rs.25,000 to be paid by the petitioner to the Lok Nayak Hospital, New Delhi within a period of three weeks, Justice Manmohan said. However, the Court also observed that if the petitioner-applicant were to file a fresh application with the PIO prioritising his requirement and identifying the precise information, the same shall be supplied.

Mumbai University offers a sixmonth PG certificate course in Right to Information (RTI) Act.
The Department of Civic and Politics, which is designing the course content and identifying the subjects in the curriculum will hold classes for this academic session from 16th January 2016. To mark this occasion, the University had organised an inaugural function in its Kalina Campus which was attended by RT I activist Nikil Dey, former Central Information Commissioner Shailesh Gandhi and Chief Information Commissioner Ratnakar Gaikwad. Vice-chancellor Sanjay Deshmukh. Admission process for the course has already begun and university is targeting social activists, PIOs, journalists, bureaucrats and members of civil society to ensure more effective use of the RT I. Information activist who doled out lakhs as RT I fee was felicitated.

Arunachal RT I Activist Forum (ART IAF) felicitated Mr. Nabam Pali for his effort to reduce the RT I application fee from Rs. 10 to 2 in the state, in Itanagar, Arunachal Press Club (APC) President Chopa Cheda while felicitating Nabam Pali in a simple yet impressive function congratulated him for achieving the feat.

BCAJ Admin

Part A Decision of Supreme Court

RBI Directed To Disclose Information under Right to Information Act

The Supreme Court, in a landmark decision (Reserve Bank of India vs. Jayantilal Mistry) ruled that the RBI does not place itself in a fiduciary relationship with the financial institutions because, the reports of the inspections, statements of the bank and other information related to the banks’ business do not fall under the purview of the term confidence or trust. Whilst delivering the judgment for the bench, Justice M.Y. Eqbal, explaining the nature of functions of the banking sector regulator, said: “the RBI is supposed to uphold public interest and not the interest of individual banks. The RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to maximise the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them. The RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector. Thus, RBI ought to act with transparency and not hide information that might embarrass individual banks”.

Contentions by The RBI: RBI declined to disclose the information such as unpaid loans, top defaulters of the public sector banks, fines imposed by it on other banks etc., on the ground of being exempted under Section 8(1)(a), (d) and (e) of the RT I Act. The refusal to reply to the RT I queries was based on the premise of protecting economic interest, commercial confidence, and fiduciary relationship of RBI with other banks. RBI further contended that RT I Act was a general law and it could not override the confidentiality provisions under the specific legislations such as Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934 and the Credit Information Companies (Regulation) Act, 2005.

Court’s Findings: The Apex Court rejected the arguments made by the RBI and upheld the order of the CIC. It observed that RBI does not place itself in fiduciary relationship with other banks as information received from other financial institutions is not received under pretext of trust or confidence but under the ambit of RBI’s statutory duty to oversee the functioning of the banks and the country’s banking sector. Therefore, RBI is duty bound to comply with the provisions of the RT I Act and disclose the information sought in the instant case.

The RBI’s contention that disclosure of information would prejudicially affect the economic interest of the State and may lead to a crisis of financial stability if information sought is sensitive, was also rejected by the Court as being baseless and it was held that the disclosure in question would serve public interest.

The Court further observed that the right to information regarding the functioning of public institutions is a fundamental right enshrined in Article 19 of the Constitution, and the RT I Act being a later legislation aimed to bring transparency, overrides all earlier laws and practices except in case of specific exemptions enumerated u/s. 8 of the RT I Act.

Publicised as a landmark win, this judgement has been welcomed by the RT I activists. The implications of this judgement may indeed be far reaching, paving the way for greater accountability and transparency in the financial market.

NOTE:
1 Section 8 of the RTI Act mentions “exemption from disclosure of information.—
(1) Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen,—
(a) information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence;
(d) information including commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of a third party, unless the competent authority is satisfied that larger public interest warrants the disclosure of such information;
(e) Information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information.”

BCAJ Admin

Ethics and U

Arjun (A) — Hey Shrikrishna, we have been meeting every month to discuss
the ethical issues, disciplinary mechanism and things like that. But
tell me, where shall I find all this information?

Shrikrishna
(S) —There are many sources. But you are always on the battlefield.
Always fire-fighting! Where will you find time to read. You can always
ask me!

A — That is alright. But you are not that easily accessible to all, no? That’s the problem.

S — That’s true. I am reachable by ‘Bhakti’ alone. True devotion my dear, real, genuine devotion

A — But if we want you to save us from disciplinary case, how do we worship you? What is the Bhakti that you like?

S
— That’s a good question. The best form of my worship is to do your
duty i.e. karma religiously. U nfortunately, many of you are operating
very loosely; in an unprofessional manner. You never upgrade your
skills.

A — Why? We do have to complete our quota of CPE hours ! 30 hours every year, You see !

S
— I know. Don’t tell me how most of you just ‘manage’ it. You people do
it merely as a compliance. That too, because it is compulsory! Its
spirit is lost.

A — And there also, we always seek ‘extension’. Anyway, first tell me which books to refer.

S — Arjuna, you CAs must have read a lot of books, but I bet you have not read your ‘CA Act, 1949’.

A
— Yeah, you are right. I am only aware that there is a CA Act. But have
never gone through the same. Perhaps it was there in our final CA
syllabus.

S — Great Memory ! But my dear, it was amended in the year 2006.

A — May be! Who has time to read? You see.

S
— Ah…the common excuse – ‘No time’! See Arjuna, your CA Act is the
base of Code of Ethics. And you should atleast make an effort to go
through that. Chapter V of that Act deals with misconduct.

A — Oh! I see. S — Next is CA Regulations. Just as you have Income tax Rules, there are CA Regulations also.

A
— Achha. But these are bare texts. How will I understand everything
only by reading these. Besides, reading bare texts is so boring!

S
— Ya…there you are! You also have a book – ‘Code of Ethics’ published
by your Institute. This is like a commentary. It has elaboration on
various sections and both the Schedules. At the end of this book, one
can also see Council General Guidelines.

A — Oh that’s good. That means I have to read CA Act, Regulations and this commentary. This is so less compared to Income tax!

S
— No, wait…there is more to it. For your better understanding, the
Institute has also published FA Qs. You also have Appellate Authority
(Procedure) Rules, Enquiry Rules and so on.

A — But, Prabhu,
sometimes I have practical doubts like, how to enrol an article, how to
open a second office and many such things. Reading these books and
guidelines will help me? Or should I call the Institute office directly.

S — Arjuna, your Institute is very smart!. For such practical
queries, you have a ‘Manual For Members’. It has all information like,
which form to fill up, what is the time limit, what is the limit for
enrolment of articles, how much is the fees etc.

A — Do we have any online material for quick reference?

S
— Yes, of course! Your generation does not want the pain to go through a
book!!!…Online search is always a better option for you guys.

A — Hey Bhagwan, you know me so well….you see, when its online, we can always do ctrl+F and make things faster!

S
— Yes… the famous ctrl+F and google search. That’s the reason your
generation is so fast. But most of the time its half baked knowledge.
Anyway, my dear Arjuna, all this material is available on the
Institute’s website. You also have ESB website.

A — ESB? What is that?

S — It is Ethical Standards Board. Do you remember CESURA?

A
— Ya…I had read about that in CA Final. As far as I remember it is
Committee on Ethical Standards and Unjustified Removal of Auditors.

S
— Yes, that CESURA is now renamed to ESB. Even ESB has got good
technical stuff on its website. It has also uploaded Ethics Plus, a
brochure in question-answer form. Why don’t you go through the ESB
website yourself? I can’t spoon feed you everything.

A — Wow….Bhagwan, I never knew, we have so much literature on our Code of Ethics.

S
— Arjuna, remember, this literature is for your help and clarity only.
But eternal vigilance still stands. Always be upright and independent.
That’s what your profession stands for. And that is my real worship.
Understand?

A — Yes, Prabhu! Well said!

Om shanti !!!!!

Note
This dialogue intends to give information about various technical materials available on the Code of Ethics.

BCAJ Admin

Corporate Law Corner

1.
Deccan
Chronicle Holdings Ltd. (DCHL) vs. ROC [2017] 83 taxmann.com 315 (NCLT – Hyd.) Date of Order: 5^th July, 2017

Section 297 read
with section 621A of Companies Act, 1956 – Money was advanced to a related
party without any interest without obtaining prior approval of concerned
authority – Even though the amount was returned by such a related party; the
same still violated section 297 – Offence could be compounded subject to
payment of hefty fees.

FACTS

“D Ltd.” a listed company, filed an
application for compounding an offence committed u/s. 297 of Companies Act,
1956 (“the Act”). Section 297 prohibited related party transaction except with
the consent of the Board of Directors and in case the company had a paid up
share capital of not less than Rs. 1 crore, prior approval of Central
Government was required. D Ltd. had transferred Rs. 99 crores to a company ‘F
Ltd.’ towards aircraft maintenance and other fund transfers. ROC issued a notice
demanding an explanation for violation of section 297. D Ltd. submitted that
the transactions with F Ltd. were out of purview of section 297 and also that
owing to some other reasons, F Ltd. was asked to repay all the sums transferred
to it and F Ltd. had duly complied with such request. In view of these facts,
proceedings, if any should be dropped. D Ltd filed an application with NCLT
which was dismissed by it. The Applicants therefore filed an appeal and
Appellate Tribunal directed the NCLT to examine the case in terms of section
621A of the Act which provides for compounding of offences.

Before the Tribunal, D Ltd. urged that the
transactions had been fairly concluded and all amounts remitted to F Ltd. had
been received back. As the offence did not continue, the same qualified for
compounding.

HELD

The Tribunal observed that although the
amounts advanced to F Ltd. were recovered in full, there was no payment of any
interest by F Ltd. Such advancing of money without payment of interest caused
loss to the shareholders of D Ltd. The Tribunal observed that transparency in
operations is one of the key elements of listed company and appropriate
disclosures of related party transactions are very essential to various
stakeholders and as such, the same is the duty of the Company/Board of
Directors to give true and fair picture of the functioning of the Company to
its shareholders especially any decision having adverse financial impact on the
Company which in turn will have an impact on the shareholders whether directly
or indirectly.

The Tribunal held that D Ltd. was guilty of
violation of section 297 of the Act and directed that offence may be compounded
u/s. 621A upon payment of heavy charges in respect thereof.

2. Chartered Accountants Act, 1949, In
re

[2017]
84 taxmann.com 175 (All) Date of Order: 2^ndAugust, 2017

Sections 21 and
22 of Chartered Accountants Act, 1949 – Chartered Accountant had resigned from
Board of company prior to the opening of its public issue but signed the
prospectus for the same – The Chartered Accountant was held to be guilty of
other misconduct.

FACTS

Mr. ‘S’ was a member of the Institute of
Chartered Accountants of India (ICAI) and a director of B Co. S had resigned
from the company before opening of its public issue, but his resignation was
accepted on 09.09.1997 which was after the close of issue. Public issue of BCo
opened on 25.07.1996 and closed on 05.08.1996. Mr. S signed the prospectus of
this public issue on 17.06.1996 which named him as a director of BCo. Mr. S did
not object to the inclusion of his name in the prospectus of BCo.

The disciplinary committee of the ICAI found
him guilty of “other misconduct”. The Council of ICAI considering the said
findings recommended the removal of his name as a member for a period of three
months to the High Court.

Mr. S argued that although he resigned prior
to opening of public issue, his resignation was accepted only on 09.09.1997. He
further submitted that since no public money was received by BCo; there was no
question of misleading investors and inducing them to subscribe to the shares
of the said company.

Counsel appearing for the ICAI urged that
under the Companies Act, 1956, resignation of a director comes into effect the
moment it is tendered. As Mr. S accepted that he in fact resigned from the
company before the opening of the public issue, his name should not have
appeared as a director in the prospectus.

HELD

The High Court observed that the Companies
Act, 1956 did not have any specific provision relating to resignation of
director from the company. Neither of the parties produced the Memorandum Of
Association and Articles Of Association of the company to show anything in this
regard. Accordingly, it was held that common law principle would apply in so
far as resignation of directors was concerned.

The Court having relied on various judgements,
came to a conclusion that resignation of a director of a company was a
unilateral act that came into effect as soon as the resignation was tendered by
the director of the company. The directors were merely agents of the company
and agents were competent to determine the agency at their own end.

As Mr. S had resigned before the opening of
the public issue, his name should not have appeared in the prospectus as a
director of the company which was in fact there. The Court held that such an
act amounted to lending of name to the prospectus and misleading the investors.
It was immaterial whether any investor was actually mislead. The act of
misconduct was nonetheless completed.

The High Court accordingly upheld the
finding of disciplinary committee that held Mr. S guilty of other misconduct
under sections 21 and 22 of the Chartered Accountants Act and accepted the
recommendation of Council on removal of name of Mr. S from the register of
members of Chartered Accountants for a period of three months.

3. APC Credit rating (P.) Ltd. vs. ROC

[2017]
84 taxmann.com 75 (NCLT – New Delhi) Date
of Order: 19^th July, 2017

Section 420 of
Companies Act, 2013 – NCLT does not have an inherent power to review its own
decision – NCLT can only rectify its decision.

FACTS

ACo had violated various provisions of the
Companies Act, 1956 and filed applications with the Tribunal u/s. 441 of the
Companies Act, 2013 for compounding the same. The Tribunal dismissed the
applications vide order dated 26.09.2016 for reasons mentioned therein.
Subsequently, ACo preferred application under Rule 154 of National Company Law
Tribunal Rules, 2016 (“Rules”) for review of the orders in light of certain
decisions which were not considered by the Tribunal. The Tribunal, vide order
dated 28.04.2017, dismissed the applications by holding that review was
different from appeal and it was not possible to replace one order with
another.

ACo challenged
this order before the Tribunal and also filed an application for condonation of
delay in filing the appeal.

HELD

The Tribunal examined the provisions of
section 420 of Companies Act, 2013 along with Rules 11 and 15. The Tribunal
observed that it has limited power to rectify any mistake apparent from the
record and to amend the order accordingly, but there is no inherent power to
review its own order.

It held that the present case did not fall
within the meaning of ‘mistake apparent on the face of the record’ of appellant
and therefore, there was no occasion for the Tribunal to exercise power
conferred by section 420 (2) of the Act. Further, non-reference to previously
rendered judgement did not constitute an “omission”.

As more than 9 months had elapsed from the order
dated 26.09.2016, the Tribunal held that it could not condone the delay in
filing appeal as law capped the power to condone the delay for a maximum of 90
days from the date of order.

BCAJ Admin

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

85. FED Master Direction No. 9/2015-16 dated January 1, 2016

Master Direction – Insurance

This Notification contains the
updated Master Direction 9 on Insurance. The Master Directions have been
updated up to November 17, 2016 and are Annexed to this Notification. The
Master Direction prescribes the manner in which insurance business, in foreign
exchange, has to be conducted and deals with the following topics: –

1. Introduction.

2. Foreign Exchange Regulations
relating to General / Health / Life Insurance from Insurers outside India.

3. Foreign Exchange Regulations
relating to General/ Health Insurance from insurers in India.

4. Foreign Exchange Regulations
relating to Life Insurance from insurers in India.

86. Corrigendum dated November 25, 2016

Notification No. FEMA.362/2016-RB dated February 15, 2016

This corrigendum replaces
paragraph 2(C) (iv), S. No. 9.3 and 9.3.1 of Notification No. FEMA.362/2016-RB
dated February 15, 2016 as under: –

9.3

Air Transport Services

(1) (a) Scheduled Air Transport Service / Domestic Scheduled Passenger Airline

(b) Regional Air Transport Service

49%

(100% for NRIs)

Automatic

(2) Non-Scheduled Air
Transport Service

100%

Automatic

(3) Helicopter services/
seaplane services requiring DGCA approval

100%

Automatic

9.3.1

Other Conditions

(a) Air Transport Services would include Domestic Scheduled
Passenger Airlines; Non-Scheduled Air Transport Services, helicopter and
seaplane services.

(b) Foreign airlines are allowed to participate in the equity of
companies operating Cargo airlines, helicopter and seaplane services, as per
he limits and entry routes mentioned above.

9.3.1

Other Conditions

(c) Foreign airlines are also allowed to invest in the capital
of Indian companies, operating scheduled and non-scheduled air transport
services, up to the limit of 49% of their paid-up capital. Such investment
would be subject to the following conditions:

(i) It would be made under the Government approval route.

(ii) The 49% limit will subsume FDI and FII/FPI investment.

(iii) The investments so made would need to
comply with the relevant regulations of SEBI, such as the Issue of Capital
and Disclosure Requirements (ICDR) Regulations/ Substantial Acquisition of
Shares and Takeovers (SAST) Regulations, as well as other applicable rules
and regulations.

(iv) A Scheduled Operator’s Permit can be
granted only to a company:

a) that is registered and has its
principal place of business within India;

b) the Chairman and at least two-thirds
of the Directors of which are citizens of India; and

c) the substantial ownership and
effective control of which is vested in Indian nationals.

(v) All foreign nationals likely to be
associated with Indian scheduled and non-scheduled air transport services, as
a result of such investment shall be cleared from security view point before
deployment; and

(vi) All technical equipment that might be
imported into India as a result of such investment shall require clearance
from the relevant authority in the Ministry of Civil Aviation.

Note: (i) The FDI
limits/entry routes, mentioned at paragraph 9.3(1) and 9.3(2) above, are
applicable in the situation where there is no investment by foreign airlines.

(ii) The dispensation for
NRIs regarding FDI up to 100% will also continue in respect of the investment
regime specified at paragraph 9.3.1(c) (ii) above.

(iii) The policy mentioned
at 9.3.1(c) above is not applicable to M/s Air India Limited

87. A. P. (DIR Series)
Circular No. 20 dated November 09, 2016

Issue of Pre-Paid Instruments to foreign tourists

This circular: –

1. Supersedes A. P. (DIR Series) Circular No. 16
dated November 11, 2016 regarding Withdrawal of the legal tender character of
the existing and any older series banknotes in the denominations of ? 500 and ?
1000.

2. Provides that foreign citizens (i.e. foreign
passport holders) are permitted to exchange foreign exchange for Indian
currency notes up to a limit of ? 5,000/- per week until December 15, 2016. The
foreign tourist will have to give, at the time of exchange, a self-declaration
that he / she has not availed of this facility during the week and also provide
a copy of their passport.

3. Provides that foreign tourists can continue to
avail facility of Pre-Paid Instruments as mentioned A. P. (DIR Series) Circular
No. 17 dated November 11, 2016.

88. A. P. (DIR Series)
Circular No. 22 dated December 16, 2016

Exchange facility to foreign citizens

This circular provides that the facility for
exchange of foreign exchange for Indian currency, available to foreign citizens
(i.e. foreign passport holders) whereby they were permitted to exchange foreign
exchange for Indian currency notes up to a limit of Rs. 5,000/- per week will
continue up to December 31, 2016. The foreign tourist will have to give, at the
time of exchange, a self-declaration that he / she has not availed of this
facility during the week and also provide a copy of their passport.

BCAJ Admin

Allied Laws

1. Advocate – Professional Misconduct – Advocate cannot file an affidavit in his own name on behalf of his client. [Advocates Act, 1961, Section 30, S ection 35]

Baljeet Singh vs. Pratap Singh and Others. AIR 2017 ALLAHABAD 165

The simple issue before the Hon’ble court was whether the counsel for the appellant before the lower appellate court could have filed the affidavit in support of the present appeal as a family friend?

It was observed that an advocate gets his right to practise in a court only u/s. 30 of the Act. ‘Practise’ in itself means to appear on behalf of his client before a Court or Tribunal in the best interest of his client. Practise, however, certainly does not give liberty to an advocate to identify himself with his client and step into the shoes of his client, so far as the rights of his client are concerned.

It was held by the Hon’ble Court that the said counsel who filed the affidavit is guilty of professional misconduct in identifying himself with his client and filing an affidavit in support of the appeal, but considering that he himself expresses that he had acted under naivety and has submitted an unconditional apology, the matter may not be referred to the Disciplinary Committee of the State Bar Council.

2. Evidence – Admissibility of evidence during the appellate proceedings. [Evidence Act, 1872, Section 65B(4)].

Sonu alias Amar vs. State of Haryana AIR 2017 SUPREME COURT 3441

An objection w.r.t. electronic record being not admissible unless it was accompanied by a certificate was raised in the appellate proceedings.

The only issue is the permissibility of an objection regarding inadmissibility of evidence at the Appeal stage. Admittedly, no objection was taken when the CDRs were adduced in evidence before the Trial Court. It does not appear from the record that any such objection was taken even at the appellate stage before the High Court.

It was observed that objections as to admissibility of documents in evidence may be classified into two classes: (i) an objection that the document which is sought to be proved is itself inadmissible in evidence; and (ii) where the objection does not dispute the admissibility of the document in evidence but is directed towards the mode of proof alleging the same to be irregular or insufficient.

It was held by the Hon’ble Court that it is clear that an objection relating to the mode or method of proof has to be raised at the time of marking of the document as an exhibit and not later. Objections regarding admissibility of documents which are per se inadmissible can be taken even at the appellate stage. Admissibility of a document which is inherently inadmissible is an issue which can be taken up at the appellate stage because it is a fundamental issue. The mode or method of proof is procedural and objections, if not taken at the trial, cannot be permitted at the appellate stage.

3. HUF – Ancestral property – Deemed to be joint – Unless proved otherwise. [Hindu Law]

Adiveppa & Ors. vs. Bhimappa & Anr. CIVIL APPEAL No. 11220 OF 2017 SUPREME COURT (www.itatonline.org)

The disputes were regarding ownership and extent of the shares held by the Appellants (Plaintiffs) in the agricultural lands.

It was alleged that while some properties were ancestral while others were self-acquired and hence the Plaintiffs (Appellants) have 4/9th share in the ancestral properties as members of the family. The Respondents (Defendants) denied the plaintiffs’ claim and averred inter alia that all the suit properties were ancestral properties. It was alleged by the Respondents that during the lifetime of the father of the plaintiff, an oral partition had taken place amongst the family members in relation to the all the suit properties pursuant to which all family members were placed in possession of their respective shares.

It was held by the Hon’ble Court that it is a settled principle of Hindu law that there lies a legal presumption that every Hindu family is joint in food, worship and estate and in the absence of any proof of division, such legal presumption continues to operate in the family. The burden, therefore, lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property. Since the Plaintiffs themselves had based their case by admitting the existence of joint family nucleus and also could not prove with any documentary evidence that the suit properties described were their self-acquired properties, the appeal was dismissed.

4. Search/Survey – Undated cheques for collection of differential duty – Illegal. [Central Excise Act, 1944, Section 12F]

Digipro Import & Export Pvt. Ltd. vs. Union of India & Ors. 2017 (350) E.L.T. 145 (Del.).

Five undated cheques totalling to Rs. 1.25 crore were collected from the Petitioner by the officers of the Anti-Evasion Wing, Commissioner of Central Excise, Delhi-I during a Search/Survey conducted under the Central Excise Act, 1944.

The only issue was whether such an act of the department of collecting ‘undated cheques’ constituting the differential duty liability during the process of a visit/search or survey was sustainable.

The Hon’ble Court relying on various decisions held that there was no provision of law or any notification or any circular that permitted the officers who visited the Petitioner’s business premises to collect undated cheques which purportedly constitute the differential duty. It must be realised that the officers of the Anti-Evasion Wing of the Central Excise Department have to function within the four corners of the law. They are bound by not only the Central Excise Act and the Rules made thereunder but all the notifications/circulars/instructions issued from time to time including those issued by the CBEC. There is no scope at all to collect duty and that too without even quantifying the extent of duty evasion.

5. Rectification of mistake apparent – Within 6 months – Date of Order not to be seen. [Central Excise Act, 1944 –Section 35C, Section 37C]

Liladhar T. Khushlani vs. Commissioner of Customs 2017 (351) E.L.T. 36 (Guj.)

The short question, which was posed for consideration was, whether for the purpose of filing the rectification application, period of limitation of six months would commence from the date of the order, which is sought to be rectified or from the date of receipt of the order sought to be reviewed/rectified by the concerned assesse under the Central Excise Act, 1944?

It was held by the Hon’ble court that unless and until a party to the appeal is in a position to go through and study the order it would not be possible, nor can it be envisaged, that a party can claim to be aggrieved by the mistake apparent from the record. Hence, even on this count, the period of limitation has to be read and understood so as to mean from the date of the receipt of the order. In the result, the impugned order passed by the learned CESTAT was quashed and set aside.

BCAJ Admin

Allied Laws

11. Delay in filing objections – Period of
Limitation only applicable to the initial filing of objections and not to
re-filing. [Arbitration and Conciliation Act, 1996; Section 34]

Northern Railway vs. Pioneer Publicity
Corporation Pvt. Ltd. (2017) 11 Supreme Court Cases 234

There
was a refusal to condone the delay of 65 days in re-filing the objections u/s.
34 of the Arbitration and Conciliation Act, 1996 (Act). Admittedly, the
objections originally were filed within the time stipulated u/s. 34 of the Act.
However, since there were objections, time was granted by the Deputy Registrar
of the High Court to remove the objections within a period of 7 days. This was not
done. Eventually, the appellant re-filed the matter where there was a delay of
65 days.

The
Court held that section has no Application in re-filing the Petition but only
applies to the initial filing of the objections u/s. 34 of the Act.

12. Hindu Law
– Joint Hindu
Family – Family Settlement
– Outsider can be a party to such family settlement. [Transfer of Property Act,
1882; Section5]

Thimma Reddy vs.
Chandrashekara Reddy and Ors. AIR 2018 KARNATAKA 54

The
plaintiffs 1 – 3(sons of first defendant) and plaintiffs 4 – 5 (sons of second
defendant) pleaded that their grandfather owned a number of immovable
properties. He died intestate. No partition had taken place during his
lifetime. On 8.9.1986 there took place a partition among defendants 1 to 3 and
in this partition, properties described in schedule ‘C’ properties fell to the
share of third defendant. But, the third defendant was a stranger to the
family. Since he was not a member of the joint family, he was not entitled to
share. The defendants 1 and 2 colluded with the third defendant and entered
into a partition and thus the schedule ‘C’ property was allotted to him. This
allotment of ‘C’ schedule property to third defendant was alleged to be
illegal.

Reliance
was placed on the Supreme Court’s decision of Kale and others vs. Deputy
Director of Consolidation and others AIR 1976 SC 807, wherein it was
observed that it is absolutely clear that the word ‘family’ cannot be construed
in a narrow sense so as to confine the parties to the family arrangement only
to persons who have a legal title to the property.

It was
held by the High Court that it is clear that a family settlement or arrangement
need not be necessarily among the members of joint family having a right of
succession, but even an outsider to the family can be given a share.
Requirement is that such an arrangement must be fair and bona fide.

13.
Mesne Profits –Property not renovated by lessee – Damages to be paid to lessor
on service of notice.
[Transfer of Property Act, 1882; Sec. 108]

The General Manager, Bharat Sanchar Nigam
Limited (BSNL) vs. Radhika Chettri AIR 2018 (NOC) 285 (SIK.)

Respondent,
the lessor, is the absolute owner of the flat. The said property was leased out
to the Appellant, the lessee, for a monthly rent for a period of 5 years. A
Clause existed in the Lease Deed that the lessee shall have the option of
renewing the lease of the said premises for further periods, on giving notice
of such intention, to the lessor at least three months prior to expiration of
the lease. The lessee, however, failed to take necessary steps as provided,
hence on expiry of the lease period, the respondent’s husband vide letter, and
requested the appellant to either increase the house rent by 30% or to vacate
the occupied premises. The appellant, vide letter intimated the respondent that
the suit property would be handed over and the said letter be treated as
“Notice” of three months. That, on checking the suit premises it was
found to be in a dilapidated condition which the appellant was bound to repair
before handing over.

In view
of sections108(h) & (m), the court held that T.P. Act requires that damages
caused to the suit property be made good within three months, which was not
complied with in the instant case. The term “mesne profit” includes
not only the profits which the person in wrongful possession actually received,
but also those which he might have received with ordinary diligence, but does
not include profits due to improvements made by person in wrongful possession.
Given a wider connotation it would mean that which the Appellant has lost on
account of the wrongful act of the Respondent, in other words the amount the
Respondent might reasonably be expected to have made, had he been in
possession. Hence, the Respondent is entitled to mesne profits.

14. Property – Right of a Female – Scope and
Object of Section14(1). [Hindu
Succession Act, 1956; Section
14(1)]

Daulatarao Ramachandra Jadhav and Ors. vs.
Janabai Anandarao Jadhav and Ors. AIR 2018 KARNATAKA 62

It was
observed by the High Court in regard to section 14(1) that under the Hindu
Succession Act, it is clear that section 14(1) has a very wide and extensive
application and has to be read in a comprehensive manner as the Act overrides
old law governing the properties of the female. The Act confers full heritable
capacity and absolute ownership on the female heir. This section dispenses with
the traditional limitations of conferring limited estate on the female Hindu to
hold and transmit the property. It should be borne in mind that under Hindu Law
which in operation prior to the coming into force of this Act, a woman’s
ownership of property was hedged in by certain delimitations on her right of
disposal and also on her testamentary power in respect of that property and
also with reference to her absolute ownership. By virtue of interpretation of
the provision u/s. 14 of the Hindu Succession Act, in the enactment, the above
said barricades have been completely removed and the Act presupposes if any
property possessed by a female Hindu whether acquired before or after
commencement of the Act becomes absolute property of the said lady, if the said
property was given in recognition of her pre-existing right.

15.
Will – Attestation – Two witnesses mandatory – May not be present at the same
time. [Evidence Act, 1872; Section 68]

Sanjeev Juneja vs. State
and Ors. AIR 2018 DELHI 79

The Hon’ble High Court held
that the law requires attestation by minimum two witnesses, it is not mandatory
that both must have been present at the time when the testator executed the
document, the presence of the testator being more important when the witnesses
attest and further that, for proof of such execution and attestation, the
testimony of only one of such witnesses is enough, that also only if such
witness is alive and available.

BCAJ Admin

RBI /FEMA

Given below are the highlights of certain RBI Circulars & Notifications

12. FED Master Direction No. 1/2016-17 dated February 22, 2017

Master Direction – Money Transfer Service Scheme (MTSS)

This Notification contains the updated Master Direction 1 on MTSS. The Master Directions contains a list of Circulars and Notifications that have been consolidated vide this Direction and are Annexed to this Direction. Reporting instructions with respect to this Direction are mentioned in the Master Direction on Reporting.

13. Notification No. FEMA.385/2017-RB dated March 03, 2017

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2017

This notification contains two amendments to Notification No. FEMA 20/2000-RB dated 3rd May 2000 – Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017. Both the amendments pertain to FDI in an Indian LLP.

1. Sub-Regulation (9) of Regulation 5 is substituted as follows: –

“5 (9) A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), not being a Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines, may contribute foreign capital either by way of capital contribution or by way of acquisition / transfer of profit shares in the capital structure of an LLP under Foreign Direct Investment, subject to the terms and conditions as specified in Schedule 9”

2. Schedule 9 is substituted by a new Schedule 9.

The new Schedule 9 will be known as – The Scheme for Foreign Direct Investment (FDI-LLP) in Limited Liability Partnerships (LLP) formed and registered under the Limited Liability Partnership Act, 2008.

The details as to eligible investors, eligible investment, eligibility of LLP, pricing, mode of payment and reporting are given this Notification.

BCAJ Admin

Corporate Law Corner

4.
(2018) 142 CLA 78 (NCLT – New Delhi)

Axis Bank Ltd. vs. Edu Smart Services Pvt.
Ltd.

Date of Order: 27^thOctober, 2017

Regulations 12 and 13 of Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 – Corporate guarantee provided by Corporate debtor matured
after the commencement of insolvency resolution process – claim to accept the
invocation could not be accepted as the insolvency resolution process had
commenced prior to crystallization of liability

FACTS

E Ltd. had
provided A Ltd. a
corporate guarantee of Rs. 396.76 crore in respect of loan
advanced by A Ltd. to group concern of E Ltd. A Ltd. filed a claim before the
Insolvency Resolution Professional (“IRP”) which was turned down by it. A Ltd.
filed an application before the National Company Law Tribunal (“NCLT” or the
“Tribunal”) in order to invoke a corporate guarantee after the date of
commencement of Corporate Insolvency Resolution Process (“CIRP”). The date of
commencement of the insolvency process was 27.06.2017 whereas the corporate
guarantee was invoked on 21.07.2017. E Ltd. sent a letter stating that
corporate guarantee could not be invoked as CIRP had been initiated and
moratorium was in force.

The loan agreement provides that in the
event of default by the Borrower the guarantor shall be liable to pay the
amounts payable by the Borrower. Accordingly, A Ltd. invoked the guarantee
which was not accepted by the IRP owing to the fact that date of invocation of
guarantee was much after the date of commencement of CIRP.

IRP argued that Regulations 12 and 13 of
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 (“the Regulations”) which deal with
submission of proof of claims and verification of claims clearly postulate that
IRP is required to verify only those claims which are existing as on the
insolvency commencement date. Accordingly, any claims which have not matured as
on the date of commencement of CIRP cannot be accepted.

IRP further pointed out that A Ltd. had
separately filed for recovery against the Borrower in a separate insolvency
proceeding and which claim has been accepted in the application filed before
NCLT.

HELD

The limited issue before the Tribunal was
whether A Ltd. was entitled to make a claim against E Ltd. by invoking the
corporate guarantee after the date of commencement of the insolvency process.

The Tribunal perused the terms of the loan
documents, as well as Regulations 12 and 13. It held that in order to qualify
as a ‘debt’, the provisions of the corporate guarantee must be satisfied by
raising a demand which is expressed by invoking the corporate guarantee and the
date of its invocation has to precede the insolvency commencement date. In the
present case, although CIRP commenced on 27.06.2017, the corporate guarantee
was only invoked on 21.07.2017. IRP would not be in a position to verify the
claim as it will not be reflected in the books of accounts which are supposed
to be updated as on 27.06.2017. In the absence of any record to verify the
claim, it would be impossible for the IRP to accept any such claim which became
a debt after 27.06.2017.

The Tribunal further examined the provisions
of section 3(6), 3(8), 3(10), 3(11) and 3(12) of Insolvency and Bankruptcy
Code, 2016 which defined the terms claim, corporate debtor, creditor, debt and
default in order to conclude that a debt did not exist on the date insolvency
process commenced.

A Ltd. argued that liability of guarantor
under the Indian Contract Act, 1872 is joint and several and accordingly it had
a right to enforce the liability against E Ltd. However, Tribunal held that
liability only crystallised after the commencement of CIRP and the argument put
forth had no merit. A Ltd. further urged that there is no provision in the Code
declaring the insolvency commencement date as the date to determine the claims
of the parties. The Tribunal however observed that invocation of corporate
guarantee against E Ltd. would result in enforcing of security interest and it
would thus, be in violation of the moratorium provision of section 14(1)(c) of
the Code.

The Tribunal also observed that A Ltd. had
already filed separate proceedings against the borrower and its claim was
accepted in such separate proceedings.

The Tribunal therefore, dismissed the
application filed by A Ltd.

5.
(2018) 1 CompLJ 36 (NCLAT – Kol)

Surojit Kumar vs. ROC

Date of Order: 08^thMarch, 2017

Section 128(6) of Companies Act, 2013 – The
provision comes into effect from 01.04.2014 – Accordingly, penalty stipulated
therein cannot apply to offences committed up to 31.03.2014

FACTS

S and 2 other directors (for sake of brevity
referred to as S) filed an application u/s. 621A of the Companies Act, 1956
(“1956 Act”) for compounding offence for violating section 209 of the Companies
Act, 1956 during the year ending between 31.03.2011 to 31.03.2014 (“Petition
1”).

Another application was filed u/s. 621A of
1956 Act for compounding of offence for violation of section 217(2) of
Companies Act, 1956 during the year ending between 31.03.2011 to 31.03.2014
(“Petition 2”).

Petition 1 was admitted and NCLT compounded
the offence by levying a fee of Rs. 5,000 whereas Petition 2 was admitted by
NCLT and the compounding fees levied were Rs. 10,000.

S had no objections under both the petitions
in respect of financial years ending on 31.03.2011 to 31.03.2013. However, in
so far as financial year 31.03.2014 was concerned, NCLT levied the penalty
taking into consideration provisions of section 128(6) of the Companies Act,
2013. S thus, filed the present appeal to challenge the application of
Companies Act, 2013 in respect of financial year ended on 31.03.2014 by the
NCLT.

HELD

ROC before the Appellate Tribunal (NCLAT)
submitted that company regularised the mistake in the financial year ended
31.03.2015. However, NCLAT proceeded to hold that prospective regularisation
cannot be used as an excuse to apply the provisions of Companies Act, 2013
retrospectively in respect of offences which were committed prior to its coming
into force.

NCLAT held that 128(6) could not be applied
in respect of violation of section 209 committed during the financial year ended
31.03.2014. It thus set aside the order of NCLT to that extent and imposed a
fee similar to what had been laid down in respect of earlier years.

The appeal filed by S was thus accepted.

Order in matter of Insider Trading in the
Scrip Of Deep Industries Limited in respect of Rupeshbhai Kantilal Savla; Sujay
Ajitkumar Hamlai and V-Techweb India Private Limited

6.
SEBI/WTM/MPB/IVD/ID–6/162/2018

Date of Order: 16^th April, 2018

SEBI (Prohibition of Insider Trading)
Regulations, 2015 – Persons who are friends on Facebook can be regarded as
connected persons – Likes and other activity on the social media platform can
be looked into for the purpose of determining whether such persons are
“connected persons” or not

FACTS

D Ltd was engaged in the business of oil
exploration and allied activities and its shares were listed on National Stock
Exchange (NSE) as well as Bombay Stock Exchange (BSE). Between 17.07.2015 to
14.10.2015 (“Investigation period”) D Ltd. was awarded three contracts from
ONGC for hiring of mobile drilling rigs spanning across a period of several
months.

Some details in respect of these contracts
are as follows:

First contract: The bid for the same was
opened on 17.07.2015 and D Ltd. was declared as L1 bidder.

Second contract: The bid for the same was
opened on 01.07.2015. However, D Ltd. was not declared to be L1 bidder. ONGC
subsequently requested D Ltd. to match the evaluated day rate of L1 bidder on
17.08.2015. D ltd. submitted this bid on 18.08.2015.

Third contract: The bid for the same was
opened on 27.07.2015 and D Ltd. was declared as L1 bidder.

The stage at which the company was declared
as L1 bidder was the stage at which process of tendering got completed and what
remained pending was merely award of contract.

The receipt of these contracts was notified
to the stock exchanges after D Ltd. received the notification of award of
contract. The dates were 03.09.2015 for first and second contract and
14.10.2015 for third contract. Pursuant to these corporate announcements, there
was a rise in the price at which these scrips were being traded on the
exchanges.

HELD

Issues before SEBI and their disposal is as
follows:

SEBI observed that value of the two
contracts for which the announcement was made on 03.09.2015, constituted a substantial
52.47% of the annual turnover of the company for the FY 2015-16 and 87.65% of
the annual turnover for the FY 2014-15 i.e. immediately preceding financial
year. Similarly, the value of the single contract for which announcement was
made on 14.10.2015 constituted 53.40% of the annual turnover of the company for
the FY 2015-16 and 89.21% of the annual turnover for the FY 2014-15 i.e.
immediately preceding financial year. Considering the magnitude of the value of
the three contracts, the information relating to bagging of these orders by D
Ltd. constituted price sensitive information and the same was likely to
materially affect the share price of the company, once published.

UPSI periods were the periods where the
information was available with company regarding receipt of contracts and
ceased to exist on the day the same was notified to the exchanges. Accordingly, period between 17.07.2015 and
14.10.2015 was determined as the UPSI period.

On the basis of the investigations conducted
by SEBI, R, V Ltd. and A were identified as insiders for the Investigation
period as per the Regulations.

R being the Managing director of D Ltd. was
held to be an insider as well as a connected person.

S and directors of V Ltd. were regarded as
connected persons on the basis of their being friends on social media platform
“Facebook” with R and his wife. Wife of S was also friends with wife of R. SEBI
also observed instances where they had “liked” each other’s pictures posted on
the platform. Thus, S and V Ltd. were held to be insiders and connected persons
owing to their social relationship.

SEBI observed that insiders had traded in or
brought shares of D Ltd. during the Investigation period and SEBI proceeded to
compute the gains and ordered that such gains be impounded from the insiders.

BCAJ Admin

Allied Laws

6. Union of
India and Ors. vs. Manju Lata Tiwari AIR 2018 PATNA 28

Adhaar Card –
Sufficient identity proof. [Government Savings Bank Act, 1873, S.4-A]

A widow wanted
a refund of the money deposited in the savings account with the post office
deposited by her late husband who had not made it either a joint account or
declare the wife as the nominee. When a demand or claim was made by the wife,
it was rejected after quoting various rules.

It was
contended that the Post Office Savings Bank Manual Volume-I stated that in
absence of a nomination there was no occasion to release any amount up to Rs.
one lakh or above without production of a succession certificate or a probate
of a Will or letter of administration, and hence the widow was not entitled to
the refund.

The Court
observed that there were enough official evidences available including the
so-called Aadhar Card, which is being used for large number of Government
dealings for measure of identification. Aadhar Card is also being used for the
purposes of disbursement of funds by the Central Government to the so-called
beneficiaries, then why a hapless widow has to go through the rigmarole of
litigation, spend time, money and energy for years together by moving a civil
Court before she can beget her rightful claim of her deposit left behind by her
husband on this technicality is not appreciated by this Court.

In view of the
above, the Hon’ble Supreme Court held that the guidelines mentioned in the Post
Office Savings Bank Manual Volume-I, are only directive and the same cannot be
used for unnecessary harassment of a bona fide depositor or a legal heir.

7. Danamma
alias Suman Surpur and another vs. Amar and Ors. AIR 2018 SUPREME COURT 721

Hindu Law –
Coparcenary – Daughter – Suit for Partition – Entitled to share in property
since birth – Even though amendment came into effect after such birth. [Hindu
Succession Act, 1956 S.6]

A suit was
filed for partition for a share in the property, by the daughters of the
deceased. However, this suit was filed in the year 2002 i.e. 1 year after the
death.

It was observed
that, S.6, as amended, stipulates that on and from the commencement of the
amended Act, 2005, the daughter of a coparcener shall by birth become a
coparcener in her own right in the same manner as the son. It is apparent that
the status conferred upon sons under the old Section and the old Hindu Law was
to treat them as coparceners since birth. The amended provision now statutorily
recognises the rights of coparceners of daughters as well since birth. The
section uses the words in the same manner as the son. It should therefore be
apparent that both the sons and the daughters of a coparcener have been
conferred the right of becoming coparceners by birth. It is the very factum of
birth in a coparcenary that creates the coparcenary, and therefore the sons and
daughters of a coparcener become coparceners by virtue of birth. Devolution of
coparcenary property is the later stage of and a consequence of death of a
coparcener. The first stage of a coparcenary is obviously its creation as
explained above, and as is well recognised. One of the incidents of coparcenary
is the right of a coparcener to seek a severance of status. Hence, the rights
of coparceners emanate and flow from birth (now including daughters) as is
evident from sub-s (1)(a) and (b) of S.6.

In light of the
observation made, the Hon’ble Court held that, in the present case, the rights
of the appellants i.e. the daughters had crystalised when the amendment came
into effect. Hence, even the daughters would be entitled to 1/5^th
share in the property.

8. Jayant Verma
and Ors. vs. Union of India (UOI) and Ors. AIR 2018 SUPREME COURT 1079

Precedent –
Exparte judgment without discussion is Per incurium hence not binding.

The issue was
whether one of the judgements relied upon were binding on the Court.

It was observed
that where such a matter is not argued at all by the Respondent, and the
judgement is one of reversal, it would be hazardous to state that the law can
be declared on an ex parte appraisal of the facts and the law, as
demonstrated before the Court by the Appellant’s counsel alone. That apart,
where there is a detailed judgement of the High Court dealing with several
authorities, and it is reversed in a cryptic fashion without dealing with any
of them, the per incuriam doctrine kicks in, and the judgement loses
binding force, because of the manner in which it deals with the proposition of
law in question. Also, the ratio decidendi of a judgement is the
principle of law adopted, having regard to the line of reasoning of the Judge
which alone binds in future cases. Such principle can only be laid down after a
discussion of the relevant provisions and the case law on the subject. If only
one side is heard and a judgement is reversed, without any line of reasoning,
and certain conclusions alone are arrived at, without any reference to any case
law, it would be difficult to hold that such a judgement would be binding and
the same has to be followed.

In view of the
same, it was held by the Hon’ble court that such judgment was not binding on
them.

9. SRD Nutrients Private Limited vs. Commissioner
of Central Excise, Guwahati (2018) 1 Supreme Court Cases 105

Precedent –
Judicial Discipline – Reference to Larger Bench in case of contradicting views.

It was observed
by the Hon’ble Court that when a view was taken by one bench of the CESTAT Tribunal
on one issue then another view or a contrary view cannot be taken by the
co-ordinate bench of the CESTAT Tribunal. Judicial discipline warranted
reference of the matter to the Larger Bench.

In view of the
same, the Hon’ble Court held that it is also trite that when two views are
possible, one which favours the Assessees has to be adopted.

10. B. Sunitha vs. The State of Telengana
and Ors. (2018) 1 Supreme Court Cases 638

Professional Misconduct – Advocate –
Percentage of decretal amount. [Contract Act, 1872; S.23]

The proceedings
were initiated by the Respondent who is an advocate in whose favour the
Appellant executed a cheque allegedly towards his fee. The cheque was
dishonoured. The stand of the Appellant is that section 138 of the Act is not
attracted as there was no legally enforceable debt, as fee claimed was
exorbitant and against law. The Appellant having already paid a part of the
fee, stated that fee could not be demanded on percentage of amount awarded as
compensation to the Appellant which was in violation of the Advocate Fee Rules
and Ethics.

It was argued
that charging percentage of decretal amount by an advocate is hit by section 23
of the Contract Act being against professional ethics and public policy and
hence the cheque issued by the Appellant could not be treated as being in
discharge of any liability by the Appellant.

It was observed
that mere issuance of cheque by the client may not debar him from contesting
the liability. If liability is disputed, the advocate has to independently
prove the contract. Claim based on percentage of subject matter in litigation
cannot be the basis of a complaint u/s. 138 of the Act. Having committed a
serious professional misconduct, the Respondent i.e. the Advocate, could not be
allowed to avoid the adverse consequences which he may suffer for his
professional misconduct. The issue of professional misconduct may be dealt with at appropriate forum.

It was held by
the Hon’ble Court that the claim of the Respondent advocate being against
public policy and being an act of professional misconduct, proceedings in the
complaint filed by him have to be held to be abuse of the process of law and
have to be quashed.

BCAJ Admin

Company Law

1. Companies (Acceptance of Deposits) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification No GSR 639 (E ) dated 29th June 2016, notified amendments to the Companies (Acceptance of Deposit) Rules, 2014. Among other amendments, it has excluded an amount of Rs. 25 Lakh or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.

A Start-up Company means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 180(E) dated 17th February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.

A Convertible Note means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.

In Rule 3 to the Principal rule which limits the eligible Company to accept or renew any deposit from its members, the limit has been increased from 25% to 35% of the aggregate of the paid-up share capital and free reserves of the company.

Also the following proviso to Rule 3 of the Principal rules, after sub Rule 3 has been inserted-

“Provided that a private company may accept from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.

Rule 16 A pertaining to “Disclosures in the financial statement” has been introduced as follows:

(1) Every company, other than a private company, shall disclose in its financial statement, by way of notes, about the money received from the director.

(2) Every private company shall disclose in its financial statement, by way of notes, about the money received from the directors, or relatives of directors.

The full notification can be accessed at http://www. mca.gov.in/Ministry/pdf/Rules_30062016.pdf

2. Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide notification No. G.S.R. 646(E) dated 30th June 2016 issued amendments to the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014.

The disclosures applicable to listed companies as mentioned in Rule 5 of the principal rules, sub-rule (1), “clauses (v), (vi), (vii) and (ix) to (xi)” have been omitted:

(v) the explanation on the relationship between average increase in remuneration and company performance;

(vi) comparison of the remuneration of the Key Managerial Personnel against the performance of the company;

(vii) variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;

(ix) comparison of the each remuneration of the Key Managerial Personnel against the performance of the company;

(x) the key parameters for any variable component of remuneration availed by the directors;

(xi) the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year;

Following Disclosures in the Directors report are also required:

Details of remuneration of every employee drawing in excess of Rs 1,02,00,000/- pa or Rs. 8,50,000/- per month is to be disclosed alongwith the names of the top ten employees in terms of remuneration drawn.

Further the filing of Form No. MR-1 for the appointment of Chief Executive Officer, Chief Financial Officer and Company Secretary has been omitted.

The full notification can be accessed at http://www. mca.gov.in/Ministry/pdf/AmendmentRules_01072016. pdf

3. Removal of Difficulties Third Order – Rotation of Auditors

The Ministry of Corporate Affairs has vide Order no S.O. 2264(E) dated 30th June 2016, issued the Removal of Difficulties Third Order, which is deemed to be effective from 1st April 2014.

The third proviso of section 139 (2) (pertaining to Appointment of Auditors) of the Companies Act 2013 states that every company existing on or before the commencement of the Act and falling within the ambit of section 139 (2) (i.e. provisions relating to rotation of auditors) of the Act, are required to comply with the requirements of the said sub-section within 3 years from the date of commencement of the Act.

Given the above, difficulties have arisen regarding compliance with the provisions of the third proviso to section 139 (2) of the Act in so far as they relate to the period within which companies would comply with the provisions of section 139 (2) of the Act. In this regard, the Central Government has made the order by which, the third proviso to section 139 (2) of the Act would be substituted with the following proviso:

“Provided also that every company, existing on or before the commencement of this Act which is required to comply with the provisions of this sub-section, shall comply with requirements of this sub-section within a period which shall not be later than the date of the first annual general meeting of the company held, within the period specified under sub-section (1) of section 96, after three years from the date of commencement of this Act.”

This order aims to remove the difficulties that have arisen regarding compliance with Rotation of Auditors. The provisions of third proviso to section 139(2)in so far as they relate to the period within which companies would comply with provisions of section 139(2) of the said Act is substituted as follows:

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/ROD_Third_Order_2016.pdf

4. Companies (Incorporation) Third Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification No G.S.R. 743(E) dated 27th July 2016 issued Companies (Incorporation) Third Amendment Rules, 2016 to amend the Companies (Incorporation) Rules 2014.

Rule 3(2) has been substituted as follows:

“(2) A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company”

Rule 26 with respect to Publication of the name of the Company has been substitutes as follows :

(1) Every company which has a website for conducting online business or otherwise, shall disclose/publish its name, address of its registered office, the Corporate Identity Number, Telephone number, fax number if any, email and the name of the person who may be contacted in case of any queries or grievances on the landing/home page of the said website.”

In Rule 28(2) the following proviso has been added after 2nd Proviso:

“Provided also that on completion of such inquiry, inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, shifting of registered office shall be allowed. R ule 29 (1) is substituted as follows:

“(1) The change of name shall not be allowed to a company which has not filed annual returns or financial statements due for filing with the Registrar or which has failed to pay or repay matured deposits or debentures or interest thereon:

Provided that the change of name shall be allowed upon filing necessary documents or payment or repayment of matured deposits or debentures or interest thereon as the case may be.”

The rule for Conversion of unlimited liability company into a limited liability company by shares or guarantee have been incorporated in newly added Rule 37.

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesThridAmendementRules_28072016.pdf

5. Companies (Share Capital and Debentures) Fourth Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification No G.S.R. 791(E) dated 12th August 2016 notified amendments to Companies (Share Capital and Debentures) Rules, 2014.

Rule 18, after Sub-rule (10), the following sub-rule shall be inserted.

“(11) Nothing contained in this rule shall apply to rupee denominated bonds issued exclusively to overseas investors in terms of A.P. (DIR Series) Circular No. 17 dated September 29, 2015 of the Reserve Bank of India.”

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesFourthAmendmentRules_17082016.pdf.

BCAJ Admin

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

Business Transparency
In its simplest sense, business transparency means clear, unhindered honesty in the way that s/he does business. But it’s more than that. One business dictionary defines transparency as a “lack of hidden agendas or conditions, accompanied by the availability of full information required for collaboration, cooperation, and collective decision making.” The same source describes it as an “essential condition for a free and open exchange whereby the rules and reasons behind regulatory measures are fair and clear to all participants.” Meanwhile, another source defines transparency as “the full, accurate, and timely disclosure of information.”

In many cases, the word transparency is used as little more than a buzzword, a marketing opportunity. Whether it’s a corporate executive looking to win back disillusioned consumers and shareholders or a politician making whatever promises necessary to obtain public office, this term seems to have earned a bad rap over the years. And as a result, many have come to question the authenticity of those who use transparency as a part of their normal vernacular.

While observing the steady decay of this word would be a fascinating study in itself, there is another, more beneficial lesson to be learned in the wake of this linguistic disaster— particularly as it pertains to the way businesses are run.

This lesson can be learned, at least in part, by simply rediscovering what true transparency is—what does transparency actually mean? After that, one can utilize that understanding to discern the purpose of remaining transparent in the way s/he does business, as well as the often detrimental consequences of flouting that responsibility. Finally, with that new-found understanding, one can generate useful, ingenuous action plan for increasing transparency in his or her own business.

Transparency is one of those subtle things that can make a dramatic impact on a business. Yes, it will impact your bottom line. But that’s not the whole point. The point is that it helps everyone do business better—you, your clients, your team member. A culture of transparency is the way business ought to be done

RTI Clinic in September 2016: 2nd, 3rd, 4th Saturday, i.e. 10th, 17th, and 24th 11.00 to 13.00 at BCAS premises.

BCAJ Admin

Ethics and U

Shrikrishna (S) — Arjun, you are looking very much tensed up today. Any problem?

Arjun (A) —Yes. Already having a tough time facing scrutiny assessments. Plus advance tax work is on. Again, after the Union Budget, some urgent study and action will be required.

S — But that is normal in this part of the year. You should be quite used to such pressure!

A — I agree. But suddenly my friend is insisting that I should accompany him to Delhi.

S — Delhi? What for? To meet the PM or FM? Ha Ha Ha!

A — No Bhagwan. He is a very low profile CA. Poor fellow was held guilty of misconduct in a very trivial matter. Probably, he was not represented properly.

S — So, what is there at Delhi now?

A — When he consulted a senior member, he advised him to approach the Appellate Authority of our Institute.

S — I know. It is presided over by a High Court Judge.

A — Unfortunately, Appellate Authority does not have camps in regional offices! One has to attend at Delhi only.

S — Oh! It would be very expensive. Travel, counsel’s fee, and so on!

A — True. He is very much afraid of all this. He has engaged a counsel; but he is insisting that I should also accompany him.

S — He may be a little diffident.

A — Yes. Actually, he is from a rural area. Does not have the exposure and smartness to organise all this.

S — Then better rethink as to whether it is worthwhile contesting the issue. What is the punishment by the way?

A — Actually, the punishment is a mere reprimand. But he feels it is a stigma.

S — I know of another CA who was awarded one week’s suspension of membership. But he did not find it worth contesting, though his case had a lot of merit.

A — Why? One should always fight for justice.

S — I agree. But justice at what cost? And what is the guarantee of result? Are you aware of the procedure of Appellate Authority?

A — No. I will be attending for the first time.

S — See, in the notice, they must have mentioned as ‘preliminary hearing’.

A — Yes. What does that mean? .

S— It means, they will only hear your side and ascertain whether there is any substance in your appeal.

A — And then what?

S — Then, sometime later, they will hear the other side – that means the Council’s side. And they will decide whether the appeal is to be admitted! You also will be called for that hearing.

A — Oh! That means like the regular High Court. But both sides are not heard together?

S — Only after the preliminary hearing!

A — Very strange!

S — Yes. And if the appeal is admitted, then only they will fix up a date for hearing both sides.

A — Oh, my God! So the poor respondent will have to travel to Delhi thrice – with the Counsel?

S — Yes, my dear!

A — Then double the cost! And again so much of time! Doesn’t seem worth the trouble.

S — To avoid all this, the best thing is not to commit any misconduct even inadvertently! Not even in your dream!

A — What you say is absolutely correct! Prevention is better than cure. I must tell all this to my friend. One should really do the cost-benefit analysis of the whole thing.

S — Unfortunately in our system, justice is becoming more and more costly; and illusory.

A — Bhagwan, after all, this is your ‘leela’. You alone can save us from disaster!

Om shanti !!!!!

Note
The above dialogue intends to introduce our readers to the procedure followed by the Appellate Authority. The readers can go through section 22A of the Chartered Accountants Act, 1949 for their self study.

BCAJ Admin

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

Openness, accountability, and honesty define government transparency. In a free society, transparency is government’s obligation to share information with citizens. It is at the heart of how citizens hold their public officials accountable.

Governments exist to serve the people. Information on how officials conduct the public business and spend taxpayers’ money must be readily available and easily understood. This transparency allows good and just governance.

“A lack of transparency results in distrust and a deep sense of insecurity.”
– Dalai Lama

BCAJ Admin

Part C Information on & Around

Chief Minister’s office (Maharashtra ) paying nearly Rs. 8 lakh a month to eight officers on special duty:
An RTI query filed by activist Anil Galgali has revealed that the Chief Minister’s Office (CMO) incurs a monthly expenditure of Rs. 7.7 lakh to pay the officers on special duty (OSD). Galgali feels that the performance of these officers ought to be evaluated and appraised to justify the remuneration.

The CMO, however, feels these OSDs are discharging important duties. “All these officers have contributed immensely in various projects and flagship programmes of the government and the chief minister monitors their performance personally”, the CMO reacted in a written note. It mentioned that governance programmes, such as Aaple Sarkar, Right to Services Act and War Room that led to “good and speedy governance” were handled by OSDs.

The state is also using modern communication platforms such as Twitter, Facebook and WhatsApp. These candidates are handling it for the government to make the state schemes and decisions reach out to people. The OSDs have played an important role in the recent Make in India Week. The CMO still has vacancy for two OSDs.

‘Make In India’ logo designed by foreign firm
The logo of Prime Minister Narendra Modi’s much-hyped Make in India initiative, which aims to brand India as a manufacturing hub is designed by a foreign company’s Indian arm, reveals an RT I query. Replying to query by a Madhya Pradesh-based activist, Chandra Shekhar Gaur, Union Commerce and Industry ministry replied, “No tenders were invited for designing Make in India logo. In 2014-15, tenders were invited by the ministry for appointing a creative agency. And on the basis of this tender, Weiden+Kennedy India Limited, was chosen”.

While replying to another query, the ministry informed that Weiden+Kennedy India Limited was hired for Rs. 11 crore for advertising and promotion of Make In India campaign, for 3 years — Rs. 4.32 crore for financial year 2014-15, Rs. 3.6 crore each for 2015-16 & 2016-17, said the reply in the last week of December.

Speaking to TO I, Gaur said, “It feels good to hear about ‘Make in India’ and the campaign also talks good about our country. It’s a good initiative, but it would have been better and sent a stronger message if this was done by an Indian firm. There is no dearth of creative talent in India.”

HC refuses info under RTI for want of manpower
The Public Information Officer (PIO) of the Madras High Court Bench has refused to furnish information sought for by an advocate under the RT I Act, since “it is not readily available and collection of the same involves verification of voluminous records and huge manpower which is not possible.”

K. H. Elavazhagan, Registrar (Administration)-cum- PIO of the Bench, had said so in a written reply sent to the RT I applicant, A. Kannan, who had sought details of private cases filed by law officers representing the State government before their appointment to the posts of Special Government Pleader, Additional Public Prosecutor and Government Advocate in June 2011.

10 Janpath bigger than PM’s 7 RCR
Congress president Sonia Gandhi has one of the largest residences among politicians in the country, bigger than even the Prime Minister’s official abode at 7 Race Course Road in size. President Pranab Mukherjee and Vice-President Hamid Ansari are the only others who can boast of set-ups more palatial than the politically potent 10 Janpath. But while Rashtrapati Bhavan, the Vice- President’s residence and 7 RCR are official residences, Gandhi’s home at 10 Janpath is specifically allotted to her, irrespective of her status as Member of Parliament. The Gandhi residence is spread over 15,181 sq. m. while the Prime Minister’s is smaller at 14,101 sq. m., according to the Central Public Works Department.

Apex Court refuses to share pending ruling data
Fifteen years after its verdict that the confidence of litigants would be shaken if judgments were kept pending for years, the Supreme Court recently refused to share information under the RT I Act on the cases reserved for judgment. It also dismissed a plea to maintain the data on its pending judgments and make the information public under the RT I Act.

Closing the option for litigants and public-spirited persons to know details of cases which have been waiting endlessly for final decision, even though arguments are long over, the apex court refused to interfere with a Delhi High Court decision which said the court registry could not be directed to collect information on how long judgments on cases remained pending under the Right to information Act.

After a case is heard by a court, it reserves its verdict in the case. There is a certain time gap between this and declaration of the court’s decision or judgment. The case remains pending till the judgment is delivered. However, the Supreme Court’s refusal to be made accountable under the RT I Act is despite the Central Information Commission (CIC) ruling to disclose the number of pending or “reserved” judgments.

60% of discretionary fund used for Karnal, Gurgaon ignored

Haryana Chief Minister, Manohar Lal Khattar had released Rs. 14.30 crore for the state in 2014-15 under the discretionary fund. However, an RT I reply from the government has revealed that it has not spent a penny of this fund in Gurgaon.

The government in its reply said Rs. 8.76 crore, a whopping 60% of the entire amount was spent in Karnal, the CM’s constituency.

Chief Ministers’ discretionary fund is meant to provide immediate relief during calamities, disasters and other similar incidents when the other government machinery is slow and bound by rules and regulations. The apex court in 2011 had upheld this quota stating that the power of the chief minister to give monetary relief was power accompanied with duty.

While the funds in the CM’s discretionary quota are meant exclusively for an emergency, what is surprising is that Khattar has bestowed a major part of his largesse to only six villages in Karnal for development work.

BCAJ Admin

Part B RTI Act, 2005

In 3 months, Delhi government to accept RTI applications online

As a part of its e-governance initiatives, the Delhi government will begin accepting online filing of RTI applications within the next 3 months. According to government sources, the online RT I project is in the pipeline along with the project to set up e-Mandis, which will also make the sale of agricultural produce more transparent.

The project will help citizens file applications seeking information pertaining to any government department, make payments online and receive replies through e-mail. Currently, RTI applications are filed in person or by post.

The online applications, sources said, will have a payment gateway similar to an e-commerce platform and payments will be enabled by credit or debit cards, or netbanking. The government is currently working on setting up the infrastructure to ensure appropriate channeling of applications to the concerned departments. A back-end set up will also have to be created to channel the RT I fees to the concerned department, said sources. In addition, the government is also training its officials to gradually shift the RTI setup to a paperless office. Sources said training of government employees will also take some time before all RT I operations become paperless. The government, however, will rope in various departments to be able to complete the process within the next three months. About the e-Mandi project, sources said it was conceptualised to regulate the prices of agricultural produce and eliminate the monopoly of some vendors. This will ensure that details of all products are online. If the sale of some product is stuck, their availability or otherwise can be seen online, said a source. The project is still nascent and will take time to be planned and executed. While both the projects have received the government’s nod, the cost involved in setting them up is still being worked out, said officials. The majority of the expenses, they said, would be on setting up the online platforms and back-end operations.

BCAJ Admin

Part A Decision of Supreme Court

Public Service Commissions within RTI ambit

The Supreme Court held that candidates in recruitment examinations can seek scanned copies of answer sheets and tabulation of interview marks under the Right to Information (RT I) Act, but the right to information does not extend to disclosure of names of examiners.

A Bench of Justices M.Y. Eqbal and Arun Mishra in the case ‘Kerala Pub. Service Commn. & Ors. vs. State Information Commn. & Anr’ said disclosure of those who evaluated their mark sheets would not be in public interest.

The Apex Court held:
“The request of the information seeker about the information of his answer sheets and details of the interview marks can be and should be provided to him. It is not something which a public authority keeps it under a fiduciary capacity. Even disclosing the marks and the answer sheets to the candidates will ensure that the candidates have been given marks according to their performance in the exam. This practice will ensure a fair play in this competitive environment, where candidate puts his time in preparing for the competitive exams, but, the request of the information seeker about the details of the person who had examined/checked the paper cannot and shall not be provided to the information seeker as the relationship between the public authority i.e. Service Commission and the Examiners is totally within fiduciary relationship. The Commission has reposed trust on the examiners that they will check the exam papers with utmost care, honesty and impartially and, similarly, the Examiners have faith that they will not be facing any unfortunate consequences for doing their job properly. If we allow disclosing name of the examiners in every exam, the unsuccessful candidates may try to take revenge from the examiners for doing their job properly. This may, further, create a situation where the potential candidates in the next similar exam, especially in the same state or in the same level will try to contact the disclosed examiners for any potential gain by illegal means in the potential exam.”

BCAJ Admin

Ethics and U

(Updating of knowledge)

Shrikrishna (S) — Yes Arjun, how was the budget?

Arjun (A) —You mean Union Budget of 2016-17? It was very nice!

S — What was nice about it?

A — FM has touched upon many pain-points of tax payers. Has tried to rationalise many provisions.

S — Oh! You CAs believe that Budget means Finance Bill. That too, only Direct tax. One needs to see the broader picture; the economic part as well.

A — I agree. But those astronomical figures of a few lakh crores; and high-dream schemes really don’t make any meaning. Statistics is always deceptive.

S — Still, you should try to understand those things.

A — What you say is right. But who has the time to go through it? You know how hectic March is for us.

S — But you have no choice. Clients will expect a communication from you about the salient features.

A — So many people and firms bring out the booklets. Our BCAS budget booklet is excellent. S — T hat’s true. But have you bothered to buy them and distribute among your clients? You should educate your clients.

A — We are running around for completion of scrutiny assessments; service tax calculations, and what not!

S — And what about bank audits that will come in April?

A — That reminds me. I need to attend branch audit seminars. I have also to complete my CPE hours! A headache!

S — But why did you not complete it before? Why wait till the last date; and do it only in extended time?

A — That is in our blood now! We CAs don’t like to do things in time.

S — So that at the last moment, you can act to be too busy!

A — But these compliances keep us busy round the year. There is no respite to think of anything creative.

S — There is one more important thing that you CAs have not taken seriously! And that may invite trouble.

A — He Bhagwan! What do you mean? Any more burden?

S — Yes. Income Computation Disclosure Standards. ICDS.

A — I have heard about it. What exactly is it?

S — You are mainly practising income tax. Then you should know it. There are 10 ICDS and the Income for financial year 2015-16 was supposed to be computed by applying ICDS.

A — Oh, My God! Really, is it applicable? So our advance tax estimates also were to be done by ICDS?

S — Of course! Materiality, Revenue Recognition, Foreign Exchange, Inventory Valuation and so many of them. All affecting taxable income.

A — But have they not postponed it? Such a new thing made applicable all of a sudden!

S — They brought it last year only. But you always expect extension of every compliance.

A — Lord, we meet here to discuss our Code of Ethics. What has ICDS to do with the Code of Ethics?

S — You are mistaken, my dear! Technical competence is a fundamental part of ethics. You are a professional. If you are not up-to-date in knowledge, how will you render proper service?

A — That’s a point.

S — Technical lapses, lack of basic knowledge on the part of a CA, are considered to be misconduct.

A — Is it negligence?

S — Certainly.

A — But is there any effect on accounts?

S — No. On account of ICDS, you need not change the accounts. But tax provision will be affected.

A — Then our audit will also be affected. It is a part of statutory compliance.

S — And not doing it properly is a gross-negligence; or at least a lack of due diligence!

A — Clause (7) of part I of Second Schedule! Right? S — Very good! You remember so much!

A — So now, I need to update myself on Ind AS and ICDS! That means, my summer vacation is gone!

S — Don’t sacrifice your vacation. But always have knowledge update in your priority list. Be pro-active and avoid last moment tensions.

A — I agree. It affects our health; quality of work suffers; and in general, there is trouble.

S — Timely action will bring you peace in practice.

A — You are absolutely right, Lord, as always! Om shanti !!!!!

BCAJ Admin

Corporate Law Corner

Editor’s note: For a long time, the flavour of company
law has been missing from the journal. From this issue, we recommence digesting
decisions on Company Law. We hope readers will find these useful.

1. Esquire Electronics
vs. Netherlands India Communications Enterprises Limited

(2017) 1 CompLJ 131 (NCLT)

Date of Order: 6^thOctober, 2016

Sections 241 And 242 of Companies Act, 2013 – Order passed
by NCLT is a decree – Proceedings under sections 241 and 242 are in the nature
of the suit – Petition can be filed under sections 241 and 242 only if the same
is not barred by period of limitation as is prescribed under Limitation Act.

FACTS

Petitioners along with a company (SCo) and 2 other companies
entered into a Joint Venture Agreement dated 29.12.1995 wherein they decided to
establish a company in the name and style of NCo. Subsequently, all the parties
to the JV Agreement agreed to subscribe to the shares of SCo in the same
proportion as was agreed in the JV Agreement and the idea of formation of NCo
was supposedly dropped.

Petitioner alleged that NCo was secretly established in the
year 1996 with the same name as was agreed to in the JV Agreement. It was
further stated by the Petitioners that existence of this company was not
disclosed to them. Amongst other things, the Petitioners alleged various
irregularities on part of NCo such as non-conduct of Annual General Meeting
(AGM) from 2002 to 2010, non-existence of any office of NCo (violating
provisions of sections 17, 18 and 19 of Companies Act, 1956), illegal holding
of AGM in the year 2012, oppression and mismanagement by few directors of NCo,
amongst others.

Petitioners, filed a petition under sections 241 and 242 of
Companies Act, 2013 (the Act) with the National Company Law Tribunal (NCLT or
the Tribunal) against 5 respondents being NCo and its 4 directors on 25th July,
2016. The petition claims that the directors of NCo should be removed from the
company and its board be reconstituted excluding the aforesaid directors. They
have further prayed that all resolutions passed by NCo allotting shares to
various shareholders between 2000 and 2012 be declared as null and void.

The Petitioners however, did not agitate any cause against
NCo prior to this petition.

HELD

The Tribunal observed that the last AGM of NCo was conducted
on 29.09.2012. Upon perusing the filings made to the Registrar of Companies,
the Tribunal noted that the Petitioners were neither shareholders nor directors
of NCo. The Tribunal dismissed the
petition filed on two counts:

The Tribunal observed that section 433 of the Act makes it
patent that the Limitation Act would apply to the proceedings or appeals before
the Tribunal or the Appellate Tribunal. Referring to sections 424 and 425 of
the Act it held that it has powers vested in a Civil Court under the Code of
Civil Procedure while trying a suit in respect of specified matters and that
the orders passed by it are executable as a decree of Court. Once it is
established that the order passed by it is a decree then it follows that the
proceedings under sections 241 and 242 of the Act are necessarily proceedings
in a suit. It has all trappings of a suit. Therefore, the period of limitation
provided for suits would, ipso facto, be applicable as the Limitation
Act has been specifically made applicable by section 433 of the Act.

The Tribunal observed that since the last AGM of NCo was
conducted on 29.09.2012, in terms of Article 113 of Limitation Act, the period
of limitation would be three years from the date the right to sue accrues. The
cause of action, if any, arose to the Petitioners on 30.09.2012 and the instant
petition having been filed on 25.07.2016 was clearly beyond the period of three
years provided by Article 113 of the Limitation Act.

Further, since the Petitioners were neither directors nor
shareholders of NCo at any point of time, there was no locus standi available
for them to file the aforesaid petition.

The Tribunal, therefore, dismissed the petition with cost of
Rs. 25,000.

2. West Hills Realty
Private Ltd. vs. Neelkamal Realtors Tower Pvt. Ltd.

[2017] 200 CompCas 179 (Bom)

Date of Order: 23^rdDecember, 2016

Section 433(e) of Companies Act, 1956 read with Rule 5 of
Companies (Transfer of Pending Proceedings) Rules, 2016 – Winding up petitions
which are pending before the High Court would not be transferred to NCLT if the
notice has already been served on the Respondent irrespective of whether they
have been admitted by the High Court or not

FACTS

Two company petitions were filed before the Hon’ble Bombay
High Court u/s. 433(e) r.w. section 434 of Companies Act, 1956 in April 2016
seeking winding up of respondent companies on account of inability to pay its
debts. In terms of notification dated 07.12.2016, issued by the Central
Government, all petitions relating to winding up u/s. 433(e) pending before
High Courts, and which have not been served on the Respondent as required by
Rule 26 of the Companies (Court) Rules, 1959, stand transferred to the
appropriate Bench of the National Company Law Tribunal (NCLT) exercising
territorial jurisdiction over the mater.

Respondent urged that the petitions were covered in the
mandate of the notification and stand transferred thereunder, whilst the
Petitioners submitted that the petitions having been served on the Respondent
as required by Rule 26, the transfer notification does not apply to them and
accordingly, the High Court retains its jurisdiction over them.

Since the issue would arise in several cases pending before
the Court, any interested party whose petition was pending before the Court
were allowed to appear and file submissions in this regard.

HELD

The crucial question before the Court was whether or not the
petition has been served on the Respondent “as required under Rule 26 of the Companies (Court) Rules, 1959”.

Counsel for the Respondents urged that service of petition
contemplated by Rule 26 was a post-admission service. It was submitted that the
service of a petition under Rule 26 contemplates a simultaneous service of the
notice of the petition, which, as Rule 27 provides, must be in Form No. 6 given
under the Rules. That form was to be served after the petition was admitted by
the court. It was further contended that there was no rule under the Companies
(Court) Rules, 1959, which required a pre-admission notice of the petition to
the Respondent.

Petitioner on the other hand urged that requirement under
Rule 26 was without any reference to the admission of the petition. It was
stated that service of the petition under Rule 26 and notice of the petition
under Rule 27 are two entirely different matters.

For ease of reference the said rules have been reproduced as
under:

“26. Service of petition – Every petition shall be
served on the respondent, if any, named in the petition and on such other
persons as the Act or these rules may require or as the Judge or the Registrar
may direct. Unless otherwise ordered, a copy of the petition shall be served
along with the notice of the petition.

27. Notice of petition and time of service – Notice of every
petition required to be served upon any person shall be in Form No. 6, and
shall, unless otherwise ordered by Court or provided by these Rules, be served
not less than 14 days before the date of hearing.”

The Court observed that

(i) service of petition implied service on the
respondent or other person, as the case may be, of a copy of the petition,
whereas notice of the petition connoted notice of the hearing of the petition
before the court. Rule 26 provides for service of petition, whilst Rule 27
provides for notice of petition.

(ii) if a respondent was named in the petition, the
requirement of service of the petition on such respondent is the requirement of
Rule 26 itself. One does not have to go to the other provisions of the Act or
the Rules or the orders of the Judge or the Registrar for such requirement.
Rule 26 has no reference to the order of admission of the petition.

Those petitions, which are pending admission and which have
been served on the respondent as required under Rule 26, shall continue to
remain in the High Court pending their admission, whilst the petitions pending
admission, which have not been served on the Respondent as required under Rule
26, shall be transferred to, and considered for admission by NCLT.

As the notice of the petitions had already been served upon
the Respondents, it held that the same were to be dealt with by the Court only.

3. (2017) 77 taxmann.com
210 (NCLT – New Delhi)

JVA Trading (P.) Ltd., In re

Date of Order: 13^th January, 2017

Sections 230, 231 and 232 of the
Companies Act, 2013 and Rules 3 and 5 of Companies (Compromise, Arrangement and
Amalgamation, Rules, 2016) – Compromise and arrangement – Tribunal does not
have the power to dispense the conduct of meeting of members / shareholders

FACTS

JCo (being a transferor) is engaged in business of trading in
electric and electronic goods whereas CS Co (being a transferee) is engaged in
the business of manufacturing the same. The Board of Directors of both the
companies had passed a resolution approving of the merger.

JCo and CS Co filed an application to the Tribunal under
sections 230 to 232 of the Act read with the Companies (Compromises,
Arrangements and Amalgamation) Rules, 2014 in relation to a scheme of
amalgamation proposed between JCo and CS Co
requesting it to dispense the requirement to convene meeting of equity
shareholders of JCo and issue necessary orders / directions for conducting
meetings of creditors of JCO, equity shareholders and creditors of CS Co
amongst others. A scheme of Amalgamation was also filed with the Tribunal.

The companies also filed with the Tribunal their combined
capital structure; list of equity shareholders, secured and unsecured creditors
of both the companies; respective Memorandum and Articles of Association,
Certificate of Incorporation, provisional financial statements up to a cut off
date.

HELD

The Tribunal upon perusing the necessary facts held that it
did not have the power to dispense with the requirement of convening the
meeting of shareholders / members under the provisions of the Companies Act,
2013.

It did proceed to give directions in respect of conduct of
meetings in respect of both the companies, appointment of Chairperson for the
aforesaid meetings, manner in which the notices would be sent, manner of
voting, amongst others.

4. Sanjay Sadanand Varrier
vs. Power Horse India (P.) Limited [2017] 80 taxmann.com 47 (Bombay) Date of
Order: 22.03.2017

Section 433, read with sections
434 and 439 of the Companies Act, 1956 – An unpaid employee being a creditor of
the company can file a petition for winding up of the company – A winding-up
petition at instance of trade union for recovery of dues payable to its members
was maintainable

FACTS:

Petitioner (S), an employee of the Respondent Company (PCo)
was initially appointed as a Regional Sales Manager and thereafter as the
Manager, Key-Accounts and Trade Marketing. S alleged that since October 2009
till he resigned in March 2012, his entire salary was outstanding. S therefore
issued a statutory notice to PCo u/s. 434 of the Companies Act, 1956 for payment
of his dues, failing which he would initiate winding up proceedings. Since PCo
did not make the said payment, S filed a winding up petition before the High
Court. PCo relying on decision of Mumbai Labour Union vs. Indo French Time
Industries Ltd. [2002] 38 SCL 924 (Bom.) contended that S was not a
creditor of the company and therefore, petition u/s. 439 cannot be
maintained.

The decision rendered in the case of Mumbai Labour Union was
overruled in the case of Khandelwal Tube Mill Kamgar Sangh vs. Government of
Maharashtra [2006] 1 CLR 51 wherein it was held that workman or an
individual employee, being a creditor within the meaning of the relevant
statutory provisions of the Companies Act, can institute or file a Petition for
winding up of a Company.

The only surviving issue before the Court was whether a Trade
Union could file a Petition so as to espouse the cause of workmen who are members of such a Trade Union.

HELD:

Court examined the provisions of the Companies Act, 1956 as
well as Trade Unions Act, 1926. It was noticed that Registered Trade Unions can
prosecute or defend any legal proceeding to which the Trade Union or member
thereof is a party. The Court held that a Trade Union, though having a
legitimate claim, cannot be shut out from approaching the appropriate forum for
winding up the Company on the ground that its members have not been paid their
wages and/or salaries.

It was therefore held that an employee can maintain a
petition for winding up of a company u/s. 439 r/w sections 433(e) and 434 of
the Companies Act, 1956 as a creditor based on the claim of the recovery of his
unpaid salary and wages. Further, a winding up petition at the instance of a
Trade Union and for the dues that are payable to its members is maintainable as
it clearly fell within section 439 of the Companies Act, 1956.

5. Shabbir Ahmed vs.
Safedabad Cold Storage and Allied Industries (P.) Ltd.

[2017] 80 taxmann.com 46 (NCLT – Kolkata) Date of Order: 1^stMarch,
2017

Section 13, read with sections 12 and 241, of the Companies
Act, 2013 – company having its registered officer in West Bengal had shifted
its registered office from West Bengal to state of Uttar Pradesh without
issuing any notice to a shareholder – Company had acted in a manner prejudicial
to the interest of shareholders – The shifting of office was illegal – Prayer
to shift the petition to Uttar Pradesh was not allowed

FACTS:

Directors of Respondent Company (SCo) convened an Extra
ordinary general meeting (EOGM) for shifting its registered office from the
State of West Bengal to the State of Uttar Pradesh and in the said meeting, a
special resolution was passed by the members. Petitioner (S) holding 21.76%
shares in SCo alleged that due process was not followed in convening the
meeting and that they were not served any notice of the meeting.

SCo however did not produce any proof of service of notice
upon S. S accordingly pleaded that such resolution passed should be declared as
null and void and also filed Company Petition for mismanagement and oppression
challenging the shifting of registered office amongst other things.

HELD:

SCo failed to show or prove the service of notice upon the S
or upon any other members/shareholders as was required under Rule 30 of the
Companies (Incorporation) Rules, 2014. SCo relied only on the order of Regional
Director who allowed the application for change in its registered office from
state of West Bengal to state of Uttar Pradesh.

The Tribunal also observed that office of the company was
shifted locally within Kolkata and the same was reflected in the Master data
obtained from the MCA portal. However, SCo did not produce any document to show
that due procedures were complied, in regard to the shifting of the registered
office locally within the State.

The Tribunal found that the equity was in favour of S. It
held that the conduct of the SCo and its directors was prejudicial to the
interest of the S and it would be highly unjust to allow the prayers sought by
the director of company to transfer the Company Petition to Safedabad in Uttar
Pradesh.

The Tribunal, rejecting the grant of relief stated that
relief if allowed would be highly oppressive to S as SCo had acted in the
manner not only prejudicial to the interest of the S but also acted in
violation of the established principles/procedures of law while shifting the
registered office of the company.

BCAJ Admin

Company Law

1. MCA is actively considering Aadhaar
Integration for availing various MCA21 related services. As a preparatory step,
all individual stakeholders viz. DIN holders/Directors/Key Managerial
Personnel/Professionals of the Institute of Company Secretaries of
India-Institute of Chartered Accountants of India-Institute of Cost Accountants
of India (whether in employment or in practice) are requested to obtain Aadhaar
as early as possible for integrating their details with MCA21 and also ensure
that the information in Aadhaar is in harmony with PAN. When implemented, all
MCA21 services shall be available based on Aadhaar based authentication ONLY.
The date of Aadhaar integration with MCA21 would be announced shortly.
Stakeholders are requested to plan accordingly on PRIORITY so as to avoid
future inconvenience.

2. Form STK-2 –Form for application by company
for removing its name from register of companies is now available on the MCA
Portal.

3. The Companies ( Registration of Charges)
Amendment Rules 2017

The Ministry of Corporate Affairs has vide
Notification dated 7^th April 2017 revised the Forms CHG-1, CHG-4 and
CHG-9. The following details are also required to be filled:

(i) ranking of charges,

(ii) particulars of the principal terms and
conditions of the charge,

(iii) particulars of the property or asset(s)
charged (including complete address and location of the property),

(iv) description of document by which the
borrower/third party acquired the title etc.

(v) If the ‘Type of Charge’ is ‘immovable property
or any interest therein’, the location parameters (Latitude and Longitude)
shall be mandatory

The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/companiesRegistrationofChargesAmendmentRules_08042017.pdf

4. Form 3 (Information with regard to Limited
Liability Partnership agreement and changes, if any, made therein) has been
mandatorily filed for initial agreement before filing of Form 8 (Statement of
Account & Solvency) and Form 11 (Annual Return of Limited Liability
Partnership (LLP).

5. The Companies ( Removal of Names of
Companies from the register of Companies ) Amendment Rules 2017

The Ministry of Corporate Affairs has vide
Notification dated 12^th April 2017 inserted the following Proviso
after the proviso to Rule 7 (1) which provides for the publication of the Public notice pursuant to
it and Section 248(1) and 248 (4) of the
Companies Act 2013 in the format as per Form No STK-5A

The full notification can be accessed
athttp://www.mca.gov.in/Ministry/pdf/CompRemovalofNamesRules_13042017.pdf

6. Companies (Meetings of Board and its Powers)
Amendment Rules, 2017.

The Ministry of Corporate Affairs has vide
Notification dated 30^thMarch 2017 amended the Companies (Meetings
of Board and its Powers) Rules, 2014. In rule 15, in sub-rule (3), in clause
(a)—

in item (i), item (ii), item (iii) and
item (iv), for the words “exceeding ten per cent.” Whereverthey occur, the
words “amounting to ten per cent. or more” shall be substituted;

and(b) in item (iii), for the words “ten
per cent. of turnover” the words “ten per cent. or more ofturnover” shall be
substituted.

The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/CompaniesMeetingsofBoard_31032017.pdf

7. The Companies (Indian Accounting
Standards)(Amendment) Rules, 2017

The Central Government, in consultation
with the National Advisory Committee on Accounting Standardshas vide
Notification dated 17^th March 2017 amended the the Companies (Indian
Accounting Standards) Rules, 2015

The full notification can be accessed at

http://www.mca.gov.in/Ministry/pdf/CompaniesIndianAccountingStandards_21032017.pdf

8. Section 234 of the Companies Act 2013
pertaining to Merger and Amalgamation of company with Foreign Company notified

The Ministry of Corporate Affairs has vide
Notification dated 13^th April, 2017 informed that Section 234 of
Companies Act 2013 pertaining to Merger and Amalgamation of company with
Foreign Company is effective w.e.f 13^th April 2017.

The full notification can be accessed at

http://www.mca.gov.in/MinistryV2/companiesact2013.html

9. The Companies (Compromises, Arrangements and
Amalgamations) Amendment Rules, 2017

The Ministry of Corporate Affairs has vide
Notification dated 13^th April 2017, inserted Clause 25A pertaining
to Merger or Amalgamation of a foreign Company with a Company and vice
versa.

The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/CompaniesCompromises_14042017.pdf

10. Amendments to Schedule III of the Companies Act
2013

The Central Government has vide
Notification dated 30^thMarch 2017
no G.S.R. 308(E) issued the following
amendments to Schedule III of the said Act with effect from the date of
publication of this notification in the Official Gazette, namely:-

In the Companies Act, 2013 in Schedule
III, in Division I, in Part I under the heading “General instructions for
preparation of Balance Sheet” in paragraph 6, after clause ‘W’, the following
clause shall be inserted namely:-

“X.
Every company shall disclose the details of Specified Bank Notes (SBN) held and
transacted during the period from 8^thNovember, 2016 to 30^th
December, 2016 as provided in the Table below:-

SBNs

Other
denomination

Notes

Total

Closing cash in hand as on
08.11.2016

(+) Permitted receipts

(-) Amount deposited in
Banks

Closing cash in hand as on
30.12.2016

Explanation : For the purposes of this clause, the
term ‘Specified Bank Notes’ shall have the same meaning provided in the
notification of the Government of India, in the Ministry of Finance, Department
of Economic Affairs number S.O. 3407(E), dated the 8^th November, 2016.”

In the Companies Act, in Schedule III, in Division II, in
Part I under the heading “General instructions for preparation of Balance
Sheet” in paragraph 6, after clause ‘J’, the following clause shall be inserted
namely:-

“K. Every company shall disclose the details of
Specified Bank Notes (SBN) held and transacted during the period 08/11/2016 to
30/12/2016 as provided in the Table below:-

SBNs

Other
denomination

Notes

Total

Closing cash in hand as on
08.11.2016

(+) Permitted receipts

(-) Amount deposited in
Banks

–

Closing cash in hand as on
30.12.2016

Explanation : For the purposes of this clause, the
term ‘Specified Bank Notes’ shall have the same Meaning provided in the
notification of the Government of India, in the Ministry of Finance, Department
of Economic Affairs number S.O. 3407(E), dated the 8^th November, 2016.”.

Full Notification can be
accessed at
http://www.mca.gov.in/MinistryV2/companiesact2013.html

BCAJ Admin

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

17. Notification No.
FEMA.387/2017-RB dated March 09, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Fourth
Amendment) Regulations, 2017

This notification contains two
amendments to Notification No. FEMA 20/2000-RB dated 3^rd May 2000 –
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2017.

The amendments are as under: –

1. Insertion of new sub-regulations in
Regulation 2: –

(ii E) E-commerce:

a. ‘E-commerce’ means buying and selling of goods and services including
digital products over digital & electronic network.

b. ‘E-commerce entity’ means a company incorporated under the Companies
Act, 1956 or the Companies Act, 2013 or a foreign company covered under section
2 (42) of the Companies Act, 2013 or an office, branch or agency in India as
provided in Section 2 (v) (iii) of FEMA 1999, owned or controlled by a person
resident outside India and conducting the e-commerce business.

c. ‘Inventory based model of e-commerce’ means an e-commerce activity
where inventory of goods and services is owned by e-commerce entity and is sold
to the consumers directly.

d. ‘Market place model of e-commerce’ means providing of an information
technology platform by an e-commerce entity on a digital & electronic
network to act as a facilitator between buyer and seller.

2. Substitution of existing entry 16.2 in Annex
B to Schedule 1: (Table given below)

16.2	E-Commerce	% of equity/FDI Cap	Entry Route
16.2.1	B2B E-commerce activities	100%	Automatic
	Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.
16.2.2	Market place model of e-commerce	100%	Automatic
16.2.3	Other Conditions
	a) Digital & electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc. b) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis. c) E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other services. d) E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model. e) An e-commerce entity will not permit more than 25% of the sales value on financial year basis affected through its marketplace from one vendor or their group companies. f) Goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller. g) Payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India. h) Any warranty /guarantee of goods and services sold will be responsibility of the seller. i) E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. j) Guidelines on cash and carry wholesale trading as given in S.No. 16.1.2 (stated above) shall apply to B2B e-commerce activities. Note: FDI is not permitted in inventory based model of e-commerce.
16.2.4	Sale of services through e-commerce shall be under automatic route subject to the sector specific conditions, applicable laws/regulations, security and other conditionalities.

16.2

E-Commerce

%
of equity/FDI Cap

Entry
Route

16.2.1

B2B
E-commerce activities

100%

Automatic

Such
companies would engage only in Business to Business (B2B) e-commerce and not
in retail trading, inter alia implying that existing restrictions on
FDI in domestic trading would be applicable to e-commerce as well.

16.2.2

Market
place model of e-commerce

100%

Automatic

16.2.3

Other
Conditions

a)
Digital & electronic network will
include network of computers, television channels and any other internet
application used in automated manner such as web pages, extranets, mobiles
etc.

b)
Marketplace e-commerce entity will be
permitted to enter into transactions with sellers registered on its platform
on B2B basis.

c)
E-commerce marketplace may provide
support services to sellers in respect of warehousing, logistics, order
fulfilment, call centre, payment collection and other services.

d)
E-commerce entity providing a
marketplace will not exercise ownership over the inventory i.e. goods
purported to be sold. Such an ownership over the inventory will render the
business into inventory based model.

e)
An e-commerce entity will not permit
more than 25% of the sales value on financial year basis affected through its
marketplace from one vendor or their group companies.

f)
Goods/services made available for
sale electronically on website should clearly provide name, address and other
contact details of the seller. Post sales, delivery of goods to the customers
and customer satisfaction will be responsibility of the seller.

g)
Payments for sale may be facilitated
by the e-commerce entity in conformity with the guidelines of the Reserve
Bank of India.

h)
Any warranty /guarantee of goods and
services sold will be responsibility of the seller.

i)
E-commerce entities providing
marketplace will not directly or indirectly influence the sale price of goods
or services and shall maintain level playing field.

j) Guidelines
on cash and carry wholesale trading as given in S.No. 16.1.2 (stated above)
shall apply to B2B e-commerce activities.

Note:
FDI is not permitted in inventory based model of e-commerce.

16.2.4

Sale
of services through e-commerce shall be under automatic route subject to the
sector specific conditions, applicable laws/regulations, security and other
conditionalities.

28. A. P. (DIR Series) Circular No. 41 dated March 21, 2017 Notification
No. FEMA No.384/2017-RB dated March 17, 2017

Risk Management and Inter-bank
Dealings: Operational flexibility for Indian subsidiaries of Non-resident
Companies

This circular has amended the
provisions of Notification No. FEMA.25/RB-2000 dated May 3, 2000 dealing with
Foreign Exchange Derivatives Contracts.

This circular now permits, subject
to certain terms and conditions, a non-resident to enter into a foreign
exchange derivative contract with a bank in India to hedge an exposure to
exchange risk of and on behalf of its Indian subsidiary in respect of the said
subsidiary’s transactions.

The detailed terms and conditions,
etc. are contained in 2 Annex’s to this circular.

29. A. P. (DIR Series) Circular No. 42 dated March 30, 2017

Purchase of foreign exchange from
foreign citizens and others

This circular has withdrawn the
restrictions on purchase of foreign exchange from customers by authorised
persons and restored the position as contained in paragraph 4.4 (e) (iii) of
Annex to A.P. (DIR Series) Circular No.17 dated November 27, 2009.

The said paragraph provides as
under: –

iii) (a) Requests for payment in
cash in Indian Rupees to resident customers towards purchase of foreign
currency notes and / or Travellers’ Cheques from them may be acceded to the
extent of only US $ 1000 or its equivalent per transaction.

(b) Requests for payment in cash
by foreign visitors / Non-Resident Indians may be acceded to the extent of only
US $ 3000 or its equivalent.

(c) All purchases within one month
may be treated as single transaction for the above purpose and also for
reporting purposes.

(d) In all other cases, APs should
make payment by way of ‘Account Payee’ cheque / demand draft only.

30. A. P. (DIR Series) Circular No. 43 dated March 31, 2017

Investment by Foreign Portfolio
Investors in Government Securities

This circular has increased the
limits for investment by FPI in Central Government Securities and State
Development Loans (SDL) for the quarter April-June 2017 by Rs. 110 billion and
Rs. 60 billion respectively.

The details of the revised limits
are as under: –

Rs. Billion
	Central Government securities	State Development Loans	Aggregate
	For all FPI – General Category	Additional for Long Term FPI	Total	For all FPI (including Long Term FPI)
Existing Limits	1,20	680	2,200	210	2,410
Revised limits for quarter April-June, 2017	1,565	745	2,310	270	2,580

Rs. Billion

Central Government securities

State
Development Loans

Aggregate

For all FPI – General Category

Additional for Long Term FPI

Total

For all FPI (including Long Term FPI)

Existing Limits

1,20

680

2,200

210

2,410

Revised limits for quarter April-June, 2017

1,565

745

2,310

270

2,580

BCAJ Admin

Allied Laws

5. Precedent –
Contrary decisions of co-ordinate benches – Decision with better of reasoning
to be chosen [Central Excise Act, 1944; Section 11AC].

CCE vs. Otis Elevator Co. (I) Ltd. 2017(345) E.L.T. 512
(Bom.)(HC)

The issue in the case was with respect to application of a
provision retrospectively or prospectively. While resolving the issue, several
case laws were quoted where contrary views were expressed. However, one of the
case laws did not have threadbare discussion or reasoning.

Relying on the decision of the Court in the case of Kamleshkumar
Ishwardas Patel vs. Union of India, 1994 Mh.L.J. 1669 (FB), it was held
that when the Court is confronted with contrary decisions of higher courts,
both being binding on the subordinate courts by reason of their hierarchy, the
courts have to undertake the unpleasant task of choosing that one which appears
to be one with better reasoning.

6. Advocate, no
Objection Certificate of earlier Advocate not required – Appointment of New
Advocate – Party to litigation has absolute right to appoint advocate of
choice. [Constitution of India; Art.225, Advocate Act, 1961. Section 35]

Karnataka Power Transmission Corporation Ltd. Mysore vs.
M. Rajashekar and others. AIR 2017 Kar. 1

The issue in question was whether a new Advocate’s
Vakalatnama can be accepted in the absence of a no objection certificate from
the earlier advocate?

It was held that a party to the litigation has an absolute
right to appoint an advocate of his choice, to terminate his services and to
appoint a new advocate. A party has the freedom to change its advocate at any
time and for whatever reason.

However, fairness demands that the party should inform his advocate
already on record, though this is not a condition precedent to appoint a new
advocate. There is nothing known as an irrevocable Vakalatnama. The right of a
party to withdraw the authorisation given is an absolute one. On discharging
the advocate, the party has the right to have the case file returned to him.
However, if the advocate, on being discharged, has a genuine claim against the
client relating to the fee payable to him, the appropriate course for him is to
return the brief and to agitate his claim in an appropriate forum, in
accordance with law.

Hence the Registry will not ask for ‘No Objection’ of an
advocate already on record, to accept the Vakalatnama filed by a new advocate.

7. Evidence –
Newspaper Report – Only hearsay Evidence – Editor to be examined. [Evidence
Act, 1872; Section 3]

Govind Rhukhdu Ji Sirvi vs. Ranjana Baghel (Smt.) AIR 2017
Madhya Pradesh 41.

The election result of the Respondent was called in question
on several grounds w.r.t. malpractices before the Court. One of the ground was
that the respondent visited a village where she, by way of gratification of
voters, distributed currency notes of Rs.1,000/-. Photographs of the incident
were taken and distributed to various daily newspapers.

In the matter at hand, it was alleged that the respondent had
distributed currency notes which amounted to corrupt practices. The Petitioner
adduced the newspaper reports, ocular evidence and the photographs.

However, this allegation was denied by the respondent’s
Counsel on the ground that a news item as such is no evidence in the eyes of
law. Hence, the evidence should not be admissible.

It was held that a newspaper report by itself is no evidence
of its contents and that such evidence is only hearsay evidence. To prove the
contents of the newspaper reports, the reporter, editor or the publisher who
can testify as to how, when, from where and in what manner the material
published in the newspaper was collected should be examined.

8. Power of
Attorney executed outside India – Power of Attorney notarised in accordance
with law – Document to be admissible and not impoundable [Registration
Act,1908; Section 85].

Active Promoters Pvt. Ltd. vs. Assotech Reality Pvt. Ltd.
& Another AIR 2017 Punjab and Haryana 41

A Revision petition was filed before the court in a suit for
specific performance of the sale agreement. The Petitioner had moved an
application for the impounding of the special power of attorney, having been
executed outside India.

Plaintiff-Respondent filed
a suit for specific performance of the sale agreement under which the
Defendant-petitioner had agreed to sell his land. A written agreement was
executed between the parties for which the defendant-petitioner received
earnest money as well.

When the Defendant failed
to execute the sale deed, the Plaintiff filed Civil suit seeking specific
performance of the agreement to sell. Suit was at the stage of the Plaintiff’s
evidence. When the evidence of a special power of attorney was furnished, no
objection was raised for months and an issue was raised thereafter for
impounding the special power of attorney.

It was held that since the document, which was notarised by
the Notary Public of State of Florida, strictly in accordance with the laws of
America, met the requirements of law contained in section 85 and section 32 of
the Indian Evidence Act, and since no objection had been raised by the
opposition w.r.t the admission of the evidence at the inception, the evidence was
admissible.

However, any plea w.r.t. the evidentiary value could be
raised at the appropriate stage. Hence, the Special Power of Attorney was not
to be impounded by the Court.

9. Judgment – To
be pronounced in open Court, signed and dated – Mere declaration does not
amount to judgment. [Criminal Procedure Code, 1974; Section 353]

Ajay Singh and Another vs. State of Chhattisgarh and
Another AIR 2017 Supreme Court 310.

The issue was whether the Trial Court could pass an order
acquitting the accused as per a judgment typed separately.

The issue in the Trial Court was with respect to dowry death,
cruelty, etc., wherein finally the Judge passed a judgment stating in
the Order sheet that recorded that the accused persons had been acquitted as
per the judgment separately typed, signed and dated.

A complaint was filed before the Registry of the High Court,
appropriate action was taken and all the cases before the concerned Trial Judge
were transferred before the High Court for re-hearing.

Hence, two issues cropped up namely, whether the Trial Judge
had really passed an order for acquittal and whether the High Court had the
power to transfer the cases adjudicated upon by the Trial Court already, for
rehearing.

On verification, it was held that the Trial Court had not
pronounced any judgment in the open court.

According to section 353, the process and method of passing a
judgment is defined, wherein it specifies that a judgment has to be pronounced
in the Open Court, either immediately after the trial or at some subsequent
day, with prior notice given to the Parties. Section 363 provides that a copy
of judgment should be given to the accused and the other persons.

It was held that, the provisions clearly spelt
out that it was imperative on the part of the learned Trial Judge to pronounce
the judgment in the open court by delivering the whole of the judgment or by
reading out the whole the judgment or by reading out the operative part and
explaining the substance of the judgment.

BCAJ Admin

Part C Information on & around

Maharashtra government makes another attempt to cripple RTI Act; move draws flak

The Maharashtra government is proposing a series of RTI rules, which, if implemented, would sound the death knell of the Act. Earlier, during the tenure of the previous government, some RTI rules were made.

What are the controversial proposals?

One is that an applicant would not be given details that “involve fresh collection of non-available data” or “compilation of existing data”. The other is not to give information on queries that seek “justification”.

How will the proposals kill the Act?

Already, there are complaints that many public information officers (PIOs) do not part with information largely because they do not even keep the records properly with them. The proposals also take away the onus of giving reasons for not providing information from the PIOs. The government is also looking to set a limit on the information it can provide online.

PMO discloses salary of its staff; IAS officer Bhaskar Khulbe highest paid

The monthly salary of all officers working in the prime minister’s office (PMO) has been made public as part of suo motu disclosure under the Right to Information (RTI ) Act with senior Indian Administrative Service (IAS) officer Bhaskar Khulbe the highest paid at Rs.2.01 lakh.

Khulbe, who is secretary to the prime minister, gets a monthly remuneration of Rs.2.01 lakh, according to details of the salary as on 1 June 2016 put on the PMO website.

Update details of officers handling RTI matters: Govt to depts

All central government departments have been asked to ensure that updated details of officers responsible for handling RTI applications are available in the public domain.

One of the items to be disclosed proactively by the public authorities (or government departments) under the Right to Information (RTI) Act pertains to the names, designations and other particulars of the Central Public Information Officers (CPIO) and its updation on a yearly basis.

Army canteens most profitable retail chain in India, ahead of Future & Reliance Retail

Which is the most profitable Retail chain in India? Answer: The defence canteen stores. Its earnings exceeded those of all other chains, including Future Retail and Reliance Retail. The Canteen Stores Department (CSD), which, incidentally, is a not-for-profit organisation, earned Rs 236 crore during FY14-15, according to a Right to Information query. Comparatively, Avenue Supermart, which runs D’Mart stores, made a profit of Rs 211crore.

118 sexual harassment cases filed in BMC in 4 years, reveals RTI

In the last four years (2013-16) the Brihanmumbai Municipal Corporation (BMC) officials have registered 118 cases of sexual harassment in its offices, reveals a right to information (RTI ) response.

In a reply to the RTI filed by activist Anil Galgali requesting number of sexual harassment complaints filed in the civic administration and action taken, the civic body replied saying 21 sexual harassments cases were registered by its women employees till June this year.

According to this information, from 2013 to 2016, the average number of complaints registered with committee which works under Women Sexual Harassment Prevention chief and ‘Savitribai Phule Women Resource Centre each year should be 29. While in 2013 and 2014, 32 and 34 complaints were lodged respectively, there was marginal decline in 2015 as 31 cases were filed.

BCAJ Admin

Part B RTI Act, 2005

Constitution bench to decide if SC is exempted from RTI Act

A five-judge Constitution bench of the Supreme Court will decide whether the apex court is liable to disclose information on judicial appointments under the Right to Information Act.

The bench will hear a case filed by its administrative wing through the Central Public Information Officer.

A three-judge bench led by Justice Ranjan Gogoi referred the question to the country’s top court, following a case filed by the CPIO of the Supreme Court against an earlier Delhi High Court ruling.

The Delhi High Court in 2014 upheld a similar order by the Central Information Commission and ruled that the Supreme Court is not exempt from disclosing information under the RTI . The high court thus allowed the public to seek information related to appointment of judges, and number of cases pending and disposed off in the apex court through RTI applications.

The Delhi High Court directed the Supreme Court registry to maintain all records, even judgments that had been reserved, to ensure that all information is available under RTI .

In 2011, the CIC had given a similar direction to the Supreme Court to maintain its records regarding all cases in such a way that information can be made available to RTI applicants. The Supreme Court has however, refused to give any directions with respect to divulging any details under the RTI during hearings of several public interest litigations.

The CIC gave its order in 2011 based on the apex court’s 2001 ruling in the case titled Anil Rai vs. State of Bihar. This judgement has been cited in most cases pleading for transparency in judiciary’s functioning on account of observations made on maintaining confidence of litigants. Several drafts of the Memorandum of Procedure prepared by the government for appointment of judges exclude appointments from the ambit of the RTI .

BCAJ Admin

Part A Decision of CIC

[Introductory Note to the following CIC Decision: In 2010 the Environment Minister placed a moratorium on release of Bt Brinjal, which would have been the first genetically modified (GM) food crop in India – despite it having been cleared as ‘safe’ by the Regulator, the Genetic Engineering Appraisal Committee (GEAC). This was done in the light of the analysis of the test data by scientists in India and abroad, who found many lacunae in the test results done by the applicant and accepted by the GEAC. There were also public hearings at 7 locations where the scientists as also consumers, farmers and NGOs could put their view point. Currently GM mustard has been through testing and may be cleared for release, but data was not being put in the public domain for analysis. An RTI application has resulted in the following landmark order]

GM mustard trials: CIC asks govt to reveal bio-safety data

The Central Information Commission (CIC) has directed the environment ministry to reveal safety data regarding trials of genetically modified (GM) mustard without further delay, noting that “any attempt to postpone or delay the disclosure will block the public discussion” on the controversial issue.

In April, the information panel had pulled up the Union ministry of environment, forest and climate change (MoEFCC) over its lack of transparency on trials of GM crops and directed it to make public all information, including bio-safety data, related to the field trials of the GM mustard crop before 30 April.

The CIC also directed the ministry to put in the public domain bio-safety data pertaining to all other GMOs (genetically modified organisms) in the pipeline.

The CIC’s directions came on an application by environment activist Kavitha Kuruganti, who sought information regarding field trials of GM mustard from the MoEFCC, but was denied.

“Instead of furnishing information as ordered by 30 April 2016, the public authority requested for two more months. The public authority did not honour its own commitment to furnish in that time and on 28 June they sought another extension, this time for 90 days. To furnish a copy of a report or to place the agenda and minutes of the GEAC (Genetic Engineering Approval Committee) meeting, they need no time at all. They are just asking for time though they do not require it,” information commissioner M. Sridhar Acharyulu noted in his order.

He also held that there appears “to be no seriousness in seeking extension” and the environment ministry is “routinely asking for extension without specifying the period”.

In his order, Acharyulu said that the information sought is of “high public importance, concerning public health, and it should have been in (the) public domain”.

“Public authority is attempting to keep vital information out of public discussion. It amounts to prevention of constitutionally guaranteed freedom of speech and expression of the appellant, who are interested in discussing the pros and cons of GMOrelated issues of GM mustard, which if permitted would cause serious impact on the public health of consumers on a large scale,” he said.

BCAJ Admin

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

Corporate Transparency
There is considerable debate on how corruption must be reduced in the government. It spawned a movement, – which shook the nation;- and subsequently a political party. Most organisations in Western countries do not have specific Vigilance departments, whereas most of our government departments cannot do without these. Since the Vigilance departments are ineffective we have an Anticorruption bureau. To ensure independent investigation we have a CBI. Since these are not adequate we have the CVC, and now the talk of a Lokpal as the panacea for corruption.

The objective of this article is to see whether a method can be evolved to curb the corruption which takes place by collusion between big business and government functionaries. This hurts the nation seriously, since it is now estimated to be in millions of dollars. As many people point out, there are basically two types of corruption in government offices:

1) Extortionist- where bribes are demanded for a legitimate service or as a price to avoid harassment.

2) Collusive- where the giver is eager to give bribes so that he can indulge in an illegal act, or enrich himself at the cost of the public. This is usually of very large value and hurts public finances significantly.

This piece is an attempt to suggest that non-government action can lead to reduction of the second kind of corruption, which results in huge scams and great cost to public exchequer. Let me make an attempt to outline how this could be achieved. I am basing my suggestions on the following assumption:

A small percentage of the corporate would collapse if corruption were to be curtailed, since their profits depend on them. A comparable number of corporate lose a lot of business opportunities to the former because of unwillingness to adopt unethical practices. Most of the corruption of the collusive kind is indulged in by the former. For corporate of the second kind, there is a business need to curtail the collusive corruption. Apart from this there may be a consideration of ethics and a genuine desire to curb corruption. If a few such companies decide to take active steps to curtail corruption, and are quite clear that they will not adopt this route of getting unfair or unjust advantage from the government, they can make a difference to the overall national scenario. Taking a proactive role to achieve this goal is in their business interest and could translate to higher profits.

Unfair advantages by collusive corruption are obtained by paying lower taxes or getting unfair reliefs in paying taxes. Another area is getting lands or other infrastructure in a manner which gives them an effective subsidy. One more avenue is to bid competitively for providing services or for public private partnerships, and subsequently changing the conditions to affect public interest adversely. The idea is that those who wish to promote honesty and look at it as their social responsibility publicly pledge to display all transactions with governments on their websites.

Companies could also declare a policy for disclosure in which they could declare that certain information, which may harm their commercial interests would not be displayed. This would be very little, which might harm the legitimate commercial interests of the companies. They could declare the kind of information in government transactions which they would not display and explain their reasons. Many business leaders regret the lack of transparency and the corruption in government. They can take the lead and demonstrate their willingness to be transparent and also to transform the nation. It would be very good if a few businesses got together and announced their commitment to be transparent in their transactions with government. If they have taken a conscious decision to refuse the route of corruption to get undue advantage they would lose nothing and certainly gain respect from citizens and peers. Businesses may well argue that citizens should get the information from the government departments. These departments usually do not give information which would reveal favours despite this being a violation of their obligation in Right to Information Act. There could be two benefits for companies who publicly announce and practice transparency in all transactions with government:

1) They would be recognized by public for their commitment to transparency and corporate social responsibility.

2) Over a period of time if more companies follow suit, it would create a pressure on others to accept this level of transparency.

As the law stands most of this information should be accessible to citizens from government departments using RTI , except that which is exempt. However, when large corruption is involved, the information is usually denied and a citizen finds it difficult to battle this unjust denial.

Private action could have the potential of curbing corruption. I am hoping a few will take the lead. Corporates can make an effective contribution to bringing transparency and accountability and reducing corruption in the nation. Will some corporate take the lead? This could also be achieved if regulatory agencies,- like SEBI in India,- make it mandatory for all companies.

BCAJ Admin

Part C Information on & Around

Haryana: Charge for RTI application reduced from Rs. 50 to Rs. 10
The Haryana government has reduced the charge for filing an application under Right to Information (RTI ) Act from Rs. 50 to Rs. 10. The Haryana Right to Information Rules, 2009, has been amended and now will be known as the Haryana Right to Information (Amendment) Rules, 2016. A spokesman of the Administrative Reforms Department said that a notification to this effect had been issued. He said that according to the amendment, an application for obtaining any information would warrant a fee of Rs. 10.

Delhi HC directs Central Information Commission to start maintaining daily order sheets within six months
In a recent order, Justice Manmohan of Delhi High Court has directed the Central Information Commission to start maintaining daily order sheets within six months. The direction came while disposing the writ petition filed by R. K. Jain, a renowned authority on indirect taxation, and the Editor of Excise Law Times. In his order, Justice Manmohan held that since the CIC is a quasi-judicial body, its records must reflect a true and correct state of affairs. Dr. L. C. Singhvi, counsel for CIC, told the court that the CIC was willing to maintain daily order sheets, and sought time to evolve a procedure. Jain had complained that during hearing of his appeal in a recent case, it was allowed by the CIC, but in the order which was passed by CIC after a long delay, the appeal was dismissed.

RTI query exposes scam in appointments at CCSU
A report obtained under the Right to Information Act (RTI ) has thrown light on alleged corruption in the appointment procedure of assistant professors at Chaudhary Charan Singh University(CCSU).

As per the interview procedure, a suitable candidate is judged on the basis of his performance in the academic record & research programme and domain knowledge. In the 13 appointments made in February 2015, marks in domain knowledge were allegedly increased that led to the appointment of these aspirants.

However, a complaint was filed against one such aspirant following which the appointment was terminated. However, the remaining 12 candidates continue to be staff members.

Three Public Sector Banks With High Non-Performing Assets Rejected Most RTI Requests in 2014-15

A day after the Reserve Bank of India (RBI) submitted a list of the big defaulters – those who owe banks over Rs. 500 crore each – before the Supreme Court, with the plea that the names not be made public, an analysis of the data on the disposal of right to information (RTI ) applications has revealed that three public sector banks (PSBs), which figure high on the list of those with large non-performing assets (NPAs), rejected the most number of applications. While the rejection rate of some banks was less than 12%, many banks had a rate as high as 50%, indicating that perhaps they have something to hide, said RTI activist Venkatesh Nayak, programme coordinator at the Commonwealth Human Rights Initiative (CHRI), who examined the annual reports released by the Central Information Commission, which contains RTI application statistics submitted by 24 PSBs u/s. 25 of the RTI Act.

SIC imposes Rs. 5K fine on town planning officers
The Nagpur bench of State Information Commission (SIC) levied a fine of Rs. 5,000 on the public information officer of town planning department here for not complying with its earlier order for providing answers to queries under Right to Information (RTI ) Act, 2005. Commissioner Vasant Patil directed to recover this amount from information officer and be paid to RTI activist Mangesh Gakre, who had lodged a complaint.

BCAJ Admin

Part B RTI Act, 2005

Four law students take Delhi High Court to Court over exorbitant RTI fees; win

In a landmark decision, the Division Bench headed by the Chief Justice of Delhi High Court, amended the RTI Rules 2006 of the HC, while hearing a PIL filed by four law students, bringing the fees at par with other public authorities

Students objected to the following rules:

a) Exorbitant Fees prescribed under Rule 10 of the Delhi High Court RTI Rules, 2006 i.e. Rs. 50 as application fee and Rs. 5 per page for obtaining the photocopy/ physical/ Xerox Copies.

b) No provision for supply of information at free of cost for the citizens falling below poverty line (BPL) category, which is a mandatory provision under the main Act to provide free access to information to such citizens.

c) Provision of filing separate applications for each unrelated information as per Rule 3 of the Delhi High Court RTI Rules, 2006

They filed a public interest litigation (PIL) in the Delhi High Court in October 2015. Paras Jain and Kumar Shanu argued this matter in person without taking help from any advocate before the Division Bench of Chief Justice of Delhi High Court. They got the first two rules a) and b) amended in conformity with the provisions of the main RTI Act. The Bench, however, rejected main contention of the petitioners (students) on quashing of Rule 3 of the Delhi, which requires a separate RTI application for each information.

Jain says, “There is no provision in the RTI Act for filing separate applications in case of unrelated information, but Rule 3 of the Delhi High Court Rules states that for each piece of information sought, a separate application should be made.” The Court stated that the provision was required as it prevents frivolous applications seeking roving inquiries into various subjects.

BCAJ Admin

Part A Decision of CIC

CIC finally slams BCI hard for continuously failing to disclose information required by RTI Act

The Bar Council of India (BCI) has not satisfactorily complied with the Right to Information Act 2005 (RTI Act) provision which requires that it publish all its affairs on its website, held the Central Information Commission (CIC). The CIC said it is inclined to impose maximum penalty on BCI chairman Manan Kumar Mishra, if the BCI does not comply in a definite amount of time.

Chief Information Commissioner Prof Sridhar Acharyulu, formerly Registrar at Nalsar Hyderabad, stated in his 7th April, 2016 order:

“It is noticed that the Bar Council of India has not satisfactorily complied with the section 4(1) (b) requirements. It is a major breach of RTI by prestigious organization called BCI. It is also surprising that they are repeatedly taking a plea that, though they have such information in computer, they have not posted it on website. They have already exhausted 10 years of time in fulfilling this obligation. Commission directs the public authority to furnish annual report in compliance with 4(1)(b), as required u/s. 19(8)(a)(vi) and directs the PIO to show cause why maximum penalty should not be imposed for this breach of RTI. Commission directs the Chairman, BCI to file an affidavit explaining when they would be complying with 4(1)(b) on their official website. All the responses should reach the commission by May 9, 2016. If not, Commission will be compelled to initiate appropriate action against the Chairman, BCI for non-compliance of section 4(1)(b).”

BCAJ Admin

Ethics and U

(Negligence)

Shrikrishna (S) — Arjun, I met your friend the other day. The one whom you introduced to me last Sunday.

Arjun (A) —Oh! He came to my office yesterday and was very much under tension.

S — Why? Any love letter from your Institute?

A — Yes! How do you know?

S — I guessed it. He was enquiring about some formalities under the Company Law, asking me how serious it is! I could make out that he was worried about it.

A — Actually, he has a client which is a private limited company. There was a dispute between two groups of shareholders and directors.

S — That is very common. When two persons come together for business, one should take it for granted that they are bound to quarrel between themselves one day or the other.

A — You said it! Nowadays, no relation is cordial forever! It is bound to break.

S — Not even matrimonial! Ha Ha Ha! We are in kaliyug. But what happened to that company?

A — The two groups separated. The outgoing group had some loans given to the company. They started demanding it back.

S— But how was your CA friend involved?

A — The continuing group played a trick. They showed a backdated allotment of shares to the outgoing shareholders at a very high premium; and loan was adjusted.

S — Just to ensure that their shareholding does not become a majority holding. Right?

A — Absolutely. And they got the return of allotment prepared in Form No. 2. The form was certified as correct by this CA friend of mine; and uploaded to ROC!

S — Oh! But didn’t he verify the requirements?

A — He checked things like the resolution in the Board meeting, entries in the books of account and so on.

S— But did not check the share application form. Correct?

A — Yes. And I tell you Lord, in a private limited company, no one is really bothered about share application form. Everything goes on good faith. Oral understanding.

S — But when the allotment is backdated, that too at a high premium and especially in the name of a disputing group, your friend should have been more cautious.

A — The real story is that the dispute between the two groups has gone to the CLB and the CLB also has pointed out the same flaw. All other things may be there; but the basic factor is the application or consent of the allotttees.

S — Obviously. Such small things have great importance. Actually, you people tend to take it lightly, thinking that it is an internal document, not required to be submitted any where!

A — You are right. Previously, none of us used to take any appointment letter for audit assignments of small organisations. But now, for filing the forms to the ROC, we have started taking it. It’s a good thing, we now realise!

S — Actually, you feel irritated when the Regulators ask you to upload more and more things. But that brings discipline in corporate functioning; and indirectly can protect you as auditor.

A — Same is the case with Board meetings. They are just shown to have been held on paper; and minutes are written. But in reality, there are no notices on record, no signatures of attendance, no circulation of minutes.

S — Everything is doctored later on! But it is dangerous to leave such loose ends. I understand the practical realities; but one has to cover them up by timely paper work. Otherwise, it could be fatal.

A — Till the time everything is smoothly going on, nobody bothers. But once there are disputes or when any third party enters – like when you are selling out a company, all these things come to surface.

S— Especially in the case of your friend, he should have been on the guard since he was obviously aware of the dispute. It should trigger suspicion.

A — Fortunately, at the time of separation, there was a Memorandum of Understanding signed by both the parties that the unsecured loans would be covered by allotment of shares at a premium.

S— Good! Something to fall back on. So what did CLB say on this?

A — The complainant is disowning his signature on MOU. Now it is with handwriting expert; and disputed in court.

S — It is a good lesson to all of you; even the certificates required for your tax audit are not actually taken from the management.

A — True! We just say –‘Yes- certificate is obtained’. But in reality ………

S — So the Regulator is actually helping you by framing a specific question in form 3CD but you take it lightly. Many times clients disown any such confirmation given by them if it is not taken in writing.

A — I agree. Henceforth, I will also start insisting on such documents. My poor friend is being held guilty for negligence. We should, henceforth, also verify the signatures.

S— And it also brings disrepute to the profession. It is a lack of due diligence.

A — Lord! Now, you only save my friend.

S— You know that God helps only the diligent! Now, leave it to Destiny.

Don’t take things for granted.

Om shanti !!!!!

BCAJ Admin

Company Law

1. Companies (incorporation) amendment rues 2016

The Ministry of Corporate Affairs has issued an Amendment to the Companies (Incorporation) Rules, 2014 which are in force w.e.f 26th January 2016. Following are the changes in Rule 8 pertaining to “Undesirable names”: The name of the Company need not be in consonance with the principal objects as set out in the Memorandum of Association. However, when there is some indication of objects in the name, then it shall be in conformity with the objects mentioned in the memorandum.

a) Abbreviated names based on the first initial of the promoters would not be allowed.

b) If the name is misleading with regard to the scope of the activities which are beyond the resources at its disposal, such names are not allowed.

c) A time limit of 6 months has been given for changing the name of the Company, in case there has been a change in the activities of the Company and this is not reflected in the name.

The No Objection of a person who has been named in the key word of the proposed name for the Company, proof of the relationship and proof that the coined word is made out of the names of the promoters or their relatives, is not mandatory to be attached.

Further, after the resubmission of the documents and on completion of second opportunity, if the Registrar still finds that the documents are defective or incomplete, he shall give third opportunity to remove such defects or deficiencies;

Provided that the total period for re-submission of documents shall not exceed a total period of thirty days.

2. Companies (accounts) amendment rules, 2015

The Ministry Of Corporate Affairs has vide Notification dated 16th January, 2015 amended the Companies (Accounts) Rules, 2014 with the Companies (Accounts) Amendment Rules, 2015.

After Rule 2 the following is inserted –
“2A. Notice of address at which books of account are to be maintained.—For the purposes of the first proviso to sub-section (1) of section 128, the notice regarding address at which books of account shall be in Form AOC-5” and

Note by the author : Form AOC-5 is similar to eForm 23AA as per section 209(1) of the Companies Act, 1956 and is required to be filed when the Board of Directors decides by passing the resolution to keep all or any of the books of account at any other place in India besides the registered office then, the company shall, within seven days of passing the Board Resolution, file this form giving full address of that other place in form AOC-5.

In rule 6, after the third proviso, the following proviso shall be inserted, namely:—

3. Companies (cost records and audit) amendment rules 2014

Rule 2 (aa) ‘Central Excise Tariff Act Heading” means the heading as referred to in Additional notes in First Schedule to Central Excise Tariff Act 1985.

Companies are required to maintain Cost Records if turnover exceeds Rs. 35 crores or more during immediately preceding Financial Year in respect of the products and services specified;

Applicability of Cost Records: The Rules has categorized the Entities into:

Regulated Sector (namely Telecommunication services; Power generation, Transmission, Distribution and Supply; Petroleum products; Drugs and Pharmaceuticals; Fertilisers; Sugar and Industrial alcohol) and

Unregulated Sectors ( i.e steel, minerals oil, electrical, education services, health services, textiles, milk powder, medical devices etc. businesses);

Applicability of Cost Audit : Applicable for entities under as follows :

Regulated sectors having overall annual turnover of Rs. 50 crores or more and the aggregate turnover of the individual products or services of Rs. 25 crore

Unregulated Sector having annual turnover of Rs. 100 crores or more and the aggregate turnover of the individual products or services of Rs. 35 crore or more.

The applicability for their Cost Records Audit is for financial years commencing from 1st April 2015.

Exemptions are provided to Companies whose revenue from exports, in foreign exchange, exceeds 75% of total revenue and Companies operating from Special Economic Zones.

4. Whether huf/its karta can be a partner/ designated partner ( dp) in an llp

The Ministry of Corporate Affairs has vide notification dated 15th January 2016 clarified that a HUF or its Karta cannot be a designated Partner in an LLP since the Section 5 of LLP Act, 2008 mentions that only an individual or a body corporate can be a partner in a LLP. HUF not being a body corporate, neither the HUF nor through its Karta can it be a Partner.

5. Frequently asked questions (faqs) with regard to corporate social responsibility under section 135 of the Companies Act, 2013

The Ministry of Corporate Affairs has vide Notification dated 12th January 2016 issued an FA Q on Corporate Social responsibility.

BCAJ Admin

Corporate Law Corner

10. Kediya Ceramics, In re

[2017] 86 taxmann.com 166 (NCLT – Ahd.)
Date of Order: 22^ndSeptember, 2017

Sections 230 to 232 of Companies Act, 2013 – Partnership firm
which is not registered under the provisions of Companies Act, 2013 is a body
corporate but not a company – The firm cannot participate in the amalgamation
proceedings under sections 230 to 232 of the Companies Act, 2013.

FACTS

K Co
(the applicant) was a partnership firm, registered under the Indian Partnership
Act, 1932 and was formed on 05.02.2015. The Applicant along with six other
companies sought to amalgamate with a company under a scheme of amalgamation
filed before the NCLT.

The
primary issue before the Tribunal was whether a registered partnership firm,
being a body corporate, could be treated as a “company” for the
purpose of sections 230-232 of the Companies Act, 2013.

The
Applicant put forth the following contentions before the Tribunal:

1. Section 2(11) read with section 2(95) of
Companies Act, 2013 (the Act) indicates that a firm is a body corporate and
therefore, entitled to proceed u/s. 232 of the Act for an amalgamation.

2. Section 366 of the Act which deals with
entities authorised to register as a “company” includes any
partnership firm. It was also stated that Explanation (b) to section 375(4)
stipulates that the expression “unregistered company” shall include
any partnership firm consisting of more than seven members.

3. Reference was drawn to section 394(4)(b) of
Companies Act, 1956 which stipulates that transferee company does not include
any company other than a company within the meaning of the Act, whereas a
transferor company includes any body corporate within the meaning of the said
Act or not.

4. It was further contended that section 234(2)
of the Companies Act, 2013 provides for merger of a foreign company (whether a
company or a body corporate) into a company registered under the Act or vice-versa.

5. Reliance was placed on judgments of Bombay
High Court in Philip J. vs. Ashapura Minechem Ltd. [2016] 66 taxmann.com
328/134 SCL 416, Kerala High Court in Co. Pet. No. 30/2014 in the matter of
Manjilas Agro Foods (P.) Ltd. and High Court of Calcutta in the matter of
Rossell Industries Ltd., In re [1995] 6 SCL 79 (Cal.)

HELD

The
Tribunal examined the various arguments that were put forth by the Applicant.
It was observed that section 2(20) defines a company as a company incorporated
under the provisions of the Act or under any previous company law. The
Applicant is not a company incorporated under the Companies Act, 2013 or under
any other previous Companies Act that was in force on the date of the
registration of the firm; and consequently not a “company” as defined under section
2(20) of the Act.

It was
held that the Applicant, being a partnership firm was “body corporate” within
the meaning of section 2(11) of the Act. Regarding the first two contentions,
the Tribunal observed that section 2(95) applied only when the phrase used has
not been defined under the Act. Since the word company has been defined,
recourse cannot be taken to provisions of section 2(95). Further, section 366
only contemplates which entities are authorised to be registered as a company
under the Companies Act. Thus, the Tribunal was of the view that a partnership
firm unless registered under the Companies Act by making use of section 366 of
the Companies Act cannot be included as a company.

The
Tribunal examined the provisions of section 394(4)(b) of Companies Act, 1956
which permitted a scheme of amalgamation between a transferor company
registered as a partnership firm and a transferee company, but not vice-versa.
It was held that there was no similar provision in sections 230 and 232 of the
Act. In the absence of such specific provision in the Companies Act, 2013
relating to amalgamation, it could not be said that even a body corporate can
participate in the scheme of amalgamation.

The
Tribunal further observed that section 234 had no application in the case of a
body corporate incorporated in India.

Lastly,
the Tribunal distinguished the cases relied upon by the Applicant and proceeded
to hold that the applicant, being a registered partnership firm and a body
corporate, is not a company within the meaning of the Companies Act, 2013 and,
therefore, it cannot participate in the amalgamation proceedings that are
initiated under the provisions of sections 230 to 232 of the Act.

11. India Awake for Transparency vs. UOI

[2017] 88 taxmann.com 101 (Delhi)
Date of Order: 5^th December, 2017

Section 124(6) – Section 124(6) does not contemplate a statutory
vesting of property in shares the dividends of which have not been claimed for
more than seven years – Such shares merely stand transmitted to the Investor
education and protection fund that continues to hold them as a custodian –
Companies are required to comply with requirement of giving 3 months’ notice to
the shareholders before giving effect to such transfer of shares.

FACTS

I Co
is a non-profit company and filed a public interest litigation for strict
enforcement of Investor Education and Protection Fund Authority (Accounting,
Audit, Transfer and Refund) Rules, 2016 (“the 2016 Rules”) by every
company transferring shares to the Investor Education and Protection Fund (“the
Fund”). Companies Act, 2013 (the Act) provides that unpaid dividends accruing
in a company are to be transferred to an Unpaid dividend account (UDA). The Act
also provides for transfer of funds from UDA to the Fund, if no payout were
made for seven years. New section 124(6) has been introduced which further
provides that shares which yield dividends that remain unpaid for over seven
(7) years, would be transferred to the Fund.

The
petition describes the scheme of the Rules framed on 05.07.2016. It was
submitted that an impractical procedure was devised, which the authorities
realised and therefore, amended the Rules on 28.02.2017 (“first
amendment”) and later, on 13.10.2017 (“second amendment”). Rule
6.

It was
argued that there was complete lack of clarity with respect to the three month
period to be given to shareholders for the purpose of applying to claim their
shares from the respective companies before their vesting to the Fund.

HELD

The
High Court observed that the crux of controversy was operationalisation of
section 124(6) which statutorily transfers shares to the Fund in the
eventuality of dividends lying unclaimed for over seven years. Such shares are
merely transferred for safekeeping by the Fund and do not become the property
nor do they vest in the Central Government. Thus, the shareholder continues to
retain title but loses agency.

The
Court held that the sum and substance of the Rules was that the companies were
mandated to follow two crucial steps – one, inform the shareholders about the
manner of vesting of shares and in that regard provide three clear months
before the date of statutory transfer and two, ensure that the further
conditions and changes introduced by the first and second amendments, granting
relief to certain classes of shareholders who might have either in the interim
encashed dividends or approached them to reclaim the shares, were protected.

The
due date of transfer was an unclear concept under the old Rules – originally
notified on 05.09.2016, the Rules were modified and the date of transfer
shifted to 31.10.2017. However, several instances of non-compliance of three
months notice period were highlighted by the Applicant. The Court, however,
held that it could not go into specific violations and non-compliances in this
PIL.

The
Court held that section 124(6) did not result in a statutory vesting of any
property; it merely transferred (through transmission of) shares in companies
which have yielded dividends for seven years that have not been claimed to the
Fund which then holds them as a custodian. The Court directed the Central
Government to devise appropriate procedures to enable shareholders to reclaim
their property in the shares, by an appropriate procedure.

For
the duration of transfer of the shares, the companies could not
issue bonus shares or add
anything prohibited u/s.126.
The Rules, especially the first and second amendments, had the effect of giving
companies adequate time to notify and comply with the three month public notice
period to their shareholders about the event of transfer. The Court also
observed that the transfer of such shares is not a one-time measure but an
ongoing event given the obligation of each company to identity such shares
after the holding of every Annual General Meeting.

12.
Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. CIVIL APPEAL
NO. 9405 OF 2017

Section 8 of the Insolvency and Bankruptcy Code, 2016 – Definition
of ‘dispute’ is an inclusive definition – Word ‘bonafide’ cannot be
imported before the word ‘dispute’ – Adjudicating Authority is only required to
ascertain if the dispute in fact exists and is not a patently feeble legal
argument or an assertion of fact unsupported by evidence – Meaning of ‘dispute’
and ‘existence’ decoded.

FACTS

K Co
rendered certain services to M Co, the payment for which was to be made by M
Co. There was a non-disclosure agreement signed between K Co and M Co in
respect of these services; the terms of which were allegedly breached by K Co.
Since the services were rendered, K Co raised the invoices to M Co. M Co
refused to make these payments as there was a breach of terms contained in the
NDA K Co filed a petition in NCLT Mumbai initiating insolvency resolution
process against M Co. The Tribunal dismissed the application citing that there
existed a dispute and the case was hit by section 9(5)(ii)(d) of the Insolvency
and Bankruptcy Code, 2016 (the Act).

K Co
filed an appeal before the NCLAT Mumbai which held that NCLT should have
considered what constituted ‘dispute’ and in the facts of this case, defence
claiming dispute was not a bonafide one. Accordingly, it directed NCLT to
consider the application if it was a complete one.

M Co
filed a statutory appeal before the Supreme Court against the order of
Appellate Tribunal.

HELD

The
Supreme Court examined the history of the legislation as also the existing
framework of the legislation. The Supreme Court also went on to observe the
evolution in language of definition of the word ‘dispute’ as used in draft of
the Insolvency and Bankruptcy Code submitted by the Bankruptcy Law Reform
Committee in November 2015 (the “BLRC Draft”) vis-a-vis the definition
placed on record of the statute. The original definition of “dispute” has now
become an inclusive definition and the word “bona fide” before “suit or
arbitration proceedings” stands deleted.

The
Supreme Court examined the scheme of Act. Under section 8(1) of the Act, an
operational creditor, may, on the occurrence of a default (i.e., on non-payment
of a debt, any part whereof has become due and payable and has not been
repaid), deliver a demand notice of such unpaid operational debt or deliver the
copy of an invoice demanding payment of such amount to the corporate debtor in
certain specified form. Under section 8(2)(a), the corporate debtor, within a
period of 10 days of the aforesaid receipt must bring to the notice of the
operational creditor the existence of a dispute and/or the record of the
pendency of a suit or arbitration proceeding filed before the receipt of such
notice or invoice in relation to such dispute. It was observed that the
existence of the dispute and/or the suit or arbitration proceeding must be
pre-existing – i.e. it must exist before the receipt of the demand notice or
invoice, as the case may be.

The
Supreme Court, taking into account the importance of the term ‘existence’
occurring before the word ‘dispute’ under sections 8(2)(a) and 9(5)(ii)(d) of
the Act, laid down a checklist for the adjudicating authority to consider
admission or rejection of application u/s. 9 of the Act for initiating the
insolvency resolution process. It proceeded to state that the word ‘and’ used
in section 8(2) was to be read as ‘or’.

The
Court held that word ‘bonafide’ could not be read into the present framework.
All that the adjudicating authority is to consider is whether there is a
plausible contention which requires further investigation and that the
“dispute” is not a patently feeble legal argument or an assertion of fact
unsupported by evidence. Principles laid down in Madhusudan Gordhandas vs.
Madhu Woollen Industries Pvt. Ltd. [(1972) 2 SCR 201] are inapplicable to
the Act.

Examining
the contentions raised by the counsels, the Supreme Court came to a conclusion
that the dispute in relation to the NDA did in fact exist and therefore,
Appellate Tribunal was incorrect in characterising the defense as vague, got-up
and motivated to evade liability.

The order
passed by NCLAT was thus set aside. _

BCAJ Admin

Allied Laws

16.
Foreign Decree – Execution in India. [Code of Civil Procedure, 1908,
Sections 13, 44].

In the present
case, the primary contention raised is that the parties are foreign nationals
and the direction by the Canada Court can only be executed at Canada and not in
India.

Hanifa
Kalangattu vs. Shaista Khan AIR 2017 KERALA 217

It was contended that, as per section 44A of
the Code of Civil Procedure, a decree of the foreign Court can be executed only
if the certified copy of decree of any of the Superior Courts of any
reciprocating territory has been filed before the District Court. However,
there was no material to indicate that Canada is a reciprocating territory which
would enable the said foreign judgment to be enforced and executed by this
Court.

It was held by the High Court of Kerela that
since no materials were produced either before the Family Court or before this
Court to indicate that Canada is a reciprocating territory as far as Government
of India is concerned, in the absence of any such material, there is a clear
bar of jurisdiction for entertaining the execution petition which has been
totally ignored by the Court below.

17. Hindu female dying intestate – Inheritance
after death of her second husband – Devolution of Property – To go back to
husband’s heirs when not self acquired [Hindu Succession Act, 1956; Sections
14, 15, 16]

Suldeep (Through Legal heir) vs. Hira Lal
and Ors. AIR 2017 CHHATTISGARH 164

The only issue which was to be adjudicated
here was whether the property in question would devolve upon the heirs of the
deceased second wife or upon the heirs of the deceased husband, who was the
owner of the property.

The facts of the case are that the plaintiff
instituted a suit for declaration of title and vacant possession of the suit
property (house and hotel) by submitting, inter alia, that his father
was the owner of it and after his death, it was inherited by him. It is pleaded
that defendant No.1, the second wife of the deceased father (since deceased,
now represented by her legal representatives) was his father’s servant as she
was working as such in his hotel business and used to take care of him whenever
he fell ill. It was pleaded in the plaint that defendant was put in possession over the suit property only for
its proper care where she was
residing with her son, the defendant No. 2, who has thrown his bag and baggage from the suit property.
Therefore, the plaintiff has been constrained in filing the suit in the instant
nature.

The Supreme
Court held that the Source of acquisition of such property was supposed to be
seen before the general rules of succession would apply. Since in the present
case, the defendant no.2(Son) was outside the wedlock of the defendant no.1 and
the deceased father, in such a situation, the interest of defendant
no.1(deceased wife), who expired intestate, shall be reverted to her deceased
husband’s heirs by virtue of clause (b) of sub-section (2) of section 15 of the
Act of 1956. The property in question is admittedly not the self-acquired
property of the said defendant no.1(deceased wife), and therefore, the general
rules of succession defined in sub-section (1) of section 15 of the Act of 1956
would not be attracted. Consequently, her interest would be devolved upon her
deceased husband’s heirs, i.e., the plaintiff and his sister and, not from
heirs of the deceased wife’s first husband, i.e., the present appellant
Son(Defendant No.1), as per the provisions prescribed u/s. 15(2)(b) of the Act
of 1956.

18. Land – Valuation of part of the building can
be made without the land attached to such building. [Land Acquisition Act,
1894; Sections 3, 23, 49]

State of Maharashtra and Ors. vs.
Reliance Industries Ltd. and Ors. AIR 2017 SUPREME COURT 4490

The question which arose for consideration
was whether, under the Land Acquisition Act, 1894 (the ‘Act’), acquisition of
Part of the building can be made without acquiring land underneath such
building.

The Supreme Court, while deciding the issue
of whether acquisition of any building or part thereof de hors the
underlying land or not, held that when land and building once married becomes
one unit, neither land nor building can thereafter be valued separately. The
expression “land” includes benefits to arise out of land and, things
attached to the earth or permanently fastened to anything attached to the
earth. But this would not come in the way of determining the valuation of a
particular floor, all the aspects of the owner’s interest and the bundle of
other rights can be taken into consideration including support provided by the
land and value of the land in the locality etc. Value of the part of the
building can also be accordingly assessed.

19. Tenancy – Tenancy not to automatically get
terminated even though the property is forfeited [Smugglers And Foreign
Exchange Manipulators (Forfeiture Of Property) Act, 1976; Section 3]

Domnic Alex Fernandes (D) through L.Rs.
and Ors. vs. Union of India (UOI) and Ors. AIR 2017 SUPREME COURT 4007

The question for consideration was whether
tenancy of a property, ownership of which is acquired by a person to whom the
Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
(SAFEMA) applied, would be treated as “illegally acquired property”
within the meaning of section 3(1)(c) of SAFEMA and can be subjected to
forfeiture under the provisions thereof, due to which the said tenancy would be
terminated.

The Supreme Court held that rights of a bona
fide tenant, not having any relation with the person to whom the provisions
of SAFEMA apply, will not stand automatically terminated by forfeiture of
property and vesting thereof in the Central Government. Such forfeiture will
extinguish the rights of the person to whom the Act applies i.e. the owner of
the property or his/her relative or associate having nexus with him/her in
relation to the said property.

20. Will – Licence cannot be granted merely on
the basis of will, without being legal heir of manufacturer or partner in firm
– Legal Successor – Construed to be read in a restricted sense [Succession Act,
(39 of 1925) Section 63 ]

Dharam Chand vs. Dharam Paul and Ors. AIR
2017 JAMMU AND KASHMIR 138

The issue in the appeal was whether a
person’s name can be incorporated as a co-licensee since the person had
acquired the status of a legal successor-in-interest of the deceased licensee,
based on a will followed by a Probate and letter of administration, as granted
in his favour by a competent Court.

It was observed that a subsequent Circular,
dated 27.03.1971, provided that in case of an existing manufacturer or a
surviving partner of a licenced unit, besides his son(s), wife or wives may
also be admitted as additional partners. It was further decided that where a
manufacturer or a partner of the firm has no son(s) or wife, only his legal
successor(s) would be entitled to be admitted as partner(s) or additional
partner(s), as the case may be.

The Supreme Court held that the subsequent
Circular was to regulate the entry of other persons in the existing licensed
units so as to safeguard the legitimate interest of the successor-members of
the family of the existing manufacturers and to prevent mala fide
trading in such licences or their transfer to outsiders.

On the basis of the principle of ejusdem
generi, the word ‘legal successor’ had to be given a restricted meaning
bearing in mind the objective/basic policy behind issuance of the subsequent
communication to safeguard the legitimate interest of the successor-members of
the family of the existing manufacturer and to prevent mala fide trading in
such licences or their transfer to outsiders through backdoor methods, to mean
that person who is in some way related to the licensee and would succeed in the
absence of wife or son. _

BCAJ Admin

Part C Iinformation On & Around

Cabinet decisions come under RTI Act , sa ys Kerala CIC

In a significant development that may make government business more transparent, the Kerala Information Commission has ordered that all decisions by the state government, once finalized in the cabinet, come under the ambit of the RTI Act.The Commission also suggested that the government publish the cabinet decisions on its official website.“The details of all cabinet decisions should be given once the procedures regarding those decisions are completed. It also should be considered seriously to upload the cabinet decisions on the government website,” the Commission observed.

Gujarat High Court Stays CIC Order On PM Modi’s Degree

The Gujarat High Court issued a stay on an order of the Central Information Commission (CIC) asking the Gujarat University to provide details of the MA degree of Prime Minister Narendra Modi to Delhi Chief Minister Arvind Kejriwal, who had alleged that it was fake. A division bench of Chief Justice R Subhash Reddy and Justice VM Pancholi also issued notices to Central Information Commissioner M Sridhar Acharyulu and Kejriwal. The university had earlier approached a single bench of Justice SH Vora on June 20 seeking a stay on the CIC order, but it later approached the division bench after it failed to get relief from the court. In its application, the Gujarat University has stated that it “is not a party to any of the proceeding before the Information Commission. Hence, the order of the CIC is adverse to the interest of the University”.

Former CIC writes to Rajasthan CM on removal of Chapter on RTI from school books
The chapter was removed during a restructuring of school syllabus in the State. Former Chief Information Commissioner Wajahat Habibullah has written to the Chief Minister Vasundhara Raje expressing displeasure at the removal of a chapter on the Right to Information (RTI ) Act from school text books in Rajasthan.The chapter on the law that was passed in 2005 to improve transparency in government was removed as part of the Rajasthan government’s revised school syllabus for the year 2016. The syllabus has also removed a page highlighting the Right to Information (RTI ) Act. According to reports, a prominent section on page 105, which was part of chapter 12 of the previous Social Science textbook for Class VIII in State schools, has now been removed in the “restructured” book.

Right to Information: A new journey begins
On June 24, 2016, Parliament of Sri Lanka unanimously adopted the Right to Information (RTI ) law.This marks the culmination of over two decades of advocacy by civil society groups and journalists. It also fulfills a key promise of the yahapalana government.Passing the law was no easy task, as it went through a year of drafting, judicial review by the Supreme Court, and considerable political scrutiny. The government and other political parties in Parliament – who rarely agree on anything – came together to pass the law without a vote.

BCAJ Admin

Part B RTI Act, 2005

If you thought that RTI queries are only about serious issues, the Prime Minister’s Office (PMO) just proved you wrong. And how!

The PMO website released a list of queries about Prime Minister Narendra Modi that were raised by people under the Right to Information (RTI ) Act.

Here are some of the excerpts from the list of queries released by the PMO website:

Request: What is the speed of internet of Wi-Fi in the PMO?

Information: The speed of internet access in PMO is 34 mbps.

Request: How many and which type of cylinder had been used in kitchen in month of October, 2014. Provide Xerox copies of bills of cylinders and how many and which type of cylinder had been used in month of May, 2015. Please provide the copies of bills of cylinders in respective months.

Information: It is stated that the kitchen expenses of the Prime Minister is personal in nature and not incurred on government account.

Request: Has the Principal Secretary to PM, Shri Nripendra Misra, ever taken his subordinates, in the Prime Minister’s office, on a picnic?

Information: No picnic/excursion was organized by PMO/Principal Secretary to PM Shri Nripendra Misra. Hence, the question of providing other details sought by the application does not arise.

Request: Please tell me PMO Office issue (sic) mobile number for their staff yes or no if yes please provide all staff number in written

Information: PMO provides mobile numbers to officers/ staff based on entitlements and functional requirements. However, disclosure of the mobile numbers would cause unwarranted invasion of privacy of the individual; as such the same is exempted from disclosure under Section 8(1) (j) of the RTI Act.

Request: Is there any information (sic) how many sick or casual leave or health leave is availed by Prime Minister of India in the last 10 years?

Information: It may be noted that no leave has been availed by the present Prime Minister i.e. Shri Narendra Modi since taking over office.

Request: Enclose all the proper records and documents which show that the present Prime Minister of India, Shri Narendra Modi is The Prime Servant of India and not the Prime Minister.

Information: There is no proposal to change the official designation of PM. Hence, the information sought does not form part of records held by this office.

Request: Has the Prime Minister read the Indian constitution? Is the Prime Minister supposed to read the Indian constitution? Is the Prime Minister assumed to have read Indian constitution? Has anyone in the PMO till date told the Prime Minister what his duties are towards India?

Information: Information sought does not fall under the definition of information. Request: Who helps the Prime Minister in sending tweets in regional and foreign languages? Names of individual(s) for each regional language. Information: Information sought is not maintained on record. (Another reply says that the Prime Minister himself is managing his personal social media accounts.)

Request: Number of sick or casual or health leave availed by the Prime Minister in the last 10 years.

Information: No leave has been availed by the present Prime Minister since taking over the office. (Replying to a related query on whether Prime Minister Modi was on leave during the Bihar election campaign last year, the PMO responded: Tours on election campaign are not official.)

Request: Percentage of marks Modi secured while graduating in 1977 from Delhi University.

Information: Does not form part of records.

BCAJ Admin

Part A Decision of CIC

CIC – pro-disclosure order on Land Acquisition Ordinance

Central Information Commission has given a prodisclosure order and directed the rural development ministry to divulge Cabinet note, file notings and all government communication on the controversial Land Acquisition Ordinance under the Right to Information (RTI ) Act In separate applications,

RTI activist Venkatesh Nayak and journalist Chitrangada Choudhury had sought copies of Cabinet note, file notings and all communication within the government leading up to the promulgation of the controversial Ordinance, which has now lapsed. Though the department of land resources under rural development ministry was the nodal agency for the move, it had denied information saying it held no such records.

Hearing the plea of the applicants last week, Information Commissioner Sudhir Bhargava directed the government to provide the information.

“The Commission after hearing the submissions of the complainant and perusing the records, notes that the information sought has not been provided by the respondent to the complainant. Further, as per the Legislative Department, the records relating to the promulgation of the said Ordinance would be available with the Department of Land Resources. In view of this, the Commission directs the respondent to provide information sought to the complainant within four weeks, from the date of receipt of a copy of this decision under intimation to the commission.” Mr. Bhargava said in his order

BCAJ Admin

Ethics And U

Arjun (A) — (Chanting
bhajan) Hare Rama hare Rama, Rama Rama Hare Hare!

Hare
Krishna Hare Krishna, Krishna Krishna Hare Hare!

Shrikrishna (S) — Arey.
Arjun! What makes you chant so ardently? Any serious problem?

A — I have learnt that in this kaliyug,
Namasmaran is the only remedy. Finding it difficult to survive.

S — What
happened? This is your normal grumbling.

A — This
profession is so demanding and absorbing that you can’t think of anything else.
Compliance! Compliance!! and compliance!!! – or else, penalty and prosecution.
There is no other thought in mind!

S — I
had told you, change of work is the best relaxation. That keeps your creativity
alive.

A — But
what else to do? We don’t get time to come out of the work.

S — You
should have developed some hobby. That would keep you mentally at peace.

A — CA
pass hote hote jaan nikal gayi. Hobby ke liye time kidhar tha!

S — You
have to take out some time. Have some social life. Come out of this obsession
of practice.

A — Social
work? That reminds me. My friend is in deep trouble because of this social
work!

S — How?
What happened?

A — He
was helping a social organisation of which he was a member. They were doing
purely social work.

S — Very
good.

A — No.
That only brought him into trouble.

S — How?

A — Since
he is a CA professional, they expected him to streamline the administrative
things. He was neither a trustee nor an office bearer.

S — Then
what was the problem?

A — In
their constitution, there was a mention that the Trust may appoint an
administrator and a token remuneration was also allowed in the bye-laws.

S — Oh!
Then what?

A — They
started calling him `Administrator!’ But he was working purely honorarily. He
did not even think of the remuneration. He never received any such honorarium.

S — Then
where is the problem?

A — Earlier,
there was an office bearer who had committed many irregularities. My friend
exposed his mis-deeds. So he had to leave. He was waiting for vengeance.

S — But
what wrong did your friend commit?

A — Actually,
my friend was a partner in a CA firm. The audit of the trust was pending due to
the disorganised functioning of that old office-bearer. So my friend, with good
intentions, got the audit completed in his firm. The partner did it. My friend
was never involved in the process of audit. As an administrator, he guided and
helped the staff of the institution in complying with the audit requirements.
He was like a friend and guide.

S — Finally
what happened?

A — The
old office-bearer has filed a complaint to ICAI that my friend did the audit of
an organisation of which he was himself the Administrator! They say it is
conflict of interest.

S — Very
sad. One needs to be very cautious.

A — Actually,
he was not a part of decision making nor had any executive powers. He was
described as Administrator merely because he was helping them out to clean up
the old mess.

S — Poor
fellow! I feel, he will be absolved if one considers the scenario in totality.
Things happen inadvertently.

A — It
is a big lesson to all such ‘social workers’ who are practicing as CAs.

S — I
agree with you. But don’t worry. Your friend should come out clean if what you
say is true. If his karma is bonafide, it is my duty to give the fruit
accordingly.

A — Let’s
hope, he will be absolved. He is very nervous now. The ultimate result may be
favourable; but the process of enquiry is very cumbersome. The mental agony in
itself is a punishment.

S — But
that should not deter you from doing good social work. Only a little more
caution is required. For this, these should be a constant hammering of the code
of ethics.

A — True.
I must thank BCAS for making us aware of all such realities of life. I will
certainly think of taking up some good social work.

S — Good.
You are blessed!

Om
shanti.

The purpose of this dialogue is to bring out some real life
situations where things happen inadvertently. _

BCAJ Admin

Corporate Law Corner

7. Navbharat Gasflame Pvt. Ltd. vs. ROC

[2017] 87 taxmann.com 160 (NCLT – New Delhi) Date of Order: 27^thOctober,
2017

Section 560 of Companies Act, 1956 –
Company failed to file its annual return from 1998 to 2014 – There was no proof
of any activities carried out by the company in the said period – ROC’s action
in striking off the name was upheld by the Tribunal.

Section 3(3) of Companies Act, 1956 – No
effort was made by a private company to increase its paid up capital to minimum
amount of Rs. 1 lakh in the time stipulated by Companies (Amendment) Act, 2000
– Company was deemed to be a defunct company.

FACTS

NCo. was a private company incorporated on
24.11.1997 engaged in the business of trading of fabrics, textiles goods and
other related activities. The subscribed capital of NCo was Rs. 300/- divided
into 30 equity shares of Rs. 10/- each. NCo had failed to file its annual
return right from 1998 up to 2014 as per the reply filed by the Registrar of
Companies (ROC). Name of the company was struck off vide notification dated
23.06.2007 published in the official gazette. NCo filed an application for
restoration of its name u/s. 560 of Companies Act, 1956 (the Act). ROC
submitted that company had not filed any annual return or income-tax return
right since its incorporation till 2014.

NCo submitted that it had carried out its
operations and that it had filed its income-tax return for assessment year
2014-15. ROC submitted that there was no acknowledgement of any tax paid or
return filed by NCo. NCo had merely submitted its accounts which was not a
conclusive evidence of any operations being carried out by it.

HELD

The Tribunal examined the provisions of
section 560 of the Act which required that in order to pass the direction for
restoration of name with ROC, the Tribunal needs to be satisfied that the
company at the time of striking off had been carrying on business or in
operation or otherwise it is just that the company be restored to the register
of the Registrar of Companies.

The Tribunal observed that the company did
not give any proof of its operations in the year 2007 when its name was struck
off. Also, there was no explanation furnished as to why the company did not
respond from 2007 to 2014 and the nature of its business activity in the said
period.

Further, the Tribunal examined section
3(1)(iii) of the Act which defined a private company as a company which has a
minimum paid-up capital of one lakh rupees or such higher paid-up capital as
may be prescribed by its articles. The consequence of not enhancing the paid-up
capital was that such a company shall be deemed to be a ‘defunct company’
within the meaning of section 560 and the Registrar would be under a legal
obligation to strike off the name of such a company from its register.

The Tribunal observed that NCo had failed to
increase its paid up capital in the time stipulated under Companies (Amendment)
Act, 2000. Accordingly, it upheld the action of striking off of the name of
company by the ROC and dismissed the petition with a cost of Rs. 20,000.

8. N.
C. Karany & Co. vs. New Timonhabi Tea Co. Pvt. Ltd.

C. P. No. 19/140(1)/140(4)/GB/ 2017

Date of Order: 22^nd November, 2017

Sections 101, 139 and 140 of Companies Act,
2013 – Non-ratification of appointment of an auditor gives rise to a casual
vacancy envisaged u/s. 139 – Auditor should however, be given an opportunity of
being heard – Removal of auditor without applying this principle was held to be
bad in law.

FACTS

N Co was appointed as statutory auditor of
NT Pvt. Ltd. (Respondent) in the AGM held on 26.09.2014. The re-appointment was
confirmed for a block of four years in the AGM held on 26.09.2015. The notice
of said appointment was filed in form ADT-1 with the ROC in due course.
Respondent then proceeded to appoint A Co as the statutory auditor prior to the
term of N Co getting over without any prior intimation of such appointment. On
13.02.2017, NCo received a letter from one of the directors of the Respondent
company stating that A Co had been appointed as its auditor and requested it to
furnish its resignation at the earliest. N Co also received a letter from A Co
on 03.04.2017 seeking its NOC for appointment of A Co. Subsequently, on
08.05.2017, N Co received an email from one of directors of respondent that his
appointment was not ratified in the AGM and therefore, his appointment stands
vacated from the company.

Respondent submitted that appointment of A
Co was arising out of a casual vacancy in light of N Co’s non-reappointment at
the AGM of the company. Accordingly, the subsequent appointment of A Co was in
accordance with section 139(8) of the Companies Act, 2013 (the Act). Accordingly,
the Respondent was not required to follow the procedure laid down u/s. 140 of
the Act. N Co submitted that its removal and subsequent appointment of A Co was
illegal and in violation of provisions of section 101 and 140 of the Act.

HELD

The Tribunal examined the provisions of
sections 139(8), 140(1) and 140(4)(i) of the Act. Section 140(1) provides that
a statutory auditor appointed u/s. 139 can be removed from his office before
the expiry of the term provided a special resolution is passed at the general
meeting and prior approval of Central Government is obtained. Additionally, the
auditor concerned is given an opportunity of being heard.

However, section 139(8) provides that the
procedure laid down u/s. 140(1) need not be followed where a casual vacancy
arises in the office of an auditor.

Respondent submitted that non-ratification
of appointment of N Co gave rise to a casual vacancy; a claim which was
strenuously disputed by N Co; and therefore, the same was duly filled by the
Board of Directors in accordance with section 139(8) of the Act.

The Tribunal examined the meaning of the
term “casual vacancy” using various dictionaries which suggested that “Casual”
means something which occurs without being foreseen or expected. What required
attention of the Tribunal was whether non-ratification of appointment of the
auditor at the AGM constituted casual vacancy. The Tribunal held that
resignation of the auditor was tantamount to a casual vacany arising in the
office of the auditor as a company always expects the auditor to complete his
term of appointment. Non-ratification of appointment of auditor stood on a
similar footing as the company would expect the shareholders to ratify the
appointment already made. Such non-ratification therefore, did give rise to a
casual vacancy.

The Tribunal held it was sine-qua-non
for a company to give an opportunity of being heard to its Auditor who is
sought to be removed from his office prior to the expiry of his term. A
conjoint reading of sections 101 and 146 of the Act makes it imperative that an
auditor is required to be given an opportunity of being heard in case his
appointment is not being ratified by the shareholders in the AGM. A removal
without following the aforesaid procedure would make such an act unsustainable
in law.

In the facts of the present case, the
Respondent did not give a notice of the AGM to its statutory auditor N Co which
is the mandate of section 101 of the Act. The Tribunal observed that
Respondents stand that there was a casual vacancy in the office of auditor did
not hold good on several grounds. Firstly, respondents submitted that they sent
letter dated 13.02.2017 seeking resignation of N Co and notice dated 03.04.2017
seeking NOC of N Co.

This conduct, as per the Tribunal, was
against the stand that casual vacancy arose owing to non-ratification of
appointment of the auditor at the AGM. Secondly, the Act or the Rules do not
give any authority to the Board of directors to seek resignation of the auditor
before the expiry of its term unless procedure laid down u/s. 140 of the Act
has been duly complied with.

The Tribunal further held that N Co had
filed the petition in the time frame stipulated under the Limitation Act, 1963
which was applicable in respect of proceedings under the Act. Claim of the
respondents that conduct of N Co was barred by principle of delay and latches
was wholly without any substance.

Accordingly, the Tribunal held that removal
of N Co was illegal and consequent appointment of ACo as the auditor was
equally illegal and therefore unsustainable in law. The position – N Co was
reinstated as the auditor of the company till expiry of its term, unless it was
removed following due procedure of law.

9. Ramesan Maithiyeri vs. UOI

[2017] 85
taxmann.com 19 (Kerala)
Date of Order: 19^thJuly, 2017

Section 234 of
Companies Act, 1956 – No action can be taken against a person who was
wrongfully named as a director of the company in the annual returns filed by it
until scrutiny and enquiry by ROC is complete.

FACTS

An individual R
was named as a director in the annual returns of company (B Ltd.) from 2005 to
2014 where in fact he was neither a shareholder nor a director. His name was suo
motu deleted as the director from the year 2015 onwards. R contended that
inclusion of his name as director was illegal and he apprehended that he will
be liable for any misdemeanour of the Board of the company for this period. He
therefore filed a writ petition praying that ROC be directed to initiate
proceedings u/s. 234 of the Companies Act, 1956 (the Act) for correction of the
books of the company.

Central
Government accepted that as per the inquiry and investigation conducted by
them, R had never been a director or a shareholder of B Ltd. R further informed
the court that he made investments in B1 Ltd. and purchased a flat in the
property being developed by B1 Ltd. B Ltd and B1 Ltd. had common directors. And
there were separate allegations of manipulation and misappropriation on part of
directors of B Ltd.

HELD

The High Court
examined the provisions of section 234 of Companies Act, 1956 and held that ROC
had powers to cause a scrutiny into books and documents maintained by the
company. These provisions are intended and designed to vest with ROC, the power
of inspection, enquiry and investigation into the affairs of the Company and to
rectify mistakes or deliberate entries in the books and documents maintained by
it. Regulation No. 17 of the Companies Regulations, 1956 also empowers ROC to
examine the documents and to direct the company to rectify the defects and
additionally mandates that no document of the company can be taken on record
unless the defects are rectified.

In light of the
facts, the High Court directed the ROC to carry out scrutiny and investigation
into the books and documents maintained by the company and follow it up with
such action as is warranted and mandated by law.

It was further
held that as name of R was wrongfully inserted as a director from 2005 to 2014,
no action shall be taken against him until the scrutiny by the ROC was
complete. _

BCAJ Admin

Corporate Law Corner

1. Jella Jagan Mohan
Reddy, In re

(2017) 82 taxmann.com 422 (NCLT – Hyd.)

Date of Order: 5^thJune, 2017

Sections 211, 621A of Companies Act, 1956 read with Schedule
VI – Incorrect disclosure of Issued Capital in the Balance Sheet of the Company
was in violation of section 211 – The submission that there was no prejudice
caused to the members, creditors or public did not hold good – The application
for compounding was accordingly dismissed

FACTS

JCo was incorporated on 14.11.2006 as a private limited
company and was converted to a public company on 12.01.2009 under Companies
Act, 1956 (the Act). The Office of Regional Director carried out an inspection
of books of accounts of JCo for the years 2006-07 to 2012-13 and found that it
had violated provisions of section 211(1) read with Schedule VI of the Act. The
Balance Sheet of JCo as at 31.03.2009 disclosed the Issued Capital as Rs. 84.41
crore instead of Rs. 100 crore. The same allegedly resulted in a disclosure of
false particulars in the said Balance Sheet.

JCo admitted to the default and submitted that the same was
not intentional and that it was of a nature that did not prejudice interest of
members, creditors or others dealing with the company. JCo further pleaded that
the default did not in any way affect the public interest. JCo therefore filed
an application u/s. 621A for compounding of offence.

ROC highlighted that JCo did not mention how the offence was
made good and therefore be put to strict proof of
the same.

HELD

The Tribunal observed that it had the necessary power to
compound the offence as was established under Cambridge Technology Enterprises
Ltd., In re (2017) 77 taxmann.com 270 (NCLT – Hyd.). The Tribunal
observed that the Balance Sheet of JCo as at 31.03.2008 disclosed its Issued
capital as Rs. 106.41 crore whereas the same was reflected as Rs. 84.41 crore
in the Balance Sheet as at 31.03.2009. There was no mention of any reduction
being carried out in any of the Balance Sheets of JCo. Both the Balance Sheets
were signed by two whole-time directors of the Company, its Company Secretary
and reputed firm of Chartered Accountants.

The Tribunal further observed that the Balance Sheet was an
important financial statement used by the stakeholders for various purposes.
The factual error therein was not in accordance with section 211(1) of the Act
in as much as “True & Fair view” was not depicted in the Balance
Sheet, thereby resulting in disclosure of false particulars of Issued Capital.
In light of the aforesaid observations, it was held that the submission that
the error did not cause any prejudice to the creditors or members does not hold
good and the Tribunal proceeded to dismiss the application for compounding.

2. Hasmukh Bachubhai Baraiya
vs. Symphony Ltd.

(2017) 82 taxmann.com 420
(NCLT – Ahd.)

Date of Order: 26^thApril,
2017

Sections 56, 58 and 59 of Companies Act, 2013 – Tribunal
does not have power to issue directions for issue of duplicate share
certificate – The dispute as to title of shares has to be heard by a Civil
Court and the National Company Law Tribunal (NCLT) does not have the authority
to decide upon the same.

FACTS

H, a shareholder of SCo, a listed public company, alleged
that he misplaced the share certificates of the company. H made a request to
the share transfer agent of SCo for issue of duplicate share certificates
through a letter dated 11.09.2015. Subsequent letters were written to the Share
transfer agent on 07.10.2015 and 02.11.2015 for the same purpose. H visited the
office of Share transfer agent on 15.10.2015 and the office of SCo on
16.10.2015 and produced the relevant documents for verification in respect of
application for issue of duplicate share certificates. Upon failure of SCo and
Share transfer agent to issue the duplicate share certificate, H filed an
application before the NCLT under sections 56, 58 and 59 pleading it to issue
directions for issue of duplicate share certificate.

There was another Party who contested the ownership of the
shares in question stating that the same were acquired by him in the year 1997.
The said Party also sent the transfer deeds to the Share transfer agent but was
not issued the share certificates because there was a deficit in payment of
stamp duty. This claim of ownership by the Party has been disputed by H.

The Party had filed a civil suit to establish its case for
ownership and the said suit was pending in the Civil Court. SCo directed H and
Party to settle their dispute or produce an order from a Competent Court of
law.

HELD

Tribunal held that relief u/s. 58 was not available to H
since it was not his case that SCo refused to register his name in the register
of members.

Section 59 deals with rectification of Register of Members if
the name of any person is without sufficient cause entered into the Register of
members of a Company or without sufficient cause omitted the name of a Member
from the Register of Members or in case where a default was made or unnecessary
delay was made in making entry in the Register of Members. As the case of H did
not fall under any of the said categories, relief u/s. 59 was also held to be
not available to H.

Upon examining the provisions of section 56, the Tribunal
observed that where the instrument of transfer had been lost, the power to
issue duplicate shares was available with the Board of the Company. There was
nothing in section 56 which indicated that the Tribunal can give a direction to
the Company to issue duplicate shares.

The Tribunal proceeded to state that there was no specific
provision under the Companies Act, 2013 or rules framed thereunder which gave
it the authority to issue directions to a company for issue of duplicate
shares. When the Statute creates a right to obtain duplicate shares upon
satisfying the Board of a company about loss of shares and when the Board did
not exercise its discretion in the manner in which it is expected to exercise,
then the judicial authorities or quasi- judicial authorities are certainly
entitled to give appropriate directions.

It however observed that although H alleged that shares were
misplaced, he did not specify when they were misplaced. H did not inform the
Police about misplacement of shares either at the time when they were misplaced
nor when the Party contested his claim for ownership of the shares.

Also, in the aforesaid case, the challenge involved a dispute
as to title of the shares. The Tribunal dismissed the Petition by observing
that such title disputes could not be decided by it and only a Civil Court had
the jurisdiction to decide upon the same.

3. Himalay Dassani vs.
Isolux Corsan India Engineering & Construction (P.) Ltd.

(2017) 82 taxmann.com 143 (NCLT-Chd.)

Date of Order: 8^thMay, 2017

Section 9 of Insolvency and Bankruptcy Code, 2016 – Where an
application was already filed u/s. 9 against the subsidiary of Corporate Debtor
for recovery of debt, parallel proceedings on the same cause of action could
not be initiated against the Corporate Debtor.

FACTS

ICo being the respondent was incorporated on 25.06.2008. ICo
availed consultancy service of H (being the operational creditor) in respect of
awarding of a project for developing and executing the transmission system at
Mainpuri and associated works on a build, own, operate and transfer (BOOT)
basis. ICo entered into a Service Agreement for the same with H on 08.07.2010
by virtue of which it agreed to pay a consultancy fee of Rs. 84 crore plus
applicable taxes in respect of the services to be rendered by H. The amount was
payable within 120 days of signing the agreement or upon financial closure of
project; whichever was later. H alleged that final financial closure of the
project took place on 1.5.2014.

On 15.03.2016, ICo entered into a Final Settlement and
Consultancy Agreement dated 15.03.2016 (Final Settlement Agreement) in order to
fully and finally settle its claims and dues with H. H alleged that the same
was done fraudulently and without an intention to honour the obligations. In
terms of Final Settlement Agreement, SCo, a subsidiary of ICo had undertaken to
pay H a sum of Rs. 38 crore along with applicable taxes in full and final
settlement of amount due by ICo. H filed a petition before Allahabad Bench of
NCLT in order to take recourse against SCo u/s. 9 of the Code for payment of
sum of Rs. 59.2 crore due in terms of Final Settlement Agreement. H
subsequently filed an application before this Tribunal u/s. 9 of the Code for
recovering an amount of Rs 96.6 crore.

HELD

The Tribunal observed that there were two different amounts
recorded as payable in respect of the same service rendered by H. The date of
default in the present application was stated to be 1.5.2014, whereas before
the Allahabad Bench, the date of default against SCo was 15.03.2016. Thus, the
Tribunal held that there was a dispute so far as the ICo is concerned, and
hence, the present petition u/s. 9 could not be admitted.

The Tribunal further held that as H had alleged fraud and
inducement on part of ICo and there was a counter defence to the same by ICo;
the existence of dispute could not be ruled out. Final Settlement Agreement did
not have a provision that if the payment was not honoured, H would be entitled
to fall back on the original agreement of the year 2010.

The said recourse was further denied as H had already
commenced the proceedings against SCo.

As the Final Settlement Agreement was already in
place with SCo and proceedings for default under the same were already
initiated, the application was dismissed by the Tribunal and a cost of Rs.
50,000 was imposed upon H.

BCAJ Admin

Ethics and You

Section 132 of the Companies Act, 2013 – NFRA provisions

Arjun
(A) — (talking on phone to some CA friend).

Oh! So you mean to say, all power’s of our Institute for disciplinary
matters have gone away? That means, it will be handled by Government officials?
(waits for response from that friend).

Baap re! Mar gaye! We are already tired of facing the revenue
authorities ………… (again a response from the other person)

Oh My God! You also don’t know much? Don’t worry. I will understand from Bhagwan Shrikrishna
right now! HE is here.

Shrikrishna
(S) — Cool down, Arjun. Don’t get hyper. You are a professional.

A — As usual, Bhagwan,
You came at the right time! I thought of You and You arrived.

S — You are my most favourite
friend and devotee! What are you worried about?

A — I don’t understand these new
NFRA rules. I feel like closing down the practice.

S — So much panic? And that too
without understanding the so called new Rules! It is unbecoming of a
professional.

A — What else can we do? My
friend says – now our misconduct cases will be handled by NFRA. Our Institute
has lost control over disciplinary cases!

S — NFRA?

A — Yeah! That National
Financial Reporting Authority! The name NFRA sounds like Nafrat!

S — Oh, you are talking about
Section 132 of Companies Act! Have your read it?

A — No! Who has time to read
such things? Here, we are simply fire-fighting with compliances and scrutiny
hearings!

S — Then do read it. Most of
your fear will go away.

A — How do you say so? Somebody
told me that at present, our Council Members in the Disciplinary Committee
understand the practical difficulties of our profession. We don’t know what
these Government guys will do! They will simply harass us; and I don’t know
what they will expect!

S — But why don’t you think of
not committing any misconduct in the first place? Prevention is better than
cure.

A — I agree. But you are aware
how our CAs are unnecessarily dragged into the disciplinary cases. There are
disputes between two parties and CAs are made scapegoats.

S — That I know. But do you know
the new Rules? How is ‘misconduct’ defined in those rules?

A — No. I am totally in the dark.

S — My dear Arjun, there is no
change in the definition of ‘misconduct’. It is the same thing as before. Same
two schedules. No changes at all. Only the jurisdiction has changed.

A — So all these small items of
misconduct will be seen by NFRA?

S — Yes. But not in all cases.

A — What do you mean?.

S — Relax Arjun. NFRA will deal
with only large firms. For small and medium firms like yours, the jurisdiction
is still with your Institute.

A — What do you mean by large
firms?

S — Large means those firms who
are auditing more than 200 companies; or more that 20 listed companies, or
those who are auditing the companies listed abroad.

A — Oh! I won’t have such big audits in this birth.
Next birth, I will surely not be a CA! Please help me in my next birth; and
keep me away from this profession.

.S — Don’t be so negative and
skeptical. You need to do the profession properly.

A — Anyway! Good news is that an
average CA will not have to face NFRA. Right? What relief to all small and
medium firms like ours! Lord, you are very kind!

S — But do read and understand
what is NFRA about.

A — Leave it. Bhagwan,
for the time being, explain it to me next time we meet. Now I have to complete
VAT audits and understand the Union Budget.

S — I know all of you CAs! You
will study it only when it pinches you. You will be sleeping until a thing
starts biting you! That always keeps you
under some fear or the other. Learn to update your knowledge constantly. Not by
merely managing your CPE hours.

A — I agree. Our BCAS motto is ‘Na
bhayam Chaasti Jaagratah’. He who is awake and alert has nothing to be
afraid of! Next time, please tell me about NFRA in more detail.

S — Sure, dear.

A — Bhagwan, Pranaam to
you!

!!OM Shanti!!

Note: The above dialogue discusses about the proposed NFRA
provisions (section 132 of the Companies Act, 2013) and gives a glimpse on its
applicability. _

BCAJ Admin

Corporate Law Corner

13.
Jotun India Private Limited vs. PSL Limited

Company Application N. 572 of 2017 [Bom HC]

Date of Order: 5^th January, 2018

Insolvency and Bankruptcy Code, 2016 – NCLT
continues to retain its jurisdiction for petition filed by any creditor even
where the winding-up petition has already been admitted by the jurisdictional
High Court.

FACTS

On 10.03.2015, J Co supplied goods to P Co
worth Rs. 7.25 crores. Upon failure of P Co to pay the stipulated amount, it
filed a company petition under sections 433 and 435 of the Companies Act, 1956
seeking winding up of P Co.

On 19.06.2015, J Co filed a petition with
Board of Industrial and Financial Reconstruction (“BIFR”) under Sick Industrial
Companies (Special Provisions) Act, 1985 (“SICA”) which was admitted on
09.03.2017 although Official Liquidator was not appointed.

Insolvency and Bankruptcy Code, 2016 (“IBC”)
was enacted which resulted in repeal of SICA and all matters pending before
BIFR stood abated. However, companies were granted a window of 180 days to file
fresh applications before National Company Law Tribunal (“NCLT”) under the IBC
regime. Thus, on 29.05.2017, J Co filed an application before the NCLT within
the 180 day period granted under the IBC.

Subsequently, P Co filed an application
before the Hon’ble Bombay High Court for appointment of provisional liquidator.
An order was passed by the High Court on 19.07.2017, restraining the NCLT from
continuing with the application filed before it. Present application was filed by J Co
requesting the High Court to recall the order dated 19.07.2017 which imposed a
stay on the IBC proceedings.

Parties and Intervenors made extensive
arguments before the High Court.

HELD

The matter which arose before the High Court
was whether it had the jurisdiction to grant a stay on the proceedings filed by
a Corporate Debtor before the NCLT, although a previously instituted
Company Petition had been admitted, but
where a Provisional Liquidator had not been appointed.

The High Court observed that the most
fundamental distinction between the provisions of Companies Act and IBC is that
winding up of companies is for the Court to decide and under IBC there is a
paradigm shift in as much as it displaces the management and Insolvency
Resolution Professional is appointed and Creditors committee is left to decide
the fate of the company.

High Court placed reliance on the Supreme
Court in the case of Madura Coats Limited [2016] 7 SCC 603 where it was held
that even during the regime of SICA, SICA was to have primacy over the
provisions of Companies Act, 1956. It was held that since SICA is repealed and
replaced by IBC, the provisions of IBC should prevail over the provisions of
the Companies Act, 2013.

J Co had filed a reference which was pending
before the BIFR when SICA was not repealed.
It had also made an application to NCLT within the stipulated period of
180 days. Further, placing reliance on Supreme Court’s decision in the case of
Bank of New York Mellon [2017] 5 SCC 1, it was held that in terms of section
252 of the IBC even in the case of a company where a winding up order has been
passed, it is open to such a company, whose reference was deemed to be pending
with BIFR, to seek remedies under IBC before NCLT. Also, there was no express
provision under Companies Act which stated that a post notice winding up
petition which is governed by the Companies Act, 1956 against the same company
(and which is retained by the Company Court), cannot be entertained by NCLT and
if entertained will be nullified.

It was held that admission of the winding up
petition by the jurisdictional High Court would not mean that NCLT either loses
jurisdiction or cannot exercise jurisdiction in case of a petition which is
filed by another creditor. It was observed that provisions of section 64(2) of
IBC indicated that the legislature did not intend that the Company Court would
have the power to injunct proceedings before NCLT.

High Court held that a new petition filed
under the IBC could still apply to the post notice winding up cases that
continue to be governed by the Companies Act, 1956. The mere fact that post
notice winding up proceedings are to be “dealt with” in accordance with the
provisions of the Companies Act, 1956 does not bar the applicability of the
provisions of IBC in general to proceedings validly instituted under IBC, nor
does it mean that such proceeding can be suspended.

The High Court went on to state that NCLT is
not a court subordinate to the High Court and hence as prohibited by the
provisions of section 41 (b) of the Specific Relief Act, 1963 no injunction
could be granted by the High Court against a corporate debtor from institution
of proceedings in NCLT.

Reading section 141 of the Code of Civil
Procedure, 1908, along with Rule 9 of the Companies (Court) Rules, 1959 it was
held that High Court had sufficient power to recall any order previously passed
by it.

The order dated 19.07.2017 was thus recalled
by the High Court.

14.
Ind-Swift Ltd., In re

[2018] 89 taxmann.com 149 (NCLT-Chd)

Date of Order: 8^th December, 2017

Section 73 of Companies Act, 2013 – Company
facing liquidity problems approached NCLT for extension of time in repaying its
fixed deposits – Extension was denied in view of the fact that Company Law
Board had already granted a huge extension in 2013 – There was no reason to
grant any further extension.

FACTS

I Co was incorporated on 06.06.1986 and was
listed on the stock exchange. I Co had been accepting deposits from the public
since the year 2002 and regularly and punctually paid back the fixed deposits
up to 28.02.2013. In the financial year ending on 31.03.2013, it started facing
liquidity problems and incurred losses. It filed a petition before the Company
Law Board (“the Board”) pleading for extension of time in repayment of deposits
which was sanctioned by the Board on 30.09.2013 with certain directions. It was
also clarified that non-compliance with order of the Board would result in
penalty u/s. 58A (10) and section 274 (1) (g) of Companies Act, 1956 (“1956
Act”).

As a result of ongoing financial and
liquidity crunch, I Co filed a fresh application with the NCLT on 27.09.2016
seeking further extension of time for repayment of deposits u/s. 74 of the
Companies Act, 2013 (“2013 Act”) read with Rule 11, 15 and 73 of the National
Company Law Tribunal Rules, 2016 read with section 58AA of 1956 Act.

I Co was directed to publish notice of the
hearing by advertisement in two newspapers which was duly complied by it. I Co
pointed out that out of the total number of 5575 depositors, the company
received 45 objections seeking speedy payment of their deposits. Registrar Of
Companies (“ROC”) jointly with Regional Director filed a statement before the
NCLT that it regularly received complaints against the company for repayment of
fixed deposits, all of which were forwarded to the company for necessary
action.

HELD

I Co filed a fresh scheme of repayment
detailing the manner in which payments would be made to the deposit holders.
The Tribunal noted that I Co had not made any payment to the fixed deposit
holders since the institution of the application.

Tribunal held that once the company had
sought the sanction of the scheme from the Board by bringing its financial
position to its notice at the relevant time in the year 2013 and got the relief
of huge extension, there was no reason to accept the plea for further extension.
Tribunal noted that it in coming to a decision of whether or not to grant an
extension it would not only have to consider the financial position of the
company but also safeguard the interest of the fixed deposit holders. The
legislature had laid down severe punishment in case of failure by the company
to make the payments to the deposit holders within the extended time and this
provision will have to be implemented in letter and spirit.

In view of the extension already granted by
the Board and lack of sincere efforts on part of I Co to repay the deposits,
Tribunal rejected the application seeking further grant of extension in
repayment of fixed deposits. I Co was directed to abide by the terms of order
of the Board and any non-compliance would entail penalties as listed out in the
2013 Act.

15.
Sree Gayathri Leisure India (P.) Ltd. vs. ROC

[2018] 89 taxmann.com 34 (NCLT – Hyd.)

Date of Order: 29^th December, 2017

Section 252 of Companies Act, 2013 –
Company was carrying out regular business and there was a delay in filing
statutory returns – Name of company which was struck-off for the non-filing was
ordered to be restored upon payment of additional fees.

FACTS

S Co was a private company incorporated on
29.04.2013 in the state of Andhra Pradesh. The main objects of the Company were
to act as commission agent for referring and enrolling members into any
resorts, clubs, hotels, family parks and other related activities etc. S
Co did not file annual accounts and annual returns for the Financial Years 2013-2014
to 2015-2016. It was the claim of S Co that it had been carrying out normal
business activities in the said period and the non-filing was wholly
inadvertent. ROC vide notice dated 21.07.2017 read with grounds mentioned in
public notice dated 05.05.2017 struck off the name of S Co.

S Co contended that company had been
regularly carrying out its business and was under the impression that all the
returns are being regularly filed. While filing of pending return on MCA portal
for pending period did the company realise that its name has been struck off.
It was pleaded that action of striking off of the Company would adversely
affect not only the company but its customers and various stake holders etc
alike. S Co submitted that it was ready to comply by filing annual returns in
question within the stipulated time as granted by the Tribunal, along with
required fees.

HELD

Tribunal examined the provisions of section
248 to 252 of the Companies Act, 2013 which deal with striking off the name of
the company. It was observed that before taking final action to strike off a
company u/s. 248(5), the ROC, is under duty to follow section 248, which
mandates the ROC to satisfy itself that sufficient provisions have been made
for realization of all amounts due to the company and for payment or discharge
of its liabilities and obligations etc. In the case of S Co, company had
ongoing business and there were people who depended on the company.

Considering the interest of company, its
employees and public employment, the Tribunal allowed the application of S Co
and directed the Registrar to restore its name in the Register of Companies
subject to filing of all the pending returns and payment of prescribed
additional fees. The Tribunal also imposed a cost of Rs. 30,000. _

BCAJ Admin

Allied Laws

21. Condonation of Delay – Delay of 3671 days – No reason to decline
benefit merely due to delay in filing of appeal when in similar cases benefit
was derived by similar concerns [Land Acquisition Act, 1894; Sections 4, 5, 18,
54]

K.
Subbarayudu and Ors. vs. The Special Deputy Collector (Land Acquisition) (2017)
12 Supreme Court Cases 840

The issue was
whether the lower authority could decline the benefit available to the
appellant only due to the reason of delay of 3,671 days in filing an appeal.

It was observed
by the Court that, when the concerned court has exercised its discretion either
condoning or declining to condone the delay, normally the superior court will
not interfere in exercise of such discretion. The true guide is whether the
litigant has acted with due diligence. Since the Appellants/claimants are the
agriculturists whose lands were acquired and when similarly situated
agriculturists were given a higher rate of compensation, there is no reason to
decline the same to the Appellants. Merely on the ground of delay, such benefit
cannot be denied to the Appellants. Accordingly, the delay was condoned.

22. Family Settlement Limitation – Suit challenging the deed of family
settlement after period of 9 years of deed of family settlement was held to be
barred by limitation. [Limitation Act (36 of 1963, Art. 157)]

Jose
Floriano Cristovam Pinto and Ors. vs. Michelle N. Pinto Souza and Ors. AIR 2017
BOMBAY 263

One of the
issues to be decided was whether a suit filed for repudiation of the deed of
family settlement after a gap of 9 years be allowed?

It was held
that there was substantial delay and laches on part of Respondents to
approach Court in seeking the repudiation of the Deed of Family Settlement of
2005 in a suit of 2014 and on that premise, could not have secured the
plaintiffs with the relief of injunction and also that the appellants could
well have disposed off other properties between this period of filing the suit
and the deed of settlement and in that context of apathy and inaction of the
plaintiffs did not entitle them to the relief of injunction, hence deed of
family arrangement cannot be held to be invalid.

23. Interpretation – Deed and documents – The terms of the contract will
have to be understood in the way the parties wanted and intended them to be.
[Arbitration and Conciliation Act, 1996, Section 34]

Bharat
Aluminium Company vs. Kaiser Aluminium Technical Services Inc. (2016) 4 Supreme
Court Cases 126

The only issue
was whether the parties, by agreement, express or implied, have excluded wholly
or partly, Part I of the Arbitration Act, where Art. 17 mentions that English
law would be applicable and Art. 20 mentions that Indian Law would be
applicable.

In the facts of
the present case, disputes arose out of an agreement which was executed. The
same were referred to arbitration in England where the arbitral Tribunal made
two awards in favour of the Respondent. The Appellant filed applications, u/s.
34 of the Arbitration Act before the District Judge, Bilaspur, which were
dismissed. Aggrieved, the Appellant filed appeal before the High Court of
Chhattisgarh. The High Court dismissed the appeal.

It was observed
by the Supreme Court that the parties have agreed in expressed terms that the
law of arbitration would be English Arbitration Law. In the case before us,
being a contract executed between the two parties, the court cannot adopt an
approach for interpreting a statute. The terms of the contract will have to be
understood in the way the parties wanted and intended them to be. In that
context, particularly in agreements of arbitration, where party autonomy is the
grundnorm, how the parties worked out the agreement, is one of the
indicators to decipher the intention, apart from the plain or grammatical
meaning of the expressions and the use of the expressions at the proper places
in the agreement. Contextually, it may be noted that in the present case, the
Respondent had invoked the provisions of English law for the purpose of the
initiation of the unsettled disputes. In view of the above, the Supreme Court
held that the arbitration agreement was not governed by the Indian Law.

24. Jurisdiction – on jurisdiction is mandatory – At any stage of the
proceeding, issue of jurisdiction which goes to the root of the matter has to
be tried once it is brought to the notice of the court– Remanded. [CODE OF
CIVIL PROCEDURE, 1908; ORDER I, RULE 8]

S.N.D.P.
Sakhayogam vs. Kerala Atmavidya Sangham (2017) 8 Supreme Court Cases 830

One of the
issues were whether the Plaintiff, who is a juristic person, i.e.,
“Society” is entitled to invoke the provisions of Order 1 Rule 8 of
the Code for filing a suit in a “representative capacity” i.e.
whether the Lower authority had the jurisdiction to try such a suit.

The facts of
the present case deal with the fact that the Plaintiff treated their suit to be
in the nature of a “representative suit” within the meaning of Order
1 Rule 8 and, therefore, applied to the Trial Court under Rule 8 of the Code
seeking permission to prosecute the suit in the representative capacity. This
permission appears to have been granted to the Plaintiff by the Trial Court
without any objection from the side of the Defendants and, therefore, Issue No.
1 was answered in Plaintiff’s favour.

The Court held
that the Trial Court was expected to decide several material questions, namely,
whether the Plaintiff, who is a juristic person, i.e., “Society” is
entitled to invoke the provisions of Order 1 Rule 8 of the Code for filing a
suit in a “representative capacity”. In other words, the Trial Court
should have examined the question as to whether the expression
“person” occurring in Rule 8 also includes “juristic
person”. Secondly, if the Plaintiff is held entitled to file such suit,
whether the facts pleaded and the reliefs claimed in the plaint can be said to
be in the nature of representative character so as to satisfy the ingredients
of Order 1 Rule 8 of the Code which are meant essentially for the benefit of public
at large for grant of any relief and lastly, if the facts pleaded and the
reliefs claimed in the plaint do not satisfy the requirements of Order 1 Rule 8
of the Code for grant of relief to the public at large then whether such suit
is capable of being tried as a regular suit on behalf of the Plaintiff for
granting reliefs in their personal capacity, because the suit relates to
ownership of land, namely, who is the owner of the suit land. Since there was
neither any discussion much less finding on any of the aforesaid issues by any
of the Courts below, though these questions directly and substantially arose in
the case, we are of the considered opinion that it would be just and proper and
in the interest of justice to remand the case to the Trial Court to answer
these issues and then decide the suit depending upon the answer in accordance
with law.

The Hon’ble
Court observed that the issue of jurisdiction which goes to the root of the
case if found involved has to be tried at any stage if the proceedings once
brought to the notice of the Court.

25. Nominee – Not entitled to withdraw from bank especially when dispute
raised by another legal heir [Banking Regulation Act, 1949, Section 45ZA]

Vishwanath
Yadav and Ors. vs. Kashinath Yadav and Ors. AIR 2017 BOMBAY 258

The questions
for consideration was whether a nominee can recover the amounts from the Bank
on behalf of all the legal representatives when the legal representatives
themselves have put up a claim to recover such amount from the concerned Bank and
whether such amounts can be claimed only after the Inventory Proceedings are
initiated.

It was observed
by the Court that it is clear that whenever a depositor appoints his nominee
and the depositor dies before the maturity of the fixed deposit for release,
the nominee so appointed would certainly be entitled to collect the amount
payable on such fixed deposit amount on its maturity for release. However, that
would not take away the right of the legal heirs of the deceased depositor from
claiming right to the amount standing to the credit of the deceased depositor
in accordance with the provisions of law of succession in force. This is so
because a nominee is merely a representative of the lawful successor of the
deceased depositor to receive the payment on the maturity of the deposit for
release. The nominee does not step in the shoes of the legal heirs merely on
account of nomination by a depositor.

In view of the observations
made, it was held that merely relying upon section 45ZA of the Banking Regulations
Act, it cannot be contended that he is entitled to withdraw the amounts
specially when the Appellants have raised a dispute in the present case. It was
also held, taking into account the second issue, that the amounts can be
withdrawn only after Inventory Proceedings.

BCAJ Admin

Allied Laws

11. Evidence – Doubt that the exported goods were
overpriced cannot be sustained – No business interests between the parties
hence held to be at arm’s length price – Monies received through banking
channel – Cannot be held as hawala. [Customs Act, 1962 – Sections 114, 114A,
127A, 127B, 14, 17, 156, 28]

UOI vs. Padmini Polymers Ltd. and Ors.
2017 (353) E.L.T. 25 (Del.)

The ground on which the impugned order was
challenged is that the settlement commission had erred in overlooking the fact
that during settlement proceedings, it is not for the petitioner to establish
respondent’s guilt beyond reasonable doubt; instead it was for the license
holder to establish its innocence apropos the issues raised in the show
cause notice.

It was held that in the absence of
sufficient proof being led, Revenue’s doubt about the FOB value of the goods
cannot be sustained. It has not substantiated its contention that the exported
goods were overpriced. Furthermore, there was nothing on record to conclude
that there were business interests between Respondent and its importers in
Singapore, United States and USA so as to doubt that the transactions between
them were not in the normal course of trade or that it was not a transaction at
arms’ length. Hence, the declared FOB would have to be accepted.

Since Revenue has not led any evidence to
indicate either a ‘Hawala’ transaction or a back flow of money to Respondent
through illegal means regarding the value of the exported goods, the export
transaction cannot be viewed with suspicion. In any case, all monies were received by
Respondent through the banking channels as have been so certified by its
bankers through remittance certificates. In view of the same, the petition was
dismissed.

12. Interest – No
provision in Act to pay – Govt. to pay interest on currency seized at the time
of refund of such amount. [Central Excise Act]

R.H.L. Profiles Ltd. vs. Commr. of Cus.,
Ex. and Service Tax, Kanpur 2017 (352) E.L.T. 349 (All.)

The only issue was whether the Tribunal was
justified in rejecting the claim of interest on the amount refunded on the
ground that there was no provision for paying interest on such amount?

It was observed that nowhere the Government
can enrich itself at the cost of the others. The Government cannot deny payment
of interest merely for the reason that there is no express statutory provision
for payment of interest on the refund of excess amount/tax collected by the
Revenue.

It was held that the amount which was
illegally confiscated by the Revenue and was ultimately refunded, the
assessee-appellant was entitled to interest and that the department is under
obligation to pay the same.

13.
Money Laundering – Attachment of money alleged to be proceeds of illegal
transactions – No link between sum of money attached and the alleged proceeds
of crime – Fixed deposit receipt to be returned together with the accretions.
[Section 5, PMLA, 2002]

Satish Estate Pvt. Ltd. vs. Union of
India 2017 (353) E.L.T. 21 (P & H)

The Petitioner owns a piece of land which it
sought to sell to TI Ltd. TI Ltd. advanced a sum of Rs. 25 lakh towards earnest
money by two cheques. Disputes and differences arose between the petitioner and
TI Ltd. TI Ltd. filed an FIR against the petitioner for offences inter alia
u/s. 420 of the Indian Penal Code. However, the suit and the FIR filed by TI
Ltd. came to an end and the petitioner forfeited the earnest money of Rs. 25
lakh.

TI Ltd. had entered into another agreement
with a third party for the sale of an entirely different property for a total
consideration of Rs. 3.61 crore and advance/earnest money was paid by third
party of a sum of Rs.11 lakh and Rs. 3.50 crore, respectively, where also,
differences and disputes arose due to which the third party filed an FIR
against TI Ltd. and for the sale of an entirely different property and charges
were framed pursuant to that FIR against the respondent under Sections 420,
467, 468 and 471 of the Indian Penal Code.

The petitioners had forfeited an amount of
Rs.25 lakh, in respect of which the Enforcement Directorate had passed a
provisional attachement order against the director of the petitioner and not
against the petitioner directly.

It was stated that the amount of Rs. 25 lakh
paid to the petitioners by TI Ltd. was from the proceeds of crime i.e. from the
sale of the land to the third party consequent to which the an FIR had been
filed by the third party against TI Ltd., and hence, such amount of Rs. 25 lakh
was to be attached.

The petitioner sought an order for the
return of the sum of Rs. 25 lakh which stood attached by the Directorate of
Enforcement in exercise of powers under the Prevention of Money Laundering Act,
2002.

It was held that the director was not a
party to the transaction in his personal capacity but only as a Director of the
petitioner. The maintainability of such proceedings itself is doubtful.
Secondly, there was no connection between the land which was a subject matter
of the agreement between the petitioner and the Respondent on the one hand, and
the land that was a subject matter of the agreement between the Respondent and
the third party entered on the other hand. Since there was no link between the
said sum of Rs. 25 lakh and the alleged proceeds of crime namely the sum of Rs.
3.61 crore received by Respondent from third party. In the circumstances, the
petition was allowed.

The FDR was directed to be returned together
with the accretions thereto, if any. It was clarified that in the event of any
evidence being obtained by the respondents in respect of the said sum of Rs. 25
lakh, they are always at liberty to take necessary action in accordance with
law.

14. Money
Laundering – Person in possession of proceeds of crime – Not charged with
offence of crime [PMLA, 2002; Sections 3,
24]

Jafar Mohammed Hasanfatta and Ors. vs.
Deputy Director and Ors. 2017 (353) E.L.T. 55 (Guj.)

The allegation against each of the
petitioner is of commission of offence u/s. 3 of PMLA, which is punishable u/s.
4 of PMLA. Section 3 describes the offence of money-laundering where whosoever
directly or indirectly attempts to indulge or knowingly assists or knowingly is
a party or is actually involved in any process or activity connected with the
proceeds of crime including its concealment, possession, acquisition or use and
projecting or claiming it as untainted property shall be guilty of offence of
money-laundering.

It was held
that section 24 shows legislative intent of attachment and confiscation of
proceeds of crime by presuming involvement of proceeds of crime in money
laundering irrespective of whether the person concerned is or not charged with
the offence of money laundering. Thus, there shall be a legal presumption in
any proceeding relating to proceeds of crime under PMLA that such proceeds of
crime are involved in money-laundering. Burden would be on the person concerned
to show to the contrary.

However, section 24 clearly indicates that
even a person in possession or connected with any proceeds of crime may or may
not be charged with the offence of money laundering. Whether a person shall be
charged with money laundering or not shall thus depend only upon satisfying the
requirements of Section 3 of PMLA.

In the instant
case, neither there was anything to raise a presumption of fact or law that any
of the petitioners was aware that the monies received in their bank accounts
through banking channels were ‘proceeds of crime’ derived from any ‘scheduled
offence’, nor is there anything to further presume that the petitioners were
intentionally projecting or claiming any proceeds of crime as untainted one. In
absence of the same, offence of money laundering u/s. 3 of PMLA even on prima
facie basis would not be attracted.

15. Tenancy – Devolution – Brother – Not
family nor heir. [Hindu Succession Act, 1956, S.3(a), S.15(2)(b)].

Durga Prasad vs. Narayan Ramchandani (D)
thr. AIR 2017 SUPREME COURT 915

In the present case, the suit property was
taken on rent by the father-in-law of deceased tenant-Lalita that is Hem Ram
Sharma and after his death, his son Baldev (husband of Lalita) became tenant of
the suit property. Upon his death, Lalita became the tenant of the suit
property. The Appellant is the brother of deceased Lalita, who was the tenant
of the Respondent herein. Upon death of Lalita, in terms of section 15(2)(b) of
the Hindu Succession Act, in the absence of any son or daughter of deceased
Lalita, the tenancy would devolve upon the heirs of her husband. Since the
Appellant is the brother of deceased Lalita and does not fall under the
category of ‘heir’ of Lalita’s husband, the tenancy of the suit property will
not devolve on him nor can he be called as an ‘heir’ u/s. 3(a) of the U.P. Act
XIII of 1972.

Section 3(g) defines ‘family’, in relation
to landlord which includes the spouse that is husband or wife of a person, male
lineal descendants which means his or her son, son’s son, son’s son’s son and
so on, parents, grandparents, unmarried, widowed, divorced daughter or
granddaughter, etc.

The definition given in the Clause is an
inclusive one and is supposed to be construed in its technical meaning which
implies that,what is not given has to be excluded as not forming part of the
family of landlord or tenant.

Therefore, sisters and brothers of landlord
and tenant are excluded from his/her family. In the facts of the present case,
the Appellant being brother of deceased tenant cannot be held to be the
‘family’ as the inclusive list given under the Act clearly omits “brother
and sister” and the same cannot be read therein as the list has to be read
and interpreted strictly. _

BCAJ Admin

Corporate Law Corner

4. M.D.
Frozen Foods Exports (P.) Ltd. vs. Hero Fincorp Ltd.

[2017] 86 taxmann.com 92 (SC) Date of Order: 21^st
September, 2017

Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) –
Proceedings under SARFAESI and Arbitration Act can be conducted simultaneously
– Provisions of SARFAESI Act would become applicable in respect of all debts owing
and live when the Act became applicable to NBFC.

FACTS

MCo borrowed
money for its business from lenders against security of immovable properties by
the creation of an equitable mortgage by deposit of title documents (seven such
properties) on 30.09.2015 and 21.10.2015. Due to financial indiscipline, the
account of MCo soon turned into a ‘Non-Performing Asset’ (‘NPA’) within the
meaning of section 2(1)(o) of the SARFAESI Act on 06.07.2016 itself. Lender
invoked the arbitration clause on 16.11.2016. Pursuant to notification dated
05.08.2016, the lender NBFC was covered in the ambit of SARFAESI as well. NBFC
issued a notice u/s. 13(2) of the SARFAESI Act on 24.11.2016 for one of the
seven properties. The statement of claim was filed by the respondent before the
Arbitrator on 14.12.2016 and interim orders were granted by the Arbitrator on
05.01.2017, restraining MCo from creating any third party interest over the
properties. On 16.02.2017, the lender issued another notice u/s. 13(2) of the
SARFAESI Act for two more of the seven properties. MCo filed an appeal against
the final arbitration order which was dismissed by the High Court on
13.07.2017.

The following
issues came up for determination before the Supreme Court in light of these
facts –

(i) Whether
the arbitration proceedings initiated by the lender can be carried on along
with the SARFAESI proceedings simultaneously?

(ii) Whether
resort can be had to section 13 of the SARFAESI Act in respect of debts, which
have arisen out of a loan agreement/mortgage created prior to the application
of the SARFAESI Act to the NBFC?

(iii) A
linked question to question (ii), whether the lender can invoke the SARFAESI
Act provision where its notification as financial institution u/s. 2(1)(m) has
been issued after the account became an NPA u/s. 2(1)(o) of the said Act?

HELD

The Supreme
Court heard the extensive arguments and examined the divergent decisions laid
down by various High Courts. The Court observed that arbitration is an
alternative to the civil proceedings. The provisions of the SARFAESI Act are a
remedy in addition to the provisions of the Arbitration Act. Liquidation of
secured interest through a more expeditious procedure, is what has been
envisaged under the SARFAESI Act and the two Acts are cumulative remedies to
the secured creditors. SARFAESI proceedings are in the nature of enforcement
proceedings, while arbitration is an adjudicatory process. In the event that
the secured assets are insufficient to satisfy the debts, the secured creditor
can proceed against other assets in execution against the debtor, after
determination of the pending outstanding amount by a competent forum. The Court
upheld the judgements in case of Orissa High Court in Sarthak Builders Pvt.
Ltd. vs. Orissa Rural Development Corporation Limited 2014 SCC OnLine Ori 75,
the Full Bench of the Delhi High Court in HDFC Bank Limited vs. Satpal Singh
Bakshi (supra) and the Division Bench of the Allahabad High Court in Pradeep
Kumar Gupta vs. State of U.P AIR 2010 All 3.

In respect of the
second issue, the Supreme Court proceeded to hold that SARFAESI Act applies to
all the claims which would be alive at the time when it was brought into force.
Thus, in respect of the lender or the other NBFCs, it would be applicable
similarly from the date when it was so made applicable to them. The scheme of
the SARFAESI Act was to provide a procedural remedy against security interest
already created. Therefore, an existing borrower, who had been granted
financial assistance was covered u/s. 2(f) of the said Act as a ‘borrower’. The
right to proceed under SARFAESI Act accrued once the Notification was issued.

The scheme of
the SARFAESI Act sets out an expeditious, procedural methodology, enabling the
bank to take possession of the property for non-payment of dues, without
intervention of the court. The mere fact that a more expeditious remedy is
provided under the SARFAESI Act did not mean that it was substantive in
character or created an altogether new right. The Court held that argument of
MCo that substantive law cannot be made retrospective was bad in law and could
not be upheld for reasons specified above. The provisions of the SARFAESI Act
would become applicable qua all debts owing and live when the Act became
applicable to the NBFC.

The Supreme
Court observed that since the appeal was devoid of merit and an endeavour to
prolong the date of judgment, it dismissed the appeal and imposed cost of Rs.
20,000 on MCo.

5.
Arvind Aggarwal vs. Trinetra Cements Ltd.

[2017] 86 taxmann.com 53 (NCLAT – New Delhi) Date of Order: 12^thSeptember,
2017

Section 232 read with section 230 of
Companies Act, 2013 – Minority shareholder failed to show any irregularity in
the valuation report made by the valuer in a scheme of amalgamation – Plea for
modification of scheme was therefore rejected.

FACTS

Scheme of
Amalgamation of TCo1 and TCo2 with ICo was filed before the Madras High Court.
After the first motion, this scheme was transferred to the Tribunal at the
stage of second motion. Shareholders holding 2.37% stake in TCo1 (the
Appellants) sought modification of the Scheme of amalgamation and the same was
rejected by NCLT vide order dated 13.04.2017. Aggrieved, the Appellants have
preferred an appeal to the Appellate Tribunal.

The Appellants
filed objections under Rule 34 of the Companies (Court) Rules, 1959 challenging
the valuation arrived at by the Valuer on the ground that it was unfair and
non-transparent.

The Appellants
urged that the Tribunal had disregarded the fact that Valuation report and
Fairness opinion issued by the Valuer and Merchant Banker respectively carried
the same date, being 26.02.2014, which implied that they were working in tandem
and not independently as required under the law. It was further urged that the
Scheme could not be approved as the unaudited balance sheet for the nine months
as on 31.12.2013 relied on and referred to by TCo1, was not on record. It was
submitted that the Tribunal also failed to consider the surplus land available
with TCo1 and the ‘market deal of barring private equity’.

TCo1 and TCo3
argued that the objectors were not present, either in person or by proxy,
during the shareholders’ meeting held on 25.03.2015, when no objection to the
Scheme was raised by the shareholders and the resolutions were passed
unanimously. It was further submitted that no objections were raised by the
shareholders of TCo1 and that belated objections of the Appellants could not
have been taken into consideration after more than two years, as the decision
was taken on 25.03.2015 (inadvertently stated as 25.03.2013 in the order) and
as the scheme became effective on 28.04.2017.

HELD

The Appellate Tribunal
observed that the multiple steps for the ‘Scheme’ taken on a single day
(26.02.2014 herein) would not render the reports invalid. Validity of one or
other report can be looked into if specific illegality is brought to the notice
of the Hon’ble High Court/Tribunal. The external institutions engaged for
providing the valuation and fairness opinions were all professionals and
reputed institutions. It is usual practice by companies across India that the
reports are provided to the Board for approval on the same day.

It was held
that mere allegation made by the ‘minority shareholders’ (Appellants) that the
valuation was not properly made will not hold good, till certain illegalities
in the matter of valuation are highlighted. As the Appellants failed to show
any such illegality in the valuation made by the Valuer, the said reports could
not be interfered with.

With respect to
the surplus assets, it was held that the same were not valued separately
because the Company had to be treated as ‘going concern’. It was on this
premise, that valuation of both TCo1 and ICo, the ‘Net Asset Value’ method was
not used. TCo1 and ICo, both had power plants, mining leases etc., which
were their business assets. Adding the market value of business assets to the
enterprise value would be grossly erroneous, as the very cash flows were
generated using those business assets.

The Tribunal
thus dismissed the petition filed by the Appellant.

6.
Reebok India Co., In re

[2017] 79 taxmann.com 35 (NCLT – New Delhi) Date of Order: 6^th February,
2017

Section 621A read with sections 193, 211,
217, 255, 256, 295 and 297 of the Companies Act, 1956 – Compounding of offences
– The Tribunal cannot compound the offences where defaults committed by the
Managing Director (MD) were not due to any bonafide omission.

FACTS

R Ltd. was a
company incorporated in India, the holding company of which was a foreign
company. The main objects of the company were to design, style, manufacture,
produce, merchandise, buy, sell, export and import all types of footwear, parts
and components thereof, and accessories thereto. ‘S’ was appointed as Managing
Director of the company on 01.10.2003 and resigned from the company on
28.03.2012. In August 2009, R Ltd. received notices from ROC for violating provisions
of sections 295, 297, 255 & 256, 193(2), 217(4) & 211(1) of Companies
Act, 1956 (the Act).

Office of ROC
initiated prosecution and certain offences were referred to SFIO which in turn
launched criminal prosecution for serious offences under sections 477A, 464,
471, 405 r/w 406, 418, 107, 409, 120A r/w 120B of the Indian Penal Code. The
investigation carried out by the office of SFIO established that the sale of
products of R Ltd. were grossly inflated by S in connivance with other
executives by raising fictitious invoices and manipulating other documents.
These activities were carried out with criminal intention and in conspiracy
with selected vendors and channel partners of R Ltd. Bills were discounted on
fictitious basis. Further, in violation of the provisions of section 58A of the
Companies Act, 1956, deposits were also accepted under the guise of a franchise
referral programme.

R Ltd. filed an
application seeking compounding of various offences under Companies Act, 1956.

HELD

The Tribunal
observed that discretion to compound an offence under the Act was with the
Tribunal and should primarily be exercised in cases of inadvertent technical
aberrations. The technicalities under the Act are vast, complicated, time bound
and tend to often escape the notice of even professionals. The provisions for
compounding primarily exist to impose fines for such inadvertent defaults with
a gateway to escape the trauma of a protracted trial for a bonafide mistake.
The discretion to compound the offence has therefore to be considered on the
merits of each case, whether such a mistake was inadvertent and bonafide or
deliberate.

The Tribunal
held that non-adherence to statutory compliances was both deliberate and
malafide. Defaults in this case were incurable and could not have been
rectified. Compounding of these offences would demolish and prejudice the
prosecution under the penal provisions as well.

The Tribunal
further held that the prayer to compound could not be granted since the
offences were not due to any bonafide omission or a delayed rectification of a
statutory requirement. Compounding of the offences under the Act would hamper
the criminal prosecutions. The Tribunal was of the view that no accused should
be allowed to get away with deliberate large-scale bungling and fabrication of
documents carried out with criminal intention and accordingly dismissed the
application for compounding filed by R Ltd.

BCAJ Admin

Allied Laws

Contempt –
Protecting fair name of judiciary also extends to protecting registry from
false and unfair allegations. [Contempt of Courts Act, 1971 – Section 2(c), 14]

Suo Motu Contempt Petition AIR 2017
SUPREME COURT 3836

The advocate on record contended in an
extremely agitated manner that a great manipulation had occurred in the
Registry of the Court, in order to favour the opposite party with the objective
of “Bench Hunt”. Alleging that unscrupulous litigants aimed to bench
hunt, the Advocate on record also alleged the involvement of the registry
stating that in deviation from normal Rule of listing the matter before regular
bench, and indulging in constituting a special bench at the eleventh hour is
non-conventional and mischievous act on part of Registry.

It was observed that the contemnor was an
Advocate-on-Record, practicing in that capacity since the year 2009 – not a
novice in the field. He had been representing prestigious institutions, State
Government and Authorities and is obviously quite familiar with the practices
of the Court. He cannot be said to be oblivious to the fact that no bench is
constituted by the Registry, but by the Chief Justice of this Court. Thus, in
an indirect manner, an imputation was impliedly made even against the Chief
Justice, though in the garb of a virulent attack on the Registry.

The contempt jurisdiction is not only to
protect the reputation of the concerned Judge so that he can administer Justice
fearlessly and fairly, but also to protect “the fair name of the
judiciary”. The protection, in a manner of speaking, extends even to the
Registry in the performance of its task, and false and unfair allegations which
seek to impede the working of the Registry and thus the administration of
Justice, made with oblique motives, cannot be tolerated.

It was held that the allegations sought to
be made against the Registry with insinuations directed even against the
Judges, led to the prima facie satisfaction, that the Advocate-on-Record
had committed contempt in the face of the Court, by making such insinuations
and allegations and hence the contemnor was not permitted to practice as an
Advocate-on-Record, for a period of one month from the date of the order.

Joint Property –
Income from joint property used for purchasing property – Joint property.
[Hindu Law]

Pana Devi and Ors. vs. Ayodhaya Prasad
and Ors. AIR 2017 PATNA 145

A partition
suit was filed to claim a share
in the property.

The issue was whether the property was
purchased out of the income of the joint property or from the individual’s own
income, since if the property was from the income of individual’s own income,
the plaintiffs would be entitled to get a larger share in the property.

The Honourable Court held that since there
was no reliable evidence to show that there was separate source of income as
claimed by the plaintiffs, the property was considered to be acquired out of
the income of the Joint Property and hence, such property would also be treated
as the joint property.

License to drive
Light Motor Vehicle – Can also drive transport vehicle – Should be of same
class. [Motor Vehicles Act, 1988, Sections
2(10), 2(21), 2(15), 2(47), 2(48), 3, and 10]

Mukund Dewangan vs. Oriental Insurance
Company Limited AIR 2017 SUPREME COURT 3668

The issue was, what was the meaning to be
given to the definition of “light motor vehicle” as defined in
section 2(21) of the Motor Vehicles Act? Whether transport vehicles were
excluded from it?

It was held by the Honourable Court that
‘Light motor vehicle’ as defined in section 2(21) of the Act would include a
transport vehicle as per the weight prescribed in section 2(21) read with
sections 2(15) and 2(48). Such transport vehicles are not excluded from the
definition of the light motor vehicle. There is no requirement to obtain
separate endorsement to drive transport vehicle, and if a driver is holding
licence to drive light motor vehicle, he can drive transport vehicle of such
class without any endorsement to that effect.

Power of Attorney
holder can appear as witness [Evidence Act, 1872 –Section 118]

Radha Sharan Dubey and Ors. vs. Ram Niwas
and Ors. AIR 2017 (NOC) 828 (ALL.)

The founder trustees had created trust
through their Power of Attorney. The power of attorney was present in the
office of the sub-registrar and had admitted execution of the trust deed. The
trustees had executed separate power of attorneys in favour of the power of
attorney holder which were duly registered, before execution of the trust deed.
Thus, the Power of Attorney had power to depose, having personal knowledge of
the affairs of the trust. His oral deposition cannot be ignored for the fact of
being Power of Attorney holder of the trustees.

The question which arose for determination
before the Court was, as to whether the oral deposition of Power of Attorney
can be ignored only on the ground that he was only Power of Attorney Holder of
the plaintiff trust and, therefore, he had no personal knowledge of the facts
deposed.

It was held that a comprehensive reading of
the procedure as provided under Order III Rule 1 and 2 of Civil Procedure Code
indicates that it does not deal with the merit of the evidence to be adduced in
a civil proceeding as to who may testify or depose. A careful reading of the
Order III Rule 1 CPC further shows that it does not deal with the power of the
General Power of Attorney to depose or the right of the Principal to authorise
his Power of Attorney to depose in his favour. There was also no prohibition
under the Evidence Act for a Power of Attorney to appear and depose on behalf
of his principal. The Power of Attorney Holder is a competent witness and is
entitled to appear as such. His evidence cannot be refused to be taken into consideration
merely on the ground that the parties to the suit i.e. the plaintiff or
defendant choose not to appear in the witness-box. Section 118 of the Evidence
Act provides the category of persons who are incapable of being witness in a
legal proceeding. The Power of Attorney does not fall in any of the said
categories. By cross-examination of the Power of Attorney, it can be seen
whether he has personal knowledge about the facts in controversy. The
evidentiary value of his deposition may be determined after due consideration
of his answer in the cross-examination.

It was thus concluded that the Power of
Attorney Holder was a competent witness and was entitled to appear as such, his
deposition will be read in evidence on record.

Surety – Liability
of surety co-extensive – Prerogative of decree holder as to against which
judgment debtors he should proceed against. [Chit Funds Act 1982, Section 25;
Contract Act 1872, Section 128].

Punyamurthula Venkata Viswa Sundara Rao
vs. Margadarsi Chit Fund Pvt. Ltd. and Ors. AIR 2017 (NOC) 774 (HYD.) (HC)

Civil revision petitions were filed to
execute an order passed against all the judgement debtors in the Arbitration
proceedings. The decree holder represented by its Principal Officer obtained
the award against the principal debtor and all the judgement debtors.

The simple issue which came up for
consideration was whether the decree holder has to proceed against all the
judgement debtors, who are guarantors, by claiming proportionate amount
decreed.

The
Honourable Court held that the law is well settled i.e. the decree holder has
an option to proceed against either the principal debtor or any of the
guarantors or against all of them. The liability of a surety is co-extensive
with that of the principal debtor, unless it is otherwise provided by the
contract, as section 128 of the Indian Contract Act is clearly worded. Hence,
it was concluded that it is completely the prerogative of the decree holder, as
to against whom he should proceed, for realising the debt. _

BCAJ Admin

Part C Information on & around

Targeting RTI in the House

MPs must not run down a law
that promises a more informed citizenry. As part of the assessments,
20,000 RTI applications filed to different public authorities in the
country were collected, of which detailed analysis of a randomly
selected sample of 5000 applications was undertaken. The Right to
Information (RTI ) Act has undoubtedly been a most empowering
legislation for citizens. The law has initiated the vital task of
redistributing power in a democratic framework. It is perhaps this
paradigm shift in the locus of power that has resulted in consistent
efforts by the powerful to denigrate it. The latest attack on the
legislation was witnessed recently in the Rajya Sabha, with several
members of Parliament, across party lines, demanding amendments to the
act. A key allegation made on the floor of the House was that the RTI is
being widely misused, especially to blackmail public functionaries. It
was also argued that government servants are unable to take decisions
objectively for fear of the RTI. This is not the first time that the
issue of misuse of the RTI Act has been flagged. The previous prime
minister alleged that a large number of frivolous and vexatious RTI
applications are being filed resulting in a negative impact on the
efficiency of the government. These assertions, however, are not backed
by data or evidence — a point which the office of the previous PM had to
publicly concede when the RTI was invoked to ask for the basis of the
PM’s views! Similarly, one of the MPs who raised these issues in the
Rajya Sabha has reportedly admitted that his statements were based on
anecdotal evidence drawn from some isolated cases

No fee to be paid for appeals and complaints related to RTI

State
information commission has said that the RTI applicant needs to pay
fees only for the first application for information and no fees shall be
paid for appeals or complaints. The commission issued the notification
in the wake of instances where applicants were made to pay fees for
appeals and complaints as well.

The complaints filed before the
commission as per section 18 of Right to Information act and appeals
filed as per section 19 does not require fees, the commission said. It
has also been pointed out that postal orders, money orders will not be
considered as fees for matters under the control of state government.
Section 6 of the RTI act says that the applicant has to pay the fees as
prescribed by the state government while filing an application for
information. The state government has determined Rs 10 as application
fee as per Kerala Right to Information (Regulation of fee and cost)
rules.

Stay on order exempting ‘T’ branch from RTI Act

A
Division Bench of the Kerala High Court on Friday stayed a January 27
Government Order exempting the T (Top secret) branch of the State
Vigilance and Anti-Corruption Bureau from the purview of the Right to
Information Act. The Bench of Justice P.N. Ravindran and Justice Sunil
Thomas, while issuing the stay order, made it clear that the RTI Act
would continue to apply to the T branch of the VACB. The Bench observed
that a prima facie case had been made out for staying the Government
Order. The order came on a writ petition filed by A. Jayasankar, general
secretary, Indian Association of Lawyers, and its State committee.
According to the petitioner, the T branch was probing the allegations of
corruption against Chief Minister Oommen Chandy, Ministers, MPs, MLAs
and top IAS/IPS officials. The petitioner contended that the order was
sheer abuse of power. The RTI Act provided for exempting only
Intelligence and security organisations from its purview. In fact, the
VACB was an agency tasked with the job of probing corruption charges
against public officials. The exemption order was issued to cover up
large-scale corruption indulged in by Ministers and higher officials and
with a mala fide intention to prevent the public from knowing the
details of the probe being conducted into the corruption charges against
Ministers and top officials before the Assembly election.The petitioner
pleaded that unless the order was stayed, it would cause irreparable
harm to the general public.

CIC pulls up Civil Aviation Ministry for ‘casual’ approach in RTI

The
Central Information Commission has pulled up the Civil Aviation
Ministry for “casual and callous approach” in handling Right to
Information applications which it said “defeats the spirit” of the law
for empowering citizenry. Chief Information Commissioner Bimal Julka
made these hard-hitting observations while hearing the case where the
ministry could not satisfactorily answer queries on ground handling
services such as “Which out of these are part of Central Government (i)
Indian Airlines (2) BWFS (3) Air India SETS (4) CELBI”.Delhi-based
Jagpal had sought information on a number of queries related to ground
handling work through his RTI application filed in 2013 but satisfactory
responses were claimed to have not been furnished and the application
kept getting transferred from one authority to another including Air
India and Airports Authority of India.

CIC ruling: Cabinet Secretariat to disclose details of agenda under RTI Act

The
Central Information Commission ( CIC) has ruled Cabinet Secretariat
cannot deny access to items on the agenda of the Cabinet after the
meeting is over under Right to Information Act.

In a
pro-disclosure order, chief information commissioner R K Mathur has
directed Cabinet Secretariat to disclose all agenda items under the RTI
Act once the meetings are over.

In a ruling on an RTI plea by
RTI activist Venkatesh Nayak of Commonwealth Human Rights Initiative
(CHRI), the CIC has also advised the Cabinet Secretariat to “put in
place” a mechanism to monitor departments and ministries for their
compliance with the requirement of sending monthly reports of work done
by them to it.

The order further says that it is “advisable” for
ministries and departments to upload the “unclassified portions” of
their monthly reports to Cabinet Secretariat on their respective
websites. Nayak had filed an RTI application with Cabinet Secretariat
seeking details of Cabinet agenda between August 2014 and December 2014.

BCAJ Admin

Ethics and U

Disrepute to the profession

Arjun (A) — (chanting) Hare Krishna! Hare Krishna!

Shrikrishna (S) Vatsa, whenever you think of me with devotion, I appear before you!

A — ‘He Bhagwan’ ! Trahi maam! Please save me.

S — Why? What happened? Surely, some one of your friends is in trouble with your Institute.

A — Yes. For that only I have to meet you so often; every month!

S — Tell me, in the first place why do you people accept the assignments which you cannot carry out properly?

A — Bhagwan, this complaint is not for doing the work negligently; but for not accepting the work!

S — Is it so? Tell me what really happened?

A — See, my friend’s firm was empanelled with some Regulator’s office for audit of its members. He did the audits assigned to him diligently for a few years.

S— Then what happened?

A — For 2013-14, audits of 3 such member units were allotted to his firm.

S — Good.

A — He also received the allotment of audit of the Regulator’s office itself. In a routine course, he communicated his acceptance and within a few days, went to the Regulator’s office to discuss the work.

S — Very good.

A — The officer over there expressed surprise as to how the firm was allotted that work, when audit of 3 member units had already been allotted to them.

S— Strange!

A — The officer also said that the scope of work was much larger and that the allotment was for 2 years probably to compensate for lower annual fees.

S — Then?

A — My friend noticed that the scope was really very wide and his firm was not equipped or geared up to do certain aspects of the work.

S — Such as?

A — Like system audit.

S — Oh!

A — So he came back, and immediately wrote to them that he would not be able to do the audit assignment.

S — Fair enough! Was he too late?

A — Not at all! He received the letter in mid June, met them in 10 days and by end June, he informed his inability. There were at least two more months for the deadline. But still, to his surprise, the Regulator cancelled his empanelment altogether for two years. They did not even give any opportunity of being heard.

S— Very surprising. I feel, it was some ego issue of the person in the Regulator’s office. Did they file a complaint?

A — No. They just passed on the information that the member’s conduct would bring disrepute to the profession, since he refused the work after having accepted it once.

S— Really, this is rather too much!

A — That’s what I am saying. Now-a-days, such complaints from Regulators are becoming too rampant.

S — Yes. MCA is also very active now.

A — Good that you mentioned about MCA.

S — Why?

A — My another friend received a notice from ROC’s office regarding the audit of a company. It contained 30 to 40 queries. Most of them were rather trivial. Actually, while scrutinising, one particular reality was overlooked by them and therefore, most of the queries were redundant.

S— So he must have replied to them.

A — Of course, he did. But unfortunately what they do is without applying their mind on your replies, they simply forward the queries to ICAI!

S— That means, waste of time of the member as well as the directorate of ICAI.

A — True! MCA could have easily dropped many of the points and sent only the points not explained to their satisfaction.

S— I agree. If what you say is true, there should be proper representation to the Regulator’s office.

A — It is becoming unbearable. Many of the members are keen to run away from the profession. They feel, the situation will still worsen in the years to come!

S— All of you collectively must seek some way out. Running away is not the solution.

A — True. That is why ‘hum aapki sharan mei hein!’

Om shanti !!!!!

Note:
The above dialogue shows how a Member should be cautious enough while dealing with Government authorities / Regulators. In the above case, had Arjuna’s friend verified the scope of work properly before accepting the assignment, he would have been saved from all troubles created later on. One may argue that the above act does not bring any disrepute to the profession as such.

BCAJ Admin

Corporate Law Corner

16.
Vivek Vijay Gupta vs. Steel Konnect (India) (P.) Ltd.

[2018] 90 taxmann.com 78 (NCLT – Ahd.)

Date of Order: 15^thJanuary, 2018

Section 31 read with section 30 and 25 of
the Insolvency and Bankruptcy Code, 2016 – NCLT does not have any power or
authority to interfere with the decision of committee of creditors in rejecting
a resolution plan submitted for its consideration.

FACTS

Financial Creditor instituted Insolvency
proceedings against S Co u/s. 7 of the Insolvency and Bankruptcy Code, 2016
(“the Code”). The appeals filed by SCo were dismissed by the National Company
Law Tribunal (“NCLT”) and subsequently by the Supreme Court. Resolution
Professional (“IRP”) was appointed and a valuation report was finalised by him
on 10.11.2017 which pegged the value of S Co at Rs. 39 crore. Promoters of S Co
submitted a resolution plan for Rs. 85 crore on 25.11.2017. In view of the
Ordinance passed by the Central Government amending section 29 of the Code, the
resolution plan submitted by the Promoters was rejected as they were not
eligible to submit a resolution plan and the Committee of Creditors (“COC”) did
not accept the same. Pursuant to an advertisement filed by the IRP an Asset
Reconstruction Company (“ARC”) filed a resolution plan for Rs. 93.42 crore
which was also rejected by the IRP. ARC filed a modified plan which was placed
before the COC and the same was also rejected by the COC.

Present application was filed by the
Promoter / Director of S Co alleging that the plan submitted by the ARC was in
compliance with the provisions of the Code and that COC had simply rejected the
plan with a remark that the same was not in compliance with the Code without
assigning any reasons even though the plan was in the interest of S Co and its
stakeholders. It was prayed that NCLT should intervene and overturn the
decision of COC which rejected the resolution plan.

HELD

NCLT observed that it has two fold powers
granted to it u/s. 31 of the Code, namely:

(i) accept the plan which is
approved by the COC; or

(ii) reject the plan which
though approved by the COC does not meet the requirements of the Code.

In case if no resolution plan is placed before
NCLT before the expiry of the Insolvency Resolution Process period or the
extended period, then NCLT is bound to pass an order for liquidation. Section
33(1)(b) of the Code gives authority to the NCLT to order liquidation in case
it rejects the resolution plan u/s. 31(2) for non-compliance of the
requirements specified therein. Therefore, even at the stage of ordering
liquidation, NCLT has no authority to consider a resolution plan that was
rejected by the COC.

It was observed that NCLT does not have any
power to sit over the judgment on resolution of COC in the rejecting the
resolution plan. The Tribunal held that it had no power to or authority to
interfere with the decision of the COC in rejecting the resolution plan.

When the information is there before the COC
regarding the non-compliance of the requirements of the Code and Regulations,
COC is perfectly justified in rejecting the resolution plan. It was held that
there were no facts and circumstances that warrant interference by NCLT in the
rejection of the resolution plan.

The IRP, in carrying out its duties,
submitted the plan which it received from the ARC before the COC. It also
brought out the fact that the same was not in accordance with the provisions
contained in the Code. The NCLT further observed that in light of the fact
pattern of this case, there was no lapse on part of the IRP in carrying out its
duties enumerated under the Code.

There was a contention raised that the
Promoters and directors of S Co (who filed the application) are persons
aggrieved or not. Since the resolution plan was in the interest of S Co and its
stakeholders, it could be said that its promoters and directors were also
aggrieved persons. However, NCLT observed that although promoters and directors
were invited to be a part of the meeting of COC they did not choose to attend
the same. Without demonstrating how the plan was beneficial to S Co and its
stakeholders it could not be held that the Promoters / directors were aggrieved
persons.

The NCLT, thus rejected the application
filed before it.

17. Bengal Chemists and Druggists Association
vs. Kalyan Chowdhury

[2018] 90 taxmann.com 112 (SC)

Date of Order: 02^ndFebruary, 2018

Section 421 read with section 433 of the
Companies Act, 2013 – Proviso to section 421(3) is peremptory in nature – Any
appeal filed after the period specified therein becomes time barred – Delay
cannot then be condoned by resorting to the provisions of Limitation Act, 1963.

FACTS

B Co being aggrieved by an order passed by
National Company Law Tribunal filed an appeal before the National Company Law
Appellate Tribunal (“NCLAT”). NCLAT dismissed the appeal on the grounds that
the same was filed 9 days after the expiry of period of limitation of 45 days
as well as further period of another 45 days. NCLAT held that the appeals were
not maintainable in lines with section 421(3) of the Companies Act, 2013 (“the
Act”).

B Co filed an application before the Supreme
Court against the order of NCLAT dismissing the appeal.

It was argued before the Supreme Court that
section 421(3) of the Act does not contain the language of section 34(3)
proviso of the Arbitration Act, 1996 which contains the words “but not
thereafter”. It was further argued that in terms of section 433 of the Act,
provisions of the Limitation Act, 1963 shall, as far as may be, apply to
Appeals before the Appellate Tribunal. Section 5 would therefore be applicable
to condone the delay beyond the period of 90 days.

HELD

The Supreme Court considered the provisions
of sections 421 and 433 of the Act. It observed that a cursory reading of
section 421(3) made it clear that the proviso provides a period of limitation
different from that provided in the Limitation Act, and also provides a further
period not exceeding 45 days only if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within that period.

It was observed that section 433 cannot
apply because the provisions of the Limitation Act only apply “as far as may
be”. There is a special provision contained in proviso to section 421(3) and as
a corollary, section 5 of the Limitation Act cannot apply.

The Supreme
Court held that 45 days is the period of limitation, and a further period not
exceeding 45 days is provided only if sufficient cause is made out for filing
the appeal within the extended period. If the Court was to accept the argument
put forth by the Applicant, it would mean that notwithstanding that the further
period of 45 days had elapsed, the NCLAT may, if the facts so warrant, condone
the delay. This would be to render otiose the second time limit of 45 days,
which is peremptory in nature.

In coming to this conclusion, the Supreme
Court relied on its own decision in the case of Chhattisgarh SEB vs. Central
Electricity Regulatory Commission, 2010 (5) SCC 23. The Supreme Court also
distinguished the decisions which were relied upon by the counsel for B Co.

The appeal filed by B Co was thus dismissed
by the Supreme Court.

18. Prem Prakash Sethi vs. Union of India

[2018] 89 taxmann.com 234 (Delhi)

Date of Order: 10^th January, 2018

Section 252 of Companies Act, 2013 read
with Condonation of Delays Scheme, 2018 – Name of company was struck-off from
the Register of Companies owing to non-compliances – Petition filed u/s. 252 was still pending before the NCLT – Directors of the
company could avail the benefit of Condonation of Delays Scheme, 2018

FACTS

S Co was in an active business and it
defaulted in making certain statutory compliances under Companies Act, 2013
(“the Act”) and requisite returns were not filed by them. Registrar of
Companies (“ROC”) believed that directors of S Co were disqualified u/s.
164(2)(a) of the Act and that S Co was disqualified u/s. 248(1) of the Act.

ROC
therefore, issued a show cause notice in March 2017 requiring S Co to show
cause as to why it was not liable to be removed from the Register of Companies.
S Co failed to respond to this notice, resulting in passing of an order of
removal of the company from the Register of Companies. S Co then invoked remedy
available u/s. 252(3) of the Act by filing a petition with the National Company
Law Tribunal (“NCLT”) praying for revival of
the company.

Director of S Co filed the present writ
petition before the High Court expressing that it was desirous of availing the
Condonation of Delays Scheme, 2018 (“CODS-2018”) but was unable to do so
because name of S Co had been struck off from the Register of Companies. It was
prayed before the High Court that they be permitted to avail the benefit of
CODS-2018, subject to the outcome of the proceedings initiated u/s. 252 of the
Act.

S Co also conceded that non-filing of
returns was a bonafide mistake on part of the company and it was stated that it
was ready to submit all the relevant documents which were required by the ROC.

HELD

The High
Court observed that S Co deserves to be fairly given an opportunity to avail
the benefit of CODS-2018 given that order striking off its name from the
Register of Companies was itself pending consideration before the NCLT.

The High Court therefore, directed S Co to
file all the requisite returns in relation to the company and submit necessary
application along with requisite charges to the ROC in order to enable it to
avail the benefits provided under the CODS-2018.

The High Court also directed NCLT to dispose
the application expeditiously given that benefit under CODS-2018 is available
only up to 31.03.2018. In the event the NCLT is unable to dispose of the appeal
within the time as requested for the reasons that are not attributable to S Co,
it was directed that the ROC shall ensure that the Scheme under CODS-2018 is
extended in respect of the directors of S Co.

The High Court held that directors of S Co
would not be deprived of the opportunity to avail the CODS-2018 only on account
of pendency of the petition before NCLT.

It was also clarified that if directors of S
Co did not avail of the CODS-2018 or file necessary documents then, in addition
to other consequences, they would also be liable for prosecution for Contempt
of Court.

Petition filed by S Co was thus allowed.

19.
Real time Interactive Media Pvt. Ltd. vs. Metro Mumbai Infradeveloper Pvt. Ltd.

[2018] 90 taxmann.com 89 (Bombay)

Date of Order: 12^th January, 2018

Section 271 read with section 248 of
Companies Act, 2013 – High Court has the power to order winding up of company
although its name has been struck off from the Register of Companies.

FACTS

R Co was engaged in the business of
publishing and managing advertisements on BEST TV LED screens in the BEST buses
(BEST TV) running in Mumbai. R Co was the sole agent of BEST in respect of
airing such advertisements on BEST TV. M Co engaged R Co for displaying
advertisements on BEST TV in 1300 Non AC buses and 250 AC buses for a period of
3 months from 07.10.2011 till 07.01.2012 for a consideration of Rs. 15 lakhs
plus taxes. In terms of the agreement, R Co aired those advertisements and
raised invoices of Rs. 5,16,665 in respect of each of the months for which the
service was provided. Invoices raised also mentioned that interest would be
charged if the same were not paid on or before the due date.

M Co paid in installments a total amount of
Rs. 5 lakhs and as on 16^th April, 2012 after adjusting this Rs. 5
lakhs from the total invoice of Rs. 15,49,995 there was a balance outstanding
of Rs. 10,49,995. As no payments came forth, R Co issued a statutory notice
dated 27.05.2014 to M Co. M Co did not file any reply to the statutory notice
issued to it.

R Co urged before the Court that the
registered address shown in the Company Master Data is the same address to
which notice under Rule 28 of the Companies Court (Rules), 1959 (“the Rules”)
has been sent and that is the same address which reflected even in the cause
title to which statutory notice was also sent. As on date, recent MCA website
extract indicates the status of M Co as “Strike Off”.

The Court was approached to decide whether
winding up proceedings can be initiated against a company which has been struck
off the Register of Companies.

HELD

The High Court observed that in light of the
facts it was possible to hold that the statutory notice was duly served as
required under Rule 28 of the Rules.

The High Court after examining the
provisions of section 248 of Companies Act, 2013 (“the Act”) observed that
there was nothing in section 248 which shall affect the power of the Court to
wind up a company the name of which has been struck off from the register of
companies. The effect of company notified as dissolved was that the company
shall on and from the date mentioned in the notice u/s. 248(5) of the Act cease
to operate as a company and the Certificate of Incorporation issued to it shall
be deemed to have been cancelled from such date except for the purpose of
realising the amount due to the company and for the payment or discharge of the
liabilities or obligations of the company.

The High Court held that just because the
name of the company was struck off the register u/s. 248 of the Act, the same
will not come in the way of the Court to pass an order of winding up of
company.

It was further observed that M Co neither
filed any affidavit opposing the petition nor did it reply to the statutory notice
that was duly served. The High Court had the power to order winding up on the
presumption of inability to pay the amounts claimed and not denied. The High
Court held that where no response has been made to the statutory notice, the
company runs a risk of winding up petition being allowed. By virtue of section
434 of the Companies Act, 1956 a presumption of the indebtedness could be
legitimately drawn by the court where no reply to the statutory notice was
forthcoming.

The High Court thus, ordered winding up of
M Co and proceeded to appoint Official Liquidator who would take charge of the
winding up proceedings to be carried out against M Co. _

BCAJ Admin

Allied Laws

26 Arbitration – Main agreement not registered – Arbitration clause cannot be acted upon.
[Arbitration and Conciliation Act, 1996 Section 7, 11, 37, 38]

Ansal Properties and Infrastructure Limited vs. Jhamru Chandaram and Ors. AIR 2017 RAJASTHAN 52

An application was filed before the court u/s. 11 of the Arbitration and
Conciliation Act, 1996, praying for appointment of the sole Arbitrator
to adjudicate its dispute with the respondents. Applicant signed two
MOUs. However, it was contested that the MOU had been annulled.

It was argued that an arbitral agreement within the MoU/agreement to sale, even if an unregistered document, can be used as evidence for collateral purpose as provided in proviso to section 49 of the Registration Act and is severable from the main contract.

The question which arose was whether any unstamped or insufficiently stamped agreement/MoU for sale containing clause can be acted upon.

It was held that the question as to insufficiency of stamp duty in view of section 16 of the Act should be left to be decided by the Arbitrator, cannot be countenanced and has to be rejected in view of clear law laid down by the Supreme Court in SMS Tea Estates Pvt. Ltd. which mandates that such a issue has to be decided in the application u/s. 11 of the Act itself.

27 Interrogation – Presence of Counsel – Only to avoid coercion, if any. [Customs Act, 1962, Section 108]

Sangit Agarwal vs. The Director General, Directorate of Revenue Intelligence and Ors . 2017 (356) E.L.T. 518 (Del.)

A prayer as to permit the interrogation in presence of the interrogatee’s Advocate who would sit at a visible distance not at audible range, was made by the petitioner.

It was observed that a lawyer has no role to play whatsoever during the interrogation, except to be at a distance beyond hearing range to ensure that no coercive methods were used during the interrogation.

It was accordingly directed that the petitioners’ advocate should be allowed to be present during the interrogation of the petitioners. He/they should be made to sit at a distance beyond hearing range, but within visible distance and the lawyer must be prepared to be present whenever the petitioners are called upon to attend such interrogation.

28 Power of Attorney – Intimation not given after death – Not valid to act as power of attorney. [Mines and Minerals Act, 1957 (Section 13, R.25A)]

State of Odisha vs. Government of India and Ors. AIR 2017 (NOC) 1023 (ORI.)

The question for consideration was whether the intimation of the death of the grantee was given to the State Government immediately after his death, but there was no document to support the said contention, there could be grant of additional time for fulfillment of statutory compliance, to the power of attorney holder, as the period of lease had already expired.

It was observed that Rule 25-A of the Mineral Concession Rules, 1960 provides that where an applicant for grant or renewal of mining lease dies before the order granting him mining lease, the application for grant of mining lease shall be deemed to have been made by his legal representatives. The question of the power of attorney acting on behalf of the grantee as legal representative would arise only when intimation of the death of the grantee is given to the State Government. Without such intimation having been given, it would be presumed that the power of attorney continued to act as power of attorney on behalf of a deceased person. A power of attorney can act on behalf of a living person, be it a natural person or juristic person. Once a person, who has given power of attorney, is no more there, the question of power of attorney continuing to act on behalf of such deceased person, would not arise. Had it been a case of the legal representative of the grantee having informed the State Government of the death of the grantee, and then proceeded with the matter as legal representative of the grantee, then the position would have been different. Such is not the case in hand.

In view of the above, it was held that there was no merit in the case of legal heir of the grantee for grant of additional time for fulfillment of statutory compliance.

29 Nominee – No beneficial ownership over persons entitled to inheritance [Companies Act, 1956, Section 109A]

Shakti Yezdani and Another vs. Jayanand Jayant Salgaonkar and Ors. (2017) 200 Comp case 143
(Bom) (HC)

The questions for consideration was whether a nominee of a holder of shares or securities is entitled to the beneficial ownership of such shares or securities to the exclusion of the other persons entitled to inherit the estate of the holder as per the law of succession.

It was observed by the Court that as per the consistent view taken by the Apex Court under various provisions held that the nominee does not get an absolute title to the property subject matter of the nomination. The reason is by its very nature when a share holder or a deposit holder or other, makes a nomination during his lifetime, he does not transfer his interest in favour of the nominee. It is always held that the nomination does not override the law in relation to testamentary or intestate succession. The provisions regarding nomination are made with a view to ensure that the estate or the rights of the deceased, subject matter of nomination are protected till the legal representatives of the deceased take appropriate steps. The object of the provisions of the Companies act is not to either provide a mode of succession or to deal with succession. The object of section109A is to ensure that the deceased shareholder is represented by someone.

In view of the same, it was held that the so called vesting u/s.109A does not create a third mode of succession and the nominee does not get a beneficial ownership of such shares or securities to the exclusion of the other persons entitled to inherit the estate.

30 Recovery of tax arrears – No charge on defaulter’s property – Hence no liability of the purchaser of such defaulter’s property. [Tamil Nadu Sales Tax, 1959, Section 24(2)]

Noor M. Saied vs. Commercial Tax Officer, Chennai. 2018 (9) G.S.T.L (Mad.)

A Sale was effected in a public auction, where the petitioner was a successful bidder. Admittedly, there was no charge on the property in question for the alleged sale tax arrears. At a later point in time, the respondent sent a notice to the petitioner that the sales tax arrears was to be paid by the petitioner, which was earlier payable by the Seller or the defaulter.

The issue to be decided was whether the petitioner can be proceeded against for Sales tax arrears payable by the defaulter.

It was held that, since there was no charge on the property and there was no doubt about the purchase made by the Petitioner being bonafide, hence the petitioner cannot be proceeded against for the recovery of the sales tax arrears payable by the defaulter. The court is of the firm view that the writ petition is allowed and that the impugned notice is unsustainable in law and is set aside. _

BCAJ Admin

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

117. A. P. (DIR
Series) Circular No. 23 dated 27^th December, 2016

Purchase and sale of securities
other than shares or convertible debentures of an Indian company by a person
resident outside India

This circular permits Foreign
Portfolio Investors to undertake transactions of non-convertible debentures /
bonds issued by Indian companies either directly or in any manner as per the
prevalent / approved market practice.

118. A. P. (DIR
Series) Circular No. 24 dated 3^rd January, 2017

Exchange facility to foreign
citizens

This circular provides that the
facility for exchange of foreign exchange for Indian currency, available to
foreign citizens (i.e. foreign passport holders) whereby they were permitted to
exchange foreign exchange for Indian currency notes up to a limit of Rs.
5,000/- per week will continue up to 31^stJanuary, 2017. The foreign
tourist will have to give, at the time of exchange, a self-declaration that he
/ she has not availed of this facility during the week and also provide a copy
of their passport.

119. Notification No.
FEMA. 377/2016-RB dated 10^th January, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Fifteenth
Amendment) Regulations, 2016

This
notification has made the following two changes Notification No. FEMA.
20/2000-RB dated 3^rdMay 2000): –

1. A new definition ‘convertible
note’ has been inserted vide clause (iiA), as under, in Regulation 2: –

“(iiA) ‘convertible note’ means an
instrument issued by a startup company evidencing receipt of money initially as
debt, which is repayable at the option of the holder, or which is convertible
into such number of equity shares of such startup company, within a period not
exceeding five years from the date of issue of the convertible note, upon
occurrence of specified events as per the other terms and conditions agreed to
and indicated in the instrument;”

2. A new Regulation 6D which deals
with Issue of Convertible Notes by startup companies has been added.

120. Notification No.
FEMA. 383/2016-RB dated 10^th January, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Amendment)
Regulations, 2017

This notification has made the
following changes in Schedule 1, in Annex B of Notification No. FEMA.
20/2000-RB dated 3^rd May 2000): –

A. The existing Paragraph F.4 shall
be substituted by the following namely: –

F.4

Infrastructure Company in the Securities Market

F.4.1

Infrastructure companies in Securities Markets,
namely, stock exchanges, commodity derivative exchanges, depositories and
clearing corporations, in compliance with SEBI Regulations.

49%

Automatic

F.4.2

Other Conditions:

(i) Foreign
investment, including investment by FPIs, will be subject to the Guidelines/
Regulations issued by the Central Government, SEBI and the Reserve Bank from
time to time.

(ii) Words
and expressions used herein and not defined in these regulations but defined
in the Companies Act, 2013 (18 of 2013) or the Securities Contracts
(Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of
India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) or in
the concerned Regulations issued by SEBI shall have the same meanings
respectively assigned to them in those Acts / Regulations.

B. The existing Paragraph F.6 shall be deleted.

C. The existing Paragraphs F.7, F.8, F.9 and F.10
shall be re-numbered as F.6, F.7, F.8 and F.9
respectively.

121. A. P. (DIR
Series) Circular No. 27 dated 12^thJanuary, 2017

Evidence of Import under Import Data Processing and
Monitoring System (IDPMS)

This circular: –

1. States that the procedure for submission of
hardcopy of Evidence of Import documents i.e. Bill of Entry, has been
discontinued with effect from 1^st December, 2016, as the same is
available in IDPMS.

2. Lays
down the revised procedure to be followed by Banks with respect to evidence of
import under IDPMS.

122. A. P. (DIR
Series) Circular No. 28 dated 25^th
January, 2017

Notification No. FEMA 382/2016-RB dated 2^nd
January, 2017

Prohibition on Indian Party
from making direct investment in countries identified by the Financial Action
Task Force (FATF) as “Non Co-operative countries and territories”

Presently, an Indian Party, in terms of FEMA Notification No.
FEMA.120/RB-2004 dated 7^th July, 2004, can undertake investment in
any country.

This circular prohibits an Indian Party from undertaking ODI,
in terms of FEMA Notification No. FEMA.120/RB-2004, in an entity, either
directly by setting up or acquiring a JV/ WOS or indirectly by way of a step
down subsidiary, which is located in countries identified as “non co-operative
countries and territories” by the FATF.

The list is available on the FATF website –
www.fatf-gafi.org.

123. A. P. (DIR
Series) Circular No. 29 dated 2^nd February, 2017

Foreign Exchange Management Act, 1999 (FEMA) Foreign
Exchange (Compounding Proceedings) Rules, 2000 (the Rules) – Compounding of
Contraventions under FEMA, 1999

This circular states that the powers to compound the
contraventions pertaining to delay in filing the Annual Return on Foreign
Liabilities and Assets (FLA return), by all Indian companies which have received
Foreign Direct Investment in the previous year(s) including the current year,
have been delegated to the Regional Offices of RBI.

All Regional Offices except the Regional Offices at Kochi and
Panaji can compound the contraventions without any limit as to the amount of
contravention.

The Regional Offices at Kochi and Panaji can compound the
contraventions up to Rs. 10,000,000. Contraventions in excess of Rs. 10,000,000
will be compounded by the Central Office at Mumbai.

124. A. P. (DIR
Series) Circular No. 30 dated 2^ndFebruary, 2017

Notification No. FEMA 378/2016-RB dated 25^th
October, 2016

Risk Management and
Inter-bank Dealings: Permitting Non Resident Indians (NRIs) access to Exchange
Traded Currency Derivatives (ETCD) market

This circular now permits NRI, subject to certain terms and
conditions, to hedge their currency risk arising out of their investments in
India by using the products available on the exchange traded currency
derivatives market in India. This facility is in addition to the existing
hedging facilities that are available to NRI.

125. A. P. (DIR
Series) Circular No. 31 dated 17^thFebruary, 2017

Issuance of Rupee denominated bonds overseas – Multilateral
and Regional Financial Institutions as Investors

Presently, Rupee denominated bonds can be issued only in a
country and to a person resident in a country: –

1. That is a member of Financial Action Task
Force (FATF) or a member of a FATF Style Regional Body; and

2. Whose securities market regulator is a
signatory to the International Organization of Securities Commission’s
(IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or
a signatory to bilateral Memorandum of Understanding with the Securities and
Exchange Board of India (SEBI) for information sharing arrangements; and

3. That should not be a country identified in the
public statement of the FATF as: –

(i) A jurisdiction having a strategic Anti-Money
Laundering or Combating the Financing of Terrorism deficiencies to which
counter measures apply; or

(ii) A jurisdiction that has not made sufficient
progress in addressing the deficiencies or has not committed to an action plan
developed with the Financial Action Task Force to address the deficiencies.

This circular now, in addition to the above, now
permits Indian entities to issues Rupee denominated bonds to Multilateral and
Regional Financial Institutions in which India is a member country.

BCAJ Admin

Allied Laws

24. Family & Personal Laws –
Family arrangement /settlement in respect of immovable property worth more than
Rs. 100, when orally made, no registration is required and is admissible in
evidence but when reduced in writing same has to be registered- but even if
unregisterd, same can be used as corroborative evidence. [Sections 17 & 49
of the Registration Act, 1908.]

Subraya M.N. vs. Vittala M.N. And Others (2016) 8 scc 705 (sc).

The Appellant-Defendant and the Respondents- Plaintiffs are
the sons of one late Narayana. The suit scheduled property comprises of item
No. 1 measuring 1.00 acre; item No. 2 measuring 0.25 acre. Appellant-Defendant
claimed that so far as item Nos. 1 and 2 are concerned, Plaintiffs have sold
their shares – 0.50 acre of land to the Defendant and the third Plaintiff as
per sale deed dated 28.04.1976 and Plaintiffs have no right to claim partition
in respect of item Nos. 1 and 2. It is further averred that there was a
panchayat in the village on 18.03.1995 wherein Plaintiff Nos. 3 and 4 and Defendant
participated and it was agreed between the parties that the Defendant will give
Rs. 50,000/- to the Plaintiff Nos. 3 and 4 and Defendant will have all rights
over item Nos. 1 and 2. The trial court as well as the High Court held that in
the absence of any conveyance deed, it cannot be established that Plaintiff
Nos. 3 and 4 have forfeited their rights in respect of item Nos. 1 and 2 of the
suit scheduled property. The Supreme court reversing the order of trial court
and high court held that in the facts and circumstances of this case and the
conduct of the parties, Panchayat resolution appears to record the family
settlement already arrived at between the parties. There is no provision of law
requiring family settlements to be reduced to writing and registered, though
when reduced to writing the question of registration may arise. Binding family
arrangements dealing with immovable property worth more than rupees hundred can
be made orally and when so made, no question of registration arises. If,
however, it is reduced to the form of writing with the purpose that the terms
should be evidenced by it, it required registration and without registration it
is inadmissible; but the said family arrangement can be used as corroborative
piece of evidence for showing or explaining the conduct of the parties. In the
present case, panchayat resolution reduced into writing, though not registered
can be used as a piece of evidence explaining the settlement arrived at and the
conduct of the parties in receiving the money from the Defendant in lieu of
relinquishing their interest in item Nos. 1 and 2.

25. Nomination under Companies Act,
1956 will not override succession [Sections 109A and 109B of Companies Act,
1956].

Shakti Yezdani & Ors vs. Jayanand Jayant Salgaonkar and
Ors. Appeal No. 313 Of 2015 & Appeal No. 311 of 2015 dtd 1.12.2016
(Bom,)(HC)

The questions to be decided by the division bench of the
Bombay High Court were as under:

(i) Whether a nominee of a holder of shares or
securities appointed u/s. 109A of the Companies Act, 1956 read with the
Bye-laws under the Depositories Act, 1996 is entitled to the beneficial
ownership of such shares or securities to the exclusion of all other persons
who are entitled to inherit the estate of the holder as per the law of succession?

(ii) Whether a nominee of a holder of shares or
securities on the basis of the nomination made under the provisions of the
Companies Act, 1956 read with the Bye-laws under the Depositories Act, 1996 is
entitled to all rights in respect of such shares or securities to the exclusion
of all other persons or whether he continues to hold the securities in trust
and in a capacity as a beneficiary for the legal representatives who are
entitled to inherit securities or shares under the law of inheritance ?

(iii) Whether a bequest made in a Will executed in
accordance with the Indian Succession Act, 1925 in respect of shares or
securities of the deceased supersedes the nomination made under the provisions
of Sections 109A and Bye-Law No. 9.11 framed under the Depositories Act,
1996?.”

The Bombay High court held as under:

(i) The Apex Court in the case of Indrani
Wahi vs. Registrar of Co-op. Societies and Others (2016) 6 SCC 440
considered the provisions of nomination under Sections 69 and 70 of the West
Bengal Co-operative Societies Act, 1983 and came to the conclusion that where a
member of a Co-operative Society nominates a person in consonance with the
provisions of the Rules framed under the West Bengal Act of 1983, the
Co-operative Society is mandated to transfer all the shares or interest of such
member in the name of the nominee. This view was taken by the Apex Court in the
light of the express provisions of section 80 of the said Act of 1983 read with
Rule 127 of the Rules of 1987 framed under the West Bengal Act of 1983.
Sections 79 and 80 of the said Act of 1983 appear to be different from the
provisions relating to the nomination in the Maharashtra Cooperative Societies
Act, 1960. After issuing the directions to the Co-operative Society to transfer
the shares of the deceased member in the name of the Appellant who was a
nominee, the Apex Court specifically observed that it will be open for other
members of the family of the deceased member to pursue their case of succession
or inheritance in consonance with law. Thus, the conclusion drawn by the Apex
Court was that a Cooperative Society is bound by the nomination made by the
member. In case of such nomination, the Society has no option except to
transfer the shares in the name of the nominee after the death of the member.

However, those who are claiming
inheritance will be entitled to pursue their remedies and claim title in the
shares on the basis of inheritance. Thus, the conclusion drawn by the Apex
Court was not that the nomination binds the legal representatives of the
deceased shareholder or a member of the Society or that it overrides the law of
succession.

(ii) Even assuming that the format of the
nomination requires attestation as required by a will under the Indian
Succession Act, 1925, the nomination does not become a testamentary
disposition.

(iii) The provisions relating to nominations under
the various enactments have been consistently interpreted by the Apex Court by
holding that the nominee does not get absolute title to the property subject
matter of the nomination.

The reason is by its very nature, when a
shareholder or a deposit holder or an insurance policy holder or a member of a
Co-operative Society makes a nomination during his life time, he does not
transfer his interest in favour of the nominee. It is always held that the
nomination does not override the law in relation to testamentary or intestate
succession. The provisions regarding nomination are made with a view to ensure
that the estate or the rights of the deceased subject matter of the nomination
are protected till thelegal representatives of the deceased take appropriate
steps.

None of the provisions of the aforesaid Statutes providing
for nominations deal with the succession, testamentary or non-testamentary.

(iv) The object of the provisions of the Companies
Act is not to either provide a mode of succession or to deal with succession.
The object of the Section 109A is to ensure that the deceased shareholder is
represented by someone as the value of the shares is subject to market forces.

Various advantages keep on accruing to
shareholders. For example, allotment of bonus shares. There are general
meetings held of the companies in which a shareholder is required to be
represented. The provision is enacted to ensure that the commerce does not
suffer due to delay on the part of the legal heirs in establishing their rights
of succession and claiming the shares of a company.

(v) The so called vesting u/s. 109A does not
create a third mode of succession. It is not intended to create a third mode of
succession. The Companies Act has nothing to do with the law of succession.

(vi) The
first question is answered in the negative and the third question in the
affirmative. The second question is answered accordingly.

Editor’s Note – A reference may be made to the Feature Laws
and Business published in the May 2015 issue of the BCAJ in which this subject
is analysed.

26. Sales Tax – Minor admitted to
benefits of partnership not liable for dues of the firm. [Sections 25, 30 of Indian Partnership Act, Section 21
of Kerala General Sales Tax Act, 1963]

J. Rajmohan Pillai vs. District Collector, Kollam &
Ors (2016) 93 vst 397(ker)

The petitioner, while he was a minor was inducted as a
partner of the firm M/s. Malabar Cashew and Allied Products with effect from
01/01/1975. The partnership was reconstituted on 01/01/1976 by which the
petitioner and three other minors were excluded from the partnership. The firm
was liable to pay sales tax dues and accordingly, revenue recovery proceedings
were initiated by the 1^st respondent. The 1^st respondent
proceeded on the basis that the petitioner, being a partner, was also liable
for the arrears of sales tax dues and accordingly, steps were taken against the
petitioner u/s. 65 of the Revenue Recovery Act.

The Kerala High Court held that when a firm is liable, each
of the partners in the firm are jointly and severally liable for the amount due
until he retires. It is very clear from the provisions of the Act, that a minor
can only be admitted to the benefits of the partnership and cannot become
liable to the debts or the loss of the partnership. It is trite, that a minor
cannot be made liable for the liability of the firm. The District Collector had
referred to sections 30(7), 35 and 25 of the Partnership Act to impose a
liability on the petitioner. Section 30 of the Partnership Act, relates to
admitting a minor to the benefits of partnership. The Statute indicates that
though a minor may not be a partner of the firm, he may be admitted to the
benefits of the partnership. Though the minor’s share is liable for the acts of
the firm, but the minor is not personally liable for any such act.

27. Investigation and Enquiry –
Summons under Customs Act – Presence of counsel during interrogation of
Petitioner – To be within visible range but beyond hearing range – Counsel must
be prepared to be present for every summons made. [Customs Act, 1971; Section
108]

Vijay Sajnani vs. Union
Of India 2017 (345) E.L.T. 323 (S.C.)

Section 108 of the Custom’s Act gives the power
to summon any person to give any evidence or produce documents. The section
also states, that the person so summoned, is bound to state the truth upon any
subject, on inquiry. The section had no mention of whether the counsel of the
person so summoned would be able to witness such inquiry/interrogation.
However, in the present case, the Supreme Court had allowed the Counsel of the
petitioners to be present during the interrogation of the petitioners. But this
allowance was subject to the counsel being present at a reasonable and visible
distance, beyond hearing range, during such interrogation It was also directed
that the petitioner’s counsel should always be prepared to be present whenever
the petitioners are called upon to attend such interrogation.

BCAJ Admin

Company Law

1. Companies (Authorised to Register) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification dated 31st May 2016 made rules to amend the Companies (Authorised to Registered) Rules, 2014. These Rules are applicable for conversion of a partnership firm into company, and for conversion of an LLP into company. Full text of the Rules can be accessed at
http://www.mca.gov.in/Ministry/pdf/NotificationOrder_ 01062016.pdf

2. Companies (Corporate Social Responsibility Policy) Amendment Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 23rd May 2016 notified the rules to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Rule 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, is substituted by, “The Board of a company can decide to undertake its CSR activities approved by the CSR Committee, through
(a) A company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or along with any other company, or
(b) A company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature

Provided that if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilization of funds of such projects and programs and the monitoring and reporting mechanism.

Further vide Notification dated 16th May 2016, the Ministry of Corporate Affairs has clarified that while taking CSR activities under the Act, the Company must not contravene any other laws of the land including Cigarette and Other Tobacco Products Act 2003.

The rules can be accessed at
http://www.mca.gov. in/Ministry/pdf/Notification_CSR_30052016.pdf and notification at http://www.mca.gov.in/Ministry/pdf/General_ circular05_16052016.pdf

3. Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification dated 4th April 2016 made an Amendment to the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015.

Rule 3 has been substituted with the following proviso “Provided that the companies in banking, insurance, power sector, non-banking financial companies and housing finance companies need not file financial statements under this rule”.

The rules can be accessed at
http://www.mca.gov.in/ Ministry/pdf/Rules_06042016.pdf

4. Notification constituting the National Company Law Tribunal and National Company Law Appellate Tribunal under Sections 408 and 410 respectively of the Companies Act, 2013

The Central Government has by Notification No S.O. 1933 (E ) dated 1st June 2016 constituted the National Company Law Appellate Tribunal for hearing appeals against the orders of the National Company Law Tribunal with effect from the 1st day of June, 2016

The Notification can be accessed at
http://www.mca. gov.in/Ministry/pdf/Notification_02062016_II.pdf

5. Commencement Notification under Section 1(3) of the Companies Act, 2013 and Notification constituting the Benches of National Company Law Tribunal
The Ministry of Corporate Affairs has vide Notification S.O. 1934(E) dated 1st June 2016 has notified the various sections of the Companies Act 2013 that have come into force.

The list can be accessed at http://www.mca.gov.in/ Ministry/pdf/Notification_02062016_I.pdf

The Central Government has also constituted the following Benches of the National Company Law Tribunal:

6. Transfer of matters or proceedings or cases pending before the Company Law Board to National Company Law Tribunal

The Ministry of Corporate Affairs has vide Notification S.O. 1936(E) dated 1st June 2016 declared that w.e.f 01st day of June, 2016, all matters or proceedings or cases pending before the Board of Company Law Administration (Company Law Board) shall stand transferred to the National Company Law Tribunal and it shall dispose of such matters or proceedings or cases in accordance with the provisions of the Companies Act, 2013 or the Companies Act, 1956.

The Notification can be accessed at
http://www.mca. gov.in/Ministry/pdf/Notification_02062016_III.pdf

7. Special Courts Under Section 435 Of Companies Act, 2013

The Ministry of Corporate Affairs has vide Notification S.O. 1796(E) dated 18th May 2016 after obtaining the concurrence of the respective Chief Justices of the High Courts, designates the following Courts mentioned in the Table below as Special Courts for the purposes of trial of offences punishable under the Companies Act, 2013 with imprisonment of two years or more in terms of section 435 of the Companies Act, 2013, namely:

The aforesaid Courts shall exercise the jurisdiction as Special Courts in respect of jurisdiction mentioned.

The notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/NotificationOrder_19052016_2.pdf

8. The Companies Amendment Bill 2016
The Companies Amendment Bill 2016 as passed by the Lok Sabha can be accessed at http://www.mca. gov.in/Ministry/pdf/Company_AmendentBill_2016.pdf. The same is not in force as yet.

BCAJ Admin

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

“Ethics has to do with what my feelings tell me is right or wrong.”

“Ethics has to do with my religious beliefs.” “Being ethical is doing what the law requires.”
“Ethics consists of the standards of behavior our society accepts.”
“I don’t know what the word means.”

Don’t you think on similar lines? The meaning of “ethics” is hard to pin down, and the views many people have about ethics are shaky.

What, then, is ethics? At its simplest, ethics is a system of moral principles. They affect how people make decisions and lead their lives. Ethics is concerned with what is good for individuals and society and is also described as moral philosophy. The term is derived from the Greek word ethos which can mean custom, habit, character or disposition.

Ethics covers the following dilemmas:

how to live a good life

our rights and responsibilities

the language of right and wrong

Moral decisions – what is good and bad?

Our concepts of ethics have been derived from religions, philosophies and cultures. They infuse debates on topics like abortion, human rights and professional conduct.

RTI Clinic in July 2016: 2nd, 3rd, 4th Saturday, i.e. 9th, 16th, and 23rd 11.00 to 13.00 at BCAS premises.

BCAJ Admin

Part C Iinformation On & Around

Committee to look into feasibility of special stamps for RTI
The Department of Posts said it has to constitute a fresh committee, with the approval of competent authority, to examine the feasibility of usage of RTI stamps as RTI fee and furnish a report on their recommendations.

A previous committee comprising representatives from postal department, DoPT and Central Information Commission had concluded that the amount charged under RTI is a fee not related to a postal article thus according to the present Indian Postal Act, 1898, postage stamps cannot be used for payment of RTI fee or costs.

RTI gets a memorial in Rajasthan
Ironic though it may sound, a unique memorial celebrating the Right to Information has come up in the Beawar town of Rajasthan — where the RTI movement had started 20 years ago — at a time when the Bhartiya Janata Party government in the State has opted to delete chapters on the evolution of RTI campaign and law from its school textbooks. Hundreds of people from all walks of life, who gathered at Chang Gate in Beawar on Thursday night to commemorate the historic 40-day dharna of 1996 for RTI , witnessed unveiling of the aesthetically-built memorial and demanded restoration of chapters dealing with common people’s contribution to RTI in the textbooks.

RTI plea: It took Govt of India 16 months to disclose report recommending new coastal regulation norms
Sixteen months after a Right to Information (RTI ) application was filed, the Ministry of Environment, Forest and Climate Change (MoEFCC) has disclosed a copy of the “Report of the Committee to Review the Issues relating to the Coastal Regulation Zone, 2011” to Kanchi Kohli, a well-known environmental expert. This disclosure came after an order of Information Commissioner Prof. M Sridhar Acharyulu on May 13, 2016 which stated that the ministry “cannot invent a new defense or exemption such as ‘the report is under submission’, ‘file is pending consideration’ and ‘unless approved it cannot be given’, etc, which are not available under RTI Act, 2005, such an illegal refusal will amount to denial of information which would invite penal proceedings u/s. 20 of RTI Act, 2005.

IGNOU to offer diploma course on Right to Information
In order to encourage people to understand societal relevance of the Right to Information Act and its nuances, the Indira Gandhi National Open University (IGNOU) has decided to introduce certificate and diploma courses in the subject. The Central Information Commission (CIC) has extended its support to the university to work out the courses, which will form compulsory part of the training module for all Central Government employees.

the subject. The Central Information Commission (CIC) has extended its support to the university to work out the courses, which will form compulsory part of the training module for all Central Government employees.

BCAJ Admin

Part B RTI Act, 2005

Delhi High Court criticised the Legislative Department for filing an unnecessary Writ Petition against the Order of Central Information Commission (of M Sridhar Acharyulu, CIC) directing the Government to update and upload all the latest amended bare Acts, to examine the functionality of its e-mail ID and develop an appropriate RTI filing mechanism. Justice Manmohan of Delhi High Court directed Legislative Department to recover Rs.10,000/- which was awarded as compensation by CIC, from the salary of the Government officials who authorized the filing of this unwarranted writ petition and pay the same to the Library. Vansh Sharad Gupta, a student of NLSUI, had filed this RTI application through e-mail, to know the e-mail ID of CPIO, Legislative department. He could not access the text of Indian Christian Marriage Act, 1972 from the website, though he could find the Bare Act. It was impossible to read as that PDF of Bare Act was not formatted and each sentence was intercepted by trash. He appealed to provide the bare Acts (enactments without commentary) in a readable PDF format. The Commission directed the Department to inform the complainant as to what action had been taken including details of the programme of updation, the possible date of its completion, expenditure involved, personnel employed etc. CIC had also directed the petitioner to pay Rs.10,000/- to the library of University, for causing loss of time of several law students, more specifically of the appellant, not providing easy access to email, or not making email ids easily available, delaying the information etc, within one month. The Department chose to challenge this order in Delhi High Court. In the writ petition, Legislation department contended that student never filed an RTI application in the prescribed form with the requisite fee and did not even file first appeal. Rejecting this petition Justice Manmohan held; “This Court is not an appellate Court of the CIC. Technical and procedural arguments cannot be allowed to come in the way of substantial justice. The directions given by the CIC in the impugned order are not only fair and reasonable but also promote the concept of rule of law. It is unfortunate that the petitioner did not take the initiative on its own to upload the latest amended bare Acts. Public can be expected to follow the law only if law is easily accessible ‘at the click of a button’. HC said: “In fact, as rightly pointed out by the CIC, the RTI Act itself mandates the Government to place the texts of enactments in public domain. This Court also took judicial notice of the fact that in challenging the imposition of costs of Rs.10,000/-, the Government of India would have spent more money in filing the present writ petition. Consequently, this Court is of the view that the costs of Rs.10,000/- which was directed to be paid by the CIC, should be recovered from the salary of the Government officials who authorized the filing of the present writ petition”.

Some learning from the case:
1. It is the duty of law ministry to upload updated enactments for people.

2. Department has to change their systems in response to the issues raised in RTI requests.

3. People have right to know law in their own language

4. It is the duty of Law Ministry to disclose the law, which they want people to follow.

5. Public Authority has to pay compensation for violation of sections 4 and 3

6. State should not be a cantankerous litigant

7. There is no routine appeal available from decision of Information Commission

BCAJ Admin

Part A Decision of CIC

CIC judgment: Delhi Lt . Governor reports to Centre can be made available under RTI

The decision by Information Commissioner Sridhar Acharayulu stated that the office of the Delhi Lieutenant Governor (LG) was a “public office” under the RTI Act.

“The Commission agrees with the contention of appellant that Article163(3) of the Constitution does not apply to the Union Territory of Delhi, which could be invoked only in case of a full-fledged state and not to a UT with an assembly like Delhi. Delhi is a union territory and there are specific provisions under the Constitution of India in Article 239AA. There is no mention of any provision like protecting the advice given to LG as available under Article 74 (2) (regarding President) and Article 163 (3) (regarding governors). More over Article 163(3) applies specifically to the ‘advice of a Council of Ministers to the Governor’. The information sought here is a report sent by the UT Administrator to Union Government or President. Article 163 has nothing to do with this communication,” says the order.

Going a step further, the CIC has held that even in case of information given to the President or Governor of a state, the material on the basis of which decisions are taken is not privileged information and is open to scrutiny.

“Even in those cases where Article 163(3) applies, there is no immunity from disclosure,” said the order.

“If the documents pertain to affairs of state, they cannot be withheld by state as privileged documents under Evidence Act, but has to disclose under RTI Act, subject only to section 8 and 9. Privilege for non disclosure of documents in the name of ‘affairs of state’ under Section 123 of Evidence Act is no more available to any public authority with the advent of transparency regime, which overrides the archaic law of privilege as specified in section 22, Right to Information Act 2005. Privilege as an excuse for secrecy of information about affairs of state is antithesis to democracy, and not available,” held the CIC.

“There is no bar against citizen from having a copy of the advice/report of LG to Union government. The Supreme Court has clarified in a landmark case S. R. Bommai case that the material forming basis of advice given to Governor could be subject matter of judicial review, which clearly means information could be disclosed,” said the order.

BCAJ Admin

ETHICS AND U

Vulnerability of the profession:

Shrikrishna
(S) — Arjun, you are looking very much upset today.

Arjun
(A) — Not only upset; but terribly afraid.

S — Your BCAS’s motto is ‘Na Bhayam Chaasti Jaagratah’
He who is awake has nothing to fear about.

A — That is alright in a motto. One can give a
big sermon on that. But what actually happens in practice?

S — What happened?

A — My friend has been trapped very badly. He
was unnecessarily dragged into disciplinary proceedings.

S — But why? Has he done everything right?

A — No. Actually, he was an auditor of an
executor and trustee company. In that audit, certain disclosures on a few
accounting standards remained to be made.

S — Then what is wrong if he is faced with
disciplinary case?

A — The reason why and how his lapses came to
surface are very strange.

S — That does not matter. How he got exposed is
not relevant.

A — But nobody is aggrieved by his lapses.

S — That is also not material. Whether anybody
suffered or not is of no consequences.

A — That is true. But the aggrieved party had
nothing to do with the audit. The real dispute was something else. Altogether
different.

S — What was that?

A — This executor and trustee company executed
the will of somebody. That is their normal business.

S — Yes. What about that?

A — One lady felt that in the process of
execution of the will, there was some injustice to her.

S — Then why didn’t she write to the company?

A — She did. But the company did not heed to her
complaints. So she wanted to teach a lesson to the company.

S — Then what did she do?

A — She made complaints to all possible forums;
and kept on following up vigorously.

S — Oh!

A — And she engaged some CAs to find out the
flaws in the financial statements of the company. Actually, that had nothing to
do with the company’s act of executing the will.

S — Bad luck!

A — My friend who was the auditor, was called by
ROC’s office. So were the directors.

S — What then?

A — Regional Director pointed out the flaws.
There was nothing wrong in financials; but a few disclosures had been omitted.

S — So what did he do?

A — He agreed that the lapses were very
technical in nature. He suggested for compounding of offence. So, my friend
paid composition money of Rs.5,000/- and got the matter closed. Directors also
were summoned.

S — Actually, when you compound an offence,
indirectly you admit the lapse.

A — Agreed. But my friend felt that was the end
of the matter. ROC’s office forwarded the matter to our institute.

S — Arere!

A — Poor fellow! The directors also paid their
composition money and are now free! That lady got nothing in her hands. But
this friend of mine is facing the music of disciplinary action. This is unfair!

S — Cool! Arjun, cool down. You may feel it is
unfair. I also feel sorry for your friend. But unfortunately, this is not a
case of ‘complaint’ against him. And the fact remains that there were flaws.

A — If it is not a complaint, what is it?

S — It is an ‘information’ case. The lady is out
of the picture. Due to some reason or the other, the institute has received the
information. They have to take it to the logical end.

A — How vulnerable our profession is! Even a
person unconcerned with our work can create problems for us! He may not be even remotely affected by our work.

S — That’s right, Arjun. Your Council feels that
a CA’s work should be perfect in absolute terms. Not in relative terms.

A — This is a good lesson to all of us. But what
will happen in this case?

S — He may be held guilty under clause (7) of
Part 1 of Second Schedule. ‘Gross negligence or lack of due diligence’.

A — Oh! That is very serious. Then there may be
a punishment!

S — Since you aspire for independence, the
eternal vigilance is its cost. You have to be on your toes all the time. A
little laxity may expose you to so many risks.

A — I agree with you. The new Company Law is
also like a nightmare to auditors! We are so vulnerable that we cannot even
imagine what will happen; when and how!

S — So Arjun, just as I am holding the reigns of
this chariot tightly, you also have to do like that. A little looseness may
cost your dearly!

A — Yes, My Lord! This is nothing but your
message of karmayga from Geeta! I bow before you. Pranaam!

Om Shanti.

(The purpose of this
dialogue was to underline the importance of perfection in our work and point
out the vulnerability).

BCAJ Admin

Corporate Law Corner

6. Vaibhav Goyal Ltd., In
re

(2016) 76 taxmann.com 249 (Rajasthan) Dated:
18.11.2016

Section 100 of the Companies Act, 1956 read with section 52
of the Companies Act, 2013 – Whether a company could utilise the balance held
in Securities Premium Account to adjust the accumulated losses – Held yes,
provided the same was permitted under its Articles and adjustment was approved
by requisite majority of equity shareholders

FACTS

Petitioner company (VCo) was engaged in the business of
dealing in gems and jewellery. The Incidental or ancillary objects clause of
the Memorandum of Association (MOA) of the company provided for activity of
investment. As per the Balance sheet as at 31.03.2015, VCo had a balance of Rs.
589.72 crore in its securities premium account and accumulated losses of Rs.
264.27 crore in its reserves and surplus. The accumulated losses were on
account on diminution in the value of investments made in the subsidiary
companies. The shareholders of VCo in a meeting held on 16.01.2016 passed a
special resolution approving the adjustment of such accumulated losses against
balance held in securities premium account. Articles of Association (Articles)
of VCo permitted reduction of share capital of the company.

The Registrar of Companies (ROC) challenged the reduction on
the grounds that company did not comply with provisions of section 149(2A) and
372A of the Companies Act, 1956 (1956 Act). ROC further argued that diminution
in the value of investments was not a permitted purpose for use of securities
premium in terms of section 52 of the Companies Act, 2013 and accordingly, the
special resolution passed was ultra vires. It also raised objections on
non-registration of VCo under RBI Act, 1934 in the context of investments made
in its subsidiaries.

HELD

The High Court examined the provisions contained in section
52 of the Companies Act, 2013 as well as section 100 of the 1956 Act (which
were applicable for reduction of share capital). It was held section 52 equates
the securities premium account of a company to its paid up share capital.
Balance in share premium account could be used for purposes specified therein
without any approval of Court. For other purposes, the provisions of sections
100-104 of the 1956 Act applied and approval of the court was to be sought for
the reduction of paid up share capital of the company.

It was observed that if the reduction of share capital of a
company u/s. 100(1) of the 1956 Act was authorised by its Articles of
Association and supported by a special resolution of equity shareholders, the
court of which approval is sought should merely evaluate whether it is
reasonable, just and fair and not prejudicial to the interest of the
shareholders, creditors or any other stakeholders of the company.

In the facts of the present case, Court observed that
contemplated adjustment would not entail any outflow of funds or assets and the
same was a commercial decision taken by the company with approval of
shareholders. Also, the said adjustment would not prejudice any creditor of VCo
or entail a reduction in the value of its shares. Court thus, upheld the
validity of resolution which permitted the utilisation of balance held in
securities premium account for adjustment of accumulated losses. It relied on
judgements rendered by various other High Courts in respect of utilisation of
securities premium account beyond the purposes specified u/s. 78 of the 1956
Act as long as the same was permitted by the Articles of the Company and
approved by requisite majority of equity shareholders.

Argument of ROC that VCo was not permitted to make
investments was not maintainable owing to the fact that the Incidental and
ancillary objects of VCo permitted the activity of making investments. Section
17 read with section 149(2) of the 1956 Act were also held to be inapplicable
for the same reason. Further, the Court observed that ROC did not have anything
on record to show that the investments in question beginning 2004-2005 were at
any point of time objected to by any statutory authority.

The Court also dispensed the procedure required u/s. 101(2)
of the 1956 Act as well as the formality of using the words “And reduced” while
describing its capital structure.

7. SPC & Associates, Chartered Accountants
vs. DVAK & Co.

[2017] 80 taxmann.com 48
(NCLT – Hyd.) Dated:
17.03.2017

Sections 139 and 140 of the Companies Act, 2013 –CA firm was
appointed as auditor for 5 years – The appointment was not ratified at the
succeeding AGM – The only reason for the same was a nominal hike in audit fees
– CA firm was not given any opportunity before the decision of non-ratification
was taken – Whether such an act was bad in law – Held yes

FACTS

Respondent company (NCo) appointed the Petitioner (SCo) as
its statutory auditor for a block of 5 years in its 17^th Annual
General Meeting (AGM) held on 28.08.2015 till the conclusion of AGM in the year
2020. However, NCo proceeded to appoint Respondent No. 2 (DCo) as its statutory
auditor for a period of five years from the 18^thAGM till the
conclusion of AGM in the year 2021. Two partners working in SCo had resigned
and established a new firm in the name and style of DCo.

NCo alleged that it had an understanding with SCo that audit
fees would remain fixed for the tenure of 5 years. NCo admitted that the
ratification for appointment of SCo was not carried out because of a 10%
increase in the audit fees charged by SCo. NCo urged that SCo was not removed,
only its appointment was not ratified by the members of the company.

SCo thus approached the Tribunal with the prayer that removal
of SCo and appointment of DCo be declared as illegal and that Tribunal direct
NCo to appoint SCo as its auditor.

HELD

Although an auditor is appointed for a block of 5 years in
terms of section 139(1) of the Act, its appointment is required to be ratified
by the members in every AGM. Section
140(5)(1) requires a company to pass a special resolution and obtain the
approval of Central Government before it removes the existing auditor. The
Tribunal observed that said approval was not obtained by NCo. The only ground
for non-ratification of appointment of SCo was the proposed fee hike. The
Tribunal noted that there was no documentary evidence furnished by NCo to
establish the alleged understanding that audit fees would remain fixed for 5
years. It was of the view that 10% rise in fees was reasonable.

The Tribunal noted that SCo should have been provided with a
sufficient opportunity before its non-ratification. It was directed that DCo
would be removed as auditor of NCo and that its appointment was improper. The
Tribunal also held that SCo would continue to be the auditor till the next AGM
and that NCo may take necessary course of action in accordance with law.

8. Bimla Kothari vs.
Unitech Ltd.

(2016) 75 taxmann.com 151 (NCLT – New Delhi) Dated: 06.10.2016

Section 73 of the Companies Act, 2013 – Law does not
distinguish between deposits accepted prior to commencement of 2013 Act and
ones accepted after it – Remedy to approach NCLT upon failure of company to
repay them was available to both the set of depositors.

FACTS

A company (UCo) accepted deposits from public prior to
01.04.2014. It was not able to repay the same upon their maturity. UCo filed an
application with the erstwhile Company Law Board seeking an extension of time
to repay the deposits which was rejected. Various investors approached NCLT
u/s. 73(4) of the Companies Act, 2013 for redressal of their grievances. It was
also alleged that UCo had siphoned off the money raised from public deposits.

UCo urged that since the deposits in question were accepted
under Companies Act, 1956 it would not be covered by the term “deposits” as
referred u/s. 73 of the Companies Act, 2013. UCo argued that investors could
not approach NCLT as they were not “depositors” within the meaning of the
Companies Act, 2013 and that the only available recourse to them was filing a
suit with the Civil Courts.

HELD

The Tribunal observed that it had trappings of a Court with
adjudicatory rights for exercising all equitable jurisdiction. It was further
held that Legislature did not intend to differentiate between depositors prior
to 01.04.2014 or thereafter. The remedies available cannot be any different.
Rule 19 of the Companies (Acceptance of Deposits) Rules, 2014 clarifies the
applicability of sections 73 and 74 of Companies Act, 2013 to deposits accepted
from public by eligible companies, prior to or after coming into force of the
2013 Act.

It was held that the term every deposit would mean and
include all previous deposits accepted by a company. Petition u/s. 73(4) was
accepted by the Tribunal for recovery of the deposits. UCo assured the Tribunal
to sell six parcels of land owned by it and use the proceeds for repayment of
deposits. Separately, ROC had started proceedings for prosecution and was
directed by the Tribunal to investigate into the allegations of siphoning off
of funds.

9. Rupak Gupta vs. U.P.
Hotels Ltd., In re

(2016) 71 taxmann.com 158 (NCLT – New Delhi) Dated:
22.06.2016

Section 173 of the Companies Act, 2013 read with Rule 3 of
Companies (Meetings of Board and its Powers) Rules, 2014 – Directors are
entitled to use video conference facility to participate in Board Meetings even
if the intimation for such use has not been furnished at the beginning of the
calendar year.

FACTS

Applicant and his mother (A) were directors on the Board of a
company (UCo) along with R2 and one other independent director (G). R2 and A
were joint Managing Directors. A received a notice on 28.05.2016 for attending
a board meeting scheduled to be held on 04.06.2016. Since A and his mother were
travelling overseas on that date, it was agreed to re-schedule the same on
01.06.2016. A received another notice on 30.05.2016 which further re-scheduled
the meeting to its original date being 04.06.2016. R2 assured that A and his
mother could participate in the Board Meeting through a video conference. On
03.06.2016, A and his mother were denied the permission to attend the meeting
through the video conference and meeting was conducted as per the schedule
without A and his mother being present there.

R2 submitted to the Tribunal that the video conferencing
facility was denied with a view to comply with provisions of Rule 3(3e) of
Companies (Meeting of Board and its Powers) Rules, 2014 (Rule) which requires a
director to intimate his intention of participating in a Board meeting through
video conference facility at the beginning of the calendar year.

In addition to the items specified in the agenda, R2 proposed
to appoint B as an additional director of UCo. G had objected the denial of
video conference to A and his mother as well as appointment of B. Another Board
meeting was scheduled on 22.06.2016 to confirm the minutes of meeting held
previously, as well as to appoint B as a non-executive independent Chairman of
UCo.

A approached the Tribunal to order a stay on the meeting to
be held as well as on operation of resolution passed in the meeting of
04.06.2016.

HELD

The Tribunal noted that R2 had assured to provide the video
conference facility to A and his mother on 30.05.2016 and on the basis of this
assurance, they left for overseas. The said Rule which was cited as a reason
for denial was also in force on the date of providing the assurance. The
Tribunal held that if at all any person backed out from the assurance given,
and if the assured proceeded on that assurance, then such statement was hit by
doctrine of estoppel.

The Tribunal further held that Rule 3 was meant for providing
video conferencing. It was the obligation of the directors convening the
meeting to provide every facility to the directors asking video conference and
enable them to participate in the Board meeting. Sub-rule 3(e) merely provided
that intimations given at the beginning of the calendar year would continue to
remain valid for the entire calendar year. It did not in any way intend that in
absence of such intimation at beginning of the calendar year, directors would
not be entitled to use video conference facility during the year. Owing to the
unfairness in the manner of holding the Board meeting on 04.06.2016, the
Tribunal stayed the operation of resolutions passed therein.

The Tribunal noted that there was a separate
petition challenging the appointment of B and therefore did not direct anything
in that regard.

BCAJ Admin

Ethics and You

Arjun (A) — Hey Bhagawan, I always envy you. You are always
enjoying without any worries !

Shrikrishna (S) — Why? What did I do to enjoy?

A — See, we are slogging here on GST; struggling
to somehow push the returns; and you played ‘Govinda’ dancing on music
with people !

This year you enjoyed the independence
day by breaking the Dahihandi.

S — What you are saying is right ! But it is not
that I enjoyed because it was my birthday. It is my very nature to be cheerful.
That is Karmayoga with detachment that I preached through Geeta to you.
Did you forget it?

A — It is very easy to say so; but you don’t
know our plight in complying with the tax laws. It is a nightmare !

S — I appreciate that. But see my case. I was
born in prison at midnight. If king Kansa had known about my birth, he would
have killed me. Then it was heavily raining. There was a flood in river Yamuna.
In that situation, my father took me across the river and left me at Gokul.

A — Yes, I am aware.

S — Further, right in my early childhood, there
were attacks on my life, from cruel demons! I had a hard life.

A — I know, you had to fight with many Rakshasas
throughout your life.

S — So enjoyment and cheerfulness is my very
nature – ‘Swabhaava’. It does not depend on external factors. You have
to do your karma religiously.

A — That is OK. But here the Government has made
it a total mess ! They are pushing the GST when their own machinery is not
geared up.

S — Arjuna, you have faced many more challenging
situations when you were in exile for 12 years, and when you fought at Kurukshetra
in Mahabharata !

A — That is true; but our Government authorities
are more dangerous and fierceful than those Kauravas. Here, there is
nothing but confusion.

S — Cool, Arjun. Cool down. Things will be
settled soon. You only put in sincere efforts. Start in time.

A — But simultaneously, we have to do tax
audits. That deadline is also approaching. There are festivals in between.
Articles are on leave. I wonder how we are going to manage all this !

S — They will give you enough time. Don’t worry.

A — Don’t tell me. Nowadays, they have stopped
giving extension !

S — Never give up hope. Think positive.

A — Actually, I forgot to tell you one incident
of one lady CA. She is a very average practitioner mainly into traditional
work.

S — What happened to her?

A — She had two new clients. One wanted some big
amount of loan. By coincidence, the other client claimed to be rendering
financial services; arranging for bank-loans and so on.

S — Good. So she introduced one to the other.
Right?

A — Yes. And that person asked for advance fees
by cheque as well as cash for expenses. The client who wanted loan insisted
that he would do this only through this CA lady.

S — Oh ! That’s dangerous.

A — You guessed it right. She collected fees,
issued her receipt; and passed on the amount to the other person through bank.

S — Even cash ?

A — No. That she delivered physically.

She sent email to him saying that she
has passed on to him the full amount. He confirmed it by return email; but with
a little vague wording.

S — That person must have let her down.

A — Absolutely ! He ditched both – the lady as
well as that other client. And both the clients have filed criminal complaints
against each other, dragging the CA also into it.

S — So sad !

A — And on the top of it, he also filed a
complaint to our Institute! Poor lady. She just allowed the amount to be routed
through her hands and is now in deep trouble !

S — That is because she issued a receipt as if
she was going to render the service ! I know, she did it innocently, with
honest intention.

A — So vulnerable our profession is !

S — So, again I tell you; Be very cautious. You
will be signing many audit reports this month. Be proactive. Be clear in
communicating. Don’t risk your own image while accommodating a client. Do
proper documentation. Keep all working papers. Don’t have too much good faith
in others. If there are new assignments, write to the previous auditor
immediately. Ensure, by careful verification and in writing that previous
auditors’ audit fees have been really paid – Get proper appointment letter and
engagement letter.

And………

A — Oh Lord ! You are telling me the entire Code
of Ethics now perhaps for the 50^thtime! I know it by heart.

S — But unfortunately, you don’t follow it and
then succumb to remorse ! It is my duty to tell you, advise you till you get
it. Just as I did it in Geeta.

A — And Bhagawan, I do put your advice in
action most dutifully !

S — True ! But you must follow it more
skillfully for yoga is skill in action! Do your Karma diligently;
perform your part of duty diligently; and the fruit will follow. That is my
duty !

Om Shanti.

The purpose of this
dialogue was to underline the importance of documentation in our work and point
out the vulnerability. Acts done in good faith and to accommodate others may
sometime backfire very badly.

BCAJ Admin

Allied Laws

10. Books of Accounts – Entries in
loose papers – Incriminating materials seized in raids conducted on industries
– Not maintained in the regular course of business – Not admissible [Evidence
Act (1 of 1872), Section 34; Criminal Procedure Code (2 of 1974), Section 156].

Common Cause (A Registered Society) and Ors. vs. Union of
India (UOI) and Ors. AIR 2017 SUPREME COURT 540

There was a raid on some industries by the C.B.I., followed
by another raid by the Income tax Department, which reportedly led to recovery
of incriminating documents.

The Court stated that loose sheets of papers should be in the
form of “Books of Account”. While defining the term ‘books of account’, it
stated that entries in loose papers/sheets are irrelevant and not admissible
u/s. 34 of the Evidence Act, and that, a book is a book of account and such a
book of account should be regularly kept in the course of business.

The Court also stated that the value of entries in the books
of account shall not alone be sufficient evidence to charge any person with
liability, even if they are relevant and admissible. They are only
corroborative evidence. It is incumbent upon the person relying upon those entries
to prove that they are in accordance with the facts.

It was held that loose sheets of papers are wholly irrelevant
as evidence being not admissible u/s. 34 so as to constitute evidence with
respect to the transactions mentioned therein having no evidentiary value.

11. Consumer – Trust not a Person
and hence not a Consumer – Complaint filed under Consumer Protection Act – Not
maintainable. [Consumer Protection Act (68 of 1986); Section 2]

Pratibha Pratisthan and Ors. vs. Manager, Canara Bank and
Ors. AIR 2017 SUPREME COURT 1303

The issue in question was whether a complaint can be filed by
a trust under the provisions of Consumer Protection Act, 1986?

Section 2 (c) of the Act provided for the various reasons why
anyone could file a complaint.

However, a Complainant is defined u/s. 2 (b) of the Consumer
Protection Act, 1986, which states that a complainant could be a consumer, any
voluntary consumer association registered under the Companies Act, 1956, the
Central Government or the State Government, one or more consumers or the legal
heirs of a Consumer.

The inclusion of a trust was not apparent from the bare
reading of the text of the Section.

Section 2(d) defines consumer, where it describes the
activities performed by a ‘Person’, which would term him/her as a consumer. No
mention of a Trust or any other form of person is mentioned.

To have complete understanding, even the definition of
‘Person’ u/s. 2(m) of the Act was considered where it is declared that Person
does not include Trust.

It was then held by the Supreme Court that on perusal of the
above mentioned provisions, it is clear that a Trust is not a person and
therefore not a consumer. Consequently, it cannot be a complainant and cannot
file a consumer dispute under the provisions of the Act.

12. Evidence – Subsequent events
during litigation – Having direct bearing on the issue can be considered by the
Court even if it is brought before the Court for the first time[Evidence Act,
1872; Section 56].

Dinshaw Rusi Mehta vs. State of Maharashtra AIR 2017
Supreme Court 1557

The appeal came up before the Supreme Court out of the Writ
petition filed before the Hon’ble High Court. The brief facts of the issue to
appreciate the matter at hand will show that there was one Public and Charitable
Trust called the ‘Parsi Lying in Hospital’ (PLIH) located in Fort, Mumbai. PLIH
owned a land which had been allotted by the Secretary of State for India, for a
period of 99 years by executing an indenture of Lease, for setting up a
charitable hospital in Bombay.

In the year 1924, PHIL resolved to transfer the said land to
another Public Trust called the ‘Bombay Parsi Punchayat’ (BPP) vide High Court
Order. Insofar as the management of the hospital was concerned, a management
committee used to look after its day to day management. Some Trustees of BPP
were also the Trustees of PLIH.

The hospital continued for a few years and remained closed
for various years for various reasons. The Trust decided to re-start the
hospital in collaboration with one company called the ‘Krimson Health Ventures
Private Limited’(KHPL), which is an expert at running and managing hospitals.

The Trustees applied to the Charity Commissioner, the
approval for which was granted to execute the lease deed and the work to be
started by KHPL.

The Hon’ble High Court dismissed the Writ petition filed
against the approval granted.

The appeal filed before the Supreme Court was against the
order of the High Court.

During the pendency of the
litigation before the Supreme Court, KHPL, in whose favour the land had been
transferred for setting up a new hospital, vide their letter to
BPP/PLIH, informed them of the disinterest of KHPL in continuing the project
for the reasons mentioned in the letter.

It was held by the Court that, since, the subsequent events
brought to the notice of the Court, have a direct bearing over the controversy
involved in the case, they deserve to be taken note of for deciding the appeal
before them.

13.
Property Inheritance – Property from husband or father in law cannot be
alienated by unregistered compromise decree in favour of sister’s son –
Property to revert back to husband’s legal heirs. [Hindu Succession Act, (30 of
1956), Section 15(2)(b); Registration Act, (16 of 1908), Section 17]

Hari Ram and Another vs. Madan Lal and AnotherAIR 2017
PUNJAB AND HARYANA69

An ancestral property which was inherited by 4 sons having
1/4th share each. One of the son’s wife
(Defendant no.2), after the death of her husband, voluntarily executed a decree
in favour of her sister’s son (Defendant no.1) transferring the property to
him.

The other 3 sons (Plaintiffs) contested the said transfer on
the ground that the compromise decree was supposed to be registered u/s. 17 of
the Registration Act, 1908, which was not done. Secondly, in view of section
15(2)(b) of the Hindu Succession Act, the property, after the death of
defendant no.2 (wife), would revert back to the legal heirs of her husband,
since the wife’s sister’s son would not even have the remote chance of
succession and only the successors of the Husband would be entitled to receive
the property in question.

The High Court held that the decree having purportedly
created a legal right in defendant no.2 for the first time. Defendant no.2 did
not have any pre-existing right in the property. The right created for the 1^st
time was of a value of more than Rs.100 and hence was legally required to be
registered, which was not done in the present case. Connectivity of Defendant
no.1 vis-a-vis defendant no.2 being sister’s son having no such remote
chance of succession to the property left by defendant no. 2 was also
established. Hence the order was passed in favour of the plaintiffs.

14. Power of Attorney – No existing
obligation nor any obligation created in favour of agent by the principal – Can
be revoked by principal even if the title suggests document to be irrevocable.
[Power of Attorney Act, (7 of1882, Section 2; Contract Act, (9 of 1872),
Section 202]

Siddareddy Venkatanagaraja Reddy vs. Shahamat Ali Khan AIR
2017 HYDERABAD 59.

The principal (defendant), in order to meet his necessities
and to discharge the liabilities, intended to sell dwelling units including
land apurtenant. The principal being pre-occupied, requested the General Power
of Attorney holder (GPA-Plaintiff) to act for him and on his behalf, to do all
the acts, deed and things necessary and as stipulated under the General Power
of Attorney.

However, the GPA nowhere mentioned that the same is supported by
consideration or with reciprocal remunerative obligation of anything incurred
by the agent. Section 201 of the Contract Act states that an agency is
terminated by the principal by revoking his authority, etc. Section 202
states that, if the agent himself has an interest in the property which forms
the subject matter of the agency, the agency cannot, in the absence of express
contract, be terminated to the prejudice of such interest.

The High Court held that in the present case, as
per the facts, it falls u/s. 201 and not section 202 of the Contract Act, since
there is nothing to show the interest of the agent in the subject matter, i.e.
there was nothing to show any consideration or obligation of the agent involved
to be fulfilled by the principal with any express contract therefrom to make it
irrevocable. Even though the nomenclature mentions it to be irrevocable, the
wording does not make the GPA irrevocable for the principal got always absolute
power to revoke.

BCAJ Admin

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