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Category: Corporate And Other Laws

ETHICS AND U

(Timely communication)

Arjun (A) – Oh God! I am really tired. March is a nightmare!

Shrikrishna (S) – YI know. But you are quite used to such pressures.

A –    I agree. But too many things come at a time.  Advance tax, Service tax, time-barring returns and on top of it, gearing up for bank audits! Attend seminars!

S –    Time-barring returns? Why? They remain pending for two years.

A –    Yes. Our clients simply don’t move. They are lethargic and don’t respond to our calls!

S –    But do you write to them in time?

A –    Who has time to write? We make phone calls. Our staff reminds the clients and their staff. Somehow, writing becomes difficult.

S –    Why? You have technology at your command. You must initiate your action in time, by writing to the concerned people. You need to communicate with the client’s staff as well as with the client directly.

A –    What you say is right. Otherwise, clients keep on blaming us only, for their own lapses. They expect too much from us.

S –    Yours is perhaps the only profession that takes the burden on its own head to remind and follow up with the clients.

A –    You said it!

S –    You develop bad habits for the clients and then keep on crying. This is solely because you don’t communicate in appropriate manner and time! And with appropriate person ! It is the key of success in all walks of life; even in personal life.

A –    True. But we are always doing fire-fighting. There is no peace of mind to sit and write.

S –    That reminds me. You were saying, bank audits will be allotted and you need to gear up for it. But do you write to the previous auditor?

A –    It is allotted by the banks who are Government organisations. Where is the need to take NOC from previous auditor?

S –    You are mistaken. Firstly, there is no requirement of obtaining NOC as such. You have to simply communicate with the previous auditor in writing. That too, before accepting the audit. And the Council has recommended that it should be sent by registered post only.

A –    But even for Government audits?

S –    Of course, yes. It is immaterial who appoints you. I understand that bank branch audits are to be completed within a short time. But you can’t escape the requirement of writing. Also verify whether his undisputed audit fees have been paid.

A –    Oh My God ! Many of us don’t do that. They are under an impression that it is not required for Government audits.

S –    Remember, it is required not only for statutory audit; but for all types of audits – be it concurrent, internal, tax-audits and whatever.

A –    Email won’t do? or courier ? or hand delivery ?

S –    Why do you always think of bypassing the norms? Is it so difficult to send by registered post? If you send by hand, there should be clear proof that the previous auditor has received it.

A –    What if his address is changed?

S –    See, you have to send it to the last known address. And there are many ways of finding out the address, if you really wish.
A –    Anyway. Where else we need to be alert?

S –    Good question. See, Finance Bill is presented in February and it takes effect from April. There are many changes directly affecting your clients. Do you ever take the trouble of preparing a list or a note of provisions affecting your clients.

A –    Actually, so much literature is available. Why do the same effort?

S –    My dear Arjun, how many clients will understand what is relevant for them? There is so much of material; but one has to give them tailor-made suggestions. One has to pin-point what action and caution he should take. And also explain the gravity.

A –    I understand. It is always good to educate the clients.

S –    Not only clients; but your own staff and articled trainees. Do you ever take any trouble of training your own team? Otherwise, how will they perform well? How will they deliver what is expected of them?

A –    I agree, Lord !

S –    And remember, you have to do it now. Well in time !
A –    But many of our articles are on leave these days for their exams. That is another trouble.

S –    But you can do it as soon as they resume working.

A –    Good that you told this. I will plan it properly during this May. Ours is a group of CA firms. I will share this idea with them so that there will be many articles who can benefit.

S –    Good. But do it in time. You need to be proactive. Timely planning and communication is in your own interest. And a trained staff can make your life simpler.

A –    Yes, My Lord. I will try to inculcate this habit. Otherwise, things will go beyond our control; and every year, same stress will continue. Namaskar to You.

S –    You are blessed!

Om Shanti.

Note:This dialogue is based on clause 8 of part I of First Schedule to the CA Act; and also underlining the importance of timely communication.

Allied Laws

1.    Advocate – Duty of Advocate – Bring to the notice of the Tribunal, any pendency of appeal filed in the Supreme Court and other material facts – Non-disclosure leads to obtainment of the Tribunal’s order by fraud – Void-ab-initio.[Central Excise Act, 1944, Section 35C(2)]

Dewsoft Overseas (P) Ltd. vs. Commissioner of Service Tax, New Delhi 2016 (341) E.L.T. 321 (Tri – Del.)

As per facts on record, the dispute related to classification of the services provided by the appellant. The Tribunal vide its Final Order, by adopting the Larger Bench decision in the case of Great Lakes Institute of Management Ltd., rejected the appeal on merits. Thereafter, the said order of the Tribunal was appealed against by the appellant before the Hon’ble Supreme Court, who vide their order, granted leave to appeal in the matter. It is seen that the Hon’ble Supreme Court was also pleased to grant stay of recovery of penalty, subject to the appellants depositing the service tax along with interest within a period of two months.

Prior to the filing of appeal before the Hon’ble Supreme Court, the appellant had also moved an application for rectification of mistake before the Tribunal in terms of section 35C(2) of the Central Excise Act, 1944 on the ground that the Tribunal disposed of the appeal only on merits and did not consider the plea of limitation raised before it. It was contended that the non-consideration of limitation issue amounted to mistake on the part of the Tribunal, thus requiring rectification. The fact of filing of application for rectification before the Tribunal was also disclosed before the Hon’ble Supreme Court in the memo of appeal filed before the Hon’ble Apex Court.

The Assessee failed to bring to the notice of the Tribunal during the course of proceedings of the Miscellaneous Application, about the pendency of the appeal filed by the Assessee in the Apex Court. The Assessee had also failed to produce the material fact about the payment of service tax done on the directions of the Apex Court.

The Revenue’s case is limited to the point that the order of the Tribunal was obtained by fraud since the material facts were not disclosed before the Tribunal by the Assessee, even after being aware of the same, since the same law firm was handling the matter in appeal before the Supreme Court.

It was held by the Apex Court that the Advocate was under legal duty to bring to the notice of the Bench, at the time of disposal of Miscellaneous application, the above factual developments irrespective of the fact as to whether the Tribunal in that case would have decided or not decided the Miscellaneous application. It is a well-settled principle that one who comes to the Court seeking justice must come with clean hands. The fraud vitiates everything and the fact of non-disclosure of the order of the Hon’ble Supreme Court has the effect of making the order in Miscellaneous Application void ab initio.

Intentionally or unintentionally, the fact remains that the Bench was not appraised of the order of the Hon’ble Supreme Court. Non-disclosure of the relevant facts and obtaining of a favourable order by not bringing the relevant facts to the notice of the Bench abuses the due process of law and vitiates the very order so obtained. As such, the Court deemed it fit to recall the order passed.

2.    Document – Memorandum of Partition – Creating or affecting the rights of any party – Required to be mandatorily registered – If unregistered – Inadmissible as evidence [Contract Act 1872, Section 8; Registration Act 1908, Section 17; Stamp Act 1899, Section 35]

Bhanwari Devi vs. Arvind Kumar and Ors. AIR 2016 RAJASTHAN 198 (Jaipur Bench)

Brief facts stated that a suit was filed by the petitioner for possession of the property on the ground that a property along with other properties came into the possession of the petitioner’s father-in-law, as a result of a family settlement between her father-in-law and the father-in-law’s son.

However, it was contested by the defendant-respondent that the document in question cannot be presented as evidence as it was not registered and no stamp duty had been paid.

The question to be resolved by the Hon’ble Court was whether the said document was a mere memorandum of the partition already done, stating the events which is factual in its nature, and would be an admissible evidence? Or whether the document was in the nature of giving rise to a title or right or any extinguishment of a right, by itself, hence attracting the provisions of the Registration Act, 1809, whereby the registration was compulsory and in case of non-registration, could not be admissible as evidence in the court of law?

The Court held that from the language used in the document, the court was convinced that the document was not merely a memorandum or record of a prior partition/family settlement/family arrangement but it was an instrument of partition requiring compulsory registration and for want of registration it was inadmissible in evidence and it could not be admitted in evidence.

3.    Ejusdem Generis – Principle cannot be applied ignoring the natural meaning of the words used by the Legislature. [West Bengal Value Added Tax Act, 2003; Section 2(11)]

Tata Motors Finance Limited, ICICI Bank Limited and Family Credit Limited and Another vs. Assistant Commissioner of Sales Tax, Joint Commissioner of Sales Tax and Assistant Commissioner of Sales Tax Salt Lake Charge and Others [2016] 88 VST 227 (Cal) (HC)

Petitioners were a banking company and non-banking finance company. Petitioners granted loans to persons intending to purchase vehicles against hypothecation of vehicles by way of security under loan-cum-hypothecation agreements. The Tribunal held that Petitioners were dealers as per definition u/s. 2(11) of the West Bengal Value Added Tax Act. Hence, the present Petitions.    

The question which required consideration by the court was, whether in respect of disposal of vehicle for recovery of loan, petitioners were liable for tax as dealers as per definition in section 2(11) of Act?

Under section 2(11), the term ‘Dealer’ was defined as under:

“‘Dealer’ means any person who carries on the business of selling or purchasing goods.
(b) Government, a local authority, a statutory body, a trust or other body corporate…etc”

Since the section was clear, the principles of Ejusdem Generis need not be resorted to.

It was held by the Court that the word used in clause(b) particularly the word “a trust” does not appear nor was shown to have anything in common with the preceding word “a statutory body”. Similarly, the word “body corporate” was not shown to have any common characteristic with the preceding word “trust”. The theory of ‘ejusdem generis’ cannot be applied in construing clause(b) of sub-section11 of section 2 of the aforesaid Act.

4.    Precedent – Reference made by the co-ordinate bench to a larger bench – Would not amount to stay of earlier verdict – nor would it amount to the earlier verdict being inoperative. [Constitution of India, Article 141; Section 140, Section 163A, Motor Vehicles Act, 1988]

New India Assurance Co. Ltd. vs. Vinod C.s. & Ors.air 2016 (Noc) 766 (H.p.)

The main issue was whether a person would be entitled to take shelter u/s. 163A of the Motor Vehicles Act, 1988, where the person involved in the accident, was a victim due to his own rash and negligent actions or due to someone else’s acts or some other reason.

Various cases were cited before the Honourable Court wherein the issue that under sub-section (4) of section 140, there is a specific bar, whereby the concerned party (owner or insurance company) is precluded from defeating a claim raised u/s. 140 of the Act, by ‘pleading and establishing’, ‘wrongful act’, ‘neglect’ or ‘default’, but there is no such or similar prohibiting clause in section 163A of the Act. It was mentioned that the earlier verdict was not accepted by the later bench and hence was placed before the learned Chief Justice of India for referring the matter to a larger Bench for a correct interpretation of the scope of section 163A of the Motor Vehicles Act, 1988.

It was held by the High Court that merely because a verdict of the earlier bench is doubted by a subsequent co-ordinate bench, the earlier order does not become inoperative. It would also not amount to stay of the earlier verdict.

Unless and until the earlier decision is varied, it remains intact and the reference made by the subsequent co-ordinate bench cannot have any adverse consequence insofar as the declaration of the law is concerned.

Company Law

1. The Companies (Registration Offices and Fees) Second Amendment Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 7th December 2016 amended the Companies ( Registration Offices and Rules), 2014 whereby the Form AOC-4 ( Filing of Balance Sheet) can be certified by the Chartered Accountant or the Company Secretary or as the case may be by the Cost Accountant, in whole- time practice.

Filing Fees for Allotment of a Director’s Identification Number (DIN) is Rs. 500/- and for surrender of DIN is Rs. 1,000/-

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesRegistrationOffices2ndamdRules_08112016.pdf

2. Clarification regarding due date of transfer of shares to IEPF Authority

The Ministry of Corporate Affairs has vide Notification dated 7th December 2016 has issued clarification regarding the due date of transfer of shares to Investor Education & Protection Fund (IEPF) informing that the simplification of transfer process and extension of due date for the transfer are under consideration and are likely to be revised.

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/Gcircular15_08122016.pdf

3. Commencement of Certain Sections of Companies Act 2013 Notification :

The Ministry of Corporate Affairs has vide Notification dated 7th December 2016 notified that the following sections of the Companies Act 2013, as listed in the table, shall come into force with effect from 15th December 2016:

Section

Pertains to

1.    Section 2(23)

Definition of Company
Liquidator

2.    Clause (c) and (d) of sub-section (7) of section 7

Pertain to affidavit and
registered office address while Incorporating a Company

3.    Sub-section (9) of section 8

Pertains to assets remaining
on winding up / dissolution of Companies formed for Charitable objects etc

4.    Section 48

Pertains to Variation of
Shareholders’ Rights

5.    Section 66

Pertains to Reduction of
Share Capital

6.    Section 224 (2)

Actions to be taken in
pursuance of Inspectors Report

7.    Section 226

Voluntary Winding Up of
Company etc, not to stop investigation proceedings

8.    Section 230 [except sub-section (11) and (12)], and Sections
231 to 233

Power to compromise or make
arrangements with creditor and members, mergers and amalgamation and other
related matters

9.    Sections 235 to 240

Power to acquire shares of
shareholders dissenting from scheme or contract approved by majority and
other matters for compromise, merger and amalgamation

10.  Sections 270 to 288

Winding up and matters
related thereto

11.  Sections 290 to 303

Powers and duties of Company
Liquidator and other matters related thereto and to winding up

12.  Section 324

Provisions for all types of
winding up –debts of all description to be admitted to proof

13.  Sections 326 to 365

Other Provisions for all
types of winding up

14.  Proviso to section 370

Continuation of pending
legal proceedings for Part 1 Companies

15.  Sections 372 to 373

Power of court to stay or
restrain proceedings and suits stayed on winging up order for Part 1
companies

16.  Sections 375 to 378

Winding up of Unregistered
Companies

17.  Sub-section (2) of section 391

In case of Companies
incorporated outside India, provisions of Chapter XX (winding Up) would apply
for closure of its business place in India

18.  Clause (c) of sub-section (1) of section 434 

Transfer of pending
proceedings under Companies Act 1956 would stand transferred to Tribunal from
the stage before the transfer
The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/commencementnotif_08122016.pdf

4. Companies (Removal of Difficulties) Fourth Order, 2016.

The Ministry of Corporate Affairs has vide Order No 3676 (E ) dated 7th December 2016 issued the Companies (Removal of Difficulties) Fourth Order, 2016. It has inserted the following provisos to after the proviso to section 434(1)(c ) pertaining to Transfer of certain proceedings:

“Provided further that only such proceedings relating to cases other than winding-up, for which orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall be transferred to the Tribunal: Provided further that –

(i) all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; or

(ii) the proceedings relating to winding up of companies which have not been transferred from the High Courts; shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959”

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesROD_08122016.pdf

5. Companies (Transfer of Pending Proceedings) Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 7th December 2016 under sub-sections (1) and (2) of section 434 of the Companies Act, 2013 (18 of 2013) read with sub-section (1) of section 239 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) issued the Companies (Transfer of Pending Proceedings) Rules, 2016.

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesTransferofPending_08122016.pdf

6. Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 :

The Ministry of Corporate Affairs has vide Notification dated 14th December 2016 issued the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 which have come into force with effect from 15th December, 2016.

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/compromisesrules2016_15122016.pdf

7. National Company Law Tribunal (Procedure for Reduction of Share Capital of a Company ) Rules 2016 :

The Ministry of Corporate Affairs has vide Notification dated 15th December 2016 notified the rules for National Company Law Tribunal (Procedure for Reduction of Share Capital of a Company) u/s. 66 of the Companies Act, 2013

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/NCLTRules2016.pdf

8. National Company Law Tribunal (Amendment) Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 20th December 2016 issued the National Company Law Tribunal (Amendment) Rules, 2016.

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/NCLT(Amendment)Rules_21122016.pdf

9. Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 26th December 2016 issued the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016. The rules provide that

i. the Registrar of Companies may suo moto remove the name of a company from the register of companies in terms of section 248(1) of Companies Act 2013 or

ii. an application for removal of name of the company u/s. 248 (2) of Companies Act 2013 shall be made in Form STK-2 for a fee of Rs. 5,000/-

Every application shall accompany a no objection certificate from concerned Regulatory Authority, if any and the application is to be in Form STK 2. Attachments to the Form are

a. indemnity bond duly notarised by every director in Form STK 3;

b. a statement of accounts containing assets and liabilities of the company made up to a day, not more than thirty days before the date of application and certified by a Chartered Accountant;

c. An affidavit in Form STK 4 by every director of the company;

d. a copy of the special resolution duly certified by each of the directors of the company or consent of seventy five per cent of the members of the company in terms of paid up share capital as on the date of application;

e. a statement regarding pending litigations, if any, involving the company.

Any application or pending proceeding for striking off or Form-FTE filed with the Registrar of Companies 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.

The Ministry of Corporate Affairs has clarified vide General Circular 16/2016 dated 26th December 2016 that the Form STK-2 would be available soon.

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/Rules_28122016.pdf

10. The Companies (incorporation) Fifth Amendment Rules 2016

The Ministry of Corporate Affairs has vide its Notification dated 29th December 2016 issued The Companies (incorporation) Fifth Amendment Rules 2016 which have come into effect on 1st January 2017. The application for incorporation of a Company is required to be made in Form INC-32 (SPICe) alongwith e-Memorandum of Association in Form INC-33 and e-Articles of association in Form INC-34. In case of incorporation of a section 8 Company (Companies with Charitable Objects) the Form INC-32 (SPICe) alongwith e-Memorandum of Association in Form INC-13 and e- Articles of association in Form INC-31.

The eform INC-2 has now been removed and Form INC-7 is only for incorporation of Companies under Part 1 and Companies with more than 7 subscribers.

Full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/5th_Amendment_Rules_29122016.pdf.

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

102. 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.

103. 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 the limits and entry routes
mentioned above.

(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      

9.3.1

Other Conditions

 

 

 

        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

 

104.  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.

105.  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.

ETHICS AND U

Arjun (A) — Hey
Shrikrishna, all these years I believed that YOU make sure that there is rule
of justice in the world! But…….

Shrikrishna (S) — Yes, Arjun.
‘But’ what?

A —    Now,
I have grave doubts about it! You had said everybody gets the fruits of his
deeds – his karmas.

S —    Yes.
That’s right.

A —    And
you also said that a person is himself responsible for his own progress or
downfall.

S —    Correct.

A —    And
further; I also remember you saying – a person is his own friend and his own
foe! Right?

S —    Absolutely!
Hundred per cent marks to your memory!

A —    But
then, I find that our CA friends are suffering due to misdeeds of others.

S —    Why?
What happened?

A —    See,
my friend is practicing for the past 20 years. Totally unblemished track
record!

S —    This
is a bold statement. It only means that his lapses have not been exposed so
far!

A —    Whatever
you may say. But so far he never had any problem.

S —    Good.

A —    He
signed one company’s audit for one year in good faith.

S —    What
do you mean by good faith? One should never certify any accounts merely on
faith; unless one verifies it.

A —    Actually,
his friend said, he has exhausted the limit of number of companies that one can
audit. He said, this was a group company and he had seen everything.

S —    Oh!

A —    Now,
the directors of that company misused his signature. No doubt, he signed for
one year; but directors uploaded the balance sheets of 3 or 4 subsequent years
to ROC as if my friend had signed them.

S —    Strange!

A — And
later on it was revealed that the management was totally fraudulent. They had
formed many companies, got them listed on stock exchanges and did a lot of
financial irregularities. All documents were fabricated!

S —    So,
what happened to your friend?

A — Somebody
made a complaint to our Institute saying that he relied on these balance sheets
and was duped!

S —    Naturally.
Anybody would do that if he has suffered.

A —    No.
The funny part is that the complainant also turned out to be a fraudulent
person. Both the complainant as well as the chairman of the company were behind
bars!

S —    Good.
I told you that everybody gets the fruits of his karma. Each one of them
became the enemy of himself. So, what I told you in Mahabharata was true!

A —    Yes.  But why should my friend suffer? He was
unnecessarily dragged into the disciplinary case. He did not even receive his
fees!

S —    How
do you say ‘unnecessarily’?

A —    Of
course! Both the parties were criminal. How is auditor answerable? What is his
mistake?

S —    Arjun,
just think for a while. Is it not a fact that he signed the audit papers?

A —    Yes.
But only for one year.

S —    OK.
But for that year, had he checked the books and records properly?

A —    But
it was fraud!

S —    So
what? Did he write to the previous auditor? Did he check up validity of his
appointment? Did he upload necessary forms like form ADT 1 to ROC? Did he
obtain management representation letter? Clause 7 of Second Schedule clearly
covers both – gross negligence and lack of due diligence.

A —    No.

S —   
Then! See my dear, God helps the diligent.

A — That
means he was duped by his friend. I believe, that friend is also facing
complaints.

S —  I
told you many times. Your Council is concerned with your conduct; not anybody
else’s. Have you acted diligently as a professional? What prevented you from
refusing to sign?

A —  Temptation!
And also the faith in the friend!

S —   That
is very common among all professionals. Rather, it is human instinct.

A — Actually,
the management promised to help him in the proceedings. They said they would
take care. But now they backed out. They are themselves in difficulty! It had
come in the press also.

S —    That’s
what I am saying. Your friend may not be involved in the fraud. But did he
inform police about forgery or all these happenings?

A —    He
was so afraid! He said both the parties are criminal.

S —    Whatever
it is. But he has to face the music. It will be better if he pleads guilty. At
least, his case may be considered sympathetically. Confession often helps.

A —    Can
he be absolved?

S —    Difficult.
He may be held guilty of misconduct; but punishment may be soft if he comes out
clean.

A —  Yes,
Lord! I take back my words. This is a good lesson to all of us. We cannot claim
to be totally innocent. It is a breach of duty as a CA. There is no point
blaming others.

S —    So
then, I am sure, you will take care.

A —    Yes
Lord! Please protect me.

S —    Tathastu.

Om Shanti.

Note:

The above dialogue is based on Clause (7) of
Part I of Second Schedule. Once again, it emphasises how we professionals take
certain assignments only on good faith and take various aspects for granted.
Shri Krishna, in the above dialogue has rightly pointed out – ‘God helps the
diligent’.

Allied Laws

19. 
Appellate Tribunal – Reasoned Order – Order should refer to all factual
aspects, rival contentions and legal provisions – Reasons to be assigned for
the basis of any conclusion reached. [Section 254(1)]

Gandhar Oil Refinery vs. Commissioner of Customs (Import)
2016 (342) E.L.T. 31 (Bom.) (HC)

The Tribunal, in the present case had, not beyond one
paragraph, adverted to factual exercise and no details had been mentioned.

The High Court held that the Tribunal should focus on the
core issue, must refer to all factual matters, including any findings by the
laboratories after a test of the samples, the rival contentions and whether the
legal provisions, including, the Rules having a bearing or impact on the same
should be clearly indicated. The Tribunal must assign reasons for the
conclusion it reaches either way.       

20. 
Contempt of Court – Serious and unsubstantiated allegations of
corruption and bias against Judiciary – Cannot be termed as Fair Criticism –
Affidavits filed for apology not deemed bonafide – Imprisonment upto 6 months
and upto Rs. 2,000 fine for contempt. [Contempt of Courts Act, 1971; Sections
2(c), 5, 12]

Het Ram Beniwal And Others vs. Raghuveer Singh And Others
Air 2016 Supreme Court 4940

The 4 appellants, of whom 2 were advocates, addressed a huge
gathering of their party workers in front of the Collectorate, when some of the
accused were granted anticipatory bail, who were allegedly involved in the
murder of a prominent trade union activist.

While addressing the gathering, the appellants made
scandalous and derogatory statements against the High Court and its Judges
stating how the system of Judiciary failed in rendering justice and people have
lost their faith and confidence in the Judiciary, the rule was of the Rich
People in the Judiciary and that there was the influence of money behind the
anticipatory bail of the accused.

The appellants, when questioned in Court by filing a
petition, contented that the statements only attributed to ‘Fair Criticism’
which would not amount to Contempt of Court as mentioned in section 5 of the
Contempt of Courts Act, 1971, which states that Fair Criticism of Judicial act
was not contempt. It was also contended that Criticism of class bias and
improper administration of justice cannot be considered to be contempt.

The Ld. Amicus Curiae, assisting the Court, submitted
that vituperative comments undermining the Judiciary would amount to contempt
and that, an apology through an Affidavit was made only for the purpose of
avoiding punishment and was not bonafide.

The Supreme Court in the current case held that Judges need
not be protected and that they can protect themselves but it is the right and
interest of public in the due administration of justice that have to be
protected. Vilification of Judges would lead to the destruction of the system
of administration of justice. The statements of the appellants are not only
derogatory but also have the propensity of lowering the authority of the Court.
Accusing Judges of corruption results in denigration of the institution which
has an effect of lowering the confidence of the public in the system of
administration of justice. Hence, the appellants are not entitled to take
shelter u/s. 5.

The Court also states that every citizen has a fundamental
right to speech, guaranteed under Article 19 of the Constitution of India.
Contempt of Court is one of the restrictions of such right.

Dismissing the appeal, the court subjected the appellants to
an amount of Rs.2,000/- only as fine without any imprisonment.

21. 
Family – The term ‘family’ includes a married daughter for her to have a
right to evict the tenant from the building [Regulation of Letting, Rent and
Regulation Act, 1972; Section 3(g)].

Gulshera Khanam vs. Aftab Ahmad Air 2016 9 Supreme Court
414

Dr. Ahsan Ahmad was the
original owner of the building who died intestate. On his death, the entire
estate devolved upon his wife(appellant), 2 sons and 4 daughters as per the
shares defined in the Hanafi Law of Inheritance. Dr. Naheed Parveen being the
daughter, received her share accordingly and became the co-owner along with
other co-sharers.

Section 3(g) of the Regulation of Letting, Rent and
Regulation Act, 1972 clearly states in sub-section(iii) that “family includes
any unmarried or widowed or divorced or judicially separated daughter or
daughter of a male lineal descendent as may have been normally residing with
him or her” which clearly shows the intention of the legislation to exclude a
married daughter from the purview of the definition of ‘Family’ as defined under
the Act.

However, the Supreme Court took a different view by
interpreting the lines included in section 3(g) which are stated in the end as,
“and includes, in relation to a landlord, any female having a legal right of
residence in that building”. It was held that since the daughter got a legal
right in the building in the form of a share devolved on her as per the
Mohamedan law i.e. the Hanafi Law of Inheritance, the term ‘Family’ includes a
Married daughter.

22.  Interpretation-Binding precedents – If two
decisions of Supreme Court, being contrary to each other, are passed – The
later decision will be binding. [Sick Industrial Companies (Special Provisions)
Act, 1985; Section 22]

A.K. Mohta vs. Karnataka State Financial Corpn. [2016] 198
Comp Cas 286 (Karn.)(HC)

The issue was w.r.t. whether guarantors can be protected from
legal ‘proceedings’ whereas the section clearly mentions the word ‘suit’
against which the guarantors could claim protection u/s. 22 and not against
‘proceedings’.

Relevant portion of the section states, “and no suit for the recovery of money or for the
enforcement of any security against the industrial company or of any guarantee
in respect of any loans or advance granted to the industrial company”.

The court had placed reliance on one Supreme Court case law
(2003) where it stated that Legislature appeared to have knowingly used two
differently expressions in section 22(1) w.r.t. ‘proceeding’ and ‘suit
wherein the expression ‘proceeding’ would not include the expression ‘suit’ and
vice versa w.r.t to protection of Guarantors under the said Act.

The counsel however,
relied upon one Supreme Court Judgment (2007) which held that section 22(1)
would have to be interpreted to include the expression ‘proceeding’ also in
view of the legislature’s intention to protect the sick industries.

A peculiar fact was that, the earlier decision had not been
taken into consideration for the purpose of arriving at the judgment passed by
the Supreme Court in the later year (2007) and a larger bench did not have an
occasion to lay down the correct position of law.

The High Court in the current case held that if two decisions
of the Supreme Court on a question of law cannot be reconciled and if both
Benches of the Supreme Court consist of equal number of Judges, the later of
the two decisions should be followed by the lower Courts/Authorities.

23. Interpretation – Binding
precedents – Binding  effect of order –
Order even if void, would continue to be in force until set aside by court of
competent jurisdiction.

Anita International vs. Tungabadra Sugar Works Mazdoor
Sangh and Ors. (2016) 9 Supreme Court Cases 44

It was held that parties to lis(a suit pending) or any
third party cannot themselves determine the voidness of any order without
approaching a competent court for setting it aside since not following the same
would amount to disobedience of court’s order which would entail punishment.

The Hon’ble Supreme Court held that even if the
order/notification is void/voidable, the party aggrieved by the same cannot
decide that the said order/notification is not binding upon it. It has to
approach the competent court for seeking such declaration. The order may
hypothetically be a nullity and even if its invalidity is challenged before the
court in a given circumstance, the court may refuse to quash the same on
various grounds including the standing of the petitioner or on the ground of
delay or on the doctrine of waiver or any other legal reason.

Allied Laws

15 Arbitral Tribunal –
Arbitration clause can be read separately from the Agreement – Agreement should
at least be stamped. [Arbitration and Concilliation Act, (26 of 1996); Section
16(1)(a)]

Baleshwar Sharma vs. Nageshwar Pandey AIR 2017 DELHI 84

The issue involved in the matter was whether an arbitrator
can be appointed as per the clause mentioned in the MOU involving a property
situated in Goa. However, the validity of the MOU along with the legality
w.r.t. the MOU being non-registered was challenged by the Respondent.

The Delhi High Court held that the issue to be considered by
the Court was whether the MOU dated 24th May, 2014, is required to
be duly stamped and registered for the Court to further proceed in the matter.
If the document is not required to be compulsorily registered, then the Court
can proceed to appoint an Arbitrator and leave all the questions regarding the
validity of the MOU to be decided in the arbitral proceedings. If, on the other
hand, the Court is of the view that the document is required to be compulsorily
registered, then clearly the Court will have to insist with the requirement of
the law being complied with.

First, there has to be a determination as to the stamp duty
payable on the MoU in question. Thereafter, the question of registration of
that document would arise.

It was held that having regard to
section 16(1)(a) of the Arbitration and Conciliation Act, the Court can delink
the arbitration agreement from the main document as an agreement independent of
the other terms of the document. The only exception would be if the Respondent
in the application demonstrates the agreement itself is void and unenforceable.
It is at that stage that the Court will consider the objection before
proceeding to appoint an Arbitrator. In the facts of the present case, it was
held that the MOU be sent to the Collector of Stamps of Goa for a proper
determination of the stamp duty payable thereon. Once the stamp duty and
penalty so determined is paid by the Petitioner to the concerned authority in
Goa in the manner as prescribed, the Court will take up further issues
including whether the said document is forged or fabricated as contended by the
Respondent, and further whether, if the answer to the said question is in the
negative, the said document requires compulsory registration. The petitions
were accordingly adjourned sine die.

16
Ex-Parte decision – Factual Position not considered – Original Authority
has decided ex-parte cannot operate as estoppel and the
Department cannot refuse to consider the factual position. [Constitution of
India, Art. 226]

Raagam Exports vs. Assistant
Commissioner of Customs, Tirupur 2017 (347) E.L.T. 249 (Mad.)

The issue faced by the
Hon’ble Madras Court was whether the dismissal of the petitioner’s appeal as
not maintainable by the Commissioner (Appeals) would disentitle the petitioner
to the relief sought for. Secondly, whether the Department could refuse to consider
the petitioner’s case when admittedly the Original Authority did not examine as
to whether the Bank Realization Certificate (BRC) was submitted within the time
permitted.

Even though the show cause
notices were received, the petitioner did not respond to the show cause
notices, resulting in an order of recovery of drawback in Order-in-Original.

Challenging the said order, the
petitioner preferred an appeal before the Commissioner (Appeals) and in the
memorandum of grounds of appeal, the petitioner specifically contended that
they had submitted all the original BRC to the Deputy Comm. and therefore the
entire demand is not sustainable.

However, it was contended that the appeal preferred was
time-barred and hence not maintainable. The net result being the order of the Original Authority having been confirmed, the
petitioner is not entitled to the relief sought for.

It was held commenting upon the non-submission/belated
submission of the BRC, that it should be held to be without jurisdiction, since
the Commissioner (Appeals) could not have rendered the findings on merits when
the appeal itself is held to be not maintainable.

Secondly, since the Original Authority proceeded ex parte and
concluded that the petitioner has not produced the BRC, it is clear that at no
point of time, the petitioner’s case was adjudicated by the authority to
ascertain as to whether the BRC was produced by the petitioner. Therefore,
merely because the Original Authority has decided ex-parte cannot
operate as estoppel and the Department cannot refuse to consider the
factual position, especially when the petitioner has prima facie
established before this Court that they have produced the BRC before the
concerned authority. Hence, the High Court held that the finding rendered by
the Commissioner(Appeals) as well as the respondent, the petitioner’s request
for considering their drawback claim should be independently adjudicated by the
authority.

17 Gift Deed – Transfer
without prior partition through valid documents – Invalid and void [Hindu Law,
Registration Act 1908; Section 17].

Sabitri Devi and Ors. vs. Lakhan and Ors AIR 2017 PATNA 85

The only issue that arose was whether a Joint family property
can be transferred via a gift deed, when there is partition done through
an unregistered document.

The plaintiff filed the simple suit for partition claiming
half share in the suit property. The defendant’s case is that there had been
partition between the parties earlier during the lifetime of Laldas (Defendant).

It was held by the Patna High Court that so far as genealogy
is concerned, there is no dispute. According to Hindu law, the family will be
presumed to be joint unless it is proved that there was partition. Since the
presumption is in favour of the plaintiff, it is for the defendants to adduce
reliable evidence in support of their case that there had been partition
between the parties by metes and bounds. Both the parties have adduced their
respective evidences in support of their cases.

Considering the documentary evidences i.e. the Dajbandi,
it is recited that the parties by the following Dajbandi i.e., separate takhta
came in possession and they are entitled to get their names mutated. Therefore,
the Dajbandi clearly speaks that partition was effected by separating
the lands by Dajbandi and the parties came in possession and this
document is evidencing this Dajbandi i.e. partition. The parties got
their separate possession and are entitled to mutate their names, it cannot in
any way be termed as memorandum of partition. Rather, it is a partition deed
and by this deed i.e. Dajbandi, the partition was effected by metes and
bounds. It is a settled principle of law that a document by which partition is
effected is compulsorily registrable and if it is not registered, then it is
inadmissible in evidence.

Now, if the Dajbandi i.e. documentary evidence adduced
by the defendants goes i.e. inadmissible and, therefore, cannot be looked into
nor can be considered, there is no other evidence to prove that there had been
previous partition. Moreover, as stated above, no other mode of partition has
been pleaded by the defendant.

So far as the gift deed is concerned, it was held by the
Hon’ble Court that, since there had been no partition between the parties and
there is unity of title and possession, so, the coparcener cannot transfer by
way of gift his share without the consent of the other coparcener. Since there
was unity of title and possession between the parties and there had been no
partition, the so-called gift deed, even if executed by Laldas, is a
void document and no valid title, interest and possession will pass on the
defendants.

18 Tribunal – Manner of
Disposal – Not to be in a manner to have more disposal but to have better
adjudication. [Central Excise Act, 1944; Section  35B, Section 35C]

Madhusudan Industries Ltd.
vs. Union of India 2017 (347) E.L.T. 249 (Mad.)

The only issue was whether the
Tribunal could dismiss the appeal on the ground that the annexures accompanying
the Memorandum of Appeal were not legible.

It was pointed out by the Petitioner that in the facts of the
present case, at the relevant point of time, the petitioner had submitted all
the relevant documents on which it proposes to rely upon. However, due to lapse
of time the documents have faded. It was submitted that fading up of the
documents on account of lapse of time would not be tantamount to the petitioner
not having produced the documents on which it places reliance.

It was submitted that in any case, on account of
non-production of the documents, at best, the Tribunal can draw an adverse
inference but the appeal cannot be dismissed on the ground of
non-maintainability.

The Hon’ble Court, while
holding that the interim relief granted by the Customs, Excise and Service Tax
Appellate Tribunal shall continue, the Hon’ble Court also stated that it is
hoped that the Tribunal shall keep in mind the fact that the Courts and the
Tribunals are respected for the matters which they adjudicate and not the
matters which they dispose of. While the Tribunal is required to endeavour to
decide as many cases as possible, disposal of appeals in such a cavalier
fashion would only give rise to more litigation and would not bring an end to
the same.

Video Conference – Permissibility – Request for video conference
by witness or party. [Code of Civil Procedure, 1908 – Rule 3, Rule 4]

International Planned Parenthood Federation (IPPF) vs.
Madhu Bala Nath AIR 2016 DELHI 71

In the present case, an application was filed under Order
XVIII Rules 3 & 4 of the Code of Civil Procedure for permitting the
recording of the statement of a witness through video conferencing.

This application was
rejected by the learned Single Judge on the reason that a witness who is a
resident of U.K simply feels that witness need not come to India in judicial
proceedings for recording of evidence. This is an unacceptable practice, more
so when admittedly the witness as per the statement made today before this
Court on behalf of counsel for the defendant is travelling over the world to many
countries/locations.

It was argued by the opposing counsel that video-
conferencing could not be allowed as the rights of an accused, under Article 21
of the Constitution of India, cannot be subjected to a procedure involving
“virtual reality”. Such an argument displays ignorance of the concept
of virtual reality and also of video-conferencing. Virtual reality is a state
where one is made to feel, hear or imagine what does not really exist.
Video-conferencing has nothing to do with virtual reality.

It was held by the Hon’ble
Court that the learned Single Judge, in the impugned order, has taken a very
narrow view of the matter. Merely because a witness is travelling over the
world and/or may have the financial resources to travel to India does not necessarily
imply that the Court must insist upon the witness personally coming to the
Court for the purpose of deposing before the Court and/or her
cross-examination.

The term
“personally”, if given a strict and restrictive interpretation would
mean that the accused had to be physically present in court. In fact, the
minority judgement in this case so holds. It has, however, been held by the
majority that the section had to be considered in the light of the
revolutionary changes in technology of communication and transmission and the
marked improvement in facilities for legal aid in the country. It was held, by
the majority, that it was not necessary that in all cases the accused must
answer by personally remaining present in court.

There may be circumstances or situations where physical presence of a
witness may be necessary and required by the Court. In such situations, it
would be obligatory on the witness to be present in Court. Where a witness or a
party requests that the evidence of a witness may be recorded through video
conferencing, the Court should be liberal in granting such a prayer. There may
be situations where a witness even though within the city may still want the
evidence to be recorded through video conferencing in order to save time or avoid
inconvenience, and the Court should take a pragmatic view.

In the present case, the request was felt to be
reasonable and the the view that the learned Single Judge erred in dismissing
the application.

Ethics and U

fiogf49gjkf0d

Arjun (A) — O’Lord, I am very much disturbed today.

Shrikrishna (S) —Why? What happened?

A — I really wonder how to protect myself in the profession!

S — I have been telling you what precautions you need to take. Eternal vigilance, dear Arjuna, eternal vigilance!

A    — I have lost my sleep!

S — Your motto is Ya Esha Supteshu Jagarti. He who is awake when the world around is asleep.

A    — That I know. So long as I am physically awake, I have to be alert, do everything diligently with open eyes. That I understand.

S — Right. Speak the truth; do your duties religiously and never commit default in continuous studies. Not merely for CPE hours, but also for real updation of knowledge.

A — I agree. But now that much is not enough.

S — You need to be disciplined, pro-active and wellorganised! Follow the rules of ethics that we have been discussing all along.

A    — Hey Bhagwan, my worry is absolutely different. Nothing to do with what is in our hands! It is beyond all precautions that one can take!

S — What do you mean? If you follow all these tips, then what is the problem?

A    — Somebody has forged my CA friend’s signature on the balance sheet; and while uploading the returns, put my friend’s name as auditor!

S — How did he come to know about it?

A    — The Banker to whom the client submitted the balance sheet rang him up to confirm whether the CA had really signed it.

S — And the signature tallies?

A — Largely, yes. Very difficult to say that it is not his signature. So skilfully forged!

S — And the seal?

A    — There, fortunately, there is some variation. But there was another case reported in the press. Out of 20 companies in the same group, the promoters forged the signatures of a few auditors. Now the promoter is behind the bars.

S — O h! This is dangerous.

A    — There is already a disciplinary case going on against another friend of mine where balance sheets with his forged signatures were filed with a nationalised bank – in a branch in a totally remote place. This CA has never ever handled any client’s work from that place!

S — Then who filed the complaint?

A    — Obviously, the banker. The borrowers’ accounts became NPAs.

S — I am sure; the borrowers were in collusion with the banker.

A    — That is obvious. That branch manager is facing a departmental enquiry for such malpractices.

S — Then what is the problem?

A    — See, problems are many. Firstly, all our disciplinary proceedings last for not less than 3 to 4 years! So carry that tension. Then, whatever diligence you may have, such things are beyond your control. So, constant fear. Further, your image with the bank unnecessarily gets spoilt.

S — I know one such case. A CA in Kolhapur received some accounts for submission to the bank. He saw that it was apparently signed by a CA in Mumbai who happened to be his friend. Immediately, he called up his friend and asked whether he had really signed it.

A    — Good. That’s how a CA should act. And then what happened? I guess he denied having signed it.

S — You are right! So a lot of trouble was saved. The client destroyed the papers.

A    — But I wonder what one should do in such a situation.

S — I feel, one should inform the police authorities about the forgery.

A    — But in our country, approaching the police is also risky and not easy! They only harass you.

S — Then one should also inform the Institute; so that if at all any complaint comes, this will prove one’s bonafides.

A    — But what will the Institute do?

S — Frankly, at that stage nothing can be done. But at least it is on record.

A    — I think one should write to the bank as well.

S — Bankers should be advised to verify such things as a matter of routine, so that malpractices will be exposed before any damage is caused to anyone.

A — Yes; and it is in the interest of the banker as well. But the unfortunate part is that quite often bankers also could be doing it knowingly.

S — The real solution would perhaps be the digitalisation of signatures.

A — True. But it will take a little more time for that culture to develop fully in our country.

S — But then, you people do not even handle the digital signatures carefully! DSCs are lying anywhere in your offices, indiscreetly.

A    — I know. There are situations where CAs have misplaced clients’ DSCs. Very embarrassing!

S — You must study the provisions of the I.T.

Act – Not merely Income Tax; but Information Technology. DSCs should be preserved with utmost care and security.

Otherwise, even God will find it difficult to save you! And there should be very careful documentation.

A    — Yes, Lord! I fully agree. Prevention is better than cure. We simply can’t afford to handle such things loosely.

S — Remember, today if the manual signature is forged, perhaps the forensic studies will help you. But if it is misuse of digital signature, then don’t even approach ME for help.

A    — Sure, Lord! I will keep it in mind always. Om shanti !!!!!

Note

This dialogue is based on the general principles of diligence in unforeseen situations. _

Allied Laws

9.  Abatement of decree in case of death of sole
defendant – Decree passed in ignorance of such death – Held to be null and
void. [Code of Civil Procedure, 1908, Order XXII].

Angadi Srinivasa and Ors. vs. M. Girija AIR 2016 Karn. 176 (HC)

The substantial question of law raised for consideration before the
Karnataka High Court was “whether the decree passed by the Lower Appellate Court, in ignorance of the death of the
respondent before it is sustainable
in law?”

The husband and father of the
appellants – Angadi Srinivasa, was the sole defendant. The suit was filed by
the respondent herein for passing a decree of ejectment against Sri Angadi
Srinivasa and for delivery of vacant possession of the suit premises. The
defendant/respondent died on 25.12.2010. Death of the respondent was not
informed and the legal representatives of the deceased were not brought on
record by the appellant. Upon hearing the arguments, the appeal was allowed and
the judgment and decree passed by the Trial Court was set aside and the suit
was decreed with costs. The defendant was directed to vacate and hand over
vacant possession of the suit property to the plaintiff within a period of
three months and pay damages.

Learned advocate contended that as the sole defendant, who was the
sole respondent in the appeal died during the pendency of the appeal before the
Lower Appellate Court and his L.Rs. having not been brought on record, the
Lower Appellate Court has committed illegality in allowing the appeal and
setting aside the decree of dismissal of the suit passed by the Trial Court.

Learned advocate for the defendant, on the other hand, contended
that the defendant having failed to appear and file written statement to the
suit, that in view of the provision made as per Order 22 Rule 4(4) CPC, the
impugned decree is sustainable.

In the case of MOHD. SAFDAR SHAREEF (DIED) PER L.RS. AND OTHERS
vs. MOHAMMED ALI (DIED) PER L.R. 1993(1) ALT 522, it was held as under:

“The appeal which has abated by
operation of law, cannot be revived and the decree which has become a nullity
being a decree against a dead person, cannot also be revived. Therefore, the
inescapable result of the above discussion is that the appeal before the
learned single Judge has become abated and the decree passed by him is a
nullity.”

In the present case, the appellant in the Lower Appellate Court had
not sought the exemption in terms of sub-Rule (4) of Rule 4 of Order 22 CPC,
prior to the pronouncement of the judgment. The sole respondent having died
during the pendency of the appeal before the Lower Appellate Court and as his
legal representatives were not brought on record, the appeal abated and hence,
the decree passed by the Lower Appellate Court being against a dead person was
a nullity.

In the result, appeal was allowed and the impugned judgment and
decree were declared as null and void.

10.  Gift Deed – Revocation of gift based on
unwillingness of daughter to maintain the mother – No condition for maintenance
mentioned in deed – Revocation not proper. [Transfer Of Property Act, 1882;
Section 126,44; Maintenance And Welfare Of Parents And Senior Citizens Act
2007, Section 23]

Jagmeet Kaur Pannu, Jammu vs. Ranjit Kaur Pannu AIR 2016 P &
H 210 (HC)

The revision petition was filed in the High Court against the order
passed by the Tribunal constituted under the Maintenance and Welfare of Parents
and Senior Citizens Act, 2007 (in short the ‘Act’) directing that the gift
executed by the mother in favour of the daughter is voidable at her instance
and hence ordered to be voided.

The Tribunal relied on the assertion of the mother that the daughter
was not behaving with her properly and abused her with filthy language and
treated these assertions as justifying the demand for the document being
declared null and void.

The High Court held that u/s. 23 of Maintenance And Welfare Of
Parents And Senior Citizens Act 2007, the relevant part being stated as under:

If the transferee refuses or fails to provide such amenities and
physical needs as required, the said transfer of property shall be deemed to
have been made by fraud or coercion or under undue influence and shall at the
option of the transferor be declared void by the Tribunal.

Section 126 of the Transfer of Property Act deals with a rule of
public policy that a person who transfers a right to the property cannot set
down his own volition as a basis for his revocation.

There have been views held from decisions of several courts that if
a gift deed is clear and operative to transfer the right of property to another
but also contains expression of desire by the donor that the donee will
maintain the person, the expression contained in a gift deed must be treated as
pious wish and the sheer fact that the donee did not fulfill the condition,
cannot vitiate the gift.

In the present case, order passed by the Tribunal is based only on
the assertion made by the mother that “the daughter is not behaving with
her properly and abused her and used filthy language to her several times on
telephone”. No judicial exercise has been undertaken by the Tribunal to
examine whether the documents contained any condition and whether there had
been any demand made by the mother on the daughter that provided the proof for
the Tribunal to render a finding that the transferee refused to provide such
amenities and physical needs.

Hence the order of the Tribunal was set aside.

11.  Interpretation of Statutes – Use of Comma
before the word ‘AND’ –Disjunctive and not Conjunctive [Karnataka Stamp Act,
1957, Section 33]

Gajanan Ramachandra Velangi vs. Teegala Vijaya Irappa and Ors..
AIR 2016 Karn. 163 (HC)

While adjudicating the matter whether an Arbitral Tribunal has the
power to impound documents, not duly stamped, an issue of interpretation came
up before the court where it was contended that the word ‘and’ occurring in
section 33(1) of The Karnataka Stamp Act, 1957, should be understood in a
conjunctive sense, and hence, mere authority to receive evidence is not
sufficient, but the said person should also be in-charge of a public office to
get the power to impound any document. He submitted that an Arbitral Tribunal
cannot be said to be a person in-charge of a public office, and therefore, it
has no power to impound any document u/s. 33 of the Act.

Relevant extract of section 33(1) of the Act is as under :

33. Examination and impounding of instruments.–(1) Every person
having by law or consent of parties authority to receive evidence, and every
person in-charge of a public office, except an officer of police, before whom
any instrument, chargeable in his opinion, with duty, is produced or comes in
the performance of his functions, shall, if it appears to him that such
instrument is not duly stamped, impound the same.

It was held by the Court that the use of comma before the word ‘and’
occurring therein indicates that the word ‘and’ should be understood in a
disjunctive sense. It is not necessary in law that the said person should also
be in-charge of a public office.

The appeal was devoid of merit and was accordingly dismissed.

12.  Right to Information – No exemption from
disclosure when information relates to Corruption and violation of Human [Right
to Information Act, 2005, Section 24(4)]

Subhash v. State Information Commission, Haryana and Ors. (AIR
2016 P & H 203) (HC)

a. The petitioner sought for information w.r.t.
the issue of corruption (i.e. cases registered against the officers, action
taken against such officers, benefits withdrawn or given to such officers, etc.)
against the officers under  Right to
Information Act, 2005.

b.
Accordingly a Writ Petition has been filed against the order of
Respondent-Commissioner who denied information to the petitioner on the ground
that information sought was qualified to be ‘personal information’ u/s. 8(1)(j)
of the Right To Information Act, 2005 and a finding was recorded that the
information which was sought was primarily between the employee and employer
and therefore the disclosure of which had no relationship to any public authority
or public interest and hence was not required to be disclosed.

Held that reliance upon the judgment of Girish Ramachandra
Deshpande vs. CIC & Ors, 2012(8) SCR 1097 in facts and circumstances of
the case was not justified, since it related to information being sought w.r.t.
‘Personal Information’ which would amount to unwarranted invasion of privacy of
private individual as per section 8(1)(j) of the Right to Information Act(supra),
which gives an exemption from disclosure of personal information which has no
relation to any public activity or interest. However, the Central Public
Information Officer or the State Public Information Officer or the Appellate
Authority, if satisfied, that the larger public interest justifies the
disclosure of such information, they may disclose such information.

Reliance was placed in the case
of First Appellate Authority-cum-Additional Director General of Police and
another vs. Chief Information Commissioner, Haryana and another AIR 2011
(Punjab) 168, where it was held that information pertaining to corruption
is relevant and cannot be denied. In the said case, the Division Bench held
that notification u/s. 24(4) of the Act would not exempt the information which
pertains to corruption since the Act itself provided that the notification
could not include the allegation of corruption and human rights violations.

In the present case, keeping in view the above principles laid down
in First Appellate Authority-cum-Additional Director General of Police’s case (supra)
and fact that the judgment of the Apex Court in Girish Ramchandra Deshpande’s
case (supra) is not applicable in the facts and circumstance of the
present case and hence the impugned order is quashed.

13.  Stamp Act – Valuation of Property–Market
value at the time of registration of the property should be considered and not
at the time of Agreement of Sale – Long time of litigation shall not affect
market value of instrument. [Indian Stamp Act, 1899 – Sections 17, 2(12), 27,
3, 47A]

Manoj Kumar Mishra vs. State of Bihar and Ors. AIR 2016 PATNA 155
(HC)

The point which is to be decided by the High Court, “whether
the valuation should be assessed on the market rate prevailing at the time of
registration of the sale deed or when the parties entered into agreement to sale.”

The respondent for the State submitted that u/s. 47. A of the Stamp
Act the petitioner is liable to pay the stamp duty on the present market value
of the property and for considering the stamp duty and registration fee, the
valuation mentioned in the agreement is irrelevant.

The counsel for the petitioner submitted that the petitioner is
liable to pay the stamp duty on the basis of the valuation mentioned in the
agreement between the parties as per the decision of the Division Bench in this
Court in Brij Nandan Singh vs. The State of Bihar & Ors. 2006 (3) PLJR
538.

It was held that from a composite reading of sections 3, 17 and 27
of Indian Stamp Act, 1899, it becomes clear that the valuation given in an
instrument is not the conclusive valuation and the registering authority is not
bound by the valuation mentioned in the deed sought to be registered.

It is settled principles of law that a taxing statute has to be
construed as it is. All the contingencies that the matter was under litigation
and the value of the property by that time became high cannot be taken into
account for interpreting the provisions of a taxing statute.

In the case of the Hon’ble Supreme Court in State of Rajasthan
and Others vs. Khandaka Jain Jewellers, (2007) 14 SCC 339, court decided
the question “whether the valuation should be assessed on the market rate
prevailing at the time of registration of the sale deed or when the parties
entered into agreement to sale” and in answer to this question considering
sections 2(12), 3, 17, 27 and 47-A of the Rajasthan Amendment of Stamp Act held
that a taxing statute has to be construed strictly and hence the plea that the
instrument took a long time to get a decree for execution against the vendor
that consideration cannot weigh with the court for interpreting the provisions
of the taxing statutes. Therefore, simply because the matter has been in the
litigation for a long time that cannot be a consideration to accept the market
value of the instrument when the agreement to sale was entered. The valuation
is to be seen at the time when registration is made.

In view of the decision of the Supreme Court,
the Division Bench decision of this Court Brij Nandan Singh (supra) is
no longer a good law as has been impliedly overruled. Accordingly, the writ
application was dismissed. _

Allied Laws

Doctrine of Merger – Dismissal of
appeal by High Court – Thereafter, Tribunal’s order merged with High Court’s
Order.

Ratnadip Shipping Pvt.
Ltd. vs. Commr. of Cus. (General) 2017 (345) E.L.T. 148 (Trib. – Mum)

The only issue in the
present case was whether the Revenue could file a Miscellaneous application for
the implementation of the Tribunal’s order after it had filed an appeal to the
High Court which was dismissed.

The Tribunal held that the
Tribunal’s order stood merged with the Hon’ble High Court’s order. After the
Hon’ble High Court’s order, this Tribunal cannot pass any order for
implementation as the Hon’ble High Court’s order is
in force and this Tribunal has no jurisdiction to pass any order after the
Hon’ble High Court’s order. Therefore, the present miscellaneous application
has become infructuous, hence dismissed.

Foreign Court – Order executable
under the Civil Procedure Code. [Code of Civil Procedure, 1908 – Sections 13,
35(3), and 44A]

Alcon Electronics Pvt.
Ltd. vs. Celem S.A. of FOS 34320 Roujan, France and Ors. AIR 2017 SUPREME COURT
1

In the present case, the
English Court dismissed the claims of the Appellant w.r.t. the ground raised of
infringement of rights of the Appellant and further directed it to pay the
costs of application to the Respondents. The Appellant agreed to pay the costs
and sought for some time.

When the Respondents filed
a petition for execution of the decree of the Foreign Court in India, the
Appellant opposed it in an application on the ground that the order of English
Court was not executable. The executing Court dismissed the same which was
confirmed by the High Court. Hence, the Appellant filed the present appeal before
the Supreme Court.

The Court analysed whether
an order passed by a foreign court fell within Exceptions to Section 13 of
Code. It observed that a “foreign judgement” is defined under section
2(6) as judgment of a foreign court. “Judgement” as per section 2(9)
of Code of Civil Procedure means the statement given by the Judge on the
grounds of a decree or an order. Order is defined u/s. 2(14) of Code of Civil
Procedure as a formal expression of any decision of the Civil Court which is
not a ‘decree’. Explanation 2 to section 44A(3) says “decree” with
reference to a superior Court means any ‘decree’ or ‘judgment’. As per the
plain reading of the definition ‘Judgement’ means the statement given by the
Judge on the grounds of decree or order and order is a formal expression of a
Court. Thus, “decree” includes judgement and “judgement”
includes “order”. On conjoint reading of ‘decree’, ‘judgement’ and
‘order’ from any angle, the order passed by the English Court falls within the
definition of ‘Order’ and therefore, it is a judgement and thus becomes a
“decree” as per Explanation to section 44A(3) of Code of Civil
Procedure.

It was held by the Supreme Court that in the case of the
judgment passed by the foreign court, Indian Courts are very much entitled to
address the issue for execution of the interest amount. The right to 8%
interest as per the Judgments Act, 1838 of UK can be recognised and as well as
implemented in India. Therefore, the Execution Petition filed by the
Respondents for execution of the order passed by the English Court was
maintainable under the relevant provisions.

Fundamental Duty – To safeguard the
public properties from illegalities – By every citizen. [Constitution of India;
Art. 51A; Bombay Police Act, 1951 – Section 33; Maharashtra Municipal
Corporations Act, 1949, Section 244; Maharashtra Prevention of Defacement of
Property Act, 1995, Sections 2, 3]

 

Suswarajya Foundation
vs. The Collector, Satara AIR 2017 (NOC) 521 (Bom.)(HC)

 

A PIL was filed w.r.t.
every town and city in the State of Maharashtra having a large number of
illegal banners/hoardings/posters, etc., displayed mainly by political
leaders/workers.

 

The definition of
‘Defacement’ as contained in the Maharashtra Prevention of Defacement of
Property Act, 1995 (The ‘Act’) to better understand the act is as under:

“S.2(b): ‘defacement’
includes impairing or interfering with the appearance or beauty, damaging
disfiguring, spoiling or injuring in any way whatsoever and the word
“deface” shall be construed accordingly;”

Section 3 of the Act also
provides for imprisonment of 3 months in case a person defaces any place open
to public view.

The Court held that the
citizens including political workers and leaders follow the mandate of Article
51A of the Constitution of India by safeguarding the public properties from
such illegalities.

Commenting on the duties
of citizens and political parties, the Court laid down the directions to be
followed as under:

–  There
shall be a senior inspector who shall be responsible for the implementation of
the provisions of the Act.

–  The
Officers or the Committees, as the case may be, shall be responsible for
expeditious removal of illegal hoardings, banners, flexes, temporary arches,
posters etc.

–  The Senior Inspector of Police or the Officer
In-charge of the concerned local police station shall extend adequate police
protection and police help to the Municipal staff and Municipal officials while
taking action of removal of the illegal hoardings, banners etc.

–  Minimum two armed constables shall accompany
the municipal officials and the staff at the time of removal of illegal
hoardings, banners, flexes, temporary arches, posters etc.;

–  Even on receiving any oral information, the
officer-in-charge shall be under an obligation to take appropriate action.

–  Anonymous complaints shall be entertained on
the toll free numbers. If the citizens find that no action is being taken on
the basis of the complaints made on toll free numbers, it will be open for them
to make a complaint in writing to the Nodal Officers of the Municipal
Authorities as well as the Nodal Revenue Officers of the State Government who
shall take action on the basis of such complaints;

The court thus provided
interim relief in the manner above in the case.

Gift Deed – Subsequent revocation of
the deed is void and invalid [Transfer of Property Act, 1882; Section 126].

Syamala Raja Kumari and
Ors. vs. Alla Seetharavamma and Ors.AIR 2017 HYDERABAD86

The only issue was whether
a gift deed transferred unconditionally in favour of someone can be revoked
subsequently?

One Mr. Narapa Reddy
executed a gift settlement deed in favour of the plaintiffs (his daughters) and
his wife out of love and affection. Under the said document, life interest
right was retained by the donor and after the death of donor, his wife was to
enjoy the property without any right of alienation till her death and
thereafter, the donees-plaintiffs could enjoy the property with absolute
rights. But subsequently, the donor executed a revocation deed by giving the
reason that the plaintiffs were not taking care of him and his wife and they
were not visiting his house and they had lost his confidence and so, he revoked
the gift settlement deed executed. The donor executed another revocation deed
wherein he mentioned that the plaintiffs obtained the gift settlement deed by
misrepresenting him. But the said fact is not mentioned in the earlier
revocation deed. Thereafter, the donor’s wife died.

Section 126 of the
Transfer of Property Act was reproduced to show that the donor and donee may
agree that on the happening of any specified event which does not depend on the
Will of the donor, a gift shall be suspended or revoked; but a gift, which the
parties agree shall be revocable wholly or in part, at the mere will of the
donor, is void wholly or in part, as the case may be.

The Court held that the
plaintiffs would get absolute rights in respect of the property. By executing
the said gift settlement deed, the donor had divested his right in the property
so he could not unilaterally execute any revocation deed for revoking the gift
settlement deed executed by him in favour of the plaintiffs.

The revocation deeds
executed by the donor were not binding on the plaintiffs as the said deeds were
not valid. Once the donor had no right to revoke the gift settlement deed
validly executed by him in favour of the plaintiffs, he cannot alienate the
property.

Succession – Class I legal heir to
have a better title than the nominee – Absence of Will paved way for following
the course of succession over the rules of nomination. [Hindu Succession Act,
Chapter IV, Schedule u/s. 8]

Sham Singh vs. Kashmir
Kaur and Ors. AIR 2017 (NOC)473(P.&H.)

The husband of the plaintiff
namely Darshan Singh (deceased) had deposited a sum of Rs. 50,000/- in the post
office of Village Tibber, under Kisan Vikas Patra Scheme. Appellant-defendant
No. 1 (Sham Shingh), who was the son of the real sister of Darshan Singh
(deceased) had withdrawn Rs. 1 lakh on maturity of the said Kisan Vikas Patra
scheme from the post office. It was pleaded by the plaintiff-respondent i.e.
widow of the depositor, that Sham Singh was not entitled to and had no right to
withdraw the amount.

The court observed that
where the Will propounded by the appellant is concerned, the same has not been
brought on record of this case by the appellant nor any evidence to prove the
execution of the said Will, has been produced.

The Court ultimately held
that even though appellant-defendant was appointed as a nominee by
deceased-Darshan Singh, it is a settled principle of the law that the
nomination cannot alter the course of succession as per the provisions of Hindu
Succession Act.

The nomination only
indicates the hand which is authorised to receive the amount on payment of
which the post office was to get a valid discharge of its liability but the
legal heirs of deceased are entitled to claim the said amount in accordance
with law of succession governing them.

The fact that the
plaintiff-respondent is the widow of deceased-Darshan Singh is not disputed
that, so she being his widow was his class I legal heir and was certainly
entitled to the amount received by Sham Singh from the post office on maturity
of the Kisan Vikas Patras purchased by her deceased husband Darshan Singh.

Corporate Law Corner

7.  [2018] 143 CLA 421 (SC)
Mackintosh Burn Limited vs. Sarkar and
Chowdhury Enterprises Private Limited

Date of Order: 27th March,
2018

 

Sections 58(2) and 58(4)
of Companies Act, 2013 – Refusal to record registration of shares is a mixed
question of law and facts – “Sufficient cause” as appearing in section 58(4) is
not restrictive to mean that only illegal or impermissible transfers can be
refused – A refusal to transfer shares for conflict of interest in a given
situation can also be a cause – Each case will have to be examined for facts to
determine what constitutes “sufficient cause”

 

FACTS

M Co is a public company
with majority of shares held by the Government of West Bengal. S Co held 28.54%
of the shares of M Co and further acquired 100 shares, which together would
make its holding 39.77%. M Co refused to register the transfer of shares on the
contention that S Co was controlled by a competitor in business, and hence, it
would not be in the interest of a Government Company to permit such transfer.
Company Law Board (“CLB”), vide order dated 16.09.2015 rejected the contentions
and directed registration of shares in favour of S Co.

 

The order of CLB was
challenged before the High Court of Calcutta u/s. 10F of the Companies Act,
1956. The appeal was dismissed by the High Court. After several rounds of
litigation, review petition was filed before the High Court, which was also
dismissed by the High Court. High Court, in the order dated 15.09.2017 held
that there was no mistake capable of correction and that correction could be
done only by a superior forum.

 

Present application was
filed before the Supreme Court challenging the orders.

 

HELD

Refusal of registration of
the transfer of shares and the appellate remedy are provided u/s. 58 of the
Companies Act, 2013. This provision had come into force at the relevant time.
Supreme Court went through provisions of section 58(2) and 58(4) of the
Companies Act, 2013. It observed that the securities or interest of any member
in a public company are freely transferable. However, u/s. 58(4), it is open to
the public company to refuse registration of the transfer of the securities for
a sufficient cause. To that extent, section 58(4) has to be read as a limited
restriction on the free transfer permitted u/s. 58(2).

 

Supreme Court held that
section 10F of the Companies Act, 1956, provides that an appeal against an
order passed by the Company Law Board can be filed before the High Court on
questions of law. Right to refuse registration of transfer on sufficient cause
is a question of law and whether the cause shown for refusal is sufficient or
not in a given case, can be a mixed question of law and fact.

 

The Supreme Court held
that High Court should have considered various aspects arising through the
order of CLB and not restricted itself in adjudicating on the grounds of
limitation only.

 

The Supreme Court observed
that meaning of the words “without sufficient cause” as used in section 58(4)
cannot be interpreted to mean that transfer of shares can be permitted only if
the transfer is otherwise illegal or impermissible under any law. Refusal can
be on the ground of violation of law or any other sufficient cause. Conflict of
interest in a given situation can also be a cause. It observed that whether the
reason for refusal of registration is sufficient in the facts and circumstances
of a given case is for the Company Law Board to decide.

 

Without going into any
further merits of the case, Supreme Court set – aside the orders of CLB and
High Court and remitted the matter back to NCLT for afresh consideration
without being influenced by any findings recorded in the orders of CLB, High
Court or the Supreme Court.

 

 

 

8.  (2018) 91 taxmann.com 123 (NCLAT)

Achintya Kumar Barua vs.
Ranjit Barthkur

Date of Order: 08th
February, 2018

 

Section 173(2) of
Companies Act, 2013 – A company is bound to provide video-conferencing or
participation through other audio visual means to a director who intends to
avail the same for attending the meetings of Board of Directors – Secretarial
Standards which make provision of this facility optional for the company would
not override the law contained in Act and Rules

 

FACTS

‘R’ had filed an
application in order to enforce its right to participate in the Board meetings
of the company through video conferencing. The matter had earlier come-up
before the Company Law Board (‘CLB’) and being aggrieved by certain observations,
the same was carried to the High Court of Guwahati. The Hon’ble High Court
found that the appeal did not raise any question of law and sent back the
matter. The same came up before the National Company Law Tribunal (“NCLT”) and
hearing both sides, the NCLT allowed the application directing that the
facility u/s. 173(2) of the Companies Act, 2013 should be made available. It
further observed that company had necessary infrastructure to provide such a
facility. ‘A’ and other directors filed an appeal before National Company Law
Appellate Tribunal (“NCLAT”) against the order of the NCLT.

 

‘A’ put forth two
contentions before the NCLAT. Firstly, it was urged that provisions of section
173(2) are not mandatory and that it is not compulsory for the company to
provide facility for video-conferencing. Secondly, Rule 3(2)(e) of the
Companies (Meetings of Board and its Powers) Rules, 2014 (“Rules”) casts
responsibility on the Chairperson to ensure that no person other than the
concerned Director is attending or having access to the proceedings of the
meeting through video-conferencing mode or other audio-visual means. It was
submitted that Chairman may not be able to ensure the same as he would have no
means to know as to who else is sitting in the room or place concerned.

 

HELD

NCLAT perused the
provisions of section 173(2) as well as Rule 3. It held that use of the word
“may” in the section only gave an option to the Director to choose whether he
would be participating in person or through video-conferencing or other
audio-visual means. The word “may” did not give an option to the company to
deny this right given to the Directors for participation through
video-conferencing or other audio-visual means, if they so desire.

 

NCLAT held that Rules,
read as a whole, were a complete scheme. While Rule 3(2)(e) casts a
responsibility on the Chairman, Rule 3(4) casts a responsibility on the
participating director as well. The Chairperson will ensure compliance of Rule
3(2)(e) and the director will need to satisfy the Chairperson that Rule 3(4)(d)
is being complied. 

 

‘A’ further submitted that
Secretarial Standard on Meetings of the Board of Directors provide that
participation through video conferencing or other audio-visual means can be
done only “if the Company provides such facility”. NCLAT however held that the
said guidelines would not override the provisions contained under the Act and
Rules.

 

NCLAT thus held that
provisions of section 173(2) were mandatory and the companies cannot be
permitted to make any deviations therefrom and dismissed the appeal filed
before it by ‘A’.

 

[Author’s note: An analysis
of this judgement has been carried in May 2018 issue of the Journal on page 93]

 

9.  I.A. No. 594 of 2018 in Company Appeal (AT)
(Insolvency) No. 188 of 2018 – NCLAT (New Del) Rajputana Properties Pvt. Ltd.
vs. Ultra Tech Cement Ltd.

Date of Order: 15th
May, 2018

 

Sections 24, 29 and 30 of
Insolvency and Bankruptcy Code, 2016 – Resolution professional does not have
power to take comments on the resolution plan submitted by any of the
Resolution Applicant(s) – Procedure to be followed by the IRP and CoC explained
in light of provisions of law

 

FACTS

National Company Law
Appellate Tribunal (“NCLAT”) had vide an interim order dated 04.05.2018 ordered
that Committee of Creditors (“CoC”) and Adjudicating Authority would approve
one or the other resolution plans which would be subject to the decision of the
appeal.

 

Insolvency resolution professional
(“IRP”) gave a notice to all the parties concerned that he would decide about
the eligibility of one or more resolution applicant (“RA”).

 

CoC argued that it is
required to consider all the resolution plans and all the aspects of every plan
in order to approve one of the plans.

 

It was submitted that IRP
is required to decide whether resolution plan(s) are in accordance with
existing provisions of law and fulfil other conditions as prescribed u/s. 30(2)
of the Insolvency and Bankruptcy Code, 2016 (“the Code”) and therefore, it was
within the domain of the IRP to decide such issue.

 

IRP submitted that he did
not intimate RAs that he will decide eligibility of one or other RA and that he
merely called for comments of all the RAs.

 

HELD

The NCLAT examined the
provisions of sections 29 and 30 in order to determine the duties of the IRP.
It observed
the following:

 

(a) IRP is required to prepare an ‘Information
Memorandum’ for formulating a resolution plan. The IRP is required to provide
RA all the relevant information in physical and electronic form.

 

(b) IRP is required to examine each resolution plan
received by him to confirm that the resolution plan provides for payment of
Insolvency Resolution Process costs, payment of debts of Operational Creditor(s),
management of the affairs of the corporate debtor, implementation and
supervision of the resolution plan, other requirements as may be specified by
the Board and does not contravene any of the provisions of law for the time
being in force.

 

(c) In absence of any information through any
source while scrutinising the resolution plan u/s. 30(2) of the Code, IRP
cannot decide upon eligibility of the RA u/s. 29A.

 

(d) There is no provision in the Code conferring
power upon the IRP to decide upon the eligibility or otherwise of the RA.

 

(e) IRP is only required to examine whether the
plan conforms to provisions of section 30(2). He cannot disclose it to any
other person including the RA(s) who has submitted the plan.

(f) The resolution plan
submitted by a RA being confidential cannot be disclosed to any competitor RA
nor any opinion can be taken or objection can be called for from other RAs with
regard to one or other resolution plan.

 

(g) Joint reading of
sections 24 and 30 suggests that following persons are to take part in the
meeting of CoC at the time of approval of one or other resolution plan:

 

?   Members of CoC

?   Members of the (suspended) Board of Directors
or the partners of the corporate persons;

?   Operational Creditors or their
representatives if the amount of their aggregate dues is not less than ten per
cent of the debt

?   RAs

 

(h) CoC while approving or
rejecting one or other resolution plan should follow such procedure which is
transparent. Persons who do not have a right to vote can certainly express
their views to the CoC.

 

(i) CoC should record
reasons (in short) while approving or rejecting one or the other resolution
plan.

 

(j) Views expressed by
persons not entitled to vote have to be taken in to consideration by the CoC
before approving or rejecting a resolution plan.

 

(k) RAs may, in the
meeting before CoC, point out whether one or the other person (Resolution
Applicant) is ineligible in terms of section 29A or not.

 

(l) IRP is required to
communicate the final decision of the CoC to the Adjudicating Authority.

 

(m) The Adjudicating
Authority who is required to take decision as per section 31 of the Code, can
go through the reasoning to accept or reject one or other objection or
suggestion and may express its own opinion/decision.

 

NCLAT thus, laid down the
procedures to be followed by the IRP and the manner in which meetings of the
CoC would
be conducted.

 

IRP was directed to not
take any comments from any of the RA(s).

CORPORATE LAW CORNER

4. B.
K. Educational Services (P). Ltd. vs. Parag Gupta & Associates [2018] 98
taxmann.com
213 (SC)

Date
of Order: 11th October, 2018

 

Section 238A of the Insolvency and Bankruptcy Code, 2016 –
Provisions of Limitation Act, 1963 are applicable to applications filed under
Insolvency and Bankruptcy Code – Applications under the Code cannot be filed
where the default has occurred more than three years prior to the date of
filing of application, except in cases where delay is condoned in terms of
section 5 of the Limitation Act

 

FACTS

National Company Law Appellate
Tribunal (“NCLAT”) in a batch of appeals held that Limitation Act, 1963 did not
apply to applications made u/s. 7 and 9 of Insolvency and Bankruptcy Code, 2016
(“Code”) from the date of its commencement of which was 01.12.2016 till the
date on which the Code was amended to incorporate section 238A which was
06.06.2018. The matter was taken up before the Supreme Court to determine
whether section 238A of the Code applied retrospectively or was prospective in
nature. Section 238A was inserted on 06.06.2018 and reads as follows:

 

The provisions of the Limitation
Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or
appeals before the Adjudicating Authority, the National Company Law Appellate
Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal,
as the case may be.

 

Section 238 A has the same language
as section 433 of the Companies Act, 2013.

 

HELD

The Supreme Court referred to the
Report of the Insolvency Law Committee of March, 2018 and perused the
provisions of Companies Act as well as the Code and observed that the Code
cannot be used as a tool to revive debt which is no longer due as the same was
time barred. It was held that amendment of section 238A would not serve its
object unless it is construed as being retrospective, as otherwise,
applications seeking to resurrect time-barred claims would have to be allowed,
not being governed by the law of limitation.

 

Supreme Court further referred to
its decision in Innoventive Industries Ltd. vs. ICICI Bank & Anr.,
(2018) 1 SCC 407 in order to conclude that expression “debt due” in the
definition sections of the Code would only refer to debts that are “due and
payable” in law, i.e., the debts that are not time-barred.

 

It was observed that the Insolvency
Law Committee Report of March, 2018 made it very clear that the object of the
Code from the very beginning was not to allow dead or stale claims to be resuscitated.
The intention of the Legislature from the very beginning was to apply the
Limitation Act to the NCLT and the NCLAT while deciding applications filed u/s.
7 and 9 of the Code and appeals therefrom. Section 433 of the Companies Act,
2013 which applies to the NCLT and the NCLAT, expressly applies the Limitation
Act to the NCLAT, as well. Both, section 433 of the Companies Act as well as
section 238A of the Code, applied the provisions of the Limitation Act “as far
as may be”. Where periods of limitation were laid down in the Code, these
periods would apply notwithstanding anything to the contrary contained in the
Limitation Act.

 

It was held that since the
Limitation Act is applicable to applications filed u/s. 7 and 9 of the Code
from the inception of the Code, Article 137 of the Limitation Act would get
attracted. Article 137 of the Limitation Act provides the period of limitation
in case of “any other application for which no period of limitation is
provided elsewhere” to be three years from the time when the right to
apply accrues. “The right to sue”, therefore, accrues when a default occurs. If
the default had occurred over three years prior to the date of filing of the
application, the application would be barred under Article 137 of the Limitation
Act, save and except in those cases where, in the facts of the case, section 5
of the Limitation Act may be applied to condone the delay in filing such
application.

 

5.  Nikhil Mehta & Sons (HUF) vs. AMR
Infrastructure Ltd. [2018] 98 taxmann.com 8 (NCLT – New Delhi)

Date
of Order: 29th September, 2018

 

Section 22(2) of the Insolvency and Bankruptcy Code, 2016 –
Threshold voting share for decision of the Committee of Creditor (“CoC”) by 66%
would be directory and not mandatory in the cases of class of creditors where
the prospective buyers of Real Estate (Commercial & Residential) alone
constitute the CoC.

 

FACTS

CP No. (IB)-02(PB)/2017 (Nikhil
Mehta& sons (HUF) &Ors. vs. M/s. AMR Infrastructure Ltd.) was
admitted for initiating Corporate Insolvency Resolution Process (“CIRP”) on
10.05.2018 by the National Company Law Tribunal (“NCLT”). Mr. Vikram Bajaj was
appointed as Interim Resolution Professional (“IRP”). IRP took various steps in
discharge of his duties as required under law.

 

A new class of financial creditors
was introduced in the Insolvency and Bankruptcy Code, 2016 (“Code”) by
Amendment Act of 2018 with effect from 06.06.2018 being Real Estate
(Commercial) and Real Estate (Residential). Two representatives were appointed
to represent the aforesaid new classes through order dated 14.08.2018. The
representatives were given a list of 906 financial creditors, full details of
meeting, the electronic Id of the creditors for electronic communication etc.
The electronic window was kept opened for 48 hours for easy facilitation of
voting and understanding the agenda with clarifications.

 

236 financial creditors in the Real
Estate (Residential) forming 16.36% of voting share and 227 financial creditors
of Real Estate (Commercial) constituting 36.4% voted in the meeting of
Committee of Creditors (“CoC”). Overall, 463 financial creditors consisting of
52.78% voted up to 10.00 AM on 25.08.2018. Majority of the financial creditors
gave voting instructions to their authorised representative in favour of the
resolution proposed by the IRP. None of the resolutions proposed could meet the
voting threshold of 66% prescribed under the Code and none of the resolution
has been approved as per the existing provisions.

 

IRP therefore approached NCLT to
resolve the deadlock created by the low percentage of votes cast by a new
category of financial creditor. The NCLT was to decide if the threshold of
voting shares’ in respect of the class of financial creditors Real Estate
(Commercial) and Real Estate (Residential) as provided in various provisions of
the Code (e.g. section 22(2) provides threshold of 66%) was mandatory or not.

 

HELD

The Tribunal observed that
different thresholds have been provided for various provisions under the Code.
Having read section 22(2), it was observed that the expression ‘may’ in section
22(2) was associated with the phrase ‘either resolve to appoint the interim
resolution professional as a resolution profession or to replace the interim
resolution professional by another resolution professional’ and would not have
any bearing on the expression ‘by a majority vote of not less than sixty six
percent of the voting shares of the financial creditors’.

 

The threshold for the purposes of
seeking extension of a period of CIRP, appointing IRP as RP etc. is 66% for all
the financial creditors irrespective of class to which they belong.

 

NCLT relied on Supreme Court ruling
in case of Delhi Transport Corporation vs. D.T.C Mazdoor Congress and Ors.
(1991) Supp (1)SCC 600 and Tinsukhia Electrical Supply Co. Limited vs.
State of Assam [1989] 3 SCC 709 to apply the principle that interpretation
which need to be adopted has to be such that sustains the constitutional
validity of a statute rather than leaning in favour of interpretation which
results in its declaration as ultra vires.

 

Applying the purposive
interpretation above, it was held that threshold voting share for decision of
the committee of creditor by sixty six percent would not be mandatory in the
cases of class of creditors where the prospective buyers of Real Estate
(Commercial & Residential) alone constitute the CoC. In case of deadlock
the preference can be given to the decisions taken by the highest percentage in
the CoC and section 22(2) must be regarded as directory in nature in case CoC
is comprised 100% of class of creditors Real Estate (Commercial &
Residential).

 

The resolutions polled for in the
said case were held to be passed.

 

6.  Loyz Oil PTE Ltd. vs. Interlink Petroleum
Ltd.

[2018]
97 taxmann.com 627 (NCLT – New Delhi)

Date
of Order: 7th September, 2018

 

Ss. 5(2), 5(8) and 7, of the Insolvency and Bankruptcy Code, 2016
–Mere waiver of interest by the Financial creditor on the request of corporate
debtor would not alter the commercial nature of loan advanced – Contention that
amounts would be paid in future would not be sufficient and the financial
creditor continued to hold the right to proceed and seek remedy provided for in
the Code

 

FACTS

I Co obtained loan from L Co as
External Commercial Borrowing (“ECB”) after obtaining due permission from
Reserve Bank of India (“RBI”) in this regard. I Co entered in to two loan
agreements with L Co on 26.12.2012 and 23.05.2014 respectively for USD
12,50,000 and USD 90,00,000. On 30.06.2016 I Co requested L Co to waive of the
interest from the loan amount. L Co agreed to claim only the principal amount
and reversed the interest charged.

 

On 18.04.2018, L Co vide an e-mail
demanded the repayment of ECB of USD 1,02,50,000. I Co was unable to clear the
requested amounts. I Co in its reply dated 10.08.2018 acknowledged that it was
in receipt of the aforesaid e-mail. It stated that it made huge investment in
exploration activity but due to failure in commercial discovery and adverse
business conditions for the past few years the company was facing financial
difficulties. I Co proceeded to state that amounts due would be repaid once
steps taken for discovery of oil became fruitful.

 

All loans given by L Co are duly
reflected in the audited financial statements of I Co for the financial year
2016-17.

L Co filed for Corporate Insolvency
Resolution Process (“CIRP”) against I Co by filing an application u/s. 7 of the
Code and proposed the appointment of Shri Atul Mittal as Interim Resolution
Professional (“IRP”).


HELD

National Company Law Tribunal
(“NCLT”) examined the provisions of sections 5(7) and 5(8) of the Code which
define the terms “financial creditor” and “financial debt”.

 

In the facts of the present case, L
Co had indeed disbursed the loan to I Co which was recoverable with interest
pursuant to validly executed loan agreements. Merely because there was a
subsequent waiver of interest pursuant to the request made by I Co, would not
alter the commercial nature of the transaction. It was held that the claim
would continue to qualify as a “financial debt” and L Co would be regarded as a
“financial creditor” eligible to file the application u/s. 7 of the Code.

 

It was observed that financial
creditor could file a claim as long as the following conditions were satisfied:

 

(a)    Default
has occurred.

(b)    Application
is complete, and

(c)    No
disciplinary proceeding against the proposed IRP is pending

 

In the facts of the present case,
application u/s. 7 was maintainable as the records showed the advancement of
loan, occurrence of existence of default and the amount of default in excess of
Rs. 1 lakh. Merely because I Co contended that it would repay the debt in
future would not alter the fact there was a default on its part.

 

Thus
petition was admitted and appointment of IRP was confirmed by the NCLT as well
as necessary directions for further steps were given by the NCLT.

ALLIED LAWS

5. Hindu Law – Alienation by Karta
– Co-parcenor son has no right to challenge the sale made.

 

Kehar Singh (D) thr. L.Rs. and Ors. vs. Nachittar Kaur and
Ors. AIR 2018 Supreme Court 3907

 

The suit filed by the son of the defendant which was founded
on the premise that the suit property i.e. the property based on which the suit
is filed, was and still continues to be ancestral property.

 

In the facts of the case, the Karta (defendant) has sold a
property, which was alleged to be without authority and without consent of the
other members of the Hindu Undivided Family. The plaintiff alleged that his
father (defendant) had no right to sell the suit land without obtaining the
Plaintiff’s consent, which he never gave to his father for sale of the suit
land, that there was no legal necessity of the family which could permit the
defendant to sell the suit land. The only question which was left for
adjudication was that the said sale made by the defendant was not valid since
the approval of the other co-parcenors was not acquired.

 

The Court observed that a Hindu father as such has special
powers of alienating coparcenary property, which no other coparcener has. Such
father could sell or mortgage ancestral property, whether movable or immovable,
including the interest of his sons, grandsons and great-grandsons therein, for
the payment of his own debt, provided the debt was an antecedent debt, and was
not incurred for immoral or illegal purposes.

 

In substance, there should exist a legal necessity due to
which the said property was sold. The legal necessity was defined.

 

It was held that since the said sale was done within the
purview of the powers available to a father to sell ancestral property for the
purposes specified and not for immoral or illegal purposes, hence the said sale
done by the father (karta) was valid.

 

6. Legal Representative –
Remarried widow – Can be a claimant. [Motor Vehicles Act, 1988; Section2(11)]

 

National Insurance Company Ltd. and Ors. vs. Nidhi Goel and
Ors. AIR (2018) Punjab And Haryana 161

 

In this case the legal representatives of the deceased
petitioner died to the rash and negligent driving of the respondents. The
Learned Tribunal awarded a compensation of Rs. 12,89,500 to the claimants along
with interest @ 9% p.a. to the claimants.

 

It was contended that no compensation is payable to the widow
as she got re-married within about three months of the death of her husband. It
was the case that once the widow had remarried, she ceased to be dependent upon
the deceased. Moreover, after her remarriage she became dependent upon the
person who married her and, therefore, there was no question of paying
compensation for her maintenance during her life-time.

 

The Court observed that a
reference, however, can be made to section 2(11) of the Code of Civil
Procedure, 1908, for its definition where said term means a person who in law
represents the estate of a deceased person, and includes any person who
intermeddles with the estate of deceased and where a party sues or is sued in a
representative character the person on whom the estate devolves on the death of
the party so suing or sued. After the death of her husband, the widow continues
to represent his estate irrespective of her re-marriage because she inherits
part of the estate of her deceased husband. Thus, such widow is included in the
definition of “legal representative” as reproduced above and, thus,
can maintain a petition u/s. 166 of the Act even after her re-marriage.

 

It was held by the Hon’ble Court that the widow of the
deceased person is also entitled to claim compensation. It is beyond the pale
of doubt that the Act is a social welfare legislation and should be interpreted
so as to fulfill the objective with which it was enacted. If the proposition
put forward that a remarried widow is not entitled to get any compensation, it
would militate against the right of a widow to re-marry. This would not be in
public interest or in the interest of the society at large.

 

7. 
Natural Justice – Specific request for a date – AO ought to have giving
such opportunity of personal hearing.

 

Vetrivel Constructions vs. Commercial Tax Officer, Perambur
Assessment Circle 2018 (15) G.S.T.L. 527 (Mad.)

 

The main contention was that the impugned assessment orders
were passed in violation of the principles of natural justice as the respondent
failed to provide an opportunity of personal hearing, inspite of asking for the
same.

 

The petitioner submitted that the respondent having informed
the petitioner that they can avail the opportunity of personal hearing through
their show cause notice dated 29.12.2015, ought to have given such hearing to
the petitioner, especially when the petitioner has specifically requested for
giving such opportunity through their letters dated 31.12.2016 and 11.01.2017.
He further contended that the conclusion arrived by the respondent based on web
report is again in violation of principles of natural justice as the petitioner
was not furnished with those details of the report.

 

The respondent submitted that the petitioner was given an
opportunity of hearing by giving a show cause notice and the impugned orders of
assessment were passed after considering the reply given by the petitioner.
Therefore, he contended that there is no violation of principles of natural
justice warranting interference by this court.

 

The Court set aside the matter to the AO for fresh
consideration on the premise that the department circular mentioned as under;

 

“Fair opportunity is to be given to the assessee and
judicial consideration given to the representations, evidences and materials
furnished by him. But personal hearing need not be given unless the status
requires it (e.g. Section 22(2) or the assessee asks for it.”

 

The Court, while setting aside the matter, also relied upon
the decision reported in (2010) 33 VST 333 (Mad), it has been observed
as follows;

 

“the provision of section 16(1)(a) of the said Act has to
be construed in accordance with the said circular which is by way of
contemporanea expositio. So when a specific demand is made for personal hearing
the reasonable opportunity of showing cause should include the same in the
interest of fairness in procedure.”

 

8. Release Deed – Inadequate stamp
duty paid – Objection to admissibility to be decided when objection raised.
[Evidence Act, 1872; Section 61; Stamp Act, 1899; Section 35]

 

Sudhanshu Shekhar Shukla
vs. Meenakshi Trivedi and Ors. AIR (2018) Chattisgarh 139

 

There was a consent letter whereby rights in a property were
relinquished by few of the sharers in favour of the plaintiff. However, this
consent letter, when brought into evidence, was objected to with respect to its
admissibility under the Evidence Act. 

     

An application u/s. 35 of the Stamp Act was filed reiterating
the pleading of the plaintiff of relinquishment deed dated 20.06.1996 and it
was stated that the said relinquishment deed was executed only on Rs. 10/-
Stamp which is an unregistered document. It was also pleaded that the value of
the property for which the relinquishment deed operates is more than Rs. 100/-,
therefore, as per the Article 55 Schedule 1 A of the Act, 1899 of the Stamp
Act, the stamp duty would be attracted over the value of the property. It was
further pleaded that since the document was insufficiently stamped as such it
could not be admitted u/s.35 of the Act, 1899.

 

Further it was also pleaded that the document is also unregistered one,
therefore, is inadmissible by virtue of section 17 (1) of the Indian
Registration Act, 1908 (hereinafter referred to as ‘the Act, 1908).

 

The lower authority held that whether it is registered or
not, the admissibility of the same would be decided at the time of final
hearing of the case.

The only question before the Hon’ble Court was whether the
document dated 20.06.1996 i.e. the deed of relinquishment is admissible in
evidence or not for want of proper stamp duty and registration.

 

The Court held that the trial Court was directed to decide
the admissibility of the document sought to be exhibited by the plaintiff in
terms of the observation made in this order at the time of taking evidence and
cannot be postponed. If the trial Court finds that the document is
insufficiently stamped and is tendered in evidence then the Court is duty bound
to impound the same and in order to decide the levy of stamp, the document is
required to be sent to the Collector as per sections 33, 35, 38 & 40 of the
Indian Stamp Act, 1899.

 

9. 
Will – No proof of execution and attestation – Natural Succession.
[Succession Act, 1925, Section 63(c)]

 

Didar Singh vs. Gram Panchayat of Village, Meghowal and Ors.
AIR 2018 Punjab And Haryana 172

 

A Will was executed which was disputed by the respondent.

 

The Will propounded by the plaintiff was stated to be forged
and fabricated.

The Court observed that the provisions of the Act envisaged
three situations: one Will has to be attested by two or more witnesses and each
of them had seen the testator to either append his signatures or thumb
impressions or mark or has seen the other person sign the Will in the presence
and by the direction of the testator, or has received from the testator a
personal acknowledgment of his signature or mark, or the signature of such
other person; and third situation, each of the witnesses signed in the presence
of the testator.

 

The Court further observed that the trial Court had discarded
the Will but the Lower Appellate Court reversed the finding by holding that
Will had been proved. However, the aforementioned finding may not be
sustainable as the witnesses of the Will did not depose in terms of provisions
of section 63(c) of Indian Succession Act. There is not a single iota of
statement that he appended the signature on the Will on the instructions of
deceased Chanan Singh. In the impugned Will, no reasons were assigned as to why
Chanan Singh had dis-inherited his line of natural succession, i.e., brother,
Class-II heir or with regard to previous Will.

 

The Court held that since Will set up by the defendants has
been disbelieved by this Court as a necessary corollary, suit property would
devolve upon appellant(s) by natural succession being Class II heir.

FEMA FOCUS

  (I) Dispensation
with requirement to file Form ARF within 30 days of receipt of funds pertaining
to share capital from foreign investor

 

Earlier all Indian companies
receiving share capital from foreign investor were required to file Form ARF
within 30 days of receipt of share capital from foreign investor. The said Form
ARF has been merged with Form FC-GPR with effect from 1st September,
2018 and is required to be filed online through filing of Single Master Form
(Form SMF) on the FIRMS database.

 

RBI has now amended the FDI
Regulations governed by FEMA 20 (R)/2017-RB dated 7th November,
2017 and omitted the requirement to file ARF within 30 days of receipt of
funds towards share capital. Hence, going forward, with respect to receipt of
funds relating to share capital from foreign investor, Form ARF will not be
required to be filed separately and its details would be included in Form
FC-GPR.

 

(II) Downstream investment

 

Erstwhile FDI regulations


  •     Under earlier FDI
    Regulations governed by FEMA 20(R), Form DI was required to be filed by
    Investor Indian company within 30 days of making downstream investment when
    following conditions were satisfied:

 

i)    Investor
Indian company makes investment in another Indian company; and

ii)   Such
Investment qualifies as indirect foreign investment;      

 

  •     ‘Indirect Foreign
    Investment’ has been defined to mean downstream investment received by an
    Indian entity from:

(a)   
Indian entities (excluding investment vehicle) provided:

 

•    Such Indian entity (Investor IE) has
received foreign investment and

•    the investor IE is not owned and not
controlled by resident Indian citizens or is owned or controlled by persons
resident outside India;

 

(b)    Investment
vehicle

 

  •     by resident Indian
    citizens or is owned or controlled by persons resident outside India

 

  •     It may be noted that Form
    DI was required to be filed within 30 days of investment even when capital
    instruments were not allotted by recipient Indian company.

 

  •     However, Form DI was not
    required to be filed when either the investor entity or investee entity was not
    an Indian company.

 

Amended FDI regulations w.e.f. from 1st
September 2018


Under the amended FDI Regulations,
Form DI is now required to be filed by investor entity in all situations where
downstream investment is being made by an Indian entity having FDI investment
irrespective of whether investor or investee entity are Indian companies or
not. Further, Form DI is now required to be filed within 30 days of allotment
of capital instruments and not within 30 days of making investment.

 

Thus, care needs to be taken to
ensure that Form DI is appropriately filed by Indian investor entities in all
cases of indirect foreign investment being made into investee Indian entities.
Comparison between applicability of filing of Form DI under different scenarios
under old FDI regulations and new FDI regulations are as under:


Scenario

Investor entity making
downstream investment

Investee entity

Applicability of Form DI
under old FDI regulations

Applicability of Form DI
under New FDI regulations

Scenario 1

Indian LLP / Any Indian
entity (excluding Indian company)

Indian company

Not applicable

Applicable

Scenario 2

Indian company

Indian LLP / Any Indian
entity (excluding Indian company)

Not applicable

Applicable

Scenario 3

Indian company

Indian company

Applicable

Applicable

Scenario 4

Indian investment vehicle

Indian company / Any other
Indian entity

Not applicable

Applicable

 

As per revised reporting format,
Form DI needs to be filed online as part SMF. Form DI is yet to be notified.
Till notified, Indian investor will have to take care of aforesaid
changes. 

 

Analysis of Recent Compounding Orders


An analysis of some interesting
compounding orders passed by Reserve Bank of India in recent months of June and
July, 2018 and uploaded on the website1 are given below. Article
refers to regulatory provisions as existing at the time of offence. Changes in
regulatory provisions are noted in comments section.

 

Foreign Direct Investment (FDI)
compounding orders

 

A.      Phoenix Managed
Services (India) Private Limited

 

Date of order: 19th June
2018

 

Regulation: FEMA 20/2000-RB Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident Outside
India) Regulations, 2000 (FEMA 20).

 

Issue:

 

(i)    Allotment of shares to Non-Resident
investors under its Memorandum & Article of Association, prior to receipt
of consideration.

(ii)    Delay in reporting receipt of foreign
inward remittance towards share capital;

(iii) Delay in submission of Form
FC-GPR relating to allotment of shares and;

(iv)  Delay in filing ‘Annual Return on Foreign
Liabilities and Assets’ (FLA Return).

 

_______________________________________-

1    
https://www.rbi.org.in/scripts/Compoundingorders.aspx

 

 

Facts:

  •    Applicant is engaged in
    the business of software designing and developing and dealing in computer
    software and solutions etc.
  •    Applicant allotted shares
    to Non-Resident investors under its Memorandum & Article of Association,
    prior to receipt of consideration.
  •    Applicant reported receipt
    of remittances to RBI with a delay ranging from 3 months to 3 years
  •    Applicant filed form
    FC-GPRs with a delay of 4.5 years. Applicant did not file FLA return for FY
    2012-13 to FY 2014-15. Whereas for FY 2015-16 and 2016-17, Applicant filled FLA
    returns with delay.

 

Regulatory provisions:

 

  •     Paragraph 8 of Schedule 1
    to Notification No. FEMA 20 requires issue of shares within 180 days from the
    date of receipt of the inward remittance. 
  •     Paragraph 9(1)(A) of
    Schedule 1 to Notification No. FEMA 20 – requires reporting of inward remittance
    for FDI investment within 30 days from receipt of such remittance
  •     Paragraph 9(1)(B) of
    Schedule 1 to notification No. FEMA 20 requires filing of Form FC-GPR within 30
    days from the date of issue of shares.
  •       Paragraph 9(2) of
    Schedule 1 to Notification No. FEMA 20 read with A. P. (DIR Series) Circular
    No. 29 dated 2nd February, 2017, requires filing of FLA return on or
    before the 15th day of July each year.

 

Contravention:

 

Relevant Para of FEMA 20 Regulation

Nature of default

Amount involved
(in INR)

Time period of default

Paragraph 8 of Schedule 1

Allotment of shares to Non-Resident investors prior to receipt
of consideration

10,06,069

1 year 6 months to 3 years 10 months

Paragraph 9(1)(A) of Schedule 1

Delay in reporting of inward remittances for share capital to
RBI

10,06,069

3 months to 2 years & 8 months

Paragraph 9(1)(B) of Schedule 1

Delay in filing of Form FC-GPR

10,00,000

4 years & 6 months

Paragraph 9(2) of Schedule 1

Non-filing / delayed filing of FLA return.

–

5 financial years

 

 

Compounding penalty:

 

Compounding penalty of Rs.1,14,732
was levied.

 

B.      Strides Shasun
Limited

 

Date of Order: 28th June
2018

 

Regulation: FEMA 20

 

Issue: 

 

Issuance of Employee Stock Options
(ESOPs) to the person resident outside India in the brownfield pharmaceutical
company without obtaining necessary prior approval at a time when the foreign
investment
in brownfield pharmaceutical sector was under the approval route.

 

Facts:

  •    Applicant is engaged in
    pharmaceutical industry, as manufacturer, producer, processor and formulator of
    proprietary medicine, drugs etc.
  •    In February, 2014,
    Applicant issued 50,000 ESOPs exercisable/ convertible into 50,000 equity
    shares to a non-resident employee at an exercise price of Rs.322.30 per share.
  •    In March, 2015, the
    non-resident employee exercised 10,000 Options and accordingly, 10,000 shares
    were allotted by the Applicant to the said non-resident employee.
  •    FDI upto 100% under the
    Automatic route was permitted in the pharmaceuticals sector till November 2011.
  •    Subsequently, with effect
    from 3rd November 2011, above FDI policy was amended. Different
    criteria was prescribed depending upon whether investment in pharmaceutical
    sector was greenfield (i.e. investments in new companies) or brownfield (investment
    in existing companies).  FDI upto 100%
    under the automatic route was permitted only for greenfield investments in
    pharmceuticals sector. However, for investment in existing Indian pharma
    companies (i.e. brownfield investments), FDI upto 100% was brought under the
    government route.
  •    Hence, as issuance of
    ESOPs and allotment of shares to non-resident employees in March 2015 was in
    violation of FDI regulations as amended in November 2011, SSL applied to
    Department of Pharmaceuticals, Ministry of Chemicals & Fertilizers
    (pursuant to abolishment of FIPB) in January 2017.
  •    Department of
    Pharmaceuticals, Ministry of Chemicals & Fertilizers granted its approval,
    advising the Applicant to approach RBI for compounding the contravention
    committed by issuing abovementioned ESOPs, as brownfield investment in
    pharmaceutical sector was under approval route at the time of issuance of
    ESOPs, thus requiring prior FIPB approval.
  •    In the compounding
    application, SSL submitted that ED had asked it to furnish certain information
    and documents in relation to export / import transactions. Hence, RBI sought
    comments from ED as to whether offence being compounded by RBI, i.e. issuance
    of ESOP was being investigated by ED and if it had any objection in compounding
    the said offence.
  •    ED replied to RBI that its
    investigation did not pertain to the offence being compounded by RBI and hence,
    RBI proceeded with this compounding application.

 

Regulatory
Provisions:

 

  •    FEMA 20 as amended from
    time to time read with Notification No.FEMA.242/2012-RB dated 19th
    October 2012. 

 

Contravention:

 

  •    Issuance of ESOPs without
    prior approval from erstwhile FIPB.
  •    Period of Contravention is
    approx. 3.9 years. 
  •    Amount of Contravention is
    approx. Rs.1.61 crore.

 

Compounding
penalty

 

Compounding
penalty of Rs.1,54,748 was levied.

 

Comments:

  •    W.e.f. 3rd
    November 2011 and until December 2016, FDI in existing Indian companies (i.e.
    brownfield investment) engaged in pharmaceutical sector was permitted upto 100%
    only under FIPB approval route.
  •   W.e.f. 7th December
    2016, FDI in brownfield pharmaceutical sector upto 74% is permitted under the
    Automatic Route and upto 100 % under Approval Route.
  •     Further, existing compounding regulations provide that compounding
    proceedings can be undertaken only when same offence is not under investigation
    by ED. Hence, if any applicant is under investigation by ED for specific
    offence being committed under FEMA regulations, compounding application cannot
    be filed for same offence but it can be filed for a different offence.
  •     This case demonstrates need for ESOPs plans to be in compliant
    with extant FEMA regulations.

 

C.   Rajasthan Hospitals
Limited

 

Date of Order: 19th July
2018

 

Regulation: FEMA 4 /2000-RB Foreign
Exchange Management (Borrowing or Lending in Rupees) Regulations, 2000

 

Issue:

 

Availing of loan from NRI without
issue of Non-Convertible Debentures (NCDs) made by public offer.

 

Facts:

 

  •    Applicant borrowed Rs.
    49.80 lakh from NRI, Dr. Jawahar Lal Taunk, a US resident through wire transfer
    from USA in March 2017.
  •    This transaction was
    reversed on 4th April, 2018 when the above amount was refunded to
    the lender.

 

Regulatory Provisions:

 

  •    Regulation 5 (i) of
    Notification No. FEMA 4/2000-RB permits Indian Company to borrow in rupees on
    repatriation or non- repatriation basis from an NRI only by way of issue of
    NCDs through public offer.

 

Contravention:

 

  •    Borrowing from NRI was not
    through issuance of NCDs made by public offer.
  •    Period of Contravention is
    approx. one year. 
  •    Amount of Contravention is
    Rs.49.80 lakh


Compounding penalty:

 

Compounding penalty of Rs.77,400
was levied.

 

Comments:

Raising debt by Indian Companies
from NRIs is highly truncated under extant FEMA regulations.

NCD Route: Indian
companies may avail loan by way of issuing NCD through a public offer.


ECB Route: Indian Company may borrow from NRI, who are its shareholders
subject to compliance of ECB regulations viz Indian Company being eligible borrower,
end-use restrictions, all-in-cost ceilings etc., and NRI lender being eligible
lender.

 

D.      Vigno Prasath

 

Date of Order: 10th July
2018

 

Regulation: 

 

  •    Notification No. FEMA
    20/2000-RB FEMA (Transfer or Issue of Security by a Person Resident Outside
    India) Regulations, 2000.

 

Issue:

 

  •    Transfer of shares of an Indian company to
    a person resident outside India without filing form FC-TRS.
  •    Receipt of sale
    consideration for transfer of shares on deferred payment basis.
  •    Receipt of sale consideration
    through third parties.

 

Facts:

  •    Applicant is a resident
    individual being one of the shareholders holding equity shares of Sathya Auto
    Private Limited (SAPL) an unlisted private Indian company;
  •    Applicant transferred
    shares held by it in SAPL to a non-resident Indian (NRI);
  •    Sale consideration was
    paid by NRI as follows

 

Sr No

Date of payment

Mode of payment

Amount (INR)

1.

17th March 2007

NRI transferred funds from his NRE A/c to its Indian company,
AHPL which in turn made payment to Applicant

12,50,000

2.

4th April 2007

12,50,000

3.

16th October 2007

33,50,000

4.

23rd April 2008

Funds transferred from AHPL to SAPL, which in turn made the
payment to applicant

182,329

 

 

  •    As can be seen from above,
    whilst shares of SAPL were sold to NRI consideration was received through the
    third parties namely, AHPL and SAPL.
  •    Also, part of sale
    consideration was received by the Applicant on a deferred payment basis over a
    period of one year without obtaining RBI approval.
  •    Form FC-TRS relating to
    transfer of shares was filed with delay of around 4 years.

 

Regulatory Provisions:

 

  •    Para 8 of schedule 1 to
    FEMA 20 – Lays down 2 permitted modes of payment of sale consideration: (1)
    inward remittance through normal banking channels or (2) debit to NRE / FCNR
    account of the person concerned;
  •    Regulation 10A(b)(iii) of
    FEMA 20 – Requires submission of declaration in Form FC-TRS at the time of
    transfer of shares.
  •    Regulation 10A(b)(iii) of
    FEMA 20 (as it stood at the time of transfer) – Requires prior approval of RBI
    for receipt of deferred consideration.

 

Contravention:

 

Relevant Para of FEMA 20
Regulation

Nature of default

Amount involved (in INR)

Time period of default

Regulation 10A(b)(iii) read
with Paragraph 8 of Schedule 1

Receipt of sale
consideration by the applicant through third parties, not being a permitted
method of payment under FEMA Regulations

59,50,000

8 years & 7 months to 9
years & 8 months

Regulation 10A(b)(iii)

Receipt of sale
consideration by the applicant on deferred payment basis

34,50,000

9 years & 8 months

Regulation 10A(b)(iii)

Transfer of shares by the
applicant without filing Form FC-TRS

59,50,000

Approx. 4 years

 

 

Compounding penalty:

 

Compounding penalty of Rs. 1,59,175
was levied.

 

Comments:

Share transfer by a resident buyer
to a non-resident seller on a deferred payment basis was not allowed under the
extant FDI Regulations and therefore required prior RBI approval.

 

However, RBI vide Notification No.
FEMA 386/2016 dated 20th May, 2016 FEMA (Transfer or Issue of
Security by a Person Resident Outside India) (Seventh Amendment) Regulations,
2016, permitted transfer of shares between resident buyer and non-resident
seller on deferred payment basis subject to the following conditions:

 

i.    Not
more than 25% of the total consideration can be paid by the buyer on a deferred
basis

ii.   Consideration
can be deferred for not more than 18 months from the date of the transfer
agreement

iii.  Consideration can be settled through an Escrow Arrangement between
the Buyer and Seller for a period not exceeding 18 months from the date of
transfer agreement

 

If total consideration has been
paid by the buyer to the seller, sale consideration can be indemnified by the
seller for a period not exceeding eighteen months from the date of payment of
full consideration.

 

Further, apart from Applicant, i.e.
Mr. Vigno Parsath, there were three other shareholders of SAPL who had also
sold their shares to non-resident and wherein all above contraventions had
taken place.

 

As facts were similar, RBI levied
similar penalty of Rs. 1.59 lakh in all other cases.

 

Overseas Direct Investment (ODI)
compounding orders

 

E.   PC Jeweller Limited

 

Date of Order: 12th
July, 2018

 

Regulation:

 

FEMA 120/2004-RB Foreign Exchange
Management (Transfer or Issue of any Foreign Security) Regulations, 2004 (FEMA
120)

 

Issue:  

 

  •    Making outward
    remittances to the overseas entity without submission of Form ODI.
  •     Making outward
    remittances to the overseas entity under the automatic route when the same was
    permitted only with prior approval.

 

Facts:

 

  •     The applicant set up a
    wholly-owned subsidiary (WOS) viz. P. C. Jeweller Global DMCC in UAE in June,
    2016 and made remittances amounting to USD 2,00,00,500 to the overseas WOS.
  •     The remittances were
    reported in form ODI-Part-I within the prescribed time except in one instance
    of USD 500 wherein applicant reported the remittance with delay beyond the
    prescribed time.
  •     Applicant had to remit
    USD 500 to compensate for shortfall in first remittance on account of deduction
    of bank charges.
  •     Applicant was under
    investigation by Directorate of Revenue Intelligence (DRI) which was concluded
    in July 2014 and a show cause notice (SCN) dated 8th July, 2014 was
    issued to the applicant. Applicant had filed an appeal against the SCN to
    Commissioner (customs) Imports in January 2015 which is pending till date.
  •     Accordingly, as DRI’s
    investigations were pending, Applicant was not eligible to undertake overseas
    direct investment (ODI), under automatic route pending disposal of the appeal.
    Hence, prior approval of RBI was required before making ODI.
  •     Further, RBI had asked ED
    to submit whether contravention sought to be compounded was under ED’s
    investigation or not. However, as ED did not reply, RBI proceeded with the
    compounding process

 

Regulatory Provisions:

 

  •     Regulation 6(2)(vi) of
    FEMA 120 requires an Indian Party making direct investment in a JV)/WOS outside
    India to submit Form ODI Part-I, the Authorised Dealer within 30 days of making
    such investment
  •     Regulation 6(2)(iii) of
    FEMA 120 – Indian Party may make direct investment in a JV/WOS outside India
    subject to the condition that the Indian Party is not on the Reserve Bank’s
    exporters’ caution list / list of defaulters to the banking system circulated
    by the Reserve Bank and/or is not under investigation by any investigation /
    enforcement agency or regulatory body.

 

Contravention:

 

  •     Delay in filing of Form
    ODI beyond the prescribed period of 30 days from the date of making investment.
  •     Period of contravention
    is 1.4 years and amount of contravention is INR 33,745.
  •     Making ODI investment
    pending investigation by Directorate of Revenue Intelligence.
  •     Period of contravention
    is approx. 1.6 years and amount of contravention is approx Rs.133.86 crore.

Compounding penalty

 

Compounding penalty of Rs.
74,13,478 was levied.

 

Comments:

Indian Entities to be careful
during pending any investigation by any regulatory body and refrain from making
any ODI Investments without prior approval during the pendency of such
investigation

 

F.  Endurance Technologies
Limited

 

Date of Order: 21st June
2018

 

Regulation:

 

  •    FEMA 120/2004-RB – Foreign
    Exchange Management (Transfer or Issue of any Foreign Security) Regulations,
    2004

 

Issue:

 

  •    Delay in filing Form
    ODI beyond the stipulated time period.
  •    Funding of overseas
    investment through a mode other than the permitted modes.
  •    Non-submission of
    Annual Performance Reports (APR) within stipulated time period.

 

Facts:

 

  •    Applicant is engaged in
    the manufacturing of the automotive components, suspension products,
    transmission products and brake systems.

  •    Overseas investment was
    made by Applicant under the automatic route in an Italian SPV in May 2007.
  •    Form ODI in relation to the
    said investment was filed with a delay.
  •    Initial share capital
    amounting to Euro 10,000 and the incorporation expenses amounting to Euro 500
    were paid by Applicant’s German subsidiary namely, Endurance Amann GmbH which
    were reimbursed by the Applicant in 2017
  •    Applicant had extended
    loans to its Italian SPV and the interest accrued on the loans was capitalised.
    There was a delay in reporting such capitalisation of interest
  •    The APRs for two years
    i.e. from the year ended 31st March, 2015 to the year ended 31st
    March, 2016 were submitted with delay.

 

Regulatory provisions:

 

  •    Regulation 6(2)(vi) of
    FEMA 120 – requires filing of Form ODI in case of overseas investment by Indian
    Entities
  •    Regulation 6(3) of FEMA
    120, provides the list of permitted methods of funding of overseas investment.
  •    Regulation15 (iii) of FEMA
    120, requires annual filing of an Annual performance Report (APR) on or before
    a specified date in respect of each JV or WOS outside India.


Contravention:

 

  •    The overseas investment
    made by Applicant in the Italy SPV was reported with delay in Form ODI-Part-1.
  •    Period of contravention is approx. 9 years
    and 9 months and amount of contravention is approx. Rs 3.35 lakh.
  •    Funding of the overseas
    investment was done through a mode other than that permitted under regulation
    6(3) of FEMA 120. Period of contravention is approx. 10 years and amount of
    contravention is approx. Rs 8 lakh.
  •    APRs for two years i.e.
    year ended 31st March, 2015 and 31st March, 2016 were
    submitted with delay.

 

Compounding penalty:

 

Compounding penalty of Rs. 6,74,942
was levied.

 

Comments:

Indian
entities to ensure that funding of overseas investments is done only via
permitted modes under FEMA. Further, in case of conversion of loan into equity
it is necessary that due process prescribed by law is followed. This involves
intimation to AD banker by filing prescribed form, obtaining share certificate
within prescribed time lines, etc.

 

In a similar case of CI Global
Technologies Pvt Limited2, Indian Company made payment for ODI
Investment by way of Travellers Cheque, which is not a permitted mode of
funding. Compounding Penalty was levied in this case as well. ____________________________________

2          CA
No 4634 / 2018 dated 8th June 2018

 

G.   Anand Rathi Wealth
Services Limited

 

Date of Order: 24th
April, 2018

 

Regulation: FEMA 120 / RB-2004 Foreign
Exchange Management (Transfer or Issue of any Foreign Security) Regulations,
2004

 

Issue:

  •    Non-submission of Annual
    Performance Reports (APRs) for the period 2006 to 2009.
  •    Write off of entire amount
    of ODI under automatic route without obtaining fair valuation certificate and
    without submitting APRs.

 

Facts:

  •    Applicant is engaged in
    the business of funds management and venture capital, financial advisor, wealth
    management etc., in India.
  •    Applicant invested USD
    30,000 in October, 2005 in an overseas WOS viz. Anand Rathi India Realty Fund
    in Mauritius. The overseas WOS was unable to commence operations and therefore
    Applicant decided to close the overseas WOS in May, 2008.
  •    The name of the Overseas
    WOS company was removed from the Registrar of Companies in Mauritius w.e.f. 6th
    August, 2009.
  •   Applicant did not submit
    annual performance reports (APRs) for the period 2006 to 2009.
  •    The applicant had written
    off entire amount of ODI under automatic route without obtaining fair valuation
    certificate and without submitting APRs.

 

 

Regulatory Provisions:

 

  •    Regulation 16(1)(iii) of
    FEMA 120 – Shares of an unlisted company held by any Indian Party in a JV or
    WOS outside India may be transferred, by way of sale to another Indian Party
    only after obtaining a Valuation Certificate from Chartered Accountant /
    Certified Public Accountant determining the fair value of such shares.
  •    Regulation 16(1)(v) of
    FEMA 120 – Shares of an Overseas entity may be sold only if such overseas
    concern has been in operation for at least one full year and APR together with
    the audited accounts for that year has been submitted to RBI.
  •    Regulation 15(iii) of FEMA
    120 – Indian Party making ODI Investments to submit to RBI, every year on or
    before a specified date, an Annual Performance Report (APR) in respect of each
    JV or WOS outside India.

Contravention:

 

Relevant Para of FEMA 120 Regulation

Nature of default

Amount involved (in INR)

Time period of default

Regulation 16(1)(iii)

Write off of the amount of
ODI under automatic route without obtaining fair valuation certificate and
without submitting APRs

Rs. 13.67 lakh

8 years &
7 months

Regulation 16(1)(v)

Disinvestment of stake in
overseas WOS even though the same was not in operation during the previous
year.

Rs. 13.67 lakh

8 years &
7 months

Regulation 15(iii)

Non-submission of APR
annually

Rs. 13.67 lakh

8 years &
7 months

 

 

Compounding penalty

 

Compounding penalty of Rs. 2,10,510
was levied.

 

Comments:

Indian entities need to take care of various
FEMA compliances before closing down or disinvesting stake in their overseas
WOS as non-compliance of the same would invite compounding penalty.   

Corporate Law Corner

1. 
Bhagavan Das Dhananjaya Das vs. Union of India [2018] 96 taxmann.com 189
(Madras)

W.P. NOS. 25455 OF 2017 AND 25456, 25729,
26654, 16903, 16970, 16995, 16999, 17151, 17161 of 2018 & Oths.

Date of Order: 3rd August, 2018

 

Section 164(2) of the Companies Act, 2013 –
Disqualification of directors – The provision which came into effect on
01.04.2014 cannot be given a retrospective effect especially when the
disqualification clause did not trigger in the previous regime

 

FACTS

B was a
director of B Co a private limited company incorporated under the Companies
Act, 1956 (“1956 Act”). He was also a director in other company S Co which was
also a private limited company incorporated under the 1956 Act. B Co had no
operations and was lying dormant till the year 2012.

 

In the year
2012, the directors planned to revive the company and there was infusion of
additional share capital as well as introduction of three new members to the
Board of B Co (one of them being Mr. B). The revival plan did not fructify and
B Co continued to remain a dormant company. B Co did not file its annual
returns from financial year 2012-13. The last annual return filed was in
respect of financial year 2011-12.

 

Registrar Of Companies (“ROC”) on 18.03.2017
issued a show cause notice for striking off the name of B Co. There being no
plans to revive the company, B Co issued a no objection letter to the ROC for
striking off. On 08.09.2017 ROC issued a list of directors disqualified u/s.
164(2)(a) of Companies Act, 2013 (“2013 Act”) which included name of B as well.
Accordingly, B would be prohibited from acting as a director in any other
company for a period of 5 years.

 

Aggrieved, B filed a writ petition before
the Hon’ble Madras High Court. B contended that provisions of section 164(2)(a)
came into effect from 01.04.2014. Applicability of the section would commence
in respect of financial years commencing from 01.04.2014 and should not apply
in respect of offences committed prior to that date.

 

HELD

The High Court examined the provisions of
section 274(1)(g) of 1956 Act and section 164 (2)(a) of the 2013 Act. The
former section only disqualified a director from being appointed as a director
in any “public” company for a period of 5 years which was broadened under the
2013 Act to any company. The High Court observed that section 164(2)(a) was
made effective from 1.4.2014, as per section 2(41) of the 2013 Act, the first
financial year for the purpose of section 164 of the 2013 Act would be
31.3.2015 i.e., from 1.4.2014 to 31.3.2015. ROC thus wrongly applied section
164(2)(a) from financial year 01.04.2013.

 

The High Court further held that the
disqualification of directors of a private company could get triggered only on
or after 30.10.2017, hence, the list of disqualified directors published on the
website of the first respondent in September, 2017 had no legal legs to stand
up to the scrutiny of the Court under Article 226 of the Constitution of India.

 

It was observed that General Circular
No.08/14 dated 4.4.2014 also has made it clear that in respect of the financial
year commencing on or after 01.04.2014, the provisions of the new Act shall
apply, the first financial year for the purpose of section 164(2)(a) shall be
1.4.2014 to 31.3.2015 and the second and third financial years would be from
1.4.2015 to 31.3.2016 and from 1.4.2016 to 31.3.2017 respectively.

 

The High Court observed that by virtue of
the first proviso to section 96(1) of the 2013 Act, Annual General Meeting for the
year ending on 31.3.2017 can be held within six months from the closing of
financial year i.e., 30.9.2017, additionally in the light of section 164(2)(a)
referring to “annual return” and “financial statement”, the
time limit to file annual return u/s. 92(4) of 2013 Act is sixty days from
Annual General Meeting or the last date on which Annual General Meeting ought
to have been held, hence, the time limit to file balance sheet u/s. 137(1) of
the 2013 Act is again thirty days from Annual General Meeting. The
disqualification could get triggered off only on or after 30.10.2017 only, if
any company fails to file annual forms for three financial years. Even beyond
that time limit, additional time limit of 270 days was available by virtue of
the then first proviso to Section 403.

 

The High Court observed that ROC although
sent a show cause notice to B Co before striking off its name, it did not give
any such notice to B before disqualifying him as a director.

 

A company can be struck off if that company
has not been carrying on any business for a period of two financial years and
if their directors had not filed the financial statements or annual returns for
any continuous period of three financial years, they shall be, no doubt,
disqualified to be reappointed as a director of that company for a period of
five years from the date on which the said company fails to do so, whereas for
disqualification of the directors u/s. 164(2)(a), there must be a default for
not filing the financial statement or annual return for a continuous period of
three financial years.

 

The ROC should have sent a notice to B
before taking any action, as it affects its right to continue as directors in
other companies which are complying with the provisions of law.

 

The High Court however clarified that the
mischief of removal of the names of the companies by the Registrar of Companies
and the disqualification of the directors in the defaulting company will go
together, as it is inseparable, and the ROC need not give fresh notice to the directors
for their disqualification from the dormant company, if there is a failure to
file the financial statement or annual return for any continuous period of
three financial years as per section 164(2)(a).

 

The High Court thus set aside the order and
allowed the writ petitions filed before it.

 

2. 
Dinesh Kumar Bhasin vs. Batliboi Impex Ltd.[2018] 96 taxmann.com 94
(NCL-AT)

COMPANY APPEAL (AT) (INSOLVENCY) NO. 318 of
2018

Date of Order: 29th June, 2018

 

Section 9 of Insolvency and Bankruptcy
Code, 2016 – NCLT admitted the petition against the corporate debtor which was
filed by the operational creditor for default in payment of certain sum – A
shareholder of the corporate debtor challenged the admission on the ground that
the same was passed without hearing the corporate debtor – The order of the
NCLT was set aside – The dispute was already settled and hence, the same was
not remanded back to NCLT

 

FACTS

B Co filed an application u/s. 9 of the
Insolvency and Bankruptcy Code, 2016 (“the Code”) for initiating corporate
insolvency resolution process against T Co (“Corporate debtor”). National
Company Law Tribunal (“NCLT”) admitted the application, passed order of
‘Moratorium’ and pursuant to proceeding, an ‘Interim Resolution Professional’
was appointed.

 

Mr. D, a shareholder of T Co, objected to
the order of the NCLT on the grounds that an opportunity of being heard was not
afforded to B Co. Had B Co been heard, it could have pointed out the grounds
for rejection and in case of non-acceptance, it could have settled the dispute.

 

It was submitted to the NCLAT that T Co and
B Co had arrived at a settlement.

 

HELD

NCLAT held that the order of the NCLT was
passed without giving the corporate debtor an opportunity of being heard.
Accordingly, the same was liable to be set aside.

 

However, as the parties had already come to
a settlement, the same could not be remanded back to NCLT.

 

B Co was further ordered to bear the cost of
resolution professional appointed through the order of NCLT.

 

3. 
[2018] 96 taxmann.com 271 (SC)
State Bank of India vs. V. Ramakrishnan

CIVIL APPEAL NOS. 3595 & 4553 of 2018

Date of Order: 14th August, 2018

 

Section 14 of the Insolvency and Bankruptcy
Code, 2016 – Moratorium for limited period mentioned in the Code would not
apply to personal guarantor of a corporate debtor – Amendment to section 14(3)
was clarificatory in nature and accordingly would have a retrospective
application

 

FACTS

V was the Managing Director of corporate
debtor and also its personal guarantor in respect of credit facilities availed
from State Bank of India (“SBI”). The guarantee agreement is dated 22.02.2014.
Owing to non-payment of debt, account of the corporate debtor was classified as
a non-performing asset on 26.07.2015 and proceedings under SARFAESI Act were
initiated.

 

On 20.05.2017 corporate debtor filed a
petition to initiate corporate insolvency resolution process against itself
which was admitted on 19.06.2017 and moratorium was statutorily imposed in
terms of section 14 of the Insolvency and Bankruptcy Code, 2016 (“the Code”).

 

V took up a plea that moratorium would apply
to the personal guarantor as well and as a consequence the proceedings against
personal guarantor ought to be stayed. National Company Law Tribunal (“NCLT”)
admitted the plea and restrained SBI from moving against V.

 

An appeal filed by SBI against the order of
NCLT before the NCLAT was also dismissed. The reasoning was that since the
personal guarantor can also be proceeded against, and forms part of a
Resolution Plan which is binding on him, he is very much part of the insolvency
process against the corporate debtor, and that, therefore, the moratorium
imposed u/s. 14 should apply to the personal guarantor as well.

 

HELD

Supreme Court examined various provisions of
the Code.


Section 2(e) as substituted by the Amendment Act, 2018 which came into effect
from 23.11.2017 specifically provides that provisions of the Code shall apply
to personal guarantors to corporate debtors. It was observed that Part III of
the Code titled “Insolvency Resolution and Bankruptcy for Individuals and
Partnership Firms” was not yet been brought into force. The repealing
provision, namely section 243, which repeals the Presidency Towns Insolvency
Act, 1909 and the Provincial Insolvency Act, 1920, was also not been brought
into force. Section 249, which amends the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993, so that the Debt Recovery Tribunals under
that Act can exercise the jurisdiction of the Adjudicating Authority conferred
by the Code, was also not been brought into force.

 

Supreme Court observed that on a plain
reading, moratorium referred to in section 14 can have no manner of application
to personal guarantors of a corporate debtor. It was observed that so far as
personal guarantors were concerned, Part III has not been brought into force,
and neither has section 243, which repeals the Presidency-Towns Insolvency Act,
1909 and the Provincial Insolvency Act, 1920. The net result of this was that
so far as individual personal guarantors were concerned, they will continue to
be proceeded against under the aforesaid two Insolvency Acts and not under the
Code. It was further observed that use of the word “bankruptcy” in section
60(2) of the Code would not include SARFAESI proceedings but only to the two
Insolvency Acts referred to above.

 

It was observed that the scheme of section
60(2) and (3) was thus clear – the moment there was a proceeding against the
corporate debtor pending under the Code, any bankruptcy proceeding against the
individual personal guarantor would, if already initiated before the proceeding
against the corporate debtor, be transferred to the NCLT or, if initiated after
such proceedings had been commenced against the corporate debtor, be filed only
in the NCLT. However, NCLT would decide such proceedings only in accordance
with the Presidency-Towns Insolvency Act, 1909 or the Provincial Insolvency
Act, 1920, as the case may be.

 

Section 31 which was relied upon by V, only
stated that once a Resolution Plan, as approved by the Committee of Creditors,
takes effect, it shall be binding on the corporate debtor as well as the
guarantor. Supreme Court observed that this was for the reason that otherwise,
u/s. 133 of the Indian Contract Act, 1872, any change made to the debt owed by
the corporate debtor, without the surety’s consent, would relieve the guarantor
from payment. Section 31(1), in fact, makes it clear that the guarantor cannot
escape payment as the Resolution Plan, which has been approved, may well
include provisions as to payments to be made by such guarantor.

 

It was further observed that sections 96 and
101, when contrasted with section 14, would show that section 14 cannot
possibly apply to a personal guarantor. It was open for the Supreme Court to
mark the difference in language between sections 14 and 96 and 101, even though
sections 96 and 101 were not yet been brought into force. This was for the
reason that a law ‘made’ by the Legislature is a law on the statute book even
though it may not have been brought into force.

 

Upon examining the history of the Code and
previous enactments, the Court observed that Parliament, specifically did not
provide for any moratorium along the lines of section 22 of the Sick Industrial
Companies (Special Provisions) Act, 1985 in section 14 of the Code.

 

It was observed that Amendment of 2018,
which makes it clear that section 14(3), is now substituted to read that the
provisions of section 14(1) shall not apply to a surety in a contract of
guarantee for corporate debtor. It was held that object of the Amendment was to
clarify an overbroad interpretation of section 14 and such the same was a
clarificatory amendment which would be retrospective in nature.

 

The order of the NCLT was thus set aside.  

 

Allied Laws

1.       Evidence – Admissibility of electronic
evidence without certification as required under the provision of the
Act–Valid. [Evidence Act, 1872; Section 64B]

 

Shafhi Mohammad vs. The State of Himachal
Pradesh SLP (CRL.) No. 2302 of 2017 dt. 30/1/2018 (SC)

 

An apprehension was expressed on the
question of applicability of conditions u/s. 
65B(4) of the Evidence Act to the effect that if a statement was given
in evidence, a certificate was required in terms of the said provision from a
person occupying a responsible position in relation to operation of the
relevant device or the management of relevant activities.

 

It was argued
that if the electronic evidence was relevant and produced by a person who was
not in custody of the device from which the electronic document was generated,
requirement of such certificate could not be mandatory, since if this is not so
permitted, it will be denial of justice to the person who is in possession of
authentic evidence/witness but on account of manner of proving, such document
is kept out of consideration by the court in absence of the certificate.

 

The Court
clarified the legal position on the subject of the admissibility of the electronic
evidence, especially by a party who is not in possession of device from which
the document is produced. It held that such party cannot be required to produce
certificate u/s. 65B(4) of the Evidence Act. The applicability of requirement
of certificate being procedural can be relaxed by Court wherever interest of
justice so justifies.

 

2.      
Co-Operative Housing Societies
– Voluntary Donation by members of Housing Societies at the time of sale – Even
though voluntary – Can be read as voluntarily with pressure – Illegal.
[Maharashtra Co-operative Societies Act]

 

Alankar Sahkari Griha Rachana Sanstha
Maryadit, through Chairman S.K. vs. Atul Mahadev Bhagat and Anr. Writ Petition
No. 4457 of 2014 dt. 31/08/2018 (Bom.)(HC). www.itatonline.org

 

The facts of
the case are that a donation of Rs. 5,00,000/- was made by the respondents to
the Petitioner society. It was alleged by the Respondent that the amount
of  Rs. 5,00,000/- was paid for the
purpose of regularising the transfer of plot to a third party by the respondents.

 

The Petitioner
pointed out that there has been admission on the part of the Respondents with
respect to the amount of Rs. 5,00,000/- being a donation.

 

It was held
that, after the completion of construction of the bungalow, the Respondents
were in need of money and therefore they decided to sell the plot. On the
background of such facts, a person facing financial difficulties will not
donate an amount of Rs.5,00,000/- to the housing Society. Even though in the
present case, the Respondents have given admission that they paid Rs.5,00,000/-
towards donation to the Petitioner-society, it cannot be further read that it
was paid voluntarily without any pressure.

 

Hence, it was
concluded that the amount paid was not donation but money was a transfer fee paid
out of compulsion and it was not a voluntary payment.

 

3.      
Natural Justice – Additional
Evidence – Chance for rebuttal. [CPC, 1908; O.41, R. 27]

 

Akhilesh Singh vs. Lal Babu Singh and Ors.
(2018)4 SCC659

 

A suit seeking
partition of their share in joint family properties was filed by the sons of
the grandfather of the Appellant. The suit was decreed and the Respondents
aggrieved, preferred an appeal. Various applications were filed for accepting
additional evidence. Since, nobody had appeared on behalf of the Appellant, the
High Court proceeded with the hearing of the appeal and relying on additional
evidence set aside the judgment and decree of the Trial Court. Aggrieved by
such order, the present appeal was preferred. It was held by the Court that the
Appellate Court before which any statement in sale deeds was relied ought to
have given an opportunity to lead evidence in rebuttal or to explain the
admission. Opportunity to explain the admission contained in the sale deeds was
necessary to be given to the contesting party. Accordingly, the High Court
order was set aside.

 

4.      
Precedent – Matter pending
before the Supreme Court – No stay granted neither set aside – Law laid down by
the co-ordinate Bench to be followed.

 

Industrial Mineral Co. (IMC) vs. Commissioner
of Custom. 2018 (15) G.S.T.L. 249 (Mad.) (HC)

 

In the present
case, the adjudicating authority had mentioned that the case on hand is similar
to another case, passed by the Customs, Excise & Service Tax Appellate
Tribunal, where the said case has been questioned by the Department, before the
Hon’ble Supreme Court and that the issue is yet to reach a finality.

 

The Court was
of the view that when the order passed by the Tribunal has not been stayed or
set aside by the Hon’ble Supreme Court, it is the bounden duty of the
adjudicating authority to follow the law laid down by the Tribunal. Since a
binding decision has not been followed by the adjudicating authority in this
case, this Court can interfere straightaway without relegating the assessee to
file an appeal. Accordingly, the order
passed by the Tribunal was quashed.

 

RIGHT TO INFORMATION (r2i)

PART A I  DECISION
OF SIC

 

  •    SIC awards Rs. 10,000 relief to RTI
    applicant

Telangana State
information Commission has awarded a compensation of Rs. 10,000 to a senior
citizen who was fighting for information regarding her revised pension and
other records from the medical department for the last 10 months. Dr TSS
Lakshmi (76), a retired professor of dermatology/Medical Superintendent of
Osmania General Hospital, had filed a Right To Information petition in December
2017 seeking information from the Director of Medical Education on the revision
of her pension details. “Provide me with the xerox copy of my service register
and information of health card and a copy of the proposal for revision of pay
fixation and pension,” said the applicant in the petition. However, the
applicant did not get the required information even after 30 days of the
standard procedure time mentioned under the RTI Act, 2005.

 

In the follow up hearing of the case, she
was informed by the Public Information Officer that there were no records of
her data. Irked by the PIO’s response, the Chief Information Commissioner Dr
Raja Sadaram Soma ruled in favour of Lakshmi. He said that the complainant
retired in 2002 and that she has been drawing pension from the State,
suggesting that the PIO’s response was not convincing at all.

 

(Source:http://www.newindianexpress.com/states/telangana/2019/mar/17/sic-awards-rs-10000-relief-to-rti-applicant-1952150.html)

 

  •  RTI applicant can choose mode of information collection: SIC

The State Information Commission has held
that it is for the information seeker under the Right to Information Act to
choose the mode of collecting the required information and that the State
Public Information Officer (SPIO) has no discretionary power to dictate any
particular mode.The commission made the observation while issuing a show cause
notice to the SPIO of the Revenue Divisional Office, Kottayam, for asking an
information seeker to visit the office and gather the required information by
perusing the relevant files there.

 

The commission pointed out that as per
section 2(j) of the RTI Act, right to information meant the information held by
or under the control of any public authority and which include the right to
inspect work, documents, records, and take note, extracts or certified copies
of documents or records. The Commission pointed out that section 2(i)(ii)(iii)
and (iv) of the Act spoke of the right of the information seeker to gather
information by adopting his/her own mode of choice.

 

(Source:https://www.thehindu.com/news/national/kerala/rti-applicant-can-choose-mode-of-info-collection-sic/article26493229.ece)

 

PART B I RTI ACT, 2005

 

  •     With the RTI Law in Place,
    Rafale Deal Secrets Can’t Be Called ‘Stolen’

For discovering an incriminating document from the defence department, a
journalist is threatened. For attaching those documents to a public interest
litigation, a lawyer is threatened with prosecution under the Official Secrets
Act. The battle is now between the freedom of speech and official secrecy. Can
official deals, if wrongful, be protected under the curtains of secrecy?

In the wake of resistance and criticism from media bodies and the public,
the attorney general said the government had no intention of prosecuting
journalists and lawyers for using the ‘documents’.

 

Then Centre filed an affidavit on March 13, 2019 stating that those who
leaked were guilty of penal offences including theft. It was claimed that
annexed notes were marked ‘secret’, and exempted from disclosure even under the
Right to Information Act. It also raised a point under the Evidence Act, on the
use of evidence derived from unpublished official records relating to the
affairs of the state without permission.

 

These claims reflect the intention to attack the review petition on
technical grounds, without condemning the veracity of the contents that
strengthen allegations. First of all, it is not a trial in which admissibility
of evidence need to be thoroughly examined; the government can raise those
points in the trial that happens after the investigation the petitioners
are seeking. The facts of the case have to be considered to decide whether a
probe should be ordered.

 

The second point is on the documents being marked ‘secret’. Which part of
the deal is secret, and why? The test established by the Supreme Courts of
India and the US in several cases to withhold a document as secret is the
doctrine of ‘clear and present’ danger. The Pentagon Papers case in the
US and Raj Narain’s case against Indira Gandhi in India, the Supreme Courts
laid down the norm that the danger should be so clear that secrecy needs to be maintained.

 

In Pentagon Papers, failures of the US Army in Vietnam were leaked
by the New York Times, Washington Post and others. The US
government wanted to prevent newspapers from publishing these reports, citing
‘national security’. In the Raj Narain case, the Centre was refusing to
share the blue book for the then prime minister’s visit during electioneering,
even many years after the event. The Centre has a duty to explain how a dissent
note from three negotiators would pose a clear and present danger to
‘security’.

 

To say that this document could not have been disclosed even under RTI
Act is legally not tenable, because the RTI Act provided for disclosure of
defence details and information from exempted organisations as well in the
context of corruption and human rights violation. The political executive
cannot use the Official Secrets Act and a ‘national security’ defence, without justifying them, to hide the truth and prevent a
probe.

 

The very origins of the Official Secrets Act was to muzzle the voice of
the opposition and criticism. The pre-independence 1923 Official Secrets Act
promotes secrecy and confidentiality around ‘governance’. It is shocking that
attorney general, representing the Centre, said the prosecution had stolen
‘secret’ documents and pleaded with the Supreme Court not to consider the
stolen parts of the deal papers.

 

The review of the apex court’s December 14 decision will have very
serious implications because the petitioners – Yashwant Sinha, Arun Shourie and
Prashant Bhushan – are seeking an FIR against Prime Minister Narendra Modi and
others involved in the Rafale deal.

 

Relying largely on documents published in the media, the petitioners want
the Supreme Court to reverse their conclusion about the absence of alleged
commercial favouritism, because certain critical information was suppressed
from judicial scrutiny.

 

The AG attacked the review petition, claiming the documents were stolen
and then attached to the petition before the bench, which means the petitioners
are involved. It is in this context that the threat of prosecution under the
Official Secrets Act has to be examined.

 

Though the AG has retreated from this threat, it has stirred a debate
about practical application of provisions of the Official Secrets Act, because of
their inconsistency with the Right to Information Act, 2005. One must see how
official secrets are valid when transparency is the law and disclosure the
rule. Secrecy is now an exception.

 

More than a threat to the freedom of press and due process, the use and
abuse of the Official Secrets Act threatens good governance and promotes
corruption.

 

CULTURE OF SECRECY


As rightly observed by the Second Administrative Reforms Commission, the
Official Secrets Act is founded on colonial mistrust of people and primacy of
officials who deal with citizens. The culture of secrecy was established
through this draconian law.

 

The commission’s recommendation to repeal it was rejected. In 2017, a
committee of the cabinet secretariat recommended making the Act more transparent,
at least. That was not acted on.

 

On the one hand, the government fills information commissions with former
bureaucrats to discourage disclosure, and on the other promotes the use of the
Official Secrets Act. The pre-independence Congress party had resolved to
repeal the Act, but every party including the Congress has used it to stifle
voices. When it is used in the forum of the Supreme Court to stall a probe into
the Rafale deal, the public must doubt the commitment to transparency and zero
tolerance of corruption.

 

Every document is not a secret and every leak is not a crime under the
Official Secrets Act. Criminality lies in “intending to benefit enemy country
directly or indirectly”. Sections 3 and 5 of the Act refer to making or
accessing a sketch, plan, model or note or document which is useful to the
enemy or wrongfully communicating it, which is likely to affect the sovereignty
and integrity of India, security of state or friendly relations with foreign
state.

 

THE ACT DOES NOT DEFINE ‘SECRECY’

The most interesting factor is that the Officials Secrets Act does not
define ‘secret’ or ‘official secret’, and does not provide a ‘classification’
of documents. The Manual of Departmental Security Instruction (MODSI) of the
Ministry of Defence has laid down procedures and criterion for classification
of documents as ‘top secret’, ‘secret’ and ‘confidential’.

 

Papers containing vital information which cannot be disclosed for reasons
of national security are classified as ‘top secret’, and these must not be
disclosed to anyone for whom they are not essential. Such papers include
references to current or future military operations, intending movements or
disposition of armed forces, shaping of secret methods of war, matters of high
international and internal political policy, ciphers and reports derived from
secret sources of intelligence.

 

The ‘secret’ classification is reserved for papers the disclosure of
which could cause administrative embarrassment or difficulty, an internal
breach of peace and amity, injury to the interest and prestige of the
government, or would be of advantage to a foreign nation or enemy.

 

The ‘confidential’ category is reserved for papers containing information
the unauthorised disclosure of which, while not endangering national security,
would be prejudicial to the interests of the nation, any government activity or
individuals, or would cause administrative embarrassment or difficulty or be of
an advantage to a foreign nation. In S.P. Gupta, the Supreme Court
rejected the criteria of ‘embarrassment to the government’.

 

OFFICIAL SECRETS ACT VS RTI

Section 2 of the Official Secrets Act defines ‘document’ as ‘document
includes part of a document. This means if any part of the document is secret’,
then the disclosure of part other than ‘secret’ part also can be denied.

 

Section 10 of RTI Act provided for separation of the ‘secret’ part and
release of the rest.

 

This is the conflict between these two Acts. Section 22 of the RTI Act
expressly provided that the provisions of the RTI Act shall have effect
notwithstanding anything inconsistent therewith contained in the Official
Secrets Act, 1923, and any other law for the time being in force or in any
instrument having effect by any law other than the RTI Act.

 

This was further fortified in section 8(2), which stated that information
exempted under sub-section (1) or exempted under the Official Secrets Act, 1923
can be disclosed if public interest in the disclosure overweighs the harm to
the protected interest.

 

The Bofors scandal was the result of a media investigation and the
leakage of key documents. In fact, the official radio of Sweden released
threads of the bribery to Indian dealers behind the Bofors deal with India.
This could happen because there is a Freedom of Press Act in Sweden, which
granted people the right to information back in 1766. The transparency law
ensures corruption-free defence deals.

 

STOLEN TRUTHS

In this context of a 21st century access law overriding a
97-year-old British relic law of secrecy, one has to see whether all papers of
negotiations, undue increase in the price, irrational preference of Anil Ambani
to HAL, ignoring the ‘make in India’ policy, dissent of three members of
seven-member negotiating team against a parallel bargain by the PMO in Rafale
deal, etc., can be considered as ‘official secrets’.

 

Even if agreed that they are stolen, as contended by the AG, the
documents accessed by the media are not condemned as false. This strengthens
the plea to review the Supreme Court’s December 14 decision. The government has
a duty to tell the apex court and people which part of the Rafale deal could
harm security interests, and disclose the rest.

 

Whether citizen, journalist or lawyer, shouldn’t everyone have the right
to criticise and challenge the purchase of Rafale fighter aircraft at a price
much higher than earlier estimated?

 

M. Sridhar Acharyulu is a former Central Information Commissioner and a
professor of media law at Bennett University.

 

(Source:https://thewire.in/law/rafale-deal-official-secrets-act-rti)

 

PART C I INFORMATION ON & AROUND

 

  •     Movie Ticketing Apps Not Allowed to
    Charge ‘Internet Handling Fee’ from Customers, Says RBI In Response to RTI
    Query

An RTI query has revealed that portals like BookMyShow levy an extra
‘internet handling fee’ against each ticket, which is in violation of the RBI’s
Merchant Discount Rate (MDR) regulations that were issued by the Reserve Bank
of India on Dec 6, 2017.

 

As per the regulations, the merchant (in this case, the movie theater)
is supposed to pay an amount to the bank against every transaction made by
customers using a credit or debit card as per MDR regulations.

 

However, movie ticketing apps may be allowing the merchant to transfer
this fee onto unwitting customers by charging it from them in the form of
“internet handling fee”. This fee includes 18 percent Integrated GST
(IGST) which the customer is supposed to pay.

 

(Source:https://www.news18.com/news/buzz/rti-bookmyshow-overcharging-customers-rbi-meity-2068071.html)

 

  •     Rural distress: Farmer suicides in Maharashtra
    doubled in last 4 years, reveals RTI

In the last four years, Amravati division, commonly known as Vidarbha,
recorded highest number of suicides, at 5,214.This was followed by Aurangabad
division, also known as Marathwada, with 4,699 farmer suicides.

 

At a time when drought has been declared in about half of Maharashtra –
about 150 tehsils out of 360 – a Right to Information query has revealed that
the number of farmer suicides in the state has doubled in the last four years.

 

In a letter to the National Human Rights Commission (NHRC), the
Maharashtra government says between 2011 and 2014, which is when the
Congress-NCP was in power, 6,268 famers committed suicide. The number rose
sharply by 91 per cent to 11,995 from January 2015 till the end of 2018.

 

“The core issues of farmers related to the distress in the rural
area is mostly related to the credit, cost and the crop pattern adopted by the
farmers. The issues of health, rural unemployment and natural climate are also
very significant,” Kishore Tiwari, head of Vasantrao Shetti Swawalamban
Mission, Maharashtra government.

 

(Source:https://www.moneycontrol.com/news/india/rural-distress-farmer-suicides-in maharashtra-doubled-in-last-4-years-reveals-rti-3617231.html)

 

  •     Only one musk deer in country’s zoos,
    reveals RTI reply

Only one musk deer is present across zoos in the country, according to a
response obtained under the Right to Information Act.

 

The Central Zoo Authority, under the Ministry of Environment, Forest and
Climate Change (MoECC), stated that the lone male musk deer was in a zoo in
Himachal Pradesh.

 

A Noida-based RTI activist had sought details on the population of musk
deer across states in the country, both in zoos as well as in the wild. He had
also asked statistics related to the poaching of the wild species, if any.

 

“There is only single male musk deer (that) exists in recognized zoo
(Himalayan Nature Park, Kufri as on 31.03.2018),” said the Central Zoo
Authority, which maintains the records of captive animals in zoos.There are
seven musk deer species of the genus Moschus and all of them are endemic to
Asia.

 

(Source:https://www.tribuneindia.com/news/nation/only-one-musk-deer-in-country-s-zoos-reveals-rti-reply/739473.html)

 

  •     Does The Office Of CJI Come Under The
    Purview Of RTI Act? SC Finally Lists Its Own Appeal Before Constitution Bench

In the list of cases to be heard by the Constitution bench of the
Supreme Court from March 27th, the Supreme Court has included its
own appeal against a Delhi High Court judgment that had held that the Supreme
Court and the Chief Justice of India are “public authorities” under
the Right to Information Act. Three Judge bench of Delhi High Court comprising
the then Chief Justice A P Shah, Justice Vikramjeet Sen and Justice S
Muralidhar had upheld the single bench judgment that Supreme Court and the
Chief Justice of India have statutory duty to furnish information sought by
citizens regarding the functioning and administration of the Supreme Court. The
single bench had dismissed the challenge against the order of Central
Information Commission whereby it had directed the Supreme Court CPIO to
provide the information requested by Subhash Chandra Agarwal for supply of
information concerning declaration of personal assets by the Judges of the
Supreme Court.

 

(Source:https://www.livelaw.in/top-stories/constitution-bench-hearing-list-143623)

 

  •     Only 920 MBBS seats added in 5 years
    against 10,000 approved: RTI

Only 920 MBBS (Bachelor of Medicine and Bachelor of Surgery) seats have
been added in the government medical colleges against the approved 10,000, in
the last five years, reveals an RTI.

 

According to the RTI filed by Chandra Shekhar Gaur, a resident of Madhya
Pradesh, the government has approved 36 medical colleges for adding 2,615 MBBS
seats in Andhra Pradesh, Gujarat, Jharkhand, MP, Odisha, Punjab, Rajasthan,
Tamil Nadu, Uttarakhand, West Bengal, Manipur and Karnataka.

 

It also released Rs 685 crore in 2015-18 for 12 states for increasing
the number of MBBS seats.

 

In Andhra Pradesh and Rajasthan, only 50 new seats each have been added
against the approved 150 and 350 seats, respectively, in Karnataka, 350 seats
have been created against the approved 550, the RTI revealed.

 

In states like Jharkhand, MP, Tamil Nadu, Uttarakhand, West Bengal and
Manipur not a single seat has been added.

According to the RTI, 450 seats were to be created in MP. But even after
sanction of Rs 108 crore in three years for the four government-owned medical
colleges, not a single seat has been added.

 

In Tamil Nadu, too, over Rs 82 crore has been released by the Centre to
add 345 seats. But the seat count remains the same.

 

States like Odisha (200 seats), Gujarat (170 seats) and Punjab (100
seats) have upgraded their medical colleges and increased the requisite number
of MBBS seats.

 

In 2014, a cabinet committee of the UPA government had approved the
Ministry of Health and Family Welfare’s proposal relating to the
Centre-sponsored scheme for upgradation of government medical colleges and
increasing the number of MBBS seats. It was also announced that Rs 10,000 crore
would be invested for increasing the MBBS seats. Of this, the Centre was to
contribute Rs 7,500 crore and states/UTs Rs 2,500 crore.

 

The funding pattern was to be 90:10 between the central and the state
governments for northeastern states and the special category states. The ratio
of 70:30 was decided for other states.

 

Creation of one MBBS seat cost around Rs 1.20 crore, according to the
cabinet committee in 2014.

 

Again in 2018, the cabinet approved the proposal for adding 10,000
under-graduate seats by 2020-21 and 8,058 post-graduate seats — 4,058 in the
first phase by 2018-19 and 4,000 in the second phase by 2020-21.

 

(Source:https://www.moneylife.in/article/only-920-mbbs-seats-added-in-5-years-against-10000-approved-rti/56456.html)

 

  •     Two years after demonetisation: Okaying
    note ban, RBI rejected govt claim on black money, fake notes

Less than four hours before Prime Minister Narendra Modi announced
demonetisation on November 8, 2016, the Central Board of the Reserve Bank of
India (RBI) gave its approval to the scheme but also rejected, in writing, two
of the key justifications — black money and counterfeit notes — that he would
make in his televised address to the nation.

 

The minutes of the 561st meeting of the RBI’s Central Board,
which was convened hurriedly in New Delhi at 5.30 pm that day, reveal that the
central bank’s directors described the move as “commendable” but also warned
that demonetisation “will have a short-term negative effect on the GDP for the
current year”.

 

The minutes were signed by RBI Governor Urjit Patel on December 15,
2016, five weeks after the meeting was held. In all, six objections, described
as “significant observations”, were recorded in the minutes by the RBI Board.
The RBI directors, after receiving a proposal draft of the scheme from the
Ministry of Finance on November 7, 2016, argued that the government’s
reasoning, that the withdrawal of HD (high denomination) currency notes of Rs
1,000 and Rs 500 would help in curbing black money and restrict circulation of
counterfeit cash, did not really hold good.

 

The minutes list out the justifications given by the Ministry of
Finance.

 

RBI Red Flags

• Short term
negative on GDP

• Rs. 400 crore
fake notes not very significant share of total cash

• Most black money
not held in cash but gold, real estate • Adjustment for inflation, difference
between economic growth and cash available not so stark.

 

(Source:https://indianexpress.com/article/india/two-years-after-demonetisation-okaying-note-ban-rbi-rejected-govt-claim-on-black-money-fake-notes-5438516/)

 

  •     SBI has found fraud worth Rs 7,951.3
    crore in Apr-Dec: RTI reply

The State Bank of India has said as much as Rs 7,951.29 crore involving
1,885 cases of fraudulent activities have come to light during the first nine
months of the current fiscal year. In a reply to a right to information query,
the nation’s largest lender said, the first quarter reported 669 cases of
fraudulent activities amounting to Rs 723.06 crore, the second quarter saw 660
cases involving an Rs 4,832.42 crore and the third quarter reported 556 cases
amounting to Rs 2,395.81 crore. According to RTI activist Chandrashekhar Gaud,
the bank shared the data on Feb. 25.

 

Though he had also sought information about the financial losses to its
customers due to these fraudulent activities, the SBI refused to share the same
saying such information is exempted from disclosure under section 7 (9) of the
RTI Act of 2005. The bank did not share details of frauds such as phishing,
online, debit, credit cards fraudulent transactions or borrowers engaging in
fraudulent activities with the borrowed money.

 

(Source:https://www.bloombergquint.com/business/sbi-has-found-fraud-worth-rs-7-951-3cr-in-apr-dec-rti-reply#gs.1xytaa)

 

  •     Maharashtra: No internal committees in
    ministers’ offices to receive, address sexual harassment complaints

In a response to a Right to Information (RTI) application filed by The
Indian Express, the office of Maharashtra Chief Minister Devendra Fadnavis said
no IC has been established. In addition, none of the ministers’ offices have
such an IC either.

 

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and
Redressal) Act, 2013, mandates that all places of employment with 10 or more
employees are mandated to have a functioning IC. While the Maharashtra CM
Secretariat has 110 employees, including 20 women, all the ministers’ offices
have more than 10 employees. In all, there are 38 ministers, including the
Chief Minister.

 

An RTI request was filed with the CM Secretariat seeking to know the
date of formation of the IC as per the provisions of law. In its reply, Public
Information Officer Geeta Yadav said, “The establishment works related to the
CM Secretariat is handled by the Desk 21 of the General Administration
Department (GAD),” and hence, such a committee was not established at the CM
Secretariat. “However, appropriate action is being taken in the matter after
seeking remarks from the concerned departments,” the reply added.

 

(Source:https://indianexpress.com/article/cities/mumbai/no-internal-committees-in-ministers-offices-maharashtra-sexual-harassment-complain-5605934/)

 

PART D I RTI CLINIC-SUCCESS STORY

 

RTI Clinic of BCAS was approached by Mr.
Gandhi whose goods (Bales) were in the custody of the GST department and a
penalty was charged to him. It was mentioned that on payment of the penalty his
goods would get released by the department, but even after 3 months of paying
the penalty the goods were not released. After filing of a RTI application the
goods were released by the department.

 

RTI Clinic in April 2019: 2nd, 3rd,
4th Saturday, i.e. 13th, 20th and 27th  11.00 to 13.00 at BCAS premises. _

 

 

 

CORPORATE LAW CORNER

1 Commissioner of Income Tax vs. Gopal Shri
Scrips Pvt. Ltd. [2019] LSI-87-SC-2019(NDEL) (SC) Civil Appeal No. 2922 of 2019 Date of Order: 12th March, 2019

 

Section 560(5)
of the Companies Act, 1956 – In the event name of a company has been struck off
the Register of companies, liability, if any, of every director, manager or
other officer who was exercising any power or management, and of every member
of the company, would continue and could be enforced as if the Company had not
been dissolved.

 

FACTS

Commissioner of  Income-tax (“CIT”) Jaipur (IT department) had
filed an appeal u/s. 260A of the Income Tax Act, 1961 in the High Court of
Rajasthan (Jaipur Bench) against the order of Income Tax Appellate Tribunal
(“ITAT”). During the course of the hearing of the said appeal, status of G Pvt
Ltd was sought. ROC had issued communication to the court that name of G Pvt
Ltd been struck off from the register and said company was dissolved. The High Court
of Rajasthan held that the appeal filed has become infructuous and accordingly
dismissed the appeal u/s. 260A of IT Act, 1961. An SLP was filed in Supreme
Court challenging the order of High Court of Rajasthan, dismissing the appeal
of IT department.

 

HELD

The Supreme Court (SC) examined the
provisions of section 560(5) of the Companies Act, 1956 and held that the High
Court failed to notice section 560 (5) proviso (a) of the Companies Act and
further failed to notice Chapter XV of the Income Tax Act which deals with
“liability in special cases” and its clause (L) which deals with
“discontinuance of business or dissolution”.

 

The SC further observed that the
aforementioned two provisions, namely, one under the Companies Act and the
other under the Income Tax Act specifically deal with the cases of the
Companies, whose name has been struck off u/s. 560 (5) of the Companies Act.

 

The SC further concluded that these
provisions provide as to how and in what manner the liability against such
Company arising under the Companies Act and under the Income Tax Act is
required to be dealt with.

 

Since the High
Court of Rajasthan did not decide the appeal keeping in view the aforementioned
two relevant provisions the order of the High Court is not legally sustainable
and hence was set aside. The case was accordingly remanded to the High Court
for deciding the appeal afresh on merits in accordance with law keeping in view
of the relevant provisions of Companies Act and the Income tax Act.

 

(Note: This judgment was delivered in the
context of section 560(5) (a) of the 1956 Act, dealing with the striking of the
name of the Company. 2013 Act covers identical provisions u/s. 248 and hence
this case is relevant in the current context).

 

ALLIED LAWS

1.      
Appeal – Ground before lower
authorities – Issue could not be adjudicated at appellate stage [Code of Civil
Procedure, 1908; Order 41, Rule 22]

 

Gunamma
(D) by L.R. vs. Shevantibai (D) by L.R. and Ors. (2018) 15 SCC 599

 

An issue was raised before
the court which was not raised before the lower authorities.

 

It was observed that the
filing of cross-objection is an optional course of action and not mandatory.
While the same may be correct, Under Order XLI Rule 22 of the Code of Civil
Procedure, 1908 a contest can also be made to a finding adverse to a party
though the decree may be in his favour. No contest to the findings of the
learned first appellate Court was made in the Second Appeal before the High
Court.

 

It was held that it was not
appropriate to go into the said question in the present proceedings under
Article 136 of the Constitution of India.

 

2.               
Evidence – Confessional
Statements after repeated interrogation – Recovery of incriminating material –
Held to be not voluntary and hence invalid [Constitution of India; Article
20(3)]

 

Ashish
Jain and Ors. vs. Makrand Singh and Ors. AIR 2019 SC 546

 

In a criminal appeal before
the honourable Supreme Court, it was observed that all the confessions by the
accused persons were made after interrogation, but the mode of this
interrogation did not appear to be of normal character, inasmuch as
investigating officer had deposed that the accused persons were grilled and
interrogated multiple times before extracting the confessions which lead to the
recovery of the ornaments, cash, weapons and key.

 

It was held that the
confessions that led to the recovery of the incriminating material were not
voluntary, but caused by inducement, pressure or coercion. Once a confessional
statement of the accused on facts is found to be involuntary, it is hit by
Article 20(3) of the Constitution, rendering such a confession inadmissible.
There is an embargo on accepting self-incriminatory evidence, but if it leads
to the recovery of material objects in relation to a crime, it is most often
taken to hold evidentiary value as per the circumstances of each case. However,
if such a statement is made under undue pressure and compulsion from the
investigating officer, as in the present matter, the evidentiary value of such
a statement leading to the recovery is nullified. It was opined that the
recovery of the stolen ornaments, etc., in the matter were based on involuntary
statements, which effectively negates the incriminating circumstance based on
such recovery and severely undermines the prosecution case.

 

The criminal appeal was
dismissed and the order of acquittal was upheld.

 

3.      
Hindu Law – Partition –
Memorandum of Settlement entered into after partition – Admissible in evidence
for collateral purpose provided the document is impounded, stamp duty is paid
together with penalty. [Registration Act, 1908 – Section 17]

 

Sita Ram
Bhama vs. Ramvatar Bhama (2018) 15 SCC 130

 

The facts of the case state
that Plaintiff and Respondent are brothers being sons of Late Mr. D. Mr. D on
25.10.1992 decided to divide his self-acquired movable and immovable properties
between the Plaintiff and the Defendant. The father D, however, did not execute
any settlement deed. D died on 10.09.1993 and thereafter on 09.09.1994, the
Plaintiff and the Defendant recorded a memorandum of settlement as decided by
their father regarding his self-acquired properties. The memorandum of
settlement was signed by mother of the parties as well two sisters had signed
as witnesses. The Plaintiff filed suit for partition.

 

The Defendant pleaded that
there was no cause of action for the Plaintiff to file a partition suit since
the partition had already taken place and a memorandum showed that the
partition had taken place.

 

The lower authorities
accepted the case of the Defendant that the parties which were in joint family
have been divided, there was nothing joint between the parties,  and hence there is no cause of action for the
Plaintiff for filing the suit for partition.

 

In
appeal, the Defendant contended that the memorandum of settlement was a family
settlement deed and a relinquishment document which was not admissible as
evidence, being inadequately stamped and not being registered. The High Court
upheld the view that so called family settlement takes away the share of the
sisters and mother, therefore, the same was compulsorily registrable. The
plaintiff is in appeal against the same.

 

The Hon’ble Apex Court,
while dealing with whether the memorandum of settlement could have been
accepted by the trial court in evidence or whether trial court had rightly
taken the view that the said document was inadmissible, held that the
memorandum of settlement was compulsorily registrable. However, it may be
admissible in evidence for collateral purpose provided the Appellant gets the
document impounded and pays the stamp duty together with penalty.

 

4.      
Natural Justice – Hearing
both sides to a Writ petition mandatory. [Constitution of India; Article 14,
226]

 

Johra and
Ors. vs. State of Haryana and Ors. AIR 2019 SC 542.

 

The High Court, in a writ
petition filed before it observed that they do not deem it necessary to issue
any notice to any of the private Respondents except to the State and its Authorities
considering the nature of the order they intend to pass for the disposal of the
writ petition.

In an SLP filed before the
Supreme Court, the Court observed that when a person is made a party to the
judicial proceedings in relation to a dispute, such person has a legitimate
right to raise an objection that before passing any order in such proceedings,
he should be at least heard and his views/stand in relation to the subject
matter of the proceedings be taken into consideration. The Court is duty bound
to hear all such person(s) by giving them an opportunity to place their stand.

 

It was held by the Supreme
Court that the High Court issued some mandatory directions to the State in
relation to the subject-matter of the proceedings but it was done without
hearing the Appellants (Respondents in the writ petition before the High
Court). It is for this reason, the impugned order was set aside.  

 

CORPORATE LAW CORNER

9. Neena Somani vs. Jaiprakash Associates Ltd.[2019] 111 taxmann.com 293 (NCLT, All.) Date of order: 13th September, 2019

 

Petition filed by depositors u/s 73 of the
Companies Act 2013 (CA 2013) for recovery of interest due is maintainable in
case of deposits accepted by company even prior to 1st April, 2014,
i.e., date on which section 73 of CA 2013 is notified – Depositors entitled to
interest payment from the date of maturity till actual payment is made

 

FACTS

‘N’ had invested her money in the company J
in different fixed deposit receipts (FDRs). However, company J had not repaid
the FDRs on the date of maturity and also not paid the interest for additional
time period for which the money of the investors was kept with it.

 

‘N’ had sent some claim letters to
company J about non-payment of due interest after maturity period of FDRs and
approached company J several times, but had not received any satisfactory
response.

 

‘N’ filed petition u/s 73(4) of CA 2013
seeking direction to company J to make repayment of the interest due from the
date of maturity till the date actual payment was released.

 

Company J contended that the deposits in
respect of which the present petition had been filed were accepted by the
company before the commencement of the Companies Act, 2013, i.e., prior to 1st
April, 2014. It was also submitted that the repayment of these deposits,
after the enforcement of CA 2013, was now governed by section 74 of CA 2013 and
not by section 73 of CA 2013 under which the present petition had been filed.

 

HELD

It was observed that NCLT has held in the
past that it is not the intention of the legislature to differentiate between
depositors prior to or after 1st April, 2014. The remedies cannot be
any different nor can they be categorised into two separate groups. Rule 19 of
the Companies (Acceptance of Deposits) Rules, 2014 clarifies the applicability
of the provisions of sections 73 and 74 of CA 2013 to deposits accepted from
the public by eligible companies, prior to or after the coming into force of
the 2013 Act. The term deposit would mean and include all previous deposits
accepted by the company.      

 

In Jaiprakash Associates vs. Jainendra
Sahai Sinha (in the matter of another depositor of company J) the
Supreme Court had held company J liable to pay interest at the rate of 12/12.5%
per annum from the date of maturity till the actual payment.           

 

As per section 74(2) of CA 2013, the
Tribunal may, on an application made by the company, after considering the
financial condition of the company, the amount of deposit or part thereof and
the interest payable thereon and such other matters, allow further time as
considered reasonable to the company to repay the deposit.          

 

A mere plain reading of the provision shows
that by exercising the power, the Tribunal allows time as it may consider
reasonable to the company to repay the deposit, and since the Tribunal simply
regularised the belated payment which was made by company J to the depositors
by extending the time to make the payment u/s 74(2) of CA 2013, the order of
the Tribunal will not debar ‘N’ from getting the interest after the maturity
till the date the actual payment is made.        

 

Therefore, the Tribunal held that in view of
the order passed by the Supreme Court in another case, the petitioners were
entitled to get the interest at the rate of 12/12.5% p.a. from the date of
maturity till the date the actual payment is released to the depositors. Hence,
‘N’ and other depositors are entitled to get the interest at the rate of
12/12.5% p.a. from the date of maturity till the date payment is released to
‘N’ and other depositors.      

 

Thus, company J was directed to make the
payment to ‘N’ at the rate of 12/12.5% p.a. from the date of maturity till the date the actual payment is released to ‘N’ and other depositors.  

 

FEMA FOCUS

ANALYSIS OF RECENT COMPOUNDING ORDERS

An analysis of some interesting compounding orders
passed by the Reserve Bank of India in the period March to June, 2019 and
uploaded on the website1 is given below. This article refers to
regulatory provisions as existing at the time of offence. Changes in regulatory
provisions are noted in the comments section.

 

FOREIGN DIRECT INVESTMENT (FDI)

A. M/s. Shri Naveen Trehan

Date of order: 1st March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

 

ISSUE

1.  Purchase
of equity shares of an Indian company by an NRI through a resident savings bank
account.

 

FACTS

  •    The NRI acquired equity shares of an Indian
    company from an individual resident in India.
  •    On 28th January, 2016 the NRI
    buyer issued a cheque drawn on HDFC Bank in favour of Indian resident
    individuals towards payment of the sale consideration.
  •    The said amounts were paid through the
    resident savings bank account of the NRI maintained with HDFC Bank.

  •    However, the NRI got converted his ordinary
    resident savings account into an NRO account; the Foreign Investment Division
    (FID) of FED advised the AD Bank to let the NRI know that his investment is
    being treated as     non-repatriable.

 

Regulatory Provisions

  •    Paragraph 3 of schedule 4 of Notification No.
    FEMA 20/2000-RB states that the amount of consideration for purchase of shares
    or convertible debentures of an Indian company on non-repatriation basis shall
    be paid by way of inward remittance through normal banking channels from abroad
    or out of funds held in NRE/FCNR/NRO/NRSR/NRNR account maintained with an
    authorised dealer or as the case may be with an authorised bank in India.

  •    Regulation 5(3) (ii) of Notification No. FEMA
    20/2000-RB states that a non-resident Indian or an overseas corporate body may
    purchase shares or convertible debentures of an Indian company on
    non-repatriation basis other than under Portfolio Investment Scheme, subject to
    the terms and conditions specified in     schedule 4.

 

Contravention

 

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Para 3 of schedule 4 read with regulation 5(3) (ii) of this
regulation

Purchase of equity shares of an Indian company by an
individual pursuant to becoming a Non-Resident Indian (NRI) through a
resident savings bank account

Rs. 39,00,000

15th April, 2015 to 26th April, 2018

 

Compounding penalty

A compounding penalty of Rs.75,350 was levied.

 

Comments

Under provisions of FEMA, once an Indian resident
becomes non-resident, his Indian savings bank account will be designated as NRO
bank account. However, the balance lying in this NRO bank account cannot be
utilised for buying shares of an Indian company either on repatriation or
non-repatriation basis.

 

The said funds can be utilised for undertaking
permissible transactions in the nature of local payments, transfers to another
NRO account, remittance of current income outside India net of applicable
taxes, etc., as permitted by the Foreign Exchange Management (Deposit)
Regulations, 2016.

 

B. M/s. Celon Laboratories Private Limited

Date of order: 15th March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

 

ISSUE

1.  Received
consideration amount from third party for the allotment of shares to NRI on
non-repatriation basis.

2.  Transfer
of repatriable shares issued to non-resident to another non-resident on
non-repatriation basis.

 

FACTS

  •    The applicant, an NRI, was allotted equity
    shares on non-repatriation basis, whereas the consideration of those shares was
    received from DNA Biotec Limited, a resident Indian company on behalf of the
    NRIs.
  •    Further, NRIs were also allotted equity
    shares of an Indian company on repatriation basis. These shares were
    subsequently transferred to another NRI without any consideration and on
    non-repatriation basis.

 

Regulatory Provisions

  •    Regulation 4 of Notification No. FEMA
    20/2000-RB which states that remittance has to be received from the same person
    to whom shares are to be allotted.
  •    Once shares are issued on repatriation basis,
    the same cannot be converted into non-repatriation basis.

 

Contravention

 

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 4

Issue 1: Receiving
consideration amount from third party for the allotment of shares to resident
outside India on non-repatriation basis

 

Issue 2: Transfer of
shares to non-resident under non-repatriation, which were originally held on
repatriation

Issue 1:
Rs. 1,07,25,000

 

 

 

 

 

 

 

 

 

Issue 2:
Rs. 71,68,340

Issue 1: 10 years, 3
months, 7 days

approximately

 

 

 

 

 

 

 

 

Issue 2: 8 years, 6
months, 1 day approximately

 

 

 

Compounding penalty

A compounding penalty of Rs. 2,15,470 was levied.

 

Comments

Under provisions of FEMA, extreme care needs to be
taken that entity / person to whom shares are issued is the same as the one who
has paid consideration and shares cannot be issued on behalf of anyone. Care
also needs to be taken for ensuring that once shares are issued on repatriation basis, the same cannot be transferred on non-repatriation basis.

 

C. M/s. Ibiz Consultancy Services India Pvt. Ltd.

Date of order: 13th March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

 

ISSUE

Taking on record the transfer of shares in the
books of the company without certified FC-TRS.

 

FACTS

  •    The company has taken the transfer of 40,000
    shares on record without certified Form FC-TRS.
  •    Form FC-TRS was submitted for certification
    to the AD Bank on 14th August, 2015, whereas the company has taken
    the transfer of shares on record 18 days prior to filing of Form FCTRS with AD
    Bank

 

Regulatory Provisions

  •    Regulation 4 of Notification No. FEMA 20/
    2000-RB which states that Indian company will record share transfer only upon
    receipt of Form FC-TRS acknowledged by AD Bank

 

Contravention

 

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 4

Taking on record the transfer of shares in the books of the
company without certified FC-TRS

Rs. 4,00,000

18 days approximately

 

 

Compounding penalty

Compounding penalty of Rs. 10,080 was levied.

 

Comments

Any Indian company having non-resident
shareholders should ensure that any share transfer between resident and
non-resident is not taken on record without receiving Form FC-TRS duly
acknowledged by AD Bank.


D. Vijay P Uttarwar

Date of order: 12th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

 

ISSUE

Transfer of shares of Indian company by way of
gift by a resident to non-resident without RBI approval.

 

FACTS

  •    An Indian resident individual transferred
    2,50,000 equity shares of Re. 1 each of an Indian company as gift to a
    non-resident on 31st March, 2016 without obtaining prior RBI
    approval.
  •    Post-facto approval was granted by RBI
    on 12th March, 2018.

 

Regulatory Provisions

  •    Regulation 10A(a) of Notification No.
    FEMA20/2000-RB which provides that transfer of shares by way of gift from
    resident to non-resident is subject to prior RBI approval.

 

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 10A(a)

Transfer of shares by way of gift by a resident to
non-resident without RBI approval

Rs. 2,50,000

2 years approx.

 

 

Compounding penalty

Compounding penalty of Rs. 51,375 was levied.

 

Comments

Transfer of shares by an Indian resident to
non-resident by way of gift requires prior RBI approval both under earlier FEMA
20 regulation as well as revised FEMA 20(R), dated 7th November,
2017.

 

E. Ramasubramanian Balasubramanian

Date of order: 12th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

 

ISSUE

Transfer of shares by way of gift by a resident to
a non-resident without RBI approval.


FACTS

  •    The applicant is an NRI and is also a
    promoter / director of an Indian company, viz., IBIZ Consulting Services India
    Pvt. Ltd.
  •    The applicant transferred 40,000 shares held
    by him in the Indian company to IBIZCS Group Pte. Ltd, Singapore (a
    non-resident entity) for a consideration of Rs. 4,00,000 on 9th
    July, 2015.
  •    Transfer of shares by an NRI to an NR was not
    a permitted transaction under automatic route during the said period.

 

Regulatory Provisions

  •    Regulation 9(2)(ii) of Notification No. FEMA
    20/2000 states that an NRI can transfer shares of an Indian company by way of
    gift or sale only to another NRI.
  •    Hence, NRI cannot transfer shares of an
    Indian company to another person resident outside India.

 

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 9(2)(ii) read with Regulation 3 of FEMA 20.

Transfer of shares by way of gift by an NRI to non-resident
without RBI approval

Rs. 4,00,000

2 years and 4 months

 

 

Compounding penalty

Compounding penalty of Rs. 52,400 was
levied.

 

Comments

It is interesting to note that earlier
Notification No. FEMA 20 provided that NRI could transfer shares only to
another NRI and not to any other person resident outside India without prior
RBI approval. The revised Notification No. FEMA 20(R) permits an NRI to
transfer shares to any other person resident outside India, including an NRI.

 

OVERSEAS DIRECT INVESTMENT
(ODI)

F. Aricent Technologies (Holdings) Limited

Date of order: 15th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2004

 

ISSUE

Making Overseas Direct Investment (ODI) in an
entity with an already existing Foreign Direct Investment (FDI) structure.


FACTS

  •    The applicant, an Indian company, acquired
    the shares of a Mauritian company, Aricent Mauritius Engineering Services PCC
    (Aricent Mauritius), from its existing shareholders.
  •    The total amount remitted by the applicant to
    the existing shareholders for acquiring equity participation of 50.28%,
    amounted to USD 9,00,00,000 (Rs. 572,58,60,000).
  •    However, Aricent Mauritius was already
    holding investment in an existing Indian company, Aricent Technologies Private
    Limited, India (Aricent India) when ODI was made by the applicant Indian
    company.
  •    The resultant structure amounted to making
    ODI in an entity with pre-existing FDI, which is not permitted without the
    prior approval of RBI.
  •    The entire structure, i.e., FDI and ODI, was
    unwound before compounding application was filed.

 

Regulatory Provisions

Regulation 5(1) read with Regulation 13 of
Notification No. FEMA 120/2004-RB (‘FEMA 120’).

 

Contravention

 

Relevant para of FEMA 120 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 5(1)

Making Overseas Direct Investment (ODI) in a company with an
already existing Foreign Direct Investment (FDI) structure

Rs. 572,58,60,000

Three years, one month

 

 

Compounding penalty

Compounding penalty of Rs. 3,72,68,090 was levied.

 

Comments

It is interesting to note that existing Regulation
FEMA 120 governing outbound investment does not specifically mention that ODI
is not allowed in an entity which has FDI structure. Further, in the instant
case, RBI has specifically mentioned in the compounding order that the entire
structure, i.e., both FDI and ODI, was wound up before compounding application
was considered indicates that if both FDI and ODI are existing in one
structure, RBI may not compound the same unless it is unwound. Besides, in the
revised FAQs on ODI published by RBI in May, 2019, a specific answer has been
provided that FDI and ODI in one structure is not permissible under existing
ODI regulations.

Hence, care needs to be taken to ensure that even
in cases where an Indian entity is buying stake from existing investors of a
foreign company, the foreign company should not have any FDI in India to avoid
FDI and ODI in one structure.

 

ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY

G. Mr. Sha Mathew

Date of order: 8th March, 2019

Regulation: FEMA 21/2000-RB Foreign Exchange
Management (Acquisition and Transfer of Immovable property in India)
Regulations, 2000

 

ISSUE

Acquisition of immovable property in India by an
NRI without RBI permission.

 

FACTS

  •    The applicant, Mr. Sha Mathew, an NRI,
    acquired two agricultural properties in Kerala in the year 2012 without
    obtaining prior permission from the Reserve Bank of India.
  •    The immovable properties were acquired for a
    total consideration of Rs. 16,38,700.

 

Regulatory Provisions

  •    Regulation 8 of Notification No.
    FEMA-21/2000-RB dated 3rd May, 2000 provides that an NRI is not
    eligible to purchase any agricultural property in India. Accordingly, the NRI
    was advised to transfer the property to any resident person within six months
    and not to repatriate the sale proceeds outside India without prior permission
    of the RBI.

 

Contravention

 

Relevant para of FEMA 21/2000 Regulation

Nature of default

Amount involved (in rupees)

Approx. Time period of default

Regulation 8

Purchase of immovable property, being agricultural land, by
an NRI without RBI permission

Rs. 16,38,700

05 years, 10 months, 04 days, i.e., from 13th
July, 2012 to 17th May, 2018

 

 

Compounding penalty

Compounding penalty of Rs. 24,53,590
was levied.

 

Comments

In the instant case, based upon the
RBI’s letter to transfer the immovable property to a resident in India, the
applicant transferred the property in favour of his son, who was resident in
India. However, RBI determined the value of land at Rs. 40,30,000 based on a
valuation report as on the date of filing the compounding application.
Accordingly, undue gain was computed at Rs. 23,91,300 (difference between value
as per valuation report, i.e., Rs. 40,30,000 minus Rs. 16,38,700, being cost of
land). Hence, the compounding penalty of Rs. 24,53,590 was levied through which
the entire undue gain derived by the NRI on purchasing agricultural land was
neutralised. The quantum of penalty reflects the stringent view taken by RBI on
purchase of immovable property by citizens from select countries. The said
restriction is not applicable if such nationals are OCI card-holders2
.

 

OPENING AND MAINTAINING
ORDINARY SAVINGS ACCOUNT

H. Mr. Thakorbhai Dahyabhai Patel

Date of order: 18th March, 2019

Regulation: FEMA5/2000-RB Foreign Exchange
Management (Deposit) Regulations, 2000

 

ISSUE

  •    Transfer of funds from NRE account to
    ordinary     savings account.

 

FACTS

  •    The applicant, Mr. Thakorbhai Dahyabhai
    Patel, was an OCI and a person non-resident in India in terms of section 2(w)
    of FEMA.
  •    The applicant had opened and maintained an
    ordinary savings bank account with ICICI Bank and Prime Co-operative Bank
    Limited.
  •    Being a non-resident, he was not eligible to
    open and maintain an ordinary savings account as per extant FEMA guidelines.
  •    The applicant had granted a loan of Rs.
    1,39,01,100 to his friend, Mr. Narendra V. Solanki, a person resident in India,
    in five tranches starting from 1st April, 2013 to 4th
    September, 2013, from his ordinary savings account maintained with ICICI Bank.
  •    He had also charged interest at the rate of
    6% per annum on the above loan.
  •    The amount given as loan represented either
    transfer of funds from his NRE Account maintained with HDFC Bank or amount
    received from LIC on his father’s death.

  •    For this purpose, the applicant has
    transferred Rs. 85,01,100 from his NRE Account maintained with HDFC Bank to his
    ordinary savings account maintained with     ICICI Bank.
  •    The loan was subsequently repaid in FY
    2017-18.

 

Regulatory Provisions

  •    Regulation 4(C) of schedule 1 to Notification
    No. FEMA.5/2000-RB states that permissible debit of NRE account is transfer to
    NRE / FCNR (B) accounts of the account holder or any other person eligible to
    maintain such an account.
  •    Regulation 4(i) and (ii) of Notification No.
    FEMA.4/2000-RB regulates borrowing and lending in rupees between a person
    resident in India and a person resident outside India.

 

Contravention

The amount of contravention is Rs. 85,01,100 and
the period of contravention is five years, seven months and six days from 4th
January 2013 to 10th August, 2018.

 

Compounding penalty

A compounding penalty of Rs. 1,13,758 was levied
in the case.

 

Comments

This case reflects a common violation wherein
persons resident outside India, specifically NRIs and OCI card-holders, open
savings bank accounts even when they are not resident in India. Once a person
becomes non-resident, he / she cannot open savings bank accounts and can
transact only through NRE / NRO Account in the manner which is permissible.
Further, if an Indian resident individual becomes non-resident, all his
existing savings accounts would be converted into NRO accounts and hence he
cannot operate his old savings account without changing its status to NRO
account.  

Allied Laws

25. 
Hindu law — Joint family property – Co-sharer can only alienate to the
extent before partition which is the undivided interest of the coparceners in
the joint property – Sale of specific portion of property can only be done
after partition has been effected

 

Parmal Singh and Ors. vs. Ghanshyam and
Ors. AIR 2019 Madhya Pradesh 131

 

The plaintiffs had filed a suit against the
defendants for declaration of title and permanent injunction against the sale
of a specific part of the joint family property. A sale deed was executed by
defendant No. 1 in favour of defendant No. 2 and, thereafter, by defendant No.
2 in favour of defendant No. 3. Defendant No. 3 has purchased the land in
dispute from defendant No. 2 by registered sale deed dated 21st
August, 1997 after making payment of the entire consideration amount and he has
also been placed in possession.

 

The question that arose was whether specific
portion of the land could be sold without partition or not?

 

It was held that when the property in
dispute is joint in nature, then although the co-sharer can sell the property
to the extent of his share, he cannot sell the specific piece of land. All that
a co-sharer purchases at the execution of sale is the undivided interest of the
coparcener in the joint property. No title to any defined share in the property
was acquired and hence was not entitled to joint possession from the date of
his purchase. The rights could only be worked out by a suit for partition and
his right to possession would date from the period when a specific allotment
was made in his favour. Accordingly, it was directed that in case if the
defendant Nos. 1, 2 and 3 file a suit for partition within a period of three
months, then the purchaser shall continue to remain in possession of the land
purchased by him till the actual partition is done. The specific piece of land
would be decided only after the partition is done.

 

26. 
Limitation – Alienation of property by natural guardian – Prayer to set
aside such alienation to be within 3 years by minor / legal representative
[Hindu Minority and Guardianship Act, 1956, S. 8; Limitation Act, 1965, Art.
60]

 

Murugan and Ors. vs. Kesava Gounder (Dead)
thr. L.Rs. and Ors. AIR 2019 Supreme Court 2696

 

Mr. B executed a sale deed on behalf of his
minor son P. The plaintiffs were cousins of Mr. B. Their case was that Mr. B
had no authority to execute a sale deed on behalf of his minor son P and that
the same was voidable and prayed that the plaintiffs were entitled for
declaration and possession of the properties from the defendants. The issue was
whether the sale deed executed could be set aside even after a lapse of three
years from the date of death of the minor?

 

The Appellate Court held that since the
minor son P died in 1986, the suit to set aside sale deeds and for possession
should have been filed within three years of his death. The suit filed in 1992
was barred by limitation. For this, the Appellate Court relied on article 60 of
Limitation Act.

 

The plaintiffs filed a second appeal in the
High Court. The Court held that the alienations made by Mr. B could be
construed only as voidable alienations and not void alienations. The High Court
held that the Plaintiffs’ suit ought to have been filed within three years as
per article 60 of the Limitation Act. The Court dismissed the second appeal.
Aggrieved by the judgement, an appeal was filed in the Supreme Court.

 

The Supreme Court held that the first
Appellate Court and the High Court had rightly held that limitation for the
suit was governed by article 60 and the suit was clearly barred by time.

 

The Court observed that in case of
alienation by natural guardian in contravention of section 8 of the Hindu
Minority and Guardianship Act, 1956 a sale deed was voidable. Alienations,
which were voidable, at the instance of a minor or on his behalf, were required
to be set aside before relief for possession could be claimed by the
plaintiffs. The suit filed on behalf of the plaintiffs without seeking a prayer
for setting aside the sale deed was, thus, not properly framed and could not
have been decreed. When a registered sale deed was voidable, it was valid till
it was avoided in accordance with the law. Rights conferred by a registered
sale deed were good enough against the whole world and the sale could be
avoided in case property sold was of a minor by a natural guardian at the
instance of the minor or any person claiming under him. A document which was
voidable had to be actually set aside before taking its legal effect.

 

In the present case, it was necessary for a
person claiming through the minor to bring an action within the period of
limitation, i.e., within three years from the date of death of the minor, to
get the sale deed executed by Mr. B set aside. The sale deed executed by Mr. B
was not repudiated or avoided within the period of limitation as prescribed by
the law. Accordingly, the appeal filed by the plaintiffs was dismissed.

 

27. 
Partition – Deed of partition or a memorandum showing list of past
partition – To be determined with reference to recitals therein and not by its
title for the purpose of determining the applicability of stamp [Indian Stamp
Act, 1899, S. 35]

 

Koyya Ganga Venkata Satya Bhaskara Rao and
Ors. vs. Koyya Rama Krishnudu and Ors. AIR 2019 Andhra Pradesh

 

An issue arose when a document purported to
be a memorandum of past partition was attached as an annexure to the plaint by
the plaintiff. The defendants objected to the tendering of a deed of partition
as evidence since the said document was not stamped and registered and hence
inadmissible in evidence. The AR for the plaintiffs argued that the document
was a mere memorandum of past partition and not a deed of partition, hence no
registration or stamp was required due to which the said document should have
been admissible.

 

The trial Court, having referred to the
contents of the document as well as the precedents cited before it, upheld the
objection of the defendants and recorded a finding that the document in
question was a deed of partition and was liable to be charged with required
stamp duty. The aggrieved plaintiffs preferred revision.

 

The short question was whether the document
in question was a deed of partition chargeable with duty or a memorandum of
partition, or a partition list evidencing a transaction of past partition?

 

It was observed that the nature of a
document had to be determined with reference to the recitals therein and the
substance of the transaction embodied in the instrument and not with reference
to the title, caption or name given to the instrument. The name or the caption
given to the document is not determinative and the nature or character or the
substance of the transaction contained in the document is the only determinative
factor.

 

From the perusal of the said document, it
was understood that the recitals therein made it manifest that under the very
document the immovable properties were permanently partitioned once and for
all.

 

It was held that the said document was a
Deed of Partition and not a Memorandum of Partition showing a list of past
partition. Accordingly, it was held that since the document was not stamped, it
could not be admitted even for collateral purpose unless the required stamp
duty and penalty collectable on the instrument were paid and collected.

 

28. 
Recusal – Litigant cannot insist on a judge to not hear the case – Judge
can recuse himself by choice but not at the request of the litigant

 

Seema Sapra
vs. Court on its own motion [2019]; Writ Petition No. 13 of 2018; Dated: 14th
August, 2019

 

During the course of the hearing, the
appellant-in-person made an oral request that the bench ought to recuse from
hearing the matter which fact was noted. While dealing with the gravamen of the
apprehension of the appellant as to why she has insisted for recusal of one of
the judges, the Court observed that the apprehension of the appellant is
founded on the allegation that she may not get justice from the bench as one of
the judges was well acquainted with the advocates who incidentally are members
of the Supreme Court Bar Association against whom personal allegations have
been made by her in the accompanying writ petition.

 

In respect of the limited point of recusal,
the Court held that indubitably it is always open for a judge to recuse at his
own volition from a case entrusted to him by the Chief justice. But recusing at
the asking of a litigant party cannot be countenanced unless it deserves due
consideration and is justified. It was further mentioned that ‘it must be never
forgotten that an impartial judge is the quintessence for a fair trial and one
should not hesitate to recuse if there are just and reasonable grounds. At the
same time, one cannot be oblivious of the duties of a judge which is to
discharge his responsibility with absolute earnestness, sincerity and being
true to the oath of his / her office. After perusal of the assertions made in
the I.A.s, we have no hesitation in holding that the same are devoid of merit
and without any substance.’

 

29. 
Hindu Law – Female Hindu – Property held by male governed by any school
of Hindu law other than Dayabhaga dies, his widow shall have the same right in
the property as the deceased had – Accordingly, property possessed by female
Hindu whether acquired before or after the commencement of the Hindu Succession
Act, shall be held by her as the full owner thereof and not as a limited owner
[Hindu Succession Act, 1956, S.14; Hindu Women’s Right to Property Act, 1937,
S.3]

 

Jagannath Waman Undre vs. Yamunabai Sitaram
Kadam AIR 2019 Bombay 143

 

The plaintiff (sister) filed a suit for
declaration of her rights in the suit property. The defendant was the
plaintiff’s brother whose name alone was entered in the records of rights of
the suit property after their mother’s death. The district court reversed the
order of the trial court and passed the order in favour of the plaintiff. The
appellant-defendant is in appeal before the high court.

 

The learned trial court held that under the
coparcenary law a wife or a widow or a daughter though a member of Joint Hindu
Family, was not entitled to any share or interest in the coparcenary property
of that joint family, except to the extent of the right of maintenance and
residence or marriage expenses. The trial court thus held that a woman, whether
wife or widow or daughter, could not claim share separately. On this ground
alone, the suit was dismissed.

 

The Appellate Court held that under sub-section
(2) of section 3 of the Hindu Women’s Right to Property Act, 1937 when a Hindu
governed by any school of Hindu law other than Dayabhaga dies having at the
time of his death interest in Hindu joint family property, his widow shall have
the same right in the property as the deceased. However, such interest shall be
limited interest known as Hindu woman’s estate.

 

Further, in
view of the provisions of section 14 of the Hindu Succession Act, 1956 the
mother of the plaintiff and the defendant became absolute owners of their share
in the suit property which was the limited interest or Hindu woman’s estate.
Accordingly, the mother’s interest in the property would devolve as per the
scheme in terms of section 15 of the Hindu Succession Act, 1956. Thus, her property
will devolve upon her sons, daughters and husband and not only on the son as
seen in the present case.

 

Allied Laws

16. Appeal – Condonation of delay –
Mentally disturbed – Prolonged illness and hospitalisation – Sufficient cause
for condonation. [Limitation Act, 1963; Section 5]

 

Ummer vs. Pottengal Subida
and Ors. AIR 2018 Supreme Court 2025

 

There was a delay of 554
days in filing an appeal before the High Court. Hence, the Appellant filed an
application u/s. 5 of the Limitation Act praying for condonation of delay in
filing the appeal.

 

The
High Court dismissed the application for condonation of delay as well as the
appeal. In the opinion of the High Court, the Appellant failed to make out any
sufficient cause for condoning the delay in filing appeal and hence the
application seeking condonation of delay of 554 days in filing the appeal was
not liable to be condoned.

 

It was
held by the Apex Court that the delay in filing the appeal was to be condoned
because of the reasons that appellant was mentally disturbed due to disputes
going on in his family and was not able to attend to his day-to-day duties due
to his old age, prolonged ailments and hospitalisation due to heart disease.

 

17. Assignment of rights – Not a
transfer of Immovable   property.    [Indian  
Stamp   Act,       1899;

Section 2(10), 2(14), 57; Art. 62 &
23 of schedule 1 of the Indian Stamp Act]

 

Kotak Mahindra Bank Ltd.
vs. State of U.P. and Ors. AIR 2018 Allahabad 182 Full Bench

 

The
issue was whether assignment of rights in debt was transfer of immovable
property or movable property?

 

In the
present case, the Assignor in the course of its business advanced financial
facilities to various borrowers, who in turn executed agreement/instrument (s)
of mortgage in lieu thereof.

 

The
Assignee agreed to purchase and acquire the debts from the Assignor with all
rights title and interest of the Assignor and underlying financial instruments,
for a consideration agreed to by the parties.

 

The
High Court observed that debt is purely an intangible property, like,
intellectual property right or goodwill, as against documentary intangibles,
viz., bill of lading, promissory note or bill of exchange, which has to be
claimed or enforced by action and not by taking physical possession thereof, in
contrast to immovable and movable property.

 

The
Court held that the instrument is an instrument of assignment chargeable with
stamp duty under Article 62(c) of Schedule 1-B of the Stamp Act which stated
that chargeability of stamp duty would be on transfer of an interest secured by
a bond or mortgage deed and not on the stamp duty prescribed for immovable
property. 

 

18. 
Limited liability partnership – Jurisdiction – Registrar of Companies –
Only administrative – Cannot adjudicate and resolve issues. [Limited Liability
Partnership Act, 2009; Section  25, 43]

 

Neeraj Kumarpal Shah vs.
C2R Projects LLP and Ors. AIR 2018 Gujarat 80

 

In the
present case, ROC had rejected the form filed for the purpose of change in the
partnership agreement. ROC passed an impugned order, inter alia,
informing the LLP that LLP form No. 3 was examined and marked as invalid and
not taken on record mainly on the ground that the original respondent had filed
interim relief application and therefore the said matter is sub-judice and in
this regard the LLP has not submitted satisfactory reply.

 

The
High Court held that when the prescribed forms are submitted before the ROC for
examination and registration, the ROC is required to consider as to whether the
provisions of the Act of 2008 and the Rules of 2009 are complied with or not.
Thus, the duty of the ROC is of ministerial in nature and he is acting as an
administrative authority. The ROC cannot adjudicate and go into the merits of
the dispute pending between the partners. The ROC has to register the necessary
forms subject to outcome of the proceedings pending before the competent Court
between the concerned partners.

 

19. Partnership – Suit by an
unregistered firm is not maintainable. [Partnership Act, 1932; S.69(2)]

 

Arihant  Rice Industries, Tumkur vs. Shubha-laxmi Venkateswara
Traders, Gangavathi AIR 2018 (NOC) 478 (Kerala)

 

A suit
was filed by plaintiff who was a partnership firm, for recovery of money from
third party. The partnership firm was an unregistered one. The only question
which arose was whether the suit filed by the plaintiff in the Court below was
maintainable in view of section 69(2) of the Indian Partnership Act, 1932?

 

Admittedly,
the plaintiff firm was an unregistered firm, as such, the unregistered firm
cannot maintain a suit in view of section 69 of the Partnership Act. Defendant
further submitted that in order to overcome the said lacuna of non-registration
of the firm, the plaintiff has falsely projected itself as a proprietorship
concern.

 

However,
there was no evidence regarding the dissolution of the partnership firm and
neither notice nor any paper publication for dissolution of firm was carried
out. As such, the plaintiff was still a partnership firm, but not a
proprietorship concern.

 

The
Court held that, since it is held that the plaintiff had failed to prove that
it was a proprietorship concern as at the time of institution of the original
suit and that the plaintiff concern was to be taken as partnership firm, thus
the suit was not maintainable.

 

20. Power of Attorney – genuineness – No
entry is made in the Notary Registrar – Power of attorney is held to be invalid

 

Veljibhai Mavjibhai Mistry
vs. Joitiben and Ors. AIR 2018 (NOC) 479 (Gujarat)

 

The
original owner challenged the genuineness of a power of attorney on the ground
of fraud. No documents in original were produced. The Trial court came to the
conclusion that the execution of the Power of Attorney was not done
simultaneously by all parties and therefore the execution was invalid. There is
no evidence brought on record by the defendants to show as to when the Notary
actually signed and stamped the document or made entries in the Notary
Register.

 

In
light of the same, the Court held that due to various contributing factors,
individually and collectively, suggested that the exercise of execution of the
Power of Attorney apart from its manner showed that the entire transaction was
founded on fraud.

 

Having held the
Power of Attorney to be an invalid document, the consequential transaction of
sale is also bad.

 

Corporate Law Corner

10.  JAK
Builders (P.) Ltd., In re

[2018] 93 taxmann.com 467 (NCLAT)                        

Date of Order: 24th April, 2018

 

Section 419 read with 232 of Companies Act,
2013 – Transferor and Transferee companies effecting an amalgamation belonged
to two separate territorial jurisdictions of two NCLTs– Application under
sections 230-232 were filed before both the benches of NCLT – President of NCLT
has the power to transfer the case from either one of the jurisdictions to the
other where the matter was pending

 

FACTS

JBPL and JIPL (together referred to as
“transferors”) intended to amalgamate with JGPL (“transferee”). The transferors
had their registered office at Gurgaon, Haryana and transferee had its
registered office at Nehru Place, New Delhi. As they intended to get their
scheme approved for merger, they filed two separate applications both under
sections 230-232 of the Companies Act, 2013, one before the National Company
Law Tribunal, New Delhi Bench (‘NCLT, New Delhi’) and another before the
National Company Law Tribunal, Chandigarh Bench, Chandigarh (‘NCLT,
Chandigarh’).

 

The NCLT, New Delhi Bench by order dated 17th
November, 2017 dismissed the application as not maintainable in view of
the lack of territorial jurisdiction. Other matter was pending before the NCLT,
Chandigarh.

 

The question before NCLAT was where an
application under sections 230 to 232 could be filed if the registered office
of two companies are situated within the territorial jurisdiction of two
different NCLT Benches.

 

HELD

NCLAT considered the facts of the case and
examined the provisions of Rule 16 of National Company Law Tribunal Rules, 2016
(“the Rules”) which lays down the powers and functions of the President of
Tribunal.

 

It was observed that President of the NCLT
had power to transfer any case from one Bench to other Bench when the
circumstances are so warranted. In view of such provision, and considering the
facts of the case, it was held that circumstances warranted that the President
exercises his power under Rule 16(d) to transfer one of the case from one Bench
to other Bench where other matter is pending including the cases where
transferor and transferee companies are at different places of the country.

 

Order passed by NCLT Delhi was set aside and
NCLAT held that parties had liberty to file application before the Hon’ble
President of the NCLT to transfer one of the case either to Chandigarh Bench or
the Bench at New Delhi for hearing of both the cases by one of the Benches.

 

11. Quantum Limited vs. Indus Finance
Corporation Limited

[2018] 144 CLA 157 (NCLAT)                                      

Date of Order: 20th February, 2018

 

Section 12(2) of the Insolvency and
Bankruptcy Code, 2016 – Application for extension of Corporate Insolvency
Resolution Process can be filed even after the period of 180 days is over as
long as the resolution permitting the extension has been duly approved by the
Committee of Creditors within the time frame of 180 days (including the last
day)

 

FACTS

Time to complete the Corporate Insolvency
Resolution Process (“CIRP”) of 180 days on Q Limited was over on 25.11.2017. On
24.11.2017, Committee of Creditors (“COC”) passed a resolution seeking
extension of time. The Resolution Professional filed the application under
section 12(2) of the Insolvency and Bankruptcy Code, 2016 (“Code”) before the
National Company Law Tribunal (“NCLT”) on 30.11.2017.

 

NCLT dismissed the said petition on the
grounds that there was no provision to file such application after expiry of
180 days of CIRP.  

 

Aggrieved by the order of NCLT, Corporate
debtor preferred an appeal to the NCLAT.

 

HELD

NCLAT examined the provisions of section
12(2) of the Code. It was observed that as per provision of section 12(2),
resolution professional can file an application for extension of the period of
the CIRP, only if instructed to do so by a resolution passed at a meeting of
the COC by a vote of 75% of the voting shares. The provision does not stipulate
that such application is to be filed before the Adjudicating Authority within
180 days.

 

It was further held that If within 180 days
including the last day i.e. 180th day, a resolution is passed by the
COC by a majority vote of 75% of the voting shares, instructing the resolution
professional to file an application for extension of period in such case, in
the interest of justice and to ensure that the resolution process is completed
following all the procedures time should be allowed by the Adjudicating
Authority who is empowered to extend such period up to 90 days beyond 180th
day.

 

The NCLAT accordingly, set aside the order
of NCLT and ordered for extension of the period by 90 days from the date of
passing of the order. It was further held that period from 181st day to the
date of passing this order would not be counted for any purpose.

 

12. 
Three Star Properties Private Limited vs. ROC

[2018] 144 CLA 80 (NCLT – New Del)                         

Date of Order: 25th April, 2018

 

Section 252 of the Companies Act, 2013 –
Name of the company was struck off the register of companies due to non-filing
of returns – NCLT may restore the name of company which has been struck-off
from the register of companies for a “just” cause – Non-filing of returns owing
to existence of ongoing litigation in respect of immovable property proposed to
be acquired  by the company constituted a
“just” cause

 

FACTS

TCo was a private company incorporated on
08.10.2010 with the objective of acquiring and dealing with immovable
properties. In pursuance of the said object, it commenced acquisition of a
valuable property at New Okhla Industrial Development Authority (‘NOIDA’). In
order to facilitate the purchase, TCo entered into an agreement to sell with
the owners of the said property on 15.11.2010 and even paid a part of the sale
consideration towards purchase of the property. Subsequently, TCO learned that
the said property is subject matter of dispute before Civil Judge, Gautam Buddh
Nagar, Uttar Pradesh.

 

In the intervening period, due to the
pendency of litigation in respect of the property being acquired, operations of
TCo came to a standstill. It however, regularly held the AGM, finalized its
accounts and filed its income-tax returns even though there were no business
operations.

 

Name of TCo was however, struck off from the
register of companies by the ROC due to alleged non-filing of financial
statements or annual returns for a continuous period of three financial years.
TCo filed an appeal with NCLT for the restoration of the name consequent to the
directions by the Hon’ble High Court of Delhi issued in Writ Petition(C) No.
9933 of 2017 titled “Kanwar Pal Singh v. Union of India and Others“.

 

TCo submitted
that it has been regular in filing returns with income-tax authorities,
regularly held the AGM since its inception. It was further submitted that TCo
continued to be in operation of business and the agreement dated 15.11.2010 was
still in force, although the same was subject matter of dispute, the outcome of
which was pending.

 

ROC contended that TCo should be declared a
dormant company owing to inactivity in the operations. Income-tax department
confirmed that there were no pending proceedings against TCo and it had no
objections if the name of the company was to be restored.

 

HELD

NCLT observed that section 252(3) of the
Companies Act, 2013 (“the Act”) empowered it to restore the name of the company
which had no business operations if the circumstances justify the existence of
“just” cause.

 

The Tribunal relying on decision of Delhi
High Court in CP No. 174/2013 [M.A. Panjwani ] observed that use of the word
“just” in section 252(3) of the Act has to be understood in the background of
the specific language of the sub-section and not on the basis of the principle
of ejusdem generis. Further, it was observed that where litigations were
pending and where immovable property rights were involved [as held in CP No.
406 of 2009 by the Hon’ble Delhi High Court] it was only proper that the name
of the company be restored to the register.

 

In the facts of the present case, land
proposed to be acquired by TCo was subject matter of civil dispute.

NCLT, in light of the ratio of the decisions
and facts of the present case, thus held that there existed a ‘just’ ground for
the restoration of the name of the TCo in the register of RoC. It order for
restoration of the name to the register of ROC but, however, the restoration
would be subject to certain terms and conditions with respect to payment of
fees, costs, non-disposal of valuable assets, restoration of names of
disqualified directors to be in accordance with law and power to ROC being
available for conduct of proceedings for late-filing, etc.  

 

CORPORATE LAW CORNER

6

Ramco Systems Ltd. vs. SpiceJet Ltd.

[2019] 105 taxmann.com 175 (NCLAT)

Company Appeal (AT) (Insolvency) No.
31
of 2018
Date of order: 8th May, 2019

Section 9 of the Insolvency and Bankruptcy Code, 2016 – When
Operational creditor could not establish that invoices in respect of debt due
and payable were actually forwarded to the corporate debtor and received by it,
claim u/s. 9 could not be maintained for want of consistency and clear
documentation of debt due

 

FACTS

R Co entered into “Aviation Software Solutions Agreements”
dated 13.05.2013 consisting of four agreements, all of even date, with S Co.
There were certain amendments made on 01.07.2014 which reduced the number of
authorised licences, amongst others.

 

By an email sent on 19.01.2016, R Co submitted that an amount
of Rs. 62.89 lakhs was payable and an invoice of the same was intimated to S Co
by email on that day. The invoices relate to documents dated 30.05.2013 and
23.07.2014. S Co, on the other hand, submitted that all the claims depended on
invoices raised in the year 2013-14 and were barred by limitation.

 

Next, R Co issued a demand notice u/s. 8(1) on 24.04.2017
without attaching the invoices relating to the debt which was payable. S Co, on
the other hand, claimed that it never received the invoices in question.

 

R Co filed an application with the NCLT u/s. 9 of the Code.
NCLT dismissed the said petition on the grounds of inconsistency in the overall
payments and the non-compliance with the provisions of section 9(3)(c) by the
“Operational Creditor”. NCLT further observed that S Co had made certain
payments to R Co. R Co then filed an appeal before the NCLAT.

 

HELD

The Appellate Tribunal held that there was no record to show
that invoices dated 23.07.2014 were received or forwarded to S Co. Therefore,
the demand notice issued on 24.04.2017 as related to invoice dated 23.07.2014,
though it cannot be held to be barred by limitation, but in absence of specific
evidence relating to invoices actually forwarded by R CO and there being a
doubt, it was held that the NCLT had rightly refused to entertain the
application u/s. 9 which required strict proof of debt and default.

 

It was further held that this order would not come in the way
of R Co to move before a court of competent jurisdiction for appropriate
relief.

 

7

JK Jute Mill Mazdoor Morcha vs.
Juggilal Kamlapat Jute Mills Company Ltd.

[2019] 105 taxmann.com 1 (SC)

Civil Appeal No. 20978 of 2017

Date of order: 30th
April, 2019

Section 5(20) of the Insolvency and Bankruptcy Code, 2016
– Registered trade unions qualify as “person” within the meaning of section
3(23) – The statement that there were no services rendered by them to the
corporate debtor was of no significance – Registered trade unions represent
their members who are workers, to whom dues may be owed by the employer –
Registered trade unions can thus qualify as operational creditors that are
capable of filing and maintaining a petition on behalf of their members

 

 

FACTS

J Co was a jute mill that was closed and reopened several
times until, finally, it was closed for good on 07.03.2014. Proceedings were
pending under the Sick Industrial Companies (Special Provisions) Act, 1985. On
14.03.2017, JM being the trade union of J Co, issued a demand notice on behalf
of roughly 3,000 workers u/s. 8 of the Insolvency and Bankruptcy Code, 2016
(“the Code”) for outstanding dues of workers. J Co replied to the same on
31.03.2017. The National Company Law Tribunal (“NCLT”) dismissed the petition
filed by JM on the grounds that a trade union was not an operational creditor.
On 12.09.2017, the National Company Law Appellate Tribunal (“NCLAT”) followed
suit and dismissed the appeal filed by JM.

 

Aggrieved, JM filed an
appeal before the Supreme Court. It was their contention that a trade union
being a person would qualify as an operational creditor within the meaning of
the Code. If a purposive interpretation is given to the provisions of the Code,
the same would result in maintenance of the application. J Co argued that there
were no services rendered by the registered trade union to it to claim any dues
which could be termed as debt, and as such the trade unions would not come
within the definition of operational creditors. That apart, each claim of each
workman was a separate cause of action in law and, therefore, there are
separate dates of default of each debt. That being so, a collective application
under the rubric of a registered trade union would not be maintainable.

 

HELD

The Supreme Court examined
the provisions of sections 5(20), 5(21), 3(23) of the Code; Rule 6 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
(“the Rules”); as well as the provisions of the Trade Unions Act.

 

The Court observed that a
trade union was an entity established under a statute – namely, the Trade
Unions Act, and would therefore fall within the definition of
“person” u/s. 3(23) of the Code. Thus, a claim in respect of
employment could certainly be made by a person duly authorised to make such
claim on behalf of a workman. Rule 6 of the Rules also recognises the fact that
claims may be made not only in an individual capacity but also conjointly.

 

It was further held that a
trade union, like a company, trust, partnership, or limited liability
partnership, when registered under the Trade Union Act, would be
“established” under that Act in the sense of being governed by that
Act.



Also, it was observed that
instead of one consolidated petition by a trade union representing a number of
workmen, filing individual petitions would be burdensome as each workman would
thereafter have to pay insolvency resolution process costs, costs of the
interim resolution professional, costs of appointing valuers, etc., under the
provisions of the Code read with Regulations 31 and 33 of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016.

A registered trade union which is formed for the purpose of
regulating the relations between workmen and their employer can maintain a
petition as an operational creditor on behalf of its members. The Supreme Court
further observed that procedure was a handmaid of justice, and is meant to
serve the justice.

 

The Court held that NCLAT was incorrect in not going into
whether a trade union was a person or not as well as holding that a trade union
would not be an operational creditor as no services are rendered by the trade
union to J Co. It was also observed that if one were to state that for each
workman there would be a separate cause of action, a separate claim and a
separate date of default, this would ignore the fact that a joint petition
could be filed under Rule 6 read with Form 5 of the Rules.

 

The judgement of NCLAT was set aside and the appeal was
allowed with a direction to NCLAT to decide the appeal on merits expeditiously.

 

8

Serious Fraud
Investigation Office vs. Rahul Modi

[2019] 103 taxmann.com 408
(SC)

Criminal Appeal Nos. 538,
539 of 2019

Date of order: 27th
March, 2019

 

CL: Prescription of period within which a report has to be
submitted to Central Government under sub-section (3) of section 212 is purely
directory – Even after expiry of such stipulated period, mandate in favour of
Serious Fraud Investigation Officer (SFIO) and the assignment of investigation
under s/s. (1) would not come to an end – The only logical end as contemplated
is after completion of investigation when a final report or “investigation
report” is submitted in terms of sub-section (12) of section 212

 

FACTS

The investigation was assigned to SFIO vide order dated
20.06.2018. The order stipulated that the inspectors should complete their
investigation and submit their report to the Central Government within three
months. The period of three months expired on 19.09.2018. The proposal to
arrest three accused persons was placed before the Director, SFIO and approval
was granted by him on 10.12.2018. After they were arrested, the accused were
produced before the Judicial Magistrate, who by his order dated 11.12.2018
remanded them to custody till 14.12.2018, to be produced before the Special
Court on that day. On 13.12.2018 extension of time for completing investigation
of the case was preferred by the SFIO which was accepted on 14.12.2018,
granting an extension up to 30.06.2019.

 

On 14.12.2018 the Special
Court, Gurugram, remanded the accused to custody till 18.12. 2018. On
17.12.2018, the accused (respondents herein) preferred Writ Petitions which
came up for hearing for the first time before the High Court of Delhi on
18.12.2018. On that day itself, the accused were further remanded to police
custody till 21.12.2018. On 20.12.2018 the Writ Petitions were entertained and
the order which is under appeal was passed. Pursuant to the said order, the
original writ petitioners (the respondents herein) were released on bail.

 

The principal issues which arise in the matter are whether
the High Court was right and justified in entertaining the petition and in
passing the order of release under appeal?

 

HELD

The Supreme Court (SC) examined the provisions related to
SFIO in detail as under:

 1. Section 212 empowers the Central Government to assign the
investigation into the affairs of a company to SFIO. Upon such assignment the
Director, SFIO may designate such number of inspectors under sub-section (1)
and shall cause the affairs of the company to be investigated by an
Investigating Officer under s/s.(4).

2. The expression used in s/s. (1) is “assign the
investigation”. S/s. (2) incorporates an important principle that upon such
assignment by the Central Government to SFIO, no other investigating agency of
the Central Government or any State Government can proceed with investigation
in respect of any offence punishable under the 2013 Act and is bound to
transfer the documents and records in respect of such offence under the 2013
Act to the SFIO.

3. Under s/s. (3) where the investigation is so assigned by
the Central Government to the SFIO, the investigation must be conducted and a
report has to be submitted to the Central Government within such period as may
be specified.

4. The subsequent provisions then contemplate various stages
of investigation including arrest under s/s. (8) and that SFIO is to submit an
interim report to the Central Government, if it is so directed under s/s.
(11). Further, according to sub-section (12), on completion of the
investigation, SFIO is to submit the “investigation report” to the
Central Government. Under s/s. (14) on receipt of said “investigation report”
the Central Government may direct SFIO to initiate prosecution against
the company.

5. The “investigation report” under s/s. (12) is to be
submitted on completion of the investigation, whereas report under s/s. (11) is
in the nature of an interim report and is to be submitted if the Central Government
so directs.

6. In the backdrop of these provisions the Supreme Court had
to consider whether the period within which a report is contemplated to be
submitted to the Central Government under s/s. (3) is mandatory.

 

The Supreme Court, on the basis of an analysis of the above
provisions, concluded as under:

 

  • Section 212(3) of the 2013 Act
    by itself does not lay down any fixed period within which the report has to be
    submitted. Even under s/s. (12) which is regarding “investigation report”,
    again, there is no stipulation of any period. In fact, such a report under s/s.
    (12) is to be submitted “on completion of the investigation”. There is no
    stipulation of any fixed period for completion of investigation which is
    consistent with normal principles under the general law.
  • Again, sub-section (2) of
    section 212 of the 2013 Act does not speak of any re-transfer of the relevant
    documents and records from SFIO back to the said investigating agencies after
    any period or occurrence of an event. For example, u/s. 6 of the National
    Investigation Agency Act, 2008 (“NIA Act” for short) the Agency (NIA) can be
    directed by the Central Government to investigate the scheduled offence under
    the NIA Act and where such direction is given, the State Government is not to proceed
    with any pending investigation and must forthwith transmit the relevant
    documents and records to the Agency (NIA). But u/s. 7 of the NIA Act, the
    Agency may, with previous approval, transfer the case to the State Government
    for investigation and trial of the offence.
  • The very expression “assign” in
    section 212(3) of the 2013 Act contemplates transfer of investigation for all
    purposes where after the original Investigating Agencies of the Central
    Government or any State Government are completely divested of any power to
    conduct and complete the investigation in respect of the offences contemplated
    therein. The transfer under sub-section (2) of section 212 would not stand
    revoked or recalled in any contingency. If a time limit is construed and
    contemplated within which the investigation must be completed then logically,
    the provisions would have dealt with as to what must happen if the time limit
    is not adhered to.
  • The statute must also have
    contemplated a situation that a valid investigation undertaken by any
    investigating agency of the Central Government or State Government which was
    transferred to SFIO must then be re-transferred to the said investigating
    agencies. But the statute does not contemplate that. The transfer is
    irrevocable and cannot be recalled in any manner. Once assigned, SFIO continues
    to have the power to conduct and complete investigation. The statute has not
    prescribed any period for completion of investigation. The prescription in the
    instant case came in the order of 20.06.2018. Whether such prescription in the
    order could be taken as curtailing the powers of the SFIO is the issue.
  • It is well settled that while
    laying down a particular procedure if no negative or adverse consequences
    are contemplated for non-adherence to such procedure, the relevant provision is
    normally not taken to be mandatory and is considered to be purely directory.
    Furthermore, the provision has to be seen in the context in which it occurs in
    the statute. There are three basic features which are present in this matter:

 

1. Absolute transfer of investigation in terms of section
212(2) of the 2013 Act in favour of SFIO and upon such transfer all documents
and records are required to be transferred to SFIO by every other investigating
agency.

2. For completion of investigation, sub-section (12) of
section 212 does not contemplate any period.

3. Under sub-section (11) of section 212 there could be
interim reports as and when directed.

 

  • In the face of these three
    salient features, the Supreme Court held that the prescription of period within
    which a report is to be submitted by SFIO under sub-section (3) of section 212
    is for completion of period of investigation and on the expiry of that period
    the mandate in favour of SFIO must come to an end. If it was to come to an
    end, the legislation would have contemplated certain results including
    re-transfer of investigation back to the original investigating agencies which
    were directed to transfer the entire record under sub-section (2) of section
    212.
  • In the absence of any clear
    stipulation, the Supreme Court further held that an interpretation that with
    the expiry of the period, the mandate in favour of SFIO must come to an end
    will cause great violence to the scheme of legislation. If such interpretation
    is accepted, with the transfer of investigation in terms of sub-section (2) of
    section 212 the original investigating agencies would be divested of power to
    investigate and with the expiry of mandate, SFIO would also be powerless which
    would lead to an incongruous situation that serious frauds would remain beyond
    investigation.
  • The only construction which is,
    possible therefore, is that the prescription of period within which a report
    has to be submitted to the Central Government under sub-section (3) of section
    212 is purely directory. Even after the expiry of such stipulated
    period, the mandate in favour of the SFIO and the assignment of investigation
    under s/s. (1) would not come to an end. The only logical end as contemplated is
    after completion of investigation when a final report or “investigation report”
    is submitted in terms of sub-section (12) of section 212.
  • It cannot, therefore, be said
    that in the case discussed above the mandate came to an end on 19.09.2018 and
    the arrest effected on 10.12.2018 under the orders passed by Director, SFIO was
    in any way illegal or unauthorised by law. In any case, extension was granted
    in the present case by the Central Government on 14.12.2018. But that is
    completely besides the point since the original arrest itself was not in any
    way illegal.

 

The Supreme Court accordingly concluded that the High Court
had completely erred in proceeding on that premise and in passing the order of
release of the respondents herein.

ALLIED LAWS

10

Agricultural Land –
Preferential rights of heirs over immovable property applies to agricultural
properties also [Hindu Succession Act, 1956, Sections 4, 14, 22]

Babu Ram vs. Santokh
Singh (deceased) through his L.R.s and Ors. AIR 2019, Supreme Court 1506

 

A dispute arose over the
question whether one of the heirs would have a preferential right over the
intestate property devolved upon them at the time of transferring such
property. Whether section 22 of the Hindu Succession Act, 1956 applies to
agricultural lands also?

 

Section 22 of the Act
provides that any immovable property of an intestate person, or any business
carried on by him or her, whether solely or in conjunction with others,
devolves upon two or more heirs specified in Class I of the Schedule, and if
any one of such heirs proposes to transfer his or her interest in the property
or business, the other heirs shall have a preferential right to acquire the
interest proposed to be transferred. However, the Act does not say anything in
the case of agricultural land.

 

It was observed that when
the Parliament thought of conferring the rights of succession in respect of
various properties, including agricultural holdings, it put a qualification on
the right to transfer to an outsider and gave preferential rights to the other
heirs with a designed object. Under the Shastric Law, the interest of a
coparcener would devolve by principles of survivorship to which an exception
was made by virtue of section 6 of the Act. If the conditions stipulated
therein were satisfied, the devolution of such interest of the deceased would
not go by survivorship but in accordance with the provisions of the Act. Since
the right itself in certain cases was created for the first time by the
provisions of the Act, it was thought fit to put a qualification so that the
properties belonging to the family would be held within the family, to the
extent possible, and no outsider would easily be planted in the family
properties. It is with this objective that a preferential right was conferred
upon the remaining heirs in case any of the heirs was desirous of transferring
his interest in the property that he received by way of succession under the Act.

 

In view of the above, it
was held that the preferential right given to an heir of a Hindu u/s. 22 of the
Act is applicable even if the property in question is agricultural land.

 

11

Co-operative Society – Premium for Transfer –
Supreme Court upholds the direction of the State Government putting a ceiling
limit of Rs. 25,000 on the premium charged by a society on transfer of a
property by a society’s member [Maharashtra Co-operative Societies Act, 1960;
Section 79A]

The New India
Co-operative Housing Society Ltd. vs. the State of Maharashtra and Anr., WP No.
4567 of 2007 (HC)(Bom), Dated: 01.02.2013

 

The New India
Co-operative Housing Society Ltd. vs. the State of Maharashtra and Anr., Civil
Appeal No. 10683/2017 (SC), Dated: 23.04.2019

 

The main ground in the
challenge was whether rejection of application of respondent No. 2 was valid on
the premise of non-payment of Rs. 2 crore as demanded by the society for the
purpose of transferring the property.

 

The said applications,
undisputedly, were made in the requisite form annexed to the Maharashtra
Co­operative Societies Rules, 1961, along with a demand draft of Rs. 25,000. It
was informed that on the face of it the application was not acceptable since
the transfer fee offered of Rs. 25,000 was inadequate in view of regulation 6A
of the society and the amount demanded was Rs. 2 crore.

 

The Hon’ble High Court in the case of Mont Blanc
Co­-operative Housing Society Limited vs. State of Maharashtra, 2007 (2) Bom.
C.R. 533 considered the validity of a similar government notification
dated 1st August, 2001 issued u/s. 79A of the said Act thereby
imposing a ceiling of 10% of non­-occupation charges. The Court observed that
they were satisfied that the notification was issued to secure the proper management
of the business of the co-­operative housing societies in general and for
preventing the affairs of such societies being conducted in a manner
detrimental to the interests of the members of such societies. The order does
not suffer from the vice of arbitrariness and it cannot be termed as an unfair
or unjust act by the state government so as to deprive the societies of their
legal, just and proper levies. It is a bona fide exercise by the state
to avoid litigations / disputes and to bring in a uniform levy of
non­-occupancy and to prevent the exploitation of minority members. To bring in
an orderly situation, the government stepped in and exercised its statutory
powers u/s. 79A by issuing directions to levy non-­occupancy charges at 10% of
the service charges.

 

The Court observed that in
the present case also, the government vide notification dated 9th
August, 2001 has directed uniform rates to be charged for effecting transfer of
the tenements / flats. Insofar as municipal corporations are concerned, the
premium has been determined as Rs. 25,000. It is to be noted that clause (2) of
the said notification specifically provides that the said charges are towards
transfer of a member’s tenement / flat and his share and rights in the share
capital / property in the said society. The perusal of the said notification
would reveal that it is applicable to all co­-operative housing societies. In
order to grab exorbitant sums of money from the new members who are trying to
become members of the society, they are being subjected to exploitation at the
hands of the society.

 

The Court held that the
petitioner was bound to comply with the directions issued by the state
government u/s. 79A of the said Act and could not have charged premium higher
than Rs. 25,000.

 

12

Environment – Duty of State as well as the
Citizens to prevent pollution and improve the environment [Constitution of
India; Article 21, 51-A]

Rajesh Madhukar Pandit
and Ors. vs. the Nashik Municipal Corporation and Ors. AIR 2019 (NOC)129 (Bom)

 

A PIL was filed concerning pollution of the Godavari
which is the second longest river in India after the Ganges. The Godavari is
one of the main sources of water supply to the city of Nashik. Several steps
are required to be taken for rejuvenation of the river and for preventing
pollution of the said river.

 

It was observed that the
scope of Article 21 of the Constitution of India gives a right to live in a
clean and pollution-free environment. Moreover, the right to have clean
drinking water is also a fundamental right guaranteed by Article 21. This is in
the context of the fact that the Godavari is a source of water supply to the
said corporation area and nearby villages. The right to live a dignified and
meaningful life is also an essential part of the bundle of rights guaranteed by
Article 21. If the rivers are polluted and pollution is created in and around
the rivers, the fundamental right of living a dignified and meaningful life of
the citizens is defeated. The fundamental right to live in a pollution-free atmosphere
is also violated.

 

Article 48A of the
Constitution of India is a Directive Principle of State Policy which enjoins
the State to protect and improve the environment. Clause (g) of Article 51A
casts a duty on the citizens to protect and improve the natural environment,
including forests, lakes, rivers and wild life, and to have compassion for
living creatures.

 

In view of the above, the
Court held that for protecting the fundamental rights of citizens under Article
21, the State is duty-bound to take all steps to prevent pollution of rivers
and to initiate measures for cleaning and rejuvenation of the rivers. It is the
obligation of the State to keep rivers clean and free from pollution. The
citizens owe a duty to protect and improve the environment, including rivers.

 

13

Notice – Service of notice
by ordinary Post – Dispatch register does not prove fact of service of notice
[General Clauses Act 1897, Section 27]

Agrofab vs. State of Rajasthan and Ors. AIR 2019 Rajasthan 34

The petitioner firm
contended that the showcause notice was never received by it.

 

The Court observed that the
respondents by way of additional affidavit tried to justify the service of the
said notice by producing a photocopy of the dispatch register and postage
register on record.

It was held that sending of
notice by showing any dispatch register through ordinary post does not prove
the fact of service of such notice on the petitioner firm. Further, it was held
that since the terms of the contract provided that rate contract and supply
orders and any discrepancy with regard to the conditions, specifications,
nomenclature, delivery period, etc., if the same were not as per the agreed
terms, conditions and specifications, such letter to the Direct Demanding
Officer and Chief Engineer was to be sent by registered post / AD. Hence, when
the communication is required to be made by the parties by way of registered
post / AD, the plea of the respondents that the showcause notice was sent by
ordinary post is not to be believed by the Court.

 

14

Will or Codicil attested
by a legatee as a witness – Examination of the legatee alone not valid [Indian
Succession Act, 1925, Sections 63, 67; Transfer of Property Act, 1882, Section
3; Indian Evidence Act, 1872, Section 68]

Raveendran Nair vs.
Raman Nair, AIR 2019 Kerala 91

 

The dispute concerned a
Will and its genuineness. There were two attesting witnesses to the Will. One
of the witnesses is the first defendant. The Will was executed in favour of the
children of the first defendant by giving a major portion of the property to
them and only a minor portion was given to other legatees.

 

The questions which arose
in the course of hearing were regarding the legal effect of an unprivileged
Will attested by the legatees alone left out by a Hindu. Whether the
examination of a legatee under a Will who is an attesting witness to the Will
or Codicil would be a sufficient compliance of the requirement as mandated u/s.
68 of the Indian Evidence Act?

 

The Court observed that
though there is no prohibition in the Act to stand as an attesting witness by a
legatee, the mandate both u/s. 63 of the Indian Succession Act and section 68
of Indian Evidence Act would convey the meaning that what is required is the
attestation by two or more witnesses, since the question of genuineness of
execution of a Will or Codicil would arise only after the death of the
testator. The attesting witness must have and should have the necessary animus
testandi or intention to attest the Will or Codicil. The word “attesting”
stands for something more than mere signing of a document as a witness.
Attestation means signing of a document with the intent and purpose to testify
the signature of the executant rather than mere witnessing the affixing of
signature by the executant or its due execution. Necessarily, the attesting
witness must display the necessary competence and the quality of an independent
witness. The word “attested” is defined u/s. 3 of the Transfer of Property Act
which is exactly pari materia with that of the third requirement as
enumerated in clause (c) of section 63 of the Indian Succession Act.

 

The Court held that a Will
or Codicil attested by legatees alone or the person interested with the
legatees who holds a fiduciary relationship with the legatee / legatees would
itself amount to suspicious circumstance attached to its execution. The absence
of an independent attesting witness to the document is fatal to the bequest
under the document. It would destroy the legislative intention demanding compliance
of mandate incorporated both u/s. 68 of the Indian Evidence Act and section 63
of the Indian Succession Act. The evidence or attestation of such witness would
stand as self-serving, though there is no provision debarring attestation by a
legatee as far as an unprivileged Will of a Hindu is concerned. At least one of
the attesting witness should be an independent witness and his examination
cannot be avoided if he is capable of giving evidence and amenable to the
process of the Court for proving the Will or Codicil in accordance with the
mandate u/s. 68 of the Evidence Act.

 

In short, a legatee under the Will or a person who is
interested in the bequest cannot be an independent witness for the purpose of
attestation to a last testament either as a Will or Codicil; and hence mere
examination of a legatee who stands as one of the attesting witness would not
be a sufficient compliance of the mandate u/s. 68 of the Evidence Act.

Allied Laws

20. 
Appeal pending – Till order of court is varied or modified, it remains
valid and subsisting and has to be complied with [West Bengal Municipal Act,
1993, S.96]

 

Subrata Sen vs. The Kolkata Municipal
Corporation and Ors. AIR 2019 Calcutta 32

The issue before the court was whether an
appropriate writ in the nature of mandamus could be issued against the order of
the municipal assessment tribunal, when a revision application had been filed
against such order.

 

It was held by the court that it was a
well-settled law that till an order passed by a competent court or forum is set
aside and / or stayed and / or varied and / or modified, the said order remains
valid and subsisting and is required to be complied with, both in law and in
spirit. If a stand is taken by any person that he / she is unable to comply
with a valid and subsisting order simply because an appeal is pending before a
higher forum, it would render the concept of adherence to due process of law to
a state of absolute farce. This is neither desirable nor acceptable, nor
permissible.

 

If one has to accept the stand taken on
behalf of the Kolkata Municipal Corporation, it would mean that no order passed
by any competent legal forum will ever be complied with till the person
aggrieved by the said order has exhausted all further remedies even if such
remedies are essentially discretionary in nature. This is certainly not in
conformity with the scheme for rendering effective justice in the matter.

 

Accordingly, it was decided that the order
of the Municipal Assessment Tribunal would be implemented and the same shall
not cause any prejudice to the rights of the Kolkata Municipal Corporation in
respect of the revision application, which shall be decided on its own merit
without being influenced in any manner by any observation
made herein.

 

21. 
Dishonour of cheque – Prosecution launched against directors quashed by
High Court set aside – Court would have to look into whether directors had any
role in the business activities of the company [Negotiable Instruments Act,
1881, S.138, 141, 482]

 

A.R. Radha Krishna vs. Dasari Deepthi and
Ors. AIR 2019 Supreme Court 2518

 

The appellant had entered into an investment
agreement with accused No. 1, i.e., the company on the basis of representations
made by the directors of the company. Later, the company agreed to repay the
amount invested by issue of seven cheques. The cheques were returned
dishonoured as ‘payment stopped by drawer’.

 

Consequently, proceedings were initiated u/s
138 and 141 of the Negotiable Instruments Act. During the pendency of the
proceedings, the directors filed an application before the High Court for
quashing of the proceedings initiated against them. The High Court allowed the
criminal petitions filed by the directors and quashed the proceedings against
them. Aggrieved by the same, the appellant approached the Supreme Court.

 

The complaint specifically mentioned that
the directors, who actively participated in the day-to-day affairs, in active
connivance, intentionally issued cheques and later issued instructions to the
bank to stop the payment.

 

But it was contended on behalf of the
directors that both the respondents / directors were non-executive directors of
the company, neither playing any role in the day-to-day activities of the
business nor in charge of the affairs of
the company.

 

It was observed that the High Court, in
deciding a quashing petition u/s 482, Code of Criminal Procedure, must consider
whether the averment made in the complaint is sufficient or if some
unimpeachable evidence has been brought on record which leads to the conclusion
that the director could never have been in charge of and responsible for the
conduct of the business of the company at the relevant time. While the role of
a director in a company is ultimately a question of fact, and no definite
formula can be fixed for the same, the High Court must exercise its power u/s
482, Code of Criminal Procedure when it is convinced from the material on
record that allowing the proceedings to continue would be an abuse of process
of the Court.

 

In the present
case, the appellant had specifically averred in his complaint that the
directors were actively participating in the day-to-day affairs of the company.
The complaint also specified that all the accused, in active connivance,
mischievously and intentionally issued the cheques in favour of the appellant and
later issued instructions to the bank to ‘Stop Payment’. No evidence of
unimpeachable quality had been brought on record by the directors to indicate
that allowing the proceedings to continue would be an abuse of the process of
the Court. In view of the same, the appeals were allowed and the order passed
by the High Court was set aside and that of the trial court restored.

 

22. 
Mahommedan Law – Bequest of property can only be done after taking
consent of all heirs [Mulla’s Principles of Mahommedan Law, S.117]

 

Ayyub and Ors. vs. Llahi Baksh and Ors. AIR
2019 Chhattisgarh 113

 

A property was
bequeathed to one heir without consent of the other heirs who were the
respondents / plaintiffs. Accordingly, a suit was filed by the latter for
declaring the Will void.

 

It was held by
the Court that section 117 of Mulla’s Principles of Mahommedan Law deals with
bequest to an heir and provides that a bequest to an heir is not valid unless
the other heirs consent to the bequest after the death of the testator. Any
single heir may consent so as to bind his own share. Accordingly, the verdict
of the trial court that the Will was void ab initio and illegal was
affirmed.

 

23. 
Service of notice to employee – Employee holding the seal of the company
must be taken to be duly authorised by the company to receive summons on behalf
of the company [Code of Civil Procedure; Order 29, Rule 2]

 

Frost International Ltd. vs. Five Star
Vanijya Pvt. Ltd. AIR 2019 (NOC) 325 Calcutta

 

An application
was filed for recalling an ex parte order. It was stated that the reason
for non-appearance before the court by the applicant was that there was no
proper service of notice on the company. It was argued that the applicant’s
office was totally closed. The applicant did not have any employee by the name
of Manab Basu who accepted the service of the writ of summons on behalf of the
defendant. If anything was received on behalf of the defendant, the same could
not reach the defendant and as a result the writ of summons cannot be treated
to have been served upon the applicant company. The applicant further mentioned
that it had an excellent defence on merits.

 

It was submitted on behalf of the
respondents that the application for recalling the order was barred by
limitation. It was further contended that there was a document which showed
receipt of the writ of summons by one Manab Basu on behalf of the defendant and
the defendant’s official seal was there next to the signature of Manab Basu.

 

The court observed that the said Manab Basu
while acknowledging receipt of the writ of summons put the defendant company’s
seal next to his signature. An employee of a limited company who has in his
custody the company’s seal must be deemed to be authorised by the company to
accept service of notices, summons etc. Order 29 Rule 2 of the CPC provides
that an employee of a corporation / company holding the seal of the company
must be taken to be duly authorised by the company to receive summons on behalf
of the company.

 

In view of the above, the court dismissed
the application for recalling the ex parte order.

 

24.  Unpublished public records – The citizens
have a right to demand information even in respect of matters such as security
of the country and matters relating to relations with a foreign state where
proper reasons are established [Right To Information Act, 2005, S.24, 123;
Evidence Act, 1872, S.124; Official Secrets Act, 1923, S.3, 5]

 

Yashwant Sinha and Ors. vs. CBI and Ors.
2019 (25) G.S.T.L. 161 Supreme Court

 

Reliance was placed on three additional
documents unauthorisedly removed from the office of the Ministry of Defence,
Government of India, that had been appended to the review petition and relied
upon by the review petitioners. The main contention was whether such documents,
being covered u/s 124 of the Indian Evidence Act, 1872 which states that no
public officer shall be compelled to disclose communications made to him in
official confidence, when he considers that the public interests would suffer
by the disclosure, could be placed in the open.

 

It was argued that u/s 8(1)(a) of the Right
to Information Act, information, the disclosure of which will prejudicially
affect the sovereignty and integrity of India, the security and strategic
security and strategic scientific or economic interests of the state, relations
with a foreign state or information leading to incitement of an offence, are
ordinarily exempt from the obligation of disclosure.

 

It was held by the Court that even in
respect of matters relating to state or other prohibited information, Parliament
has advanced the law in a manner which can only be described as dramatic by
giving recognition to the principle that disclosure of information could be
refused only on the foundation of public interest being jeopardised. Section
8(2) recognises that there cannot be absolutism even in the matter of certain
values which were formerly considered to provide unquestionable foundations for
the power to withhold information. The RTI Act through section 8(2) has
conferred upon the citizens a priceless right by clothing them with the right
to demand information even in respect of such matters as security of the
country and matters relating to relations with a foreign state. No doubt,
information cannot be given for the mere asking. The applicant must establish
that withholding of such information produces greater harm than disclosing it. 

 

RIGHT TO INFORMATION (r2i)

The column r2i was started in November,
2005 by Narayan Varma. The feature aimed to cover changes in the Act, RTI
success stories, current developments/issues and RTI decisions. The idea was to
encourage the members to use the power of RTI and become effective citizens.

Narayanbhai
single handedly wrote it for nearly 15 years till he was joined by 2 young
members. Since his passing away, Jinal Sanghvi has been writing it as the sole
author. When we asked her what keeps her going, she said: “The zeal of my
mentor, Varma sir and his dedication and love towards RTI”

 

PART A DECISION OF SUPREME COURT


?    EVM is ‘information’ under
Right to Information Act, rule Central Information Commission

 

An Electronic Voting Machine (EVM) is “information” under the Right to
Information Act, the Central Information Commission has ruled.

 

The Commission was hearing the appeal of an RTI applicant who had asked
the Election Commission for an EVM but was denied.

 

Chief Information Commissioner (CIC) Sudhir Bhargava ruled that “the EVM
which is available with the respondent [ECI] in a material form and also as
samples … is an information under the RTI Act.”

 

EVMs have been in the spotlight recently as several Opposition leaders
have raised doubts about the credibility of the machines. They have also
demanded that the ECI cross-check 50% of results with voter-verifiable paper
audit trails (VVPAT) in the upcoming Lok Sabha poll.

 

Mr. Bhargava noted that the definition of information under Section 2(f)
of the RTI Act includes “any material in any form, including records,
documents, memos, e-mails, opinions, advices, press releases, circulars,
orders, logbooks, contracts, reports, papers, samples, models, data material
held in any electronic form…”

 

The CIC upheld applicant Razaak K. Haidar’s contention that the terms
“models” and “samples” should apply to an EVM.

 

ECI Under-Secretary Soumyajit Ghosh admitted that “models/samples of EVM
are available with the ECI, but the same are only kept for training purpose by
the ECI, and not saleable to the general public.”

Fresh argument

Mr. Ghosh also argued that the information was exempted from disclosure
under section 8(1)(d) of the RTI Act as “the software installed in the machines
is an intellectual property of a third party, the disclosure of which would
harm the competitive position of the third party concerned.”

 

Mr. Bhargava noted this fresh argument, but did not rule on it. Instead,
he directed the ECI to file an appropriate response to the appellant within
four weeks, as it had erroneously denied the information sought, using Section
6(1) of the RTI Act, which does not deal with grounds for exemption.

 

(Source:https://www.thehindu.com/news/national/evm-is-information-under-right-to-information-act-rule-central-information-commission/article26358323.ece
)

 

PART B RTI ACT, 2005

 

?   BCAS Right To Information
Clinic

 

•   Year of Commencement: 2006

•   Total years the Clinic has
been in operation: A little more than 12 years

•   Fees charged: No fees charged
/ Services are provided pro-bono

•   Days of operation: 2nd,
3rd and 4th Saturday of every month

•   Timing: 11:00 am to 1:00 pm at
BCAS premises

•   RTI applications made or
advised provided: Average of 5 per week

n   Some Matters dealt under RTI by the clinic:

n   State Government, Central Government, MCGM
(BMC), Income Tax, Sales Tax, Gifts Tax, Wealth Tax, Service Tax, Value Added
tax (VAT), GST, Professional Tax, MTNL, BEST, Railways, Excise Duty, Police,
Bank, Bond, Co-op Banks, Co-op Societies, Voter ID Cards, Caste Certificates,
PPF, EPF, Pension, Air India, MHADA amongst many others.

•   Objective of the Right to
Information Act: The basic object of the Right to Information Act is to empower
the citizens, promote transparency and accountability in the working of the
Government, contain corruption, and make our democracy work for the people in
real sense. It goes without saying that an informed citizen is better equipped
to keep necessary vigil on the instruments of governance and make the
government more accountable to the governed. The Act is a big step towards
making the citizens informed about the activities of the Government.

•   The RTI Act empowers Indians
to do the following:

Request any information from any public office, Take copies of the
documents, Inspect those documents, Inspect the progress of works and, Take
samples of materials used at work sites

 

PART C IINFORMATION
ON & AROUND

 

  •     Unaided schools, colleges under RTI ambit
    now

 

Students and their parents running from pillar to post for getting
information from unaided privately managed high schools, secondary schools and
colleges have a reason to cheer as the Chief Information Commission (CIC) has
ruled that all recognised unaided high, secondary schools and colleges fall
under the preview of the Right to Information (RTI) Act.

 

Consequently,
the Director, Higher Education, has designated all District Education Officers
(DEOs) as Public Information Officers (PIOs) of respective districts for
furnishing relevant information, while the Additional Director or Joint
Director (Administration) will be the first appellate authority under the Act.

 

The question whether purely private high schools and colleges, not
getting any aid from the government be brought under the preview of the RTI
Act, had been there for quite some time. Following an appeal filed by one
Balbir Singh, the state CIC had issued directions to the Education Department
to appoint the PIOs and an appellate authority for these educational
institutions to facilitate people at large to seek information under the RTI
Act, 2005.

 

Now, the CIC has passed interim orders in appeals filed against a
senior secondary school in Una district and a high school in upper Shimla,
saying: “Given the definition of ‘information and appropriate government’ in
section 2(f) and section 2(a) of the RTI Act, the information available with
the ‘public authority” (Education Department) under the Right to Education
Act-2009, the HP Private Education Institutions (Regulation) Act-1997 or any
other regulatory mechanism related to any private body which can be accessed by
a ‘public authority’ is covered under ‘information’ and the same has to be
provided by the Education Department.

 

(Source:https://www.tribuneindia.com/news/himachal/unaided-schools-colleges-under-rti-ambit-now/735081.html)

 

  •     In RTI Reply To Telangana Voter
    Deletions, Poll Commission Admits Lapses

 

The names of a large number of voters in Telangana were deleted from
electoral rolls without due procedure ahead of last year’s assembly elections,
responses to queries under the Right To Information Act has revealed.

 

Reports of large-scale voter deletions had sparked anger during the
Telangana elections on December 7. It had been reported how a software that
linked voter IDs with Aadhaar may have played a role in the deletions.
Responses to RTI queries now show there were flaws in the verification process.

 

A letter dated 8th August 2015, written by then Chief
Electoral Officer of Telangana, Bhanwar Lal, to Sumit Mukherji, Secretary of
the Election Commission, states “door to door verification not conducted
properly” in 24 assembly seats of the Greater Hyderabad Municipal
Corporation Area and there were “many complaints that BLOs (Booth Level
Officers) have not visited houses”.

 

Between February and August 2015, the Election Commission had carried
out the National Electoral Roll Purification and Authentication Programme or
NERPAP, as part of which, voter IDs were linked with Aadhaar through a software
to weed out duplicates.

 

But before someone cane be deleted, the name has to be on electoral
rolls first.

 

Rules say the Election Commission has to go door-to-door issuing a
notice to each voter.  If a house is
locked, the official is supposed to visit two more times and even then if the
voter is not available, he has to paste a sticker asking her to contact the EC.

 

Replies to the RTI indicate this was not done.

 

Srinivas Kodali, a cybersecurity researcher who filed the RTI, claims
the Commission is hiding a lot more.

 

“The Election Commission, UIDAI and Chief Electoral Officer of
Telangana have consistently denied the role of Andhaar and state resident data
hub on voter deletions,” he said, accusing them of hiding facts.

 

“Even now, we don’t know the details of the pilot projects which
have taken place in Telangana. The Election Commission must answer for this.
They need to delete Aadhaar data with them, voter data with government and give
the lists of deleted voters”.

 

Rajath Kumar, the current Chief Electoral Officer of Telangana, claims
even if some names were deleted, the Commission has solved the issue by giving
ample opportunity to voters.

 

“The NERPAP exercise was carried out in 2015 and subsequently
there have been not only the annual revisions in 2016, 2017 and 2018, but we
also had the elections in 2018, during which 26 lakh voters were registered,
both new as well as those who got re-enrolled,” Mr Kumar said.

 

The commission, he said, has carried out a drive now to prepare the
list with effect from 1st January in which 17.72 lakh voters have
come in, “so we have given maximum amount of opportunity for those whose
names were deleted at that time”.

 

“The best that I can do as current CEO is to give them maximum
opportunity to re-enroll themselves,” Mr Kumar added.

 

(Source:https://www.ndtv.com/telangana-news/in-rti-reply-to-telangana-voter-deletions-poll-commission-admits-lapses-1999191
)

 

  •     Cryptocurrencies in India legal,
    regulation in final stages, reveals RTI query

 

The Indian government is in the final stages of formulating regulations
on cryptocurrencies, according to an RTI response from the Department of
Economic Affairs.

 

The response was with regard to the RTI filed by Coin Crunch India on
December 13, 2018, asking whether the panel on cryptocurrency has recommended a
ban on Bitcoin and if they have submitted the report to the Ministry of
Finance.

“The report of the Committee is in the finalisation stage, hence,
prohibited under section 8(3) of RTI Act, 2005,” the ministry said in its
response.

 

(Source:https://www.moneycontrol.com/news/business/cryptocurrency/indias-cryptocurrency-regulation-in-final-stages-3447481.html)

 

  •     Pune RTI activist found dead

 

An RTI activist missing since January 30 was found dead in Pune
district, a police officer said on Tuesday.

 

Police suspect Vinayak Shirsath, 32, was murdered.

 

The decomposed body was found near a village on Lavasa Road on Monday
evening, the officer said.

 

Shirsath, a resident of Pune city, was reported missing on January 31.
His family had registered a police complaint.

“We later registered a kidnapping case on February 5 after his
family raised a suspicion that he might have been abducted as he had raised his
voice under the Right to Information (RTI) Act against illegal construction
work in some parts of the city,” the police officer said.

 

Shirsath’s family pointed fingers at several people linked to the real
estate sector, but during the probe all of them were found to be close friends
of the deceased, he said.

A case has now been registered under IPC sections 302 (murder) and 201
(causing disappearance of evidence of offence) and a probe is under way, the
police said.

 

(Source:https://www.telegraphindia.com/india/pune-rti-activist-found-dead/cid/1684353)

RTI Clinic in March 2019: 2nd, 3rd, 4th
Saturday, i.e. 9th, 16th and 23rd  11.00 to 13.00 at BCAS premises.

 

 

 

CORPORATE LAW CORNER

Corporate Law Corner started in May,
1988 with Swati Mayekar as the contributor. Anil J Sathe continued with to man
it for 12 years along with Sunil Kothare (7 years), R K Tanna (3 years) and
Jayant Thakur (3 years). Pooja J Punjabi has been carrying the feature since
May, 2017.

The aim of the feature is to digest
decisions given under the Companies Act that are relevant and useful and those
that lay down principals. Since the advent of Insolvency and Bankruptcy Code,
decisions given thereunder are also being covered.

 

12. Gaurang Balvantlal Shah vs. Union of India [2019] 101 taxmann.com 261 (Gujarat) R/Special Civil Application Nos. 22435 of 2017 And Others Dated: 18th December, 2018

 

Section 164 of Companies Act, 2013 – Section 164 is
prospective in application and would cover defaults committed from financial
year 2014-15 and onwards – The section does not apply to filings required to be
made in respect of financial year 2013-14 

 

Section 154 of Companies Act, 2013 – DIN of a director
cannot be deactivated or cancelled merely because one of the companies in which
he is a director was struck off from the register of companies maintained by
ROC – DIN can be cancelled or deactivated only in circumstances specified in
Rule 11 of Companies (Appointment of Directors) Rules, 2014

 

FACTS


G was a director of K Co, a
private company along with various other companies. After due notice from
Registrar of Companies (“ROC”), name of K Co was struck off from the register
of companies and it was dissolved on 21.06.2017. Ministry of Corporate Affairs
(“MCA”) on 12.09.2017 published a list of directors associated with struck off
companies u/s. 248 of the Companies Act, 2013 (“the Act”) on its
website which inter alia included the name of G as a “disqualified”
director. As a consequence of publication of the above mentioned list,
Directors Identification Number (“DIN”) of G was deactivated. G accordingly
filed a petition before the High Court as a result of inability to file
documents for other non-defaulting companies.  

MCA challenged the petition
by submitting that G was disqualified by operation of law and upon fulfilment
of the criteria contained in section 164(2)(a) read with section 167(1)(a) of
the Act.

 

G on the other hand
submitted that the list published on the website was in violation of principles
of natural justice. Further, section 164 which came into effect on 01.04.2014
could only apply prospectively. Thus, the three financial years beginning from
1.4.2014 would be financial year 2014-15 to 2016-17 and the date for filing
financial statements for the third financial year (1.4.2016 to 31.3.2017) was
30.10.2017 (with regular fees) and 27.07.2018 (with additional fees u/s. 403
which provides for additional period of 270 days). Hence, no default attracting
disqualification u/s. 164(2) could be said to have taken place before the said
dates. Further, disqualification if any, would not affect the right to continue
as directors in other non-defaulting companies.

 

MCA on the other hand
argued that section 164(2)(a) would cover in its ambit filing of financial
statements and annual returns falling due after 01.04.2014, which would include
annual returns for the year 2013-14 as well. Further, disqualification happens
pursuant to the operation of law and the section only enumerates the
disqualification as a consequence statutorily provided for non-compliance with
section 164. Thus, the vacation of office is by operation of law where no
hearing is contemplated.

 

HELD


The High Court analysed the
provisions contained in section 164, 167, 92, 96, 137 and 403 of the Act along
with Companies (Appointment of Directors) Rules, 2014 (“the Rules”). It was
observed that section 164(2) speaks about the ineligibility of the director,
who is already working as a director or has worked as a director in the past,
in the company which has committed defaults as mentioned therein, to be
reappointed as a director of that company or appointed in other company. As
such, there was no procedure required to be followed by the respondent
authorities for declaring any person or Director ineligible or disqualified
under the said provision. The ineligibility was incurred by the person/director
by operation of law and not by any order passed by the MCA / ROC and therefore,
adherence of principles of natural justice by MCA / ROC was not warranted.

 

Further,
High Court held that section 164(2)(a) being prospective in application and
effective with effect from 01.04.2014, the three financial years contemplated
in the said provision would be 2014-15, 2015-16, and 2016-17 only. Application
of the section to financial year 2013-14 would tantamount to giving effect to
the section retrospectively.

 

In the facts of the present
case, AGM for financial year 2016-17 could be held up to 30.09.2017, and the
annual returns could be filed within 60 days and financial statements within 30
days of holding of such AGM i.e. up to 30th of November and 30th
of October 2017 respectively. Under the circumstances, the Director would incur
disqualification or would become ineligible to be reappointed as a Director of
a company or appointed in other company for a period of five years, for the
defaults u/s. 164(2)(a), only after 30th of October or 30th
of November, as the case may be, of the year 2017. Hence, the impugned list
dated 12.9.2017 showing G as disqualified for a period of five years from
1.11.2016 to 31.10.2021, was held to be not only premature, but untenable in
law.

 

With respect to deactivation
of DIN of G by MCA, it was observed that Central Government or Regional
Director or any authorised officer of Regional Director may, on being satisfied
on verification of particulars of documentary proof attached with an
application from any person, cancel or deactivate the DIN on any of the grounds
mentioned in Rule 11. The said Rule 11 did not contemplate any suo motu powers
either with the Central Government or with the authorised officer or Regional
Director to cancel or deactivate the DIN allotted to the Director, nor any of
the clauses mentioned in the said Rule contemplates cancellation or
deactivation of DIN of the director of the “struck off company” or of
the Director having become ineligible u/s. 164 of the Act.

MCA was directed to restore
the DIN of G.

 

The High Court also
observed that if the company is struck off and stands dissolved u/s. 248 of the
Act, it could still realise the amount due to the company, as also it is
obliged to discharge the liabilities or obligations of the company.

 

13. Vijay Kumar Jain vs. Standard Chartered Bank [2019] 102 taxmann.com 14 (SC) Civil Appeal No. 8430 of 2018 Writ Petition (Civil) No. 1266 of
2018 Dated : 31st January, 2019

 

Section
25 and 31 of the Insolvency and Bankruptcy Code, 2016 read with Regulations 24
and 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Person) Regulations, 2016 – Members of the suspended
board of directors have a right to attend the meeting of Committee of Creditors
and have access to documents used for deliberations therein including the
resolution plan

 

FACTS


R Co, the corporate debtor
was incorporated in the year 1986 and was a profitable company engaged in the
business of processing of oil-seeds and refining crude oil for edible use.
Standard Chartered Bank and DBS Bank Ltd. being the financial creditors of R Co
filed company petitions in December 2017 which were admitted by National
Company Law Tribunal (“NCLT”) and Interim Resolution Professional (“IRP”) was
appointed. V was a member of the suspended Board of directors and in his
capacity as such was permitted to attend the first meeting of Committee of
Creditors (“CoC”) held on 12.01.2018.

 

V was allegedly denied
participation in subsequent meetings and to challenge the same filed an
application before the NCLT in June 2018. By an order dated 01.08.2018, the
NCLT dismissed the application with liberty to the appellant to attend CoC
meetings but not to insist upon being provided information considered
confidential either by the resolution professional or the CoC. Against this
order, V filed an appeal before the Appellate Tribunal which recognised V’s
right to attend and participate in CoC meetings, but denied V’s prayer to
access certain documents, most particularly, the resolution plans. Thereafter,
an application for modification/clarification of the Appellate Tribunal’s order
was also dismissed.


V even executed a
non-disclosure undertaking whereby he agreed to indemnify the resolution
professional and keep information that is received as to the resolution plan
strictly confidential. However, in order to challenge the order of Appellate
Tribunal, present application was filed before the Supreme Court.

 

V submitted that they are
“participants” in the meetings of the CoC, albeit without voting
rights, yet, they are persons who, in order to participate effectively, must be
given the necessary documents so that their views can also be considered by the
CoC. On behalf of the resolution professional, it was argued that the terms
“committee” and “participant” are differently defined under
the Regulations and that participants are expressly excluded by Regulation 39
of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 (“Regulations”).

 

HELD


Supreme
Court analysed and explained the entire statutory scheme laid down by the Code.
It was observed that though the erstwhile Board of Directors are not members of
the CoC, yet, they have a right to participate in each and every meeting held
by the CoC, and also have a right to discuss along with members of the CoC all
resolution plans that are presented at such meetings u/s. 25(2)(i) of the Code.

Supreme Court relying on Regulations
observed that every participant is entitled to a notice of every meeting of the
CoC. Such notice of meeting must contain an agenda of the meeting, together
with the copies of all documents relevant for matters to be discussed and the
issues to be voted upon at the meeting vide Regulation 21(3)(iii). Obviously,
resolution plans are “matters to be discussed” at such meetings, and
the erstwhile Board of Directors are “participants” who will discuss
these issues. The expression “documents” is a wide expression which
would certainly include resolution plans. Supreme Court upon a combined reading
of the Code as well as the Regulations held that members of the erstwhile Board
of Directors, being vitally interested in resolution plans that may be discussed
at meetings of the CoC, must be given a copy of such plans as part of
“documents” that have to be furnished along with the notice of such
meetings. So far as confidential information was concerned, the resolution
professional can take an undertaking from members of the erstwhile Board of
Directors, as has been taken in the facts of the present case, to maintain
confidentiality.

 

Resolution Professional was
thus directed to hand over a copy of the resolution plan to the members of the
erstwhile Board and convene a meeting of the CoC within two weeks thereafter,
which will include V and others as participants. The ruling of NCLAT was thus
set aside.

 

ALLIED LAWS

This
feature was started in April, 1996 with K Shivaram, Advocate and Chetan Karia
as seed contributors. Reepal Tralshawala (4 years), K Gopal (3 years), Ajay R
Singh (9 years) also co-authored it along with Dr Shivaram. Since 2016-17,
Rahul K Hakani and Sashank Dundu joined Dr Shivaram as co-contributors.

The idea of behind the column was to bring
out summary of cases other than on tax law. It normally includes judgments that
are useful to professionals and have an impact on matters handled by them.
Cases generally covered are those under Hindu Succession Act, Registration Act,
Transfer of Property Act, Evidence Act, Stamp Act, Contempt of Courts Act,
General Clauses Act, Motor Vehicles Act all the way up to the Constitution of
India.

 

25.  Gift – Oral gift under
Mohammedan Law is valid – Burden of proof is on the donee. [Mohammedan Law]

 

Jamila
Begum (D) thr. L.Rs. vs. Shami Mohd. (D) thr. L.Rs. and Ors. AIR 2019 Supreme
Court 72

 

Case of
Respondent-Plaintiff was that Wali Mohd., father of Respondent No. 1 had
purchased two plots and along with Respondent No. 1 got disputed house
constructed which was gifted to Respondent No. 1 through an oral gift and he
was put in possession.

 

It was
observed that Under the Mohammedan law, no doubt, making oral gift is
permissible. The conditions for making valid oral gift under the Mohammedan law
are: (i) there should be wish or intention on the part of the donor to gift;
(ii) acceptance by the donee; and (iii) taking possession of the subject matter
of the gift by the donee.

 

The Apex
Court held that Respondent-Plaintiff claimed right to suit property by virtue
of oral gift in favour of Respondent No. 1. Respondent-Plaintiff had not proved
as to how at time of oral gift, possession was delivered to him. Nothing was
brought on record to show that Respondent No. 1-Shami Mohd. had taken any steps
to get property mutated in his name. Likewise, nothing was brought on record to
show that pursuant to oral gift, Respondent-Plaintiff collected rent from
tenants or paid house tax, water tax, etc. Essential conditions to make a valid
gift under Mohammedan law had not been established by Respondent-Plaintiff to
prove oral gift in his favour. In absence of any proof to show that possession
of suit property was delivered to him, oral gift relied upon by
Respondent-Plaintiff ought not to had been accepted by courts below.

 

26.  HUF – Alienation of
Property of HUF allowed if there is a legal necessity [Hindu Law]

 

Kehar
Singh (D) thr. L.Rs. and Ors. vs. Nachittar Kaur and Ors. (2018) 14 Supreme
Court Cases 445

 

The
dispute in this appeal is between the son, father and the purchasers of the
suit land from father. One Pritam Singh (Father – Defendant No. 1) was the
owner of the suit land. He sold the suit land by registered sale deed to Tara
Singh (Purchaser – Defendant No. 2) and Ajit Singh (Purchaser – Defendant No.
3). Both purchasers were placed in possession of the suit land.

 

Kehar
Singh (Son-Plaintiff) s/o. Pritam Singh (Father-Defendant) filed a civil suit
against the purchasers on the ground that the suit land was and continued to be
an ancestral property of the family of which the Plaintiff is one of its
members along with his father, that the Plaintiff’s family is governed by the
custom, which applies to sale of family property inter se family
members, that the Plaintiff has a share in the suit land along with his father
as one of the coparceners, that his father had no right to sell the suit land
without obtaining the Plaintiff’s consent, which he never gave to his father
for sale of the suit land, that there was no legal necessity of the family
which could permit his father to sell the suit land to the purchasers.

 

The
question before the Supreme Court for consideration was whether the sale made
by the Father in favour of the purchasers was for legal necessity and, if so,
whether it was legal and valid sale.

 

It was
observed that the father had taken various loans from the department for
purchase of seeds bag. Rs. 500/- for repair of house and Rs. 2,500/- for
purchasing pumping set. The father had further purchased a Rehri for Rs.
1,025/- from him in the year 1961. The Father had also borrowed a sum of Rs.
3,000/- in the year 1959 by executing a pronote. The father had also performed
marriage of his 5 children. This proved that legal necessity existed.

It was
held that once the factum of existence of legal necessity stood proved, then,
no co-coparcener (son) has a right to challenge the sale made by the Karta of
his family. The Plaintiff being a son was one of the co-coparceners along with
his father. He had no right to challenge such sale in the light of findings of
legal necessity being recorded against him. It was more so when the Plaintiff
failed to prove by any evidence that there was no legal necessity for sale of the
suit land or that the evidence adduced by the Defendants to prove the factum
of existence of legal necessity was either insufficient or irrelevant or no
evidence at all.

 

27.  Right to Information –
Delay in providing information in response to Right to information application
– Strictures against CESTAT – To educate the concerned officials for effective
discharge of its duties and responsibilities. [Right to Information Act, 2005;
Section7(1)]

 

R.K.
Jain vs. CPIO and Accounts Officer, CESTAT, New Delhi 2018 (10) G.S.T.L. 112
(CIC)

 

The
complainant, vide his RTI application sought information on a few appeals and
required copies of all order sheets and records of proceedings, vakalatnamas,
miscellaneous applications, after Court cause list and copies of Note sheets
put up by Registry etc.

 

Dissatisfied
by the response of the CPIO, the Complainant approached the FAA. The FAA, vide
its order, directed the CPIO to provide the information within two weeks to
the Complainant.

 

It was
argued that the RTI application which was filed on 6-8-2013 was transferred on
8-8-2013 to Asst. Registrar, Service Tax. Subsequently, the Complainant had
sent numerous reminders to the CPIO informing him of his duties as deemed CPIO
to provide information u/s. 7(1) of the RTI Act, 2005 within 30 days. The CPIO
had not responded in the matter at all. The Complainant promptly contested on
the ground that the information pertaining to note sheets had not been provided
till date. Moreover, the Complainant submitted that the CPIO should have acted
on the application within the stipulated time period as envisaged in the RTI
Act, 2005 and demanded initiation of penal proceedings against him in the
matter.

 

The
Commission observed that there is complete negligence and laxity in the public
authority in dealing with the RTI applications. It is abundantly clear that
such matters are being ignored and set aside without application of mind which
reflects disrespect towards the RTI Act, 2005 itself.

 

It was
held by the Central Information Commission that the Respondent was supposed to
be cautious to exercise due care in future to ensure that correct and complete
information is furnished timely to the RTI applicant(s) as per provisions of
the Act failing which penal proceedings u/s. 20 shall be initiated. The
Commission also instructed the Respondent Public Authority to convene periodic
conferences/seminars to sensitise, familiarise and educate the concerned
officials about the relevant provisions of the RTI Act, 2005 for effective
discharge of its duties and responsibilities.

 

28.  Trust – Deed of Transfer
– Transfer between two Trustees – Liable to stamp duty as per section 62(e) and
not as a conveyance – Sufficiency of stamp value. [Stamp Act, 1899; Section
62(e)]

 

The
District Registrar, Registration Department, Madurai South and Ors. vs. M.
Shanmugasundaram AIR 2019 Madras 1

 

A
transfer of Sri Narayana Guru Industrial Training Institute (hereinafter
referred to as ‘institute’), which is a part of Tamil Nadu Sri Narayana Guru
Trust, had taken place between one Trust named ‘Tamil Nadu Sri Narayana Guru
Trust’ and another Trust named ‘Tamil Nadu Illathu Pillaimar Sangam’, where the
latter Trust was one of the trustees of the former Trust.

It was
observed that the said ‘institute’ were to be transferred to another trustee
which is shown as second party, that is, Tamil Nadu Illathu Pillaimar Sangam.
It is also stated that Sri Narayana Guru Industrial Training Institute had a
debt to the tune of Rs. 4,25,000/- and salary arrears for the employees to the tune
of Rs. 65,000/-. The said transfer has taken place only for the purpose of
discharging the above said two amounts. Therefore, the appellants had treated
the same as deed of conveyance and it is argued that the said deed is executed
in favour of an individual and not a trust.

It was contended that the transfer was between
two trustees  and  hence it was not a conveyance of the properties.

 

It was
argued that the question of conveyance would not arise and the stamp duty as
per Article 62(e) of Indian Stamp Act, 1899 would apply which states that
transfer whether with or without consideration between two trustees, the amount
specified therein would apply.

It was
held that when the recitals in the deed of transfer explicitly states that the
transfer is from one trustee to another trustee as per the title deed, the deed
of transfer is not a conveyance but a deed of transfer covered by Article 62 (e)
of the Indian Stamp Act, 1899. Hence the stamp duty applicable in the transfer
of the title deed is only Article 62 (e) of the Indian Stamp Act, 1899.

 

29.  Unregistered Document –
Exchange Deed in respect of immovable property – Inadmissible in evidence
[Evidence Act, 1872; Section 91, 61; Registration Act, 1908; Section 49]

 

Shyam
Narayan Prasad vs. Krishna Prasad and Ors. AIR 2018 Supreme Court 3152

 

The issue
before the Court was whether the exchange deed was admissible in evidence or
not when the said exchange deed purports to transfer immovable property without
being registered.

 

There was
an exchange of business where such business also included an RCC building, the
value of which exceeded Rs. 100. Section 118 of the Transfer of Property Act
defined ‘exchange’ to be a situation where two persons mutually transfer the
ownership of one thing for the ownership of another, neither thing or both
things being money only, the transaction is called an “exchange”.

 

It was
observed that where either of the properties in exchange are immovable or one
of them is immovable and the value of anyone is Rs. 100/- or more, the
provision of section 54 of the TP Act relating to sale of immovable property
would apply. The mode of transfer in case of exchange is the same as in the
case of sale. It is thus clear that in the case of exchange of property of
value of Rs. 100/- and above, it can be made only by a registered instrument.
In the instant case, the exchange deed has not been registered.

 

Section
49 of the Registration Act, 1908 provides for the effect of non-registration of
the document which states that such document, which is not registered, cannot
be received as evidence. Further, section 17(i)(b) of the Registration Act
mandates that any document which has the effect of creating and taking away the
rights in respect of an immovable property must be registered and section 49 of
the Registration Act imposes bar on the admissibility of an unregistered
document and deals with the documents that are required to be registered u/s.
17 of the Registration Act.

 

It was
held that any document which is not registered as required under law, would be
inadmissible in evidence and cannot, therefore, be produced and proved u/s. 91
of the Evidence Act, nor any oral evidence can be given to prove its contents.  

 

RIGHT TO INFORMATION (r2i)

PART A  DECISION OF SUPREME COURT

 

u Supreme
Court slams centre for keeping names of applicants for Information
Commissioners’ post secret; asks it to make them public

The Supreme Court (SC) has directed the Centre to publish names,
criteria and other details of search committee’s work so far for appointments
to the Central Information Commission, under the Right to Information (RTI)
Act.

 

The case pertained to the inordinate delay in filling up the vacancies
of crucial posts of Central Information Commissioners (CICs) and Information
Commissioners (ICs), the SC order is a big boost for activists, who have
campaigned tirelessly for transparency in selection of information
commissioners.

 

The SC directive follows an affidavit submitted by the central
government in court today. The Government had earlier committed to decide on
vacancies even before a public interest litigation (PIL) for appointment of
Commissioners was filed. It told the SC today that it had received 65
applications for the post of the Chief Central Information Commissioner and 280
applications for the four posts of Information Commissioners. The affidavit
states that the government has shortlisted names for the post of CIC. However,
after the latest SC directive, the government will have to publish these names
on its website, before it selects the chief information commissioner.

 

As for the eight other States that were also asked to file an affidavit,
the Telangana government has said that it was busy with elections so the SC has
given it two more weeks to file its affidavit. The petitioners bought it to the
notice of the court that there were 10,000 second appeals pending with this
State Commission. The Odisha government’s affidavit states that a selection
committee has been formed to fill up four vacancies for ICs.

 

It may be recalled that a writ petition was filed by activists Anjali
Bharadwaj, Amrita Johri and Commodore Lokesh Batra (retd). The reason for this
petition was that “under the Right to Information (RTI) Act, the Central
Information Commission (CIC) and State Information Commissions (SIC) have been
created as statutory bodies to decide appeals and complaints against public
authorities, for non-compliance with the RTI law. The proper functioning of
these institutions is essential for effective implementation of the RTI Act.
The RTI law provides that the CIC must consist of a Chief Information
Commissioner and ten information commissioners.”

 

In an earlier hearing on 27th July, 2018, the SC had directed
the central government to file an affidavit stating how many posts it proposed
to fill, based on the advertisement issued, the time schedule for filling the
posts, why appointments were not made subsequent to a 2016 advertisement and
measures to ensure transparency in the process of appointment – all this was
highlighted in the PIL. In addition, eight state governments, who are
respondents in the case, were also directed to file affidavits enumerating the
steps they are taking for filling up vacancies, the time frame within which
these will be filled and the procedure of appointment.

 

Incidentally, Chief
Information Commissioner Radha Krishna Mathur, and three Central Information
Commissioners – Prof. M Sridhar Acharyulu, Yashovardhan Azad and A
Bhattacharyya, retired in the last week of November 2018. That makes for eight
vacancies in the Commission.

 

Besides the legal intervention sought, former Central Information
Commissioner, Prof Acharyulu too kept up the pressure on government by writing
a letter to the President of India, Ram Nath Kovind, last week regarding the
inordinate delay in appointing information commissioners.

 

Prof. Acharyulu in his letter stated: “…the Government of India should have
completed process of appointing the Chief Information Commissioner before the
retirement of Shri Radha Krishna Mathur, to be ready to take over the
administration of the Commission without any gap, because the RTI Act has not
envisaged any vacancy in that high position at any point of the time. The
Commission has experienced absence of administration for several months as the
Government did not appoint Chief Information Commissioner, three years ago,
after retirement of the then Chief. Unfortunately now also that position is
left vacant since 22nd November, 2018. Similarly leaving seven
positions of CICs also will lead to increase in the pendency of second
appeals/complaints. The delay in information amounts to denial of information
and delay in information justice also means its denial.”

 

During the hearing on the 3rd December, the petitioners had
pointed out that at present there were vacancies in the Central Information
Commission, including that of the Chief and the backlog of appeals/complaints
had risen to more than 26,000. They also pointed out that the advertisement
issued by the central government for the posts of Information Commissioners and
the Chief Information Commissioner did not specify the salary and tenure, even
though these are specifically defined in the RTI Act & therefore, the
advertisements were not in keeping with the RTI law. All previous
advertisements for the posts specified the salary and tenure. Upon being
questioned about the anomaly in the advertisements, the counsel for the central
government stated that the government was intending to amend the RTI Act.

 

Prof Acharyulu, former Central Information Commissioner has appealed to
President of India for appointment of eminent persons from fields other than
Administration to the CIC. His letter says:

 

“I would like produce the text of Section 12(5) of RTI Act 2005 for
ready reference, at this juncture:

 

The Chief Information Commissioner and Information Commissioners shall
be persons of eminence in public life with wide knowledge and experience in
law, science and technology, social service, management, journalism, mass media
or administration and governance.”

 

“In this context, as a person who worked as Central Information
Commissioner for five years till recently, I request your Excellency to
consider following suggestions:

 

1.    As the Chief Information
Commissioner in all these 13 years was selected from the field of
Administration only, at least, this time an eminent person from the field other
than Administration may be selected; and if for any reason, the Government
decides to select a retired bureaucrat once again, it should ensure that he had
credentials of integrity, commitment towards transparency and has never
supported or promoted any kind of secrecy in administration. The people have a
right to know this kind of background of the Chief and other Commissioners. The
Government should also commit itself to appoint next Chief Information
Commission from other than bureaucrats.

2.   As mandated by section 12(5) of the RTI Act,
the Government of India has a statutory duty to select at least one person of
eminence each in public life with wide knowledge and experience from the fields
of (1) law, (2) science, (3) technology, (4) social service, (5) management,
(6) journalism, and (7) mass media. As the Government has already appointed
three eminent persons with experience in administration, who are working now,
the Committee, as a principle, should not consider the persons from this field
for this time. 

 3.        Whenever
the Selection Committee convenes, from now onwards, it shall select one eminent
person of experience each from these fields necessarily for making the Central
Information Commission representative of multiple fields of public activity and
truly democratic. With experts from various fields, there will be no scope for
bureaucratic majority or domination in its administration besides accommodating
different view-points. If the Government selects more number of former
bureaucrats for these posts, it will in breach of letter and spirit of
transparency law and more particularly that of Section 12(5) of RTI Act, which
may not stand the scrutiny by the Judiciary.

 4.        The Selection Committee should also ensure
that the new Commissioners appointed shall have the complete independence with
regard to the term, status and salary as provided by the RTI Act. Their term,
status and salary shall not be ‘as
prescribed’ by the Central Government’ as contemplated by the present
Government in the proposed Amendment to RTI Act.

 5. The
Government shall ensure that it will not interfere in the functioning of
Central Information Commission and also to insulate the office of Chief
Information Commissioner or individual commissioner from direct or indirect
pressures or interferences from any of its offices such as PMO or the Ministry
of DoPT.

 6. The
Government shall not introduce the RTI (Amendment) Bill, 2018 and shelve it
permanently, in the interest of transparency of administration and good
governance.

 7.  Hereafter, the Government shall fill every vacancy promptly so that
a new Chief/Commissioner takes over the charge from the retiring Commissioner
without any gap.

(Source:https://www.moneylife.in/article/sc-slams-centre-for-keeping-names-of-applicants-for-information-commissioners-post-secret-asks-it-to-make-them-public/55914.html
)

 

 

PART B RTI ACT, 2005

u
Maharashtra facilitates inspection of files. Here is how to do file inspection
under RTI

Recently, the Maharashtra government took an
important step towards transparency through a government resolution (GR) which
directs every public authority in the state to provide two hours, once a week,
for citizens to walk into the government offices, for inspection of files u/s.
4 of the RTI Act. However, even though citizens can demand to see documents
under this provision, not many know how to go about it.

 

In order that such a useful and
citizen-friendly initiative is not lost due to citizens’ inhibition or
ignorance, here are some tips on how to be on top of the board.

 

Just to
reiterate, inspection of files was pioneered in Pune way back in 2005 and
followed thereafter by the Pune Municipal Corporation (PMC) in 2009, directing
its public authorities to keep every Monday, between 3pm and 5pm, open for
citizens to inspect files. At that time, even public information officers
(PIOs) or heads of public authorities were not aware that it is not necessary
for a citizen to write an application for inspection of files u/s. 4 of the RTI
Act.

 

In fact, I remember when I met the
secretary, environment in the Mantralaya to inspect files regarding Dow
Chemicals in 2010, despite my having sent him an email and an SMS (as I was
coming to Mumbai from Pune), he asked me to write an application.

 

I convinced him that I was not required to
do so and the following note made by the late Prakash Kardaley and Vijay
Kumbhar came in handy for me. (The secretary, environment then spoke to his
legal cell about this provision in front of me and then asked his executive
director to show me all the files pertaining to Dow Chemicals and directed him
to give me any photo copies that I wanted).


Thus, when any citizen goes for file
inspection, I would suggest you carry the following note which will be an
eye-opener to the PIO, besides arming you with the required ammunition. Here it
is:


1. Your kind attention is drawn to section 4
of the Right to Information Act, 2005 under Chapter II on `Right to Information
and Obligation of Public Authorities’.


 2. As
per the provision, it is obligatory for every public authority (including
xxxxxx name the office you would be visiting) to publish certain
categories of documents so as to make voluntary disclosure of information so
that citizens have “minimum resort to the use of this Act to obtain
information.”


3. Information
covered by section 4, in fact, should have been published on 12th
May, 2005 and disseminated widely in such form and manner which is easily
accessible to the public and should have been updated at regular intervals
later.


 4. It
is further explained in the provision that ‘disseminated’ means making known
or communicated the information to the public through notice boards,
newspapers, public announcements, media broadcasts, the internet or any other
means, including “inspection of offices of any public authority. “
I am enclosing here the full text of section 4 as adopted by the Parliament of
India for your reference.


 5. I
regret to bring to your notice that no information covered under this section 4
has been disseminated yet by you, a public authority under the state
government, through notice boards, newspapers, public announcements, media
broadcasts and Internet.


 6.
Nevertheless, citizens have a right to inspect these documents in the office of
the public authority, including the (xxxx name the office), as
explicitly mentioned in the provision u/s. 4.


 7. It
may be noticed that a citizen desiring to inspect the documents containing
information covered u/s. 4 of the Right to Information Act, 2005, need not make
any formal requisition u/s. 6 of the Act because these documents should have
already been published by the public authority (including xxx name the office)
so that citizens have “minimum resort to the use of this Act to obtain
information.”


 8.
Implementation of this provision of the Act (u/s. 4) is the direct
responsibility of the head of the public authority. In this specific instance,
it is your direct responsibility as the municipal commissioner and the
administrative head of the Pune Municipal Corporation. Hence this letter is
addressed to you and not to any public information officer (PIO) since no
formal requisition is needed to be filed, please note.

 

In case the public authority insists on a
formal letter, then write it this way, says RTI activist Vijay Kumbhar:

 

VERY IMPORTANT NOTE: Intimation of inspection u/s. 4 should be addressed to the top
authority of the government department (meaning the municipal commissioner, if
it is a municipal corporation) unlike an application u/s. 6 which is addressed
to the public information officer (PIO).

 

Draft of intimation

 

To

 

The Head of the Department

 

Subject – Intimation for inspection of files
related to  xxxxxxxxxx

 

Dear Mr. Head of the Department

 

As per the circular sankirn2018/ pra.kra.
45/ karya 6, dated 26/11/2018, the government of Maharashtra has allowed
inspection of files in every department. Please note that as per section 4 of
the RTI act and as per the said circular there is no need to give any
intimation for inspection of files in any public authority. However, being
responsible citizens, we thought it preferable to intimate you beforehand.

 

I intend to exercise my right as a citizen
to inspect documents related to xxxxxx. I will visit your office on Monday
xx/xx/2018.

 

Thanking you

With Regards

Citizens must remember they are the
custodian of most government files, except the ones u/s. 8 of the RTI Act, says
Kumbhar and, therefore:

 

•   As these files belongs to citizens and
citizens are owners of these files they should not to feel awkward, guilty or
hesitate to demand a file for inspection

•   Remember, once a citizen gives them the
intimation, the citizen should not have to wait for a reply from the
officer,  simply because a citizen has
the right to inspect files during the designated working hours of the public
authority. The intimation is just for the purpose of convenience and to avoid
excuses by officials.

•   Once citizens have gone through the documents
they can ask for the copies of the inspected documents. To obtain such copies,
u/s. 6 of the RTI Act, one need not give an application. Merely giving a list
of document on plain paper is enough. However, they need to pay the fees
required for photocopying.

 

 Text
of Section 4 of the Right to Information Act, 2005

 

4. (1)   
Every public authority shall

 (a) 
maintain all its records duly catalogued and indexed in a manner and
form which facilitates the right to information under this Act and ensure that
all records that are appropriate to be computerised are, within a reasonable
time and subject to availability of resources, computerised and connected
through a network all over the country on different systems so that access to
such records is facilitated;

 (b) 
publish within one hundred and twenty days from the enactment of this
Act,-


(i) the particulars of its organisation,
functions and duties;


(ii) the powers and duties of its officers
and employees;


(iii) the procedure followed in the decision
making process, including channels of supervision and accountability;


(iv) the norms set by it for the discharge
of its functions;


(v) the rules, regulations, instructions,
manuals and records, held by it or under its control or used by its employees
for discharging its functions;


(vi) a statement of the categories of
documents that are held by it or under its control;


(vii) the particulars of any arrangement
that exists for consultation with, or representation by, the members of the
public in relation to the formulation of its policy or implementation thereof;


(viii) a statement of the boards, councils,
committees and other bodies consisting of two or more persons constituted as
its part or for the purpose of its advise, and as to whether meetings of those
boards, councils, committees and other bodies are open to the public, or the
minutes ‘of such meetings are accessible for public;


(ix) a directory of its officers and
employees;


(x) the monthly remuneration received by
each of its officers and employees, including the system of compensation as
provided in its regulations;


(xi) the budget allocated to each of its
agency, indicating the particulars of all plans, proposed expenditures and
reports on disbursements made;


(xii) the manner of execution of subsidy
programmes, including the amounts allocated and the details of beneficiaries of
such programmes;


(xiii) particulars of recipients of
concessions, permits or authorisations granted by it;


(xiv) details in respect of the information,
available to or held by it, reduced in an electronic form;


(xv) the particulars of facilities available
to citizens for obtaining information, including the working hours of a library
or reading room, if maintained for public use;


(xvi) the names, designations and other
particulars of the public information officers;


(xvii) such other information as may be
prescribed; and thereafter update these publications every year;


 (c) 
publish all relevant facts while formulating important policies or
announcing the decisions which affect public;


 (d) 
provide reasons for its administrative or quasi-judicial decisions to
affected persons;


(2) 
It shall be a constant endeavour of every public authority to take steps
in accordance with the requirements of clause (b) of s/s. (1) to provide as
much information suo motu to the public at regular intervals through various
means of communications, including the internet, so that the public have
minimum resort to the use of this Act to obtain information.


(3) 
For the purpose of s/s. (1), every piece of information shall be
disseminated widely and in such form and manner which is easily accessible to
the public.


(4) 
All materials shall be disseminated taking into consideration the cost,
effectiveness, local language and the most effective method of communication in
that local area and the information should be easily accessible, to the extent
possible in electronic format with the central public information officer, or
state public information officer, as the case may be, available fee or at such
cost of the medium or the print cost price as may be prescribed.

 

Explanation: For the purposes of s/s. (3)
and (4), “disseminated” means making known or communicated the
information to the public through notice boards,
newspapers, public announcements, media broadcasts, the internet or any other
means, including inspection of offices of any public authority.

(Source:https://www.moneylife.in/article/maharashtra-facilitates-inspection-of-files-here-is-how-to-do-file-inspection-under-rti/55946.html )

 

PART C INFORMATION ON & AROUND

 

u  384 tigers killed
in India in last 10 years, reveals RTI

A total of 384 tigers have been killed by
poachers across the country in the last ten years, which translates to over
three a month, a reply under the Right to Information has revealed.

 

Between 2008 and 2018 (till November), 961
persons have also been arrested for allegedly poaching tigers, it said. The
information was given by the Wildlife Crime Control Bureau or WCCB in response
to a Right to Information (RTI) query filed by Noida-based advocate Ranjan
Tomar.

 

Tomar also an RTI activist, had asked the
WCCB the number of tigers killed by poachers in the last ten years and the
people arrested and convicted for the same. “As per the data available in
records of the Bureau based on the information received from the State Forest
and Police authorities the total number of tigers killed by poachers in the
last 10 years is 384 and 961 number of poachers arrested in the tiger
cases,” the reply stated. However, the bureau said that no information was
available with it regarding conviction of the accused in these cases.

 

“The data makes it clear that
successive governments have not been able to check killing of tigers by
poachers and therefore there is a need for a special initiative to conserve
this wild species or make changes in current laws to make them more effective else,”
Tomar said.

 

For conservation of the country’s national
animal, the government had launched ‘Project Tiger’ in 1973. As per a 2014
assessment, India has the highest number of tigers in the world at 2,226,
according to the website of the Ministry of Environment, Wildlife and Climate
Change.

 

(Source:https://economictimes.indiatimes.com/news/politics-and-nation/384-tigers-killed-in-india-in-last-10-years-reveals-rti/articleshow/66984490.cms
)

 

u Mumbai
University examinations in question after they receive 76,828 revaluation
applications

Mumbai University has been infamous for its
mismanagement and inability to cope up with the examinations. In an addition to
the list, Mumbai University has seen a sudden spike in the number of
revaluation applications for the academic year 2017-18. The information was
received after a Right To Information (RTI) application was filed for the same
and therefore, it raises questions against the paper checking process.  Revaluation is a facility introduced by the
University for students who are dissatisfied with their score in an examination
or for students who have failed in an examination. However, in order to receive
the benefit of the procedure, the students are obliged to pay a specific amount
of money to the University as ‘Revaluation Fees’, after which the answer sheet
is re-checked by the University. Shoumitkumar Salunkhe had asked for
information of the number of revaluation applications received between June,
2017 and November, 2018. After which, he learned that as compared to the
applications that were received during October, 2017 (60,712 applications), the
applications received during May, 2018 (76,828 applications) had exponentially
increased. And it was crystal clear that the number of applications was growing
every day. However, clarifying on the matter, a University official stated that
the increase in the number of revaluation applications is a result of
University’s decision to reduce the fee to Rs.
250 from Rs. 500. He stated that due to this, the students have been active in
demanding revaluation as the prices are low.

(Source:https://www.mumbailive.com/en/education/more-than-75-thousand-answer-sheet-submitted-for-rechecking-in-mumbai-university-31378 )

 

u Jammu
& Kashmir (J & K Bank) is now under Right to Information Act

J & K Bank (Jammu & Kashmir Bank)
has been brought under the ambit of the Right to Information Act (RTI) Act,
Chief Vigilance Commissioner (CVC) and the Legislature of the State in Jammu
and Kashmir. The official said on Friday that on Thursday evening under the
chairmanship of Governor of Jammu and Kashmir, Satyapal Malik and State
Administrative Council (SAC), in which the proposal to recognise ‘J & K
Bank’ as Public Sector Undertakings (PSU) has been passed. The SAC approved the
proposal that the Jammu and Kashmir Right to Information Act, 2009 will now be
applied to the Jammu and Kashmir Bank, just like the other banks under the PSU.
He told that besides this, the bank will now have to accept the guidelines of
the CVC.

 

He said that like the other PSUs of the
state, ‘J & K Bank’ will also be accountable to the state assembly. The
bank’s annual report will be presented in the assembly by the State Finance
Department.

 

However, Former Chief Minister Mehbooba
Mufti demanded to cancel the decision of the Governor to include Jammu and
Kashmir Bank in the category of PSUs. She said that the involvement of the
Jammu and Kashmir Bank in the category of PSU is a part of the conspiracy to
end the state’s special status.

 

The state administration has clarified that
there is no intention of interfering in the banking system. The Board of
Director of the Bank is the best and it is his autonomous. RBI will work to
regulate RBI as before. The purpose of the decision of the State
Administrative Council is to bring better governance and transparency in the
functioning of the bank. Applying the Jammu and Kashmir Bank to RTI and
implementing the guidelines of the CVC is just to bring transparency.

 

The bank will be accountable to the state
assembly and its annual report will be present in the state assembly itself.
The right transparency in the bank will come from the RTI Act. All
administrative and recruitment rules are related to it. Union Minister of
State, Dr. Jitendra Singh said that some families living in the state’s
power have been misusing their bank to understand their estate. The governor’s
decision is in line with the Center’s decision to increase transparency in
financial institutions.

(Source:https://www.newsfolo.com/india/jammu-kashmir-j-k-bank-now-right-information-act/156659/)

 

u CIC brings
BCCI under Right to Information Act

The worst fears
of an Indian cricket selector are about to come true. BCCI has been brought
under the ambit of the Right to Information Act and faces the direct prospect
of being answerable to the country and its public in the near future. The
Central Information Commission (CIC) — the top appellate body in all matters
related to this 2005 Act of the Parliament of India — has directed the BCCI to
be brought under the RTI Act and put in place, within two weeks starting
Tuesday, online and offline mechanisms to receive applications for information
under the RTI Act. Will a selection committee meeting now be public info? “The
BCCI should be listed as a National Sports Federation (NSF) covered under the
RTI Act. The RTI Act should be made applicable to the BCCI along with its
entire constituent member cricketing associations, provided they fulfil the
criteria applicable to the BCCI, as discussed in the Law Commission’s report,”
CIC Commissioner Sridhar Acharyulu said. Those who oversee the day-today
functioning of the BCCI say they are least bit surprised with the development.
“But there are massive pitfalls associated with this too. All hell will break
loose if details of selection committee meetings are now made available to the
public. Who will want to speak his mind then? Every decision taken inside a
selection committee meeting will become a matter of national debate, leading to
tamasha on prime time television news,” said a senior BCCI member.


Recently, the national women’s team coach was sacked by the BCCI because he —
sources say — was asked to jot down details of team meetings and the cricketers
rejected the idea the moment it was proposed.

(Source:https://timesofindia.indiatimes.com/sports/cricket/news/cic-brings-bcci-under-right-to-information-act/articleshow/66036808.cms)

 

u Indian
students rushing abroad to study medicine, reveals RTI

There has been an increase in the number of
students willing to study medicine abroad, reveals the reply to an RTI query. The
RTI query was sent to the Medical Council of India (MCI) in October 2018 and
the reply reveals that the number of students who applied for the mandatory
eligibility certificate from MCI to study abroad almost doubled in 2017-18 as
compared to 2016-17.

 

As per RTI no. MCI- 201 (E-RTI)/ 2018-
Eligi./, the number of applications received was18,383 in 2017-18 as against
10,555 in 2016-17.

 

Dr. Sylvia Karpagam, a public health doctor
and researcher, said, “The mass migration of doctors has been happening for a
long time and it is not surprising. The entire medical education system, right
from the selection process, the fees and the curriculum are set up as a
commercialised structure, rather than a social commitment. The curriculum
doesn’t focus on the disease that is prevalent in the country. Medical students
are also trained in tertiary care rather than primary healthcare. They are
therefore ill-prepared to work in a primary care setting and definitely not in
a rural care setting.”

 

As per the information provided in the RTI
communication, MCI issued 8,737 eligibility certificates in 2016-2017 and
14,118 certificates in 2017-18. The eligibility certificates issued also
include pending from previous years, the RTI reply suggested.

 

Dr. Karpagam said that there is a need to
change the social structure of medical students who get admission to medical
colleges. Investments should be made into government medical colleges to focus
on training students on health issues concerning the country, with the
particular focus on social determinants of health.

 

The key reason for student migration is the
lack of medical seats in the country, said Mr Saju Bhaskar, president and
founder of an overseas MCI-recognised medical university, Texila American
University. “Information provided in the RTI speaks volumes on the shift in
medical education trends. There are a mere 60,000 medical seats being offered
by both government and private colleges for medical aspirants, who are in
millions.

 



Apart from this, higher awareness levels of
the overseas colleges, affordable fees compared to Indian private colleges,
curriculum aligned to international standards, better global growth
opportunities etc. are the other reasons why students prefer to study MBBS
abroad,” he said.

 

(Source:https://www.deccanchronicle.com/nation/current-affairs/201218/indian-students-rushing-abroad-to-study-medicine-reveals-rti.html)

 

 

PART D RTI ARTICLE

 

u  India: Copyright and the Right To Information

Can a request for information under the
Right to Information Act, 2005 (“RTI Act”) be denied on grounds of
being the copyright of a third party? This was one of the questions that a two
Judge Bench of the Supreme Court of India recently dealt with. The case related
to the issue of disclosure under the RTI Act, where a person sought information
regarding the plans submitted to public authorities by a real estate developer.

BACKGROUND

The origins of the suit, Ferani Hotels
Pvt. Ltd. vs The State Information Commission, Greater Mumbai (Civil Appeal
Nos.9064-9065 of 2018, decision dated 27th September, 2018, Supreme
Court of India), lie in a private commercial dispute between a real estate
developer, Ferani Hotels, and Mr Nusli Neville Wadia (see).

 

In brief, Mr Wadia administered certain
plots of land as the owner of that land, and granted Ferani Hotels the
authority to develop the land through a Power of Attorney. It came to pass that
Mr Wadia wanted information about the building plans. When the developer failed
to provide the information through other means, Mr Wadia applied to the Public
Information Officer (“PIO”), Municipal Corporation of Greater Mumbai,
for this information, which included certified copies of plans, layouts,
development plans (and amendments), submitted by Ferani Hotels, its divisions
or architect.

 

The request for this information was
declined on various grounds by the PIO, including that no public interest had
been demonstrated in seeking this information, and that it was the copyright of
Ferani Hotels. The latter ground was based on two arguments put forward by
Ferani Hotels: firstly, that the information-seeker was a business competitor
and the disclosure of the information would harm and injure its competitive
position, as well as its intellectual property rights; secondly, that all
rights in respect of the plans, designs, drawings, etc., including intellectual
property rights and in particular copyright, were reserved and vested
exclusively with the developer.

After winding its way through the corridors
of the information commission architecture set up under the RTI Act, the suit
found itself before the Supreme Court. The Court, in this order, dealt with
multiple questions relating to the RTI application, such as what constitutes
public interest, but this note is restricted to understanding the court’s views
on copyright and the RTI Act.

 

THE RTI ACT AND COPYRIGHT

It is useful to discuss some relevant
provisions of the law at this stage. The RTI Act was created in 2005 to
increase the accountability of government authorities towards the public by
facilitating greater and more effective access to information. Section 6(2) of
the RTI Act says that an applicant does not have to provide any reasons for
requesting the information. In other words, anyone can obtain the information
as long as it is part of the public record of a public authority. The Court
additionally observed that even private documents submitted to public
authorities may, under certain situations, form part of public record.

 

The right to information is subject to
certain restrictions contained in the law. For example, section 8(1)(d) allows
for information to be denied if it includes “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”. Similarly, section 9 allows a competent authority to
“reject a request for information where such a request for providing access
would involve an infringement of copyright subsisting in a person other than
the State.”

In the present case, the information sought
for were, in fact, plans relating to the property in question. These plans are
ordinarily required to be submitted by any person proposing to construct on a
property, to the Commissioner of the Corporation. The general principle, which
the Court has reiterated in multiple pronouncements, is that the “fate of
[the] purchase of land development and investments is a matter of public knowledge
and debate.”

 

To highlight this principle, the Court made
reference to provisions of the Maharashtra Ownership Flats (Regulation of the
Promotion of Construction, Sale, Management and Transfer) Act, 1963, which
empower purchasers of flats (which are being built by a developer) to obtain
full information of the sanctioned plans. (This law, although relevant for this
case, has since been repealed by Real Estate (Regulation and Development) Act,
2016, which retains the same spirit of positive information disclosure). The
Court made two pertinent observations in this context: firstly, that this right
to obtain information about sanctioned building plans should not be restricted
to flat-buyers, but should also be available to persons who administer the land
as owner, and grant authority for its development. Secondly, the Court noted
that the disclosure of plans, which are already required to be in public domain
under law, cannot possibly be matters of commercial confidence or trade
secrets.

 

THE COURT’S CONLUSIONS

On the issue of intellectual property and copyright, the Court noted
that even though the preparation of the plan and its designs may give rise to
the copyright in favour of a particular person, the disclosure of that work
would not amount to an infringement. Towards this, it cited section 52(1)(f) of
the Copyright Act, 1957, which specifically provides that there would be no
such infringement if there is reproduction of any work in a certified copy made
or supplied in accordance with any law for the time being in force. This is
what was sought for in the present case.

The other relevant observation pertained to
the implications of the overriding effect clause contained in section 22 of the
RTI Act, which provides for an overriding effect with a notwithstanding clause
with regard to any inconsistency with any other Act. The Court clarified that
this would not imply that a disclosure permissible under the Copyright Act,
1957 is taken away under the provisions of the RTI Act, but rather, if a
disclosure is prescribed under any other Act, the provisions of the RTI Act
would have an overriding effect.

 

A LEGAL MISADVENTURE

While tackling this case, the Court also
made plain-spoken observations about the nature of the dispute, calling it
“a legal misadventure”, emerging “clearly [from] the private
dispute, rather than any objective consideration qua the issue of
disclosure of information”, and where “the issue in question was ….
really innocuous”. Costs of Rs 2.50 lakhs were imposed on the appellant,
Ferani Hotels, payable to the information-seeker, although the court also noted
that these were hardly the actual expenses!

 

Article by Sumathi Chandrashekaran

 

(Source:http://www.mondaq.com/india/x/759832/Trade+Secrets/Copyright+And+The+Right+To+Information )

 

RTI Clinic in January 2019: 2nd,
3rd Saturday, i.e. 12th, 19th and February 2nd
11.00 to 13.00 at BCAS premises  

 

FEMA FOCUS

(i) LIBERALISATION OF THE FDI REGIME

On 28th August,
2019 the Union Cabinet chaired by the Prime Minister approved several proposals
for review of Foreign Direct Investment in the coal mining, contract
manufacturing and single brand retail trade sectors. A press release stated
that the Cabinet had approved major proposals for relaxation of the existing
Foreign Direct Investment Policy (FDI Policy) in these sectors:

 

COAL MINING

Proposal

Permit 100% FDI under
automatic route for sale of coal, for coal mining activities, including
associated processing infrastructure, subject to provisions of the Coal Mines
(Special Provisions) Act, 2015 and the Mines and Minerals (Development and
Regulation) Act, 1957 as amended from time to time, and other relevant acts on
the subject. ‘Associated Processing Infrastructure’ would include coal washery,
crushing, coal handling, and separation (magnetic and non-magnetic).

 

CONTRACT MANUFACTURING

Proposal

The present FDI policy
provides for 100% FDI under automatic route in the manufacturing sector. There
is no specific provision for contract manufacturing in the policy. In order to
provide clarity on contract manufacturing, it has been decided to allow 100% FDI
under automatic route in contract manufacturing in India as well.

 

Foreign
investment in ‘manufacturing’ sector is under automatic route. Manufacturing
activities may be conducted either by the investee entity or through contract
manufacturing in India under a legally tenable contract, whether on
principal-to-principal or principal-to-agent basis.

 

Comments

The law proposes to clarify
that manufacturing need not be done by the FDI entity but can also be done by
any other entity. This proposal will set to rest concerns expressed by some
quarters that contract manufacturing is a trading activity because a company
only sells a product after getting it manufactured.

The contract manufacturer
need not be a group company or working exclusively for an FDI entity. Further,
the arrangement can be on principal-to-principal or principal-to-agent basis.
Thus, the policy includes the typical contract manufacturer as also the toll
manufacturer.

 

A manufacturer is permitted
to sell products manufactured in India through wholesale and / or retail,
including through e-commerce, without government approval.

 

Thus,
this proposal is likely to open up a number of opportunities for retail trading
and promote label products without inviting extant restrictions applicable to
retail trading.

 

SINGLE BRAND RETAIL TRADE (SBRT)

Proposal

As per the existing FDI
policy, 100% FDI is allowed under automatic route for SBRT activity. However,
there are various conditions that need to be fulfilled. The government has
relaxed some of these conditions to attract more FDI for SBRT activities in
India.

 

Local
sourcing norms

The existing FDI policy
provides that in respect of the SBRT entity having more than 51% FDI, the
sourcing of 30% of value of goods purchased must be done from India only. In this
regard, the SBRT entity is permitted to set off its incremental sourcing of
goods (by non-residents undertaking SBRT in India either directly or through
their group companies) from India for global operations against the mandatory
30% local sourcing requirement during the initial five years only. After five
years, the SBRT entity is required to meet the 30% sourcing norms directly
towards its India operations on an annual basis.

 

With regard to the above,
the government has now proposed to relax these conditions as under:

 

Local
sourcing for domestic as well as export sales by SBRT entity:
All the procurements made from India by the SBRT entity for the single brand
shall be counted towards local sourcing, irrespective of whether the goods
procured are sold in India or exported, and the same would apply even beyond
the initial five years.

 

Incremental
sourcing vs. year-on-year sourcing: As per
the extant policy, only that part of the global sourcing is considered for
abovementioned set-off towards local sourcing requirement which is over and
above the previous year’s value, i.e., only incremental sourcing is considered
for set-off against local sourcing requirements. The government has now decided
the entire (and not the incremental) sourcing from India for global operations
shall be considered towards local sourcing requirement.

 

Direct and indirect sourcing: It has also been decided that the global sourcing would cover sourcing
of goods from India for global operations not only by non-residents undertaking
SBRT in India either directly or through their group companies (resident or
non-resident), but also by an unrelated third party, done at the behest of the
SBRT entity or its group companies under a legally tenable agreement.

 

E-commerce

As per the existing policy,
an SBRT entity must operate through brick-and-mortar stores before starting
retail trading of that brand through e-commerce. However, the government has
now decided to allow retail trading through online trade prior to opening of
brick-and-mortar stores, subject to the condition that the SBRT entity opens
brick-and-mortar stores within two years from the date of start of online
retail.

 

DIGITAL MEDIA

Proposal

The
extant FDI policy provides for 49% FDI under approval route in up-linking of
‘News and Current Affairs’ TV channels. It has been decided to permit 26% FDI
under government route for uploading / streaming of news and current affairs
through digital media on the lines of print media.

 

Comments

(i) This
proposal has given rise to more questions than answers. FDI policy in print
media and broadcasting content service provides for uplinking news and current
affairs TV channels and were defined;

(ii) There
was no clarity in law for FDI in digital media. As per one view, since
uploading / streaming of news and current affairs through digital media is not
covered by sectors or activities listed in Regulation 16 of FEMA 20(R)/2017,
FDI up to 100% was permitted under automatic route;

(iii)
Thus, considering the exponential growth, internet penetration, reducing prices
of smart phones and so on, Indian companies engaged in digital media invited FDI
investments, such as Quint, Dailyhunt, Huffpost, VC Circle, etc. A question
arises on FDI investments made in such companies. Will the law require such
companies to reduce FDI holding?

(iv) In
case of startups engaged in said activities, cap on foreign investment may
hamper future funding as such startups will have to rely on domestic investors
to raise capital;

(v) It is a popular practice for media companies to stream news live on
their apps and websites (e.g., Republic TV, NDTV News, Aaj Tak Live TV, etc.).
Extant FDI policy provides for 49% FDI under approval route in up-linking of
news and current affairs TV channels. Now, the proposal provides 26% limit for
streaming news through digital media. Thus, the issue arises whether differing
FDI threshold will mandate media companies to house digital media in a separate
company and comply with FDI norms. Even if the division is spun off, the
company will be required to give exit to FDI investors which may be a
complicated affair;

(vi)
Further, the proposal brings uploading / streaming of news and current affairs
through digital media under government route. This may result in delays and
mandatory compliance with conditions imposed by ministries concerned;

(vii)
Impact of the above proposal on streaming services offered on social media
platforms such as Facebook and Google is also not clear, or whether foreign
digital news websites that can be accessed in India will continue to be
available or not;

(viii) It
is not clear whether OTT platforms such as Zee5, Hotstar, Voot and others that
have both entertainment and news content would be covered under the 26% or the
49% FDI regime.

 

Since the
policy announcement is yet to be legislated, one expects that the fears
expressed by the media industry will be adequately clarified.

 

(ii) ANALYSIS OF RECENT COMPOUNDING
ORDERS

An analysis of some interesting compounding orders passed by the Reserve
Bank of India in the month of August, 2019 and uploaded on the website1
are given below. The article refers to regulatory provisions as existing at the
time of offence. Changes in regulatory provisions are noted in the comments
section.

_________________________________

1   https://www.rbi.org.in/scripts/Compoundingorders.aspx

 

 

FOREIGN DIRECT INVESTMENT (FDI)
COMPOUNDING ORDERS

A.    Dharmpal
Agarwal (for self and on behalf of Vineet Agarwal, Chander Agarwal, Urmila
Agarwal, Priyanka Agarwal & Chandrima Agarwal)

Date of order: 19th July, 2019

Regulation: FEMA 3/2000-RB Foreign Exchange Management (borrowing and
lending in foreign exchange)

 

ISSUE

Availing
of foreign currency loan overseas, for the purpose of purchasing property
abroad

 

FACTS

(a) The
applicant and the others, resident individuals, jointly acquired a residential
property in Singapore at a total cost of SG$ 3,032,320;

(b) SG$
606,464 was met through remittances under LRS; the remaining amount of SG$
2,425,856 (Rs. 6,78,26,933) was paid by availing a loan from OCBC Bank,
Singapore;

(c) During personal hearing it was submitted that instalments for
repayment of loan and payment of interest (EMIs) with respect to the loan were
met out of the proceeds of lease rental received on the lease of the property;

(d) In the
initial years of loan repayment, reduction in principal amount of loan was
small and the interest component made up a large part of the EMI. Therefore,
considering the total amount paid under EMIs on the loan over the years, the
applicant ended up effectively re-paying more than the amount of loan;

(e) The
applicant and the others have sold the property and repaid the loan. The
applicant submitted that he had not made any gains through availing loans
overseas for acquisition of the property abroad.

 

Regulatory provisions

Regulation
3 of Notification No. FEMA 3/2000-RB states that, ‘Save as otherwise provided
in the Act, Rules or Regulations made thereunder, no person resident in India
shall borrow or lend in foreign exchange from or to a person resident in or
outside India’.

 

Contravention

 

Nature of default

Amount involved
(in Rs.)

Time period of default

Availing of foreign currency
loan overseas, for the purpose of purchasing property abroad

Rs. 6,78,26,933

Nine years and six months
approximately

 

Compounding
penalty

Compounding
penalty of Rs. 5,58,702 was levied.

Comments

While
remitting money under LRS for purchase of property is permitted, availing of
foreign currency loan overseas for the purposes was not permitted and was in
contravention of Regulation 3 of FEMA 3(R)/2000-R.

 

Interestingly,
in this case immovable property was leased to earn rental income. In the past,
RBI has taken a view that under LRS route only purchase of immovable property
was permitted and leasing activity was not permitted. However, no such
observations have been made in the instant case. Additionally, it is
interesting to note that under FDI provisions real estate business has been
defined to specifically include earning of rental income from leasing of
property. However, real estate business as defined under ODI regulations does
not include earning of rental income from leasing of property resulting in
dichotomy between real estate business as defined under FDI regulations and the
ODI regulations.

 

B.   Mindtree Limited

Date of
order: 11th July, 2019

Regulation:
FEMA 20/2000-RB Foreign Exchange Management (transfer or issue of security by a
person resident outside India)

 

ISSUE

Delay in reporting the issuance of shares under the Employee Stock
Options Plans (ESOP) beyond the stipulated time period; as also delay in
reporting the issuance of bonus shares beyond the stipulated time period.

 

FACTS

(i) The
applicant is an international information technology consulting and
implementation company that delivers business solutions through global software
development;

(ii) The
applicant company issued shares under ESOP (value – Rs. 1,96,00,000) to foreign
nationals / non-resident Indians (NRIs), but delayed the reporting of the same
beyond the stipulated time period;

(iii)
Besides, the applicant also delayed reporting the issuance of bonus shares
(total value – Rs. 40,12,500) beyond the stipulated time period;

(iv)
During personal hearing it was submitted that the applicant was under inquiry
by the Directorate of Enforcement (DoE) in connection with trade-related
transactions of the company;

(v) RBI,
vide its letter reference No. FED.CO.CEFA/4994/15.20.67/2018-19 dated 21st
February, 2019, had sought a No-Objection Certificate (NOC) from the DoE to
proceed with the compounding process;

(vi) DoE, vide its letter reference No. RBI/SDE/WR/B-223/2019/335
dated 30th April, 2019, conveyed
their no objection to compounding of the abovementioned contraventions.

 

Regulatory Provisions

(a)  Regulation 8(3) of Notification No.
FEMA.20/2000-RB, which dealt with ‘Issue of shares under Employees’ Stock Options
Scheme to persons resident outside India’, as then applicable, says, ‘The
issuing company shall furnish to the Reserve Bank, within thirty days from the
date of issue of shares under the scheme, a report…’;

(b)  Regulation 6B of the above-mentioned Notification
states ‘A company issuing rights shares or bonus shares or warrants in terms of
these regulations shall report to the Reserve Bank in Form FC-GPR as stipulated
in Paragraph 9(1)(B) of Schedule 1 to these Regulations’.

 

Contravention

 

Regulations of FEMA
20/2000-RB

Nature of default

Amount involved
(in rupees)

Time period of default

Regulation 8(3)

Delay in reporting the
issuance of shares under the Employee Stock Options Plans (ESOP)

Rs. 1,96,00,000

7 days

Regulation 6B

Delay in reporting the
issuance of bonus shares

Rs. 40,12,500

8 days

 

 

Compounding penalty

Compounding
penalty of Rs. 24,750 was levied.

 

Comments

(I)   The applicant is required to give an
undertaking at the time of filing compounding application that it is not under
any inquiry / investigation / adjudication by any agency such as Directorate of
Enforcement, CBI, etc., as on the date of the application;

(II)   This condition results in difficulty in
making compounding application by the applicant who is before ED for any other
violation (e.g., non-receipt of export proceeds within permissible time) or
replies to notice issued by ED, but there is no further correspondence from ED.
Issue arises whether existence of on-going ED proceeding shuts the door for
compounding;

(III)  In this order, as also in the case of
Satyanarayan Goel2, RBI has taken a practical view by taking an NOC
from the ED and thereafter compounding the offence. Thus, it is advisable for
an applicant to approach the RBI for compounding by disclosing all pending
proceedings before the ED.

 

OVERSEAS DIRECT INVESTMENT (ODI)
COMPOUNDING ORDERS

C.   Tata Chemicals Limited

Date of
order: 10th July, 2019

Regulation:
FEMA 120/2004-RB – Foreign Exchange Management (transfer or issue of any
foreign security) Regulations, 2004

 

ISSUE

Extending
loan without any equity contribution to overseas Joint Venture (JV), without
prior approval of the Reserve Bank of India.

 

FACTS

(i)   The applicant is engaged in the business of
manufacturing chemicals and fertilizers;

(ii)   The applicant set up an overseas JV, namely,
Grown Energy Zambeze Limitada (GEZ), Mozambique, under overseas direct
investment (ODI) on 22nd April, 2008;

(iii)  The applicant company remitted an amount of
USD 275,000 (Rs. 1,19,15,500) in three tranches between 26th
February and 26th September, 2008 as project advance. No shares were
issued against the remittances sent and these remittances were treated as loans
/ advances by the applicant;

(iv)  In June, 2009, the applicant decided to quit
the project due to uncertainty around allotment of land. The money has now been
brought back to India and the UIN has been closed on 7th May, 2019.

 

Regulatory provisions

Regulation
6(4) of Notification No. FEMA.120/2004-RB, as then applicable, states ‘an
Indian party may extend a loan or a guarantee to or on behalf of the joint
venture / wholly-owned subsidiary abroad, within the permissible financial
commitment, provided that the Indian party has made investment by way of
contribution to the equity capital of the joint venture.’

_________________________

2   CA
No 4910 / 2019

 

Contravention

The applicant has contravened the provisions of Regulation 6(4) of
Notification No. FEMA 120/2004-RB. The amount of contravention is Rs.
1,19,15,500 and the period of contravention is approximately eleven years.

 

Compounding penalty

Compounding penalty of Rs. 1,39,366 was levied.

 

Comments

This order
reflects that conditions prescribed in FEMA 120 of 2004 need to be complied
with strictly. In fact, the amount was disclosed as loans / advances and thus
it resulted in violation of Regulation 6(4) of FEMA 120 of 2004. The provision
does not specify the threshold for investment in equity capital. Thus,
theoretically, a loan based on infusion of nominal equity capital would have
been permissible. Regulation 15(i) obligates an Indian party which has acquired
foreign security to receive a share certificate or other document as evidence
of investment in the foreign entity to the satisfaction of RBI within six
months or such further period as RBI may permit. Flexibility of extended time
limit by RBI is available provided investment is for acquisition of foreign
security. In this case, the amount was stated as loans / advances and, accordingly,
Regulation 15(i) would not apply.  

CORPORATE LAW CORNER

1.  Shweta
Vishwanath Shirke vs. Committee of Creditors [2019] 109 taxmann.com 30 (NCLAT) Company Appeal (AT) (Insolvency) Nos. 601,
612, 527 of 2019 Date of order: 28th August, 2019

 

Sections 12A and 29A of Insolvency and
Bankruptcy Code, 2016 – The directors / promoters reached a settlement with the
CoC – More than 90% of voting shares of the CoC approved the withdrawal of
corporate insolvency resolution process – NCLT should have accepted the
application of withdrawal especially when the settlement was being made by
promoters in their individual capacity and not by using the proceeds of crime –
Section 29A would not apply when examining an application u/s 12A

 

FACTS

About 90% of the Committee of Creditors
(CoC) approved the withdrawal of S Co from the Insolvency Resolution Process
and filed an application u/s 12A of the Code. National Company Law Tribunal
(NCLT) rejected the application on the ground that since the promoter was not
eligible to file a resolution plan u/s 29A it could not have filed an
application for withdrawal u/s 12A of the Code.

 

Andhra Bank, which was on the CoC, also
challenged the order of NCLT on the ground that section 29A would not apply to
an application filed u/s 12A which has been approved by more than 90% of the
CoC.

 

The Enforcement Directorate, SEBI and CBI
were also investigating the matter against S Co. The ED submitted that the
assets of S Co were based on the proceeds of crime and, accordingly, they could
not be given to anyone.

 

The matter for examination before the NCLAT
was whether section 29A of the Code would apply to the applicant, if he intends
to withdraw the petition u/s 7 or 9, if the CoC approves a proposal with 90%
voting share in terms of section 12A.

 

HELD

NCLAT examined the provisions of section 29A
of the Code which provides for persons not eligible to be resolution
applicants. It was observed that if any person including the ‘Promoter’ /
‘Director’ was ineligible in terms of any one or more clauses of section 29A,
he / she was not entitled to file any ‘resolution plan’ individually or jointly
or in concert with another. Section 12A, on the other hand, dealt with
withdrawal of the application filed by an ‘applicant’ u/s 7 or section 9 of the
Code, if the CoC with more than 90% voting share approved the proposal.

 

The NCLAT, relying on the observations of
the Supreme Court in the decision of Swiss Ribbons Pvt. Ltd. vs. Union of
India (2019 SCC Online SC 73) held that promoters / shareholders are
entitled to settle the matter in terms of section 12A and in such case, it was
always open to an applicant to withdraw the application under section 9 of the
Code on the basis of which the Corporate Insolvency Resolution Process was initiated.
Thus, section 29A would not apply for entertaining / considering an application
u/s 12A as the applicants are not entitled to file an application u/s 29A as
‘resolution applicant’.

 

NCLAT held that since the application u/s 7
was filed by Andhra Bank and the application for withdrawal was approved by
more than 90% of voting shares in CoC, it was not in the purview of NCLT to
reject the application for withdrawal. The order of liquidation passed by the
NCLT was, accordingly, set aside.

 

It was further held that if the ED concludes
that the assets of S Co are based on the proceeds of crime, it could exercise
its powers under the Prevention of Money Laundering Act, 2002 (PMLA) and seize
those assets.

 

As the
settlement with creditors was to be paid by the directors / shareholders in
their individual capacity, from the funds held in their accounts and not from
proceeds of crime, the application for withdrawal was approved by NCLAT. It was
further held that the order would not amount to interference with any order
passed by the ED with regard to the assets of S Co. Proceedings under PMLA will
continue against S Co in accordance with the law.

 

It was further directed that the fees of the
liquidator and the resolution professional would be determined and paid by
Andhra Bank on behalf of the CoC and it may adjust the same with the members.

 

2.  State
Bank of India vs. Moser Baer Karamchari Union [2019] 108 taxmann.com 251 (NCLAT New Delhi) Company Appeal (AT) (Insolvency) No. 396 of
2019 Date of order: 19th August, 2019

 

Section 36 of
Insolvency and Bankruptcy Code, 2016 – All sums due to an employee or a workman
from the provident fund, pension fund and gratuity fund do not fall in the
ambit of the liquidation assets and accordingly cannot be a part of waterfall /
distribution mechanism laid down u/s 53 of the Code

 

FACTS

Corporate Insolvency Resolution Process was
initiated against M Co and an order for liquidation was passed on 20th
September, 2018. Pursuant to the judgement by the National Company Law Tribunal
(NCLT) the workmen stood discharged u/s 33(7) of the Code.

 

The liquidator, vide email dated 5th
December, 2018, denied the payment of the gratuity fund, the provident fund and
the pension fund preferentially and included the same for payments under the
waterfall mechanism provided in section 53 of the Code.

 

In January, 2019 the Moser Baer Karamchari
Union (MBKU) filed a prayer for exclusion of provident fund, pension fund and
gratuity fund from the waterfall mechanism and payment of their dues as they
did not form a part of liquidation estate. NCLT upheld the prayer. SBI, the
secured creditor, filed an appeal to the National Company Law Appellate
Tribunal (NCLAT) against the order passed by the NCLT.

 

SBI submitted that waterfall mechanism
provided under the Code included the contribution to provident fund. Reliance
was also placed on Explanation below section 53 of the Code which suggested
that the ‘workmen’s dues’ shall have the same meaning as assigned to it in
section 326 of the Companies Act, 2013. MBKU highlighted the provision of
section 36 of the Code which defines liquidation assets. It was submitted that
in terms of section 36(4)(a)(iii), liquidation assets specifically excluded all
sums due to any workman or employee from the provident fund, pension fund and
gratuity fund.

 

HELD

NCLAT heard counsel for both sides. The
matter for consideration before NCLAT was whether provident fund, pension fund
and gratuity fund come within the meaning of assets of M Co for distribution
u/s 53 of the Code.

 

NCLAT examined the provisions of sections 36
and 53 of the Code as well as sections 326 and 327 of the Companies Act, 2013.
It was observed that all sums due to any workman or employee from the provident
fund, the pension fund and the gratuity fund shall not be included in the
liquidation estate assets and cannot be used for recovery in the liquidation as
per section 36 of the Code. Further, as the sums mentioned were not a part of
the liquidation estate / liquidation assets, the question of their distribution
in order of priority u/s 53 did not arise at all.

 

Further, while applying section 53 of the
Code, section 326 of the Companies Act, 2013 is relevant for the limited
purpose of understanding ‘workmen’s dues’ which can be more than provident
fund, pension fund and the gratuity fund kept aside and protected u/s
36(4)(iii).

 

It was thus held that the provident fund,
gratuity fund and pension fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets u/s 53.

 

The NCLAT upheld the order passed by NCLT
and dismissed the appeal.

 

3.  Pioneer
Urban Land & Infrastructure Ltd. vs. Union of India [2019] 108 taxmann.com 147 (SC) Writ Petition (Civil) Nos. 43, 99, 124, 121,
129 of 2019 & Ors. Date of order: 9th August, 2019

 

Sections 21(6A)(b), 25A and Explanation to
section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016 – Amendments made
to the Code which deem the allottees of real estate projects to be ‘financial
creditors’ such that it gives them the right to enforce the Code u/s 7 are
constitutionally valid


FACTS

Amendments were carried out to the
Insolvency and Bankruptcy Code, 2016 (the Code) pursuant to a report prepared
by the Insolvency Law Committee dated 26th March, 2018 (Insolvency
Committee Report). The amendments so made deemed allottees of real estate
projects to be ‘financial creditors’ so that they may trigger the Code, u/s 7
thereof, against the real estate developer. In addition, being financial
creditors, they were entitled to be represented in the Committee of Creditors
by authorised representatives.

 

The Supreme Court in the case of Chitra
Sharma vs. Union of India (Writ Petition [Civil] No. 744 of 2017)
appointed a representative to protect the interest of home buyers on the
Committee of Creditors. The Insolvency Committee Report suggested that
amendments be made in the Code seeking to clarify, as a matter of law, that
allottees of real estate projects are financial creditors. On 17th
August, 2018, Parliament passed the Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018 (Amendment Act) incorporating the aforesaid amendments as
were provided for by the Amendment Ordinance.

 

The real estate developers filed a petition
challenging the provisions saying it violates two facets of Article 14. One,
that the amendment is discriminatory inasmuch as it treats unequals equally,
and equals unequally, having no intelligible differentia; and two, that there
is no nexus with the objects sought to be achieved by the Code. The amendments
were alleged to be arbitrary, irrational and without determining principle and
in violation of public interest under Article 19(6). Further, there was a
specific legislation on the subject of real estate, namely, Real Estate
(Regulation and Development) Act, 2016 (RERA) which provides for adjudication
of disputes between allottees and the developer, together with a large number
of safeguards in favour of the allottee.

 

Reliance was placed on the decision of Swiss
Ribbons vs. Union of India (2019) 4 SCC 17 to drive home the point that
not a single one of several characteristics of financial creditors stated in
that judgement would apply to allottees / home buyers.

 

HELD

The Supreme Court heard the parties and
observed that the Legislature must be given free play in the joints when it
comes to economic legislation. Apart from the presumption of constitutionality
which arises in such cases, the legislative judgement in economic choices must
be given a certain degree of deference by the courts.

 

Further, the Supreme Court observed that
from the introduction of the explanation to section 5(8)(f) of the Code, it was
clear that Parliament was aware of RERA and applied some of its definition
provisions so that they could apply when the Code was to be interpreted. The
fact that RERA is in addition to and not in derogation of the provisions of any
other law for the time being in force, also made it clear that the remedies
under RERA to allottees were intended to be additional and not exclusive
remedies. Further, the Code as amended, is later in point of time than RERA and
must be given precedence over RERA in view of section 88 of RERA. Given the
different spheres within which these two enactments operate, different parallel
remedies are given to allottees – under RERA to see that their flat / apartment
is constructed and delivered to them in time, barring which compensation for
the same and / or refund of amounts paid together with interest at the very
least comes their way. If, however, the allottee wants that the corporate
debtor’s management itself be removed and replaced, so that the corporate
debtor can be rehabilitated, he may prefer a section 7 application under the
Code.

 

As regards unequal treatment afforded, the
Supreme Court observed that home buyers / allottees can be assimilated with
other individual financial creditors like debenture holders and fixed deposit
holders who have advanced certain amounts to the corporate debtor. The Court
gave the example that fixed deposit holders, though financial creditors, would
be like real estate allottees in that they are unsecured creditors. Financial
contracts in the case of these individuals need not involve large sums of money.
Debenture holders and fixed deposit holders, unlike real estate holders, are
involved in seeing that they recover the amounts that are lent and are thus not
directly involved or interested in assessing the viability of the corporate
debtors. Though not having the expertise or information to be in a position to
evaluate the feasibility and viability of resolution plans, such individuals,
by virtue of being financial creditors, have a right to be on the Committee of
Creditors to safeguard their interest. The allottees, being individual
financial creditors like debenture holders and fixed deposit holders and
classified as such, show that they were within the larger class of financial
creditors and there was infraction of Article 14.

 

It was held that home buyers / allottees
give advances to the real estate developer and thereby finance the real estate
project at hand (and) qualified as financial creditors.

 

The Code was observed to be a beneficial
legislation which can be triggered to put the corporate debtor back on its feet
in the interest of unsecured creditors like allottees, who are vitally
interested in the financial health of the corporate debtor, so that a replaced
management may then carry out the real estate project as originally envisaged
and deliver the flat / apartment as soon as possible and / or pay compensation
in the event of late delivery, or non-delivery, or refund amounts advanced
together with interest. It could not be said that amendment to section
5(8) was therefore manifestly arbitrary, i.e., excessive, disproportionate or
without adequate determining principle.

 

The Supreme Court also turned down the
argument of the petitioners that allottees be treated as operational creditors.
It was further held that all persons who have advanced monies to the corporate
debtor, like other financial creditors, be they banks and financial
institutions, or other individuals, should have the right to be on the
Committee of Creditors. Even though allottees were unsecured creditors, but
they did have a vital interest in amounts that were advanced for completion of
the project, maybe to the extent of 100% of the project being funded by them
alone.

 

The Court held that section 5(8) would
subsume within it amounts raised under transactions which are not necessarily
loan transactions, so long as they have the commercial effect of a borrowing.
Amounts raised from allottees under real estate projects would, thus, be
subsumed within section 5(8)(f) of the Code.

 

The Supreme Court thus held that:

(i) The Amendment Act to the Code does
not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the
Constitution of India.

(ii) The RERA is to be read harmoniously
with the Code, as amended by the Amendment Act. It is only in the event of
conflict that the Code will prevail over the RERA. Remedies that are given to
allottees of flats / apartments are therefore concurrent remedies, such
allottees of flats / apartments being in a position to avail of remedies under
the Consumer Protection Act, 1986, RERA as well as the triggering of the Code.

(iii) Section 5(8)(f) as it originally
appeared in the Code being a residuary provision, always subsumed within it
allottees of flats / apartments. The explanation together with the deeming
fiction added by the Amendment Act is only clarificatory of this position in
law.  

 

Allied Laws

1.      
Cross objection to be disposed
of independently on merits [Code of Civil Procedure, 1908 (CPC), Order XLI Rule
22]

Badru (since deceased) through L.R. and
Ors. vs. NTPC Limited and Ors. AIR 2019 Supreme Court 3385

 

The land in question belonged to the
appellants (landowners). The suit land was acquired by the State for the NTPC
for public purpose. A compensation of Rs. 3,87,383 per bigha was awarded
to the appellants for the land. But the appellants felt aggrieved and
approached the Civil Court for determination of the compensation offered by the
Land Acquisition Officer. The Civil Court partly allowed the reference in
favour of the appellants and enhanced the compensation. The State and the NTPC
felt aggrieved by the award and filed appeals before the High Court. The
appellants instead of filing a regular appeal, filed cross objection under
Order 41 Rule 22 of the CPC and sought enhancement in the compensation awarded.
The High Court dismissed the appeals filed by the NTPC / State and, in
consequence, also dismissed the cross objection filed by the appellants. The
effect of the dismissal of the appeals and cross objection was upholding of the
award passed by the Civil Court. The landowners felt aggrieved by the rejection
of their cross objection and filed the present appeals by way of a special
leave before the Supreme Court.

 

It was observed by the Supreme Court that
one remedy was by way of appeal and the other remedy was to file cross
objection. In this case, the landowners took recourse to the second remedy of
filing cross objection. The High Court having dismissed the appeals filed by
the State / NTPC was, therefore, required to examine whether any case was made
out by the landowners in their cross objection for enhancement of compensation.
Order 41 Rule 22(4) of the CPC provides that where, in any case in which any
respondent has under this Rule filed a memorandum of objection, the original
appeal is withdrawn or is dismissed for default, the objection so filed may
nevertheless be heard and determined after such notice to the other parties as
the Court thinks fit. Merely because the High Court dismissed the appeals filed
by the respondents herein, though on merits, yet that by itself would not
result in dismissal of the landowners’ cross objection also.

 

In view of the same, the Supreme Court held
that the cross objection had to be disposed of on its merits notwithstanding
the dismissal of the same by assigning reasons. The case was accordingly
remanded to the High Court for deciding the cross objection filed by the
landowners in accordance with law.

 

2.      
Doctrine of promissory estoppel
– New Package Scheme of Incentives, 1993 – The eligibility for sales-tax
exemption cannot be withdrawn [General Sales Tax (GST), Art. 39(b), 39(c)]

K.M. Refineries and Infraspace Pvt. Ltd.
vs. State of Maharashtra (Bom.) (HC), www.itatonline.org

 

Under the New Package Scheme of Incentives,
1993, monetary and other incentives in the nature of tax subsidy or tax
exemption at the rate prescribed in the scheme and other benefits were given.
As per the eligibility certificate issued by the competent authority, the
certificate was valid for nine years. The Commissioner of Sales Tax prescribed
the effective date but while doing so, curtailed the validity period by about
three years and incentives given in the Incentive Scheme have been
substantially reduced by a new policy prescribing new tax structure of the
State. The assessee challenged the policy on the ground that the new policy
violates the principle of promissory estoppel.

 

Allowing the petition, the Court held that
once a promise has been solemnly given by the State with an intention that it
would be acted upon, and which has been indeed acted upon and liabilities
suffered by the promisee, the State cannot be permitted to backtrack on the
promise and change its position so as to cause loss to the promisee. The
eligibility for sales-tax exemption cannot be withdrawn under GST. (W.P. No.
2209 of 2018, dated 16th July, 2019).

 

3.      
Notional partition – Daughters
entitled to claim a share in the ancestral property after notional partition
between coparceners [Hindu Succession Act, 1956, S. 6]

Gannu Ram and another vs. Dhanmat Bai and
Ors. AIR 2019 Chhattisgarh 148

 

The case was filed by Dhanmat Bai and Deni
Bai, who were the daughters of Ramai before the trial court where it was held
that the daughters were entitled to a share in the property in a case where the
father had expired prior to the amendment in section 6 of the Hindu Succession
Act. The daughters were born before 2005 and hence, the applicability of the
2005 amendment to them was in question. An appeal was preferred against such
order where the question raised was whether the daughter of a pre-deceased karta
/ coparcener is entitled to have equal share in the ancestral property.

 

The court held that the daughters were
entitled to a share in the property but only to the extent of the part of the
shares of their father after a notional partition with the appellant since the
appellant was the coparcener in the Hindu Joint Family property along with the
father of the daughters. For passing an effective decree of partition in favour
of the daughters, the trial court was first required to affect a notional
partition between Ramai and his son (coparcener / appellant) allotting them
half share each in the coparcenary property. Thereafter, a further partition is
required to be affected in respect of the half share of the father which would devolve
equally upon the daughters. The appeal was therefore partly allowed.

 

4.      
Partnership property cannot be
a Hindu Joint Family property [Hindu Law]

Aarshiya Gulati and Ors. vs. Kuldeep Singh
Gulati and Ors. AIT 2019 (NOC) 577 (Del.)

 

While emphasising on the difference between
partnership and a Hindu Joint Family firm, the court referred to Mulla who in
his treatise Hindu Law (21st edition) has pointed out
the following points of difference between a partnership and a Hindu Joint
Family firm: ‘In a joint family business no member of the family can say that
he is the owner of one-half, one-third or one-fourth. The essence of joint
Hindu family property is unity of ownership and community of interest and the
shares of the members are not defined’.

 

The court also referred to the case of Nanchand
Gangaram Shetji vs. Mallappa Mahalingappa Sadalge & Ors. where it
was held that in a joint Hindu family business, no member of the family can say
that he is the owner of one-half, one-third or one-fourth. The essence of joint
Hindu family property is unity of ownership and community of interest and the
shares of the members are not defined. Similarly, the pattern of the accounts
of a joint Hindu family business maintained by the karta is different
from those of a partnership. In the case of the former the shares of the
individual members in the profits and losses are not worked out, while they
have to be worked out in the case of partnership accounts.

 

In view of the same, the court held that a
partnership property cannot be a Hindu Joint Family property.

 

5.      
Tenancy – Prior consent of
creditor to be taken when tenancy created after mortgage of premises to
creditor – If consent not taken, tenant not entitled to temporary injunction
against dispossession by creditor bank. [Securitisation And Reconstruction Of
Financial Assets And Enforcement Of Security Interest Act, 2002, S. 13]

Chief Manager, Bank of Baroda, Dhanbad
branch vs. Amit and Ors. AIR 2019 Jharkhand 122

 

The brief facts of the case are that the
petitioner bank had sanctioned a loan by keeping the property in question
mortgaged by a collateral security and on having become a non-performing asset,
a notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, was issued, thereafter
resorting to the provision of S. 13(4) of the Act. The respondent No. 1
(tenant) has entered into an agreement of tenancy prior to mortgaging of the
property by the owner. When a notice u/s 13(4) was served on the owner, the
respondent No. 1 filed a suit pleading therein that he is a monthly tenant and
has been paying rent regularly and on time but without any receipt. The bank
(creditor) appeared and filed show cause, disputed the claim of the respondent
No. 1 by stating that the owner is a director of a private limited company and
has got cash credit facility of Rs. 300 lakhs which was sanctioned and secured
by getting a mortgage of the property; when the loanee became irregular and
despite repeated requests and intimations did not pay the loan amount due to
which the loan amount became an NPA; this forced the petitioner bank (creditor)
to file a suit in the Debt Recovery Tribunal.

 

The tenant also
filed a separate petition for grant of temporary injunction restraining the petitioner
bank (creditor) from taking forceful possession of the tenanted premises.


It was observed by the court that no
borrower shall lease any of the secured assets referred to in the notice
without the prior written consent of the secured creditor and holding therein
that save and except the process of tenancy, there cannot be any eviction of
the tenant.

The court referred to the case of Kalsaria
where the lease has been created after the property had been mortgaged and
therefore, it has been held that before creating tenancy right before the date
of mortgage, consent is required to be taken from the creditors. It is in the
touchstone of this ratio and the definition of mortgage that the case in hand
has been examined by the court.

 

It was held that since it was nowhere on
record that before creating tenancy by virtue of agreement, prior consent of
the creditor has been taken this fact ought to have been appreciated by the
appellate court but having not done so, the appellate court has committed gross
error.

 


CORPORATE LAW CORNER

 7. 
Transmission Corporation of Andhra Pradesh Ltd. vs. Equipment Conductors
& Cables Ltd.[2018] 98 taxmann.com 375 (SC) Date of Order: 23rd October, 2018


Section 9 of Insolvency and Bankruptcy
Code, 2016 – Existence of an undisputed debt is essential to initiate the
Corporate Insolvency Resolution Process – IBC is not intended to substitute
recovery forum – IBC proceedings cannot be initiated if there exists a dispute
with respect to the claim


FACTS


A Co is in the activities relating to
transmission of electricity. It had awarded certain contracts to E Co for
supply of goods and services. Some disputes arose and E Co initiated
arbitration proceedings. 82 claims were filed by E Co and Arbitral Council held
that 57 of those claims were barred by law of limitation and the rest were
awarded in favour of E Co.


E Co challenged
the said part of the award of the Arbitral Council, but was not successful. On
the basis of certain observations made by the High Court of Punjab and Haryana
in its appeal decision dated 29th January, 2016, E Co further
attempted to recover the amount by filing execution petition before the Civil
Court, Hyderabad. However, that attempt of E Co was also unsuccessful inasmuch
as the High Court of Judicature at Hyderabad categorically held that since that
particular amount was not payable under the award, execution was not
maintainable.


After failing
to recover the amount in the aforesaid manner, E Co issued notice to A Co u/s.
8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) treating itself as the
operational creditor and A Co as the corporate debtor. Although A Co refuted
this claim, E Co proceeded to file an application u/s. 9 of the IBC which was
dismissed by the NCLT. An appeal was filed before the NCLAT and it passed an
interim order directing the parties to settle the “claim”. A Co filed an appeal
before the Supreme Court against the said order of NCLAT.


HELD


The Supreme Court examined the facts in case
and observed that the NCLAT perceived that A Co owes money to E Co and for this
reason a chance was given to A Co to settle the claim of E Co, failing which
order would be passed for initiation of Corporate Insolvency Resolution Process
(“CIRP”).


Supreme Court reading the provisions of
section 9 of the IBC observed that existence of an undisputed debt is sine qua
non of initiating CIRP. It also follows that the adjudicating authority shall
satisfy itself that there is a debt payable and there is operational debt and
the corporate debtor has not repaid the same.


The Court relying on its own judgment in the
case of Mobilox Innovations Private Limited vs. Kirusa Software Private
Limited [2018] 1 SCC 353 observed that IBC was not intended to be
substitute to a recovery forum. Whenever there was existence of real dispute,
the IBC provisions could not be invoked.   


The Appeal was allowed by the Supreme Court
and the order of NCLAT was set aside. After examination of facts, Supreme Court
held that order of NCLT was justified and that no purpose would be served by
remanding the matter back to NCLAT. It accordingly quashed appeal filed by E Co
as also the miscellaneous applications filed by it before the NCLAT.


8.  Radius Infratel Pvt. Ltd. vs. Union Bank of
India Company Appeal
(AT) (Insolvency) No. 535 of 2018 Date of Order: 13th
November, 2018


Section 7 of the insolvency and
bankruptcy code, 2016 – appeal filed by corporate debtor is not maintainable
after order of moratorium is passed and interim resolution professional has
been appointed facts


UBI filed an application for initiating corporate
insolvency resolution process (“CIRP”) u/s. 7 of the Insolvency and Bankruptcy
Code, 2016 (“IBC”) against R Co with National Company Law Tribunal (“NCLT”).
NCLT admitted the said petition; ordered moratorium and appointed the Interim
Resolution Professional.


R Co preferred an appeal against the order
of NCLT. 


HELD


NCLAT relied on the decision of Supreme
Court in the case of Innoventive Industries Ltd. vs. ICICI Bank and Ors
(2018)1 SCC 407 and passed an order on 14.09.2018 to hold that an appeal at
the instance of corporate debtor was not maintainable in law. R Co prayed that
one of the shareholders of R Co be made the applicant and transpose R Co
through ‘Resolution Professional’ as the second respondent. NCLAT further
directed that R Co may file an affidavit to show that there was no ‘debt due’
or there was no ‘default’ as on the date of filing of the petition u/s. 7 of
the IBC.


As no affidavit was filed and neither was a
substitution application made, NCLAT on 09.10.2018 passed an order allowing for
extension of time which was prayed by R Co. However, as no one appeared from R
Co on the said date, the appeal filed was dismissed by NCLAT.


It was held that shareholder / director of R
Co could move an appeal in accordance with the law if the same was not barred
by limitation.  

 

ALLIED LAWS

10. Binding Precedent – Lower authorities to
follow the precedent – Contempt action may be taken. 

Mangala Ispat (Jaipur) Pvt. Ltd. vs. Union
of India 2018 (15)  G.S.T.L. 487 (Raj.)


A matter was remanded back to the Assistant
Commissioner with a direction to pass a fresh order regarding excise duty
liability in the light of the direction given by the Supreme Court. Order of
the Division Bench of this court was not challenged by the Department.
Assistant Commissioner and the commissioner had allowed the credit relying on
the Supreme Court judgment. However, the Commissioner of Excise Department and
the Tribunal made observations against the High Court and the Supreme Court
decisions.


It was held that it was a well settled
principle of law that the law declared by the Supreme Court is binding on all
and when the Division Bench of this Court has held that the judgment is
applicable against which no SLP was preferred, any lower authority in rank
observing that the High Court was not sure about the similarity of the issue in
both the cases otherwise the Bench could have decided the case, in our
considered opinion, these observations by Commissioner (Appeals) in Appeal Memo
is not only objectionable but it is not permissible under law. We were inclined
to grant even the prayer for contempt but to avoid any delay since the sufferer
is the petitioner, we have restrained ourselves from issuing any contempt
notice against the officers.


Even the Tribunal while setting aside the
order of the First two Authorities has not given any reasons and simply
accepted the appeal memo and has allowed the appeal without reversing the
finding arrived at by both the authorities and observed that the Supreme Court
judgment is not binding. In our considered opinion, the first two authorities
rightly observed and allowed the proceedings in favour of petitioner/assessee
and the Tribunal as well as two Commissioners of Excise department exceeded the
jurisdiction and committed an error in making observations against the High
Court and the Supreme Court decisions.


11. Coparcenary Property – Daughter can
become a coparcenor only when the father is alive. [Hindu Succession Act, 1956;
Section 6] Anjalai and Ors. vs. K. Rathina and Ors.
AIR 2018 (NOC) 797 (Mad.)


It was held that the Central Amendment to
section 6 of the Hindu Succession Act, came into force with effect from
09.09.2005. As per the said amendment, from that date onwards, daughters will
be the coparceners along with the sons from their birth. The daughters can
become coparceners only when the father is alive and when the father is not
alive, they cannot become coparceners along with the brother.


12.
Family Arrangement – Document recording division of properties amongst Muslim family may not be registered. [Muslim
Law]


Ajambi vs. Roshanbi and Ors. (2017) 11
Supreme Court Cases 544


Deceased had made arrangements with regard
to his property during his lifetime and the said arrangements had been
subsequently recorded in that document, which had been duly acted upon by the
revenue authorities by dividing the suit property into two different parts. The
property which had been divided by deceased was in occupation of the respective
parties and the said fact has also been recorded in the revenue record.

The question
arose as to whether the High Court erred in agreeing with view expressed by
lower Appellate Court mainly on ground that document had not been registered as
it ought to have been registered as it was compulsorily registrable.


It was held that the said document was not
compulsorily registrable since it was a mere arrangement i.e. The arrangement
so made was duly accepted by the family members and it was also acted upon.
Only thereafter a formal record of the said fact. There is no concept of joint
family in Muslims but it was open to deceased to give his property to his
children in a particular manner during his lifetime, which he rightly did, so
as to avoid any dispute which could have arisen after his death. The
arrangement so made was duly accepted by the family members and it was also
acted upon. Only thereafter a formal record of the said fact was made by late
deceased in the document.


13. Post Office – Delay in delivery –
Liability. [Indian Post Office Act, 1898; Section 6]


Post Master,
Main Post Office, Jagdalpur and Ors. vs. Rajesh Nag and Ors. AIR 2018
Chhattisgarh 156


The short
question involved in the writ petition was whether Permanent Lok Adalat, Public
Utility Services is justified in granting damages to the extent of Rs. 25,000/-
to respondent No. 1 in light of the provisions contained u/s. 6 of the Indian
Post Office Act, 1898 which grant exemption from liability for loss,
misdelivery, delay or damage?


The respondent No. 1 made an application for
a post to the Bastar University, for which he sent an application by speed post
on 22.12.2012 and paid the necessary postal charges, as the last date for
submission of the application was 24.12.2012, but the application reached the
Bastar University on 26.12.2012 and since the application was not received well
in time, respondent No. 1 was not called for interview, leading to filing of
claim before the Permanent Lok Adalat claiming damages to the extent of Rs.
20,00,000/- with interest at the rate of 18% and cost.


It was argued that since the delay was not
caused fraudulently or willingly, the petitioner/Union of India was not
responsible for the damages, if any, in light of section 6 of the Act of 1898.


It was observed that the Post Office which
is run by the Government shall not be liable for delay caused in delivery of
the postal articles either by ordinary or registered post, except the liability
which may be expressed in terms undertaken by the Central Government.


It was held that, the order of the Permanent
Lok Adalat granting damages to the extent of Rs. 25,000/-, along with interest,
cost and Advocate fee deserves to be and was thereby set aside being contrary
to section 6 of the Indian Post Office Act and Rules made thereunder and
consequently, it was thereby quashed.


14. Will – Probate Court – Should have original jurisdiction-Probate is conclusive. [Code of Civil Procedure; Sections 151, 10] Rai Sharwan Kumar vs. Rai Bharat Kumar AIR
2018 Allahabad 257


A question came up before the Court with
respect to deciding the validity of the Will, which was objected to on the
ground that the Civil Court will have no jurisdiction on the original side to
go into the question for validity of the Will, but a competent Court would have
such jurisdiction.


It was argued that a court has inherent
powers to make such orders as may be necessary for the ends of the justice or
to prevent abuse of the process of the court as provided u/s. 151 of the Code
of Civil Procedure.


However the counter-argument taken was based
on section 10 of the Code of Civil Procedure which provides the rule with
regard to stay of suits where things are under consideration or pending
adjudication by a court.


It was observed by the honourable court that
the probate granted by the Competent Court is conclusive of the validity of the
Will until it is revoked and no evidence can be admitted to impeach it except in
a proceeding taken for revoking the probate.


When a probate was granted, it operates upon
the whole estate and establishes the Will from the death of the testator.
Probate is conclusive evidence not only of the factum, but also of the validity
of the Will and after the probate has been granted, in is incumbent on a person
who wants to have the Will declared null and void, to have the probate revoked
before proceeding further. That could be done only before the Probate Court.


It was held that that the Court of Probate
alone has jurisdiction and is competent to grant probate to the Will annexed to
the petition in the manner prescribed under the Succession Act, and that such a
declaration by the Probate Court binds not only the defendants but
everyone else.

Allied Laws

26. 
Appellate Tribunal – Bias – Adjudicating authority subsequently became a
Technical Member – Matter remanded for fresh adjudication. [CESTAT]

Sify Technologies Ltd. vs. Commissioner of
C. Ex. and S.T., LTU, Chennai 2018 (12) G.S.T.L. 245 (Mad.)

 

In the present case, there were two grounds
pleaded before the High Court with respect to the authority who has issued the
show cause notice, thereafter became a Technical Member of the CESTAT and he
was also part of the Bench, which passed the Final Order. The bench of the
CESTAT had decided the issue against the appellant. Though likelihood of bias
has not been pleaded before the Tribunal, but a ground has been raised in the
instant appeals. On such ground and without going into the merits of the case,
we are of the view that impugned orders are liable to be set aside and
accordingly, set aside.

 

27. Benami – Joint family property – Benami
Transaction – Section 4 cannot be applicable to the facts of the case. [Benami
transactions (Prohibition) Act, 1988; Section 4]

K.Krishna Palani vs. Santhakumari and
others AIR 2018 (NOC) 154 (MAD.)

 

The question for determination before the
honourable bench was whether the provisions of section 4 of the Benami
transactions (Prohibition) Act, 1988 was attracted to the facts of the case.

 

It was contended that section 4 of the
Benami Act would be attracted since schedule property stood in the name of the
mother i.e. the 2nd defendant (since deceased). Therefore, the
property would be treated as self-acquired property of the 2nd
defendant.

 

It was observed that the properties
belonging to the Joint family were settled in favour of the 2nd
defendant, where it was clearly stated that the properties could not be sold by
herself but only along with the other members of the family including the
settlor. The courts below had clearly held that the father of the appellant had
purchased the property for his wife i.e. the 2nd defendant. From
evidence available on record, the schedule property was held to be joint family
property.

 

It was held by the court that since the
property is a joint family property and the claim only seeks to proclaim the
property as joint family property and not to claim the property to be their own
property, the rigor of section 4 of the Benami Act cannot have any application
to the facts of the case.

 

28. Noise Pollution – Right to Life will
include an atmosphere free from noise pollution. [Constitution of India;
Article 21]

Ajay Marathe and Ors. vs. UOI and Ors.
(01.09.2017 – BOMHC) AIR 2018 (Bombay) 117 (FB)

 

If anyone increases his volume of speech and
that too with the assistance of artificial devices so as to compulsorily expose
unwilling persons to hear a noise raised to unpleasant or obnoxious levels then
the person speaking is violating the right of others to a peaceful, comfortable
and pollution-free life guaranteed by Article 21. The right to live in an
atmosphere free from noise pollution is a part of Article 21.

 

29.  Registration – Memorandum of Understanding –
No immovable property getting transferred – Registration not required.
[Registration Act, 1908; Section 17; Maharashtra Stamp Act, 1958; Section 3,
33]

Yuvraj
Developers and Ors. vs. Gavtya Dhondu Mhatre and Ors. AIR 2018 (NOC) 717 (BPM.)

 

The facts of
the case are that a ‘Memorandum of Understanding’ for agreement to lease was
not registered and, therefore, the bar of section 49 of the Registration Act is
attracted i.e. no effect would be given to the immovable property mentioned in
the unregistered document and, secondly, also on the ground that, in order to
fix the valuation, the document needs to be sent for impounding, u/s. 33 of the
Maharashtra Stamp Act, 1958, for payment of proper stamp-duty.

 

It was held
that documents mentioned under the Maharashtra Stamp Act, 1958 can be
chargeable with the stamp-duty and the said provision refers to the instruments
mentioned in ‘Schedule-1’, which are chargeable under the Act. It is submitted
that, ‘Schedule-1’ does not refer to the ‘Memorandum of Understanding’, which,
ultimately, is leading to the ‘Agreement of Lease’ and hence, according to him,
if the instrument is not chargeable with the stamp-duty, under the provisions
of section 3 of the Maharashtra Stamp Act, 1958, then, in no case, it can be
impounded. As the impounding of the MOU was sought on the basis that, under the
said MOU, the possession was delivered and, therefore, the ‘Explanation’ to
Article 25 was invoked. However, as that analogy cannot be accepted,
considering the provisions of Articles 3 and 36 of the Maharashtra Stamp Act,
1958, the impugned order passed by the Trial Court does not call for any
interference.

 

30. Transfer of
Property – Unregistered gift deed – Substance over form – Valid if compliant
with law. [Transfer of Property Act, 1882; S.122, 123]

Topden Pintso
Bhutia vs. Sonam Plazor Bhutia (17.08.2017 – SIHC) AIR 2018 SIKKIM 1

 

The Plaintiff
and the Defendant are blood brothers, the Defendant being the Plaintiff’s elder
brother. The Plaintiff laid claim to the suit land alleging that his mother had
verbally gifted him the property in the year 1980. His mother passed away in
the year 2008. The Plaintiff claims possession of the suit land since 1980, to
the exclusion of his other siblings. After his mother’s demise, he approached
the Office of the Sub-Divisional Magistrate, Ravangla, South Sikkim, for
mutation of the suit property in his name. This was objected to by the
Defendant, inter alia, on the ground that, vide a document dated
21-12-2001, executed by his Late father, allegedly in the presence of the
Defendant and his brothers, the suit property was in fact gifted to him. It is
this document, that the Defendant seeks to validate on the basis of the
aforesaid Notification which clearly provides that, an unregistered document
may, however, be validated and admitted in Court to prove title or other
matters contained in the document, on payment of penalty up to fifty times the
usual registration fee.

 

The Court held
that the document sought to be validated, being bereft only of registration,
ought in substance, to be compliant of the provisions of section 122 and
section 123 of the Transfer of Property Act, 1882. It further held that it is
not every document that has not been registered which can be validated by the
order of the Court, but only those documents which bear compliance to the legal
provisions.

 

RIGHT TO INFORMATION (r2i)

PART A  DECISIONS OF SUPREME COURT


  •     Non-governmental
    organisations substantially financed by the appropriate government fall within
    the ambit of ‘public authority’ under section 2(h) of the Right to Information
    Act, 2005

A civil appeal was filed by D.A.V. College
Trust and Management Society and Ors. stating that it couldn’t be treated as a
public authority. A Division Bench comprising Justice Deepak Gupta and Justice
Aniruddha Bose heard the pleas filed by the appellant on 17th
September, 2019.

 

In the Apex Court, Hon’ble Justice Deepak
Gupta, while providing a judgement on Civil Appeal No. 9828 of 2013 stated:

 

‘In our view, “substantial” means a large
portion. It does not necessarily have to mean a major portion or more than 50%.
No hard and fast rule can be laid down in this regard. Substantial financing
can be both direct and indirect. To give an example, if a land in a city is
given free of cost or on heavy discount to hospitals, educational institutions
or such other body, this in itself could also be substantial financing. The
very establishment of such an institution, if it is dependent on the largesse
of the State in getting the land at a cheap price, would mean that it is
substantially financed. Merely because financial contribution of the State
comes down during the actual funding, will not by itself mean that the indirect
finance given is not to be taken into consideration. The value of the land will
have to be evaluated not only on the date of allotment but even on the date
when the question arises as to whether the said body or NGO is substantially
financed.

 

Whether an NGO or body is substantially
financed by the government is a question of fact which has to be determined on
the facts of each case. There may be cases where the finance is more than 50%
but still may not be called substantially financed. Supposing a small NGO which
has a total capital of Rs. 10,000 gets a grant of Rs. 5,000 from the
Government; though this grant may be 50%, it cannot be termed to be substantial
contribution. On the other hand, if a body or an NGO gets hundreds of crores of
rupees as grant but that amount is less than 50%, the same can still be termed
to be substantially financed. Another aspect for determining substantial
finance is whether the body, authority or NGO can carry on its activities
effectively without getting finance from the Government. If its functioning is
dependent on the finances of the Government then there can be no manner of
doubt that it has to be termed as substantially financed. While interpreting
the provisions of the Act and while deciding what is substantial finance one
has to keep in mind the provisions of the Act. This Act was enacted with the
purpose of bringing transparency in public dealings and probity in public life.
If NGOs or other bodies get substantial finance from the Government, we find no
reason why any citizen cannot ask for information to find out whether his / her
money which has been given to an NGO or any other body is being used for the
requisite purpose or not.’

 

[Civil Appeal. No. 9828 of 2013, dated 17th
September, 2019]

 

  •     Chief Justice of India’s
    office under RTI Act, but conditions apply

A Constitution Bench of the Supreme Court
comprising the Chief Justice of India (CJI) Ranjan Gogoi, Justices N.V. Ramana,
D.Y. Chandrachud, Deepak Gupta and Sanjiv Khanna on 13th November,
2019 gave a judgement on
the applicability of the Right to Information (RTI) Act, 2005 to itself.

 

It has been hailed as a landmark judgement
by most people based on the understanding that it was only about accepting that
RTI applies to the office of the CJI. There were actually three petitions which
were decided. Subhash Chandra Agarwal had sought the information in 2007 and
2009.

 

Justice Chandrachud has acknowledged: ‘Failure
to bring about accountability reforms would erode trust in the courts’
impartiality, harming core judicial functions. Further, it also harms the
broader accountability function that the judiciary is entrusted with in
democratic systems including upholding citizens’ rights and sanctioning
representatives of other branches when they act in contravention of the law.
Transparency and the right to information are crucially linked to the rule of
law itself. There is a fallacy about the postulate that independence and
accountability are conflicting values.’

 

However, after accepting the right of citizens
to get information from the office of the CJI, the Court has ruled that the
exemption of section 8(1)(j) covers all personal information.

 

The Supreme Court said that confidentiality
and right to privacy have to be maintained and added that RTI can’t be used as
a tool of surveillance. It also said only names of judges recommended by the
Collegium can be disclosed, not the reasons.

 

The Bench, headed by the Chief Justice of
India, wrapped up the hearing saying nobody wants a ‘system of opaqueness’,
but the judiciary cannot be destroyed in the name of transparency. ‘Nobody
wants to remain in the state of darkness or keep anybody in the state of
darkness,’ it had said. ‘The question is drawing a line. In the name of
transparency, you can’t destroy the institution.’

 

[Civil
Appeal No.10044 of 2010 and Civil Appeal No. 2683 of 2010 dated 13th
November, 2019]

 

PART B RTI ACT, 2005

  •     Suo motu disclosures

Suo motu, meaning ‘on its own motion’, is a Latin word used mainly as
legalese.

 

The basic principle
of the RTI Act is the idea that the individual national is a sovereign in her
own particular right and is the proprietor of the government. The textbook
definition of democracy is exemplified by the expression ‘for the people, of
the people and by the people’. In reality, the information provided to the
public is power given in the hands of the citizens. The most important thing
that will be looked after by this is transparency, corruption and arbitrariness
in the governance within an institution.

 

Certain instructions
have been drawn up by the government to make sure that the public departments /
ministries make suo motu disclosure of information. These instructions
are based on the suggestions of the Task Force set up by the government for
strengthening compliance with provisions for suo motu disclosure u/s 4
of the RTI Act, 2005. The members of civil society, Central Government
Ministries / Departments and the State Governments are prominent members of
this force.

 

The guidelines have
been based on the following points:

(a) Suo motu
disclosure of more details u/s 4 – This includes detailed instructions on
proactive disclosure of information related to public / private partnerships,
transfer policy and transfer orders, procurement, RTI applications received and
their responses, CAG and PAC paras, citizens’ charter and discretionary and
non-discretionary grants;

(b) Instructions
for digital publication of active disclosure of details to ensure that the
government websites disclose details completely so as to be easily available to
the citizens without any discrepancies;

(c) Detailing of
few sub-clauses of section 4(1)(b) of the RTI Act regarding publishing of
information by the public authority: ‘the procedure followed in the
decision-making process’, ‘norms set by the public authority for the discharge
of its functions’, ‘the budget allocated to each of its agency’ and ‘details in
respect of information, available to or held by it, reduced in an electronic
form’.

 

The compliance
mechanism for suo motu disclosure under the RTI Act includes yearly
audit of proactive disclosures made by the Ministry / Department by a third
party, examination of such audit report and offering advice / recommendation by
the Central Information Commission and inclusion of compliance details in the
annual report of the Ministry / Department.

 

Section 4 of the
RTI Act lays down the information which should be disclosed by public
authorities on a suo motu or proactive basis. The main aim of suo
motu disclosure is to retract all the necessary details in public domain on
a proactive basis so that the functioning of the public authorities becomes
more transparent and the need of filing individual RTI applications goes down.

 

Since the
promulgation of the Act in 2005, large volumes of information relating to
functioning of the government is being put in the public domain. However, the
quality and quantity of proactive disclosures are not being raised to the
desired level. There have been complaints regarding the backlog of cases in the
commissions but it is rarely accepted that mere compliance by the authorities
by providing the necessary information as mandated by the Act would result in a
steep decrease in the number of appeals filed.

 

It has been
observed that information seekers face problems in making use of the Act and
the officers of the public authorities face problems in implementing its
provisions. Keeping this in mind, Rajasthan has launched the Jan Soochna
portal which will display all information that ought to be voluntarily
disclosed by public authorities under the RTI Act.

 

The information
will be open to public scrutiny at the click of a mouse and without having to
file an RTI application. It will display issues related to 13 departments
covering around 30 government schemes. These include public distribution and
ration; farm loans; pensions; beneficiaries of Mahatma Gandhi National Rural
Employment Guarantee Act (MNREGA); food grain distribution; government-run
medical and health insurance schemes; and land extracts.

 

The home page of
the portal http://jansoochna.rajasthan.gov.in/ states: ‘The Government
of Rajasthan is proud to launch the Jan Soochna portal, conceptualised
in collaboration with peoples’ campaigns of Rajasthan’. This is the first
public portal of its kind in the country aimed at disclosing information on a suo
motu basis as required u/s 4(2) of the RTI Act.

 

The
day every state government follows Rajasthan’s example, the antagonistic
effects of the RTI Amendments, 2019 would be nullified. We appreciate and
congratulate the Rajasthan Government for this citizen-friendly venture, where
governance becomes pro-active and transparent.

 

PART C INFORMATION ON AND AROUND

 

  •     RTI reveals Kolhapur floods
    caused by tampering with technically established flood-lines to please builders

 

The flood havoc in
Kolhapur and Sangli districts resulted in the deaths of 54 people and of
thousands of heads of cattle, apart from causing colossal loss to property,
farmlands and standing crops.

 

Was it the ferocity of nature that caused such a great calamity, or did
human interference aggravate the situation? Right to Information (RTI)
documents reveal that tampering with the red and blue line demarcation of the
Panchganga river in the Kolhapur Development Plan, due to the pressure of the
builder lobby through the Confederation of Real Estate Developers’ Associations
of India (CREDAI), to which the Chief Minister’s Office responded
affirmatively, resulted in turning 1,250 acres of flood-line area, prohibited
for any construction, into a concrete maze.

 

As per the RTI
documents procured from the Kolhapur Municipal Corporation, the CREDAI,
Kolhapur wrote a letter to Chief Minister Devendra Fadnavis on 9th
October, 2018 casting doubts about the Water Conservation Department’s red
flood-line report of the Panchganga, whetted by IIT, Mumbai, on new
flood-lines.

 

The letter claimed
that the new flood-lines may cause confusion and fear-mongering as most of the
areas under the new flood-lines fall under the residential zone and a large
number of structures have been constructed on it. They also claimed that there
is public unrest over drawing the new flood-lines. Hence, the letter urged that
the old flood-lines which were existing (which had no scientific base and were
marked haphazardly) in the Development Plan be maintained.

 

Further, the Water
Resources Department submitted a technical note on 5th March, 2019
to the Kolhapur Municipal Corporation. It stated that the flood level has risen
above the present blue line (shown in the Kolhapur Development Plan, which the
builders want to maintain) on ten occasions and above the present red line on
six occasions over the past 30 years. It warned that the Kolhapur Municipal
Corporation and the local administration would have to be on alert during the monsoons
if the old flood-lines are retained.

 

(Source:https://www.moneylife.in/article/rti-reveals-kolhapur-floods-caused-by-tampering-with-technically-established-flood-lines-to-please-builders/57983.html)

 

  •     Mumbai police hits record
    high in traffic penalties, reveals RTI

 

The Mumbai Traffic
Police collected record fines totalling nearly Rs. 139 crores in 2018 for
violations of traffic rules, according to an RTI filing. This figure is much
higher compared to the Rs. 8.6 crores collected in 2017, said RTI activist
Jeetendra Ghadge, and the credit for this goes to the ‘e-challan’ system
implemented by the Mumbai Traffic Police in a big way.

 

‘This technology –
whereby an officer can simply issue an e-challan from his mobile phone – has
not only reduced corruption on the roads, but resulted in a massive collection
of fines for the government coffers,’ Ghadge told IANS.

 

Interestingly, the
RTI filing also revealed that the number of drunk-driving cases has
considerably decreased over the last three years. While there were 20,768 such
cases in 2016, they came down to 18,056 in 2017 and 11,711
in 2018.

Shockingly, in the
same period, the number of teenagers caught in drunk-driving cases was 1,854;
and 367 women were among those nabbed for drunk driving.

 

‘The figures
clearly reveal that Mumbaikars are quite an indisciplined lot while driving on
roads and even hefty fines / penalties don’t act as a deterrent. Since time is
more valuable than money for Mumbaikars, brief periods of detention (jail) or
community service, as prevalent in some advanced countries, could teach them a
lesson,’ Ghadge said.

 

(Source:https://www.moneylife.in/article/mumbai-police-hits-record-high-in-traffic-penalties-reveals-rti/58026.html)

 

  •     Bharat Electronics
    demands fee for information on EVMs under RTI; later says it has no information

Bharat Electronics Ltd. (BEL) and Electronics Corporation of India Ltd.
(ECIL) are manufacturers of electronic voting machines (EVMs), voter-verified
paper trail (VVPAT) units and symbol loading units (SLUs) which have been under
the watchful eye of RTI activists against the backdrop of alleged tampering of
EVMs in the 2019 Lok Sabha elections.

 

Venkatesh Nayak,
research scholar and programme co-ordinator of the Commonwealth Human Rights
Initiative (CHRI), filed RTI applications to both the organisations, seeking
identical information.

 

The Central Public
Information Officer (CPIO) of BEL promptly replied in June, 2019 that
information could be supplied at a cost of Rs. 1,434 for the photocopying of
pages. However, a month later, BEL did a complete somersault stating that it
did not hold most of the information and also rejected one of the queries
(pertaining to names of engineers) stating that disclosure would endanger the
life of its engineers and even returned the bank draft that Mr. Nayak had sent
as the fee.

 

(Source:https://www.moneylife.in/article/bharat-electronics-demands-fee-for-info-on-evms-under-rti-later-says-it-has-no-info/58150.html)

 

  •     Frauds worth Rs. 32,000
    crores rattle 18 public sector banks within three months, reveals RTI

A total of 2,480
cases of fraud involving a huge sum of Rs. 31,898.63 crores rattled 18 public
sector banks between April and June this year, an RTI query has revealed.

 

The country’s
largest lender, State Bank of India (SBI), remained the biggest prey to frauds
with a 38% share, Neemuch-based activist Chandrashekhar Gaur told PTI, quoting
an official of the RBI who furnished replies to his RTI application. As many as
1,197 cases of cheating involving Rs 12,012.77 crores were detected in SBI in
the first quarter.

 

After SBI,
Allahabad Bank faced the heat with 381 cheating cases involving Rs. 2,855.46
crores. Punjab National Bank stood third in the list with 99 fraud cases worth
Rs. 2,526.55 crores.

 

However, the
information provided by the RBI does not give specific details of the nature of
banking frauds and the losses suffered by banks or their customers.

 

(Source:https://www.indiatoday.in/business/story/frauds-worth-rs-32-000-crore-rattle-18-public-banks-within-three-months-reveals-rti-1596960-2019-09-08)

 

  •     Government spending more
    on ads in Hindi newspapers: RTI

In a clear hint of
its plan to make deeper inroads into the Hindi heartland, the Narendra Modi
government has spent over Rs. 890 crores on advertising in Hindi newspapers
compared to over Rs. 719 crores in English newspapers in the last five years,
an RTI inquiry revealed.

 

At a time when
print media overall is facing rough weather owing to stiff competition from
digital platforms – chiefly Facebook and Google which together share 68% of
digital ads globally – Hindi and regional newspapers across the spectrum
(large, medium and small) are defying the trend and flourishing.

Leading the pack in
the period between 2014-15 and 2018-19 was Dainik Jagran which received
government advertisements worth over Rs. 100 crores in the given time-frame. Dainik
Bhaskar received advertisements worth Rs. 56.62 crores, while Hindustan garnered
advertisements worth Rs. 50.66 crores in the reported period.

 

Punjab Kesari was able to obtain government advertisements worth Rs. 50.66 crores
and Amar Ujala Rs. 47.4 crores.

 

(Source:https://www.indiatoday.in/india/story/government-spending-more-ads-hindi-newspapers-rti-1596821-2019-09-08)
 

CORPORATE LAW CORNER

4.  Vashdeo R. Bhojwani vs. Abhyudaya
Co-operative Bank Ltd. [2019] 109
taxmann.com 198 (SC) Civil Appeal No.
11020 of 2018 Date of order: 2nd
September, 2019

 

Section 7 of Insolvency and Bankruptcy Code, 2016 read with article 137
and section 23 of the Limitation Act – Application u/s 7 or 9 cannot be moved
if more than three years have lapsed since the default giving rise to the
application – Default does not constitute a continuing wrong – The loss is a
continuing damage arising as a result of the wrong

 

FACTS

V made a default of
Rs. 6.7 crores and was declared as a non-performing asset (NPA) by A Bank on 23rd
December, 1999. A recovery certificate dated 24th December, 2001 was
issued for this amount. A Bank filed a petition against V on 21st
July, 2017 before the National Company Law Tribunal (NCLT) claiming that this
amount together with interest which kept ticking from 1998, was payable to it.
The loan initially granted to Respondent No. 2 had originally been assigned and
after a merger with a co-operative bank in 2006, A Bank became a financial
creditor to whom these moneys were owed. NCLT admitted the petition stating
that no period of limitation would attach since the default continued.

 

The appeal filed
before National Company Law Appellate Tribunal was dismissed on the ground that
since the cause of action continued, no limitation period would attach.

 

Aggrieved by the
order, an appeal was filed before the Supreme Court.

 

HELD

After hearing both
sides, the Supreme Court referred to its own judgement in B.K.
Educational Services Private Limited vs. Parag Gupta and Associates, 2018 (14)
Scale 482. It was held that the Limitation Act applied to the petitions
filed u/s 7 and 9 of the Insolvency and Bankruptcy Code, 2016. The judgement
stated that the application would be barred under Article 137 of the Limitation
Act if the default occurred more than three years prior to the date of filing
the application.

 

It was urged before
the Supreme Court that in order to save the case, provisions of section 23 of
the Limitation Act would apply. The Court, relying on Balkrishna Savalram
Pujari and others vs. Shree Dnyaneshwar Maharaj Sansthan and others [1959],
Supp. (2) S.C.R. 476, held that section 23 of the Limitation Act refers
not to a continuing right but to a continuing wrong. If the wrongful act causes
an injury which is complete, there is no continuing wrong even though the
damage resulting from the act may continue. If, however, a wrongful act is of
such a character that the injury caused by it itself continues, then the act
constitutes a continuing wrong. A distinction between the injury caused by the
wrongful act and what may be described as the effect of the said injury was
important.

 

The Supreme Court,
setting aside the orders of the NCLT and the NCLAT, held that when the Recovery
Certificate dated 24th December, 2001 was issued, the Certificate
injured effectively and completely the appellant’s rights as a result of which
limitation would have begun ticking. The suit was held to be time-barred but
there was no order as to costs.

 

5.  Duncans Industries Ltd. vs. A.J. Agrochem [2019] 110
taxmann.com 131 (SC) Civil Appeal No. 5120
of 2019 Date of order: 4th
October, 2019

 

Insolvency and
Bankruptcy Code, 2016 – Consent of Central Government was not required to be
obtained for initiating proceedings under the Code where notification to take
over the management of tea units of a company by the authorised personnel of
Central Government was already issued – Provisions of the Code would have an
overriding effect over the provisions of Tea Act, 1953

 

FACTS

D Co is a company
that owns and manages 14 tea gardens. A Co supplied pesticides, insecticides,
herbicides, etc., to D Co and accordingly was its operational creditor. A sum
of Rs. 41,55,500 was payable by D Co to A Co and, therefore, proceedings u/s 9
of the Insolvency and Bankruptcy Code, 2016 (the Code) were initiated. The
Central Government, vide notification dated 28th January, 2016, in
exercise of its power u/s 16E of the Tea Act, 1953 had taken over the control
of seven of the tea gardens of D Co. The notification of the Central Government
was challenged before the Calcutta High Court and it had, by an interim order,
restored the management of the tea gardens to D Co.

 

Section 16G of the
Tea Act provided that prior consent of the Central Government was required to
initiate the winding up, or appointment of receiver of the company, once the
management of its tea unit was taken over by the Central Government. D Co
submitted that since this consent was not in place, application u/s 9 of the
Code could not be admitted. The NCLT upheld this contention and dismissed the
application filed.

 

Aggrieved, A Co
filed an appeal with the NCLAT which, after hearing both the sides, reversed
the order passed by the NCLT and held that a petition u/s 9 would be
maintainable even though the consent of the Central Government had not been
obtained.

 

Aggrieved by the
order of the NCLAT, D Co filed an appeal before the Supreme Court and raised
the following arguments:

(i)    Section 16G of the Tea Act specifically
governed the situation of D Co. Further, ‘winding up’ process under the
Companies Act, 1956 includes the insolvency proceedings under the Code;

(ii)   The order of the Calcutta High Court did not
stay the notification issued by the Central Government but only provided
interim relief;

(iii)  Section 238 of the Code which provides it an
overriding effect comes into play only when there is an inconsistency in the
provisions of two statutes. It would not apply when there is no conflict. As
such, there is no conflict between the Tea Act and the Code. Section 16G only
requires obtaining consent before initiation of proceedings of winding up.

 

A Co made the
following arguments:

(a)   The Code is an entire code in itself. A
prerequisite of obtaining consent cannot be imported and / or read into the
Code when the self-contained Code itself does not provide for it;

(b)  Importing the requirement of obtaining consent
of the Central Government would be contrary to legislative intent sought to be
achieved and to the overriding nature of the Code. Further, as both the Tea Act
and the Code have the objective of restarting or revival of the company, provisions
of the Code would prevail in terms of section 238 of the Code;

(c)   It was submitted that section 16G(1) of the
Tea Act does not automatically get triggered with the issuance of a
notification u/s 16E(1) of the Tea Act, but becomes applicable once the
management of a tea undertaking or tea unit owned by a company has been taken
over by the Tea Board. Pursuant to the interim order of the High Court, D Co
continues to be in control and management of the tea units / gardens;

(d)  Further, section 16G(1)(c) of the Tea Act is
applicable to a proceeding for ‘winding up’ and not to proceeding for
initiation of ‘corporate insolvency resolution process’, as the two are not one
and the same proceedings.

 

HELD

The Supreme Court
examined the provisions of section 16G of the Tea Act and also heard both the
parties at length. It was observed that pursuant to the interim order of the
High Court, D Co continued to be in management and control of the tea estates,
despite the notification u/s 16E dated 28th January, 2016. In the
facts of the case, provisions of section 16G would not be applicable at all.
The Court held that section 16G of the Tea Act shall be applicable only in a
case where the actual management of a tea undertaking or tea unit owned by a
company has been taken over by any person or body of persons authorised by the
Central Government under the Tea Act. Therefore, taking over the actual
management and control by the Central Government or by any person or body of
persons authorised by the Central Government is sine qua non before
section 16G of the Tea Act is made applicable. Accordingly, in the
circumstances of the case, the provisions of section 16G of the Tea Act would
not apply.

 

The Court observed
that the Insolvency and Bankruptcy Code, 2016 was a complete code in itself. It
took note of its own verdict in the case of Innoventive Industries Ltd.
vs. ICICI Bank, (2018) 1 SCC 407: (2018) 1 SCC (Civ) 356 and proceeded
to hold that the entire ‘corporate insolvency resolution process’ as such could
not be equated with ‘winding-up proceedings’. The proceedings u/s 9 of the Code
were not limited and / or restricted to winding up and / or appointment of
receiver only. The winding up / liquidation of the company would be the last
resort and only in the eventuality that the corporate insolvency resolution
process fails. The focus of the legislation was to ensure revival of business
and by protecting the corporate debtor from its own management and from a
corporate debt by liquidation. The procedure was required to be completed in a
time-bound manner.

 

It was held that
the Code having been passed subsequent to the Tea Act would have an overriding
effect. Further, prior consent of the Central Government before initiation of
the proceedings u/s 7 or 9 of the IBC would not be required; and even without
such consent of the Central Government the insolvency proceedings u/s 7 or 9 of
the Code shall be maintainable.

 

The order passed by
NCLAT was upheld and the appeal was dismissed without any costs.

 

6. 
Yashodhara Shroff vs. Union of India [2019] 106 taxmann.com 297 (Kar.) Date of order: 12th June, 2019

 

Companies Act – Section 164(2)(a)
disqualifying directors of companies from office for a period of 5 years on
failure to submit annual returns and statements for 3 consecutive years is not ultra
vires Constitution – the period prior to 1st April, 2014 cannot
be reckoned for the purpose of applying the disqualification under the said
provision along with the period subsequent thereto

 

FACTS

The petitioner Y
challenged the list published by the Ministry of Corporate Affairs (MCA) in
September, 2017 whereby nearly 3,00,000 directors were disqualified u/s
164(2)(a) and section 167(1)(a) of the Companies Act, 2013 for failing to file
annual returns and statements for a period of three consecutive years.

 

Further, the
petitioners also contended that there had been an arbitrary exercise of power
by the MCA in disqualifying the petitioners as directors of the respective
companies by giving retrospective operation to the aforesaid provisions of the
Act.

 

HELD

The High Court
observed as under:

 

The object of
disqualifying a person as a Director of a company on account of circumstances
mentioned in section 164 and the provisions of section 167 is to bring in a
higher degree of transparency and accountability in corporate governance, which
is necessary to protect the interest of investors and ensure compliance in
filing the annual accounts and annual returns which are a means of disclosure
to all stakeholders.

 

Further, section
164(2) applies to both private as well as public companies, as against section
274(1)(g) of the Companies Act, 1956.

 

The High Court,
after deliberations, held as under:

(i)    Where the disqualification of the
petitioners is based on taking into consideration any financial year ‘prior to
1st April, 2014 as well as subsequent thereto’ while
reckoning continuous period of three financial years u/s 164(2)(a) of the Act, such
a disqualification is bad in law;

(ii)   If the disqualification of the directors is
based on taking into consideration any financial year prior to 1st
April, 2014 only, i.e., the disqualification has occurred under the
provisions of the 1956 Act, such disqualification is not bad in law;

(iii)  If the disqualification of the directors is
based on taking into consideration three continuous financial years
subsequent to 1st April, 2014, such disqualification is not
bad in law.

 

With regard to the
constitutional validity of the proviso of section 167(1)(a) of the Companies
Act, 2013, the Court ruled that the said provision does not violate Articles 14
and 19(1)(g) of the Constitution as it is made in the interest of the general public.
 

 



ALLIED LAWS

6.  Gift deed – Cancellation of registered gift
deed requires mutual consent of both the parties and their participation – Gift
deed cancellation not valid [Transfer of Property Act (1882), section126;
Registration Act (1908), section 17]

 

Kolli Rajesh Chowdary vs. State of Andhra Pradesh
and Ors. AIR 2019, Andhra Pradesh 40

 

A gift settlement deed was executed out of
love and affection by the respondent (grandmother) for the petitioner
(grandson) with a view to provide the said property for his livelihood. The
gift was accepted and possession of the property was delivered to the
petitioner on the same day. Thereafter, the petitioner made an online
application and paid the requisite fee and requested for mutation of the said
property in his name in the revenue records and for issuance of pattadar
passbook. Since the date of the gift settlement deed, the petitioner was in
continuous possession and enjoyment of the property covered by the deed.

 

In the year
2019, the petitioner noticed that the respondent had executed a deed of
cancellation, dated 29th September, 2017, registered the same and
revoked the gift settlement deed executed by her in favour of the petitioner.
The petitioner also noticed that after execution of the cancellation deed, she
had further executed a sale deed, dated 28th October, 2017, in
favour of another person and registered it on 6th November, 2017.
Since the property in question was transferred in favour of the petitioner with
absolute rights by the respondent by executing the registered gift settlement
deed, she had no right to execute the deed of cancellation either cancelling or
revoking the gift settlement deed already executed by her in favour of the
petitioner. The reason for cancellation of the gift deed was mentioned by the
respondent to be deception and non-fulfilment of the word given by the
petitioner to the respondent.

 

It was observed
that there cannot be unilateral cancellation of registered sale deeds and that
a deed cancelling a sale deed can be registered only after the same is
cancelled by a competent civil court after notice to the parties concerned. In
the absence of any declaration by a competent court or notice to parties, the
execution of the deed of cancellation as well as its registration are wholly
void and non-est and such transactions are meaningless transactions.

 

Accordingly, it
was held that the said deed of cancellation / deed of revocation was null and
void and that it was of no effect. As a sequel to the said finding that the
cancellation deed or revocation deed was null and void and further, in view of
the settled legal position that no one can convey a better title than what he /
she has, it was further held that the subsequent sale deed executed by the
respondent was also not valid.

 

Further, it was
contended by the respondent that if the petitioner was aggrieved by the
cancellation or revocation deed he had to approach a civil court and seek the
common law remedy for setting aside the same but he could not approach the writ
court.

 

It was held
that if the petitioner was aggrieved by the cancellation or revocation deed
which was unilaterally executed and was null and void and meaningless, it was
just and fair to allow the writ petition leaving it open to the executants of
the cancellation deed or revocation deed to seek the common law remedy by
approaching the civil court.

 

7.  Lawyer’s statement – Client not bound by the
lawyer’s statements or admissions as to matters of law or legal conclusions
[Kerala Buildings (Lease and Rent Control) Act, 1965, S. 11]

 

Central
Bank of India and Ors. vs. Beena Thiruvenkitam, AIR 2019 Kerala 164

 

A lease
agreement had been entered into between the bank and the then owners of the
building. After the respondent became the owner of the building, the appellant
(tenant-bank) paid the rent of the building to the respondent and she had
received it. After the lease period expired, the respondent informed the bank
that she was not willing to renew the lease. The bank informed the petitioner
that since a currency chest is attached to the branch, a suitable place will
have to be found by the bank to house its branch and as and when a suitable
place is found, they will surrender the tenanted premises. A writ petition was
filed alleging that despite the undertaking made, the bank is not making any
efforts to surrender the leased premises. The petitioner, therefore, sought
appropriate directions from the court. Before the court it was stated by the
learned senior counsel for the bank that the premises will be surrendered
immediately after the construction of the currency chest. However, the senior
counsel for the bank had not given any undertaking before the court that the
premises shall be vacated within any specific time.

 

The learned
single judge disposed of the writ petition by directing the bank to surrender
vacant possession of the building occupied by it to the respondent within four
months from the date of the judgement. The aforesaid judgement was under
challenge in the appeal.

 

The senior
counsel for the appellant bank contended that the writ petition filed by the
respondent was not maintainable. He contended that no direction could be issued
by the court to a tenant, in exercise of its writ jurisdiction under Article
226 of the Constitution, to surrender vacant possession of the building
occupied by the tenant to the landlord. The respondent landlord contended that,
when the writ petition came up for hearing (before the single judge) the
counsel who appeared for the bank had submitted that the bank was ready to
surrender possession of the premises to the respondent and it was on the basis
of such undertaking that the writ petition was disposed of. He submitted that
the appellants cannot now turn around and contend that the writ petition filed
was not maintainable.

 

As per section
11, a tenant shall not be evicted, whether in execution of a decree or
otherwise, except in accordance with the provisions of the Kerala Buildings
(Lease and Rent Control) Act.

 

It was observed
by the court that neither the client nor the court is bound by the lawyer’s
statements or admissions as to matters of law or legal conclusions. A lawyer
generally has no implied or apparent authority to make an admission or
statement which would directly surrender or conclude the substantial legal
rights of the client unless such an admission or statement is clearly a proper
step in accomplishing the purpose for which the lawyer was employed.
Consequently, the appeal was allowed.

 

8.  Foreign judgement and its implication on
residents of India [Code of Civil Procedure, 1908, S. 13]

 

Jose Sousa vs. Ema Mata Fernandes and Ors. AIR
2019 (NOC) 644 (Bom.)

 

An application
under Article 1102 of the Portuguese Civil Procedure Code, 1939 (Code) was
filed seeking confirmation of the judgement and order passed by the Family
Court at Bradford, U.K., by which the marriage between the applicant and the
first respondent had been dissolved by a decree of divorce.

 

The applicant
and the respondent are Goans, citizens of India, and were married to each
other. Disputes and differences arose between the parties in the initial period
of the marriage and the parties separated; the applicant had been residing in
London since the year 2005, when he went there for the purpose of work. The
applicant has since acquired Portuguese citizenship in the year 2009, while the
first respondent continues to be an Indian citizen. The applicant and the first
respondent resided together in Goa as husband and wife until the year 2005 and
from the time the applicant left for the U.K. they have been residing
separately.

 

Matrimonial
petitions had been filed on two occasions for dissolution of the marriage.
However, the same were dismissed. Another petition was filed before the Family
Court at Bradford, U.K. A notice of the petition was served on the first
respondent who sent a detailed reply thereto inter alia taking exception
to the jurisdiction of the Family Court at Bradford to entertain the petition.
It was contended that the parties were Indian nationals of Goan origin at the
time of their marriage. Their marriage was solemnised at Margao, where it is
registered, and thus the Family Court at Bradford would lack jurisdiction to
entertain the petition only on the ground that the applicant has been residing
in the U.K. The Family Court in the U.K. granted the decree of divorce. The
application was filed for confirmation of the decree.

 

The only
question for adjudication was whether the judgement of the Family Court at
Bradford, U.K., could be confirmed.

 

The court held
that the applicant has not shown how the Family Court at Bradford, U.K., would
have jurisdiction to entertain the petition only on the basis of the residence
of the applicant in U.K. Admittedly, the marriage was solemnised at Margao as
per the family laws applicable in Goa, when both the parties were Indian
nationals and were governed by the said law, and their marriage was registered
in the office of the Sub-Registrar at Margao. Subsequently, the petitioner
acquired Portuguese citizenship in the year 2009 and had been staying in the
U.K. The parties last resided together at Margao. Even assuming that the U.K.
Family Court had jurisdiction, the judgement of such court makes absolutely no
reference to the specific ground raised of the absence of jurisdiction. Clauses
(a) and (b) of section 13 of the C.P.C. provide as to when a foreign judgement
is not conclusive. On the basis of these clauses the court stated that the
judgement of the Family Court in the U.K. cannot be said to be conclusive and
held that it was not possible to confirm the foreign judgement. In the result,
the civil application was dismissed.

 

9.  Natural guardian – Transfer of property
without the consent of minors u/s 8(3) – Suit for setting aside of document of
transfer being mandatory was time-barred [Hindu Minority and Guardianship Act,
1956, S. 8(3); Limitation Act, 1963, Art. 60]

 

Thankamoni
Amma Padmakumari Amma and Ors. vs. Ganapathi Suresh and Ors. AIR 2019 Kerala
170

 

A suit for
partition and fixation of boundary was filed. The defendant, i.e., the father
of the plaintiffs, had sold a property owned by the plaintiff’s mother after
the mother’s death. At the time of such sale of property, the plaintiffs were
minors. Seven years after attaining majority, a suit for partition and fixation
of boundaries was filed. No period of limitation is mentioned anywhere in the
Hindu Minority and Guardianship Act for exercising the option available to the
minor u/s 8(3) of the Act.

 

It was observed
by the court that no prayer for setting aside the document of transfer had been
made. The legal position can be summarised to say that it is necessary to seek
the relief of setting aside the document to exercise the option by a minor to
avoid the disposal of immovable property by the natural guardian.

 

It was held
that since the relief of setting aside the document of alienation cannot be
avoided in a suit exercising the option u/s 8(3) of the Act challenging the
disposal of immovable property by the natural guardian, the period of
limitation in such a case would be the one available for setting aside a
document of transfer under the Limitation Act. A separate provision is made under
Article 60 of the Limitation Act to set aside a transfer of property made by
the guardian of a ward as three years from the date of attainment of majority.
Accordingly, the maximum time available to institute a suit for exercising the
option u/s 8(3) of the Act is only three years from the date of attainment of
majority and hence the suit is hopelessly barred by limitation.

 

10.  Stamp Duty – Deputy Commissioner of Stamp
Duty cannot decide the validity of the document or the validity of the trust
deed for the purpose of determining the stamp duty payable [Transfer of
Property Act, 1882, S. 14; Karnataka Stamp Act, 1957, S. 28, 33, 39]

 

B.R. Jagadish
vs. District Registrar and Deputy Commissioner for Stamps, Basavanagudi and
Ors. AIR 2019 Karnataka 129

 

A gift deed was
executed which was held to be insufficiently stamped. The reason for the
insufficiency was due to the Deputy Commissioner’s objection to the fact that
the gift of the immovable property was done by a trust and not by a family
member. The stamp duty payable in case of a trust and a family member are
different.

 

The facts of
the case suggested that a private trust was purported to have been formed by
one of the family members where certain conditions in violation of rules of
perpetuity as per section 14 of the Transfer of Property Act were laid down.
Hence, the trust became null and void and inoperative in the eyes of law, being
void ab initio. Thereafter, a gift deed was drafted for the purpose of
gifting the properties to children. However, the Deputy Commissioner impounded
the said gift deed stating that proper stamp duty had not been paid on the
instrument. It was alleged that the property belonged to the trust and not the
family members and that the gift deed was in the nature of conveyance and hence
a higher stamp amount was applicable.

 

The Court held that while deciding the stamp
duty under the provisions of sections 33 and 39 of the Stamp Act, the recitals
of the document have to be looked into. The Deputy Commissioner for Stamps
cannot decide the validity of the document or the validity of the trust deed.
It was for the person who disputes the gift deed or the trust deed to approach
the competent civil court. The authorities exercising powers under the
provisions of the Stamp Act have to consider the recitals to determine stamp
duty and they have no jurisdiction to decide the title between the parties.
Accordingly, the impugned order was quashed.

ALLIED LAWS

15. Advocate –A
client is not bound by a statement or admission which he or his lawyer was not
authorised to make – There is no estoppel against law [Advocates Act,
1961, S. 35]

 

Director of
Elementary Education, Odisha and Ors. vs. Pramod Kumar Sahoo; AIR 2019 SC 4755

 

The counsel for
the appellant conceded before the Tribunal that teachers having Intermediate
qualification are entitled to the scale of pay as is available to trained
Matric teachers. On the basis of such concession, the learned Tribunal allowed
the original application. The counsel for the appellant submitted that separate
pay scales are provided for untrained Matric teachers and for trained Matric
teachers. Merely because the respondent is Intermediate, that is, a higher
qualification than Matric does not make him a trained teacher. Therefore, the
concession given by the State counsel is an erroneous concession in law and
does not bind the appellant.

 

The Court
observed that generally, admissions of fact made by a counsel are binding upon
their principals as long as they are unequivocal; however, where doubt exists
as to a purported admission, the Court should be wary about accepting such
admissions until and unless the counsel or the advocate is authorised by his
principal to make such admissions. Furthermore, a client is not bound by a
statement or admission which he or his lawyer was not authorised to make. A
lawyer generally has no implied or apparent authority to make an admission or
statement which would directly surrender or conclude the substantial legal
rights of the client unless such an admission or statement is clearly a proper
step in accomplishing the purpose for which the lawyer was employed. The Court
added that neither the client nor the Court is bound by the lawyer’s statements
or admissions as to matters of law or legal conclusions.

 

Accordingly, it
was held that the concession given by the State counsel before the Tribunal was
a concession in law and contrary to the statutory rules. Such concession is not
binding on the State for the reason that there cannot be any estoppel
against law. The rules provide for a specific grade of pay; therefore, the
concession given by the learned State counsel before the Tribunal is not
binding on the appellant. The original application filed by the respondent was
dismissed on merits.

 

16. Advocate –
Legal advice – Negligence – Advocate is not liable unless guilt proved [Indian
Penal Code, S. 420, 467, 468, 471 & 120B]

 

Subha Jakkanwar W/o Arun Jakkanwar vs. State of Chhattisgarh, Criminal
Misc. petition No. 1614 of 2017; Date of order: 26th November, 2019
(CHH)(HC)

 

Ten borrowers
made an application to a bank for a loan. The bank requisitioned a
non-encumbrance certificate, which was provided by the petitioner who was the
empanelled advocate of the bank. The petitioner certified the application qua
the lands held by the borrowers for the grant of loan. The borrowers failed to
repay the loan. It was seen that the borrowers had submitted false and
fabricated documents. The question arose as to whether the advocate
(petitioner) could be incriminated for issuing a non-encumbrance certificate
negligently.

 

The High Court
observed that extending of a legal opinion for granting loan has become an
integral component of an advocate’s work in the banking sector. A lawyer on his
part has a responsibility to act to the best of his knowledge and skills and to
exhibit an unending loyalty to the interests of his clients. He has to exercise
his knowledge in a manner that would advance the interest of his clients.
However, while doing so, the advocate does not assure his client that the
opinion so rendered by him is flawless and must in all possibility act to his
benefit. Just as in any other profession, the only assurance which can be
given, and may even be implied from an advocate so acting in his professional
capacity, is that he possesses the requisite skills in his field of practice
and while undertaking the performance of a task entrusted to him, he would
exercise his skills with reasonable competence.

The only
liability that may be imputed to an advocate while so acting in his
professional capacity is that of negligence in application of legal skills, or
due exercise of such skills, or when an opining advocate is an active
participant in a plan to defraud the bank. Merely because his opinion may not
be acceptable he cannot be criminally prosecuted, particularly in the absence
of direct evidence against him.

 

It was held
that in the instant case the petitioner was neither named in the written
complaint nor in the FIR. Only in the statements of three branch managers for
the first time was the advocate’s name indicated stating that with an intention
to extend pecuniary advantage to the farmers, the non-encumbrance certificate
was issued in their favour which was found to be not acceptable by the bank and
also found to be untrue. There is no basis on record for making such a
statement except that the non-encumbrance certificate was not found proper.
There is no evidence on record to hold that the petitioner met the accused
persons at any point of time and there is no allegation that she gained any
pecuniary benefit as a result of preparing such a report; except for the
statements of three branch managers of Dena Bank that the report was false,
there is no material to show that the petitioner at any point of time was
involved in any criminal conspiracy with any of the accused persons to commit
the offence alleged against her.

 

Accordingly, even
if the allegations are taken at their face value and accepted in their
entirety, the same do not disclose any commission of offence nor do they make
out a case against the petitioner. The Honourable Court relied upon the case of
K. Narayana Rao (2012) 9 SCC 512. Accordingly, the entire
charge-sheet as framed and filed against the petitioner was quashed.

 

17. Joint
family property – Inherited property – Any conveyance or compromise regarding
inherited property by few coparceners would not affect and bind the shares of
the other coparceners who were not a party to such conveyance / compromise
[Hindu Law]

 

Doddamuniyappa
(Dead) through L.R.S. vs. Muniswamy and Ors.; (2019) 7 SCC 193

 

The property
was originally purchased by propositus (sic) of the family, namely,
Chikkanna. After the death of Chikkanna, the property devolved to his three
sons who jointly sold the property in 1950 and the sale deed contained the
clause of re-conveyance requiring the purchaser to re-convey the property in
the event of sale. After the appellant purchased the subject property in 1962,
a civil suit was instituted for the re-conveyance of the property by the sons
of Chikkanna in the first instance which was dismissed by the trial court. On
the order of the High Court, the respondents put the decree to execution and a
deed of re-conveyance was executed and possession of the property was restored
to the respondents on execution of the decree; it assumed the character of a
joint family property in the hands of the respondents.

 

At the stage of
execution appeal, which was preferred at the instance of the appellant, a
compromise was executed between the parties and accordingly, part of the
possession of the subject property was restored to the appellant. After the
restoration of possession of the subject property, the title of the property
re-assumed its original character of joint family property and created the
right of inheritance in the joint family property; all the coparceners were
neither consulted nor made parties to the said compromise.

 

The Court held
that the respondents were not parties to the compromise and the subject
property at that time was joint family property and the compromise entered into
between the parties would not bind the rights of the respondents. It would be
an ancestral property in their hands and the respondents are neither party to
the proceedings nor consented when the compromise decree was executed in the
execution appeal; admittedly, the same would not be binding upon their share of
the property. It goes without saying that the compromise would bind the share
of the respondents as they are party to the compromise which was entered into
in the execution appeal and has been rightly recorded by the High Court under its impugned judgment.
Accordingly, the order of the High Court was upheld.

 

18. Limitation
– Residuary section of Limitation Act will apply when no limitation under any
other Act provided [Hindu Succession Act, 1925, S. 263; Limitation Act, 1963,
Article 137]

 

Jethmal Soni
vs. Hariom Soni and Ors.; AIR 2019 (CHH) 172 (HC)

 

An application
under section 263 of the Indian Succession Act, 1925 was filed for revoking a
probate granted by a probate court in favour of the petitioners. A preliminary
objection against the said application was filed before the trial court that
there was a delay of more than 90 days due to which the application was barred
by limitation. The trial court rejected the said preliminary objection finding
no merit in it and held that limitation for revocation of probate will be
governed by Article 137 of the Limitation Act, 1963; the date of knowledge
admittedly is 20th December, 2013, and therefore the application so
filed is within the period of limitation. A writ petition was filed challenging
the order of rejecting the preliminary objection.

 

The Court in
the present petition held that the learned District Judge while dealing with
the application in question was acting as a civil court and, therefore, the
provisions of Article 137 of the Act of 1963 clearly govern the situation. In
view of the same, in case of application u/s 263 of the Act of 1925 for
revocation of probate, which is not governed by any specific Article of the Act
of 1963, the residuary Article 137 of the Act of 1963 would apply. It was held
that the correct position was that ‘the right to apply’ accrued to the
respondents only on 20th December, 2013 and they filed an
application for revocation of probate on 27th January, 2014, well
within the period of three years when the right to apply for setting aside
accrued to them. Thus, the learned District Judge was absolutely justified in rejecting
the preliminary objection filed by the petitioner.

 

 

RIGHT TO INFORMATION (r2i)

PART A DECISIONS OF HIGH COURTS

 

  •     Can a Government Order issued by the
    State exist over the provisions of the RTI Act?

A writ petition
was filed by Advocate D.B. Binu, who is an RTI activist and president of a federation
of such activists, impugning an order issued by the Government of Kerala which
ostensibly says that certain types of information cannot be made available to
the public even under the RTI Act.

 

In the High
Court of Kerala at Ernakulam, Mr. Justice Devan Ramachandran while delivering a
judgement on WP(C) No. 11202 of 2019 on 25th June, 2019
stated:

 

‘From this
limited perspective, I must say that I fail to understand how the Government of
Kerala could order that “all documents / information related to Inter-State
matters and documents / information which Government feels privy to and the
disclosure of the same may hamper the interest of the State, shall be exempted
from revealing to the public even on request under RTI Act”, particularly when,
under the Right to Information Act is a well-defined hierarchy of officers,
with the State Information Commission at its head, which is expected to be
autonomous and resistant to any pressure from the Executive. It is disquieting
that the order appears to be an attempt to influence the various Information
Officers and Appellate Authorities under the RTI Act by dictating that they
shall not make available certain types of information, no matter what the
mandate of the RTI Act. This certainly is a very dangerous proposition and it
is incomprehensible how the Government could arrogate to itself the power to
issue such an order, knowing full well that this is gross affront to the
provisions of law, because it must certainly be aware that information sought
for by an applicant under the RTI Act can only be denied under the specific
instances enumerated in sections 8 and 9 of the said Act and in no other.
Whatever be the reason behind issuance of this order and however justified the reason stated therein may be, the incontrovertible
fact is that the Government could not have issued this order to pre-empt grant
of any information, whatever be its nature, since it is up to the individual
Information Officers, Appellate Authorities and the Information Commission to
grant or deny such information, guided by the imperatives of the Act; and the
apparent attempt of the Government to dictate to them, through the impugned
order, can never obtain support
in law.’

 

Further, the
judgement states, ‘I cannot let the order influence or trample the officials
under the RTI Act, while acting under its mandate; and I, consequently, clarify
unequivocally that, notwithstanding the contents of the said order, which I
cannot find to be worthy of favour from this Court, the various Public Information
Officers, Appellate Authorities and the State Information Commission shall only
act implicitly in terms of the RTI Act, de hors this order, adverting to
the exceptions statutorily provided and nothing more, nothing less.’

 

[WP(C). No.
11202 of 2019, dated 25th June, 2019]

 

PART B RTI ACT, 2005

 

  •     RTI amendment Bill

The existing law
says that the public authorities are required to make disclosures on:

 

(i) their
organisation, functions and structure,

(ii) powers and
duties of its officers and employees,

(iii) financial
information

If such information
is not provided by the public authorities on their own, the citizens have the
right to demand the same from them under the RTI Act. ‘Public authorities’
refers to Ministers and government servants, among others.

 

The Central
Information Commission is headed by a Chief Information Commissioner and ten
Information Commissioners. They are appointed by the President (read Central
Government) who appoints them for a fixed tenure of five years and a salary of the rank of the Chief Election
Commissioner and Election Commissioners, respectively. This was done to give
the Central Information Commission autonomy and protection from government
interference.

 

The gist of the proposed amendment to the RTI is as follows:

(a) The clause
‘five-year fixed term, or up to the age of 65 years, whichever is earlier’ is
removed;

(b) The status, terms and salary of the CIC, which is now equal to that
of Chief Election Commissioner, will be reduced;

(c) It is
contemplated to give powers to the political executive, i.e., to the Central
Government to prescribe the term, salary and status of the commissioners both
at the Centre and in the states;

(d) The Centre will
get power to prescribe the term, status and salary from time to time.

 

At first glance,
the amendments appear benign. They deal with matters pertaining to tenure,
allowances and the terms of service of Information Commissioners. These were
articulated in the Act, which mandates fixed five-year terms and accords
appropriate status to the Commissioners by equating their salaries with those
of the Election Commissioners at the state and Central level. The amendment
removes these provisions and empowers the Centre to take these decisions.

 

Two consequences
follow from this. First, it undermines the status of the Commissioners which,
in the hierarchy of the state, is a necessary condition for staying
independent, issuing orders and, more importantly, monitoring implementation.
This was the logic behind conferring Information Commissioner’s status and
salary equivalent to Election Commissioners (and the Chief Secretary in the
case of states). Importantly, this is a principle routinely adopted for
statutory oversight bodies.

 

Second, it allows
the Centre to meddle with the everyday functioning of the Commission. The
Centre has now appropriated powers to notify the term of office. In other
words, it can get rid of uncomfortable Commissioners with relative ease, thus
making the Information Commissions subservient to it. In undermining their
independence, the amendments threaten the spirit and intent of the RTI Act,
which is to establish norms of transparency and accountability in governance.

 

‘Information is
the currency that every citizen requires to participate in the life and
governance of society’: Justice A.P. Shah, former
Chief Justice, Delhi and Madras High Courts (2010).

 

The government must
keep in mind that the RTI Act is regarded as one of the most successful laws of
independent India. It has proved to be the strongest and most effective tool
that ordinary citizens possess to hold accountable the powers that be.

 

The RTI Act has
been used time and again to ask a million questions across the spectrum – the
Reserve Bank of India, the Finance Ministry, demonetisation, non-performing
assets, the Rafael fighter aircraft deal, electoral bonds, unemployment
figures, the appointment of the Central Vigilance Commissioner, Election
Commissioners and the (non)-appointment of the Information Commissioners
themselves.

 

It is, therefore, imperative that the government, which runs the world’s
largest democracy, remains sensitive about public sentiment and should do
nothing that can be construed as a move to trample the rights and freedom of
its people.

 

(This
piece has drawn from inputs of various RTI activists and articles of various
experts on the topic)

 

 

PART C  INFORMATION ON & AROUND

 

  •   SFIO in HC against
    CIC order to disclose details of criminal cases against Daewoo Motors

The Delhi High Court has sought response of
the now-defunct Daewoo Motors’ former auditor on a plea by the Serious Fraud
Investigation Office SFIO to set aside a Central Information Commission (CIC)
order directing it to make public details of criminal proceedings against the
company which is facing trial in several cases. Mr. Justice V.K. Rao has issued
notice to the auditor, Vipin Malik, and sought his response on the petition by
the SFIO, which functions under the Ministry of Corporate Affairs (MCA). The
Court listed the matter for further hearing on December 3.

 

(Source:https://economictimes.indiatimes.com/news/politics-and-nation/sfio-in-hc-against-cic-order-to-disclose-details-of-criminal-cases-against-daewoo-motors/articleshow/70721529.cms)

 

  • Respond to
    RTI query seeking to know illegal Bangladeshis in India: CIC to MHA

The CIC has directed the Home Ministry to
respond to a three-year-old RTI application seeking to know the number of
illegal Bangladeshi nationals in India and action taken against agencies which
failed to send them back.

 

An RTI applicant had approached the Home
Ministry asking for information on three points – the number of illegal
Bangladeshis in India, the authority responsible for sending them back and
action taken against the authority for failing in its duty.

 

The matter was referred to the Intelligence
Bureau (IB), which denied the information citing its exemption from the RTI Act
being a national security and intelligence agency.

 

During the hearing at the Commission, the
highest adjudicating body in RTI matters, the Bureau of Immigration, which
works under the IB, said it only monitors and collects statistics pertaining to
those immigrants who overstay.

 

Seeking an unconditional apology, the Bureau
said the matter does not pertain to it and should have been returned to the
Ministry.

 

In view of this, the Commission directed the
respondent to transfer the appellant’s RTI application u/s 6(3) of the RTI Act
to the Central Public Information Officer (CPIO), MHA within a period of two
weeks from the date of receipt of a copy of the order under intimation to the
appellant, Chief Information Commissioner Sudhir Bhargava said.

 

(Source:https://www.business-standard.com/article/pti-stories/respond-to-rti-query-seeking-to-know-illegal-bangladeshis-in-india-cic-to-mha-119070100657_1.html)

 

CIC tells RBI to
give defaulters’ names to RTI applicant

The CIC has directed the RBI to disclose the
list of big loan defaulters it had sent to various banks for resolution.

The CIC’s directive came while deciding on a
plea by an RTI activist, who had based the application on media reports that
RBI Deputy Governor Viral Acharya in a lecture in 2017, had said that the
accounts of some loan defaulters had been sent to banks for resolution.

 

(Source:https://www.deccanchronicle.com/business/economy/280519/cic-tells-rbi-to-give-defaulters-names-to-rti-applicant.html)

 

  • CIC slams
    DoPT for discrediting itself as RTI implementing agency

Despite the
Supreme Court having ordered transparency in the appointments of Information
Commissioners, the Department of Personnel and Training (DoPT), which is also
the implementer of the RTI Act, stonewalled information on this issue, only to
be admonished by the CIC, which has ordered it to provide the details sought
under RTI.

 

CIC Divya Prakash, in his order, observed
that ‘this kind of conduct amounts to stonewalling RTI applications and
stifling the very letter and spirit of the RTI Act. By resorting to such
unwarranted opacity, DoPT is setting a bad example for other public authorities
and at the same time discrediting its own footing as the nodal agency for the
implementation of the RTI Act.’

 

While warning
the DoPT CPIO not to take  RTI
applications so casually, he also observed in his order, ‘It is ironic that the
information that has been denied in the instant case pertained to the
appointment of Information Commissioners under the RTI Act, who are ordained
with the statutory authority of securing the regime of transparency.’

 

(Source:https://www.moneylife.in/article/cic-slams-dopt-for-discrediting-itself-as-rti implementing-agency/57659.html)

ALLIED LAWS

11. 
Adverse possession – Gratuitous licensee – No rights acquired in case of
gratuitous possession [Limitation Act, 1963, Article 65]

 

Lawrence
Ranchhodbhai Christian vs. Gujarat Christian Service Society, AIR 2019, Gujarat
161

 

The
suit was preferred by the plaintiff. The suit premises were owned by the
defendant institution and the plaintiff was living in the premises since
childhood because he had been adopted by the defendant as an orphan. Since the
acceptance of the plaintiff by the defendants, the physical possession of the
suit premises was handed over to him within the knowledge of the defendant and
trustees of the defendant. Nobody had made any disturbance in the possession of
the plaintiff since the last 25 years or more. It was clarified that he was not
a tenant of the suit premises.

 

But the plaintiff claimed
that he was in vacant and peaceful possession of the suit premises since the
last 25 years and by way of adverse possession he was the owner of the said
premises.

 

The Court observed that
admittedly the plaintiff was an orphan and since his childhood was permitted by
the defendant institution to live in the suit premises. He cannot create any
dispute by claiming any ownership of the said premises as he has not acquired
any title. Long possession even of many years or decades could not acquire
(bestow) any rights or interest in the suit premises by the plaintiff. An
orphan can never acquire any interest in the property irrespective of his long
possession. Such possession cannot be protected by a court of law. Such
protection can only be granted or extended to a person who has a valid,
subsisting rent agreement, a lease agreement or a license agreement in his
favour. The plaintiff has acquired no right or interest whatsoever in the suit
property irrespective of his long stay and possession.

 

It was held that the
appellant shall hand over the vacant possession and mesne profit of the
suit premises to the defendant who is admittedly the owner of the property.

 

12. 
General power of attorney holder (GPA) – When no legal practitioner
appears for the principal and the GPA holder undertakes not only the signing of
pleadings but also the job of a legal practitioner, he must necessarily file
the affidavit of the principal authorising him to do so [Civil Procedure Code,
1908; O. 3, R. 2; Andhra Pradesh Civil Rules of Practice and circular orders,
R. 32]

 

Ruhina
Khan and Ors. vs. Abdur Rahman Khan and Ors. AIR 2019, Hyderabad 117

 

The issue was regarding the
nature of the procedure prescribed by Rule 32 which dealt with an agent other
than an advocate appearing for a party and Rule 33 of the Civil Rules of
Practice which dealt only with signing or verification of proceedings by an
agent; and should it be construed to be merely directory or mandatory to the
extent of holding non-compliance therewith to be fatal?

 

It was
observed by the Court that Rule 32(1) was clear w.r.t. its application to a
situation where a party appears as an agent other than an advocate. Therefore,
the said agent would appear for the party in all respects and not merely for
the purpose of signing and verifying pleadings. When the party appears through
an agent other than an advocate, the agent is required, before he appears or
acts in the Court or makes an application thereto, to file the power of
attorney, or written authority, or a properly authenticated copy thereof along
with an affidavit that the said authority, whereby he is empowered to do so, is
still subsisting. In the event of an agent carrying on a trade or business on
behalf of a party without a written authority, an affidavit stating the
residence of his principal; the trade or business carried on by the agent on
his behalf; the connection of the same with the subject matter of the suit; and
that no other agent is authorised to make or do such appearance, application or
act; shall be filed. Rule 32(2) provides that the Judge may thereupon record in
writing that the agent is permitted to appear and act on behalf of the party
and unless and until the said permission is granted, no appearance, application
or act of the agent shall be recognised by the Court.

 

Rule 33 deals with an agent
signing and verifying on behalf of his principal and states that if any
proceeding, which under any provision of law or the Civil Rules of Practice, is
required to be signed or verified by a party but is signed or verified by the
agent, a written authority in this behalf signed by the party shall be filed in
Court, together with an affidavit verifying the signature of the party and
stating the reason for his inability to sign or verify the proceedings and
stating the means of knowledge of the facts set out in the proceedings of the
person signing or verifying the same and that such person is a recognised agent
of the party, as defined by Order 3 Rule 2 CPC, and is duly authorised and
competent to do so.

 

The Division Bench held
that where the GPA holder merely signs the pleadings in a case where the
principal is represented by a legal practitioner, it is sufficient if the Court
satisfies itself that he has the authority to sign such pleadings and the
filing of an affidavit is not mandatory. Any defect in this regard can also be
cured at a later stage by convincing the Court that such GPA holder was duly
authorised by the principal to represent him in the matter. However, in a case
where the GPA holder not only signs the pleadings but also adduces evidence and
advances arguments on behalf of the principal, he would necessarily have to
file an affidavit of the principal affirming that he authorised the GPA holder
to do so.

 

In
view of the above observations, the Court held that Rule 32 of the Civil Rules
of Practice is not mandatory seems to be an oversight as it is Rule 33 which
was held to be not mandatory, but no mention was made of the said Rule in the
concluding paragraph. Rule 32, on the other hand, was clearly held to be
mandatory as the Bench observed that when no legal practitioner appears for the
principal and the GPA holder undertakes not only the signing of pleadings but
also the job of a legal practitioner, he must necessarily file the affidavit of
the principal authorising him to do so.

 

13. Hindu Undivided Family (HUF) – Sale
by karta – Failure to prove legal necessity – Sale not binding on
members of joint family [Civil Procedure Code, 1908; O. 32, R. 1]

 

Sangnath
and Ors. vs. Babu and Ors., AIR 2019 (NOC) 685 (Bom.)

 

The appeal was filed by the
original defendants. The present respondents No. 1 and 2 were the original
plaintiffs. They had filed a suit for partition and separate possession. They
were minors at that time and therefore the suit was filed through their cousin
as next friend. The original defendant is the father of the plaintiffs.

 

It was contended that the
plaintiffs and the defendant are the members of a joint Hindu family. However,
after the wife expired, the father (defendant) did not pay attention to the
family. He got addicted to liquor and ganja and in order to fulfil his
vices, he started selling the joint Hindu family properties. It is stated that
there was absolutely no necessity for the defendant to sell the lands. The sale
transactions were not for legal necessity and they were not binding on the
share of the plaintiffs. The defendant filed a written statement and denied the
statement that the defendant was addicted to liquor and in order to satisfy his
vices, he had sold out the lands.

 

It was
argued that the land which was near a rivulet (nala) was barren and was
not giving any income to the father, therefore he sold it to defendant No. 2.
It was for the necessities of the family. So also a portion of the land was
sold since the father did not have bullocks and other agricultural implements to
cultivate it. Thus, according to defendants No. 2 to 4, the lands had been sold
for legal necessity and those transactions were binding on the plaintiffs.

 

Taking into consideration
the evidence on record and hearing both sides, the Civil Judge, Junior Division
held that the plaintiffs would get 2/3rd share. The first appeal
before the Joint District Judge was dismissed.

 

In the 2nd appeal
before the High Court, heavy reliance was placed on ratio expounding
that karta of the family can sell the property for legal necessity.

 

The
High Court held that casual statements made in the sale deed regarding sale of
the land for ‘necessity’ is not sufficient evidence for the simple reason that
the details of the necessity were not given in the recital of the sale deeds.
Further, there was also no need to challenge the sale deeds for the simple
reason that, though the sale deeds were executed by the defendant No. 1 without
any legal necessity, those sale deeds cannot be said to be binding on the share
of the plaintiffs. Accordingly, the appeal was dismissed.

 

14. 
Secured creditors would have priority over all debts and government dues
[Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002; section 35]

 

Kulbir
Singh Dhaliwal vs. UT Chandigarh, AIR 2019 P&H 151

The earlier owner of the
property in question through its Directors had availed of a loan facility in
the amount of Rs. 13.15 crores from respondent No. 3 – Punjab National Bank – against
security by way of equitable mortgage. The respondent bank had got the details
of the secured asset registered. The loan account subsequently became irregular
as the borrowers could not maintain financial discipline and hence the same was
classified as an NPA (Non-Performing Asset). Thereafter, the respondent bank
initiated recovery proceedings under the provisions of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 (SARFAESI Act), which culminated in taking over of the possession of the
secured asset. A public auction was fixed at a reserve price of Rs. 11.50
crores vide a notice in which the petitioners emerged as the highest bidders.
After the deposit of the entire bid amount of Rs. 13.92 crores against the
reserve price of Rs. 11.50 crores, physical possession of the property was
handed over to the petitioners by respondent No. 3 (the bank) along with the
sale certificate under Rule 9(6) of the Security Interest (Enforcement) Rules,
2002. It may be emphasised here that there was no mention at all in the public
notice regarding any dues or encumbrances which may have stood against the said
property.

 

When the petitioners and
the authorised officer of the secured creditor approached respondent No. 2
(Sub-Registrar, UT) for registration of the sale certificate under the
Registration Act, 1908 (the 1908 Act), he refused to register the same holding
that the property in question already stood attached by the Government of
Maharashtra u/s 4 and 5(1) of the Maharashtra Protection of Interest of
Depositors (in Financial Establishments) Act, 1999 (the MPID Act). On refusal
of registration of the sale certificate, the petitioners impugned the order by
preferring an appeal u/s 72 of the 1908 Act before the Deputy
Commissioner-cum-Registrar, respondent No. 1, who dismissed the same. It was in
this background that the instant writ petition came to be filed before the High
Court.

 

The question which arose
for consideration was whether the recovery of a secured debt would take
precedence over a crown debt; the issue is no longer res integra.

 

It was observed that a
reading of section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 which
starts with a non-obstante clause, makes it amply clear that the right
of a secured creditor to realise a secured debt shall have priority over all
debts and government dues including revenues, taxes, cesses and rates due to
the Central Government, State Government or Local Authority.

 

Accordingly it was held
that it cannot be over-emphasised that the property in question was auctioned
by the respondent bank to recover its secured debts and the attachment order
issued by the Government of Maharashtra must yield to the rights of the
respondent bank. Therefore, the auction proceedings must be taken to their
logical end and no reason was seen as to why the registration of the sale
certificate be refused to the auction purchasers, i.e., the petitioners.

 

 

ALLIED LAWS

15.  Appeal dismissed – Merger of
the High Court order into the Supreme Court Order. [Constitution of India,
Article 141, 136]

 

Archana
Mishra and Ors. vs. State of U.P. and Ors. AIR 2018 Allahabad 278

 

The
question before the Court for consideration was with respect to whether Dr.
Vishwajeet Singh’s case  and the Full
Bench decision in Heera Lal’s case  have been correctly decided.

 

It
was observed that the decision in Dr. Vishwajeet Singh had been subjected to
challenge before the Supreme Court in Civil Appeal Nos. 6385-6386 of 2010, and
the same was dismissed without any discussion. Hence, it was not in dispute
that if it is ultimately held that the view/opinion expressed by the Division
Bench in Dr. Vishwajeet Singh’s stands confirmed and merged in the order of the
Supreme Court, it would not be necessary for the reference to be addressed on
merits.

 

It
was held by the Court that their unequivocal answer therefore to the issue
framed would be that the decision in Dr. Vishwajeet Singh stood duly
affirmed by the Supreme Court. The said decision consequently merged in the
order of the Supreme Court. The order of the Supreme Court came to be rendered
after grant of leave. Once the decision of this Court stood merged in the order
of the Supreme Court, it would not be legally permissible for this Full Bench
to consider the correctness or otherwise of Dr. Vishwajeet Singh. This Court is
bound by the said order of the Supreme Court irrespective of the absence of a
“speech” or recordal of elaborate reasons on the legal issues which
arose therein. The issue essentially is not one of the Court being faced with a
precedent but primarily of merger. Once, as we have found, the decision of the
Division Bench stood subsumed in the order of the Supreme Court after grant of
leave with a positive affirmation of the view taken therein, it is no longer
open for this Court to revisit the said decision.

 

16.  Benami
Property – Land in name of Family member – Cannot be considered as Benami.
[Benami Transactions (Prohibition) Act, 1988; Section 4]

 

Narendra
Prasad Singh vs. Ram Ashish Singh and Ors. AIR 2018 Patna 205

 

The stand of the appellant was that the claim of the
plaintiff’s title and not the title of the defendants, over the suit property,
was barred u/s. 4 of the Benami Transaction (Prohibition) Act, 1988. It was
observed by the court that such a view could not have been accepted since
acquisition of the land in the name of a member of a family from the joint
family property cannot be regarded as a benami transaction within the meaning
of section 2 of the Benami Transaction (Prohibition) Act, 1988. Benami
transaction has been defined u/s. 2(a) of the Benami Transaction (Prohibition)
Act, 1988 as any transaction in which property is transferred to one person and
a consideration is paid or provided by another person. In the present case, the
consideration has been found to have been provided by the joint family fund
which cannot be treated as fund of another person.

 

It
was therefore held that the said provision does not have any application at all
in the present facts and circumstances. This is also to be noted that the
plaintiff claimed his title purely on the basis of the family arrangement and
not a benamidar and, therefore, the suit cannot be said to be hit by Benami
Transaction (Prohibition) Act, 1988. The said question was answered
accordingly.

 

17.  Partition – Oral Agreement
–Registered document not required. [Registration Act, 1908; S.17]

 

Santosh
Kumar Tiwari and Ors. vs. Meena Bai and Ors. AIR 2018 Chhattisgarh 167


The
plaintiffs had proved that the registered deed was executed amongst the
successors-in interest of Chhedilal and their three brothers namely Ramdulare,
Ramjharokha and Ramnarayan, in which also, such fact was mentioned. The deed
had been duly proved by Santosh Kumar (P.W. 1). Therefore, the evidence led by
all the joint owners and their successors-in-interest is coherent that the oral
partition had taken place amongst four brothers way back in the year 1966-67.
The defendant-Motilal is an outsider. As against common stand taken by all the
shareholders of the property that the partition was effected in the year
1966-67, the defendant/Motilal, except denying such partition, has failed to
place on record any clinching evidence, oral or documentary in nature, to prove
that partition had taken place in the year 1962-63, except suggestions being
given to the witnesses.

 

In
view of the above, the Court held that the learned Trial Court fell in error in
holding that the plaintiffs failed to prove the partition amongst themselves.
It has to be noticed that the factum of partition has been proved from
the oral evidence of Ramnarayan, Ramjharokha and Ramdulare who were three brothers
in the partition proceedings with their fourth brother – Chhedilal. Learned
Trial Court appears to be swayed from the fact that a subsequent deed was not a
registered document. The effect of that document being unregistered would only
be that it would not be inadmissible in evidence as proof of partition,
however, the plaintiffs have led their evidence to prove partition amongst four
brothers. When three out of four brothers have deposed in the Court that they
had partitioned a joint family property amongst themselves in the year 1966-67,
in the considered opinion of this Court, law does not require that it should be
proved only by a registered document and not otherwise. Once there is reliable
oral evidence of partition amongst the joint holders of the property, the law
does not require that it should be only by way of registered deed of partition.

 

18.  Precedent – Mere pendency of
appeal cannot operate as stay on order – Order appealed against holds good.

 

R.K. Ganapathy Chettiar vs. Assistant Commissioner (CT),
Kangeyam  2018 (16) G.S.T.L. 562 (Mad.)

 

In
case of an issue where reliance was place on a certain judgment by the
petitioner, the Learned counsel appearing for the respondent submitted that
writ appeals have been preferred by the State, against the order in the case of
Everest Industries Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad),
and the appeals are yet to be numbered.

 

It
was held by the honourable Court that, as on date, the writ appeals filed by
the State challenging the correctness of the decision in Everest Industries
Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad), are yet to be
numbered and mere pendency of such appeals cannot operate as stay of orders in Everest
Industries Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad).
Therefore as on date, the said order holds good. Thus, on the second aspect
also, the assessment requires to be re-done.

 

19.  Public Interest Litigation –
Encroachment by shopkeepers – Mandatory Directions. [Constitution of India;
Article 226, 227, 21]

 

Manmohan
Lakhera vs. State and Ors. AIR 2018 Uttarakhand 187

 

The
fact of the matter state that despite repeated directions issued the Court,
neither the State Government nor the MDDA nor the Nagar Nigam Dehradun had
taken any effective steps to remove the encroachment from the public
streets/pavements.

 

It was observed
by the honourable Court that the Public streets are for public convenience.
These should be free from encroachment. The citizen must have a free access to
footpaths. The Court can take judicial notice of the fact that the children and
elderly people also use the footpaths. The shopkeepers, firstly, are permitted
to construct temporary khokhas and, thereafter, they make them pucca. There are
permanent bottlenecks as noticed in the report, and highlighted by us. The
footpaths are being permitted to be used for placing big generators causing
noise and air pollution. The shopkeepers are permitting the vegetable and fruit
vendors to sit in front of their shops. The residential premises have been
converted into commercial complexes, more particularly, in the oldest colony
i.e. Nehru Colony. Similar is the plight of other localities. There is chaos
all over Dehradun. The traffic moves at snail’s pace. The public authorities
cannot be oblivious to the loss of precious time of commuters. The Court can
take judicial notice of the fact that the roads, encroached upon with impunity
with the connivance and collusion of the authorities, are also ridden with
garbage. Every citizen has a right to access to footpaths, roads, parks and
public utilities under Article 21 of the Constitution of India. It is the duty
cast upon the MDDA and the Nagar Nigam to keep the roads clean. Recently, there
was a strike by the Safai Karamchari which further deteriorated the position.
There was no alternative plan available with the Nagar Nigam and MDDA. The
garbage was not removed from the streets for days together. The respondents are
putting wool over the eyes of the Court by giving assurances from time to time
that they are doing their best to remove the encroachment, but till date,
Dehradun town is still suffering from this menace. The decision was taken by
the High Power Committee on 10th July 2014. We are in 2018. Since
then, the things have worsened instead of improving. The simple reason for
encroachments, extension of shops and unauthorised construction is
manifestation of the human greed with the collusion of functionaries of
government and municipal bodies. The employers did not take any disciplinary action
against the persons responsible for keeping the cities and towns free from
encroachment.



In
view of the same, The Municipal Corporation/MDDA/State functionaries are
directed to remove all the unauthorised encroachment on public
footpaths/streets/roads/pavements including unauthorised constructions made
over them within a period of four weeks from today by using its might.

 

The
Chief Secretary to the State of Uttarakhand is directed to initiate
disciplinary proceedings against the officers/officials, during whose tenure,
government land/municipal land/forest land have been encroached, with impunity,
by the unscrupulous people, and other related parties.

 

It was also mentioned that in case of
non-compliance, he shall be personally liable for contempt as well as
disciplinary proceedings.

FEMA FOCUS

Analysis of Recent Compounding Orders

An
analysis of some interesting compounding orders passed by Reserve Bank of India
in recent months of August 2018 and September 2018 and uploaded on the website[1]
are given below. Article refers to regulatory provisions as existing at the
time of offence. Changes in regulatory provisions are noted in comments
section.

 

A.    (Comment: Deleted since this section covers
orders passed under FDI / ECB and investment in partnerships, otherwise should
be bifurcated as (a) FDI compounding orders (b) ODI Compounding orders and (c)
Other compounding orders)

 

Aditya
Birla Idea Payments Bank Limited

 

Date
of order: 6th August 2018

 

Regulation:
FEMA 20/2000-RB Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident Outside India) Regulations, 2000 (FEMA 20).

 

Issue:
Delay in meeting minimum capitalisation norms beyond the stipulated time
period.

 

Facts

  •  Applicant[2]
    is engaged in Banking Business, i.e., to accept deposits from individuals,
    small businesses, other entities and public, as permitted by the Reserve Bank
    of India from time to time.
  •   Idea Mobile Commerce Services Limited (IMCSL)
    merged with Applicant and accordingly Applicant is successor entity of IMCSPL
    for violation committed by IMCSPL .
  •   Until March 2014, IMCSL (wholly owned
    subsidiary of Idea) was a business correspondent for a private sector bank in
    India. Pursuant to authorisation dated 25th November 2013, granted
    by RBI, IMCSL was engaged in the business of issuing prepaid payment
    instruments (PPIs).
  •   As per the extant guidelines, activity of
    issuing PPIs is covered under the 18 permitted NBFC activities where foreign
    investment is permitted under 100% automatic route subject to complying with
    minimum capitalisation norms.
  •   On 10th January 2007, Idea had
    obtained an approval of the erstwhile Foreign Investment Promotion Board (FIPB)
    for foreign equity participation of up to 74% in its paid-up capital, by virtue
    of which it was now a foreign owned and controlled company, and thus, its WOS,
    IMCSL also became foreign owned and controlled. IMCSL was thus required to
    comply with the minimum capitalisation norms of USD 5 million.
  •   However, there was a delay in meeting these
    norms. The norms were finally met on 26th April 2016, when the
    applicant completed bringing in the deficit amount of Rs. 26,79,00,000/-
    thereby fulfilling the shortfall amount in meeting the capitalisation
    requirement of Rs. 31,29,00,000 (USD 5 million).

 

Regulatory
provisions:


  •  Regulation
    5(1) of Notification No. FEMA 20/2000-RB permits purchase of shares by certain
    persons resident outside India under Foreign Direct Investment Scheme, subject
    to terms and conditions specified in Schedule I.
  •   Further,
    Paragraph 24.2(1) (ii), later renamed as Paragraph F.8.2 (1) (iii) of Annexure
    B of Schedule I of Notification No. FEMA 20/2000-RB specifies the minimum
    capitalisation norms subject to which foreign investment in NBFC is allowed
    under the automatic route. It specifies the same as “US $5 million for foreign
    capital more than 51% and up to 74% to be brought up front.”

 

Contravention:


Relevant Para of FEMA 20 Regulation

Nature of default

Amount involved (in INR)

Time period of default

Paragraph F.8.2 (1) (iii) of Annexure B of Schedule I

Delay in meeting the minimum capitalisation norms.

Rs. 26,79,00,000/-

2 years 4 months approximately

 

Compounding
penalty:

Compounding
penalty of Rs.16,57,400 was levied.

 

Comments:


(I)   Scenario until October, 2016

•     Until October, 2016, 100% FDI in NBFC
sector under automatic route was permitted only for prescribed 18 activities.
Further, such activities were classified as fund based and non-fund based
activities and the investment was subject to minimum capitalisation norms as
prescribed in the FDI Policy and FEMA 20.

 

(II) Replacement of NBFC sector by OFS in October
2016

•     On 25th October, 2016,
Department of Industrial Policy and Promotion (DIPP) released Press Note 6 of
2016[3]  and liberalised the FDI Policy by replacing
the existing NBFC sector with Other Financial Services
(OFS) Sector.

•     OFS includes activities which are regulated
by any financial sector regulator — RBI, SEBI, IRDA, Pension Fund Regulatory
and Development Authority, National Housing Bank or any other financial sector
regulator as may be notified by the government in this regard.

•     OFS are categorised as (A) Regulated OFS
and (B) Unregulated / Unregistered / Exempted OFS. Entities engaged in
Regulated OFS are permitted to receive up to 100% FDI under automatic route
whereas entities engaged in Unregulated OFS are permitted to receive up to 100%
FDI only with Government approval.

•     The said Press Note further provided that
FDI in OFS Sector (both Regulated OFS and Unregulated OFS) shall be subject to
conditionalities and minimum capitalisation norms that may be prescribed by the
concerned Financial Services Regulator or Government agency, as applicable.
However, the Government did not prescribe such minimum capitalisation norms
pursuant to Press Note 6. 

•     The same conditions applicable to OFS
Sector under the 2016 FDI Policy have been retained under the current
consolidated FDI policy of 2018, FEMA 20R and RBI Master Directions on FDI in
India.

 

 

(III)     2018 Press Release introducing Minimum
Capitalisation Norms for unregulated OFS

•     Ministry of Finance vide press release
dated 16th April 2018[4],
proposed to introduce Minimum Capital Requirements for Unregulated OFS. The
said press release prescribes minimum FDI Capital of US $ 20 Mn for Unregulated
/ Exempted / Unregistered Fund-Based activities and US $ 2 Mn for Unregulated /
Exempted / Unregistered Non Fund-Based activities. It has further given a list
of what activities which are fund based and non-fund based.

•     However, it may be noted that this press
release has not yet been notified.

 

B.    Aircom International India Private Limited


Date of Order: 23rd August 2018

 

Regulation:
FEMA 3/2000-RB Foreign Exchange Management (Borrowing or Lending in Foreign
Exchange) Regulations, 2000

 

Issue:

1.    Availing ECB from a non-recognized lender

2.    Availing ECB for an end-use that was not
permitted

3.    Drawdown of ECB before obtaining Loan
Registration Number (LRN) from RBI

4.    Delay in meeting the reporting requirements

 

 

 

Facts:

  •   Applicant is engaged in the business of import
    of software for further resale in India and export of management services, software
    consultancy and training services, and is the wholly owned subsidiary (WOS) of
    M/s Aircom International Limited, UK.
  • Applicant raised foreign currency loan of GBP
    75,000 (equivalent to INR 51,15,398) on 7th February 2001 from its
    holding company for general corporate expenses. The lender was not a recognised
    lender at the time of giving loan and became eligible only from June 2001.
  •   The applicant company also raised foreign
    currency loans of GBP 3,93,000 and USD 5,33,477 (in totality equivalent to INR
    5,56,75,886) in 7 tranches from July 15, 2004 to May 15, 2006 from the parent
    company, for working capital purposes and without obtaining LRN. ECB was
    allowed for working capital purposes only from 4th September 2013.
  •   Reporting requirements were also not adhered
    to.

 

 

 

Regulatory
Provisions:

Regulation
6 of Notification No. FEMA 3/2000-RB read with paragraphs 1(iii), 1(iv), (xi)
and (xii) of Schedule I.

 

Contravention:

Relevant
Para of FEMA 20 Regulation

Nature
of default

Paragraph 1(iii) of
Schedule I

Availing ECB from a
non-recognised lender.

Paragraph 1(iv) of
Schedule I

Availing ECB for an
end-use that was not permitted.

Paragraph 1(xi) of
Schedule I

Drawdown of ECB
before obtaining LRN from RBI

Paragraph 1 (xii)
of Schedule I

Delay in meeting
the reporting requirements.

 

 

  •   Period of default is approximately 4 months to
    17 years and total amount of default is Rs. 6,07,91,284/-.

 

Compounding
penalty

Compounding
penalty of Rs. 5,05,935 was levied.

 

Comments:

Under
the erstwhile ECB Policy, ECB was not permitted to be utilised for General
Corporate Purpose. RBI vide notification[5]
dated 4th September 2013, permitted eligible borrowers to avail ECB
under approval route from their foreign equity holder company for general
corporate purposes subject to certain conditions.

 

As a
simplification measure, RBI vide notification[6]  dated 16th May 2014 permitted
companies belonging to manufacturing, infrastructure, hotels, hospitals and
software development sectors to avail ECB only from Direct Equity Holders
for general corporate purpose (including working capital financing) under
the Automatic Route.

 

As
on date, ECB Policy permits Eligible Borrowers to avail ECB for general
corporate and working capital purpose from ‘Foreign Direct Equity
Holders as well as Indirect Equity Holders and Group Companies (as defined
under FEMA 3/2000) under Automatic Route provided that the minimum
average maturity period is of 5 years.

 

Further,
extant ECB guidelines permits companies engaged in software development sector
to avail ECB for general corporate purpose (including working capital).
Software development sector is not defined but it would generally mean
development of software. In facts of case, applicant is engaged in business of
import of software for further resale in India and export of management
services, software consultancy and training services. Accordingly, even though
other disabilities in terms of permitted lender, end-use restriction are
removed over period of time, trading of software would not fall within scope of
‘software development sector’. It is advisable to obtain upfront clarification
from RBI by companies engaged in IT and ITES services before obtaining ECB.

 

 

C.    ElringKlinger Automotive Components (India)
Private Limited.


Date of Order: 6th September 2018


Regulation FEMA 20/2000-RB Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2000 (FEMA 20).

 

Issue:

  •     Neither equity instruments were issued nor
    money was refunded to foreign investor within 180 days of receipt of inward
    remittance.
  •     Delay in reporting receipt of foreign inward
    remittance towards subscription to equity.
  •     Delay in submission of Form FC-GPR to RBI
    after issue of shares to foreign investor.
  •     Failure to obtain, specific and prior
    Government approval for issue of shares to person resident outside India against
    pre-operative / pre-incorporation expenses.

 

Facts:

  •     Applicant is engaged in the business of
    designing, assembling, manufacturing, selling, distributing, importing,
    exporting etc., of cylinder head gaskets, cover modules and shielding parts and
    related and allied products.
  •     Applicant received foreign inward remittance
    from Elringklinger AG, Germany, towards equity / preference share capital and
    reported the same to RBI with delay.
  •     In respect of remittances amounting to Rs
    8.31 crore, applicant allotted shares after 180 days of receipt of such
    investment.
  •     Applicant is Wholly Owned Subsidiary (WOS)
    of Elringklinger AG, Germany. In November, 2006 Applicant’s WOS directly made a
    payment of Rs.1.95 crore to Maharashtra Industrial Development Corporation (‘MIDC’)
    on behalf of the Applicant to acquire land for setting up its manufacturing
    plant in Pune, Maharashtra as pre-operative/pre-incorporation expenses.
  •    In February 2007, Applicant allotted
    19,50,505 equity shares to Elringklinger AG, Germany against pre-incorporation
    expenses without obtaining prior approval of Foreign Investment Promotion Board
    (FIPB). Later on Company made application to FIPB for approval. However, same
    was denied vide FIPB letter dated 31st March 2017 and Applicant was
    also directed to unwind the said transaction by way of repatriation of
    investment proceeds to the parent entity. In order to implement the said order,
    Applicant unwounded the transaction on 29th December 2017.

 

Contravention:

Relevant
Para of FEMA 20 Regulation

Nature
of default

Amount
involved (in INR)

Approx.
Time period of default

Paragraph
8 of Schedule 1

Shares
were not issued to person resident outside India within 180 days from date of
receipt of inward remittance / share application money not refunded to person
resident outside India within 180 days from date of receipt of inward
remittance.

Rs.8,31,25,640

5
days

Paragraph
9(1) (A) of Schedule 1

Delay
in reporting of receipt of foreign inward remittance towards subscription to
shares.

Rs.37,10,75,095

3
to 5 years

Paragraph
9(1) (B) of Schedule 1

Delay
in submission of Form FC-GPR to RBI

Rs.62,14,24,090

12
days to 5 years

Para
3 (e) of schedule 1

Issue
of shares against pre-incorporation expenses without prior FIPB Approval

Rs.
1,95,05,050

11
Years

 

 

 

Compounding
penalty:

Compounding
penalty of Rs.35,28,759/-was levied.

 

Comments:

Erstwhile
FEMA Regulations did not permit issue of shares against pre- incorporation
expenses.

 

Existing
FDI Regulations permit issue of Capital Instruments against pre -incorporation
/ pre-operative expenses by Indian Entities which are WOS of a non-resident
entity subject to the following conditions:

•     WOS should be operating in a sector where
100 percent foreign investment is allowed under the automatic route and there
are no FDI linked performance conditions.

•     Issue of Capital Instruments by such WOS
against such pre -incorporation expenses is allowed only upto 5% of the
Authorised Share Capital of the Indian Entity or USD 500,000 whichever is less.

•     Form FC-GPR to be filed by the Indian
Entity within 30 days from the date of issue of such Capital Instruments but
not later than 1 year from the date of incorporation

•     Certificate
issued by the statutory auditor of the Indian company that the amount of
pre-incorporation/ pre-operative expenses against which capital instruments
have been issued has been utilised for the purpose for which it was received
should be submitted with Form FC-GPR.

 

An
inclusive definition of Pre-incorporation/ pre-operative expenses has been set
out in the regulations which is as under :

 

“Pre-incorporation/
pre-operative expenses will include amounts remitted to the investee Company’s
account or to the investor’s account in India if it exists or to any consultant
or attorney or to any other material/ service provider for expenditure relating
to incorporation or necessary for commencement of operations”

 

As
can be seen, issue of shares to compensate parent for pre-incorporation/
pre-operative expense even though permitted is subject to various conditions
especially that WOS is operating in sector where 100% FDI is permitted and
there are no FDI linked performance condition. In facts of case, FIPB has taken
a strict view and asked Applicant to unwind said transaction by repatriation of
proceeds to parent. Unwinding may have significant tax and regulatory
implications and hence FEMA regulations should be complied at threshold.

 

D.      Expedition Voyages

 

Date
of Order: 3rd September 2018

 

Regulation:
Notification No. FEMA 24/2000-RB Foreign Exchange Management (Investment in
Firm or Proprietary Concern in India) Regulations, 2000

 

Issue:
FDI in partnership without obtaining prior approval.

 

Facts:

  •     Expedition Voyages (Applicant)
    is a Partnership Firm formed vide a Deed of Partnership made on 23rd
    March 2015 between a New York Resident Individual and individual resident of
    India with a profit sharing ratio of 70:30. Main business of partnership firm
    is to carry on travel and tourism business from India by undertaking cruise
    travel which include ultra-luxury cruises also, marketing expeditions and all
    allied services.
  •    The foreign resident
    remitted approx. Rs.38.51 lakh in five tranches in India.
  •     Applicant subsequently
    reversed the transaction and remitted the above amount back to the foreign resident
    on 28th May 2018.
  •    Applicant has not taken
    RBI approval for investment by a person resident outside India by way of
    contribution to capital of the Applicant partnership firm thereby contravening
    Regulation 3 of FEMA 24/2000-RB.

 

Regulatory
Provision:

Regulation
3 of FEMA 24/2000-RB – a person resident outside India shall not make any
investment by way of contribution to the capital of a firm or a proprietary
concern or any association of persons in India without prior approval of RBI

 

Contravention:

The
period of default is around 2 years approximately and total amount of
contravention is Rs.38,51,373.22

 

Compounding
penalty:

Compounding
penalty of Rs. 73,108/- was levied.

 

Comments:

FEMA regulations also do not allow non-residents to
invest in / contribute to the capital of any firm or proprietary concern in
India without prior approval of RBI. However, NRIs or OCIs are allowed to
invest on a non-repatriation basis, by way of contribution to the capital of a
firm or a proprietary concern in India provided such firm or proprietary
concern is not engaged in any agricultural/ plantation activity or print media
or real estate business. Accordingly it is necessary to undertake suitable restructuring
in partnership firm to ensure that entity in which FDI capital is infused is
FEMA compliant.


E.      Invesco Asset Management (India) Private
Limited

 

Date
of Order: 9th August 2018

 

Regulation:
Notification No. FEMA 20/2000-RB Foreign Exchange Management (Transfer or
Issue of Security by a Person Resident Outside India) Regulations, 2000

 

Issue:  Indirect foreign investment in Indian
Company without prior Government approval.

 

Facts:

  •     Applicant, Invesco Asset Management (India)
    Private Limited is an Asset Management Company (AMC). On 30th June
    2014, MF Utilities India Private Limited (MFU) issued 5,00,000 equity shares of
    Rs. 1 each amounting to Rs.5,00,000 to the applicant.
  •    At the time of this investment, 51%
    shareholding of the applicant was held by resident entities [Religare
    Securities Ltd. (RSL) 46.5% and RGAM Investment Advisors Pvt. Ltd.(RGAM) –
    4.5%]. Subsequently in April 2016, RSL and RGAM transferred their shareholding
    of 51% to Invesco Hong Kong Ltd., and Invesco Asset Management Pacific Ltd.
    Applicant thus became a foreign owned and controlled company and accordingly,
    investment in MFU by the applicant became an indirect foreign investment in
    MFU.
  •     In September 2017 FIPB (Foreign Investment
    Promotion Board) granted post facto approval for the indirect investment in MFU
    subject to the applicant applying for compounding to the Reserve Bank. At the
    time of investment, activity of MFU was under other financial activities
    requiring Government approval. Pursuant to FEMA Notification No.375 dated 9th
    September 2016, the activity was brought under automatic route. As post facto
    approval from FIPB has been received the administrative action is complete in
    this regard.

 

Regulatory
Provision:

Regulation14(6)(i)
of FEMA 20 – Downstream investment by an Indian Company owned or controlled by
Non Residents have to comply with the relevant sectoral conditions on entry
route, conditionalities and caps

 

Para 2(1) of Schedule 1 to FEMA 20 – An Indian company,
not engaged in any activity / sector mentioned in Annex A to this Schedule may
issue [shares or convertible debentures or warrants] to a person resident
outside India, subject to the limits prescribed in Annex B to this Schedule, in
accordance with the Entry Routes specified therein and the provisions of
Foreign Direct Investment Policy….”

 

Sr.No.F.8
of Annex B to Schedule 1 of FEMA 20 – Foreign investment in ‘Other Financial
Services’, other than those specifically stated therein, would require prior
approval of the Government.

 

Contravention:

Period
of default is 5 months approximately and total amount of contravention is Rs.
5,00,000/-

 

Compounding
penalty:

Compounding
penalty of Rs. 52,500 /-was levied.

 

Comments:

Until
October, 2016, 100% FDI in NBFC sector under automatic route was permitted only
for prescribed 18 activities. This did not include mutual funds.

 

On
25th October, 2016, Department of Industrial Policy and Promotion
(DIPP) released Press Note 6 of 2016[7]
and liberalised the FDI Policy by replacing the existing NBFC sector with Other
Financial Services (OFS) Sector.

 

OFS
includes activities which are regulated by any financial sector regulator —
RBI, SEBI, IRDA, Pension Fund Regulatory and Development Authority, National
Housing Bank or any other financial sector regulator as may be notified by the
government in this regard

 

Foreign
owned and controlled Indian Entities need to be extra cautious before making
any downstream investment in other Indian Entities and especially check whether
the operations carried on by such Investee Indian Entities fall under the
Automatic or Approval route of RBI. Sectoral caps and other conditionalities
associated with the operations of the Indian Investee Entities also need to be
taken care of. Furthermore, compliance in term of sectorial condition is not to
be seen at the time of investment but needs to be monitored continuously. This
aspect is relevant just not for FDI entity receiving investment but also for
downstream investment held by FDI entity.

 

F.    Jetair Private Limited

 

Date
of Order: 28th August 2018

Regulation:
Notification No. FEMA 20/2000-RB Foreign Exchange Management (Transfer or
Issue of Security By a Person Resident Outside India) Regulations, 2000.


Issue: Delay in reporting of downstream investment to the designated
agencies within 30 days of such investment


Facts:

  •     Applicant company, owned and controlled by
    non-resident entities, is engaged in the business of acting as travel and
    tourist agents for every mode of travel by sea, air or land, and arranging for
    tourists and travellers, the provision of conveniences, reserve places, hotel
    and lodging accommodation etc.
  •     In May 2015, Applicant made downstream
    investment in India to the extent of Rs. 4.81 crore into Jetair Tours Private
    Limited (Investee Indian Company).
  •     This downstream investment made by applicant
    company, on account of the aforesaid indirect FDI, was required to be reported
    to the (then) Secretariat of Industrial Assistance (SIA), Department of
    Industrial Policy and Promotion (DIPP) and the then Foreign Investment
    Promotion Board (FIPB) within 30 days of such investment.
  •    However, there was a delay in meeting the
    above-mentioned reporting requirements beyond the stipulated period of 30 days.

 

Regulatory
Provision:

Regulation
14(6)(ii)(a) of Notification No.FEMA.20/2000-RB, as then applicable –
Downstream investments by Indian companies was required to be notified to
Secretariat for Industrial Assistance (SIA), DIPP and FIPB within 30 days of
such investment.

 

Contravention:

The
period of default is 2 years 11 months approximately. Total amount of
contravention is Rs. 4.81 crore.

 

Compounding
penalty:

Compounding
penalty of Rs. 1,55,833/- was levied.

 

Comments:

Under
the existing regulations, downstream investments made by Indian companies which
are majority owned / controlled by non-residents are required to be reported to
DIPP in Form DI within a period of 30 days of the Indian Entity making such
downstream Investment.


G.    Take Business Cloud Private Limited


Date of Order: 8th August 2018

 

Regulation:
FEMA 120/2004-RB – Foreign Exchange Management (Transfer or Issue of any
Foreign Security) Regulations, 2004


Issue:

1.    Delay in reporting outward remittances made
to overseas entity

2.    Delay in receipt of share certificate
towards outward remittance made to overseas entity

3.    Disinvestment
of stake in overseas entity with write-off without necessary prior approval
when Applicant was not eligible to undertake disinvestment under automatic route

4.    Disinvestment from the overseas entity
without submission of Annual Performance Reports (APRs).

 

Facts:

  •     In March 2007, Applicant made outward
    remittance amounting to USD 21 million to an overseas entity in USA viz Navitas
    Inc (formerly Take Solutions Inc). Such outward remittance was reported in Form
    ODI with delay. There was also a delay in receipt of share certificate in
    relation to the said outward remittance
  •     In March, 2012, Applicant disinvested its
    stake in Navitas Inc with write-off and transferred its stake to another
    overseas entity viz Take Solutions Global Holdings Pte Ltd, Singapore without
    obtaining RBI Approval. Also, disinvestment was made without filing of APRs
  •     As the applicant was an unlisted company and
    the amount of the overseas direct investment in the overseas entity was in
    excess of USD 10 million, the applicant was not permitted to undertake
    disinvestment with write-off under the automatic route.

 

Contravention:

Relevant Para of FEMA 20 Regulation

Nature of default

Amount involved
(in INR)

Approx time period of default

Regulation 6(2)(vi)

Applicant
did not report investments made in overseas entity within prescribed time
period of 30 days

USD 21 million
(Rs.92.82 crore)

10 years

Regulation 15(i)

Delay
in receipt of the share certificate towards the outward remittance made to
the overseas entity.

USD 21 million
(Rs.92.82 crore)

10 years

Regulation 16(1)(v)

Applicant
disinvested its stake in overseas JV without submission of APRs

USD 184,68,121 (Rs.
94.72 crore)

5 years

Regulation 16(1A)

Applicant
disinvested its stake in overseas entity with write off without obtaining

prior RBI approval

USD 184,68,121 (Rs.
94.72 crore)

5 years

 

 

Compounding
penalty:

Compounding
penalty of Rs.1,49,78,167 was levied.

 

Comments:

Indian
Entities to take care of various FEMA compliances while remitting funds outside
India and also at the time of disinvestment as such non-compliance / breach of
regulations invites heavy compounding penalties.

 

H.   Wipro Limited

 

Date
of Order: 10th August, 2018

 

Regulation:
FEMA 120 / RB-2004 Foreign Exchange Management (Transfer or Issue of any
Foreign Security) Regulations, 2004

 

Issue: Issuance of corporate guarantees by Applicant
on behalf of its overseas step-down subsidiaries beyond the 1st level
subsidiary, without prior RBI approval

 

Facts:

  •     Applicant is engaged in the business of
    providing software and IT services.
  •    Applicant incorporated multiple wholly owned
    subsidiaries (WOSs) in Mauritius and Cyprus.
  •  Applicant issued corporate guarantees in
    favor of step-down subsidiaries (SDSs) of these WOSs, beyond the 1st
    level, without prior approval of RBI.


Regulatory Provisions:

Regulation
6(4) of Notification No. FEMA.120/2004-RB, as then applicable provided that An
Indian Party may extend a loan or a guarantee to or on behalf of the Joint
Venture/ Wholly Owned Subsidiary abroad, within the permissible financial
commitment, provided that the Indian Party has made investment by way of
contribution to the equity capital of the Joint Venture.

Contravention:


Issuance
of corporate guarantees by the applicant on behalf of its overseas step-down
subsidiaries, which were 2nd, 3rd and 4th level step down subsidiary, i.e.
beyond the 1st level subsidiary, without prior approval of the Reserve Bank of
India.? Period of contravention is 8 to 10 years. ? Amount of contravention is
Rs. 855.71 crore.


Compounding penalty:


Compounding penalty of Rs. 69,17,862/- was
levied.


Comments:


Under the erstwhile ODI Regulations, an Indian Party was permitted
to extend corporate guarantees only on behalf of its JV / WOS.

 

In
2013, ODI Regulations have been amended whereby in addition to the above,
Indian Parties are permitted to extend corporate guarantees on behalf of its
firstgeneration step down operating company within the prevailing ODI Limit.
Issue of Corporate guarantee on behalf of second level or subsequent level
operating step-down subsidiaries may be permitted with RBI Approval.It is to be
noted that the above Amendment has been given retrospective effect from 27th
May, 2011.


[1] https://www.rbi.org.in/scripts/Compoundingorders.aspx

[2] Currently, Idea
Cellular Limited (Idea) and Grasim Industries Limited (Grasim), hold 49% and
51% stake in the applicant respectively. Subject violation was prior to change
in shareholding of Applicant

[3] http://dipp.nic.in/sites/default/files/pn6_2016.pdf

[4] http://pib.nic.in/PressReleaseIframePage.aspx?PRID=1529264

[5] RBI/2013-14/221
A.P. (DIR Series) Circular No.31

[6] RBI/2013-14/594
A.P. (DIR Series) Circular No.130

[7] http://dipp.nic.in/sites/default/files/pn6_016.pdf

CORPORATE LAW CORNER

7. Religare Finvest Ltd. vs. Bharat Road Network Ltd. CP(IB) No. 540/KB/2018 & CP(IB) No.
1060/KB/2018 Date of order: 28th August, 2019

 

Section 7(1),
read with sections 14 and 33 of the Insolvency and Bankruptcy Code, 2016 – An
admission of debt and default was sufficient to initiate the corporate
insolvency resolution process – Any document bypassing such admission was not
to be looked into – Provisions of Indian Stamp Act, 1899 to ascertain the
validity of these documents would not be considered to the extent they are
inconsistent with the Code – A person would be considered as a financial
service provider only when there is license / registration with a regulator to
that effect

 

FACTS

R Co, a non-banking financial institution
(NBFC), advanced a sum of Rs. 50 crores to B Co as a short-term loan for one
year and executed a memorandum of understanding (MOU) for the same on 14th
December, 2016. The same was payable with interest on 14th December,
2017. Stamp duty on the MOU was paid by B Co. A loan recovery notice dated 28th
February, 2018 was issued to B Co.

 

R Co contended that the genuineness of the
MOU was not in dispute. Further, B Co had in its balance sheet dated 31st
March, 2019 disclosed the loan payable to R Co and the fact that insolvency
proceedings u/s 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) were
commenced against it.

 

B Co raised three objections against the
initiation of corporate insolvency resolution proceedings (CIRP). Firstly, the
MOU was a bond within the meaning of the Stamp Act, 1899. Irrespective of the
nomenclature, if the relevant provisions of the Stamp Act applied, it was to be
construed as a bond. Further, if the same was inadequately stamped then the
document would not be enforceable in law and such a document could not be
considered as evidence. Reliance was placed on various decisions to advance
this contention.

 

The second argument was that B Co was a core
investment company and an NBFC as on 31st December, 2018, and most
certainly it was one on 31st March, 2019. It was urged that B Co was
a financial service provider within the meaning of the Code. Although
registration as an NBFC from the Reserve Bank of India (RBI) was yet to be
received, the eligibility for authorisation was to be considered as a
requirement to qualify as a financial service provider under the Code.

 

Thirdly, the person initiating the
proceedings did not have adequate authority to do so.

 

HELD

The National Company Law Tribunal (NCLT)
heard both the parties at length.

 

It was taken on record that R Co was a
registered NBFC and in the course of its business granted the short-term loan
to B Co as per the terms and conditions agreed through the MOU. The amount of
loan, the rate of interest and the fact of failure to repay are not in dispute.
Hence, R Co has filed an application for insolvency.

 

As regards the first contention of B Co,
NCLT examined the meaning of the terms ‘claim’, ‘default’, ‘debt’ and the judicial
precedents on these subjects. It was observed that B Co had obtained a loan,
enjoyed it subject to the MOU and the same constituted a legal and equitable
obligation of B Co. Admitted facts need not be proved and, consequently, there
was no need to examine the legal validity of a document bypassing the admission
of facts made by B Co. Since the facts have been admitted by B Co in its annual
audited statements, there was no need to examine the nature of the MOU or its
enforcement for insufficiency of stamp duty. Further, applicability of the
Stamp Act, 1899 was not to be considered to the extent that its provisions were
inconsistent with the Code.

 

The NCLT also held that in terms of section
3(17), a financial creditor was a person to whom the authorisation was issued
or registration granted by the regulator. In the facts of the present case, B
Co had merely applied for a license / registration with the RBI. There was no
license or registration either on the date of taking the loan, or on the date
of filing the petition u/s 7, or even on the date of the order by NCLT. Thus,
the contention that B Co was a financial services provider was rejected by
NCLT.

 

The contention
as to authorisation was discarded by NCLT on the ground that the person filing
the petition had authority vide a board resolution to file a petition before
the adjudication authority. The adjudication authority being NCLT, the petition
was held to be in order.

 

The contentions raised by B Co were all
discarded and NCLT passed an order admitting the application made by R Co and
initiated the CIRP. A moratorium was declared and an order to make necessary
public announcements was passed by the NCLT.

 

8. Alliance Commodities (P) Ltd. vs. Office of 
Registrar of Companies [2019] 110 taxmann.com 219 (NCLAT, Delhi) Date of order: 9th July, 2019

 

ROC was justified in striking off name of
‘A’ company where company had failed to file financial statements and annual
returns for various financial years – At the time of striking off ‘A’ company
was not carrying on business or operations

 

FACTS

‘A’ company was
incorporated on 1st February, 2008 with the object of doing business
of trading in all types of commodities. It had been complying with the
statutory requirements of filing returns and financial statements till 2013,
but thereafter failed to abide by the statutory compliances. This resulted in
its name being struck off by the Registrar of Companies.

 

In its appeal
before the Tribunal, ‘A’ company contended that it was unaware of the notice
issued by the ROC and thus the default committed by it was unintentional. It
sought restoration of its name on the aforesaid ground.

 

The Registrar
of Companies contested the appeal on the ground that ‘A’ company failed to file
its annual returns and financial statements for more than two consecutive years
and it did not pray for obtaining the status of a ‘Dormant Company’. The ‘A’
company was accordingly struck off after complying with the mandate of section
248 as there were reasonable grounds to believe that the appellant company was
not carrying on any business, or was not in operation for a period of two
immediately preceding financial years.

HELD

It was observed
by the Appellate Tribunal that the notice contemplated u/s 248(1) of the
Companies Act, 2013 read with Rule 3 of the Companies (Removal of names of
companies from the Register of Companies) Rules, 2016 was issued by speed post
to ‘A’ company and its directors. A copy of the notice was published in the
official website calling for objections to the proposed removal / striking off
of the name of the company within 30 days from the publication of the same . A
copy of the notice was published in the official gazette. A public notice was
published in the Times of India and in a regional newspaper. The notice
published in the official website notified that the ‘company stands struck off
from the Register of Companies’. Thus, no legal infirmity or flaw was pointed
out in adherence to the provisions relevant to the process of striking off of
‘A’ company. It was done after following due procedure laid down in the Act.

 

On the crucial issue of ‘A’ company being in
operation and doing business in consonance with its objects, it was noticed
that the financial statements covering the fiscal period beginning 2013 through
2017 demonstrated that ‘A’ company was not in operation and did not conduct any
business of the nature bearing nexus with its intended object/s. The Tribunal
had tabulated the factual position arising from such financial statements
reflecting the assets, liabilities and turnover of the company as NIL. It was
further observed that indulging in business activity not falling within the
ambit of the objects of the company, or not being incidental or ancillary
thereto, cannot be termed as a legitimate business for demonstrating that the
company was in operation.

 

‘A’ company has
failed to make out a just ground warranting interference with the order passed
by the Tribunal which is neither shown to be legally infirm, nor the findings
recorded therein shown to be erroneous, much less perverse.

 

In view of the
above facts and being devoid of merit, the appeal against the order passed by
the ROC was dismissed.  

 

CORPORATE LAW CORNER

11.  Housing Development Finance Corporation Ltd.
vs. RHC Holding (P) Ltd. [2019] 107
taxmann.com 200 (NCLAT – New Delhi) Date of order: 10th
July, 2019

 

Sections 3(8), 3(16) and 3(17) read with
section 7 of the Insolvency and Bankruptcy Code, 2016 – A company which is
registered as a non-deposit-taking NBFC with the Reserve Bank of India would
qualify as a financial service provider – Accordingly, it would be outside the
purview of the definition of corporate debtor and hence the provisions of the
Code would not apply to it in such capacity

 

FACTS

H Co initiated insolvency proceedings
against R Co by filing an application u/s 7 of the Insolvency and Bankruptcy
Code, 2016 (the Code) which was rejected by the National Company Law Tribunal
(NCLT) on the grounds that R Co being a non-banking financial institution was
rendering ‘financial services’ and was, therefore, out of the purview of the
Code. Aggrieved by the order, H Co filed the present petition before the
National Company Law Appellate Tribunal (NCLAT).

 

H Co argued that R Co was a holding company
that invested in the shares, bonds, debentures, debts or loans of group
companies and gave guarantees on behalf of group companies. None of these
activities qualified as rendering of financial services. H Co even elaborated
how the activities carried out by R Co did not fall in any of the limbs of
section 3(16) of the Code which defines financial services.

 

R Co, on the
other hand, argued that it was a financial institution within the meaning of
the Reserve Bank of India Act, 1934 and therefore a financial service provider.
Accordingly, it would not qualify as a corporate person and provisions of the
Code could not be enforced against it.

 

HELD

The Tribunal examined the provisions of the
Code and the Reserve Bank of India Act, 1934. It was observed that the
definition of financial services u/s 3(16) of the Code was an inclusive
definition. This would imply that there were other services which would come in
the definition of financial services. The argument of H Co would not hold good
on that count.

 

It was also observed that R Co being a
non-banking financial institution was carrying on the business of financial
institution and thus, it being a financial service provider, would not come
within the definition of Corporate Debtor. Accordingly, the provisions of the
Code could not be applied to R Co in its capacity as a Corporate Debtor.

 

The order passed by the NCLT was upheld by
the NCLAT and the appeal was dismissed.

 

12.  Janak Goyal vs. Satyendra Jain [2019] 107
taxmann.com 68 (NCLAT) Company appeal
(AT) (Insolvency) No. 202 of 2019 Date of order: 10th
June, 2019

 

Section 7 read with section 12A of the
Insolvency and Bankruptcy Code, 2016 – Once the parties had settled the matter
inter se between them, the application u/s 7 was treated as withdrawn and
therefore dismissed

 

FACTS

Mr. S filed an
application u/s 7 of the Code against O Co which was admitted by the National
Company Law Tribunal (NCLT). It was argued before the NCLT that the loan given
by O Co is time-barred. However, it was observed that there was a suit filed
against O Co which was decided against it. O Co thereafter moved the Supreme
Court and that appeal was dismissed by the Supreme Court as well. Mr. S also
filed an execution case for the same.

 

The Committee of Creditors had been formed
and two meetings of the same held. The Resolution Professional was appointed in
one of those meetings. O Co sought time to settle the matter and in the third
meeting of the Committee of Creditors the Resolution Professional was informed
that O CO had settled the matter and Form FA was duly submitted.

 

It was unanimously agreed in the meeting
that the corporate insolvency resolution process would be withdrawn against O
Co and an application to that effect should be made before the authority.

 

HELD

The NCLAT observed that the consent of all
the financial creditors to withdraw the application had been obtained by O Co.
Further, the dues of the Resolution Professional were also paid to him.

In view of the
above, NCLAT permitted the withdrawal of the application filed before it u/s 7
of the Code. The order passed by NCLT was set aside and disposed of as
withdrawn. All other orders of moratorium, appointment of Resolution
Professional and advertisements given in the newspapers were also set aside.
NCLT was directed to close the proceedings and O Co was permitted to function
independently through its Board of Directors with immediate effect. The appeal
was thus allowed.

 

 

Corporate Law Corner

13.  Scheme
of amalgamation between Real Image LLP with Qube Cinema Technologies Pvt. Ltd.

TCA/157/CAA/2018

CP/123/CAA/2018

Date of Order: 11th June, 2018

 

Section 232 of Companies Act, 2013 –
Amalgamation of Indian LLP with Indian company – Permissible as long as the
scheme was reasonable and not contrary to public policy

 

FACTS

R LLP proposed to amalgamate with Q Co as a
going concern. R LLP is incorporated under the provisions of Limited Liability
Partnership Act, 2008 (“LLP Act”) whereas Q Co is incorporated under the
provisions of Companies Act, 2013 (“Companies Act”). The intention behind the
proposed amalgamation was to consolidate the business operations and provide
efficient management control and system.

 

The proposed scheme provided for:

 

(a) transfer of entire business of the Limited
Liability Partnership (“LLP”) to the company;

(b) protection of interest of employees of LLP; and

(c) accounting treatment in conformity with
accounting standards

 

The parties to the amalgamation were regular
in filing their returns with statutory authorities and maintained their books
in accordance with provisions of law.

 

HELD

The issue before the Tribunal was whether an
LLP could be allowed to amalgamate with a private company under a scheme of
amalgamation filed before it. It was pointed out to the Tribunal that both the
LLP Act and Companies Act provide for similar language with respect to
provisions dealing with amalgamation and both the Acts empower the Tribunal to
sanction a scheme of amalgamation.

 

It was further submitted that u/s. 394(4)(b)
of Companies Act, 1956 there was no bar for a transferor to be a body corporate
which included an LLP. However, there is no such provision u/s. 232 of
Companies Act, 2013. It was further highlighted that section 234 of Companies
Act did provide for amalgamation of foreign LLP with Indian company. Thus,
while foreign LLP could merge with an Indian company, similar benefit has not
been extended to an Indian LLP.

 

The Tribunal observed that intent of both
the Acts was to facilitate ease of doing business. However, absence of specific
provision under Companies Act resulted in a case of “casus omissus”. It
was observed that if the intention of the Parliament was to merge foreign LLP
with an Indian company, then it was incorrect to presume that the Act prohibits
a merger of Indian LLP with Indian company.

 

As the scheme was fair and not contrary to
public policy, the Tribunal allowed the Indian LLP to merge with the Indian
company subject to obtaining other necessary approvals and due compliance of
law.

 

14.  Sushant
Aneja vs. J. D. Aneja Edibles (P.) Ltd.

[2018] 94 taxmann.com 443 (NCLT – New Delhi)

Date of Order: 4th June, 2018

 

Section 5(8) read with sections 3(12) and 7
of the Insolvency and Bankruptcy Code, 2016 – Corporate debtor claimed that
amounts disclosed in the balance sheet as “unsecured loans” were in fact
“capital contributions” – There being no reason for such a categorisation, the
same was treated as “financial debt”; non-repayment of which led to initiation
of insolvency proceedings

 

 

FACTS

SA and NA (HUF) (“Applicants”) advanced
loans to J Co during Financial Years 2004-05 to 2012-13. During the F.Ys.
2013-14 to 2016-17, J Co neither paid the interest nor deposited the TDS,
however, the original loan amounts were reflected in the balance sheet of J Co.
Applicants wrote demand letters dated 16.11.2016 demanding outstanding loans.
They also sent legal notices for remittance of outstanding amounts. This was
followed by two separate notices sent on 15.09.2017, acceptance of which was
denied by J Co. In November 2017, applicants filed the application before
National Company Law Tribunal (“NCLT”).

 

J Co submitted that the amount in question
was not a “financial debt”. It was further submitted that since the amount was
given as quasi-capital there were no terms and conditions for repayment, and no
date was specified as to when the amount would become due and payable and thus,
there is no default in repayment of the said amount. Applicants contended that
absence of a written agreement prior to extension of credit did not entitle the
J Co to escape liability.

 

HELD

NCLT observed that advancement of the amount
from the Applicants to J Co is not in dispute. However, the nature of the money
advanced is disputed. The Tribunal further observed that the reflection of the
amounts in the balance sheets under the head of ‘Unsecured Loan’, the payment
of TDS on interest by the J Co on behalf of the Applicants and the fact that
interest was to be paid by J Co to the Applicants point towards the fact that
the money was taken by J Co from the Applicants against the consideration for
the time value of money. J Co failed to explain why the amount claimed to have
been taken as quasi capital contribution was treated as unsecured loan in its
balance sheet.

 

The Tribunal thus held that there was a
financial debt which was owed by J Co to the Applicants.

 

In connection with the fact whether there
was a default or not, the Tribunal observed that while Applicants sent legal
notices to J Co; J Co did not reply to the same nor did it produce any proof of
payment before the Tribunal.

 

The Tribunal considering the facts of the
case held that a default had been committed in terms of section 3(12) of the
Code of financial debt as defined u/s. 5(8) of the Code and that the Applicants
had rightly invoked the provisions of the Code.

Tribunal accordingly proceeded to appoint an
Insolvency Resolution Professional and initiated the corporate insolvency
resolution process laid down u/s. 7 of the Code.

 

15.  Principal
Director General of Income Tax vs. Spartek Ceramics India Ltd.

[2018] 94 taxmann.com 1 (NCLAT)

Date of Order: 28th May, 2018

 

Section 61 read with section 242 of the
Insolvency and bankruptcy Code, 2016 – Notification S.O.1683(E), dated
24.05.2017 is inconsistent with maximum period of limitation granted u/s. 61(2)
of the Code – NCLAT has no jurisdiction to entertain an appeal beyond 45 days.

 

FACTS

S Co had a scheme of demerger sanctioned by
Board for Industrial and Financial Reconstruction (“Board”) u/s. 18 of the Sick Industrial Companies (Special Provisions) Act, 1985
(“SICA Act, 1985”). Income-tax department preferred an appeal against
the said scheme stating that the same was in violation of the principle of
natural justice and provisions of ‘SICA Act, 1985’ which is prejudicial to the
interest of revenue involving huge loss of income tax. The appeal was preferred
for removal of the grievances.

 

The other Appeal was preferred by the ‘G Co’
u/s. 32 of the I&B Code read with 3rd proviso to section 4(b) of
the ‘Sick Industrial Companies (Special Provisions) Repeal Act, 2003’
(“SICA Repeal Act, 2003”) as amended by the Eighth Schedule to the
I&B Code and by the Insolvency and Bankruptcy Code (Removal of
Difficulties) Order, 2017. G Co in the appeal, challenged the same very scheme
of demerger sanctioned by Board, for restructuring S Co. An appeal was also
preferred by G Co before the Appellate Authority for Industrial and Financial
Reconstruction (“AAIFR”), which stood abated in view of the SICA
Repeal Act, 2003. The main challenge has been made on the ground that the Board
has not discussed the objections raised by G Co nor has taken into consideration
that G Co is the Creditor of S Co, which was required to take the
responsibility and other liabilities which were not recorded in the books of
Neycer.

 

The appeals have been filed under the Eighth
Schedule of the I&B Code.

 

 

HELD

The issues before NCLAT was whether the
Central Government u/s. 242 of the I&B Code can empower the NCLAT to hear
an appeal against an order passed by the Board; the Eighth Schedule of the
I&B Code, having not been amended by a legislative Act, but by an executive
order? In this connection, it was observed that Notification S.O. 1683(E) dated
24th May, 2017, was issued in view of difficulties arisen to give
effect to review or monitoring of the schemes sanctioned u/s. 18 of the SICA
Act, 1985, in view of SICA Repeal Act, 2003 and omission of sections 253 to 269
of the Companies Act, 2013. It did not relate to removal of any difficulty
arising in giving effect to the provisions of the I&B Code, which is the
only ground for which Central Government can exercise power conferred u/s. 242.

 

In absence of any ground shown for removing
any difficulty in giving effect to the provisions of the I&B Code and as
the Central Government cannot exercise powers conferred under section 242 of
the I&B Code for removing the difficulties arisen due to ‘SICA Repeal Act,
2003’ or omission of provisions of the ‘Companies Act, 2013’, NCLAT could not
act pursuant to Notification S.O. 1683(E) dated 24th May, 2017 to entertain the
appeal.

 

It was
further held that executive instruction issued by the Central Government u/s.
242 was contrary to the provisions of section 4 of the ‘SICA Repeal Act, 2003’.
 

The second issue before the NCLAT was
whether the provision to prefer the appeal within 90 days before the NCLAT, as
made by the Central Government Notification dated 25th May, 2017 is
in conflict with section 61(2) of the I&B Code, which provides 30 days
period to prefer an appeal before the NCLAT? It was observed that grounds to
prefer appeal u/s. 61 of the I&B Code against an order of approval of plan
passed by the Adjudicating Authority u/s. 31, should be such as mentioned in
section 61(3). As per section 61(2), the appeal is required to be filed within
30 days before the NCLAT. NCLAT is empowered to condone the delay of another 15
days after the expiry of the period of 30 days in preferring the appeal; that
too for a sufficient cause.

 

The NCLAT observed that the Central
Government u/s. 242, is competent to make provision to remove the difficulty in
giving effect to the provisions of the I&B Code, but it cannot be in
conflict with nor can change the substantive provisions of the I&B Code.
The period of limitation as prescribed by Notification S.O. 1683(E) dated 24th
May, 2017 was in conflict with the maximum period of limitation granted u/s.
61(2) of the I&B Code and beyond forty-five days. NCLAT was thus, not
empowered to entertain the appeal.

 

It was held that appeals filed by both G Co
and Income-tax department were barred by limitation and were otherwise not
maintainable u/s. 61 of the I&B Code. To maintain the judicial decorum,
though NCLAT noticed the conflict in the order passed by the Hon’ble High Court
of Delhi and the Notification S.O. 1683(E) dated 24th May, 2017, it
refrained from giving any specific declaration about the same.

 

Further, in view of the facts of the Scheme,
NCLAT held that the same was illegal. However, in in absence of its
jurisdiction to exercise of powers u/s. 61 of the I&B Code, being barred by
limitation, it would not be desirable to set aside the impugned illegal Scheme. 


Allied Laws

21. 
Demerger – No prior approval taken before demerger to transfer the lease
rights – Transfer fee rightly charged. [Companies Act, 1956]

 

Sections 391 and 394 – Allenby Garments Pvt. Ltd. and Ors. vs. West Bengal Industrial
Development Corporation Ltd. and Ors. AIR 2018 (NOC) 527 (CALcutta)

 

The
facts of the case are that with a view to promoting garment trade, the Garment
Corporation undertook a project called Garment Park Module. It invited
applications from interested parties for allotment of commercial space (module)
and car parking space in the project. A company by the name of Eastern Metalik
applied for it.

 

Physical
possession of the module was given to Eastern Metalik and possession
certificate dated 11 September, 2008 was issued by the Corporation in favour of
Eastern Metalik. Eastern Metalik filed an application for its demerger under
the provisions of the Companies Act, 1956. The scheme of demerger was sanctioned
by the Court by reason whereof the garment division of Eastern Metalik stood
transferred to and vested in Allenby. Thereafter, Allenby wrote a letter to the
Managing Director of the Corporation recording the factum of demerger of
Eastern Metalik and vesting of the garment division of Eastern Metalik in
Allenby and requesting for effecting registration of the said module in favour
of Allenby. However, the Corporation had decided to register the said module
along with car parking space in the name of Allenby subject to payment of Rs.
30.34 lakh as transfer fee to the Corporation.

 

A Writ
petition was filed stating that the additional amount of transfer fee charged
was illegal and arbitrary.

 

The
Court observed that the transfer processing fee of 5% of the initial sub-lease
premium would be applicable where the transfer of the sub-lease is made with
prior permission of the Corporation. In the present case, admittedly no prior
consent was taken by Eastern Metalik before going through the process of demerger
and transferring its garment division to Allenby. No prior permission of the
Corporation was asked for or obtained before putting Allenby in physical
possession of the Module in question. The scheme of demerger is not binding on
the Corporation.

Since
Allotment does not give any indefeasible right to have a lease/sub-lease
executed in favour of the allottee, the allotment of the module which was in
favour of Eastern Metalik, Allenby cannot be called as an allottee. Hence,
neither Eastern Metalik nor Allenby can be presently said to be a sub-lessee in
respect of the said module.

 

It was
held that, although Allenby might have stepped into the shoes of Eastern
Metalik in so far as the garment division of Eastern Metalik is concerned by
reason of demerger, the fact remains that Eastern Metalik and Allenby are two
separate legal entities and it cannot be said that Allenby is an allottee due
to the reason of demerger. Since specific approval was supposed to be taken,
which was not done in the present case, Allenby is rightly charged the transfer
fees.

 

22. 
Gift Deed – Attestation by two witnesses mandatory. [a. Hindu Succession
Act, 1956;

b. Transfer of Property Act, 1882]

 

a. Section 14, b. Section 123  – Radha Sah vs.
Girja Devi AIR 2018 PATNA 115

 

The
plaintiffs filed a case against the appellant for declaration that the
registered deed of gift executed by the plaintiff’s husband in favour of the
defendant and registered deed of gift executed by the plaintiff’s husband’s
first wife in favour of the defendants in respect of a property were void. The
plaintiffs alleged that the said transaction i.e. the deeds of gift to transfer
of property does not bind the plaintiffs.

 

The
main contention of the plaintiffs was that the property in question is a co-parcenary
property and such property was alienated in the form of gifts against the
mandate of law and that the gift deeds were sham and void.

 

It was
observed by the court that the property acquired by the plaintiff’s husband’s
first wife was a self-acquired property in terms of section 14 of the Hindu
Succession Act, 1956. Hence, she could alienate the property. It was also
observed that there was no bar even on a co-parcener and he/she can make a gift
of his undivided interest in the coparcenary property to another coparcener or
to a stranger with the prior consent of all other coparceners. Such a gift
would be quite legal and valid.

 

The
court held that property which the plaintiff’s husband’s first wife had gifted
was her self-acquired property. Hence, she was competent to gift the same.
However, the deed of gift executed by Tulni Devi is not according to law or as
required by section 123 of the Transfer of Property Act as it is not attested
by two witnesses. In view of the aforementioned defect, the said deed of gift
stood void and is not executed according to law.

 

23.  Mesne Profits – Tenant did not vacate the
building for 18 years – Was liable to pay damages at the rate of Rs. 5/- per
square feet per month with a 10% escalation. [Transfer of Property Act, 1882]

 

Section
106 – Badri Vishal vs. The Kshatriya Rajput Sabha Kutbiguda, Hyderabad AIR 2018
(NOC) 516 (UTR.)

 

In the
present case, the defendant-tenant had not vacated the property for a period of
18 years even after the notice of termination from the lessor.

           

The
Court observed that a tenancy that was terminated in the year 1999 has still
not resulted in the tenant vacating the building. The tenant is continuing to
enjoy the building by paying rent at old rate after 18 years also. The Hon’ble
Supreme Court of India in various cases talks of the need to award damages etc.,
as per market value and mesne profits to offset the delays. Even while granting
injunction, in one case, the need for imposing a condition to give mesne
profits and market rent while granting injunction has also been stressed by the
highest court of law. The law which admittedly is not static should change and
recognise the need for modification to suit the times. Therefore, to offset
legal delays; to protect an innocent landlord and to discourage a clever tenant
the Court has to award damages for use and occupation at the prevalent/current
market rents. This will deter unscrupulous tenants from clinging onto the
property for years together, taking advantage of the period in which the matter
is pending in the Court. Even if the delay is genuine, there will be a
realistic amount realized by awarding damages at current rates.

 

The
Court held that the defendant is liable to pay damages for use and occupation
of the premises @ Rs. 5/- per square feet per month for the suit property from
the date of the suit till the date of this order along with escalation of 10%
per annum as is being paid by all other tenants in the building and as noticed
by the lower Court.

 

24. 
Succession of Property – Property in India – Can be inherited by a
foreign national. [Succession Act, 1925]

 

Section 2 – B. C. Singh
vs. J.M. Utarid AIR 2018 SUPREME COURT 2374

 

Plaintiff,
an Indian-Christian had purchased a property in India. However, the plaintiff
died leaving no issue. The question arose as to who was entitled to inherit the
property.

The
plaintiff had invited the defendants to stay at the property that he had
purchased. After the death of the plaintiff, the legal representatives of the
deceased contested in the court that the defendants were only licencees and the
license was terminated, and were not the owners or co-owners of such property.
The contention of the defendants was that they were the relatives of the
plaintiff and hence, the property was to devolve upon the defendants.

 

There
was an alternate contention that even if the defendants were related to the
plaintiff, they could not succeed since the plaintiff had a sister and that she
would be a preferential heir as compared to the defendants.

 

The
defendants argued that the sister of the plaintiff would not be entitled to the
property since she was a Pakistani National.

 

The
Court held that the Indian Succession Act, 1925 would be applicable to the
succession of the property left by the plaintiff. This Act does not bar the
succession of property of any Indian Christian by a person who is not an Indian
national. There is no prohibition for succession of the property in India by a
foreign national by inheritance.

 

25. 
Will – Testator blind – No restriction of execution of a Will by a blind
person. [Indian Succession Act, 1925]

 

Section 59 – Chhotey Lal
and Ors. vs. Ram Naresh Singh and Ors. AIR 2018 (NOC) 621 (ALLahabad)

 

One of
the issues was that the unregistered Will set up by the respondent was
surrounded with doubt and uncertainty particularly on account of admission that
the testator was blind, illiterate and was of extreme old age and hence the
Will was not a genuine document and was not executed properly.

 

The
Court observed that where a document is registered, there is a general
presumption that the same has been executed and registered in accordance with
law, unless the presumption is rebutted by placing reliable and cogent evidence
but where the document is unregistered and creates suspicion on the face of it,
the propounder of the Will is required to prove its due execution and in such
cases the duty of the court also increases so as to satisfy itself that the
Will is not surrounded by any suspicious circumstances and has been executed by
the executant out of his or her freewill and also that the executor was in free
mental condition at the time of execution of Will.

 

The
Court held that section 59 of the Indian Succession Act provides, that every
person of sound mind not being a minor may dispose of his property by way of
Will. It has further been clarified that a married woman may also dispose of by
Will, any property which she could transfer by her own act during her life.

 

It is also provided
that the persons who are deaf, dumb or blind are not incapacitated for making a
Will if they are able to know what they do by it. Thus, there is no restriction
on execution of a Will by a blind person, provided, of course, that he is able
to know what he is doing.

 

 

FEMA FOCUS

ANALYSIS OF RECENT COMPOUNDING ORDERS

An analysis of some interesting
compounding orders passed by the Reserve Bank of India in the months from
November, 2018 to March, 2019 and uploaded on the website[1]  are given below. The article refers to
regulatory provisions as existing at the time of offence. Changes in regulatory
provisions are noted in the comments section.

                                                                                                

BORROWING OR LENDING IN FOREIGN EXCHANGE

A. Respoint Shoes Private Limited

Date of Order: 11th
October, 2018

Regulation: FEMA 3/2000-RB
Foreign Exchange Management (Borrowing or Lending in Foreign Exchange)
Regulations, 2000

 

ISSUE

1)   Loan proceeds were used to meet company
formation and related expenses, which were not permitted end-uses;

2)   Drawdown
of proceeds before obtaining Loan Registration Number (LRN);

3)   Reporting
guidelines not met.

 

FACTS

  • The applicant company received Euros 5,000
    (Rs. 2,88,600) from Hollre B.V., its parent company situated in the
    Netherlands.
  • Out of the said amount of Rs. 2,88,600, the
    applicant accounted for Rs. 1,00,000 towards issuance of 10,000 equity shares
    of Rs. 10 each and treated the remaining Rs. 1,88,600 as external commercial
    borrowing (ECB) from its parent company.
  • The said amount was utilised towards company
    formation and related expenses.

 

Regulatory provisions

  • As per Regulation 6 of Notification No. FEMA
    3/2000-RB, a person resident in India may raise in accordance with the
    provisions of the Automatic Route Scheme specified in Schedule I, foreign
    currency loans of the nature and for the purposes as specified in that
    Schedule.
  • Paragraph 1(iv) of Schedule I to FEMA
    Notification No. FEMA 3/2000-RB provides the end-uses for which ECB is
    permitted. However, loan towards ‘company formation and related expenses’ is
    not a permitted end-use route.
  • Paragraph 1(xi) of Schedule I to FEMA
    Notification No. FEMA 3/2000-RB states that drawdowns of borrowing in foreign
    exchange shall be made strictly in accordance with the terms of the loan
    agreement only after obtaining the loan registration number from the Reserve
    Bank.
  •     Paragraph 1(xii) of Schedule I to FEMA
    Notification No. FEMA 3/2000-RB states that the borrower shall adhere to the
    reporting procedure as specified by the Reserve Bank from time to time.

 

Contravention

Relevant
Para of FEMA 3 Regulation

Nature
of default

Amount
involved
(in Rs.)

Time
period of default

Regulation
6 of Notification No. FEMA 3/2000-RB read with Paragraphs 1(iv), (xi) and
(xii) of Schedule I to this Regulation

Issue
1:
Loan proceeds were used to meet company
formation and related expenses, which were not permitted end-uses

Issue
2: Drawdown of proceeds before obtaining
Loan Registration Number (LRN)

Issue
3: Reporting guidelines not being met

Rs.
1,88,600

April,
2007 to July, 2018


Compounding penalty

Compounding penalty of Rs. 51,415
was levied.

 

Comments

Under provisions of Notification No.
FEMA 20(R)/2017-RB, if capital instruments are not allotted by the Indian
company within 60 days of receipt of consideration, the amount can be refunded
to the foreign company within 15 days of completion of the 60 days’ limit and
subject to satisfaction of the AD Bank.

 

Alternatively, equity shares can
also be allotted against pre-incorporation expenses incurred by the holding company
subject to fulfilment of certain conditions.

It
is relevant to note that under the new ECB Regulations notified vide
Notification No. FEMA 3R/2018-RB dated 17.12.2018 there is a negative list of
end-uses for which ECB cannot be utilised. The said negative end-use list
specifies that ECB cannot be utilised for general corporate purposes except if
it’s raised from foreign equity holder. However, this would not cover cases
where ECB is raised along with or prior to the issue of equity to the foreign investor.

 

B. Glenmark Life Sciences Limited

Date of Order: 7th
December, 2018

Regulation: FEMA 4/2000-RB
Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000

 

ISSUE

Borrowing by Indian company without
issuance of Non-Convertible Debentures (NCDs) and non-compliance with reporting
requirements.

 

FACTS

  • The applicant company’s NRI Director and
    shareholder remitted Rs. 38,00,000 out of his NRE account. Out of the above
    amount, Rs. 33,330 was utilised towards allotment of shares and the balance
    amount of Rs. 37,66,670 was treated as loan in the books of the applicant
    company.
  • The applicant neither issued any NCDs to the
    NRI lender nor complied with the reporting requirements. However, the applicant
    reversed the transaction and remitted the amount of Rs. 37,66,670 to the NRI.

    

Regulatory provisions

  • In terms of Regulation 5(1) of Notification
    No. FEMA 4/2000-RB a company incorporated in India may borrow in rupees on
    repatriation or non-repatriation basis from a non-resident Indian or a person
    of Indian origin resident outside India by way of investment in non-convertible
    debentures (NCDs) subject to the conditions specified therein.

 

Contravention

Relevant Para of FEMA 4 Regulation

Nature of default

Amount involved (in Rs.)

Time period of default

Regulation 5(1)

Borrowing undertaken by the applicant company without
issuance of NCD

Rs. 37,66,670

Two years five months to six years ten months, approximately.

 

Compounding penalty

A compounding penalty of Rs. 75,300
was levied.

 

Comments

This case reflects one common
violation wherein an Indian company obtains loan from an NRI director to meet
short-term funds. Such loan is permissible under the Indian Companies Act but
is in violation of FEMA provisions. Schedule 4 of FEMA 20(R) which deems
investment by an NRI to be domestic investment at par with the investment made
by residents, is restricted to capital instrument or convertible notes.
Borrowing and lending regulations are yet to be liberalised resulting in
limited avenues for an Indian company to raise finance from outside India. The
conclusion would have been similar even if the loan was lent from an NRO
account, subject to the provisions of Schedule 7 as contained in Notification
No. FEMA 5(R)/2016-RB.

 

RETENTION OF ASSETS ABROAD

C. Pradeep Khemka

Date of Order: 1st
October, 2018

Regulation: FEMA 348/2015-RB of
Foreign Exchange Management (Regularisation of assets held abroad by a person
resident in India) Regulations, 2015

 

ISSUE

Retention
of assets abroad that were declared under the Black Money Act (BMA) beyond 180
days from the date of declaration without prior approval of Reserve Bank.

 

FACTS

  • The applicant, a resident Indian, declared
    foreign assets (Seaworld Foundation, Liechtenstein, of which he was the settlor
    and first beneficiary) to the extent of US $ 30,46,861 on 26.09.2015 under the
    Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,
    2015 (BMA) and paid a tax of Rs. 11,57,19,780 on 28.12.2015 on the same.
  • The applicant received an amount of $
    29,71,165.38 on 13.10.2015 after liquidation of his foreign assets. However,
    the balance amount of $ 89,369.04[2]  was not remitted to India within the
    specified period of 180 days, as prescribed under Regulation 4 of FEMA 348.
  • No approval was sought from RBI by the
    applicant for retaining the amount beyond the period of 180 days as required in
    terms of Regulation 4 of FEMA 348 read with para 3(c) of A.P. (DIR Series),
    Circular No. 18 dated 30.09.2015.

 

Regulatory provisions

  • FEMA 348
    provided immunity from FEMA violation in respect of declaration made by the
    resident person under amnesty scheme of BMA.
  • Proviso
    to Regulation 4 of FEMA 348 permitted the resident person to hold declared asset
    outside India beyond 180 days from date of declaration after obtaining specific
    permission from RBI.
  • If
    aforesaid permission is denied, regulation mandates bringing back of proceeds
    within 180 days from date of refusal of permission.

 

Contravention

Relevant Para of FEMA 348 Regulation

Nature of default

Amount involved
(in Rs.)

Time period of default

Regulation 4

Retention of assets abroad that were declared under the BMA
beyond 180 days without prior approval of Reserve Bank

Rs. 58,08,988

2 years approximately

 

 

Compounding penalty

Compounding penalty of Rs. 81,949
was levied.

 

Comments

Regulation 348 is applicable only to
person making declaration under amnesty scheme of BMA. It was a one-time
relaxation provided by the government to encourage people to declare
undisclosed assets held abroad and absolve themselves from draconian consequences
of BMA.

 

ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY

D. Mrs. Rajini Kodeswaran

Date of Order: 28th
August, 2018

Regulation: FEMA 21/2000-RB
Foreign Exchange Management (Acquisition and Transfer of Immovable Property in
India) Regulations, 2000

 

ISSUE

Acquisition of immovable property in
India by a Sri Lankan citizen without RBI permission.

 

FACTS

  • The applicant, a Sri Lankan citizen, had
    acquired an immovable property in the year 2008 without obtaining prior
    permission from the Reserve Bank of India. Subsequently, she constructed a flat
    on the same property.
  • The immovable property was acquired for
    total consideration of Rs. 6,84,000; the cost of construction of the flat is
    Rs. 32,97,085, aggregating to Rs. 39,81,085.
  • Regulation 7 of FEMA 21/2000 prohibits Sri
    Lankan citizens from acquiring immovable property without prior permission of
    RBI. Since no prior permission was obtained, the applicant was asked to
    immediately sell the property to a person resident in India.
  • Pursuant to the aforesaid direction, the
    property was sold by the applicant for Rs. 44,00,000.

 

Regulatory provision

As per Regulation 7 of Notification
No. FEMA-21/2000, no person being a citizen of Pakistan, Bangladesh, Sri Lanka,
Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong shall acquire or
transfer immovable property in India, other than lease, not exceeding five
years without prior permission of the Reserve Bank.

 

Contravention

Relevant Para of FEMA 21/2000 Regulation

Nature of default

Amount involved (in Rs.)

Approx. Time period of default

Regulation 7

Purchase of immovable property by Sri Lankan citizen without
RBI permission

Rs. 39,81,085

9 years
2 months

25 days

 

 

Compounding penalty

Compounding penalty of Rs. 18,78,208
was levied.

 

Comments

It was represented based on a
valuation report that the value of land appreciated to Rs. 24,82,350.
Accordingly, undue gain was computed at Rs. 17,98,350 (difference between cost
of land Rs. 6,84,000 and value appreciation of property). Period of default was
computed from date of acquisition of immovable property till date of disposal,
i.e., regularisation. The quantum of penalty reflects the stringent view taken
by RBI on purchase of immovable property by citizens from select countries. The
said restriction is not applicable if such nationals are OCI card holders[3].

 

FOREIGN DIRECT INVESTMENT (FDI)

E. ND Callus Info Services Pvt. Ltd.

Date of
Order: 13th December, 2018

Regulation:
FEMA 20/2000-RB Foreign Exchange Management (Transfer or Issue of Security by a
Person Resident Outside India) Regulations, 2000

 

ISSUE

Downstream investment by a
foreign-owned and controlled company in an Indian company engaged in core
investment activity without seeking FIPB approval.

 

FACTS

  • The applicant company is engaged in investment
    activities as a core investment company. Shareholding structure of applicant
    pre- and post-acquisition is as under:

 

     


  • The Mau
    Co acquired the remaining 51% stake from Indian shareholders and accordingly
    ICO1, ICO2 and the applicant became directly and indirectly foreign-owned and
    controlled companies.
  • The
    applicant did not take government / erstwhile FIPB approval as was required
    since the applicant was engaged in core investment activities.
  • The
    applicant became part of Vodafone group which acquired control over Hutchison
    group through indirect transfer.

 

Regulatory provision

Regulation 14(6)(ii) of Notification
No. FEMA 20/2000-RB states that foreign investment in an Indian company,
engaged only in the activity of investing in the capital of other Indian
company/ies, will require prior government / FIPB approval, regardless of the
amount or extent of foreign investment.

 

Contravention

The amount of contravention is Rs.
508,31,13,300 and the period of contravention is 4 years and 3 months
approximately.

 

Compounding penalty

Compounding penalty of Rs.
3,56,31,793 was levied.

 

Comments

This case reveals the care and
precaution to be taken at the time of increase in stake by a foreign investor
in an Indian company. Not only FEMA compliance needs to be undertaken by Target
company but also by downstream investment held by the Target company.
Regulations are not only applicable at the time of making downstream
investment, but also on account of subsequent change in holding company
shareholding making regulations applicable to investment already made by the
Indian company.

 

Under revised FEMA 20(R)/2017-RB as
amended from time to time, a core investment company is covered under other
financial services under which 100% foreign investment is permitted under the
automatic route subject to compliance of applicable RBI regulations.


[1] https://www.rbi.org.in/scripts/Compoundingorders.aspx

[2] Initially balance amount was
declared as $ 75,695.62 but this increased to $ 89,369.04 due to increase in
market value as per submissions of the applicant

[3] FAQ No. 4 on purchase of immovable
property in India by non-resident individuals https://m.rbi.org.in/Scripts/FAQView.aspx?Id=117]

CORPORATE LAW CORNER

2. 
Principal Director-General of Income-tax vs. Synergies Dooray Automotive
Ltd. [2019] 103 taxmann.com 361 (NCLAT)  Company Appeal (AT) (Insolvency) No. 205
of 2017 and 309, 559, 671 & 759 of 2018 Date of Order: 20th March,
2019

 

Section
5(20) of the Insolvency and Bankruptcy Code, 2016 – Income-tax Department,
Sales tax department and other statutory bodies fall within the ambit of
“operational creditors” and the monies owed to them on account of these
statutory dues is an “operational debt”

 

FACTS


Various regulatory
authorities preferred appeals against resolution plans approved by the National
Company Law Tribunal (“NCLT”) where the demands owed by the corporate debtors
to them were classified as operational debt and their names were included as
operational creditors of such companies. Accordingly, the demands owed were
substantially reduced under the resolution plans and they were not given an
opportunity to attend the meetings of the committee of creditors (“COC”). As
the legal issue arising in the appeals was the same, all of them were combined
and heard together.

 

HELD


There were arguments from
both sides on interpretation of the term ‘operational debt’ as defined u/s.
5(21) of the Code. The National Company Law Appellate Tribunal (“NCLAT”)
examined the definition and observed that there was no ambiguity in it. NCLAT
further observed that ‘Operational Debt’ in normal course meant a debt arising
during the operation of the company (‘Corporate Debtor’). The ‘goods’ and
‘services’, including employment, were required to keep the company (‘Corporate
Debtor’) operational as a going concern. If the company (‘Corporate Debtor’) is
operational and remains a going concern, only in such case will the statutory
liability, such as payment of Income-tax, Value Added Tax, etc., arise. As the
‘Income Tax’, ‘Value Added Tax’ and other statutory dues arising out of the
existing law arises when the Company is operational, it was held that such
statutory dues had a direct nexus with operation of the company. It was further
held that all statutory dues including ‘Income Tax’, ‘Value Added Tax’, etc.,
came within the meaning of ‘Operational Debt’.

 

As the statutory
authorities were treated at par with similarly situated ‘operational
creditors’, there was no reason to interfere in the orders passed by the NCLT.

 

NCLAT dismissed the appeals
so filed.

 

3.  Forech India Limited vs. Edelweiss Assets
Reconstruction Co. Ltd. [2019]
101 taxmann.com 451 (SC) Civil
appeal No. 818 of 2018 Date
of Order: 22nd January, 2019

 

Section
255 of the Insolvency and Bankruptcy Code, 2016 read with Rule 5 of the
Companies (Transfer of Pending Proceedings) Rules, 2016 as well as Rules 26 and
27 of the Companies (Court) Rules, 1959 – In a winding-up petition filed before
the High Court where a notice has been served and which is pending in the High
Court, application to transfer the same to NCLT under the Code can be made –
High Court would transfer such a proceeding and it would be treated as an
insolvency petition under the Code

 

Sections
11 and 10 of the Insolvency and Bankruptcy Code, 2016 – Application of section
11 is limited in nature – It merely bars a corporate debtor from initiating a
petition u/s. 10 of the Code in respect of whom a liquidation order has been
made – It does not follow that until a liquidation order has been made against
the corporate debtor, an Insolvency Petition may be filed u/s. 7 or u/s. 9 as
the case may be

 

FACTS


F Co filed a winding-up
petition against the corporate debtor in the year 2014 for inability to pay its
dues. Notice in this petition had been served, the existence of debt or
liability has been admitted. Meanwhile, E Co being the financial creditor moved
to the National Company Law Tribunal (“NCLT”) and filed an insolvency petition
u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) in May/June,
2017. This petition was admitted on 07.08.2017. F Co filed an appeal against
the order of admission before the NCLAT and the same was dismissed on the
ground that since the winding-up order had not been passed by the High Court,
insolvency petition was maintainable in the eyes of law.

 

F Co argued that in light
of the provisions of the law, it should be the winding-up petitions filed before
the High Court that should be allowed to continue and not the insolvency
petitions filed by the creditors before the NCLT. E Co, on the other hand,
contended that the whole object of the Code would be frustrated if petitions
for winding up in the High Court were to continue in the face of the insolvency
petitions that have been filed under the Code.

 

HELD


The Supreme Court examined
various arguments and referred to section 255 of the Code along with various
amendments brought out by the Eleventh Schedule to the Code, section 434 of the
Companies Act, 2013 (which relates to transfer of certain pending proceedings),
Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, as well
as Rules 26 and 27 of the Companies (Court) Rules, 1959.

 

It was pointed out that
there were divergent views on the interpretation of the aforesaid rules. The
Bombay High Court in Ashok Commercial Enterprises vs. Parekh Aluminex Ltd.
[2017] 80 taxmann.com 359/141 SCL 363, had stated that the notice referred
to in Rule 26 was a pre-admission notice and hence, held that all winding-up
petitions where pre-admission notices were issued and served on the respondent
will be retained in the High Court. On the other hand, the Madras High Court in
M.K. & Sons Engg. vs. Eason Reyrolle Ltd. in CP/364/2016 held that
the notice under Rule 26 is referable to a post-admission position of the
winding-up petition and accordingly held that only those petitions where a
winding-up order is already made can be retained in the High Court. For this
purpose, the Madras High Court strongly relied upon Form No. 6 appended to Rule
27 and the expression “was admitted” occurring in the Notice of
Petition contained in the said Form.

 

The Supreme Court held that
the view taken by the Bombay High Court was correct in law and the reasoning
laid down by the NCLAT in its order was incorrect.

Further, in the context of
section 11 of the Code it was observed that the same was of limited application
and only barred a corporate debtor from initiating a petition under section 10
of the Code in respect of whom a liquidation order has been made. From a
reading of this section, it does not follow that until a liquidation order has
been made against the corporate debtor, an Insolvency Petition may be filed
u/s. 7 or section 9 as the case may be.

 

The financial creditor’s
application which was admitted by the Tribunal was held to be an independent
proceeding which would be decided in accordance with the provisions of the
Code. The order of the NCLAT dismissing appeal was upheld by the Supreme Court
and F Co was granted an opportunity to apply before the Supreme Court under the
proviso to section 434 of the Companies Act (added in 2018), to transfer the
winding-up proceeding pending before the High Court of Delhi to the NCLT, which
can then be treated as a proceeding u/s. 9 of the Code.

 

4.  SGM Webtech (P.) Ltd. vs. Boulevard Projects
(P.) Ltd. [2019]
103 taxmann.com 176 (NCLT –  New Delhi) Company
petition (IB) No. 967(PB) of 2018 Date
of Order: 8th February, 2019

 

Sections
5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016 – Commercial Unit
allotted in a real estate development project was not completed in time –
Amounts advanced had to be refunded to the allottee and default in doing so
constituted a default in repayment of financial debt as contemplated under the
Code – Proceedings under the Code could be initiated for the default

 

FACTS


S Co, a private company,
agreed to purchase a commercial unit in a project being developed by B Co. Over
a period of time, B Co raised various demands on S Co which were duly met by
it. An “Office/Unit Buyer Agreement” dated 08.01.2013 was entered into between
the parties. The agreement fructified the terms between the parties qua
the rights of S Co in the commercial unit and the project, B Co’s obligations
of delivery of completed commercial unit as per specifications within 36 months
and consequences of delay thereof including penalty for the period of delay, S
Co’s right to terminate the agreement and also to seek refund with interest.

 

B Co, despite repeated
assurances, failed to complete the construction in the stipulated time. Various
letters were issued by S Co demanding the refund of its money along with
interest for which no reply was furnished by B Co. S Co further stated that a
failure on part of B Co would necessitate further action under Real Estate
(Regulation and Development) Act, 2016. The said action was initiated and the
U.P. Real Estate Regulatory Authority (“UPRERA”) and the authority levied
penalty on B Co.

 

B Co owed money to S Co
which had fallen due on various dates on account of its default in completion
of the allotted unit within time and the default in re-payment (despite
demands) of amount paid by S Co along with compound interest @ 18% per annum
from the actual dates of receipt of payment by B Co till date of repayment
to/realisation of the entire amount to S Co, and penalty thereon as ordered by
UPRERA.

 

S Co thus filed a petition
initiating Corporate Insolvency Resolution Process (“CIRP”) under the
Insolvency and Bankruptcy Code, 2016 (“the Code”) and proposed the name of Amit
Agarwal for appointment as Interim Resolution Professional. B Co, on the other
hand, had filed a further petition with UPRERA and it was contended that since
the proceedings there were pending, the proposed application may not be
proceeded with. It was further contended by B Co that delay arose due to
demonetisation and the order passed by the NGT in respect of the Okhla Bird
Sanctuary; and that in view of force majeure, the claim of S Co was
premature.

 

HELD


The National Company Law
Tribunal (“NCLT”) examined the provisions of section 5(7), 5(8), 7(1) read with
the Insolvency and Bankruptcy (amendment) Ordinance, 2018. The Ordinance provided
that any amount raised from an allottee under a real estate project shall be
deemed to be an amount having the commercial effect of a borrowing and thus
will come within the definition of ‘Financial Debt’ under the Code. The
definition of ‘Financial Debt’ has been amended to specifically include dues of
home buyers and the home buyers are recognised as “Financial
Creditor” under the Amendment Act.

 

The Tribunal observed that
S Co had advanced a sum of Rs. 4,10,68,472 to B Co and a Builder-Buyer Agreement
had also been executed between the parties. It was observed that the present
application was filed by S Co u/s. 7 and all the relevant files and documents
as required for the same along with Form I had been duly filled.

 

The only point of
contention that remained was whether a default in payment of financial debt was
committed by B Co. In that connection, NCLT observed that B Co had failed to
show how the demand made by S Co was premature. The fact that the claim of S Co
had been admitted by UPRERA established that the said claim was in fact a
financial debt as defined under the Code and that there was default on the part
of B Co in repayment of financial debt.

 

NCLT thus admitted the
petition to initiate the CIRP against B Co and declared moratorium in terms of
section 14 of the Code with a direction to the IRP to take further steps as
prescribed under the Code.

 

5.  Satyendra Jain vs. OmwayBuilestate (P.) Ltd. [2019]
103 taxmann.com 111 (NCLT – New Delhi) Company
petition (IB) No. 1013 (PB) of 2018 Date
of Order: 12th February, 2019

 

Section
238A read with section 7 of the Insolvency and Bankruptcy Code, 2016 –
Insolvency Resolution Process can be initiated against the corporate debtor
even though recovery suit has already been filed and decree has been passed
more than 5 years ago – The applicable period of limitation being 12 years,
application under the Code was maintainable

 

FACTS

O Co took a loan of Rs.
4.35 crore from Mr. S in the year 2010 which it failed to repay as per the
agreed terms and conditions. Mr. S filed a recovery suit before the Delhi High
Court which passed a decree on 19.03.2013 for Rs. 5.75 crore along with pendente lite and future interest. O Co did
not pay its dues even 5 years after the passing of the decree. Mr. S has claimed
that as on 20.07.2018, the total outstanding amount including interest due was
Rs. 10.14 crore.

 

O Co has objected to the
application primarily on the ground that the claim of Mr. S was barred by
limitation. It was further submitted that the Delhi High Court had passed a status
quo on the assets of O Co which was still in operation and hence no action
could be taken against it.

 

Mr. S brought to the notice
of the National Company Law Tribunal (“NCLT”) that the decree dated 19.03.2013
was modified by the High Court on 04.02.2016 and the said decree had still not
been satisfied by O Co.

 

 

HELD


The
primary objection to the admission of the application was that the claim was
barred by limitation. NCLT examined section 238A of the Insolvency and
Bankruptcy Code, 2016 (“the Code”) which makes the provisions of the Limitation
Act, 1963 applicable to proceedings or appeals applicable to the Code. However,
NCLT observed that Article 136 of the Limitation Act, 1963 provides for a
period of 12 years with respect to execution of order or decree of a Civil
Court. In light of this, the argument of application being barred by limitation
did not hold good and NCLT rejected the same.

 

The fact of existence of
the loan which is recoverable with applicable interest has not been disputed by
either parties. Either parties also do not dispute the default of O Co in
repayment of loan in accordance with agreed terms. Mr. S had filled out a duly
complete form along with necessary documents to initiate the proceedings u/s. 7
of the Code.

 

Thus, the application of
Mr. S was accepted by the NCLT and Mr. Lekhraj Bajaj was appointed as the
Interim Resolution Professional (“IRP”). NCLT further declared moratorium in
terms of section 14 of the Code with a direction to the IRP to take further
steps as prescribed under the Code.

 

 

FEMA FOCUS

REVISED ECB REGULATIONS

 

(I) Background

 

RBI has completely
revamped existing regulations relating to External Commercial Borrowings, Trade
credits & Borrowing and lending in INR (‘ECB’) by issuing a revised
Notification No. 3(R) /2018-RB – Foreign Exchange Management (Borrowing and
Lending) Regulations, 2018 dated 17th December 2018 (‘New ECB
Regulations’). Further, RBI has also issued A.P. (DIR Series) Circular No. 17
dated 16th January 2019 (‘Circular 17’) providing for new ECB
framework.

 

Earlier there were
following three regulations governing borrowing/lending by person resident in
India with persons resident outside India:

 

Sr. No.

Name of regulation

Relevant Notification No.

Scope of regulation

1

Foreign
Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations,
2000 ( ‘Old ECB Regulations’)

FEMA 3 /2000-RB dated
3rd May, 2000

i) Borrowing in foreign currency by
persons other than AD

ii) Borrowing in foreign currency by AD

iii) Borrowing in Indian currency by
Company

iv) Trade credits

2

Foreign
Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 (‘INR
Borrowing Regulations’)

FEMA 4 /2000-RB dated
3rd May, 2000

i)
Borrowing in Indian currency by Indian Company through issuance of NCDs;

ii)
Borrowing in Indian currency by persons other than company

3

Para
21 of Foreign Exchange Management (Transfer or Issue of Any Foreign Security)
(Amendment) Regulations, 2004 (‘ODI Regulations’)

FEMA 120/ RB-2004 dated
7th July, 2004

i)
Lending in foreign currency by Indian company to its overseas subsidiary/ JV

 

RBI has now
consolidated all above Regulations relating to borrowing and lending in foreign
currency and Indian currency and issued Revised FEMA 3/2019 (‘New ECB
Regulations’) dealing with foreign currency and Indian currency borrowing /
lending by Indian residents. Further, certain aspects of ECB have also been
clarified by RBI through issuing Circular 17. Earlier there four-tier structure
of ECB which have now been rationalised as under:     
i) Track I & Track II have been merged as Foreign Currency denominated ECB;
and

ii) Track III &
Rupee denominated bonds have been merged as Rupee denominated ECB.

Key aspects of new
ECB framework are given below:

 

(II) New definitions

 

New ECB Regulations
has inserted following new definitions for the purpose of clarity:

?    External Commercial lending
– It means lending by person resident in India to borrower outside India in
accordance with policy decided by RBI

?    Real estate activity –
means any activity involving

•    own or leased property for buying, selling
and renting of commercial and residential properties or land

•    activities either on a fee or contract basis
assigning real estate agents for intermediating in buying, selling, letting or
managing real estate.

However, this would
not include

•    development of integrated township; or

•    purchase/long term leasing of industrial
land as part of new project/modernisation or expansion of existing units or;

•    any activity under ‘infrastructure
subsectors’ as given in the Harmonised Master List of Infrastructure
sub-sectors approved by the Government of India vide Notification F. No.
13/06/2009-INF, as amended/updated from time to time.

?    Restricted End Use: It
means end uses where borrowed funds cannot be deployed and shall include the
following:

•    In the business of chit fund or Nidhi
Company;

•    Investment in capital market including
margin trading and derivatives;

•    Agricultural or plantation activities;

•    Real estate activity or construction of farm
houses; and

•    Trading in Transferrable Development Rights
(TDR),

?    It has been specifically
clarified that use of credit cards in India by person resident outside India
and outside India by person resident in India shall not be subject to ECB
regulations.

?    Also, it has been
clarified that any borrowing permitted under erstwhile regulations can be
continued up to the due date of repayment.

 

(III) Key changes in ECB Policy

 

Key changes between
old ECB regulations relating to borrowings in INR/foreign currency by Indian
resident entity from person resident outside India are highlighted below:

 

Eligible borrower

Old ECB Regulation read with Master Direction on
ECB updated as on 22nd November, 2018

New ECB regulation read with Circular No. 17
dated 16 thJan 2019

Comments

The list of entities eligible to raise ECB were
classified under the three tracks is set out in the following table.

All entities eligible to receive FDI are eligible borrowers and
there is no more Track 1, Track 2 and Track 3. Further, following entities
are also eligible to raise ECB:

a) Port Trusts;

b) Units in SEZ;

c) SIDBI;

d) EXIM Bank; and

e) Registered entities engaged in micro-finance activities,
viz., registered Not for Profit companies, registered
societies/trusts/cooperatives and Non-Government Organisations (permitted
only to raise INR ECB).

 

Under new ECB regulations, all entities, including companies and
LLP would be eligible to receive FDI under FEMA 20 can raise ECB irrespective
of the sector in which they operate. New regulations now paves way for
service sector enterprise, companies engaged in ITES activities etc to raise
finance via ECB route. Further ECB route is open even for sectors which are
subject to sectorial cap or FDI is permitted subject to performance linked
conditions.

  Track :1

i. Companies in mfg & software development sectors.

ii. Shipping and airlines companies.

iii. SIDBI.

iv. Units in SEZs

v. Exim Bank (only under the approval route).

vi. Companies in infra sector, NBFC-IFCs, NBFC-AFCs, Holding
Companies and CICs. Also, Housing Finance Companies, regulated by the
National Housing Bank, Port Trusts constituted under the Major Port Trusts
Act, 1963 or Indian Ports Act, 1908.

  Track :2

i. . All entities listed under Track I. 

ii. REITs & INVITs (governed by SEBI)

 

    Track
:3

i. All entities listed under Track II.

ii. NBFCs coming under the regulatory purview of RBI.

iii. NBFCs-MFIs, Not for Profit companies registered under the
Companies Act, 1956/2013, Societies, trusts and cooperatives (registered
under the Societies Registration Act, 1860, Indian Trust Act, 1882 and
State-level Cooperative Acts/Multi-level Cooperative Act/State-level mutually
aided Cooperative Acts respectively), NGOs which are engaged in micro finance
activities.

iv. Companies engaged in miscellaneous services viz.
R&D, training (other than educational institutes), companies supporting
infrastructure, companies providing logistics services. Also, companies
engaged in maintenance, repair and overhaul and freight forwarding.

v. Developers of SEZs/ National Manufacturing and Investment
Zones (NMIZs).

 

 

Borrowing by IBC Cos

Old ECB Regulation read with Master Direction on
ECB updated as on 22nd November, 2018

New ECB regulation read with Circular No. 17
dated 16 thJan 2019

Comments

No specific exemption / relaxation for companies
in IBC

An entity which is under restructuring scheme/
corporate insolvency resolution process can raise ECB only if specifically
permitted under the resolution plan.

Likely to boast restructuring of companies under
IBC. Resolution plan can now substitute high interest debt with low interest
bearing ECB

 

Eligible lenders

The list of recognised lenders/investors for the
three tracks will be as follows:

The lender should be resident of FATF or IOSCO compliant
country, including on transfer of ECBs. However,

a) Multilateral and Regional Financial Institutions where India
is a member country will also be considered as recognised lenders;

b) Individuals as lenders can only be permitted if they are
foreign equity holders or for subscription to bonds/debentures listed abroad;
and

c) Foreign branches/subsidiaries of Indian banks are permitted
as recognised lenders only for FCY ECB (except FCCBs and FCEBs).

Foreign branches/subsidiaries of Indian banks, subject to
applicable prudential norms, can participate as arrangers/
underwriters/market-makers/traders for Rupee denominated Bonds issued
overseas. However, underwriting by foreign branches/subsidiaries of Indian
banks for issuances by Indian banks will not be allowed.

Under the new ECB regulations, any person can be eligible lender
provided they are resident of FATF or IOSCO compliant country. However,
individuals as lenders can only be permitted if they are foreign equity
holders or for subscription to bonds/ debentures listed abroad. Further,
Financial institutions located in International Financial Services Centres in
India are not specifically included in definition of recognised lender which
were included in the old ECB regulations.

Track :1

i. International banks.

ii. International capital markets.

iii. Multilateral financial institutions (such as, IFC, ADB,
etc.) /regional financial institutions and Government owned (either wholly or
partially) financial institutions.

iv. Export credit agencies.

v. Suppliers of equipment.

vi. Foreign equity holders.

vii. Overseas long term investors such as:

a. Prudentially regulated financial entities;

b. Pension funds;

c. Insurance companies;

d. Sovereign Wealth Funds;

e. Financial institutions located in International Financial
Services Centres in India

viii. Overseas branches/ subsidiaries of Indian banks

Track :2

All entities listed under Track I (excluding
overseas branches /subsidiaries of Indian banks)

 

Track :3

All entities listed under Track I (excluding overseas branches/
subsidiaries of Indian banks.

In case of NBFCs-MFIs, other eligible MFIs, not for profit
companies and NGOs, ECB can also be availed from overseas organisations and
individuals.

 

 

Minimum Average Maturity Period

The minimum average maturities for the three
tracks are set out as under:

Minimum average maturity period (MAMP) will be 3 years. However,
manufacturing sector companies may raise ECBs with MAMP of 1 year for ECB up
to USD 50 million or its equivalent per financial year. Further, if the ECB
is raised from foreign equity holder and utilised for working capital
purposes, general corporate purposes or repayment of Rupee loans, MAMP will
be 5 years. The call and put option, if any, shall not be exercisable prior
to completion of minimum average maturity.

For ECB exceeding USD 50 million, no MAMP is specified and
hence, could be considered as 3 years

Old ECB Regulation read with Master Direction on
ECB updated as on 22nd November, 2018

New ECB regulation read with Circular No. 17
dated 16 thJan 2019

Comments

Track:1

i. For ECB up to USD 50 million or its equivalent for Cos in Mfg
sector only – 1 year;

ii. For ECB upto USD 50 million or its equivalent – 3 years;

iii. For ECB beyond USD 50 million or its equivalent – 5 years

iv. 5 years for ECB taken from equity holder for working capital
purposes

v. 5 years for FCCBs/ FCEBs irrespective of the amount of
borrowing. The call and put option, if any, for FCCBs shall not be exercisable
prior to 5 years.

 

Track :2

10 years irrespective of the amount.

 

Track:  3

Same as under Track I.

 

 

 

 

All-in-cost ceiling per annum and other cost

The all-in-cost requirements for the three tracks
will be as under:

i) No change in all in cost ceilings

No change

 Track :1

i. The all-in-cost ceiling is prescribed through a spread over
the benchmark, i.e., 450 basis points per annum over 6 month LIBOR or
applicable benchmark for the respective currency.

ii. Penal interest, if any, for default or breach of covenants
should not be more than 2 per cent over and above the contracted rate of
interest.

Track :2

i All-in-cost ceiling – Same as Track I

ii Penal interest – same as Track I

 

Track :3

i. All-in-cost ceiling – 450 basis points per annum over the
prevailing yield of the Government of India securities of same maturity.

ii. Penal interest – Same as Track I

 

 

End-uses (Negative list)

 

Old ECB Regulation read with Master Direction on
ECB updated as on 22nd November, 2018

New ECB regulation read with Circular No. 17
dated 16 thJan 2019

Comments

The end-use prescriptions for ECB raised under the three tracks
are as under:

 

The negative list for all Tracks would include the following:

a. Investment in real estate or purchase of land except when
used for affordable housing as defined in Harmonised Master List of
Infrastructure Sub-sectors notified by Government of India, construction and
development of SEZ and industrial parks/integrated townships.

b. Investment in capital market.

c. Equity investment.

 

Additionally, for Tracks I and III, the following negative end
uses will also apply except when raised from Direct and Indirect equity
holders or from a Group company, and provided the loan is for a minimum
average maturity of five years:

d. Working capital purposes.

e. General corporate purposes.

f. Repayment of Rupee loans.

Finally, for all Tracks, the following negative end use will
also apply:

g. On-lending to entities for the above activities from (a) to
(f)

The negative list for which ECB proceeds cannot
be utilised is largely similar as erstwhile ECB regulations. However, earlier
negative list used the phrase investment in real estate or purchase of land.
In the new ECB regulations, above phrase has been replaced by real estate
activities which has been defined above. Further, proceeds of ECB cannot be
used for payment of interest / charges for ECB.

Real estate activity specifically excludes
purchase / long term leasing of industrial land as part of new project /
modernisation or expansion of existing unit. Hence, going forward ECB can be
utilised towards purchase of industrial land for expansion of existing unit
or setting up of new unit.

 

Change of currency of borrowing

Designated AD Category I banks may allow changes
in the currency of borrowing of the ECB to any other freely convertible currency
or to INR subject to compliance with other prescribed parameters. Change of
currency of INR denominated ECB is not permitted.

No change

NA

Individual limits of borrowing

Old ECB Regulation read with Master Direction on
ECB updated as on 22nd November, 2018

New ECB regulation read with Circular No. 17
dated 16 thJan 2019

Comments

The individual limits of ECB that can be raised
by eligible entities under the automatic route per financial year for all the
three tracks are set out as under:

 

a. Up to USD 750 million or equivalent for the
companies in infrastructure and manufacturing sectors, Non-Banking Financial
Companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance
Companies (NBFC-AFCs), Holding Companies and Core Investment Companies;

b. Up to USD 200 million or equivalent for
companies in software development sector;

c. Up to USD 100 million or equivalent for
entities engaged in micro finance activities;

d. Up to USD 500 million or equivalent for
remaining entities; and

e. Up to USD 3 million or equivalent for
startups;

ii. ECB proposals beyond aforesaid limits will
come under the approval route. For computation of individual limits under
Track III, exchange rate prevailing on the date of agreement should be taken
into account.

iii. In case the ECB is raised from direct equity
holder, aforesaid individual ECB limits will also subject to ECB liability:
equity ratio requirement. The ECB liability of the borrower (including all
outstanding ECBs and the proposed one) towards the foreign equity holder
should not be more than seven times of the equity contributed by the latter.
This ratio will not be applicable if total of all ECBs raised by an entity is
up to USD 5 million or equivalent.

All eligible borrowers (excluding startups) can
now raise ECB up to USD 750 million or equivalent per financial year under
auto route. Rest of the conditions, including ECB equity ratio in case of
borrowings from foreign equity holder would remain the same.

Expansion of individual limits

 

Parking of ECB proceeds

ECB proceeds are permitted to be parked abroad as
well as domestically in the manner given below:

Parking of ECB proceeds abroad: ECB proceeds meant only for
foreign currency expenditure can be parked abroad pending utilisation. Till
utilisation, these funds can be invested in the following liquid assets (a)
deposits or Certificate of Deposit or other products offered by banks rated
not less than AA (-) by Standard and Poor/Fitch IBCA or Aa3 by Moody’s; (b)
Treasury bills and other monetary instruments of one year maturity having
minimum rating as indicated above and (c) deposits with overseas branches/
subsidiaries of Indian banks abroad.

Parking of ECB proceeds domestically: ECB proceeds meant for
Rupee expenditure should be repatriated immediately for credit to their Rupee
accounts with AD Category I banks in India. ECB borrowers are also allowed to
park ECB proceeds in term deposits with AD Category I banks in India for a maximum
period of 12 months. These term deposits should be kept in unencumbered
position.

No change

NA

 

Reporting

Loan Registration Number (LRN): Any draw-down in respect
of an ECB as well as payment of any fees / charges for raising an ECB should
happen only after obtaining the LRN from RBI. To obtain the LRN, borrowers
are required to submit duly certified Form 83, which also contains terms and
conditions of the ECB, in duplicate to the designated AD Category I bank. In
turn, the AD Category I bank will forward one copy to the Director, Balance
of Payments Statistics Division, Department of Statistics and Information
Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400
051, Contact numbers 022-26572513 and 022-26573612. Copies of loan agreement
for raising ECB are not required to be submitted to the Reserve Bank.

Changes in terms and conditions of ECB: Permitted changes in ECB
parameters should be reported to the DSIM through revised Form 83 at the
earliest, in any case not later than 7 days from the changes effected. While
submitting revised Form 83 the changes should be specifically mentioned in
the communication.

Reporting of actual transactions: The borrowers are required
to report actual ECB transactions through ECB 2 Return through the AD
Category I bank on monthly basis so as to reach DSIM within seven working
days from the close of month to which it relates. Changes, if any, in ECB
parameters should also be incorporated in ECB 2 Return. Format of ECB 2
Return is available at Annex III of Part V of Master Directions – Reporting
under Foreign Exchange Management Act.

Reporting on account of conversion of ECB into
equity: In case of partial or full
conversion of ECB into equity, the reporting to the RBI will be as under:

i. For partial conversion, the converted portion
is to be reported to the concerned Regional Office of the Foreign Exchange
Department of RBI in Form FC-GPR prescribed for reporting of FDI flows, while
monthly reporting to DSIM in ECB 2 Return will be with suitable remarks
“ECB partially converted to equity”. ii. For full conversion, the
entire portion is to be reported in Form FC-GPR, while reporting to DSIM in
ECB 2 Return should be done with remarks “ECB fully converted to equity”.
Subsequent filing of ECB 2 Return is not required.

iii. For conversion of ECB into equity in phases,
reporting through ECB 2 Return will also be in phases.

Name of form for obtaining LRN from RBI has
changed from old Form 83 to new Form ECB. Hence, wherever Form 83 was
required to be filed, going forward Form ECB would be required to be filed.
However, contents of the form are same. Further, ECB 2 filing continues to
remain as before. Additionally, in part D of Form ECB 2 details with respect
to proceeds of ECB parked domestically is also required to be stated.

Change in name of Form 83 to Form ECB and details
of ECB parked domestically to be provided in Form ECB 2

 

Late submission fees

Old ECB Regulation read with Master Direction on
ECB updated as on 22nd November, 2018

New ECB regulation read with Circular No. 17
dated 16 thJan 2019

Comments

No such provision existed earlier. Any late
filing of forms was subject to compounding proceedings

Late Submission Fee (LSF) for delay in reporting:

Any borrower, who is otherwise in compliance of ECB guidelines,
can regularise the delay in reporting of drawdown of ECB proceeds before
obtaining LRN or delay in submission of Form ECB 2 returns, by payment of
late submission fees as given in Annexure 1

 

 

 

Going forward, process of regularising ECB non compliances
relating to late filing of forms or drawdown of ECB before obtaining LRN
would be much simpler and would not be subject to compounding proceedings.
However, with respect to past non-compliances, compounding proceedings would
still need to be undertaken

 

Exchange rate

The exchange rate for foreign currency – Rupee
conversion shall be the market rate on the date of settlement for the purpose
of transactions undertaken for issue and servicing of the bonds

No change

NA

 

Hedging Requirements

Borrowers eligible shall have a board approved
risk management policy and shall keep their ECB exposure hedged 70 per cent
at all times in case the average maturity is less than 5 years. Further, the
designated AD Category-I bank shall verify that 70 per cent hedging
requirement is complied with during the currency of ECB and report the
position to RBI through ECB 2 returns. Also, the entities raising ECB under
the provisions of tracks I and II are required to follow the guidelines for
hedging issued, if any, by the concerned sectoral or prudential regulator in
respect of foreign currency exposure.

Operational aspects on hedging: Wherever hedging has been
mandated by the RBI, the following should be ensured:

i. Coverage: 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.

 

No change

NA

 

Available routes for raising ECB

Old ECB Regulation read with Master Direction on
ECB updated as on 22nd November, 2018

New ECB regulation read with Circular No. 17
dated 16 thJan 2019

Comments

Under the ECB framework, ECBs can be raised
either under the automatic route or under the approval route. For the
automatic route, the cases are examined by the Authorised Dealer Category-I
(AD Category-I) banks. Under the approval route, the prospective borrowers
are required to send their requests to the RBI through their ADs for
examination. While the regulatory provisions are mostly similar, there are
some differences in the form of amount of borrowing, eligibility of
borrowers, permissible end-uses, etc. under the two routes. While the first
six forms of borrowing can be raised both under the automatic and approval
routes, FCEBs can be issued only under the approval route.

No change

NA

 

ECB for untraceable entities

No specific regulation earlier

Specific Standard Operating Procedure (SOP) laid
down which has to be followed by designated AD banks in case of untraceable
entities who are found to be in contravention of reporting provisions for
ECBs by failing to submit prescribed return(s) under the ECB framework,
either physically or electronically, for past eight quarters or more.

i. Definition: Any borrower who has raised
ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/ promoter(s) of entity are not
reachable/responsive/reply in negative over email/letters/phone for a period
of not less than two quarters with documented communication/reminders
numbering 6 or more and it fulfills both of the following conditions:

 

a) Entity not found to be operative at the
registered office address as per records available with the AD Bank or not
found to be operative during the visit by the officials of the AD Bank or any
other agencies authorized by the AD bank for the purpose; AND

b) Entities have not submitted Statutory
Auditor’s Certificate for last two years or more;

 

ii. Action: The followings actions are to be
undertaken in respect of ‘untraceable entities’:

 

a) File Revised Form ECB, if required, and last
Form ECB 2 Return without certification from company with ‘UNTRACEABLE
ENTITY’ written in bold on top. The outstanding amount will be treated as
written-off from external debt liability of the country but may be retained
by the lender in its books for recovery through judicial/ non-judicial means;

b) No fresh ECB application by the entity should
be examined/processed by the AD bank;

c) Directorate of Enforcement should be informed
whenever any entity is designated ‘UNTRACEABLE ENTITY’; and

d) No inward remittance or debt servicing will be
permitted under auto route.

Entire new process has been laid down to find
untraceable entities who have taken ECB

 

(IV) Key changes in Regulations governing
Trade Credits

Key changes between
old ECB regulations and new ECB regulations relating to trade credits are
highlighted as under:

Particulars

Old ECB Regulations

New ECB Regulations

Comments

Amount of borrowing

USD 20 million per import transaction

USD 50 million per import transaction

Increase in limit of trade credit

Period

Import of capital goods – 5 years from date of
shipment

Import of non-capital goods – 1 year from date of
shipment or operating cycle, whichever is less

Import of capital goods – 3 years from date of
shipment

Import of non-capital goods – 1 year from date of
shipment or operating cycle, whichever is less

 

Trade credit period for import of capital goods
has been reduced from 5 years to 3 years

Trade credit beyond permitted period

No specific provision in respect of trade credit
extending beyond above specified period

Specifically provides trade credit beyond 3 years
period to be ECB

There have been several instances wherein RBI has
compounded non compliances relating to trade credit extending beyond
specified period by viewing it as ECB. The same has now been specifically
included in new ECB regulations.

Recognised lenders

Overseas suppliers, banks, financial
institutions,

Lenders to also include foreign equity holders
and financial institutions in IFC

Recognised lenders list expanded to include
foreign equity holders and financial institutions in IFC. Hence, they can
also give trade credits

Cost

All-in-cost ceiling for raising trade credit was
350 basis points over 6 month LIBOR

All-in-cost ceiling for raising trade credit
reduced to 250 basis points over 6 month LIBOR

Reduction in all in cost ceiling for raising
trade credits

 

(V) Key changes in Regulations governing
borrowings in INR by Indian residents

 

Borrowing by
Indian companies

Under the erstwhile
ECB regulations, investment in Non convertible debentures (NCD) issued by
Indian companies to Registered Foreign Portfolio Investors was not covered
under the ECB framework. The said position continues even under the new ECB
regulations.

 

Further, under INR
Borrowing Regulations, Indian companies could borrow in rupees from NRIs/PIOs
by issuing NCDs and subject to fulfilment of conditions laid down therein.
However, under New ECB regulations, there is no specific regulations governing
issuance of NCDs by Indian companies to NRI/PIOs. Accordingly, we would need to
wait for further clarity on this issue.

 

Borrowing by
Indian individuals

Under the erstwhile
INR Borrowing regulations, person resident in India (other than an Indian
company) could borrow in rupees from NRI/PIO on non-repatriation basis subject
to fulfilment of certain conditions. Under the New ECB Regulations, person
resident in India (other than an Indian company) can borrow in Indian Rupees
from NRI/ Relatives who are holding OCI Card subject to terms and conditions as
would be specified by RBI in this behalf.

 

Thus, as against
borrowings from any NRI/PIO permissible earlier, under New ECB Regulations, INR
borrowings can be taken only from NRI or Relatives who are holding OCI Card.

 

Deposits by
person resident in India

Any person resident in India can accept deposits from person resident
outside India in accordance with Foreign Exchange Management (Deposit)
Regulations, 2016. Hence, there is no change with regards to acceptance of
deposits.

 

(VI) Key changes in Regulations governing
borrowings by financial institutions, students studying abroad and from
relatives

Borrowing by
financial institutions

Under the new ECB
regulations, financial institutions set up under an act of Parliament have been
given permission to raise ECB under the approval route for the purpose of
onward lending and subject to provisions contained in ECB regulations.

 

Borrowing by
students studying abroad

Under the new ECB
regulations, individual resident in India but studying abroad can raise loan
not exceeding USD 250,000 for payment of education fees and maintenance abroad
subject to terms and conditions specified by RBI. However, it is interesting to
note that as per A.P.(DIR Series) Circular No. 45 dated 8 December 2003, Indian
students studying abroad would be treated as Non-residents, i.e. person
resident outside India. In such a scenario, applicability of FEMA on the such
students would need to be evaluated.

 

Borrowing in
foreign currency by Indian individuals

Under the old ECB regulations, individual resident in India could borrow
a sum not exceeding USD 250,000 from his relative subject to fulfilment of
certain conditions. The same position continues even under new ECB regulations.


(VII) Regulations governing lending in foreign currency by Indian entities

New ECB regulations
provide that an entity resident in India can provide external commercial
lending in foreign exchange to foreign entity in accordance with provisions of
ODI Regulations. Hence, there is no change with respect to the said
regulations.

 

(VIII) Regulations governing issuance of
Foreign Currency Convertible Bonds & Foreign Currency Exchangeable Bonds by
Indian companies

Regulation 21 of
ODI Regulations which dealt with issuance of Foreign Currency Convertible Bonds
and Foreign Currency Exchangeable Bonds has now been omitted and it would be
governed under the process specified in New ECB Regulations read with Circular
17.

 

Way forward

Going forward, it
is expected that RBI would issue Circulars clarifying various aspects of New
ECB Regulations as well as issue Regulations governing hybrid instruments in
the nature of optionally convertible debentures which are at present covered
under ECB Regulations.  

 

Annexure 1 – Matrix for computing late
submission fee for delay in reporting

 

No.

Type of Return/Form

Period of delay

Applicable LSF

1

Form ECB 2

Up to 30 calendar days from due date of submission

Rs. 5,000

2

Form ECB 2/Form ECB

Up to 3 years from due date of submission/date of drawdown

Rs. 50,000 per year

3

Form ECB 2/Form ECB

Beyond 3 years from due date of submission/date of drawdown

Rs. 100,000 per year

 

 

 

 

 





 

ALLIED LAWS

5. Attachment –
Bank accounts of directors cannot be attached when company is in default for
payment of taxes [Central Goods and Services Tax Act, 2017; Section 2, Section
89]

 

H.M. Industrial Pvt. Ltd. vs. Commissioner
of CGST and Central Excise 2019 (22) G.S.T.L. 13 (Gujarat)

 

By a provisional attachment order u/s. 83,
the bank accounts of the directors of the petitioner-company were attached. The
question was whether the bank accounts of the directors of the company can be
attached?

 

Section 83 of the CGST Act shows that it
empowers the Commissioner to attach provisionally any property, including bank
accounts, belonging to the taxable person. The term “taxable person”
has been defined under sub-section (107) of section 2 of the CGST Act to mean a
person who is registered or liable to be registered u/s. 22 or u/s. 24 of that
Act.

 

In the present case, it was the
petitioner-company which was registered under the provisions of the CGST Act
and was, therefore, the taxable person. Under such circumstances, provisions of
section 83 could not have been invoked against the directors of the
petitioner-company.

 

It was argued by the respondents (i.e.
Commissioner of CGST) that section 89 of the CGST Act permits recovery of the
dues of a private company from its directors in case such amount cannot be
recovered from the company. However, the Court dismissed the arguments of the
respondent on the grounds that section 89 of the Act relates to recovery of any
tax, interest or penalty due from a private company in respect of supply of
goods or services and hence is not applicable to the current case.It was
further mentioned that even if such amount cannot be recovered from the private
company, the directors of the company do not ipso facto become liable to
pay such amount and it is only if the director fails to prove that non-recovery
cannot be attributed to any gross neglect, misfeasance or breach of duty on his
part in relation to the affairs of the company, that the same can be invoked.

 

In view of the same, it was held that the
attachment of the bank accounts in the present case was without any authority
of law and hence the bank accounts were directed to be released.

 

6. Attachment – Provisional attachment immediately after issuance of
show-cause notice – Department asked to explain the urgency – Bank accounts
released [Gujarat Goods and Services Tax Act, 2017; Section 83]

 

Mono Steel (India) Ltd. vs. State of
Gujarat 2019 (22) G.S.T.L. 184 (Gujarat)

 

Show-cause notices were issued and
immediately thereafter, the order of provisional attachment was made. The bank
statement showed huge cash reserves lying at the disposal of the company with
the banks concerned which were attached.

 

It was observed by the Court that the
assessee was not a fly-by-night operator, i.e., the assessee was not someone
who could not be trusted and would desperately try to avoid the payment of the
taxes due. This observation was due to the reason that the assessee had paid
duty to the tune of more than Rs. 100 crore in the previous year. Under such
circumstances, the respondent was asked to explain the expediency and rationale
behind ordering attachment of all the bank accounts.

 

It was held that the bank accounts were to
be released subject to the petitioner/assessee maintaining a certain amount in
one of its bank accounts.

 

7. Courts,
Tribunals – Duty to exercise power in accordance with law though the litigant
does not point out the relevant principles and provisions of law

 

Champa Lal vs. State of Rajasthan and Ors.
(2018) 16 SCC 356

 

The litigation revolves around two
notifications issued by the state government.

 

It was observed by the Court that various
parameters mandatorily required were not taken into consideration in the two
above-mentioned notifications. Therefore, it was observed that the two
notifications cannot be treated as notifications.

 

It was held by the Hon’ble Court that,
unfortunately, this aspect had not been noticed by the High Court obviously
because it was not brought to its notice. The fact that a litigant before the
Court does not point out the relevant principles and provisions of law does not
prevent the Court from examining the issues involved in the lis, more
particularly, when the process which is the subject matter of litigation before
the Court is inconsistent with the mandate of the Constitution. It is a settled
principle of law that Courts are bound to take note of the Constitution and the
laws.

 

8. Hindu law –
Inheritance of property – Individual property and not ancestral property or
joint Hindu family property [Hindu Succession Act, 1956, Section 8]

 

Jagat Ram vs.
Rajo AIR 2019 Punjab and Haryana 38

 

The issue in the present case was whether
the property inherited by Class-I heir Mr. P (Father) from his father (Mr. T)
as per section 8 of the Hindu Succession Act, 1956 would be his (Mr. P’s)
individual property or would it be ancestral property or joint Hindu family
property?

 

It was observed by the Court that the
property came to Mr. P u/s. 8 of the Hindu Succession Act, 1956. Once, on the
death of a common ancestor, property has devolved upon his Class-I heirs or
Class-II heirs as per section 8 of the Hindu Succession Act, 1956, such heirs
would become the absolute owners of the property and such property would not be
either joint Hindu family or coparcenary or ancestral property in the hands of
such legal heirs, in absence of any other evidence to this effect.

 

It was held that, in the present case, the
entire property which came to be inherited by Mr. P (Father) from Mr. T (Mr.
P’s Father) is individual property of Mr. P (Father).

 

9. Unregistered sale agreement – Admissible in evidence for specific
performance of a contract [Registration Act, 1908 – Section 17 and Section 49]

 

Sanjeeva Shetty vs. B. Chittaranjan Rai and
Ors. AIR 2019 Karnataka 36

 

The Trial Court permitted to tender the
unregistered agreement of sale as evidence in a suit for specific performance
of the contract.

 

It was observed that proviso to section 49 of
the Registration Act, 1908 reads as under:

“Provided that an unregistered document
affecting immovable property and required by this Act or the Transfer of
Property Act, 1882 (4 of 1882), to be registered may be received as evidence of
a contract in a suit for specific performance under Chapter II of the Specific
Relief Act, 1877 (3 of 1877) or as evidence of any collateral transaction not
required to be effected by registered instrument.”

 

In appeal before the High Court, it was held
that if section 17(1A) and proviso to section 49 of the Registration Act, 1908
are read conjointly, it is evident that there is no prohibition under proviso
to section 49 of the Registration Act, 1908 for receiving an unregistered
document as evidence of a contract in a suit for specific performance under
Specific Relief Act, 1877. In view of the clear statutory proviso in this
regard, it was held that the Trial Court had rightly admitted the unregistered
document in a suit for specific performance of the contract.

CORPORATE LAW CORNER

9 Amira Pure Foods Pvt. Ltd. vs. Canara Bank
Ltd.

[2019] 105 taxmann.com 326
(Delhi)

W.P. (C) No. 5467/2019

Date of order: 20th
May, 2019

 

Section 18 of the
Insolvency and Bankruptcy Code, 2016 – Debt Recovery Appellate Tribunal should
have recalled its order of taking control and possession of assets of corporate
debtor and handing over the same to the Insolvency Resolution Professional in
exercise of its mandate u/s. 18 of the Code – DRAT should have modified its
order as it has adequate powers to do the same

 

FACTS

CB (“Financial Creditor”)
had approached the Debt Recovery Tribunal (“DRT”) for recovering its dues from
A Co under the Recovery of Debts Due to Banks & Financial Institutions Act,
1993; arising from these proceedings, the matter reached the Debt Recovery
Appellate Tribunal (“DRAT”). DRAT, vide its order dated 15th
November, 2018 appointed Joint Court Commissioners to take over the assets of A
Co including its perishable assets. Soon thereafter, CB also initiated
proceedings against A Co under the Insolvency and Bankruptcy Code, 2016 (“the
Code”) and pursuant to the same, an Interim Resolution Professional (“IRP /
RP”) was appointed on 11th December, 2018.

 

Upon appointment, the IRP
approached DRAT for taking over the properties and assets of A Co and prayed
for an early hearing. CB also accorded its consent to the said application
being allowed. But DRAT did not consider the application for early hearing and
the matter was adjourned. IRP then filed a writ petition with the High Court
where an order was passed instructing DRAT to hear and dispose of the matter
within a week. Consequently, DRAT passed an order on 22nd April,
2019 dismissing the petition filed by IRP on the grounds that as a moratorium
u/s. 14 of the Code was operational, all proceedings against A Co were to be
stalled. The IRP challenged this order of DRAT before the High Court.

HELD

It was submitted by A Co /
IRP that section 14 of the Code imposes a restriction of proceedings which are
against the corporate debtor. It does not bar undertaking of proceedings which
are not considered as being “against the corporate debtor”. Further, since IRP
is required to act in a time-bound and efficient manner, appointment and continuation
of Court Commissioners with vesting of assets was detrimental to the interest
of IRP. Since CB did not object to continuation of proceedings under IBC, the
order of DRAT was bad in law.

 

The High Court heard the parties and held that DRAT was not powerless
to modify its own order whereby the two Court Commissioners had been appointed
to take over control of the assets of A Co. DRAT should have recalled its order
so that the IRP / RP could take over the assets of A Co in the exercise of its
mandate under the Code. The order of DRAT was accordingly set aside and IRP was
permitted to exercise its powers in terms of the Code. The costs of
Commissioner were to be paid by the IRP.

 

10 Pranatpal Tradelink (P.) Ltd., In re

[2019] 105 taxmann.com 308
(NCLT – Ahd)

C.P. No.
32/441/NCLT/AHM/2018

Date of order: 28th
March, 2019

 

CL: Where a company
contravened provisions of section 217 by not attaching board report with its
balance sheet while filing e-form 23AC with MCA portal, in view of fact that
alleged offence was made compoundable and could be compounded because it was
punishable with imprisonment up to six months or with fine alone or both,
application for compounding of said offence was to be allowed

 

FACTS

In the instant case, during
the course of technical scrutiny of the balance sheet of P-Company Pvt. Ltd.
(the applicant), the Registrar of Companies observed that the applicant
company’s Board report was not attached with the balance sheet in e-form 23AC
filed with the MCA portal for the financial year 2010-11; thus, P-Company Pvt.
Ltd. had violated provisions of section 217(1) of the Companies Act, 1956
[Section 134 of The Companies Act, 2013].

 

The directors of P-Company
Pvt. Ltd. admitted that such violation was unintentional and with no mala fide
intention. However, they had later on attached the Board report along with
their compounding application and, thus, they had made good the alleged lapses.

 

HELD

The NCLT observed as
under:

  •  P-Company Pvt. Ltd. (applicant) in the compounding
    application submitted that the violation of not attaching the Board report
    along with the balance sheet for the financial year 2010-11 was totally
    erroneous and there was no wrongful intention on the part of the directors;
  • P-Company Pvt. Ltd. admitted the default and filed
    a compounding application for compounding of the offence committed u/s. 217(1)
    of the Companies Act, 1956;
  • The provisions of section 217(5) of the Companies
    Act, 1956 read as under:

 

If any person, being a
director of a company, fails to take all reasonable steps to comply with the
provisions of sub-sections (1) to (3), or being the chairman, signs the Board’s
report otherwise than in conformity with the provisions of sub-section (4), he
shall, in respect of each offence, be punishable with imprisonment for a
term which may extend to six months, or with fine which may extend to twenty
thousand rupees, or with both.

 

  • The Central Government has declared that matters
    transferred from the Company Law Board to the National Company Law Tribunal
    shall be disposed of by NCLT in accordance with the provisions of the Companies
    Act, 2013 or the Companies Act, 1956;
  • The provisions of Section 441 of the Companies
    Act, 2013 also confer necessary power to NCLT for compounding of certain
    offences. Such violations / offences are made punishable u/s. 217(5) of the
    Companies Act, 1956 but are also made compoundable u/s. 621A of the same
    Companies Act, 1956;
  • On perusal of the material available on record,
    the NCLT observed that the alleged contravention seems to be technical in
    nature and due to some procedural lapses on the part of its directors of not
    enclosing the Board’s report along with the company’s balance sheet as on 31st
    March, 2011. However, P-Company Pvt. Ltd. has attached the Board’s report for
    the financial year 2010-2011 along with a compounding application. Thus, they
    have made good the alleged lapses. P-Company Pvt. Ltd. has further explained
    that non-attaching of the Board’s report with the balance sheet was erroneous,
    and without any wrongful intention on the part of its Directors. Thus, it was
    observed that P-Company Pvt. Ltd. has admitted the default, but has sought
    compounding of offence;
  • The NCLT held that the compounding application for
    the offence was to be allowed as the alleged offence could be compounded
    because it was punishable    with imprisonment up to six months or with fine alone or both.

ALLIED LAWS

 

15 Deficiency of service – Delay in obtaining
occupation certificate – Reasonable cause for termination of agreement –
Eligible for refund with interest [Consumer Protection Act, 1986, S. 2(1)(g)]

 

Pioneer Urban Land and
Infrastructure Ltd. vs. Govindan Raghavan and Ors. AIR 2019 Supreme Court 1779

 

A builder entered into an
agreement with a purchaser to deliver the possession of the flat along with the
occupancy certificate within 39 months from the date of excavation, with a
grace period of 180 days. The builder, however, failed to apply for the
occupancy certificate as per the stipulations in the agreement.

 

The purchaser filed a
consumer complaint before the National Commission alleging deficiency of
service on the part of the builder for failure to obtain the occupancy
certificate and hand over possession of the flat. Admittedly, the
appellant-builder offered possession after an inordinate delay of almost three
years (on 28th August, 2018). On account of the inordinate delay,
the respondent (flat purchaser) had no option but to arrange for alternate
accommodation in Gurugram. Hence, he could not be compelled to take possession
of the apartment after such a long delay.

 

It was observed that the
builder had obtained the occupancy certificate almost two years after the date
stipulated in the agreement with the purchaser. As a consequence, there was a
failure to hand over possession of the flat within a reasonable period. The
purchaser has made out a clear case of deficiency of service on the part of the
builder. The purchaser was justified in terminating the agreement by filing the
consumer complaint and cannot be compelled to accept the possession whenever it is offered by the builder. The purchaser was
legally entitled to seek refund of the money deposited by him along with
appropriate compensation.

It was held that the
builder failed to fulfil his contractual obligation of obtaining the occupancy
certificate and offering possession of the flat to the purchaser within the
time stipulated in the agreement or within a reasonable time thereafter. The
purchaser could not be compelled to take possession of the flat, even though it
was offered almost two years after the grace period under the agreement
expired. During this period, the purchaser had to service a loan that he had
obtained for purchasing the flat by paying interest @ 10% to the bank. In the
meanwhile, the purchaser also located an alternate property in Gurugram. In
these circumstances, the purchaser was entitled to be granted the relief prayed
for, i.e., refund of the entire amount deposited by him with interest.

 

16 Dishonour of cheques – Cheques issued
in pursuance of agreement to sell is also a duly enforceable debt or liability
[Negotiable Instruments Act, 1881, S.138]

 

Ripudaman Singh vs.
Balkrishna AIR 2019  Supreme Court 1625

 

The issue pertained to
dishonour of cheques for part payment of sale consideration. Two people sold
their agricultural land to one Mr. X (respondent). Part payment was already
done by Mr. X. Two post-dated cheques were issued to the sellers. However, on
the due date the cheques were returned unpaid with the remark ‘insufficient
funds’. Legal notices were issued and complaints were initiated u/s. 138 of the
Negotiable Instruments Act, 1881 before the judicial magistrate. The magistrate
dismissed the applications seeking discharge of the complaint cases and charges
were framed u/s. 138. The respondent then filed a petition u/s. 482 before the
High Court.

 

The High Court held that
the cheques had not been issued for creating any liability or debt but for the
payment of balance consideration and hence the respondent did not owe any money
to the complainants. Accordingly, the complaint u/s. 138 was quashed.

 

On appeal, the Supreme
Court held that the cheques were issued under and in pursuance of the agreement
to sell. Though it is well settled that an agreement to sell does not create
any interest in immovable property, it nonetheless constitutes a legally enforceable
contract between the parties to it. A payment which is made in pursuance of
such an agreement is hence a payment made in pursuance of a duly enforceable
debt or liability for the purposes of section 138. Hence, the order quashing
the complaint was set aside.

 

17 Hindu Law – Right of daughter to
coparcenery property – Amendment not applicable to cases where the transfer of
such property had already taken place [Hindu Succession Act, 1956, S.6]

 

Jayaraman Kounder vs.
Malathi and Ors. AIR 2019 Madras 113

 

A property which was
inherited from the parents was sold by the son and grandchildren on 2nd
June, 1994. All the children were male. Thereafter, the Hindu Succession Act
got amended wherein section 6 brought the daughters on par with the sons as
coparceners.

 

After the amendment in the
Hindu Succession Act, the daughters filed a suit against the father / brothers
in connection with the sale of property which was done 18 years prior to the
amendment.

 

The High Court while
answering the question whether the sale deed dated 2nd June, 1994
executed in favour of the appellant by the father and brothers of the first and
second respondents / sisters is valid or whether, by virtue of becoming
coparceners, they are entitled to set aside the same even after getting a
decree of partition; the Court held that the proviso to sub-section 4 of
section 6 of the Hindu Succession Act made it clear that the properties which
have been alienated, including through partition, will be affected by virtue of
the amendment which came into force on 20th December, 2004.
Admittedly, the properties were sold by the father and brothers as early as on
2nd June, 1994. De hors the theory of the Will, the property
was already alienated on 2nd June, 1994. Therefore, the properties,
which had been sold to the appellant are exempted from the amendment.

 

18 Power of Attorney
holder – Only a right to appear but not plead [Advocates Act 1961; S.29; High
Court (Original Rules) 1914, Ch.1 R.5]

 

Usha Kanta Das and Ors. vs. Sefalika Ash AIR 2019 Calcutta 145

The issue before the Court
was whether appearance, application or acting by a recognised agent of a party
would include within such scope the right to plead and argue before a court of
law as defined in rule 2 of order III?

 

In the present case, Mr. N
admittedly was a power of attorney holder on behalf of the caveatrix and claims
a right to argue the case of the caveatrix, including examining witnesses in
the proceedings on the basis of the authorisation arising from the power of
attorney.

 

It was observed that three
propositions emerge: first, order III rule 1 specifically excludes the
expression ‘plead’ from the purview of ‘appearing’ or ‘acting’. The expression
‘plead’, on the other hand, arises from the definition of ‘pleader’ u/s. 2(15)
of the CPC. Second, advocates, vakils and attorneys of a High Court have
been specifically included in the class of those who are entitled to plead for another before a court. Third, ‘pleading’ as an
exclusive domain has been formalised under chapter I rule 1(i)(a) of the
Original Side Rules which has specifically excluded ‘pleading’ from ‘acting’.

 

It was held that only a
special class of persons, namely, advocates enrolled under the Advocates Act,
1961, have been authorised to plead and argue before a court of law. It should
further be noted that the ‘special reason’ of permitting ‘any other person’
under rule 5 of chapter 1 of the Original Side Rules relates only to appearance
and not pleading.

 

19 Surety /
Guarantor – Liability co-extensive with original borrower [Contract Act, 1872;
S.128]

 

Bharatbhai Sagalchand
Thakkar vs. State of Gujarat AIR 2019 Gujarat 81

 

A co-operative society had
advanced money to one of its members where two guarantors had also given surety
for the same. Later, the original borrower defaulted in payment of the loan. A
question for consideration was that since the loan was disbursed in favour of
the original borrower, whether there is a duty cast upon the co-operative
society or the bank, as the case may be, first to recover the loan advanced to
the borrower and then to take steps against the guarantor or steps may be taken
against anyone?

 

It was held that the
liability of a guarantor is co-extensive with that of the original borrower. It
is always open for the co-operative society to first proceed against the guarantor for
the recovery of the loan amount. It is not necessary that the co-operative
society should first go after the original borrower and only thereafter proceed
against the guarantor.

CORPORATE LAW CORNER

9.  Lalit Mishra vs. Sharon Bio Medicine Limited
Company Appeal (AT) (Insolvency) No. 164 of 2018  Date of Order: 19th
December, 2018

 

Insolvency and Bankruptcy Code, 2016 –
Shareholders and promoters are not creditors – Right available to surety (who are
also the promoters and shareholders) under contract law will not be applicable
in case of an approved resolution plan

 

FACTS

 

National Company Law Tribunal (“NCLT”) passed an order whereby a
resolution plan was approved in respect of S Co. L was a promoter of S Co.
Predominantly, the grounds of appeal are that L and others although are
promoters and shareholders, no amount has been provided for them; and some of
the promoters being personal guarantors are discriminated against.

 

L has also submitted that the security interest which include the
personal guarantees of L have been reduced to ‘nil’ and thereby the ‘Resolution
Plan’ have been submitted against the provisions of sections 133 and 140 of the
‘Indian Contract Act’. 

 

HELD

 

NCLAT examined the various clauses of the resolution plan approved by
the NCLT. It was observed that restructuring of the financial debt as part of
the ‘Resolution Plan’ approved by the NCLT under the Code did not envisage
complete discharge of the liability of personal guarantors of the S Co. The
plan mentioned that all securities/ collaterals/ margin money/ fixed deposit
with lien provided by S Co shall be deemed to be released immediately on
Effective Date. It is subsequently mentioned that the personal guarantee provided
by the existing promoters of S Co shall not result in any liability towards S
Co or the ‘Resolution Applicants’.

 

This ‘treatment of security’ and with regard to personal guarantee
provided by the existing promoters of S Co is alleged to be in violation of
section 140 and section 133 of the ‘Indian Contract Act’.

 

However, it was held that intention of the law was maximisation of the
value of the assets of the ‘Corporate Debtor’, then to balance all the
creditors and make availability of credit and for promotion of entrepreneurship
of the ‘Corporate Debtor’. The Code prohibits the promoters from gaining,
directly or indirectly, control of the ‘Corporate Debtor’, or benefiting from
the ‘Corporate Insolvency Resolution Process’ or its outcome. The Code seeks to
protect creditors of the ‘Corporate Debtor’ by preventing promoters from
rewarding themselves at the expense of creditors and undermining the insolvency
processes.

 

The NCLAT held that the shareholders and promoters are not creditors and
thereby the ‘Resolution Plan’ cannot balance the maximisation of the value of
the assets of the ‘Corporate Debtor’ at par with the creditors. They were also
ineligible to submit the ‘Resolution Plan’ to again control or takeover the
management of the ‘Corporate Debtor’. Further it was held that there was no
discrimination if no amount is given to the promoters/shareholders and the
other equity shareholders who are not the promoters have been separately
treated by providing certain amount in their favour. The appeal was accordingly
dismissed.

 

10. 
KKR Jupiter Investors (P.) Ltd. vs. JBF  Petrochemicals Ltd. [2018]
100 taxmann.com 341 (NCLT-Ahd.) Date of Order: 19th November, 2018

 

Section 60(5)(c) r.w.s 7 of Insolvency and
Bankruptcy Code, 2016 -_ Proceedings u/s. 7 can only be initiated by or against
the corporate debtor – No other person (including a financial investor,
promoter or shareholder) can intervene in the proceedings so initiated

 

FACTS

 

K Co, is a financial investor of J Co. In April 2018 K Co came to know
that corporate insolvency resolution process u/s. 7 of the Insolvency
Bankruptcy Code, 2016 has been initiated against J Co by one of its financial
creditors. K Co as a financial investor submitted that it proposed to implement
a comprehensive solution to the problems faced by all the stakeholders of J Co
within a reasonable time period and sought the co-operation of the financial
creditor. This was mainly based on the contention that corporate insolvency
resolution process would not serve any beneficial purpose to the stakeholders
including financial creditor and the proposed financing would resolve the
issues whereby the lender would receive payment of outstanding principal amount
under the facility arrangement and K Co’s interest would also be preserved. The
applicant thus filed intervention application for affording an opportunity to
it to raise all the issues for the effective adjudication in the matter.

 

HELD

 

National Company Law Tribunal (“NCLT”) examined the provisions of
section 60(5) of the IBC which deal with adjudicating authority for corporate
persons. It observed that an application/proceeding u/s. 60(5) of the IBC could
be filed by or against the corporate debtor. This was unlike the K Co’s case,
where, the intervention application was filed against the financial creditor.

 

NCLT further observed that section 60(5)(c) had no applicability at the
stage of adjudication on admissibility of application filed u/s. 7 of IBC. This
was because section 60(5)(c) dealt with questions of priorities or any question
of law or facts “arising out of or in relation to the insolvency resolution or
liquidation proceedings of the corporate debtor” or corporate person. NCLT,
thus, concluded that the intervener cannot resort to section 60(5)(c) to invoke
jurisdiction of the Tribunal to entertain the intervention application in a
case where the proceedings are initiated by the financial creditor u/s. 7 of
the IBC which is under way and the insolvency resolution process against the
corporate debtor has not been initiated.

 

NCLT relied on the decision of the NCLAT in Axis Bank vs. Lotus Three
[2018] 97 taxmann.com 96 wherein it was held that, third party i.e. an
entity other than the financial creditor/corporate debtor is not offered the
right to be heard and/or to intervene in a proceeding initiated u/s. 7. NCLT
thus held that adjudicating authority was only required to satisfy that the
default had occurred and the corporate debtor was entitled to point out that
the default had not occurred, i.e. the debt was not due. No other person had
the right to be heard at the stage of admission of application u/s. 7 and 9
including the shareholder or the personal guarantor. The Tribunal also relied
on the decision of the Supreme Court in the case of Innoventive Industries
Ltd. vs. ICICI Bank Ltd. [2017] 84 taxmann.com 320 (SC) to draw support for
this position held by the Tribunal. NCLT, thus, rejected the application filed
by K Co.

 

11. Vestal Educational
Services (P.) Ltd. v. Lanka Venkata Naga Muralidhar [2018] 100 taxmann.com 286
(NCL-AT) Date of Order: 16th November, 2018

 

Section 62 of Companies Act, 2013 – Money was
given by ex-director to Company for re-payment of loans taken by the company –
Company alleged that amount was advanced against equity shares and not loan as
was claimed by the ex-director – Company was required to establish that a valid
offer of shares was made to and accepted by the ex-director and that procedure
laid down u/s. 62 was complied with – Inability to prove the same rendered the
allotment null and void.

 

FACTS

 

L is a shareholder of V Co and acted as a director of the same from
December 2006 to October 2011. V Co had borrowed loan from SBI in 2009 against
which properties of V Co were mortgaged and L also gave a personal guarantee.

 

The term loan became NPA in 2013 (i.e. after L ceased to be a director
in October 2011). There was a one-time settlement agreed by V Co. Since the
company could not meet its liability as per the one-time settlement scheme
entered into with the Bank, it approached L to lend Rs. 1.54 crore. L deposited
the said sum in the account of V Co.

 

L claimed that he sent reminders to the company for repayment of the
amount and also sent legal notices asking for payment of amounts advanced by
him to the company. Meanwhile, V Co sent a courier to the original petitioner
showing the latest shareholding and on verification, the original petitioner
found that amount lent by him had been converted into equity without his
knowledge, intimation or authorisation and that the action  on the part of company to convert the amount
into equity was to avoid the payment of money to him and clearly an
afterthought.

 

The NCLT observed that there was no evidence as regards issue of notice
offering shares and ultimately set aside the allotment made by the company and
directed that the amount be paid to L.

 

V Co filed the present appeal pleading that amounts were advanced by L
as a consideration for issue of shares and not as a loan as was held by NCLT.

 

HELD

 

NCLAT observed that having regard to the opposing nature of claims,
burden was on V Co to show that when the payments were made by L, he had agreed
that against the said amount, shares be issued to him. V Co was also required
to establish that procedures laid down u/s. 62 of Companies Act, 2013 were
complied with.

 

The NCLAT observed that there was no match between the amounts advanced
by L and shares alleged to be allotted by V Co in light of ledger maintained by
V Co.

 

NCLAT held that V Co was unable to establish at any point of time that L
had in fact consented to the issue of equity shares against money advanced by
him. Further, additional documents that V Co tried to submit in order to
further its claim were never filed before NCLT and there was a concern on the
genuineness of the documents so tendered for filing. NCLAT further held that
had the documents been considered, the conclusion would still be the same as
NCLT. V Co was unable to prove that shares were offered to L or that L had in
fact accepted the offer alleged to have been made.

 

The appeal filed by V Co was accordingly aside and a cost of Rs.
1,50,000 was imposed upon V Co.

 

 

RIGHT TO INFORMATION (r2i)

  •  SC notice to RBI on pleas seeking
    contempt proceedings for violating RTI

 

The Supreme Court (SC)
sought RBI’s response on two pleas seeking contempt proceedings against the
central bank and its former Governor Urjit Patel for non-disclosure of
information under RTI about some banks. 

 

A bench headed by Justice L
N Rao issued the notice to the Reserve Bank of India (RBI) for not disclosing
information about the list of banks on whom certain fines were imposed for
violating some banking rules.

 

The court has asked RBI to
file a reply within four weeks and listed the matter for hearing in March.

 

The pleas, filed by Girish
Mittal and Subhash Chandra Agrawal, claimed that RBI and Patel had
“willfully and deliberately” disobeyed the top court’s judgement
asking the central bank to disclose information under the Right to Information
(RTI) Act.

 

Agrawal had sought complete
information including related documents from RBI on the imposition of fines on
some banks for violating rules.

 

He had also sought the list
of banks and the default for which show cause notices were issued to them
before the fine was imposed.

 

Despite the apex court’s
judgement for disclosure of such information, RBI had issued a “Disclosure
Policy” under which it has listed certain information as being exempted
from being disclosed of the RTI Act.

 

“It is to be noted
that this specific information is similar to what were held not to be exempted
by the Supreme Court,” claimed the plea, filed through lawyer Prashant
Bhushan.

 

RBI had refused to disclose
such information on the grounds of economic interest and holding such
information in fiduciary relationship with these individual banks.

 

Such reason is in direct
contempt with this court’s judgment. The information titles which are in
contempt belong to Department of Banking Regulation, Banking Supervision,
Cooperative Banking Regulation/Department of Cooperative Banking Supervision
and Consumer Education and Protection Department.

 

“This exempted
information under the policy were held to be not exempted by the Supreme Court.
Thus, this exemption leads to contempt of this court’s order,” the plea
said.

 

The Supreme Court had in
2015 held that RBI should take rigid action against those banks and financial
institutions which have been indulging in “disreputable business
practices” and said it cannot withhold information on defaulters and other
issues covered under the RTI Act.

 

It had further clarified
that RBI cannot withhold information under the “guise” of confidence
or trust with financial institutions and is accountable to provide information
sought by the general public.

 

The pleas claimed that the
disclosure policy framed by the RBI headquarters is like an instruction to its
Public Information Officers (PIOs) not to furnish virtually all kinds of
information.

 

“Under the RTI Act,
2005, it is the PIOs who have been cast with the statutory duty to comply with
the provisions of the RTI Act (as interpreted by the Courts) and it is the PIOs
who face a penalty for non-compliance.

 

“The policy provides
with different titles of information divided department wise that are not to be
disclosed under the RTI Act, 2005. The reason for non-disclosure of information
by RBI under its Disclosure Policy has been based on economic interest and
fiduciary relation with the individual banks,” the pleas said.

(Source:https://www.business-standard.com/article/pti-stories/sc-issues-notice-to-rbi-on-pleas-alleging-violation-of-right-to-information-law-119012501365_1.html
)

  

                                                 Part B
IRTI ACT, 2005

 

  •             Step
    by step guide to file an RTI application

 

Right to Information Act 2005 mandates timely response to citizen requests
for government information.

 

It is an initiative taken by Department of Personnel and Training,
Ministry of Personnel, Public Grievances and Pensions to provide an RTI Portal
Gateway to the citizens for quick search of information on the details of first
Appellate Authorities,PIOs etc. The url of the RTI software is :
https://rtionline.gov.in

 

Steps to file an RTI

1. For submitting RTI application click on submit
request option.

2. On clicking on submit request option
‘Guideliens for use of RTI ONLINE PORTAL’ screen will be displayed.This screen
contains various guidelines for using RTI online portal. Citizen has to click
on the checkbox ‘I have read and understood the above guidelines’ and then
click on submit button.

3. Then Online
RTI Request Form screen will be displayed. Ministry or Department for which the
applicant wants to file an RTI can be selected from Select
Ministry/Department/Apex body dropdown.

4. Applicant will receive sms alerts in case
he/she provides mobile number. The fields marked * are mandatory while the
others are optional.

5. If a citizen belongs to BPL category, he has to
select the option ‘Yes’ in ‘Is the applicant below poverty line?’ field and has
to upload a BPL card certificate in supporting document field. (No RTI fee is
required to be paid by any citizen who is below poverty line as per RTI Rules,
2012)

6. On submission
of the application, a unique registration number would be issued, which may be
referred by the applicant for any references in future.

7. If a citizen
belongs to Non BPL category, he has to select the option ‘No’ in ‘Is the
applicant below poverty line?’ field and has to make a payment of Rs 10 as
prescribed in the RTI Rules, 2012.

8. ‘Text for RTI
request application’ should be upto 3000 characters. If the text is more than
3000 characters, then the application can be uploaded in supporting document
field.

9. After filling all the details in the form, click on
the ‘make payment’ option.

10. On clicking
the option, Online Request Payment form will be displayed. The payment mode can
be selected in this form, which can be; internet banking, ATM-cum-debit card or
credit card.

11. After clicking
on the ‘Pay’ button, applicant will be directed to SBI payment gateway for
payment. After completing the payment process, applicant will be redirected
back to RTI Online Portal.

12. The applicant
will get an email and sms alert on submission of application.

 

Note: Only alphabets A-Z a-z
number 0-9 and special characters , . – _ ( ) / @ : & % are allowed in
text for RTI request application.

 

The application filed through this web portal would reach electronically
to the nodal officer of concerned Ministry/Department, who would transmit the
RTI application electronically to the concerned CPIO.

 

 

 

What to do if your RTI
request is rejected?

There is fundamental difference between RTI Request and RTI Appeal.

 

RTI Request is filing
application for the first time. Request is made by the citizen to one person
(i.e. PIO) to provide information. This means that it involves only the citizen
and PIO.

 

RTI Appeal is appeal
before senior officer against decision of PIO. This means that here, a third
person (i.e. Appellate Authority) comes between the citizen and the PIO.

 

Appeal is only filed when the citizen is not
satisfied with the reply of PIO or PIO rejects citizen’s request for
information.

This means RTI request is application process while RTI appeal is
appellate procedure against decision on RTI application.

 

Steps for filing RTI First
Appeal

1. For submitting First appeal application, click on
‘submit first appeal’ option. Upon clicking, ‘guidelines for use of RTI online
portal’ screen will be displayed. This screen contains various guidelines for
using RTI online portal.

2. Citizen has to click on the checkbox ‘I have read
and understood the above guidelines’ and then click on submit button.

3. Online RTI first appeal form screen will be
displayed. Applicant has to enter registration number, email ID and security
code in the form.

4. Upon clicking the submit button, online RTI first
appeal form will be displayed. The applicant can then select reason for filing
appeal application from ‘ground for appeal’ dropdown field.

5. Text for RTI first appeal application should be
upto 3000 characters. If the text is more than 3000 characters, then the
application can be uploaded in supporting document field. (As per RTI Act, no
fee has to be paid for first appeal).

6. On submission of the application, a unique
registration number would be issued, which may be referred by the applicant for
any references in future.

 

The application filed through this web portal would reach electronically
to the nodal officer of concerned Ministry/Department, who would transmit the
RTI application electronically to the concerned appellate authority.

 

(Source:
https://www.indiatoday.in/information/story/rti-application-online-filing-steps-1440321-2019-01-27
)

 

                                    Part C IINFORMATION ON
& AROUND

 

  •  Govt breached rules in filling RTI commission, Supreme Court told

 

The Supreme Court heard that the Centre had violated provisions of the
Right to Information Act by appointing commissioners who had not even applied
for the posts.

 

A bench headed by Justice A.K. Sikri took on record the affidavit filed
by RTI activist Anjali Bharadwaj and adjourned the matter by a week to enable
the Centre and the states to submit comprehensive status reports on the filling
of vacant posts.

 

In December the top court had directed the Centre and the states of
Bengal, Andhra Pradesh, Odisha, Telangana, Maharashtra, Gujarat, Kerala and
Karnataka to file status reports mentioning the steps taken to fill up the
vacant posts of information commissioners and also the manner in which the
governments planned to hire.

 

The court had passed the directions on a PIL jointly filed by Bharadwaj,
Lokesh Batra and others alleging that a large number of vacancies in the
Central Information Commission (CIC) and the state information commissions
showed that the governments wanted to throttle the functioning of the RTI Act,
which was not good for democracy as the main purpose behind the legislation was
to ensure transparency. The petitioners complained that the Centre had issued a
notification dated 4th January, 2019, on the website of the
department of personnel and training and in some newspapers inviting
applications for four vacant posts in the CIC.

 

They alleged that the advertisements were not in keeping with the
provisions of the RTI Act, 2005, as they stated that “the salary, allowances
and other terms and conditions of service of the Information Commissioners
shall be as may be specified at the time of appointment of the selected
candidate”.

 

According to the petitioners this is at variance with the provisions of
the RTI Act that specifies the terms and conditions of service of information
commissioners of the CIC. Sub-sections 2 and 5 of section 13 of the RTI Act
define the tenure and salaries and allowances payable to the chief information
commissioner and the information commissioners at the CIC.

 

“As per the said section, ‘every Information Commissioner shall hold
office for a term of five years from the date on which he enters upon his
office or till he attains the age of sixty-five years, whichever is earlier,
and shall not be eligible for reappointment as such Information Commissioner’,”
the PIL said.

 

“13(5) says ‘the salaries and allowances payable to and other terms and
conditions of service of — (a) the Chief Information Commissioner shall be the
same as that of the Chief Election Commissioner; (b) an Information
Commissioner shall be the same as that of an Election Commissioner’,” the
petition added.

 

According to the petitioners the Centre had deliberately worded the
advertisements vaguely by not specifying the tenure and salaries to undermine
the selection process.

“It would be unreasonable to expect people of eminence to apply for a
post without knowing the terms and conditions of service,” the petitioners
contended.

 

The petitioners also alleged that some of the four commissioners
appointed by the Centre had not applied for the post.

 

The petition said the Centre did not upload the list of shortlisted
candidates during the process of appointment.

“…The search committee acted arbitrarily and beyond the mandate to
selectively shortlist individuals who had not even applied… Therefore, the
shortlisting of persons who had not applied is illegal. In the case of the
Chief Information Commissioner, 5 people were shortlisted, 4 of whom had not
even applied. While for information commissioners, 14 persons were shortlisted
of which 2 had not even applied for the post…. One such individual has been
appointed as an information commissioner… Further, minutes of meetings do not
record the rational criteria on the basis of which names were shortlisted,” the
petitioners stated.

 

The petitioners alleged that Bengal had failed to inform the Supreme
Court about the number of vacancies at the state information commission.

 

Quoting statistics available on the website of the Bengal information
commission, the petition said several matters filed more than 10 years ago were
heard in 2018. The petition alleged that it would take two years to clear the
backlog and also the matters filed in the intervening period if the commission
continued to dispose of cases at the current rate — 4,500 a year.

 

Such long waiting periods defeat the purpose of the RTI Act, which is to
ensure information disclosure in a time-bound manner, the petitioners said.

 

The Andhra Pradesh commission website shows that the panel has been
defunct since May 2017, the petitioners said. No appeals or complaints had been
heard since then. On the web portal of the Andhra government details such as
the names of search committee members and shortlisted candidates and the selection
criteria could not be located, the petitioners said.

 

Information submitted by the Telangana
commission on affidavit shows that on average it disposes of about 2,000
matters annually, the petitioners said. If the commission functions at the same
rate, it will take six years to just dispose of the 11,762 cases that are
pending as on December 2018. Nine posts of information commissioners are
vacant.

 

The petitioners said that on the website of the Maharashtra general
administration department no details regarding names of search committee
members and shortlisted candidates and the selection criteria could be located.
Two posts of information commissioners are vacant and 42,000 cases pending.

 

In Gujarat nine posts of information commissioners are vacant. The
commission was functioning with one chief and one commissioner as of 21st
January, 2019. Nearly 5,200 cases are pending. Although advertisements for
appointments were issued nearly two years ago, no appointments had been made.

 

In Kerala five posts of state information commissioners are lying vacant
because of the pendency of some writ petitions in the high court.

 

In the affidavit filed on behalf of the Karnataka government it is
mentioned that one post of state information commissioner is vacant and that an
advertisement had been put out seeking applicants. However, Karnataka High
Court has stayed the appointment process now.

 

(Source:https://www.telegraphindia.com/india/govt-breached-rules-in-filling-rti-commission-supreme-court-told/cid/1682549)

 

  •    Service book is personal and does not fall under RTI: SIC

 

In a landmark order, State Information Commission said the Service Book
of an employee is “personal” and
cannot be provided to third party under the Right to Information Act.

 

Hearing the appeal from Excise inspector Amit Morajkar, SIC Juino
D’Souza expresses serious concern the First Appellate Authority has passed an
Order directing the PIO to provide certified copies of the Service Book of the
third party without even hearing and considering the objections of the ‘Third
Party’.

 

Also, it is seen that the procedure under section 11 has not been
followed and which includes giving notice to the concerned officer, he said.

 

The Commission further observed that the FAA in the present case is a
senior IAS officer, holding the post as ‘Commissioner of Excise’ and being a
quasi-judicial authority should have applied his mind and decided the First
Appeal as per 19(1) purely on merits as per the RTI act 2005. The FAA is duty
bound to see that the justice is done.

 

“The Service Book of an employee is essentially a matter between the
employer and employee more so as it contains important records such as annual
confidential report, family nomination, health status, disciplinary proceedings
taken against the employee and other such information that is Personal in
nature and every Government servant has a right to guard the same,” he
observed.

 

Further, the order stated, unless larger public interest is shown, the
furnishing of such records can cause prejudice and unwarranted invasion of
privacy to the concerned government servant, besides the information can also
be misused against the employee by unscrupulous elements using RTI as a
cover. 

 

The SIC cautioned the FAA is accordingly instructed to be more cautious
in future while dealing with information that is ‘Personal’ in nature and which
may cause invasion of privacy and also information falls under the ambit of
exemptions under section 8 of the RTI act 2005, specially the exemption under
section 8(1)(j) of the RTI act 2005.

 

“With these observations all proceedings in Appeal case stand closed,”
the order states.

 

(Source:https://www.heraldgoa.in/Goa/Service-book-is-personal-and-does-not-fall under-RTI-SIC/141726.html
)

 

  •  Highest RTI applications filed 2017-18, lowest rejected since 2005:
    Central Information Commission data

 

A record 12.3 lakh RTI applications were filed in 2017-18 with 96 per
cent of them being responded to by government offices, making it the best
performing year since the law was enacted in 2005, the Central Information
Commission data shows.The data from the latest CIC annual report, shared by the
Ministry of Personnel, Public Grievances and Pensions shows that during
2017-18, 12.33 lakh RTI applications were received by the registered Central
Public Authorities (PAs).

 

“This is higher by 3,17,458 or 26 per cent than what was reported
during 2016-17. The Central PAs rejected 4 per cent (63,206) of the RTI
applications processed during 2017-18 showing a downward trend in rejections
which have come down by 2.59 per cent from the 6.59 per cent reported in
2016-17,” it said.The four per cent rejection rate is the lowest since
2005 when the RTI Act was enacted by Parliament giving people the right to get
information from government offices on a payment of  INR 10. The public authorities used
exemptions provided under section 8, section 9, section 11 and section 24 of
the RTI Act to reject plea for information.

 

Thirty-two per cent of applications were rejected citing other reasons.
Section 8 lists nine subsections covering issues such as national security,
commercial confidence, parliamentary privilege, cabinet papers, personal
information among others under which information can be denied to a person.

 

Section 9 pertains to information related to infringement of copyright,
section 11 deals with third party information and section 24 is related to security
and intelligence organisations exempted from the RTI Act. The year proved
successful to the efforts of the Central Information Commission that all public
authorities file their annual returns with it which is mandatory under the RTI
Act. On this front, 100 per cent compliance was witnessed during 2017-18 which
is a first since enactment of the transparency law, the data showed.

 

(Source:https://economictimes.indiatimes.com/news/politics-and-nation/highest-rti-applications-filed-2017-18-lowest-rejected-since-2005-central-information-commission-data/articleshow/67369101.cms
)

 

                                                 Part D IRTI ARTICLE

 

  •    SC Seeks Explanation for Arbitrary Appointment of Information
    Commissioners

 

The Supreme Court took note of the arbitrary
and haphazard manner in which the information commissioners in the Central
Information Commission were selected recently and directed the Department of
Personnel & Training (DoPT) to reply by 29th January, at the
next hearing.

 

This is a sequel to Supreme Court’s directive to DoPT to upload on its
website details of the process of information commissioner appointments by the
selection and search committee. Thanks to legal intervention by three right to
information (RTI) activists, Anjali Bharadwaj, Amrita Johri and Commodore
Lokesh Batra (retd), these documents, in the public domain now, reveal how the
selection committee violated several norms to appoint the Chief Information
Commissioner and four information commissioners of “their choice.”

 

Now, it is clear that the appointment of Sudhir Bhargava, an information
commissioner until now in the CIC and four information commissioners—Vanaja N
Sarna (the only lady), formerly, chief of the Central Board of Excise and
Customs (CBEC); Yashwardhan Kumar Sinha, former High Commissioner of India to
the UK; Suresh Chandra, former Union law secretary and Neeraj Kumar Gupta,
secretary in the department of investment and public asset management are not
as per the norms laid out for these
committees as per the RTI Act.

 

One of the petitioners, Anjali Bharadwaj, pointed out in the Supreme
Court, “the search committee had, in violation of its mandate, short-listed
persons who had not even applied for the post in response to advertisements.
Further, the minutes of the search committee meeting revealed that no rational
criteria were adopted on the basis of which the short-listing was done. Also,
the minutes showed the completely ad-hoc manner of functioning of the search
committee, wherein people who were appointed members of the committee, also
applied for the post and had to be subsequently replaced and were finally even
short-listed. One of the person who has been appointed- Shri Suresh Chandra,
had not even applied for the post.”

 

The Supreme Court took serious note of all the issues and directed that
the government should file a report on all the issues highlighted by the
petitioners and listed the matter. All the states were also directed to file
their reports before the hearing.

 

Research scholar and RTI activist, Venkatesh Nayak has closely studied
the documents put up by the DoPT regarding the selection committee’s glaring
bias of appointing present and former government servants as information
commissioners, by throwing to the winds rules under section 12 (5) and 15(5) of
the RTI Act as well as the Supreme Court ruling in the matter of Union of India
vs. Namit Sharma [ AIR 2014 SC 122], which clearly state that eminent persons
from various fields should also be chosen for the posts.

 

The following is Venkatesh Nayak’s observations
and analysis, along with those of Commodore Batra:

 

  •   The file notings show that 64 applications were received within the
    stipulated deadline, from across the country against the vacancy advertised in
    two English language and two Hindi language newspapers. Four applications were
    received after the lapse of the deadline. The DoPT has only disclosed the names
    of these applicants and withheld their applications and bio data by invoking
    Section 8(1)(j) of the RTI Act which seeks to exempt personal information of an
    individual from disclosure. About 20 pages of documents contained in the files
    have been withheld from disclosure in this manner.

 

Who were the search committee members?

 

  •  The six-member search committee headed by the cabinet secretary
    included the secretaries of the DoPT and the dept. of expenditure (in the
    finance ministry), the information & broadcasting, and the additional
    secretary to the prime minister of India. The director of the Institute of
    Economic Growth was the independent member. Interestingly, the secretary, dept.
    of expenditure declared that he had applied for the post of information
    commissioner. So after consultations with the PMO, he was retained on the
    search committee

 

  •  How many times did the search and the selection committees meet?

 

Only four members of the search committee met on 24th
November, 2018 in the committee room of the cabinet secretariat to draw up the
shortlist. According to the file notings disclosed by the DoPT, the secretary
I&B and the secretary, expenditure could not attend the meeting.

 

The selection committee comprising the Prime Minister, his nominee, the
finance minister and the leader of the single largest party in opposition in
the Lok Sabha met on the 11th of December to finalise their
recommendation to the President of India. Only one name of the appointee was
recommended. In fact, contrary to media reports, the selection of the chief
information commissioner preceded the finalisation of the names of the
information commissioners.

 

Whom did the search committee shortlist?

 The search committee shortlisted
four candidates for the consideration of the selection committee. All four of
them were retired IAS officers including the newly appointed chief information
commissioner, Sudhir Bhargava. No women were included in this short list. The
list of 68 applicants reveals the names of at least four women. No candidate
from other areas of specialisation mentioned in the RTI Act was shortlisted.
This is a clear breach of the Supreme Court’s directions.

 

Further, the serving information commissioners, Bimal Julka and D. P.
Sinha who had also applied for the post of the chief information commissioner,
were not even shortlisted. Further, three of the four shortlisted candidates
had not even applied in response to the advertisement for the vacancy of the
chief information commissioner. They included Madhav Lal, a former secretary of
the ministry of micro, small and medium enterprises,  Alok Raawat, a former secretary of DoPT’s
sister department, department of administrative reforms and public
grievances,  R P Watal, the current
principal adviser Niti Ayog and former secretary, dept. of expenditure and Dr.
S. K. Nanda, former addl. chief secretary, government of Gujarat.

 

Observes Nayak, “The search committee meeting minutes indicate that its
members considered names of other serving and retired civil servants who had
not applied at all. This is perplexing to say the least. One of the women
applicants had recently retired as the chief secretary of the government of
Karnataka. How her candidature was given lesser weightage than that of the
former addl. chief secretary of Gujarat who had not even put in his application
in the first place, is a mystery. The minutes of the search committee meeting
are silent on this issue. This raises serious questions about the manner in
which the search committee determined “eminence” in public life.
Neither the committee nor the DoPT have publicised the criteria adopted for
determining “eminence in public life”. Further, how the claims of the
two serving information commissioners were undervalued in comparison to the
three shortlisted retired bureaucrats who had no previous experience of
adjudicating RTI disputes in any information commission is also a mystery that needs
to be cleared.’’

 

Tenure and terms and conditions of service of
the new appointees

 It may be remembered here that
the government sought to amend the RTI Act mid-2018 to give itself the power to
determine the tenure and the terms and service conditions of the information
commissioners across the country. Despite giving notice of its intention to
introduce a bill to this effect in the Rajya Sabha, the government was not able
to introduce it during the 2018 monsoon session. The documents disclosed by the
DoPT indicate that the government sought to make the changes through the
ordinance route. However, this plan did not materialise and the documents that
the DoPT has disclosed on its website are silent on the underlying causes. The
file notings indicate, the government was planning to reduce the term of the
information commissioners to three years.

 

The only good part of these appointments:

The selection intimation letters issued to the new appointees indicate
that the terms of appointment are in accordance with the provisions of the RTI
Act, namely five years (including term served as information commissioner)
subject to the maximum age limit of 65. Salaries will be equal to that of the
chief election commissioner and the election commissioners, as the case may be,
in accordance with the provisions of the RTI Act. So despite advertising that
the government would determine the tenure and service conditions of the chief
information commissioner and information commissioners, the government has had
to eat humble pie by toeing the line of the law.

 

Box

How much time did the Committees spend making the final selections?

 

The documents released by the DoPT reveal only the date, time and venue
of the meetings of the search and the selection committees.

 

The search committee met on three occasions (twice for shortlisting the candidates for appointing as ICs and once
for shortlisting the candidate for appointment as the chief information
commissioner).

 

The selection committee met twice. The duration of these meetings is not recorded in the meeting minutes.
However, the minutes indicate that the search committee looked at all eligible
applications (the number is not known- whether all applications received were
found eligible or not) and also discussed names of other serving and retired
civil servants suggested by its members.

 

  •  The minutes of the selection committee indicate that it not only
    examined the applications shortlisted by the search committee but also all
    eligible applications. A simple thought experiment may be conducted to estimate
    the time required to consider all applications:

 

  •  Chief information commissioner’s post: There were 64 applicants
    who submitted their applications in a timely manner. The search committee
    recommended three more names. So the selection committee had to examine 67
    applications. Assuming that each bio data would require at least 5 minutes to
    read and familiarise oneself, each member of the selection committee would
    require to spend 335 minutes. In other words this implies spending at least 5.5
    hours merely examining all applications. If the 4 late applicants’ bio data are
    included, another, 20 minutes will have to be added to this figure.

 

  •  Information commissioners’ post: There were 281 applicants who
    submitted their applications in a timely manner. The search committee
    recommended one more name. So the selection committee had to examine 282
    applications. Assuming again that each bio data would require at least 5
    minutes to read and familiarise oneself, each member of the selection committee
    would require to spend 1,410 minutes, that is, at least 23.5 hours – or almost
    an entire day examining all applications. If the 10 late applicants’ bio data
    are included, another 50 minutes will have to be added to this figure. Taken
    together, the selection committee would have to spend at least 29 hours merely
    reading the applications. How much time would be required to “consider all
    relevant factors” before arriving at a consensus on the five names (one
    chief and 4 ICs) as mentioned in the minutes is anybody’s guess.

 

Asks Nayak,  “Did the committee
actually spend so much time on the selection process? The government must
urgently answer.’’

 

(Source:https://www.moneylife.in/article/sc-seeks-explanation-for-arbitrary-appointment-of-information-commissioners/56177.html
)

______________________________________________

RTI Clinic in
February 2019: 2nd, 3rd, 4th Saturday, i.e. 9th,
16th and 23rd
11.00 to 13.00 at BCAS premises  

 

 

 

 

 

 

ALLIED LAWS

20. Additional Evidence – Translated document would not amount to
additional Evidence. [Civil Procedure Code, 1908; Or. 41 R. 27]

 

Chandreshwar Bhuthnath Devasthan vs. Baboy Matiram
Varenkar  (2018) 12 Supreme Court Cases
548

 

The Defendant
in support of the title had filed certain documents in Portuguese language in
trial court. The English translation of the said document was submitted before
the First appellate court. The first appellate court in para 43 of its judgment
observed that there was no application filed under the provisions of Order XLI
Rule 27 of the Code of Civil Procedure, 1908 (in short ‘the CPC’) for producing
the additional translation of the original document. As such translation could
not be taken on record prayer had been disallowed for taking English version on
record, which the High Court upheld.

 

It was held
that the translated version of the already filed document could not be said to
be constituting additional evidence as the original document was already on
record of the trial court. It was thus in order to facilitate the just decision
of the matter and to enable the court to read the document, its translated
version had been filed which ought to have been taken on record without any
demur by the court below. Interest of justice required it to be taken on record
being document recording title. Accordingly, the matter was set aside to the
first appellate authority to re-assess the evidence taken into consideration.

 

21. Conditional Gift – Cancellation during lifetime is held to be
proper. [Transfer of Property Act, 1882; Section 122, 123]

 

S. Sarojini Amma vs. Velayudhan Pillai Sreekumar AIR 2018 Supreme Court
5232

 

In the facts of
the case, in expectation that, Respondent would look after Appellant and her
husband and also for some consideration, appellant executed a purported gift
deed in favour of Respondent. Gift deed clearly stated that, gift would take
effect after death of Appellant and her husband.

 

It observed
that a conditional gift with no recital of acceptance and no evidence in proof
of acceptance, where possession remains with the donor as long as he is alive,
does not become complete during lifetime of the donor. When a gift is
incomplete and title remains with the donor the deed of gift might be
cancelled. Moreover, a conditional gift only becomes complete on compliance of
the conditions in the deed.

 

It was held
that, in the present case, since the appellant applied for cancellation before
the death of the appellant, there was no completed gift of the property in
question by the Appellant to the Respondent and the Appellant was within her
right in cancelling the deed.

 

22. Consumer – Person purchasing goods for self employment is considered
as a ‘consumer’. [Consumer Protection Act, 1986; Section 2(1)(d)]

 

Paramount Digital Color Lab and Ors. vs. Agfa India Pvt. Ltd. and Ors.
AIR 2018 Supreme
Court 3449

 

Complaint was
filed where the State Commission directed Respondents to pay compensation on
account of loss, mental and physical torture and expenses of Appellants. Appeal
was filed by Respondents which was allowed on ground that Appellants should not
be considered as consumers.

 

The facts show
that the appellants being unemployed graduates decided to start a business of
photography in partnership for self-employment and for their livelihood. For
such purpose, they purchased a developing and printing machine which eventually
failed to work due to a defect in a pre-loaded software. A contention was made
by the respondents that the Appellants do not come under the definition of
‘Consumer’ under the Consumer Protection Act, 1986, since the appellant
intended to use the goods for ‘Commercial Purposes’, which the ‘Act’
specifically prohibits.

 

It was observed that the point to be considered was whether the
Appellants had purchased the machine in question for “commercial
purpose” or exclusively for the purposes of earning their livelihood by
means of “self-employment”.

 

It was held by
the Hon’ble Supreme Court that the Appellants purchased the machine for their
own utility, personal handling and for their small venture which they had
embarked upon to make a livelihood. The same is distinct from large-scale
manufacturing’ or processing activity carried on for huge profits. There is no
close nexus between the transaction of purchase of the machine and the alleged
large-scale activity carried on for earning profit. Since the Appellants had
got no employment and they were unemployed graduates, that too without
finances, it is but natural for them to raise a loan to start the business of
photography on a small scale for earning their livelihood. Accordingly, the
appeals were allowed.

 

23. Hindu Law – Under the principles of prestine Hindu Law, daughters
would not inherit properties of their father if there are male survivors and
widows. [Hindu Succession Act, 1956; Section 14]

 

Kunnath Narayani and Ors. vs. Kunnath Kochan and Ors. AIT 2018 Kerala
141 Full Bench

 

There was a
difference of opinion between the different schools of Hindu law as to the
nature of the right that would be inherited by a daughter. The Courts in Bengal
and Madras have consistently decided in a series of decisions that the daughter
takes only a qualified estate, though the courts of Bombay have taken the view
in some cases that the daughter inherits the property absolutely. Where the
daughter succeeds to the estate of the father in the absence of male survivors
under the principles of pristine Hindu law, the estate would be a qualified one
and the same would certainly ripen into an absolute one by virtue of section 14
of the Act. Hence the full bench was constituted in order to resolve such
issue.


Before the Full
bench, the facts stated that the Plaintiff is the sister of the defendants. The
suit was filed raising the contentions that the suit property belonged to the
father of the parties, Perachan, who died prior to enforcement of the Hindu
Succession Act. The deceased was survived by his wife, his sons, the defendants
and his daughters; they contended that since the plaintiff (daughter) and her
sister were unmarried, they acquired limited ownership in the suit properties
on the death of their father; they also contended that the said limited
ownership became absolute ownership by virtue of section 14 of the Act; further
they contended that the plaintiff’s sister died unmarried and issueless on
10-9-1972; that the mother died on 22-8-1985 and that since the plaintiff’s
sister and mother are survived by the plaintiff and defendants, the plaintiff
is entitled to l/3rd share over the suit properties which are in
joint possession of the plaintiff and defendants. As defendants did not accede
to the demand of the plaintiff to partition the property, the suit was laid.

 

Defendants
contested the suit contending mainly that they being the male children of
Perachan (father), the suit properties devolved on them exclusively on the
death of their father in terms of the principles of Hindu Mitakshara Law
applicable to them and they are in exclusive possession of the same.

 

The Full bench
held that Hindu Woman’s Right to Property Act was introduced in circumstances
to give better rights to woman in respect of property. However, said statute
only applies to Hindu widows and not to other Hindu females. Rights to Hindu
females are governed by principles of Hindu Law till the Act came into force.
Under the principles of Mithakshara Law, self-acquired properties and separate
properties of the Hindu male devolves in the heirs by succession and not to his
coparceners. But, daughter, mother and to grandmother were recognised as heirs
only to one who died without male issues. As regards order of succession among
them, daughter does not inherit until all widows are dead and gone. Under
principles of Hindu Law, daughters would not inherit properties of their father
if there are male survivors and widows. In case where daughter succeeds to
estate of father in absence of male survivors under principles of Hindu Law,
estate would be qualified one and same would certainly ripen into absolute one
by virtue of section 14 of Act.




In the facts of the present case, the plaintiff being the daughter of
Perachan was not covered by the Hindu Women’s Rights to Property Act. The Court
held that as the plaintiff was unmarried at the time when the succession
opened, she had only a right to claim maintenance out of the income from the
properties till her marriage. When the plaintiff has not acquired any right in
the property, as explained in the various decisions of the Apex Court and High
Courts referred to in the case, the application of section 14 of the Act does
not arise in her case.

 

24.  Partnership Firm – Properties allotted to
Partners vide a valid dissolution deed – Transfer not valid if no valid deed of
Conveyance. [Partnership Act, 1932; Section 48, 14; Registration Act, 1908;
Section 17(1)]

 

State of Kerala and Ors. vs. V.D. Vincent AIR 2018 Kerala 199

 

The facts of the case show that there were partners in a Firm who were
entitled to a transfer of registry of the properties accruing to them
consequent to the dissolution of the Firm, without there being a registered
document, transferring the interest of the partner, who had the ownership of
the property, prior to it being brought into the stock of the Firm.

 

It was observed that a dissolution deed, that merely allocates items of
immovable properties to a partner, proportionate to his share in the assets of
the firm without conveying title of the said property to him, does not confer
on the said partner a right to obtain mutation of the property in his name,
under the Transfer of Registry Rules.

 

It was held that only a
valid deed, duly registered, can convey the title over immovable property to
the writ petitioners, and it is only thereafter that they can seek a transfer
of registry in respect of the said items of immovable property.   

 

 

ALLIED LAWS

20. Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002, sections 2(c) and 5(c), Banking Regulation Act, 1949,
sections 5(b) and 6(1) – Co-operative banks – Definition of ‘banks’ – SARFAESI
Act – Power of the Central Government to legislate

 

Pandurang
Ganpati Chaugule vs. Vishwasrao Patil Murgud Sahakari Bank Limited; Civil
Appeal No. 5674 of 2009 (SC); Date of order: 5th May, 2020

Bench: Arun
Mishra J., Indira Banerjee J., Vineet Saran J., M.R. Shah J., Aniruddha Bose J.

 

FACTS

A question
arose with respect to the legislative field covered by Entry 45 of List I, viz.
‘Banking’ and Entry 32 of List II of the Seventh Schedule of the Constitution
of India, consequentially the power of the Parliament to legislate and the
applicability of the SARFAESI Act to co-operative banks.

 

HELD

The Supreme Court held that the
co­-operative banks under the State legislation and multi­-state co-­operative
banks are ‘banks’ u/s 2(1)(c) of the SARFAESI Act and while state laws might
regulate co-operative societies regarding their incorporation, regulation and
winding up, the Parliament was competent to enact laws to regulate their
banking function.

 

Further,
recovery is an essential part of banking; as such, the recovery procedure
prescribed u/s 13 of the SARFAESI Act, a legislation relatable to Entry 45 List
I of the Seventh Schedule to the Constitution of India, is applicable.
Parliament has legislative competence under Entry 45 of List I of the Seventh
Schedule of the Constitution of India to provide additional procedures for
recovery u/s 13 of the SARFAESI Act with respect to co-operative banks.

 

21. Covid-19 –
Period of limitation – Applicable to Arbitration & Conciliation Act, 1996,
and Negotiable Instruments Act, 1881

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 6th May, 2020

Bench: Chief Justice S.A. Bobde, Deepak
Gupta J., Hrishikesh Roy J.

Counsel: K.K. Venugopal, Tushar Mehta

 

FACTS

The Hon’ble
Supreme Court had in the same petition vide order dated 23rd
March, 2020 held that to ease the difficulties faced by the litigants and their
lawyers across the country in filing their petitions / applications / suits /
appeals, irrespective of the limitation prescribed under the general law or
Special Laws whether condonable or not, shall stand extended w.e.f. 15th
March, 2020 till further order/s to be passed by the Court in the present
proceedings. A clarification was sought with respect to the applicability of
the order to the Arbitration and Conciliation Act, 1996 and the Negotiable
Instruments Act, 1881.

 

HELD

The Supreme
Court has clarified that all periods of limitation prescribed under the
Arbitration and Conciliation Act, 1996 and u/s 138 of the Negotiable
Instruments Act, 1881 shall be extended with effect from 15th March,
2020 till further orders.

 

It further held
that in case the limitation has expired after 15th March, 2020, then
the period from 15th March, 2020 till the date on which the lockdown
is lifted in the jurisdictional area where the dispute lies or where the cause
of action arises, shall be extended for a period of 15 days after the lifting
of the lockdown.

 

22. Partnership Act, 1932, sections 37 and 42 – Partnership firm – Only
two partners – Retirement of one partner – Dissolution – Accounts to be settled
accordingly

Guru Nanak Industries vs. Amar Singh
(deceased) through LR

Civil Appeal No. 6659-6660 of 2010 (SC);
Date of order: 26th May, 2020

Bench: Sanjiv Khanna J., N.V. Ramana J.,
Krishna Murari J.

 

FACTS

The firm had two partners and one of them
agreed to retire. The dispute arose as to whether the same amounted to ‘dissolution of a partnership firm’ or ‘retirement of a partner’ as
the same would have a direct bearing on the accounting treatment for settling
of the accounts.

 

HELD

The Supreme Court held that there is a clear
distinction between ‘retirement of a partner’ and ‘dissolution of a partnership
firm’. On retirement of the partner, the reconstituted firm continues and the
retiring partner is to be paid his dues in terms of section 37 of the
Partnership Act. In case of dissolution, the accounts have to be settled and
distributed as per the mode prescribed in section 48 of the Partnership Act. In
the present case, there being only two partners, the partnership firm could not
have continued to carry on business as a firm. A partnership firm must have at
least two partners. When there are only two partners and one has agreed to
retire, the retirement amounts to dissolution of the firm.

 

23. Indian
Evidence Act 1872, sections 65 and 66 – Wills – Existence of a Will – Secondary
evidence to establish its existence

 Jagmail Singh vs. Karamjit Singh; Civil
Appeal No. 1889 of 2020 (SC); Date of order: 13th May, 2020 Bench: Navin Sinha J., Krishna Murari J.

 

FACTS

During the pendency of a land dispute, an
application under sections 65 and 66 of the Evidence Act was moved by the
appellants seeking permission to prove a copy of a Will dated 24th
January, 1989 by way of secondary evidence. The application was made on the
ground that the said original Will was handed over by the appellants to revenue
officials for sanctioning the mutation in their favour. The revenue officials
were issued notice for production of the original Will dated 24th
January, 1989 but they failed to produce the said Will. The application was
then dismissed.

 

HELD

The Supreme Court held that a perusal of
section 65 makes it clear that secondary evidence may be given with regard to
the existence, condition or the contents of a document when the original is
shown or appears to be in possession or power against whom the document is
sought to be produced, or of any person out of reach of, or not subject to, the
process of the Court, or of any person legally bound to produce it, and when,
after notice mentioned in section 66 such person does not produce it. It is a
settled position of law that for secondary evidence to be admitted foundational
evidence has to be given being the reasons as to why the original evidence has
not been furnished.

 

Further, during cross-examination the
(revenue) officials did not unequivocally deny the existence of the Will and
the scribe of the Will and another witness had admitted the existence of such a
Will. Therefore, the appellants would be entitled to lead secondary evidence in
respect of the Will in question. However, such admission of secondary evidence
does not automatically attest to its authenticity, truthfulness or genuineness
which will have to be established during the course of the trial in accordance with
law.

 

24. Covid-19 –
General law – Service of notices, summons and exchange of pleadings / documents

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 10th July, 2020

Bench: Chief Justice S.A. Bobde, R. Subhash
Reddy J., A.S. Bopanna J.

Counsel: K. K. Venugopal, Tushar Mehta

 

FACTS

Service of notices, summons and exchange of
pleadings / documents is a requirement of virtually every legal proceeding.
Services of notices, summons and pleadings etc. have not been possible during
the period of lockdown because this involves visits to post offices, courier
companies or physical delivery of notices, summons and pleadings. The Supreme
Court took cognisance of this fact.

 

HELD

The Hon’ble Supreme Court held that such
services may be effected by e-mail, FAX, commonly used instant messaging
services, such as WhatsApp, Telegram, Signal, etc. However, if a party intends
to effect service by means of said instant messaging services, the party must
also effect service of the same document / documents by e-mail simultaneously
on the same date.

ALLIED LAWS

24. HUF – Rights of daughter – Coparcenary property – Partition
deed and settlement deed indicating that defendant’s son is absolute owner of
suit premises – Plaintiff having married prior to enforcement of Hindu
Succession Act – Not entitled to claim share in suit properties [Hindu
Succession Act, 1956, S. 6; Hindu Succession Amendment Act, 2005]

 

Amsaveni vs.
Viswanathan; AIR 2020 Madras 20

 

The plaintiff is the daughter and the
second defendant is the son of the first defendant. The plaintiff was married
to one Rajaram in the year 1987 and they had two children. The plaintiff’s
husband began to ill-treat the plaintiff and therefore she left the company of
her husband six years ago and came to her parents’ house along with the male
child. Subsequently, the male child was taken away by the plaintiff’s husband.
The plaintiff was provided a separate residence by the defendants and
accordingly the plaintiff was also enjoying the suit property as a joint family
member of the defendants and therefore, according to the plaintiff, she is
entitled to obtain her share in the suit properties.

 

The Court held that the plaintiff has
admitted that she was married to one Rajaram in the year 1987. Therefore, as
determined by the first appellate court, the plaintiff having got married prior
to the enactment of the Hindu Succession (Amendment) Act 1989 and the Hindu
Succession (Amendment) Act, 2005,  she
would not be entitled to claim share in the suit properties claiming to be a
coparcener of the same.

 

25. Precedent – Two mutually irreconcilable decisions of co-equal
Benches of the Supreme Court – Earlier decision to prevail – Subsequent view
would be held as per incuriam [Constitution of India, Art. 141]

 

Vasanthi Shridhar
Bangera vs. Vishala Bokapatna Laxman; AIR 2020 Bom. 31


The plaintiff is the
younger sister of the respondent. She sued her elder sister and brother-in-law
for eviction. The suit was decreed. Vasanthi, the elder sister, and her husband
appealed, but without success. In the meanwhile, her husband died. So, along
with her children, the respondent filed this Civil Revision Application. The
issue No. 3 was pertaining to the retrospective applicability of the Benami
Transaction (Prohibition) Act, 1988.

 

A three-judge bench of the Hon’ble
Supreme Court in the case of R. Rajagopal Reddy, in principle, accepted that
the Act is prospective. However, the petitioners relied on a three-judge bench
of the Hon’ble Supreme Court in the case of K. Govindraj wherein, in a case
pertaining to Minor Mineral Concession Rules, it was held that the legislature
can legislate prospectively or retrospectively.

 

It was held that the decision in the
case of K. Govindraj, a co-equal bench of the Supreme Court upsets R. Rajagopal
Reddy’s proposition. However, firstly, a decision that deals with an
issue directly should take precedence over a decision which deals with the same
issue collaterally. Secondly, in the event of the two co-equal bench
decisions, the former prevails and the latter can also be per incuriam
if it is not possible for the Court to reconcile its ratio with that of
a previously pronounced judgment. It was further held that the former case does
not dilute nor overrule the latter case.

 

26. Registration – Compulsory – Unregistered agreement of mortgage
by conditional sale – No evidentiary value [Registration Act, 1908, S. 17, 49]

 

Tukaram S/o Shankar
Gondkar vs. Dnyaneshwar S/o Sopanrao; AIR 2020 (NOC) 123 (Bom.)

 

The petitioner is the original plaintiff
in Regular Civil Suit No. 80/1990. He claims to have purchased the land
admeasuring 40 R. out of Survey No. 167 vide sale deed dated 29th
April, 1981. The petitioner, by preferring the suit for redemption of mortgage
of 40 R. land from Survey No. 167/5/A, contended that respondent No. 1 had
entered into a mortgage deed dated 30th July, 1979 with the
petitioner for a period of five years. The said period ended on 30th
July, 1984 and the mortgage was to be redeemed by respondent No. 1 in favour of
the petitioner. Since he failed to do so, the petitioner was constrained to
prefer the said suit.

 

It was held that the document at issue
was necessarily required to be registered. Since it was an unregistered
document, it was struck by section 49 of the Registration Act under which no
document required to be registered u/s 17 of the Act would have any evidentiary
value.

 

27. Website – Order/Judgment from official website has sanctity –
Should not be refused

 

Ibrahim Sk. Rasool
vs. Mohommad Zahir Mohammad Sharif and Ors.; Civil Application No. 411 of 2018
in Second Appeal No. 157 of 2017; Date of order: 19th March, 2018
(Bom.)(HC)

 

The counsel for the applicant had
approached the office of the appellate court in order to deposit the amount of
Rs. 5,000 in terms of the judgment and order dated 4th September,
2017, relying upon the copy of the said judgment and order obtained from the
official website of the Court. But the office of the Court below refused to
accept the said amount on the ground that it would do so only when an official
copy of the said order was received from the Court.

 

It was held that
the insistence on an official copy of the order of the Court was absolutely
uncalled for and the applicant / appellant ought to have been permitted to
deposit costs on the basis of the copy of the judgment and order obtained from
the official website of the Court. Further, a printout of the orders of the
Court from the official website has sanctity and the trial Courts are expected
to consider the said orders, if they are cited after taking a printout from the
official website. The said orders are also available before the trial Court
from the official website and there can be a counter verification to find out
whether such an order is actually uploaded to the official website or not.

 

 

 

 

 

CORPORATE LAW CORNER

6. Mahesh Sureka vs. Marathe Hospitality [2020] 116 taxmann.com 552 (NCLT-Mum.) C.P.(IB) No. 3603/(MB)/2018 Date of order: 20th March, 2020

 

Section 238 of the Insolvency and
Bankruptcy Code, 2016 – Assets attached by EOW were to be released in favour of
RP as non-obstante clause appearing in the later legislation would
precede the former – Transfer of assets to a partnership firm (where one of the
partners was a tax adviser of the corporate debtor) for an inadequate
consideration without prior consent of the mortgagee was a fraudulent
transaction and was set aside

 

FACTS

Insolvency
proceedings were admitted against the corporate debtor P Co on 14th
March, 2018 on an application filed by U Bank (the ‘Financial Creditor’). One
of the properties of the corporate debtor was financed by way of mortgage by U
Bank. The corporate debtor had leased the said property to MH (a partnership
firm) on a long-term basis for a sum of Rs. 25,000 per month vide lease
deed dated 18th May, 2016. Mr. AN, who was a partner in MH, was also
a tax adviser to the corporate debtor. Further, the said property was leased to
MH without obtaining the prior approval of U Bank.

 

The Resolution Professional (RP) learned
that one of the directors of the corporate debtor was in jail (in judicial
custody) and that the Economic Offences Wing (EOW) had attached several of the
properties of the corporate debtor which included its registered office. The RP
mentioned that due to the attachment of the registered office of the corporate
debtor and unavailability of the Directors and other staff members, it was
impossible to prepare essential details of the assets and liabilities of the
corporate debtor. The property mentioned above was also attached by the EOW.

 

Mr. AN contended that although it was the
duty of the corporate debtor before giving the said property on lease to seek
prior permission of U Bank, MH could not be prejudiced for the wrong-doings of
the corporate debtor. Further, as per section 46 of the Insolvency and
Bankruptcy Code, 2016 (the Code) the relevant time for avoidance of undervalued
transaction was one year prior to commencement of the Corporate Insolvency
Resolution Process (CIRP) of the corporate debtor. It was pleaded that since
the said lease agreement was entered into on 18th May, 2016, and
hence was beyond the one-year period from the CIRP commencement date, it could
not be covered u/s 46 of the Code.

 

HELD

The Tribunal heard both the parties at
length. It observed that the lease rental for a period of ten years was a
paltry sum of Rs. 25,000 per month payable by the 10th of the subsequent month
and that the lease could be renewed for a further period by the lessee as per
the said agreement. The fact that Mr. AN was a partner in MH and a tax adviser
to the corporate debtor indicated that it was a case of preferred transaction.
The fact that there was no provision for an annual increment and the extension
was only at the prerogative of the lessee, leads to the conclusion that the
transaction was a fraudulent one.

 

The Tribunal
relied on the provisions of section 65A(2)(c) of the Transfer of Property Act,
1882 which provided that no lease shall contain a covenant for ‘renewal’. It
was observed that the lease agreement of the corporate debtor with a related
party MH provided for a total rent of a sum of Rs. 25,000 per month in respect
of huge commercial property measuring about 2,310 sq. metres along with a
two-storey building structure with no increase in rental for a period of ten
years. In addition, as per the lease agreement, there was a provision for
further extension at the will of the lessee. In view of this, the lease
agreement entered into between the corporate debtor and MH was held to be
illegal as per the relevant provisions of the Transfer of Property Act, 1882.

 

Besides, the mortgage deed signed by the
corporate debtor with U Bank provided that the corporate debtor could not let
or license its interest in the said property, or part with its possession,
unless it obtained the written consent of U Bank. Since the said consent was
not obtained, the Tribunal held that the transaction of lease was invalid and mala
fide.

The NCLT observed that the attachment of the
assets of the corporate debtor by the EOW would hamper the claim of the
creditors of the corporate debtor. Thus, to protect the interest of the bank
and the present creditors, NCLT directed the EOW and other Government
Departments to release the property and assets of the corporate debtor
currently attached with them so that the CIRP of the corporate debtor could be
conducted in the substantial public interest.

 

In the context of section 238 of the Code
which has a non-obstante clause, the Tribunal relied on the decision of
the Supreme Court in the case of Solidaire India Ltd. vs. Fairgrowth
Financial Services Pvt. Ltd., wherein it was held that where two statutes
contain the non-obstante clause, the latest statute would prevail.

 

Thus, the lease agreement was held as null
and void and the attachment of assets by the EOW was directed to be released in
favour of the RP for carrying out the CIRP in the best interest of the
creditors of the corporate debtor.

 

7. American Road Technology & Solutions
(P) Ltd. vs. Central Government, Hyderabad [2020] 115 taxmann.com 16 (NCL-Beng.) Date of order: 31st December,
2019

 

Where company filed application for
revision of financial statements in F.Y. 2017-18, three preceding years for
purpose of revision of financial statements would be 2016-17, 2015-16 and
2014-15 (which was one of the years in which incorrect financial reporting had
been detected and in respect of which approval for revision had been sought),
since a true and fair picture of company’s finances would not emerge for F.Y.
2014-15 unless financial statements for 2012-13 and 2013-14 were also revised –
Application for revision of financial statements for years 2012 to 2015 was to
be allowed

 

FACTS

Company A Pvt. Ltd., the applicant, was
incorporated in the year 2012 under the Companies Act, 1956 with the Registrar
of Companies, Karnataka at Bangalore. Its business was mainly carried out in
Bangalore.

 

During the year 2014-15, the majority
shareholder was informed by one of the ex-senior employees that the affairs of
A Pvt. Ltd. are not run as per the provisions of the Companies Act and the
applicable rules and regulations, and further that there were several financial
irregularities and even falsification of accounts has taken place.

 

The majority shareholder and A Pvt. Ltd.
decided to appoint an independent auditor to conduct a forensic audit of the
company. The independent auditor submitted his investigation report. This
report was examined internally and expert views were also taken in consultation
with the independent auditor and the statutory auditor.

 

The statutory auditors had opined that A
Pvt. Ltd.’s records need improvement to ensure controls which are not
commensurate with the size of the company and the nature of its business, with
regard to execution of contracts and raising invoices.

 

The findings of
the statutory auditor were incorporated in the annual returns filed for the
financial year 2014-15 and it was noted that suspicious transactions have taken
place and falsification of accounts has been done. It was noted that the annual
returns and balance sheets for the years 2012-13, 2013-14 and 2014-15 were
filed without even reconciling the bank statements with the actual activities
of the company that have taken place during the relevant period.

 

After consideration of the independent
auditor’s report, the management had lodged various criminal proceedings. The
statutory auditor has advised A Pvt. Ltd. to move u/s 131 of the Companies Act,
2013 for the accounts to be redrafted for the period and recasting of the books
for the periods 2015-16 and 2016-17 to incorporate the changes in the opening
balances, subject to ratification by members in a general meeting. Accordingly,
the present petition was filed before the Tribunal.

 

Based on above factual matrix, the Tribunal
ordered notices to be issued to the respondents, namely, the Registrar of
Companies, the Regional Director, the Income Tax Officer concerned and the
auditor of the company.

 

The regional director (RD) submitted that
the company has filed the application u/s 131 of the Companies Act, 2013 for
revision of financial statement and board reports for the Financial Years
2012-13, 2013-14 and 2014-15. The RD raised an interesting issue that the application is not made for revision of any of
the three immediately preceding financial years but for all the earlier
years. Hence the same does not fall under the provisions of section 131
of the Act and that, too, for revision of financial statements to reflect
suspicious transactions and falsification of accounts that had taken place in
the company.

As per the Regional Director, u/s 131(2) of
Companies Act, 2013 the revisions must be confined to – (a) The correction in
respect of which the previous financial statement or report do not comply with
the provisions of section 129 or section 134; and (b) The making of any necessary
consequential alteration. He further stated that the petitioner company has
sought blanket revision of financial statements for the years 2012-13, 2013-14
and 2014-15 without actually specifying or limiting itself to any particular
entry or disclosure. Hence the petition is not maintainable. Further, the RD
reiterated that it appears that the revision of financial statements based on
alleged fraud will not fall within the ambit of section 134 of the Companies
Act, 2013.

 

HELD

The Tribunal, after considering the
objections raised by the RD, observed as under:

(i) The petition seeks approval for
voluntary revision of financial statements and board reports for the financial
years 2012-13, 2013-14 and 2014-15.

(ii) It is the contention of A Pvt. Ltd. that
this provision permits it to voluntarily revise its accounts for any three
preceding financial years, whereas the other respondents in these proceedings
have opposed this view and stated that the same is permitted only for any of
the three immediately preceding financial years and not beyond.

 

Section 131 of the Act reads as under:

Voluntary Revision of Financial
Statements or Board’s Report:

(1) If it appears to the directors of a
company that –

(a) the financial statement of the
company; or

(b) the report of the Board

do not comply with the provisions of
section 129 or section 134 they may prepare revised financial statement or a
revised report in respect of any of the
three preceding financial years after obtaining approval of the
Tribunal on an application made by the company in such form and manner as may
be prescribed and a copy of the order passed by the Tribunal shall be filed
with the Registrar…:’ (emphasis added).

 

The Tribunal observed that the petition is
filed on 22nd January, 2018 and falls within the F.Y. 2017-18.
Section 131, even going by the contention of the respondent that the words ‘in
respect of any of the three preceding financial years’ should mean
‘immediately’ preceding three financial years, then such preceding three
financial years would be 2016-17, 2015-16 and 2014-15. Thus, F.Y. 2014-15,
which is one of the years in which the incorrect financial reporting has been
detected and in respect of which approval for revision has been sought, is
squarely covered by section 131.

 

The Tribunal
further observed that when a balance sheet is drawn for a particular year, it
brings forward balances of the preceding year/s, and as such will necessarily
impact the balance sheet for the Y.E. 31st March, 2015, i.e., for
F.Y. 2014-15, and for this reason the years 2012-13 and 2013-14 will
necessarily have to be considered for revision of the accounts that are not
giving a true and fair picture of the accounts for these years, for the reasons
mentioned herein above. This accounting compulsion cannot be ignored.
Once this is made clear, the issue whether the accounts of the three F.Y.s
referred to in the petition could be revised or not in view of an
interpretation of section 131, becomes redundant and of mere academic interest.

 

In section 131
the term ‘immediately preceding’ is not used. Instead, the section speaks of ‘any
of the three preceding financial years‘.

 

In order to
determine the intent of the Legislature, it is necessary to look into the 57th
Report of the Standing Committee on Finance on the Companies Bill, 2011. The
relevant portion of the said Report of the Standing Committee is extracted
below:

 

‘The change
proposes to provide procedural requirement in respect of revision in
accounts in certain cases. The present law is silent in respect of re-opening
or re-casting of accounts. In certain cases, particularly in cases relating
to fraud, there may be need to re-open / re-cast accounts to reflect true and
fair accounts. In case of Satyam, such re-casting was ordered
by the Court. The provisions in the Bill mandate such re-opening on the order
of the Court or Tribunal. In other cases the re-opening is being permitted,
through order of Tribunal, with adequate safeguards.’ (Emphasis supplied.)

 

The Tribunal
further observed that considering that the thrust of several provisions of the
Act is either to prevent financial misdemeanour or oppression and
mismanagement, all such provisions need to be understood and interpreted in
this light.

 

Since the
instant case is prima facie that of mismanagement, misreporting and
alleged fraud, the Tribunal observed that the section has to be interpreted in
the spirit of the Act and the exercise of correcting the same cannot become a
victim of interpretation of allowable time. Such time limits can at best be considered
to be advisory and not mandatory, since the same is only a procedural
requirement, as mentioned in the Standing Committee Report.

 

Thus, the
Tribunal observed that the words ‘in respect of any of the three preceding
financial years’ have to be read as any three previous years. It
further elaborated that even otherwise, the Tribunal is competent to initiate
reopening / revision of accounts u/s 130 in cases of the kind in hand, for
which no time limit is prescribed. It cannot be the case that if an application
is made u/s 131 where the grounds are similar to section 130, the accounts
prepared incorrectly, or when the affairs are
mismanaged, the revision of accounts would be prevented by any one view on time
limitation. Hence, in view of the totality of facts and circumstances, all
three years, i.e. F.Y.s 2012-13, 2013-14 and 2014-15, would be covered for
revision, not only because of the accounting compulsion, since F.Y. 2014-15 is
in any case covered, and the earlier years’ accounts have a bearing on the
same, but also as per the provision contained in section 131 of the Act.

 

The Tribunal
accordingly held that in the facts and circumstances of the case, this is a fit
case for granting approval u/s 131 to prepare revised financial statements and
/ or revised reports in respect of the F.Y.s 2012-13, 2013-14 and 2014-15 in
the case of A Pvt. Ltd. and the same was accordingly granted.  

 

CORPORATE LAW CORNER

1.       Flat
Buyers’ Association Winter Hills-77 vs. Umang Realtech Pvt. Ltd.

Company Appeal (AT)(Ins.) No. 926 of 2019

Date of order: 4th February, 2020

 

Insolvency and Bankruptcy Code, 2016 – Reverse Corporate
Insolvency Resolution Process is to be followed in the case of real estate
companies – The CIRP initiated for one project of a real estate company is
restricted to that project alone – It does not extend to the other assets or
projects of the said company

 

FACTS

R and A were allottees in the real
estate project of U Co. They moved an application u/s 7 of the Insolvency and
Bankruptcy Code, 2016 (Code) for initiating Corporate Insolvency Resolution
Process (CIRP) against U Co. NCLT passed an order admitting the application and
directed that R and A deposit a sum of Rs. 2 lakhs with the Interim Resolution
Professional (IRP). Under the Code, it is the duty of the IRP to keep the
company a going concern which would be very difficult in the facts of the
present case where Rs. 2 lakhs would be insufficient for the said purpose.

 

The typical issue for real estate
companies stems from the fact that while homebuyers / allottees are financial
creditors, the homes / projects are often assets of the corporate debtor that
are offered as security against loans taken from banks or Non-Banking Financial
Companies (NBFCs). The assets of the corporate debtor as per the Code cannot be
distributed, they are secured for secured creditors. On the contrary, the
assets of the corporate debtor are to be transferred in favour of the allottees
/ homebuyers and not to the secured creditors such as financial institutions /
banks / NBFCs.

 

Normally, the banks / financial
institutions / NBFCs also would not like to take the flats / apartments in
lieu of the money disbursed by them. On the other hand, the
‘unsecured creditors’ have a right over the assets of the corporate debtor,
i.e., the flats / apartments which constitute the assets of the company.

The NCLAT was to examine whether
during the CIRP a resolution could be reached without approval of the
third-party resolution plan.

 

One of the promoters, UH Co, agreed
to remain outside the CIRP but intended to play the role of a lender (financial
creditor) to ensure that the CIRP reaches success and the allottees take
possession of their flats / apartments during the CIRP without any third-party
intervention. The Flat Buyers’ Association of Winter Hills-77, Gurgaon also
accepted the aforesaid proposal. ‘JM Financial Credit Solutions Ltd.’, one of
the financial institutions, has also agreed to co-operate in terms of the
agreement on the condition that they will get 30% of the amount paid by the
allottees at the time of the registration of the flats / apartments.

 

The CIRP progressed and a number of
allottees took the possession of their flats and had the sale deeds registered
in their favour. UH Co invested a certain amount as an outside financial
creditor and as promoter co-operating with the IRP. The specific details of the
project were laid out before the NCLAT and which were also endorsed by the IRP.
The claim of JM Financials was also satisfied at the time of registration of
flats.

 

HELD

NCLAT
observed that there were some aspects which were typical to real estate
companies. The decisions of the Supreme Court in the cases of Committee
of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta as
well as Pioneer Urban Land and Infrastructure Limited & Anr. vs.
Union of India were referred to. It was observed that ‘allottees’
(homebuyers) come within the meaning of ‘financial creditors’. They do not have
any expertise to assess the viability or feasibility of a corporate debtor.
They don’t have commercial wisdom like financial institutions / banks / NBFCs.
However, these allottees have been provided with voting rights for approval of
the plan. NCLAT observed that many such cases came to its notice where the
allottees were the sole financial creditors. However, it was not made clear as
to how they can assess the viability and feasibility of the ‘Resolution Plan’
or commercial aspect / functioning of the corporate debtor.

 

Further, it was observed that in a
CIRP against a real estate company if allottees (financial creditors), or
financial institutions / banks (other financial creditors), or operational
creditors of one project initiated a CIRP against the corporate debtor (the
real estate company), it is confined to the particular project. It cannot
affect any other project(s) of the same real estate company (corporate debtor)
in other places where separate plan(s) are approved by different authorities;
land and its owner(s) may be different and mainly the allottees (financial
creditors), financial institutions (financial creditors), operational creditors
are different for such separate projects. Accordingly, all the assets of the
corporate debtor are not to be maximised. CIRP should be on a project basis as
per plans approved by the Competent Authority. Any other allottees (financial
creditors), or financial institutions / banks (other financial creditors), or
operational creditors of other projects cannot file a claim before the IRP of
the other project of the corporate debtor and such claim cannot be entertained.

 

It was thus held that CIRP against a
real estate company (corporate debtor) is limited to a project as per the plan
approved by the Competent Authority and does not extend to other projects which
are separate and for which separate plans are approved.

 

Further,
a secured creditor such as a bank or financial institution, cannot be provided
with the asset (flat / apartment) in preference over the allottees (unsecured
financial creditors) for whom the project has been approved. Their claims are
to be satisfied by providing the flat / apartment. While satisfying the
allottees, one or other allottee may agree to opt for another flat / apartment
or one tower or another tower if not allotted otherwise. In such a case, their
agreements can be modified to that effect.

 

The prayer of any allottee asking
for a refund cannot be entertained in view of the decision of the Supreme Court
in the case of Pioneer Urban Land and Infrastructure Limited & Anr.
vs. Union of India & Ors. [(2019) SCC OnLine SC 1005]. However,
after offering allotment it is open to an allottee to request the IRP /
promoter, whoever is in charge, to find out a third party to purchase the said
flat / apartment and get the money back. After completion of the flats /
project or during the completion of the project, it is also open to an allottee
to reach an agreement with the promoter (not corporate debtor) for a refund of
the amount.

 

In a CIRP, NCLAT was of the view
that a ‘Reverse Corporate Insolvency Resolution Process’ could be followed in
cases of real estate infrastructure companies in the interest of the allottees
and survival of the real estate companies, and to ensure completion of projects
which provides employment to large numbers of unorganised workmen.

 

UH Co, in the facts of the present
case, was directed to co-operate with the IRP and disburse amounts (apart from
the amount already disbursed) from outside as lender (financial creditor) and
not as promoter, to ensure that the project is completed within the time frame
given by it. The flats / apartments should be completed in all aspects by 30th
June, 2020. All internal fitouts for electricity, water connection should be
completed by 30th July, 2020. The financial institutions / banks
should be paid simultaneously. Common areas such as swimming pool, clubhouse,
etc. as per the agreement be also completed by 30th August, 2020.
The allottees are allowed to form a ‘Residents’ Welfare Association’ and get it
registered to empower them to claim the common areas. Only after getting the
certificate of completion from the Interim Resolution Professional / Resolution
Professional and approval of the Adjudicating Authority (National Company Law
Tribunal), unsold flats / apartments, etc. be handed over to the promoter / UH
Co.

 

If the ‘promoter’ fails to comply with the
undertaking and fails to invest as financial creditor, or does not co-operate
with the Interim Resolution Professional / Resolution Professional, the
Adjudicating Authority (National Company Law Tribunal) will complete the
Insolvency Resolution Process.

ALLIED LAWS

1.       Appeal
– High Court – Non-appearance of counsel – Matter dismissed by the High Court
on merits – Unjustified – Matter remanded [Civil Procedure Code, 1908, S. 100,
O. 41, R. 17]

 

Prabodh Ch. Das and Ors. vs. Mahamaya Das and Ors.; AIR 2020
SC 178

 

The question for consideration is whether the High Court is
justified in dismissing the second appeal on merits in the absence of the
learned counsel for the appellants. It was held that, with the explanation that
was introduced in Order 41 Rule 17(1) w.e.f. 1st February, 1977 to
clarify the law by making an express provision that where the appellant does
not appear, the Court has no power to dismiss the appeal on merits – thus, Order
41 Rule 17(1) read with its explanation makes it explicit that the Court cannot
dismiss the appeal on merits where the appellant remains absent on the date
fixed for hearing.

 

In other words, if the appellant does not appear, the Court
may, if it deems fit, dismiss the appeal for default of appearance but it does
not have the power to dismiss the appeal on merits. Therefore, the impugned
judgment was set aside and it was directed to remit the matter to the High
Court for fresh disposal in accordance with the law.

 

2.       Hindu
Undivided Family (HUF) – Recovery of debt – Auction sale – Coparcener
challenging sale as property mortgaged without his consent – Material produced
– Property purchased by mortgager in his own name for his own business –
Property never brought into the HUF – Bank would have every right to sell
property for recovery of loan [Recovery of Debts Due to Banks and Financial
Institutions Act, S. 25]

 

Abhimanyu Kumar Singh vs. Branch Manager, I.D.B.I. Bank Ltd.
and Ors.; AIR 2020 Patna 22

 

The petitioner filed a case that the property in question
which was mortgaged with the bank by his father and an equitable mortgage was
created by way of deposit of title deed, happened to be a joint Hindu family
property. The fact that the petitioner is a coparcener and the property in
question had been mortgaged without his consent, means that the 1/4th
share of the petitioner cannot be attached and sold by auction.

 

The High Court held that the fact remains that the property
in question is in the individual name of the father of the petitioner
(mortgagor), the mutation and rent receipts remained in his individual name and
he could very well satisfy the bank that he happened to be the absolute owner
of the property and for his business he was mortgaging the land with the bank
by deposit of title deed.

 

Further, in a Hindu Undivided Family there would be a
presumption of jointness and the burden to prove that there was a partition
lies upon the person who claims the partition. It is well settled that even
within an HUF, a member of the family may create self-acquired and personal
property. It is only when such self-acquired property is brought into the
hotchpotch of the joint family that the property acquires the status of a joint
family property.

 

3.       Partnership
– Dissolution– Partnership which is not at will cannot be terminated by notice
u/s 43 [Partnership Act, 1932, S. 43]

 

Manohar Daulatram Ghansharamani vs. Janardhan Prasad
Chaturvedi and Ors.; AIR 2019 Bombay 283

 

An issue arose with respect to the dissolution of a
partnership firm upon issuance of a notice u/s 43 of the Indian Partnership
Act, 1932. It was held that the terms of the partnership deed clearly stipulate
that the partnership was entered into for the purpose of developing the
property and constructing buildings. Thus, the partnership deed did not
expressly spell out a fixed term of duration. Nevertheless, the terms of the
contract indicate that the partnership was to end after completion of
construction of the buildings, obtaining completion certificates and execution
of conveyance in favour of the society. The terms of the contract thus imply
that the duration of the partnership was until completion of construction and
execution of conveyance. Further, the partnership deed also provides for
dissolution of partnership in the event of insolvency or death of any of the
partners.

 

Therefore, it was held that where a partnership deed which
contains a provision for duration of the partnership or for the determination
of the partnership, cannot be a partnership at will. As a corollary thereof,
the partnership that is not a partnership at will cannot be legally terminated
by a notice u/s 43 of the Partnership Act. Consequently, sending of notice u/s
43 of the Partnership Act, 1932 seeking dissolution of partnership is of no
consequence.

 

4.       Will
– Onus to prove – None of the witnesses appeared before the Court to prove the
Will – Petitioner assured to produce the witnesses – No assistance taken from
Court to issue summons – Document in question cannot be said to be a validly
executed last Will [Succession Act, 1925, S. 222, S. 223, S. 246]

 

Chankaya vs. State and Ors.; AIR 2020 Delhi 30

A petition was filed u/s 226 of the Indian Succession Act,
1925 seeking grant of probate in respect of the document, purported to be the
validly executed last Will of deceased Shri D.C.S., grandfather of the
petitioner.

 

The petitioner has contended that he is aware of the
whereabouts of the witness and time and again assured that he would produce the
said witness before the Court. However, the same was not done. Later the
petitioner contended that the whereabouts of the witness was not known. The
petitioner did not exhaust all the remedies for producing the witness before
the Court. The petitioner could have resorted to Order 16 Rule 10 of the Civil
Procedure Code, 1908 for the purpose of seeking appearance of the attesting
witness. No assistance was taken from the Court to summon the said witness.

 

The Court held that, the burden of proof in the present case,
to prove the document claimed to be the validly executed last Will of the
deceased, lay on the petitioner who propounded the same. Indisputably, none of
the attesting witnesses had appeared before the Court to prove the Will. Thus, the
petitioner has failed to prove that the document is a Will executed by the late
Shri D.C.S. and accordingly the said issue is decided against the petitioner.
Therefore, the said Will has not been proved.

 

5.   Writ
– Jurisdiction of High Court – Alternative remedy – Writ jurisdiction can be
exercised in respect of orders passed by the Armed Forces Tribunal (AFT) – No
blanket ban on exercise of writ jurisdiction because of alternative remedy
[Armed Forces Tribunal Act, 2007, S. 34, S. 15, Constitution of India, Art.
226]

 

Balkrishna Ram vs. Union of India; AIR 2020 SC 341

 

An issue arose before the Hon’ble Supreme Court whether an
appeal against an order of a single judge of a High Court deciding a case
related to an Armed Forces personnel pending before the High Court is required
to be transferred to the Armed Forces Tribunal, or should be heard by the High
Court. It was held that the principle that the High Court should not exercise
its extraordinary writ jurisdiction when an efficacious alternative remedy is
available, is a rule of prudence and not a rule of law. The writ courts
normally refrain from exercising their extraordinary power if the petitioner
has an alternative efficacious remedy. The existence of such a remedy, however,
does not mean that the jurisdiction of the High Court is ousted. At the same
time, it is a well-settled principle that such jurisdiction should not be
exercised when there is an alternative remedy available. The rule of
alternative remedy is a rule of discretion and not a rule of jurisdiction.
Merely because the Court may not exercise its discretion is not a ground to
hold that it has no jurisdiction. There may be cases where the High Court would
be justified in exercising its writ jurisdiction because of some glaring
illegality committed by the AFT.

 

One must also remember that
the alternative remedy must be efficacious and in case of a Non-Commissioned
Officer (NCO), or a Junior Commissioned Officer (JCO), to expect such a person
to approach the Supreme Court in every case may not be justified. It is
extremely difficult and beyond the monetary reach of an ordinary litigant to
approach the Supreme Court. Therefore, it will be for the High Court to decide
in the peculiar facts and circumstances of each case whether or not it should exercise
its extraordinary writ jurisdiction. There cannot be a blanket ban on the
exercise of such jurisdiction because that would effectively mean that the writ
court is denuded of its jurisdiction to entertain such writ petitions.

CORPORATE LAW CORNER

10. Anand Rao Korada (Resolution
Professional) vs. Varsha Fabrics (P) Ltd. [2019] 111 taxmann.com 474 (SC) Civil Appeal Nos. 8800-8801 of 2019 Date of order: 18th November,
2019

 

Sections 14, 231 and 238 of Insolvency and
Bankruptcy Code, 2016 – High Court cannot continue with auction proceedings to
sell the assets of corporate debtor if the proceedings under the Code have been
initiated and order declaring the moratorium has been passed by the NCLT

 

FACTS

I Co held shares in H Co. Pursuant to a
share purchase agreement (SPA) dated 10th July, 2006 it sold its
entire shareholding in H Co to V Co, IF Co and M Co. H Co shut down its factory
on 8th May, 2007. Subsequently, their stake in H Co was sold to IW
Co.

 

The workers of
H Co through their union (hereinafter referred to as the Union) filed writ
petitions before the Odisha High Court for cancellation of the SPA dated 10th
July, 2006 and payment of the arrears and current salaries of the
workmen. The High Court vide order dated 14th March, 2012 directed
the Deputy Labour Commissioner to recover the workmen’s dues by sale of the
assets of H Co through a public auction. The Supreme Court in the said matter
passed an order dated 3rd August, 2015 wherein it was directed that
the issue of quantifying the compensation payable to the workmen should be
determined by the Labour Court. In the event V Co, IF Co and M Co failed to pay
the compensation so determined, the assets of H Co would be sold in a public
auction and the proceeds would be used to disburse the arrears of workmen.

 

Pursuant to an order of the High Court dated
12th January, 2017, the sale of a parcel of land of H CO was
completed and the amounts recovered compensated a portion of the total dues of
the workmen.

 

During the pendency of proceedings with the
High Court, N Co, a financial creditor of H Co, initiated corporate insolvency
resolution proceedings (CIRP) against H Co for default in payment of financial
debt. The National Company Law Tribunal (NCLT) admitted the petition and
declared a moratorium in accordance with the provisions of sections 13 and 15
of the Insolvency and Bankruptcy Code, 2016 (the Code) vide order dated 4th
June, 2019.

 

The writ petitions came up for further
hearing and orders were passed by the High Court on 14th August,
2019 and 5th September, 2019. The Resolution Professional filed a
civil appeal to challenge the interim orders of the High Court on the ground
that since CIRP were already underway, the proceedings before the High Court
ought to be stayed.

 

HELD

The Supreme Court heard the parties at
length. It examined the provisions of sections 13, 14, 231 and 238 of the Code
and observed that section 238 gave an overriding effect to the Code over all
other laws. The provisions of the Code vested exclusive jurisdiction on the
NCLT and the NCLAT to deal with all issues pertaining to the insolvency process
of a corporate debtor and the mode and manner of disposal of its assets.
Further, section 231 of the Code bars the jurisdiction of civil courts in
respect of any matter in which the adjudicating authority, i.e. the NCLT or the
NCLAT, is empowered by the Code to pass any order.

 

In view of the said provisions, it was held
that the High Court ought not to have proceeded with the auction of the
property of H Co once the proceedings under the Code had commenced and an order
declaring moratorium was passed by the NCLT. It was observed that if the assets
of H Co were alienated during the pendency of the proceedings under the Code,
it would seriously jeopardise the interest of all the stakeholders.

 

The interim orders of the High Court were
set aside by the Supreme Court and it was held that the sale or liquidation of
assets of H Co would now be governed by the Code. Further, the union was
directed to file its claim under Regulation 9 of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 for payment of arrears, salaries and other dues before the
competent authority. All the parties were granted liberty to pursue the
available remedies in accordance with law.

 

11. Omega Finvest LLP vs. Direct News (P)
Ltd. [2019] 112 taxmann.com 297 (NCLT, N.Del.) C.P. (IB) No. 1478 (PB) of 2019 Date of order: 30th September,
2019

 

Section 5 of Insolvency and Bankruptcy
Code, 2016 – Providing a place on lease for the purpose of carrying on
day-to-day activities was a supply of services – Lessor was an operational
creditor who was entitled to commence resolution proceedings when there was a
default in payment of rent

 

FACTS

D Co, a private
limited company, had entered into a lease agreement with S Co on 28th
August, 2008. S Co was demerged into O Co and O Co was converted into an LLP in
the year 2012. In order to continue the lease of the premises, the parties had
entered into a lease deed dated 13th July, 2016 for a period of
three years from 1st July, 2016 to 30th June, 2019. D Co
paid a sum of Rs. 1.25 crores to O Co pursuant to the lease deed. O Co submitted
that upon execution of the modification deed dated 14th June, 2018,
D Co issued 13 post-dated cheques for payment of rent for each month from 1st
June, 2018 to 30th June, 2019 for a sum of Rs. 21,60,000,
inclusive of the base rent of Rs. 20,00,000 along with Goods and Services Tax @
18% amounting to Rs. 3,60,000. It is claimed by O Co that cheques issued
towards payment of rent for the months of April, 2019 and May, 2019 got
dishonoured.

 

O Co furnished a demand notice dated 28th
May, 2019 to D Co u/s 8 of the Insolvency and Bankruptcy Code, 2016 (the Code).
O Co alleged that there was no reply to the notice so served.

 

D Co opposed the petition on the ground that
the debt claimed does not fall in the ambit of the definition of ‘operational
debt’ and therefore O Co was not an ‘operational creditor’. D Co further
submitted that a reply to the demand notice was communicated in due time. There
was prior communication to adjust the rent against the security deposit and
accordingly, it was alleged that there was a pre-existing dispute even before
notice u/s 8 was served.

 

HELD

The National Company Law Tribunal (NCLT)
heard both the sides at length. It examined the provisions of sections 5(20)
and 5(21) of the Code which define operational creditor and operational debt.
It was observed that in the facts of the present case, lease of premises was
for functioning of day-to-day operations and it was directly related to the
input and output of the supply of services by D Co. O Co had provided
infrastructure services to D Co for its functioning. Thus, leasing of premises
was held to be supply of services. Reliance was also placed on the report of
the Bankruptcy Law Reforms Committee dated 4th November, 2015 which
also mentions that… ‘the lessor. that an entity rents out space from is an
operational creditor to whom the entity owes monthly rent’. It was held
that O Co was an ‘operational creditor’ within the meaning of section 5(20) of
the Code.

 

NCLT perused the communication between D Co
and O Co regarding adjustment of security deposit towards rent. The request for
adjustment was not met with by O Co and it proceeded to deposit the cheques
issued and the same were returned for want of sufficient funds.

 

NCLT also examined the provisions of the
rent agreement and observed that the security deposit had an entirely different
purpose. O Co had never agreed to adjust the rent from the security deposit.
The assumption of D Co that the agreement would extend to August, 2019 was
unfounded and the submission that there was a pre-existing dispute could not be
accepted.

 

As the default
stood established, NCLT proceeded to admit the petition
for initiating corporate insolvency resolution
process against D Co and declared a moratorium over its assets. An
interim resolution professional was also appointed.

 

12. Anil Syal
vs. Sanjeev Kapoor [2020] 113
taxmann.com 52 (NCLAT) Company Appeal
(AT)(Insolvency) No. 961 of 2019 Date of order:
8th November, 2019

 

Sections 8 and 9 of the Insolvency and
Bankruptcy Code, 2016 – Dues claimed in the demand notice related to sister
concern of the corporate debtor and not the corporate debtor itself – Service
of such a notice was not valid – Application for initiating corporate
insolvency resolution proceedings was not maintainable for want of appropriate
notice

 

FACTS

A service
contract was entered into and executed between Sanjeev Kapoor, proprietor of
Kapoor Logistics (operational creditor) and Flywheel Logistics Solutions
Private Limited (corporate debtor) for running route vehicles in freight-line
haul operations between Pantnagar and Pune. Anil Syal is ex-director and
shareholder of the company Flywheel Logistics Solutions Pvt. Ltd. (corporate
debtor).

 

The operational creditor submitted that
Logistics Services were provided to the corporate debtor and pursuant to that
invoices were raised for the amount totalling Rs. 66,00,860 for the period
January, 2017 to August, 2017. Part payment of Rs. 35,68,484 was received from
the corporate debtor against the pending bills. Anil Syal stated that the balance
confirmation of Rs. 30 lakhs was admitted by the corporate debtor vide e-mail
dated 27th July, 2018. But despite repeated e-mails and reminders,
the outstanding dues were not paid by the corporate debtor. The operational
creditor claimed that a demand notice was furnished calling upon the corporate
debtor to pay the total outstanding amount of Rs. 33,69,997.

 

The corporate debtor challenged the
submission stating that the demand notice and invoices were never received and
therefore the application was not maintainable for want of a valid demand
notice. Further, it was alleged that the demand notice was furnished to a
sister concern which was a separate legal entity by the name of Flywheel
Logistics Pvt. Ltd. having a different CIN and registered address, separate and
distinct from the corporate debtor. It was also submitted that the National
Company Law Tribunal (NCLT) which passed an order for initiation of the
corporate insolvency resolution process (CIRP) against the corporate debtor did
not take into account the evidence establishing a pre-existing dispute.

 

HELD

The National Company Law Appellate Tribunal
(NCLAT) observed that invoices were issued against M/s Flywheel Logistics Pvt.
Ltd. but the demand notice was issued to Flywheel Logistics Solutions Pvt. Ltd.
being the corporate debtor. The two are different corporate entities having
different CIN numbers and registered addresses.

 

NCLAT held that the operational creditor had
no right to claim dues relating to the invoices issued against ‘M/s Flywheel
Logistics Pvt. Ltd.’ from the corporate debtor, ‘M/s Flywheel Logistics
Solutions Pvt. Ltd.’ which is a separate corporate entity, having a different
CIN number.

 

It was observed that the mandatory primary
requirement for filing a petition u/s 9 of the Code was the service of the
demand notice u/s 8 of the Code. Since the demand notices related to the dues
of another corporate entity, it could not be treated as a valid and proper
service. The order passed by NCLT was thus set aside by NCLAT. It was further
held that this order would not prejudice the right of the operational creditor
to proceed against Flywheel Logistics Pvt. Ltd.

 

13. Indiavidual Learning (P) Ltd. vs.
Registrar of Companies [2019] 112 taxmann.com 101 (NCLT-Beng.) Date of order: 10th October, 2019

 

In the Board
Report of the company filed with the ROC, certain matters were unintentionally
omitted to be reported – It could be permitted to revise the said Board Report
if the same would not prejudice the interests of the company, its shareholders
or stakeholders, or violate any provisions

 

FACTS

The Audited Financial Statements of I Pvt.
Ltd. (company), which included the Board’s Report for the financial year
2015-16, were approved by the Board of Directors. The Auditor’s Report attached
to the Financial Statements was sent to the shareholders of the company. The
same were laid before and adopted at the Annual General Meeting. The Audited
Financial Statements, together with the Board’s Report, was filed with the ROC
in due course.

 

It was brought
to the notice of the Bench that in the aforesaid Board’s
Report for the financial year 2015-16, certain matters to be covered in terms
of the provisions of section 134 of the Companies Act, 2013 were
unintentionally omitted to be reported. Those inadequacies were noticed by
the company later on, when it was reviewing the documents filed with the NCLT
in connection with a proposed reduction of share capital. It was further stated
in the petition that the inadequacies and omissions arising from non-compliance
of various applicable provisions happened purely due to inadvertence and no
part of it was prejudicial to the interests of any of the stakeholders.

 

A decision was taken at the meeting of the
Board of Directors of the company to revise the Board’s Report for the
financial year 2015-16, subject to approval of the Tribunal, and accordingly
the petition filed sought permission to revise the Board’s Report.

 

The notice of the petition was served on the
ROC concerned. Even though notice was served on the ROC and sufficient time
granted, ROC had not filed any response.

 

HELD

The proviso to section 131(1) of the
Companies Act, 2013 mandates that the Tribunal shall give notice to the
statutory authorities and it shall take into consideration the representations,
if any made by such authorities, before passing any order under this section.
Since ROC had not filed any representation on the petition, it appeared to the
Bench that it had no representation against the petition. Therefore, on the
principle of ease of doing business, it was held that orders are to be passed as
per merits of the case.

 

The inadequacies noticed in the Board’s
Report were as under:

(i)    The financial highlights of the performance
of the company in terms of Rule 5(i) of the Companies (Accounts) Rules, 2014;

(ii)   Details of subsidiaries, joint ventures or
associate companies in terms of Rule 5(iv) of the said Rules;

(iii)  Details relating to deposits in terms of Rule
5(v) of the said Rules;

(iv)  Details in respect of frauds reported by
auditors in terms of section 134(3)(ca) of the Companies Act, 2013;

(v)   Disclosures on details of the Employee Stock
Option Scheme in terms of the Companies (Share Capital and Debentures) Rules,
2014;

(vi)  The statutory auditor had made a qualification
stating that ‘no employee compensation expenses is accounted as required by
ICAI guidelines in absence of the fair value option, the impact on loss for the
year is not ascertained’. As per provisions of section 134(2)(f) of the
Companies Act, 2013, the Board was required to include in the Board’s Report
explanations or comments of the Board on every qualification, reservation or
adverse remark or disclaimer made by the Auditor in his report, if any.
However, there was an omission in this respect also since in the Board’s Report
dated 6th September, 2016 no explanation was provided for the
adverse remarks / comments of the statutory auditors in their Report;

(vii) In terms of the provisions under the Sexual
Harassment of Women at Workplace (Prevention and Prohibition and Redressal)
Act, 2013 the company had to make certain disclosures on the complaints
received, if any, under the said Act. While the company had during the F.Y.
2015-16 complied with the requirements under the said Act, a statement to that
effect was omitted in the Board’s Report; and

(viii)      In respect of the paragraph under
Directors’ Responsibility Statement in terms of section 134(3)(c) read with
section 134(5) of the Companies Act, 2013, the wording in the said paragraph
was not on the lines prescribed under the Act and, therefore, warranted a
correction.

 

On perusal of
the inadequacies of the Board’s Report as noticed and pointed out, it was
observed that they were not serious in nature and happened due to inadvertence
and if permitted to be revised as sought for, would not prejudice the interests
of the company, its shareholders, or stakeholders, or violate any provisions of
the Act. They have also declared that the company has been prompt in all annual
filings with the ROC in the past and all statutory registers and records were
maintained in accordance with the provisions of the Act. Therefore, considering
the fact that the instant petition is filed duly following the provisions of
the Act and the rules made thereunder and thus, by following the principle of
ease of doing business, the company petition is to be disposed of subject to
compliance of provisions of the applicable NCLT rules.

 

In the result, the company was permitted to
revise its Board’s Report for the financial year 2015-16 in terms of section
131(1) of the Companies Act, 2013.

 

However, it was made clear to the company
that the order would not absolve the company of any other violation(s)
committed by it and the statutory authorities were entitled to take appropriate
action in accordance with law.  

 

ALLIED LAWS

19. Auction sale of secured assets – Bank
obliged to disclose any dues on secured assets in notice of sale – Failure of
disclosure – Auction purchaser cannot be fastened with the liability to pay the
same [SARFAESI Act, 2002, S. 13, 38]

 

Corporation Bank and Ors. vs. Jayesh Kumar
Jha; AIR 2019 Cal 328

 

The auction purchaser successfully
participated in the e-auction for the sale of an immovable property undertaken
by the bank through its officers under the provisions of the SARFAESI Act,
2002. On receipt of the consideration price fixed by the auction, the appellant
bank issued sale certificate in favour of the respondent in respect of the
property in question. The sale was free from all encumbrances.

 

Subsequent to this, the purchaser was
charged for payment of property tax and maintenance tax in respect of the
property for the period prior to the auction payable to the Kolkata Municipal
Corporation. Contending that he was not liable to pay any such tax or charge
levied for the period prior to the sale, the purchaser moved Court with a
prayer for issuance of a writ of mandamus directing the bank authorities
to set aside the letter under which it communicated to him that the bank was
not liable to any outstanding dues with a further writ of mandamus
directing the bank authorities to reimburse the amount paid by the purchaser
towards the outstanding property tax to the Kolkata Municipal Corporation with
interest.

 

The Court held that Rules 8 and 9 of the
Security Interest (Enforcement) Rules, 2002 deal with the stage anterior to the
issuance of sale certificate and delivery of possession. Rule 9(8) casts a duty
upon the authorised officer to deliver the property to the purchaser free from
encumbrances (or) requiring the purchaser to deposit money for discharging the
encumbrances. The ignorance of the second creditor regarding the encumbrance on
the property is no longer a good and acceptable defence in view of the
statutory provisions and various precedents by the Hon’ble Supreme Court and
different High Courts on the subject… The SARFAESI Act and the Rules have
replaced the rule of caveat emptor by caveat venditor. When a
property is put to sale, the bank is under statutory obligation to sell the
secured asset with a clear title free from any encumbrance. As the bank did not
disclose the pre-sale property tax dues which are a charge on the land or
building in respect of the secured asset, therefore, the bank has failed to discharge
its statutory obligation.

 

After completion of the sale and delivery of
possession, the auction purchaser-respondent cannot be fastened with the
liability to discharge such encumbrances.

 

20. Hindu law – Right in coparcenary
property – No document to show that property was purchased with the money of
the HUF – Partition taken place – Devolution of coparcenary property takes
place only when succession opens and not before that – Father of the plaintiff
(daughter) is still alive – Suit claiming right in coparcenary property was not maintainable [Hindu
Succession Act, 1956, S. 6]

 

Chandribai and Ors. vs. Tulsiram and Ors;
AIR 2019 MP 206

 

The plaintiff (daughter) filed a suit for
declaration as well as for setting aside the sale deed which had been executed
in favour of the defendant. It was alleged that the disputed property is
ancestral undivided property of the plaintiffs and the plaintiffs have right,
title and interest in the property since their birth. It was also alleged that
the property has been purchased by transfer of ancestral property and that it
continued to remain so.

 

The trial Court, after framing the issues
and recording the evidence, held that the plaintiffs have 1/6th
share each in the disputed property and they are entitled for partition and
possession. The trial Court further held that the property is not a
self-acquired one. The 1st Appellate Court reversed the judgment
passed by the trial Court.

The Hon’ble High
Court upheld the order of the 1st  Appellate
Court that there is no presumption of a property being joint family property
only on account of the existence of a joint Hindu family. The one who asserts
this has to prove that the property is a joint family property and the onus
would shift on the person who claims it to be self-acquired property to prove
that he purchased the property with his own funds and not out of the joint
family nucleus (corpus) that was available.

 

Further, it is significant to note that the
phrase ‘devolution of coparcenary property’ only takes place when succession
opens and not before that. It is well settled that succession opens on the
death of the karta. As a necessary corollary, the karta being
alive, the suit in issue was not maintainable.

 

21. Tenancy rights – Inheritance of tenancy
right is not applicable to a joint family [Bombay Rent Act, 1947, S. 5, 13, 15]

 

Vasant
Sadashiv Joshi. & Ors vs. Yeshwant Shankar Barve through Lrs & Ors.; WP
2371 of 1977; Date of order: 2nd January, 2020 (Bom)(HC)(UR)

 

The petition was filed by a tenant who was
being evicted from the suit premises. The original tenant was his father and
upon his death the rent receipt came to be transferred in the name of the
petitioner. The premises was occupied by his cousin as the petitioner had moved
to an alternate accommodation. The petitioner argued that tenancy rights can be
inherited by any and every member of the joint family.

 

The Court held
that the provisions of the Bombay Rent Act, which pertain to tenancy rights
would not be applicable to a joint family unit. After the death of the original
tenant, tenancy rights cannot be inherited by any member of the family of the
deceased by claiming to be in a joint family set-up.

 

22. Will – Attestation – Signature of the
testator on the Will is undisputed where the attesting witnesses deposed that the testator came to them individually with his own
signed will and read it out to them after
which they attested it [Succession Act, 1925, S. 63]

 

Ganesan (D) through Lrs. vs. Kalanjiam and
Ors.; AIR 2019 SC 5682

 

The appellant filed a suit claiming share in
the suit properties asserting them to be joint family properties. The trial
Court held that the suit property was the self-acquired property of the
deceased who died intestate and the genuineness of the Will had not been
established in accordance with the law, entitling the appellant to 1/5th
share. The appeal was allowed holding that the signature of the testator was
not in dispute and the testator was of sound mind. The second appeal by the
appellant was dismissed.

 

The Hon’ble Supreme Court held that where
the signature of the testator on the Will is undisputed and the Succession Act
requires an acknowledgement of execution by the testator followed by the
attestation of the Will in his presence, and where a testator asks a person to
attest his Will, it is a reasonable inference that he was admitting that the
Will had been executed by him.

 

There is no express prescription in the
statute that the testator must necessarily sign the Will in the presence of the
attesting witnesses only, or that the two attesting witnesses must put their
signatures on the Will simultaneously at the same time in the presence of each
other and the testator.

 

Both the attesting witnesses deposed that
the testator came to them individually with his own signed Will and read it out
to them, after which they attested the Will. Therefore, the appeal was
dismissed.

 

23. Power of attorney holder – Cannot depose
for principal by entering in his shoes – His testimony cannot be treated as
that of principal [Civil Procedure Code, 1908, O. 3, Rr 1,2]

 

Narmada Prasad vs. Bedilal Burman; AIR 2019
MP 660

 

In the instant
civil suit, the petitioner filed a power of attorney in favour of his son and
apprised the Court below specifically that his son will enter the witness box
on his behalf. In turn, the son, Jitendra Burman, entered the witness box,
deposed his statement and was cross-examined. The petitioner introduced his son
as power of attorney holder on the ground that he is suffering from an aliment
of forgetfulness because of which his memory was not in order and, therefore,
his son will depose on his behalf.

 

The Court held
that the son cannot be permitted to depose on behalf of the principal for the
acts done by him. As a necessary corollary, the son cannot be cross-examined on
those aspects in respect of the principal. Thus, the right to adduce evidence
by the power of attorney holder is available to a limited extent. By no stretch
of the imagination can the son be treated to be a representative of the
principal in all aspects and, therefore, it cannot be said that the stand of
the petitioner will deprive him from entering the witness box. In other words,
it is trite that no estoppel operates against the law.

 

CORPORATE LAW CORNER

 

14. Maharashtra
Seamless Ltd. vs.  Padmanabhan Venkatesh [2020] 113
taxmann.com 421 (SC) Civil Appeal Nos.
4242, 4967, 4968 of 2019 Date of order: 22nd
January, 2020

 

Insolvency
and Bankruptcy Code, 2016 – There is no provision in the Code which stipulates
that amount approved in the resolution plan should match the liquidation value
– Once approved, resolution plan cannot be withdrawn under provisions of
section 12A of the Code

 

FACTS

U
Co, the corporate debtor, had a total debt of Rs. 1,897 crores out of which Rs.
1,652 crores comprised of term loans from two entities of Deutsche Bank. There
was also debt on account of working capital borrowing of Rs. 245 crores from Indian
Bank. Indian Bank initiated the Corporate Insolvency Resolution Process (CIRP)
against U Co by filing an application u/s 7 of the Insolvency and Bankruptcy
Code, 2016 (the Code).

 

The
National Company Law Tribunal (NCLT), by an order passed on 21st January,
2019, approved the resolution plan submitted by M Co in an application filed by
the Resolution Professional (RP). The resolution plan included an upfront
payment of Rs. 477 crores. Ancillary directions were issued by the NCLT while
giving approval to the said resolution plan with the finding that the said plan
met all the requirements of section 30(2) of the Code.

 

P,
who was one of the promoters of U Co, and Indian Bank filed an appeal with the
National Company Law Appellate Tribunal (NCLAT). M Co also filed an appeal
before NCLAT seeking directions upon U Co, as also the police and
administrative authorities, for effective implementation of the resolution
plan. The grievance of M Co in that proceeding was that they were not being
given access to the assets of U Co.

 

The
complaint of P, one of the original promoters, and the bank before the NCLAT
was primarily that the approval of the resolution plan amounting to Rs. 477
crores was giving the resolution applicant a windfall as they would get assets valued
at Rs. 597.54 crores at a much lower amount. The other ground urged by the bank
was that Area Projects Consultants Private Limited, one of the resolution
applicants, had made a revised offer of Rs. 490 crores which was more than the
amount offered by M Co.

 

The
application was disposed of with a direction to extend co-operation to M Co. In
the course of hearing, M Co agreed to pay operational creditors at the same
rate (25%) as financial creditors. NCLAT also ordered that the upfront payment
agreed to by M Co be increased from Rs. 477 crores to Rs. 597.54 crores (being
the average liquidation value) by paying an additional Rs. 120.54 crores.
Failure to make the payment would set aside the order of NCLT approving the
resolution plan. The plan could be implemented only when M Co made the revised
payment.

 

Aggrieved, M Co filed an appeal before the Supreme Court
seeking withdrawal of the resolution plan and a refund of the sum deposited in
terms of the resolution plan along with interest. M Co argued that in order to
take over the corporate debtor, they had availed of substantial term loan
facility and deposited the sum of Rs. 477 crores for resolution of U Co, but
because of delay in implementation of the resolution plan, they were compelled
to bear the interest burden. Further, the export orders that they had accepted
in anticipation of successful implementation of the resolution plan were
cancelled, as a result of which the takeover of U CO had become unworkable. It
was also argued that NCLAT had exceeded its jurisdiction in directing matching
of liquidation value in the resolution plan.

 

On
the other hand, the banks, while supporting the main appeal of M Co, resisted
the plea for withdrawal of the resolution plan and refund of the sum already
remitted by M Co. It was argued that the only route through which a resolution
applicant can travel back after admission of the resolution plan was under the
auspices of section 12A of the Code.

 

HELD

The
Supreme Court heard the arguments put forth by both the sides. The primary
issues before it were two-fold. The first one was whether or not the scheme of
the Code contemplates that the sum forming part of the resolution plan should
match the liquidation value. The second issue was whether section 12A is the
applicable route through which a successful resolution applicant can retreat.

 

The
Supreme Court observed that M Co in the appeal sought to sustain the resolution
plan but its prayer in the interlocutory application was refund of the amount
remitted, coupled with the plea for withdrawal of the resolution plan. Its main
case in the appeal was that the final decision on the resolution plan should be
left to the commercial wisdom of the Committee of Creditors and there was no
requirement that the resolution plan should match the maximised asset value of
the corporate debtors.

 

The
Court observed that substantial arguments were advanced before the NCLT over
its failure to maintain parity between the financial creditors and the
operational creditors on the aspect of clearing dues. It was also observed that
section 30(2)(b) of the Code specified the manner in which a resolution plan
shall provide for payment to the operational creditors. The Court relied on its
own decision in the case of Committee of Creditors of Essar Steel India
Limited vs. Satish Kumar Gupta [Civil Appeal Nos. 8766-8767 of 2019]
wherein it was concluded that section 30(2)(b) of the Code referred to section
53 not in the context of priority of payment of creditors, but only to provide
for a minimum payment to operational creditors. However, that did not in any
manner limit the Committee of Creditors (CoC) from classifying creditors as
financial or operational and as secured or unsecured. Since M Co had agreed
before NCLAT to clear the dues of operational creditors in percentage at par
with the financial creditors, the controversy on there being no provision in
the resolution plan for operational creditors was rendered only academic.

 

It
was observed that NCLT relied on section 31 of the Code in approving the
resolution plan. Indian Bank and P relied on Clause 35 of The Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016. The law did not prescribe any provision which stipulates
that the bid of a resolution applicant had to match the liquidation value
arrived at in the manner provided in clause 35. The object behind prescribing
the valuation process was to assist the CoC in taking a decision on a
resolution plan properly. Once a resolution plan was approved by the CoC, the
statutory mandate on the NCLT u/s 31(1) of the Code was to ascertain that the
resolution plan met the requirements of sections 30(3) and 30(4). The Supreme
Court held that it did not find any breach of the said provisions in the order
of the NCLT in approving the resolution plan.

 

The
Court held that NCLAT had proceeded on an equitable perception rather than
commercial wisdom. It ought to cede ground to the commercial wisdom of the
creditors rather than assess the resolution plan on the basis of quantitative
analysis. The case of M Co in their appeal was that they wanted to run the
company and infuse more funds. In such circumstances, the Court held that NCLAT
ought not to have interfered with the order of the NCLT and direct the successful
resolution applicant to enhance their fund inflow upfront.

 

As
regards withdrawal of plan by M Co, it was observed that the manner
contemplated by approaching the Supreme Court was incorrect. The exit route
prescribed in section 12A is not applicable to a resolution applicant. The
procedure envisaged in the said provision only applies to applicants invoking
sections 7, 9 and 10 of the Code. Having appealed against the NCLAT order with
the object of implementing the resolution plan, M Co could not be permitted to
take a contrary stand in an application filed in connection with the very same
appeal. The Supreme Court did not engage in the judicial exercise to determine
the question as to whether, after having been successful in a CIRP, an
applicant altogether forfeits its right to withdraw from such process.

 

The
appeal filed by M Co was allowed and the order passed by the NCLT on 21st
January, 2019 was upheld. The Resolution Professional was directed to take
physical possession of the assets of the corporate debtor and hand these over
to M Co within a period of four weeks.

 

15. Icchapurti Global
Buildcon (P) Ltd. vs. Registrar of Companies, Mumbai [2020] 113
taxmann.com 481 (NCLT, Mum.) Date of order: 11th
December, 2019

 

ROC struck off the name of petitioner company from
Register of Companies on account of its failure to furnish financial statements
– In view of fact that petitioner company was in operation, it had assets and
current liabilities and, moreover, in case relief sought was not granted, grave
hardship and irreparable loss and damage would be caused to it, application
filed by petitioner seeking to restore its name in Register of Companies is to
be allowed

FACTS

I
Pvt. Ltd. (the Company) was incorporated on 27th September, 2012
under the Companies Act, 1956 as a private company limited by shares with the
Registrar of Companies, Mumbai. The name of the Company was struck off from the
Register of Companies maintained by the Registrar of Companies (ROC) due to
defaults in statutory compliances, namely, failure to file financial statements
and annual returns for three years from the financial year ended 31st
March, 2015 to 31st March, 2017.

 

The
Company filed an application before the Bench to restore its name in the
Register of Companies.

 

It
was brought to the notice of the Bench (by the Company) that:

(i)   the Company has failed to file its financial statements and annual
returns for three years 2014-15 to 2016-2017;

(ii) the Company is a closely-held company and is a going concern and in
continuous operation;

(iii)       it is evident from the audited financials for the defaulting
period that the Company was a going concern at the time when its name was
struck off by the ROC and that it was generating income. The Company had
current assets and  liabilities.

 

The
Company also submitted copies of audited accounts for the financial years from
31st March, 2015 to 31st March, 2017, copies of
acknowledgement of Income-tax Returns filed for the assessment years 2015-16 to
2017-18, copies of bank statements to show that it is a going concern, actively
involved in business and is in continuous operation. The Company further
submitted that if its name was restored, it undertakes to file all the pending
statutory documents from the financial years 2014-15 till date along with the
filing fees and the additional fees, as applicable on the date of actual
filing.

 

From
the response filed by the ROC, the Bench gathered that the name of the company
was struck off for its failure to file statutory documents since 31st
March, 2015, as mandatorily required under the statute.

 

The
Bench perused the financials filed during the course of the proceedings and
noted that the Company is in operation and has its assets and current
liabilities.

 

HELD

The
Bench came to the conclusion that unless the relief sought is granted to the
Company, grave hardship and irreparable loss and damage shall be caused to it.
Given the above set of facts, the Bench was satisfied that the prayer sought by
the Company deserves to be allowed.

 

The
Bench allowed the appeal of the Company on the following terms:

(a) The ROC was directed to restore the name of the
Company in the Register of Companies subject to payment of a sum of Rs. 1,00,000
as cost payable in the account of the ‘Prime Minister’s National Relief Fund’;
and

(b) The Company shall file all its pending financial statements and
annual returns with all the applicable fees and late fees with the ROC within
30 days from the date of receipt of a copy of the order, failing which the
order will stand vacated automatically.  

 

 

 

ALLIED LAWS

14. Covid-19 – Lockdown – Banks cannot
classify firms as NPAs – RBI guidelines

 

Anant Raj Ltd.
vs. Yes Bank Ltd.; W.P.(C) Urgent 5/2020; Date of order: 6th April,
2020 (Delhi)(HC)(UR)

 

The petitioner had approached the Court
seeking a direction against Yes Bank from taking coercive / adverse steps
against it, including but not limited to declaring its account as a
Non-Performing Asset (NPA). The petitioner contended that it failed to pay the
instalment which fell due on 1st January, 2020 (the subject matter
of the present petition) because of adverse economic conditions brought about
by the effects of the Covid-19 pandemic.

 

The High Court
held that classification of the account of the petitioner as an NPA cannot be
done in view of the RBI Circular related to moratorium of loan repayments. It
held that a prima facie reading of the Statement on Development and
Regulatory Policies issued by the RBI on 27th March, 2020 along with
the Regulatory Package indicates the intention of RBI to maintain the status
quo as on 1st March, 2020 for all accounts. The Court further
observed that before classification as NPA, an account has to be classified as
SMA-2 and any account which is classified as SMA-2 on 1st March,
2020 cannot be further downgraded to an NPA after the issuance of the
Notification. The status has to be maintained as it was on 1st
March, 2020.

 

Thus, the Court granted interim protection
from the account being declared as an NPA. However, it was clarified that the
stipulated interest and penal charges shall continue to accrue on the
outstanding payment even during the moratorium period.

 

15. Covid-19 –
Lockdown – Period of the moratorium – Will not include period of lockdown

 

Transcon Skycity Pvt. Ltd. and Ors. vs.
ICICI & Ors.; W.P. LD VC No. 28 of 2020; Date of order: 11th
April, 2020 (SC)(UR)

 

A petition was filed before the Supreme
Court as to whether the moratorium period is excluded in the computation of the
90-day period for determining NPA for amounts that fell due prior to 1st March,
2020 and which remain unpaid or in default. The Court at the outset observed
that its scope for adjudication, at that particular juncture, was restricted
only to the aspect of urgent ad interim relief and issues like
maintainability were kept open for adjudication at an appropriate time.

 

The Hon’ble Court held that the period
during which there is a lockdown will not be reckoned by ICICI Bank for the
purposes of computation of the 90-day NPA declaration period. If the lockdown
is lifted at an earlier date than 31st May, 2020, then this
protection will cease on the date of lifting of the lockdown and the computing
and reckoning of the remainder of the 90-day period will start from that
earlier lifting of the lockdown-ending date. The moratorium period of 1st
March, 2020 to 31st May, 2020 under the RBI Covid-19 regulatory
package does not per se give the petitioners any additional benefits in
regard to the prior defaults, i.e. those that occurred before 1st
March, 2020. Thus, the relief to the petitioners is co-terminus with the
lockdown period.

 

The Court also
opined that this order will not serve as a precedent for any other case in
regard to any other borrower who is in default or any other bank. Each of these
cases will have to be assessed on its own merits. The question as to whether
the petitioners are entitled to the benefit of the entire moratorium period in
respect of the prior defaults of January and February, 2020 was left open.

 

16. Employment – Ministry of Home Affairs Order – Payment of wages
during lockdown – Negotiable [Disaster Management Act, 2005, S.10; Constitution
of India, 1949, Art. 14, Art. 19, Art. 300A]

 

Ficus Pax Pvt. Ltd. vs. UOI; W.P.(C) Diary
No. 10983 of 2020; Date of order: 12th June, 2020 (SC)(UR)

 

A petition was filed by an association of
employers and a private limited company challenging the validity of the Order
of the Ministry of Home Affairs dated 29th March, 2020 stating that
all the employers, be they in the industry or in the shops and commercial
establishments, shall make payment of wages of their workers at their work
places on the due date, without any deduction for the period their
establishments are under closure during the lockdown.

 

The Hon’ble Supreme Court held that no
industry can survive without the workers. Thus, employers and employees need to
negotiate and settle among themselves. If they are not able to do so, they need
to approach the labour authorities concerned to sort out the issues.

 

17. Family Law –
Maintenance on divorce – Wife entitled to maintenance – Even if she runs a
business and earns income [Hindu Marriage Act, 1955, S.12, S.13; Code of
Criminal Procedure, 1973, S.125]

 

Sanjay Damodar Kale vs. Kalyani Sanjay Kale
(Ms); RA No. 164 of 2019; Date of order: 26th May, 2020
(Bom)(HC)(UR)

 

The couple got
married on 12th November, 1997 in accordance with Hindu religious
rites and ceremonies. According to the applicant, the wife, since the inception
of marital life the respondent husband treated her with extreme cruelty. She
was dropped at her parental home at Satara in the month of January, 1999 by her
husband. Despite repeated assurances, the respondent did not come to fetch her
back to her marital home. In April, 2007 the respondent expressed his desire to
obtain divorce from the applicant. Although the applicant claimed to have
resisted in the beginning, she signed the documents for a divorce petition by
mutual consent as the respondent assured the applicant that he would continue
to maintain the marital relationship with her despite a paper decree of
divorce.

 

Despite the decree of dissolution of
marriage, the respondent continued to visit the applicant at her apartment and
had marital relations as well. But from September, 2012 the respondent-husband
stopped visiting the applicant’s house. The applicant-wife claimed the
respondent made no provision for her maintenance and livelihood as she had no
source of income. Hence, the applicant filed an application u/s 125 of the
Criminal Procedure Code for award of maintenance at the rate of Rs. 50,000 per
month. The Family Court allowed the application holding that the respondent has
refused or neglected to maintain the applicant who is unable to maintain
herself, despite the respondent having sufficient means to maintain her.

 

The Bombay High Court held that the claim of
the applicant that she had no source of income ought to have been accepted by
the learned Judge, Family Court with a pinch of salt. The tenor of the evidence
and the material on the record suggests that the applicant was carrying on the
business of Kalyani Beauty Parlour and Training Institute to sustain her
livelihood. Further, in this inflationary economy, where the prices of
commodities and services are increasing day by day, the income from the
business of beauty parlour, which has an element of seasonality, may not be
sufficient to support the livelihood of the applicant and afford her to
maintain the same standard of living to which she was accustomed before the
decree of divorce. Thus, the Court concluded that Rs. 12,000 per month would be
a reasonable amount to support the applicant wife instead of Rs. 15,000 awarded
by the Family Court (against the original claim / prayer for Rs. 50,000)  as the applicant’s source of income was not
adequately considered by the Family Court Judge.

 

18. Interpretation of terms and conditions
of document(s) – Constitutes substantial question of law – High Court required
to exercise power – Matter remanded to the High Court [Code of Civil Procedure,
1908, S.100]

 

Rajendra Lalit Kumar Agrawal vs. Ratna
Ashok Muranjan; (2019) 3 Supreme Court Cases 378

 

The appellant is the plaintiff whereas the
respondents are the defendants. The appellant filed a civil suit against the
respondents for specific performance of the contract in relation to the suit
property. The suit was based on an agreement dated 8th August, 1984.
The trial Court passed an order dated 5th July, 2004 favouring the
appellant and passed a decree for specific performance of the contract against
the respondents. On appeal by the respondents, the District Court vide
order dated 10th November, 2016 allowed the prayer of the
respondents, thereby dismissing the suit. The appellant filed a second appeal
before the High Court. The High Court dismissed the second appeal, too, holding
that it did not involve any substantial question of law as is required to be
made out u/s 100 of the Code of Civil Procedure, 1908 (Code).

 

On an appeal before the Supreme Court, it
was held that interpretation of terms and conditions of document(s) constitutes
a substantial question of law within the meaning of section 100 of the Code,
especially when both parties admit to the document. The Apex Court also held
the High Court could have framed questions on the issues, which were material
for grant or refusal of specific performance keeping in view the requirements
of section 16 of the Specific Relief Act. Therefore, the order of the High
Court was set aside and the matter was remanded back to the High Court.

 

19. Will – Mutual Will – Effect from – Death
of either testator – The beneficiaries do not have to wait till the death of
both the executants to enforce their rights [Hindu Succession Act, 1956]

 

Vickram Bahl & Anr. vs. Siddhartha
Bahl; CS(OS) 78/2016 & IAs Nos. 2362/2016, 12095/2016, 15767/2018 and
15768/2018; Date of order: 25th April, 2020 (Delhi)(HC)

 

Late Wing
Commander N.N. Bahl and his wife Mrs. Sundri Bahl executed a Joint Will dated
31st March, 2006. As per the Will, after the demise of one spouse
the entire property will ‘rest’ in the other spouse and no one else shall have
any right or interest until the demise of both the testators. Further, as per
the Will after the demise of both the testators their eldest son,
grand-daughter (daughter of the eldest son) and younger son will have ownership
rights as per their respective shares. The eldest son along with his daughter
filed a suit seeking permanent injunction against his mother and brother from
dispossessing them from their respective share of the property under the Will.

 

The Court held that Mrs. Sundri N. Bahl
having accepted the said Will, is bound by it. Since the rights in favour of
the ultimate beneficiary under the mutual Will are crystallised on the demise
of either of the executants and during the lifetime of the executant of the
Will, i.e. Mrs. Sundri Bahl, the beneficiaries do not have to wait till the
death of both the executants to enforce their rights.

 

CORPORATE LAW CORNER

8. Foseco India Limited vs. Om Boseco Rail Products Limited C.P. (IB) No. 1735/KB/ 2019 Date of order: 20th May, 2020

Section 9 read with Notification dated 24th
March, 2020 – The Notification raises the pecuniary limit of the Tribunal for
initiating CIRP from Rs. 1 lakh to Rs. 1 crore – The said Notification is
prospective in nature and does not apply to applications which have been filed
but are yet to be admitted

 

FACTS

F Co (the ‘Operational Creditor’) was a
company engaged in the business of manufacturing and supply of chemical and
allied products related to foundry and steel industries. OB Co (the ‘Corporate
Debtor’) regularly purchased foundry and other chemicals from F Co on credit
basis wherein the credit period was 30 days and which was relaxed for a further
15 days beyond the usual credit period mentioned in the invoices.

 

The corporate debtor failed to make payments
of several invoices raised by the operational creditor from 3rd December, 2018 to 11th July, 2019 for supply of
materials. The total outstanding debt receivable from the corporate debtor was
Rs. 90,00,919.10 (principal amount of Rs. 78,52,663 + interest Rs.
11,48,256.10) on the basis of which a demand notice was issued on 1st
August, 2019. But the corporate debtor did not reply to the said notice. The
operational creditor therefore filed an application for initiating Corporate
Insolvency Resolution Process (CIRP) against the corporate debtor.

 

On two consecutive events (17th
January, 2020 and 3rd February, 2020), the corporate debtor chose
not to file a reply without assigning any valid reason. The matter was then
posted for hearing on 13th March, 2020. The corporate debtor then
requested for a period of seven days for settlement of the matter with the
operating creditor. The time was granted and the order was reserved. But owing
to the onset of the coronavirus pandemic, there was a delay in pronouncement of
an order.

 

The corporate debtor, citing the
Notification dated 24th March, 2020 which introduced the proviso
to section 4 of the Insolvency and Bankruptcy Code, 2016, filed a submission
before the NCLT on 13th May, 2020. The proviso enhanced the
minimum amount of default from Rs. 1 lakh to Rs. 1 crore for initiating CIRP
against corporate debtors from small and medium-scale industries. The issue
before the National Company Law Tribunal (NCLT) was whether the Notification
u/s 4 of the Code would apply to applications pending for admission.

 

HELD

NCLT heard both the parties. It observed
that the corporate debtor had always accepted and agreed to make payment of
outstanding debt without raising any dispute. The Tribunal observed that it was
a well-settled law that a statute is presumed to be prospective unless it is
held to be retrospective either expressly or by necessary implication. Further,
the Notification did not mention that its application would be retrospective.
The amendment was, therefore, held to be prospective.

 

It was submitted that the invoices did not
mention any terms stipulating the payment of interest. Accordingly, NCLT held
that since there was no objection raised by the corporate debtor, a sum for
supply of materials less any interest was due. The claim of the operational
creditor was found due and sustainable in law. The Tribunal passed an order
admitting the application and laid down necessary directions, including
declaration of moratorium and appointment of a resolution professional.

 

9. DLF Ltd. vs. Satya Bhushan Kaura [2020] 113 taxmann.com 363 (NCLAT) Date of order: 13th January, 2020

 

It was found that company in their
correspondence with legal heirs had accepted to issue shares to them as per
their entitlement on production of court orders, affidavit and indemnity bond
and on payment of Rs. 1.20 lakhs being consideration amount of 60,000 shares –
Where Letter of Administration for succession was submitted by legal heirs,
insisting on affidavit and indemnity bond again and again was harassing poor
investors and therefore, penalty was imposed on company and they were directed
to register transfer of 60,000 shares to legal heirs which were due to them on
rights basis by appellant company

 

FACTS

The Late DNK, a deceased shareholder of ‘D
Ltd’, held 150 equity shares of Rs. 10 each of the company. The said 150 equity
shares of Rs. 10 each were subsequently converted into 6,000 equity shares of
Rs. 2 each after giving effect to split and bonus issues. DNK had expired on 27th
August, 1987.

 

On 29th December, 2005, D Ltd
came out with a Rights issue which remained open till 18th January,
2006. The offer was available to all the existing shareholders as on 18th
November, 2005.

 

The legal heirs of DNK did not approach D
Ltd for transmission / transfer of the original 150 shares (being 6,000 shares
of Rs. 2 each) held by DNK in their favour; neither did they claim to be his
legal heirs nor did they inform D Ltd about his demise for about 20 years. On
25th May, 2007, for the first time the legal heirs informed that DNK
had expired on 27th August, 1987. Thereafter, by their letter dated
1st June, 2007, the legal heirs requested for transfer of 66,000
equity shares. In response to the said letter, D Ltd requested the legal heirs
to submit the requisite documents, including the succession certificate and
demand draft of Rs. 1.20 lakhs on or before 26th September, 2007 in
order to be eligible for allotment of shares on Rights basis.

 

The legal heirs after the cut-off date (26th
September, 2007) for the first time vide their letter dated 16th
October, 2007 applied for Letter of Administration in respect of the will of
DNK and after the lapse of five years, vide their letter dated 1st
June, 2012, enclosed the Letter of Administration granted by the District Court
(North) in respect of the Will of DNK.

 

On appeal, the NCLT vide its order
directed D Ltd to register the transfer and the legal heirs were directed to make payment for 60,000 shares at Rs. 2 per share to the promoters.
The legal heirs were also directed that on transfer of 60,000 shares in their name, they will execute the
transfer deed to the extent of entitlement of the legal heirs in accordance
with the terms of the Letter of Administration issued by the District judge.

 

The matter went in appeal before the
Appellate Tribunal.

 

HELD

D Ltd in its
correspondence with the legal heirs has already accepted to issue shares to the
legal heirs as per their entitlement on production of court orders, affidavit
and indemnity bond and on payment of Rs. 1.20 lakhs being the consideration
amount of 60,000 shares. During the course of arguments, D Ltd was asked why,
when the Letter of Administration had been submitted by the legal heirs, did it
insist on affidavit and indemnity bond? When the Letter of Administration has
been issued, it means that the legal heirs are discharged from their liability.
On this, D Ltd offered its apologies.

 

It is to be
noted that D Ltd is a listed company in real estate and is well aware of legal
formalities. By insisting on affidavit and indemnity bond again and again in
spite of the Letter of Administration, it was clear that D Ltd is harassing the
poor investors. The act of D Ltd deserves some penal action. It is also noted
that the legal heirs are entitled to 60,000 shares as per entitlement on
payment of consideration.

 

In view of the
foregoing discussions and observations, the following directions were issued:

 

The legal
heirs will make payment of consideration to D Ltd within 15 days from the date
of receipt of the order and they will be entitled to the benefit of the
membership from the date of payment.

D Ltd will
transfer / arrange for transfer of 60,000 shares to the legal heirs within 30
days from the date of receipt of payment.

A sum of Rs.
5 lakhs as costs is imposed on D Ltd to be deposited with the National Defence
Fund within 15 days from the date of the order. Proof of depositing the same
will be submitted to the Registrar of the Appellate Tribunal within a week
thereafter.

 


ALLIED LAWS

11.
Arbitration – Challenging order passed by the arbitrator pending arbitration
proceedings ruling on its own jurisdiction – Not by writ petition – Arbitration
Act is a Code by itself [Arbitration and Conciliation Act, 1996; Code of Civil
Procedure, 1908; Constitution of India, 1949, Art. 226, Art. 227]

 

GTPL Hathway Ltd. vs. Strategic Marketing Pvt. Ltd.;
R/SCA No. 4524 of 2019; Date of order: 20th April, 2020 (Guj.)(HC)

 

On a petition filed u/s 11 of the Arbitration and
Conciliation Act, 1996 (the Act), the High Court vide an order dated 9th
February, 2018 appointed a sole arbitrator. Thereafter, the arbitral Tribunal vide
order dated 14th February, 2019 dismissed the preliminary objection
application filed by the petitioner (of this writ petition) and held that it
has jurisdiction over the dispute between the parties. The petitioner filed a
writ petition before the Hon’ble High Court.

 

The Court held that section 16 of the Act empowers an
arbitral Tribunal to rule on its jurisdiction, section 34 of the Act pertains
to setting aside of an arbitral award and section 37 of the Act provides for an
appeal if the arbitral Tribunal declines jurisdiction. Therefore, these provisions
provide for a complete code for alternative dispute resolution as against the
Civil Procedure Code, 1908. Further, considering the policy, object and
provisions of the Act, the same appear to be a special act and a self-contained
code. Therefore, during pendency of arbitration proceedings, the impugned order
dismissing the preliminary objections cannot be challenged under Article
226/227 of the Constitution.

 

12.
Employment – Covid-19 – Deferral of payment of salary – Denial of property
[Constitution of India, 1949, Art. 300A]

 

Meena Sharma vs. Nand Lal W.P(C) TMP No.182 of 2020; Date
of order: 28th April, 2020 (Ker.)(HC)

 

On financial difficulties arising out of the lockdown,
the Kerala government had issued an order dated 23rd April, 2020
stating that the salaries of all government employees who are in receipt of a
gross salary of above Rs. 20,000 would be deferred to the extent of six days
every month from April to August. Individuals of different departments filed a
petition before the Hon’ble High Court challenging the order for being
unconstitutional and violative of Article 300A of the Constitution of India.

 

The Court held that payment of salary to an employee is
certainly not a matter of bounty. It is a right vested in every individual to
receive the salary. It is also a statutory right as it flows from the Service
Rules. The right to receive salary every month is part of the service
conditions emanating from Article 309 of the Constitution of India. Further,
neither the Epidemic Diseases Act, 1897 nor the Disaster Management Act, 2005
justify such an order and deferment of salary for whatever reason amounts to
denial of property.

 

13.
Labour law – Payment of wages – Covid-19 – Principle of ‘No work – No wages’
not applicable [Industrial Disputes Act, 1947]

 

Rashtriya Shramik Aghadi vs. The State of Maharashtra and
Others; WP No. 4013 of 2020; Date of order: 12th May, 2020
(Bom.)(HC)(Aur.)

 

A workers’ union made a grievance before the Bombay High
Court that a lockdown has been effected but though the members of the Union are
willing to offer their services as security guards and health workers, they are
precluded from performing their duties on account of the clamping of the
lockdown for containment of the Covid-19 pandemic. Further, the payments made
by the contractors for the month of March, 2020 are slightly less than the
gross salary; and for the month of April, 2020 a paltry amount has been paid.

 

The Court held that these employees are unable to work
since the temples and places of worship in the entire nation have been closed
for securing the containment of the Covid-19 pandemic. Even the principal
employer is unable to allot the work to such employees. In such an
extraordinary situation, the principle of ‘No work —­ No wages’ cannot
be made applicable.

 

CORPORATE LAW CORNER

2. Rajendra K. Bhutta vs. Maharashtra Housing and Area
Development Authority

[2020] 114 taxmann.com 655 (SC)

Civil Appeal No. 12248 of 2018

Date of order: 19th February, 2020

 

Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016
– The word ‘occupied’ used in the section refers to actual physically occupied
property and not the rights or interest created in the property – Any
occupation handed to the developer (corporate debtor) in terms of a Joint
Development Agreement would stand ‘statutorily freezed’ in terms of section
14(1)(d)

 

FACTS

A joint development agreement (‘JDA’) was entered into
between a society representing persons occupying 672 tenements, the Maharashtra
Housing and Area Development Authority (‘MHADA’) and G Co (being the corporate
debtor) on 10th  April, 2008.
G Co entered into a loan agreement with Union Bank of India on 25th
March, 2011 for a sum of Rs. 200 crores. G Co defaulted on payment of the said
loan and consequently Union Bank of India filed an insolvency resolution
application u/s 7 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) on
15th May, 2017 which was admitted on 24th July, 2017. A
moratorium in terms of section 14 was also declared by this order.

 

On 12th January, 2018, after the imposition of the
moratorium period u/s 14 of the Code, MHADA issued a termination notice to G Co
stating that upon expiry of 30 days from the date of receipt of the notice, the
JDA would stand terminated. It was further stated that G Co would have to hand
over possession to MHADA, which would then enter upon the plot and take
possession of the land, including all structures thereon.

 

One hundred and eighty days from the start of the Corporate
Insolvency Resolution Process (‘the CIRP’) ended on 19th January,
2018. The NCLT, by its order dated 24th January, 2018, extended the
CIRP period by 90 days as permissible under the Code. On 1st
February, 2018, an application was filed before the NCLT to restrain MHADA from
taking over possession of the land till completion of the CIRP, contending that
such a recovery of possession was in derogation of the moratorium imposed u/s
14 of the Code. The NCLT, by an order dated 2nd April, 2018,
dismissed the aforesaid application, stating that section 14(1)(d) of the Code
does not cover licenses to enter upon land in pursuance of JDAs and that such
licenses would only be ‘personal’ and not interests created in property. An
appeal against this order was preferred to the NCLAT.

 

Meanwhile, in a parallel proceeding the quantum of time being
taken by NCLT was sought to be omitted from the total number of days allowable
under the Code. While NCLT granted part relief, an appeal filed before NCLAT
proved successful. Pursuant to an order dated 9th May, 2018 issued
by the NCLAT, the entire 55 days taken before the NCLT were excluded.

 

On 3rd July, 2018, G Co filed a Resolution Plan
which was approved by 86.16% of the Committee of Creditors (‘COC’) before the
NCLT. Ultimately, the NCLAT, by the impugned order dated 14th
December, 2018 (after omitting to refer to the order dated 9th May,
2018), stated that 270 days had passed by, as a result of which the entire
discussion of section 14(1)(d) would now become academic. It also decided that
with the exception of ‘development work’, G Co did not have any right on the
land in question. The land belonged to MHADA and in the absence of any formal
transfer in favour of G Co, it could not be treated as an asset of G Co for
application of the provisions of section 14(1)(d).

 

An appeal against the aforesaid matter was filed before the
Supreme Court.

 

HELD

The Supreme Court heard the arguments put forth by all the
sides. It examined the provisions of sections 3(27), 14, 18, 31 and 36(4) of
the Code. It was observed that in terms of the JDA, a license was granted to
the developer (i.e. the Corporate Debtor / G Co) to enter upon the land,
demolish the existing structures and to construct and erect new structures and
allot tenements. At the very least a license has been granted in favour of the
developer to enter upon the land to demolish existing structures, construct and
erect new structures and allot to erstwhile tenants tenements in such
constructed structures in three categories, (1) the earlier tenants / licensees
of structures that were demolished; (2) tenements to be allotted free of cost
to MHADA; and (3) what is referred to as ‘free sale component’ which the
developers then sell and exploit to recover or recoup their cost and make profit.
It was observed that it was not necessary for the purpose of this case to state
as to whether an interest in the property is or is not created by the said JDA.

 

It was observed by the Supreme Court that section 14(1)(d)
did not deal with any of the assets or legal rights or beneficial interest in
such assets of the corporate debtor. Reference to sections 18 and 36 which was
made by the NCLT was, thus, wholly unnecessary to decide the scope of section
14(1)(d).

 

For the sake of reference, section 14(1)(d) reads as follows:

Subject to provisions of sub-sections (2) and (3), on the
insolvency commencement date, the Adjudicating Authority shall by order declare
moratorium for prohibiting all of the following, namely:

…

(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession of the corporate
debtor.

 

The Supreme Court observed
that as per section 14(1)(d) what is referred to is the ‘recovery of any
property’. The ‘property’ in this case consists of land admeasuring 47 acres
together with structures thereon that had to be demolished. ‘Recovery’ would
necessarily go with what was parted by the corporate debtor, and for this one
has to go to the next expression contained in the said sub-section.

 

Referring to the cases of The Member, Board of Revenue
vs. Arthur Paul Benthall [1955] 2 SCR 842; Koteswar Vittal Kamath vs. K.
Rangappa Baliga & Co. [1969] 1 SCC 255; and Kailash Nath
Agarwal and others vs. Pradeshiya Industrial & Investment Corporation of
U.P. Ltd. and another [2003] 4 SCC 305, the Supreme Court
held that when recovery of property is to be made by an owner u/s 14(1)(d),
such recovery would be of property that is ‘occupied by’ a corporate debtor.

 

Further, referring to the cases of Industrial Supplies
Pvt. Ltd. and another vs. Union of India and others [1980] 4 SCC 341; Dunlop
India Limited vs. A.A. Rahna and another [2011] 5 SCC 778; and
Ude Bhan and others vs. Kapoor Chand and others AIR 1967 P&H 53 (FB),
the Supreme Court held that the expression ‘occupied by’ would mean or be
synonymous with being in actual physical possession of, or being actually used
by, in contra-distinction to the expression ‘possession’, which would connote
possession being either constructive or actual and which, in turn, would
include legally being in possession, though factually not being in physical
possession. The JDA granted a license to the developer (Corporate Debtor) to
enter upon the property with a view to do all the things that are mentioned in
it. After such entry, the property would be ‘occupied by’ the developer /
corporate debtor.

 

In the context of the MHADA Act, it was held that when it
comes to any clash between the MHADA Act and the Insolvency Code, on the plain
terms of section 238 of the Insolvency Code, the Code must prevail. Further,
the Supreme Court in the context of a moratorium u/s 14 of the Code, observed
that the intention was to alleviate corporate sickness and, therefore, a
statutory status quo has been pronounced u/s 14 the moment a petition is
admitted u/s 7 of the Code, so that the insolvency resolution process may
proceed unhindered by any of the obstacles that would otherwise be caused and
that are dealt with by section 14. The statutory freeze that has thus been made
is, unlike its predecessor in the SICA, 1985 only a limited one, which is
expressly limited by section 31(3) of the Code, to the date of admission of an
insolvency petition up to the date that the adjudicating authority either
allows a resolution plan to come into effect or states that the corporate
debtor must go into liquidation. For this temporary period, at least, all the
things referred to u/s 14 must be strictly observed so that the corporate
debtor may finally be put back on its feet, albeit with a new
management.

 

In the facts of the case, the resolution plan had been
approved by the NCLT and the limited question before the Supreme Court was
whether section 14(1)(d) of the Code will apply to statutorily freeze
‘occupation’ that may have been handed over under a JDA. Section 14(1)(d) of
the Code speaks about recovery of property ‘occupied’. It does not refer to
rights or interests created in property but only actual physical occupation of
the property. Thus, the section would stand to cover the occupation which has
been so granted under the JDA.

 

The order passed by the NCLAT was thus set aside and the
appeal was allowed. NCLT was directed to dispose of the application of the
resolution professional within six weeks.

 

3. Vikramjit Singh Oberoi vs. Registrar of
Companies

[2020] 114 taxmann.com 512

(Madras High Court)

Date of order: 13th January, 2020

 

Where company allotted shares on rights basis to its
existing shareholders, merely because many of them renounced their entitlement
in favour of more than 50 third parties it could not be said that rights issue
was converted into public issue

 

It is not necessary to register a pledge in respect of
fixed deposits as charge either under 1956 Act or under 2013 Act; once rights
issue-related expenditure is adjusted against security premium account, i.e.,
by way of adjustment in liability side of a balance sheet, same do not pass
through to assets side of balance sheet

 

Payment of royalty did not qualify as contract related to
sale, purchase or supply of goods, materials or services, thus not covered by
section 297 of 1956 Act

 

Where company had availed services such as car rentals,
laundry services, etc., from related party and it had not disclosed same in
Board of directors’ report, since these transactions were in ordinary course of
business on an arm’s length basis, section 134 would not apply

 

FACTS 1

A show cause notice was issued by the ROC in respect of the
alleged violation of sections 56 and 81(1A) of the Companies Act, 1956 (CA
1956). The company had allotted shares on rights basis to its existing
shareholders and many of the existing shareholders renounced their entitlement
in favour of others who were not shareholders. On that basis, the ROC alleged
that section 67 of CA 1956 is attracted because the renunciation is in favour
of more than 50 persons. In other words, the case of the ROC is that the
renunciation converts the rights issue into a public issue and, therefore,
section 56 of CA 1956 should have been adhered to.

 

Upon receipt of the show cause notice, it was explained that
section 81(1)(c) of CA 1956 mandates that the company should grant the right of
renunciation to all its existing shareholders while issuing the letter of offer
to such shareholders. Thereafter, such existing shareholders are statutorily
entitled to renounce their rights in favour of any person. It is to be noted
that in such cases the company does not have any control over the aforesaid
process and, consequently, cannot insist that such renunciation should be in
favour of existing shareholders of the company. Therefore, it cannot be said
that the company or its directors violated the relevant provisions of CA 1956.
In this connection, a letter bearing No. 8/81/56-PR dated 4th
November, 1957 from the Ministry of Company Affairs was placed before the Court.
The said letter opined that the issue of further shares by a company to its own
members with the consequential statutory right to renounce their entitlement in
favour of a third party does not require the issuance of a prospectus.

 

HELD 1

The alleged offence is in
respect of non-compliance of public issue-related requirements. It is the
settled legal position that any public company should make a further issue of
shares only to existing shareholders, in the same proportion, unless a special
resolution is passed authorising the company concerned to issue shares to
others. Such an issue is referred to as a rights issue. It is also the settled
position that when a rights issue is made, the letter of offer is issued to all
existing shareholders and it is mandatory that each shareholder is given the
right to renounce such shares to any person. The relevant provision in this
regard is section 81(1) (a), (b) and (c) of CA 1956. Therefore, the company
does not have any control in respect of such renunciation which may be in
favour of any person, including third parties.

 

A letter dated 4th November, 1957 from the
Ministry of Company Affairs has settled the issue beyond any doubt.
Consequently, it cannot be said that the rights issue was converted into or was
in fact a public issue merely because renunciations were made in favour of more
than 50 third parties. Therefore, it was held that the company and the
directors did not commit the alleged offence of violating sections 56 and 67 of
CA 1956. Consequently, relief u/s 463(2) of CA 2013 was granted.

 

FACTS 2

The alleged violation of section 129 read with schedule III
of CA 2013 is the subject matter. The ROC has alleged that the company had
deposits of Rs. 0.04 million with Axis Bank, Jaipur Branch and a further sum of
Rs. 0.07 million with Canara Bank, Chennai aggregating to Rs. 0.11 million. As
regards the aforesaid fixed deposits, Note 15 to the balance sheet for the
financial year ended 31st March, 2015 reflected that the said fixed
deposits were pledged with the Sales Tax Department. However, no charge was
registered under the relevant provisions of CA 1956 or CA 2013 in respect of
the pledged fixed deposits. Therefore, a show cause notice was issued alleging
that section 211 of CA 1956 was violated.

 

In reply, it was explained that the original fixed deposit
receipts (F.D. Receipts) in respect of the aforesaid deposits with Axis Bank
and Canara Bank were pledged with the Sales Tax Department by handing over the
said F.D. Receipts and that such a pledge is not required to be registered as a
charge either under CA 1956 or CA 2013. It was also explained that CA 1956 and,
in particular, section 211 thereof, does not apply because it relates to the
financial year 2014-15 when CA 2013 was in force. In any event, it was submitted
that a pledge of movable assets is not required to be registered under CA 2013
by filing Form CHG-1, as would be evident on perusal of Form CHG-1. In spite of
this reply, another show cause notice was issued.

 

HELD 2

The Court observed that under both section 125 of CA 1956 and
section 77 of CA 2013, it is not necessary to register a pledge over movable
assets as a charge. This position became abundantly clear upon perusal of Form
CHG-1 under CA 2013 which excludes a pledge over movable assets. Therefore, it
is not necessary to register a pledge in respect of the fixed deposits as a
charge under the applicable provisions of either CA 1956 or CA 2013.
Consequently, the relief u/s 463(2) of CA 2013 was granted.

 

FACTS 3

The alleged violation of section 78(2)(c) of CA 1956 with
regard to the manner in which the rights issue-related expenses of Rs. 28.33
million were adjusted against the securities premium account of the company is
the subject matter. According to the ROC, such adjustment should have been
reflected in the Profit and Loss Account and, therefore, a show cause notice
was issued.

 

In reply it was explained that section 78(2)(c) permits the
utilisation of the securities premium account to write off expenses of any
issue of shares or debentures of the company. It was further submitted that the
company explained in the Note to the accounts of the balance sheet for the
financial year ended on 31st March, 2013 that a sum of Rs. 979.34
million was received towards premium on rights issue of shares and a sum of Rs.
28.33 million was deducted as share issue expenses in connection with the said
rights issue. It was further submitted that the said expenditure is a capital
expenditure which was adjusted on the liability side of the balance sheet and,
therefore, was not carried into the asset side of the balance sheet.
Consequently, there was no question of reflecting it in the P&L account for
that year. It was further pointed out that AS 26 does not have any application
because it relates to intangible assets and has no connection whatsoever with
the issuance of shares on rights basis. In spite of this reply, a show cause
notice was issued by the ROC.

 

HELD 3

The alleged offence in this case is not reflecting the rights
issue expenses in the P&L account for the relevant financial year. The case
of the company was that the rights issue expenditure constituted capital
expenditure and that the company is entitled to adjust such expenditure against
the security premium account as per section 78(2)(c) of CA 1956. The said
contention is well founded based on section 78(2)(c) of CA 1956. Once the
rights issue-related expenditure is adjusted against the security premium
account, i.e., by way of an adjustment on the liability side of the balance
sheet, the amounts in question do not pass through to the assets side of the
balance sheet. Consequently, such amount cannot be reflected in the P&L
account and it would be an accounting impossibility to do so.

 

Therefore, it was concluded that the company was entitled to
treat the rights issue expenditure as a capital expenditure and set it off
against the security premium account in accordance with section 78(2)(c) of CA
1956. As a corollary, such expenditure could not have been reflected in the
P&L account for the relevant financial year. Notwithstanding the above
legal position and the explanation provided in that regard, the ROC continued
to allege that there is a violation of law. Consequently, the relief u/s 463(2)
of CA 2013 was granted.

 

FACTS 4

The payment of royalty during the financial years ended 31st
March, 2013, 31st March, 2014 and 31st March, 2015 is the
subject matter. It was pointed out in this connection that a show cause notice
was issued to the company and a reply had been sent. With regard to the alleged
violation, it was pointed out that section 297 of CA 1956 only applies to
contracts for the sale, purchase or supply of goods, materials or services. In
this case, royalty was paid in connection with the license to use the brand /
trade name. Consequently, it is not a contract for the sale, purchase or supply
of goods, materials or services. It was further pointed out that this position
continues to remain the same u/s 188 of CA 2013 and that none of the
sub-clauses of section 188 relate to licensing of a brand / trade name. It was
further submitted that licensing does not entail sale or disposal or lease of
property and is merely the right to use the brand name.

 

HELD 4

It is alleged that section
297 of CA 1956 was violated in respect of the payment of royalty to a related
party. The Court observed that section 297 of CA 1956 and the corresponding
provision in CA 2013, section 188, do not deal with the payment of royalty and
instead only deal with contracts for the sale, purchase or supply of goods,
materials or services. In this connection, the judgment of the Hon’ble Supreme
Court in Tata Consulting Services is apposite and royalty does
not qualify as goods, materials or services. In any event, the company and its
officers acted honestly and reasonably and as such are entitled to the reliefs.

 

FACTS 5

The alleged non-disclosure
of related party transactions in Form AOC 2 in the Board of Directors’ report
is the issue. Accordingly, through a show cause notice the ROC alleged that the
company violated section 134 of CA 2013 read with Rule 8 of the Companies
(Accounts) Rules, 2014.

 

In reply, the company
pointed out that these transactions are in the ordinary course of business and
on an arm’s length basis. Accordingly, as per the proviso of section
188(1) of CA 2013, the section would not apply to arm’s length transactions in
the ordinary course of business. Consequently, section 134(3)(h) of CA 2013
does not apply. A separate note was also provided by the company in the
Director’s Report under the heading ‘contracts or arrangements’ mentioning that
filing of Form AOC 2 is not required. It was further pointed out that the
present contract is not a material contract; neither section 134 nor AOC 2 is
violated. Hence it was submitted that the petitioners did not violate any of
the provisions of CA 1956 or CA 2013 as alleged by the ROC. Even if there was a
technical breach, such breach was committed honestly and reasonably. Therefore,
a case is made out to grant relief u/s 463(2) of CA 2013.

 

HELD 5

This relates to the alleged violation of section
134 of CA 2013. Once again, the company replied to the show cause notice and
relied upon the proviso to section 188(1) of CA 2013 on the basis that
the transaction in question is in the ordinary course of business and on an arm’s
length basis. Thus it was held that the breach, if any, is purely technical and
a case is made out to be relieved of liability in this regard.

ALLIED LAWS

6. Continuation
of interim orders – Covid-19
pandemic – Bombay High Court – Interim
orders continued

 

Writ Petition Urgent 2 of 2020
dated 26th March, 2020 and 15th April, 2020 (Bom.)(HC)

 

In view of
the lockdown due to the Covid-19 pandemic, the Bombay High Court held that all
interim orders operating till 26th March, 2020 which are not already
continued by some other courts / authorities including this Court, shall remain
in force till 30th April, 2020 subject to liberty to parties to move
for vacation of interim orders only in extremely urgent cases. Thus, all
interim orders passed by this High Court at Mumbai, Aurangabad, Nagpur and
Panaji as also all courts / Tribunals and authorities subordinate over which it
has power of superintendence expiring before 30th April, 2020, shall
continue to operate till then. It is further clarified that such interim orders
which are not granted for limited duration and therefore are to operate till
further orders, shall remain unaffected by this order. In view of the extension
of the lockdown, the interim orders are further extended up to 15th
June, 2020.

 

7. Arbitration – Limitation – Delay in filing an appeal beyond 120
days cannot be condoned – Further clarified – 120 days include 30 days of grace
period as per Limitation Act [Arbitration and Conciliation Act, 1996, S. 34, S.
37; Limitation Act, 1963, S. 5]

 

N.V. International vs. State of
Assam & Ors.; 2019, SCC OnLine 1584

 

An arbitral
award was passed on 19th December, 2006 which was challenged before
the District Judge in a petition u/s 34 of the Arbitration and Conciliation
Act, 1996 which ultimately was rejected on 30th May, 2016. An appeal
was filed against this order in March, 2017 after a delay of 189 days. The
delay was not condoned as no sufficient cause was made out for the same. On an
SLP, the Supreme Court held that apart from sufficient cause, since a section
34 application has to be filed within a period of a maximum of 120 days
including the grace period of 30 days, any appeal u/s 37 should be covered by
the same drill. Allowing a delay beyond 120 days will defeat the overall
purpose of arbitration proceedings being decided with utmost dispatch.

 

8. Limitation
– Covid-19 pandemic – Supreme Court – Relief for litigants and lawyers
[Constitution of India, Articles 141, 142]

 

Suo motu Writ
petition (Civil) No. 3/2020 dated 23rd March, 2020 (SC)

 

On account
of the situation posed by the Covid-19 pandemic, the Hon’ble Supreme Court has suo
motu held that to ease the difficulties faced by the litigants and their
lawyers across the country in filing their petitions / applications / suits /
appeals, irrespective of the limitation prescribed under the general law or
special laws whether condonable or not, shall stand extended w.e.f. 15th
March, 2020 till further order/s passed by this Court in the present
proceedings.

 

9. Consumer Protection – Self-contribution scheme for benefit of
employees – Whether consumer-service provider relationship between employee and
employer [Consumer Protection Act, S. 2(1)(d), S. 2(1)(o)]

 

ONGC & Ors. vs. Consumer
Education Research Society & Ors.; 2019, SCC OnLine SC 1575

 

In this
case there was no dispute that the claimants were employees of ONGC which had
introduced a self-contribution scheme after obtaining the required permissions
from the government. The scheme was voluntary and optional and the employer was
making a token contribution of Rs. 100 p.a. There was a delay in sending the
claims of the employees to LIC on account of which the employees suffered a
loss. The employees filed a case against the employer (ONGC) for deficiency in
service. The Hon’ble Supreme Court held that there is virtually no privity of
contract for providing services between the employees and the employer.
Further, the scheme is managed and run by a trust and not by ONGC. Therefore,
the service, if any, is being rendered by the Trust and not by ONGC. Thus,
there is no consumer-service provider relationship between the employees and
the employer (ONGC).

 

10. Priority of employees’ dues over all dues – Not applicable to
co-operative societies [Companies Act, 1956, S. 529A; Maharashtra Co-operative
Societies Act, 1960, S. 167]

 

Maharashtra State Co-operative
Bank Limited vs. Babulal Lade & Ors.; 2019, SCC OnLine SC 1545

 

The Hon’ble Supreme Court inter alia held that
section 167 of the Companies Act, 1956 creates a bar on the applicability of
the Companies Act to societies registered under the Societies Act. Given that
the karkhana (factory) was a co-operative society registered under the
said Act, section 167 of the Societies Act, 1960 is applicable and the High
Court committed a grave error in relying upon section 529A of the Companies
Act, 1956. Thus, employees cannot make use of section 529A of the Companies Act
to claim priority over all the other debts of the karkhana.


CORPORATE LAW CORNER

4.  Eight Capital India (M) Ltd.
vs. Wellknit Apparels (P) Ltd. [2020] 115 taxmann.com 279 (NCLT-Chen.) IBA No.
312 of 2019 Date of order: 11th December, 2019

 

Section 5(8) r/w/s 7 of Insolvency and
Bankruptcy Code, 2016 – A fully convertible debenture which has not been
converted into equity qualifies as a ‘Financial Debt’ – Application was
admitted when there was default in payment of such debentures

 

FACTS

E Co (the ‘financial creditor’) was a
private limited company incorporated in Mauritius which gave a loan of US$
37,15,000 (equivalent to Rs. 15 crores) as project finance and was issued fully
convertible debentures by W Co (the ‘corporate debtor’). The latter issued
40 debentures of Rs. 25 lakhs each for an amount of Rs. 10 crores on 20th
August, 2007 and 20 debentures of Rs. 25 lakhs each totalling Rs. 5 crores on
20th November, 2007; the total value of the debentures was Rs. 15
crores.

 

The financial creditor and the
corporate debtor entered into a Debenture Subscription Agreement dated 21st
May, 2007 and a Master Facility Agreement also dated 21st May,
2007. As per the terms of the agreement, the subscription to the debenture was
done for a period of 84 months and interest was to be paid at the rate of 12%
p.a. An additional interest of 6% p.a. was payable on default.

 

The corporate debtor made a repayment
only once during the period, for the quarter ended 30th September,
2007 for an amount of Rs. 39,86,371. The corporate debtor was in default on all
other payments specified in the agreement till 20th May, 2014. The
financial creditor alleged that the corporate debtor failed to convert the
debentures as agreed.

 

Article 8 of the agreement specified
that the financial creditor could initiate action against the corporate debtor
upon occurrence of an event of default which included appointment of receiver,
liquidator or making an application for winding up. The financial creditor had
moved the Madras High Court for recovery of interest and for restraining the
corporate debtor from alienating the assets. An application filed by the
corporate debtor opposing the suit had been dismissed by the Madras High Court
on the ground that the suit was a continuing breach of tort, with every act of
breach giving rise to fresh cause of action.

 

On 18th April, 2017 a
Memorandum of Agreement (‘MOA’) was executed between the financial creditor and
the corporate debtor, which is stated to have been confirmed and made binding
by the Madras High Court on 14th July, 2017. The corporate debtor
did not co-operate with the financial creditor to monetise the assets and to
make the payments to the financial creditor as was agreed in the MOA.

 

The corporate debtor admitted that the
MOA was entered into for a compromise which provided for resolving the disputes
amicably but not to admit or determine its quantum of liability. It was further
stated that the MOA was executed in a spirit of goodwill and compromise and to
put a quietus to the litigation whereby it agreed to share 50% of the
net assets after deducting / adjusting certain statutory dues, etc. which was
higher than the maximum of 37.5% equity entitlement of the financial creditor.
The corporate debtor stated that the claims were sought to be settled on the
basis of the assets available and not on the basis of any liability admitted or
otherwise.

 

The corporate debtor further contended
that the MOA constituted a separate contract distinguishable from the Master
Facility Agreement. The MOA superseded the earlier contract and clearly
explained the mode and the time of performance of the respective obligations.
The MOA was conditional upon the sale of the property by the authorised officer
of MEPZ.

 

The corporate debtor also contended
that the action of entering into an MOA which contemplated the sale of assets
and dividing the surplus in an agreed manner, only reinforced the proposition
that the applicant was a stakeholder in the equity and not a financial creditor
as there was no debt involved. The applicant claimed that he fell in the
definition of a financial creditor as he had all along been a debenture holder
and the debentures were never converted into equity at any point in time.
Besides,  he corporate debtor in its
balance sheet for the year  nding 2016-17
had shown the applicant as a ‘debenture holder’ establishing the fact that it
was a ‘financial debt’ that was due to the ‘financial creditor’.

 

HELD

The NCLT heard both the parties. It was
observed that the intention of both the parties was manifested in the Master
Facility Agreement and the Debenture Subscription Agreement. The investment was
sought to be made by the financial creditor by way of subscribing to the
debentures in consideration of the money brought in by him into the coffers of
the corporate debtor.

 

NCLT observed that fully convertible
debentures were a financial instrument within the meaning of section 5(8) of
the Insolvency and Bankruptcy Code, 2016. A convertible debenture which was in
the nature of financial debt (though hybrid in nature), could not be treated as
equity unless conversion was actually done. It could not take on the
characteristics of equity until it was converted.

 

It was further held that the financial
creditor had taken all precautions to safeguard its interest so long as the
convertible debenture remained a debenture. It was observed that a simple
mortgage was created in favour of the financial creditor which shows that there
was debt which is a financial debt based on the principle that ‘once a
mortgage; always a mortgage’. It postulates that unless and until a mortgage is
discharged it remains a mortgage and as such a financial debt.

 

The NCLT also
noted that apart from the payment of a sum of Rs. 39,86,371.36 for the quarter
ending September, 2007, interest amount was not paid for the remaining period
by the corporate debtor which constituted a clear default.

 

The application was thus admitted by
the NCLT and consequential orders including appointment of Interim Resolution
Professional and imposing of moratorium were passed.

 

5. Deorao Shriram Kalkar vs. Registrar of Companies [2020] 113
taxmann.com 292 (NCLAT) Date of order: 6th December, 2019

 

Where company had fixed deposit
receipts (FDRs) with bank and was regularly receiving interest on the same and
TDS was being deducted by the bank on payment of interest and being deposited
with Income tax authorities, it could not be said that company was
non-operational – It would be just that the name of company be restored in the
Register of Companies

 

FACTS

T Private Ltd. (T Co) is a company
incorporated under the Companies Act, 1956 and having its registered office at
Pune. T Co and its directors were served STK 1, a notice u/s 248(1)(c)
of the Companies Act, 2013 on 11th March, 2017. In its reply dated
29th March, 2017, the company intimated the ROC that inadvertently
regulatory filings for the years ending 31st March, 2015 and 2016
were not filed and it was in the process of completing the same at the
earliest. Thereafter, a public notice was issued on 7th April, 27th
April and 11th July, 2017 and T Co’s name was struck off from the
register of companies.

 

This order was challenged by T Co
before the NCLT, Mumbai. However, NCLT dismissed the appeal on the ground that
the company did not generate any income / revenue from its operations since the
financial year ending 31st March, 2014 and till 31st
March, 2017; the company did not spend any amount towards employee benefit
expenses and the fixed assets of the company were Nil and its tangible assets
were also Nil; therefore the action taken by the ROC was justified and the
Bench did not find any ground to interfere with the action of striking off the
name by the ROC. Being aggrieved, T Co preferred this appeal before the
Appellate Tribunal (AT).

 

T Co submitted that it had a Fixed
Deposit Receipt (FDR) with the Bank of Maharashtra amounting to Rs. 1,50,00,000
(Rs. 1.50 crores) and a performance bank guarantee was issued in favour of one
of the vendors which was valid up to 11th November, 2017; the same
was further extended up to 10th November, 2018. T Co was regularly
receiving interest on the said FDR from the bank and TDS was being deducted by
the Bank on the interest and deposited with the Income tax authorities. T Co
further submitted that the company was regularly filing the Income tax returns.
In addition, T Co submitted that after the expiry of the term of the bank
guarantee, the funds of the company would be released and the Directors of the
company would be in a position to take necessary decisions about its working.

 

However, counsel for the ROC stated
that due to failure in filing of the statutory returns for a continuous period
of more than two years, the name of T Co was considered for striking off by the
ROC, Pune in a suo motu action under the provisions of section 248 of
the Companies Act, 2013. It was further argued that the STK 1 notice
dated 11th March, 2017 was issued to T Co with the direction to
submit any representation against the proposed striking off of its name. It was
stated that the fact of non-filing of the statutory returns was admitted by T
Co. But the ROC counsel submitted that on an analysis of the balance sheet and
the Profit & Loss account of the appellant it was observed that the company
had not generated any income / revenue from its operations since the financial
year ending 31st March, 2014 and till 31st March, 2017.
Besides, the company did not spend any amount towards employee benefit expenses
for these financial years. At the same time, both the fixed assets and tangible
assets of the company were Nil. The counsel for ROC insisted that the ROC had
rightly taken the decision to strike off the name of T Co.

 

The matter was considered by the AT
which noted that during the course of arguments T Co had admitted that it had
not filed the statutory returns for more than two years as per the Companies
Act, 2013. On receipt of the STK 1 notice from the ROC, T Co vide
its reply had intimated the ROC that regulatory filings for the years ending 31st
March, 2015 and 2016 were not filed inadvertently. However, it also
stated that the annual returns and financial statements were ready and could be
filed immediately. The AT also observed that T Co had an FDR with the bank to
the tune of Rs. 1,50,00,000; interest was being received by the company and it
was duly making provision of income tax in its balance sheet. It was further
observed by the AT that T Co had also given a performance guarantee. This was
an attempt to secure business for the company.

 

The AT further observed that in such
cases the ROC has also to see that the compliance of section 248(6) of the
Companies Act, 2013 is met.

 

Section 248(6) of the Companies Act,
2013 reads as under:

 

‘The Registrar, before passing an order
under subsection (5), shall satisfy himself that sufficient provision has been
made for the realisation of all amounts due to the company and for the payment
or discharge of its liabilities and obligations within a reasonable time and,
if necessary, obtain necessary undertakings from the Managing Director,
Director or other persons in charge of the management. Provided that
notwithstanding the undertakings referred to in this sub-section, the assets of
the company shall be made available for the payment or discharge of all its
liabilities and obligations even after the date of the order removing the name
of the company from the Register of Companies.’

 

However, the ROC counsel in written
submissions stated that the ROC has not received any reply from the company and
its Directors. The AT noted that the appellant has replied vide its
letter dated 29th March, 2017 and the said letter has the
acknowledgement of the ROC, Pune.

 

Therefore, the AT observed that it
cannot be said that T Co has not replied. Further there is nothing on record to
show that the compliance of section 248(6) of the Companies Act, 2013 has been
made by the ROC.  his fact has also not
been noted in the NCLT order.   Without
complying with this provision, the ROC vide Form STK 5 dated 7th
April, 2017 has struck off the names of various companies including T Co. The
AT reiterated that the company is having an FDR with the bank and a performance
guarantee has been given and income tax is being deposited on the interest
received on fixed deposits.

 

From the above discussions and
observations, the AT came to the conclusion that it would be just that the
name of the company be restored.

 

HELD

The following order / directions were
passed:

  •       The order of NCLT was quashed
    and set aside.The name of T Co would be restored in the Register of
    Companies subject to the following compliances:

 

  •      T Co shall pay costs of Rs.
    25,000 to the Registrar of Companies, Pune within 30 days.

 

  •      Within 30 days of restoration of
    the company’s name in the register maintained by the ROC, the company will
    file all its annual returns and balance sheets due for the period ending
    31st March, 2015 onwards and till date. The company will also
    pay requisite charges / fee as well as late fee / charges as applicable.

 

  •    In spite of the present orders, the ROC will be free to take any
    other steps, punitive or otherwise, under the Companies Act, 2013 for
    non-filing / late filing of statutory returns / documents against the
    company and its Directors

 

RIGHT TO INFORMATION (r2i)

PART A | DECISION OF HIGH COURT


Disclosure of an interest in the information sought would be necessary to establish the bona fides of the applicant
 

Case name:

Har Kishan vs. President Secretariat through its
Secretary and Anr.

Citation:

Writ Petition (Civil) No.: 7976/2020

Court:

The High Court of Delhi

Bench:

Justice Prathiba M. Singh

Decided on:

12th January, 2021

Relevant Act / Sections:

Section 8(1)(j) of Right to Information Act, 2005

Brief Facts and Procedural History:

The petitioner sought information on 6th August, 2018 under the Right to Information Act, 2005 (‘RTI Act’), in respect of certain appointments made for Multi-Tasking Staff at the Presidential Estate, Rashtrapati Bhawan.

In reply, the Public Information Officer gave partial information and did not provide information relating to Item Nos. 4, 5 and 6 – the total number of candidates as per every centre separately who appeared for the given examination; complete name and address of the examination centres of all the candidates who had been selected for appointment to the post of Multi-Tasking Staff, Notification Circular No. A35011/7/16-Admn.; and complete residential address and the father’s name of all selected candidates who had been appointed to the post.

Being aggrieved, the RTI applicant preferred an appeal before the First Appellate Authority, the response to which is not on record. Thereafter, a second appeal was preferred by the petitioner before the CIC, which was disposed of by the CIC vide the impugned decision dated 17th July, 2020, where the CIC had directed the respondent to provide the information under Item Nos. 4 and 5 of his application and rejected information under Item No. 6. The present writ petition is filed against the above CIC order.

On a query from the petitioner it is revealed that the petitioner’s daughter had also applied for appointment as Multi-Tasking Staff in the Presidential Estate, Rashtrapati Bhawan. However, this fact does not find any mention in the present writ petition.

Issues before the Court
Whether information sought under Item No. 6 is protected u/s 8(1)(j) of the RTI Act?

Whether disclosure of an interest in the information sought would be necessary to establish the bona fides of the applicant under the RTI Act?

Ratio Decidendi
Whenever information is sought under the RTI Act, disclosure of an interest in the information sought would be necessary to establish the bona fides of the applicant. Non-disclosure of the same could result in injustice to several other affected persons whose information is sought.

The information sought in respect of the names of the fathers and residential addresses of the candidates is completely invasive and would be a roving and fishing inquiry. The said information which is sought is clearly protected u/s 8(1)(j) of the RTI Act which provides that any such information shall not be provided which constitutes personal information and is invasive of the privacy of individuals.

Decision
The Court did not find any merit in the present writ petition which challenges the rejection of information sought under Item No. 6.

For the act of the petitioner having concealed the material facts, including that his daughter had applied for appointment to the post of Multi-Tasking Staff, the petition was dismissed with costs of Rs. 25,000 to be paid to the ‘High Court of Delhi (Middle Income Group) Legal Aid Society’. The said costs shall be paid within two weeks.

                                        PART B | RIGHT TO INFORMATION

How to file RTI online
By now many of us are aware that an RTI application can be filed online without the hassle of printing, posting or even hand-delivering it. But only few of us use this tool effectively. As discussed in our earlier articles, RTI can assist in seeking information which would be necessary in our professional lives, for example, information from the Ministry of Corporate Affairs.

File your online application on: https://rtionline.gov.in

Steps for filing RTI online
1.     For submitting an RTI application, click on ‘submit request’ option on the RTI online website. On clicking the ‘submit request’ option, the ‘Guidelines for use of RTI online portal’ screen will be displayed. This screen contains various guidelines for using the RTI online portal.

2.     On accepting the ‘I have read and understood the above guidelines’ tab and clicking on ‘submit’, the online RTI request form screen will be displayed next for the user. The Ministry or Department for which the applicant wants to file an RTI can be selected from the ‘Select Ministry / Department / Apex body’. Personal details of the applicant need to be filled along with the information requested. After entering the security code and submitting the application, the portal will take you to a payment gateway.
3.     The applicant can pay the prescribed fee through the following modes:
    (a) Internet banking through SBI;
    (b) Using credit / debit card of Master / Visa;
    (c) Using RuPay Card.
    (Fee for making an application is as prescribed in the RTI Rules, 2012.)
4.     No RTI fee is required to be paid by any citizen who is below poverty line as per RTI Rules, 2012. However, the applicant must attach a copy of the certificate issued by the appropriate government in this regard, along with the application.
5.     On submission of an application, a unique registration number would be issued which may be referred to by the applicant for any references in future.
6.     In case additional fee is required representing the cost for providing information, the CPIO would intimate the applicant through this portal. This intimation can be seen by the applicant through ‘Status Report’ or through his / her e-mail alert.
.
7.    Status of the RTI application filed online can be seen by the applicant by clicking at ‘View Status’ and entering the required details.

In case any more information / assistance is required, one can connect with the BCAS RTI Clinic.

                                     PART C | INFORMATION ON AND AROUND

(1) State Information Commission has no power to direct removal of encroachment under RTI ACT: Uttarakhand High Court
The Bench of Justice Manoj Kumar Tiwari hearing the plea of one Manju Agarwal who challenged the order dated 8th August, 2016 passed by the State Information Commission directing Nagar Palika Parishad, Kotdwar, to take necessary action with the help of the local administration to remove the encroachment, observed in its order that giving a direction for removal of encroachment is beyond the scope of the State Information Commission’s powers under the Right to Information Act.1

(2) ‘Beneficiaries of state largesse’: Karnataka High Court holds Bangalore Turf Club and Mysore Race Club as public authorities under the RTI Act

A single Bench of Justice P.B. Bajanthri, while refusing to interfere with the order passed by the Karnataka Information Commission against the companies, said ‘In the present case, state largesse has been extended to the petitioners under lease deeds. Therefore, they are holding lease lands on behalf of the people and are accountable to the people. If this material information is taken into consideration, one has to draw the inference that petitioners do fall under the definition of ‘public authority’ under the Act, 2005.’2

(3) ‘Issue of considerable public importance’: Delhi High Court seeks response from Central government on plea seeking RTI information about Aarogya Setu
A single-judge Bench of Justice Prathiba M. Singh issued notice to the Central Government and RTI authorities seeking their response to the plea (Saurav Das vs. CPIO, NeGD & Ors.) stating that issues raised in respect of supply of information regarding the Aarogya Setu App and its creation are of considerable public importance. The information sought was with respect to the origin of the app, the approval details, communications with private people involved in making / developing the app, internal notes, memos, file notings and minutes of the meetings held while creating the app, among other information.3

 

1    https://www.livelaw.in/rti/state-information-commission-has-no-power-to-direct-removal-of-encroachment-under-rti-act-uttarakhand-high-court-168102

2    https://www.livelaw.in/news-updates/karnataka-high-court-rti-bangalore-turf-club-mysore-race-club-168489

3               https://www.barandbench.com/news/litigation/delhi-high-court-issues-notice-challenge-cic-order-refusing-information-creation-aarogya-setu

The most valuable of all talents is that of never using two words when one will do
– Thomas Jefferson

If you want to determine the nature of anything,
entrust it to time: when the sea is stormy, you can see nothing clearly
– Seneca

CORPORATE LAW CORNER

9. Man Industries (India) Ltd. vs. State of Maharashtra [2019] 106 taxmann.com 123 (Bom.) Date of order: 22nd April, 2019

Non-payment of dividend to a shareholder is an offence which invites penal action – However, such non-payment will not be called an offence if payment is not made because a dispute regarding entitlement to receive dividend exists between parties

FACTS

•    The complainant ‘S’ was a shareholder of the company ‘M’ Limited.
•    ‘M’ had declared a dividend in the AGM held on 12th December, 2015. All the shareholders were paid the dividend except ‘S’.
•    The dividend was not paid to ‘S’ on account of the pendency of a dispute between the parties and, therefore, taking protection u/s 127(c) of the Companies Act, 2013 (CA 2013), dividends were not distributed to ‘S’.
•    The Sessions Judge, Bombay, by an order dated 30th January, 2017 had issued process and summons against the accused ‘M’ and its directors for non-payment of dividends to ‘S’.
•    The accused (the applicants herein) filed an application u/s 482 of the CrPC praying that the notices which were issued in the company petition and the order of issuance of process dated 30th January, 2017 be quashed and set aside.

HELD

The Court observed / noted as under:
•    The provisions of section 127 of the CA 2013 at the relevant point in time read as under:
    Punishment for failure to distribute dividends – Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen per cent per annum during the period for which such default continues:
    Provided that no offence under this section shall be deemed to have been committed:
    (a) to (b)**
    (c) where there is a dispute regarding the right to receive the dividend;
    (d) to (e)**

•    Whenever there is an ambiguity in the section and the section is susceptible to different amendments, then the proviso controls the main section. How the proviso is worded and in what context the deeming provision is incorporated matters while giving weightage to the section as a whole. Due to the deeming provision, the Legislature wants the Court to believe the existence or non-existence of certain facts, then it undoubtedly forms a part of that section without which the section is incomplete.

•    It is to be noted that though proviso and exception are not synonyms, they are usually taken alike. Both the proviso and exception are defences and both while interpreting the statute provide internal aid independently. The proviso carves out certain situation/s from the enacting clause and thus, proviso follows the enacting clause. Exception is an extended section. Exception is used to exempt something absolutely from the statute; otherwise it is a part of the statute. The proviso is subsidiary to the main section. It is not an addendum to the main provision.

•    Thus, both the proviso and the exception help the reader to understand the enactment as a whole. Sub-section (c) of section 127 of the CA 2013 is a part of the proviso which further provides deeming provision. While interpreting deeming provision in the proviso, the Court cannot overlook the internal aids which are made available by the Legislature, i.e., the context and simple meaning of the word. Therefore, the completeness of the section is a decisive point while interpreting section 127 of the CA 2013 along with the proviso and deeming provision.

•    In the instant case, there is a dispute regarding the right to receive dividend, as the matter was referred to the NCLAT, and if a dispute regarding the right to receive dividend exists then no offence under the section shall be deemed to have been committed. Thus, non-payment of dividend to the shareholder is an offence, which invites penal action. However, non-payment of dividend to the shareholder will not be called an offence if the payment is not made because there exists a dispute between the parties. A dispute regarding entitlement to receive the dividend exists. In other words, the act of non-payment of dividend by the directors of the company can be justified because, according to them, a particular shareholder is not entitled to receive dividend. Merely having an opinion or holding a view that a shareholder is not entitled to receive dividend is not sufficient but there should be the existence of a dispute as understood by law. Therefore, mere denial of the entitlement is not enough to get the benefit of section 127(c) of the CA 2013, but a real dispute between the parties should exist. Similarly, mere denial of the existence of a dispute by the shareholder after pursuing litigation against the company and its directors cannot render the dispute non-existent. Indeed, this can be ascertained on the basis of the facts and circumstances of each case.

•    In the instant case, admittedly the dispute existed between the shareholder and the directors and it was pending in the NCLT and the NCLAT. It was also pending before the Arbitrator. In the absence of such litigations before the forums mentioned it would have been difficult to state that there was a dispute between the petitioner and ‘S’.

•    The Court perused the order dated 30th January, 2017 passed by the Judge on the issuance of process u/s 127 of the CA 2013. The Court also perused the criminal complaint filed by ‘S’ before the City Civil & Sessions Court. In the said complaint, ‘S’ had made a mention against the present applicants. The order of issuance of the process passed by the Sessions Judge is a reasoned order wherein the Judge has referred to the defence of the applicant / accused as per proviso (c) of section 127 of the CA 2013. It is further mentioned that ‘on account of dispute pending, the dividend on disputed shares of “S” be kept in abeyance’ as alleged in the notice reply, which is a matter of evidence. Therefore, a prima facie case has been made against accused ‘M’ and its directors for commission of an offence.

•    Thus, it is apparent from the order that the Judge was aware of the history of the dispute between the parties. The fact of the existence of the dispute is also known to the Judge and, therefore, he has mentioned the word ‘dispute’. Under the circumstances and in view of the deeming provision in the section the Judge should not have issued process when the proviso is attracted and, hence, the offence u/s 127 of the CA 2013 is not constituted.

•    In the instant case, the facts are totally different. The record placed before the trial Judge itself discloses the proviso of section 127(c) and if the material placed before the Court clearly fulfils the requirement of the proviso or an exception, then it cannot be ignored and the trial Judge after taking into account the material placed before him and also the proviso, should have formed an opinion that an offence u/s 127 is not constituted.

•    Thus, a dispute exists in the instant matter. The orders of issuance of process passed by the Sessions Court and the common notices issued in the company petition were quashed and set aside.

10. Real Time Interactive Media (P) Ltd. vs. Metro Mumbai Infradeveloper (P) Ltd. [2018] 90 taxmann.com 89 (Bom.) Date of order: 12th January, 2018

Nothing in section 248 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

FACTS
•    R Pvt. Ltd. (‘R’), the petitioner, was engaged in the business of publishing and managing advertisements on BEST TV LED screens in the BEST buses (BEST TV) running in Mumbai.

•    By an agreement entered into between ‘R’ and M Pvt. Ltd., the respondent company, ‘M’, engaged the services of ‘R’ for the purpose of displaying advertisements on BEST TV in 1,300 non-AC buses and 250 AC buses for a period of three months for a consideration of Rs. 15 lakhs plus taxes.

•    In accordance with the agreement, ‘R’ displayed the advertisements on BEST TV and raised three invoices. ‘M’ paid in instalments an amount of Rs. 5 lakhs and thus there was a balance outstanding. As no payments came forth, ‘R’ caused statutory notice to be issued to ‘M’.

•    ‘R’ filed a winding up petition against ‘M’ stating that the recent MCA website extract of the Company Master of ‘M’ indicated the status of the company as ‘Strike Off’.

HELD
The Court observed / noted as under:

•    Though it is not clear why the name of ‘M’ was struck off, section 248(1) of the Companies Act, 2013 empowers the Registrar to remove the name of a company from the register of companies. However, before he does that he shall send a notice to the company and all its directors about his intention to remove the name of the company and requesting them to send their representations along with copies of the relevant documents, if any, within a period of 30 days from the date of the notice. At the expiry of that time, the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies and shall publish notice thereof in the Official Gazette; on the publication of the notice in the Official Gazette, the company shall stand dissolved. At the same time, nothing in section 248 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 on the company notified as dissolved is that it shall, on and from the date mentioned in the notice under sub-section (5) of section 248, 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 amounts due to the company and for the payment or discharge of the liabilities or obligations of the company. Thus, it is clear that just because the name of the company is struck off the register u/s 248 that will not come in the way of the Court to pass an order winding up the company.

•    Similar provisions are also available in the Companies Act, 1956, viz., section 560 and section 560(5). Therefore, even under the Companies Act, 1956 if the Registrar of Companies was to strike off the name of a company from the register that would not affect the power of the Court to wind up a company whose name has been struck off the register.

•    In the circumstances, there is no bar in winding up ‘M’. It should be noted that ‘M’ has not filed any affidavit in reply opposing the petition. Therefore, the averments in the petition are not controverted. No reply has been filed even to the statutory notice. It is settled law that where no response has been made to a statutory notice, the Court may pass a winding up order on the basis that the amount claimed has not been denied by ‘M’ and there is a presumption of inability to pay by ‘M’. Where no response has been made to the statutory notice, ‘M’ runs a risk of the winding up petition being allowed. By virtue of section 434 of the Companies Act, 1956 a presumption of the indebtedness can be legitimately drawn by the Court where no reply to the statutory notice is forthcoming.

•    In the circumstances, having heard ‘R’ and having considered the petition along with the documents annexed to it, the Court held that ‘M’ is indebted to ‘R’ and is unable to discharge its debts, is commercially insolvent and requires to be wound up.

•    The Court accordingly directed that:
•     ‘M’ be wound up by and under the directions of the Court under the provisions of the Companies Act, 1956; and that
•    the Official Liquidator be appointed as the liquidator of ‘M’ to take charge of the assets, books of accounts and properties of ‘M’ with all powers under the provisions of the Companies Act, 1956.

Without ambition one starts nothing. Without work one finishes nothing. The prize will not be sent to you. You have to win it
– Ralph Waldo Emerson

ALLIED LAWS

19. The Internet & Mobile Association of India vs. RBI WP(C) No. 528 of 2018 (SC) Date of order: 4th March, 2020 Bench: Rohinton Fali Nariman J., Aniruddha Bose J., V. Ramasubramanian J.

 

Cryptocurrencies – RBI – Circular imposing ban on trading in cryptocurrency – Subordinate legislation – Violation of Fundamental Rights [Constitution of India, Art. 19(1)(g), Art. 14; Banking Regulation Act, 1949, S. 35A, S. 36(1)(a), S. 56; RBI Act, 1934, S. 45JA, S. 45L; Payment and Settlement Systems Act, 2007, S. 10(2), S. 18]

 

FACTS

The Reserve Bank of India (RBI) issued a ‘Statement on Developmental and Regulatory Policies’ on 5th April, 2018 and a Circular dated 6th April, 2018 in exercise of the powers conferred on it by section 35A read with section 36(1)(a) and section 56 of the Banking Regulation Act, 1949; section 45JA and 45L of the RBI Act, 1934; and section 10(2) read with section 18 of the Payment and Settlement Systems Act, 2007, which directed the entities regulated by RBI (i) not to deal with or provide services to any individual or business entities dealing with or settling virtual currencies, and (ii) to exit the relationship, if they already have one, with such individuals / business entities, dealing with or settling virtual currencies (VC).

 

The petitioner challenged the said Statement and Circular and sought a direction to the respondents not to restrict or restrain banks and financial institutions regulated by RBI from providing access to the banking services to those engaged in transactions in crypto assets.

 

HELD

The measure taken by the RBI should pass the test of proportionality, since the impugned Circular has almost wiped the VC exchanges out of the industrial map of the country, thereby infringing Article 19(1)(g) of the Constitution.

 

While regulation of a trade or business through reasonable restrictions imposed under a law made in the interests of the general public is saved by Article 19(6) of the Constitution, a total prohibition, especially through a subordinate legislation such as a directive from RBI, of an activity not declared by law to be unlawful, is violative of Article 19(1)(g). The Circular dated 6th April, 2018 was set aside on the ground of proportionality.

 

20. Tarabai Wellinkar Charitable Trust & Anr. vs. The State of Maharashtra & Ors. WP No. 448 of 2020 Date of order: 12th February, 2020 Bench: Pradeep Nandrajog J., Bharati Dangre J.

 

Leave & Licence – No transfer of right, title or interest – Levy u/s 37A of Maharashtra Land Revenue Code is held to be not valid [Maharashtra Land Revenue Code, 1966, S. 37A]

 

FACTS

Petitioner No. 1, the trust, executed a Leave & Licence agreement with M/s Sheorey Digital Systems Private Limited demising to it, as a licensee, the ground floor of a building popularly known as ‘Tarabai Hall’ for three years commencing from 15th July, 2019 to 14th July, 2022 with licence fee of Rs. 4,00,000 per month plus GST and other taxes to be borne by the licensee.

 

Treating the Leave & Licence agreement to be a sale / transfer of interest, the Collector has by order dated 21st June, 2019 issued u/s 37A of the Maharashtra Land Revenue Code, 1996 demanded from the petitioner Rs. 41,27,427 towards unearned income.

 

HELD

A bare reading of the legislation in section 37A of the Maharashtra Land Revenue Code, 1966 makes it clear that the permission of the State Government, with right vested in the State Government under sub-section (2), is required when a sale, transfer, redevelopment, use of additional Floor Space Index, transfer of Transferable Development Rights or change of use is taking place under a document. The transfer referred to in the said section has to be a transfer of an interest in the corpus.

 

An Indenture of Leave & Licence does not create any right, title or interest in the corpus of the property in favour of the licensee. It only permits the licensee to enter upon the property and do such acts as are permitted and which in the absence of the licence would amount to a trespass.

 

The Indenture of Leave & Licence, be it for residential, commercial or industrial purpose, would not be subject to any levy u/s 37A of the Maharashtra Land Revenue Code.

 

21. Vidya Drolia & Ors. vs. Durga Trading Corporation Civil Appeal No. 2402 of 2019 (SC) Date of order: 14th December, 2020 Bench: Sanjiv Khanna J., N.V. Ramana J.

 

Arbitration – Landlord-Tenant disputes under Transfer of Property Act, 1882 – Arbitrable if Rent Control Laws are not applicable [Arbitration and Conciliation Act, 1996, S. 8, S. 11; Transfer of Property Act, 1882, S. 111, S. 114, S. 114A]

 

FACTS

A reference was made to a larger bench vide order dated 28th February, 2019 in Civil Appeal No. 2402 of 2019 titled Vidya Drolia and Others vs. Durga Trading Corporation, 2019 SCC OnLine SC 358 as it doubted the legal ratio expressed in Himangni Enterprises vs. Kamaljeet Singh Ahluwalia (2017) 10 SCC 706 that landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882 are not arbitrable as this would be contrary to public policy.

 

The issues that are required to be answered relate to two aspects that are distinct and yet interconnected, namely:

(i) meaning of non-arbitrability and when the subject matter of the dispute is not capable of being resolved through arbitration; and

(ii) the conundrum – ‘who decides’ – whether the Court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability.

 

HELD

The landlord-tenant disputes arising out of the Transfer of Property Act, 1882 are arbitrable as they are not action in rem but pertain to subordinate rights in personam that arise from rights in rem.

 

Further, the Transfer of Property Act, 1882 does not expressly bar arbitration and an arbitral award may be executed and enforced like a decree of a civil court.

 

The Arbitration and Conciliation Act, 1996 itself does not exclude any category of disputes as being non-arbitrable. However, post the 2015 amendment the structure of the Act was changed to bring it in tune with the pro-arbitration approach. Under the amended provision, the Court can only give a prima facie opinion on the existence of a valid arbitration agreement. In clear cases where the subject matter arbitrability is clearly barred, the Court can cut the deadwood to preserve the efficacy of the arbitral process.

 

However, where a dispute would be covered by State Rent Control Laws, then the said dispute is not arbitrable.

 

 

22. Rajesh Agarwal vs. RBI & Ors. WP 19102 of 2019 (Telangana)(HC) Date of order: 10th December, 2020 Bench: Raghvendra Singh Chauhan J., B. Vijaysen Reddy J.

 

RBI – Master Circular – Principles of Natural Justice to be read into the Circular

 

FACTS

The petitioner was the Chairman and Managing Director of the borrower company. In the course of its business, the company approached several banks, including the respondent banks, and availed a loan of Rs. 1,406.00 crores. The company defaulted in repayment of the loan amount.

 

As per the Circular Guidelines of the Reserve Bank of India, all lender banks, with the State Bank of India as the lead bank, formed the JLF (a Joint Lenders Forum). On 29th June, 2016 the JLF declared the company’s accounts as Non-Performing Assets.

 

Based on the Forensic Audit Report dated 29th August, 2016, on 31st August, 2016 the JLF closed the issue observing that ‘there were no irregularities, with regard to fraudulent transactions pointed out in the Forensic Audit Report’.

 

Thereafter, by invoking Clause 2.2.1(g) of the Master Circular, on 2nd February, 2019 the JLF & Fraud Identification Committee declared the account of the company as ‘fraud’. Hence the writ petition.

 

HELD

Fair play in governance is the gravitational force which binds the entire State. Therefore, before a person or entity is obliterated, or is subjected to civil and penal consequences, the person or entity must be given an opportunity of a hearing. Without giving such an opportunity, without giving the opportunity to explain the intricacies of the accounts, or of the business dealings, to denounce a person is to act unfairly, unjustly, unreasonably and arbitrarily. Even in an administrative action, justice should not only be done but must also appear to be done to the satisfaction of all the parties.

 

Considering the grave civil consequences and penal action which would follow as a result of classifying a borrower as ‘a fraudulent borrower’, or ‘a holder of a fraudulent account’, it is imperative that the principles of natural justice, especially the principles of audi alteram partem, must be read into Clauses 8.9.4 and 8.9.5 of the Master Circular.

 

23. Nautilus Metal Crafts (P) Ltd. vs. Joint Director-General of Foreign Trade WP(C) No. 5167 of 2020 (Del.)(HC) Date of order: 18th November, 2020 Bench: Navin Chawla J.

 

Foreign Trade (Development and Regulation) Act, 1992 – Suspension or cancellation – Licence, certificate, scrip or any instrument bestowing financial or fiscal benefits – Only with ‘for good and sufficient reasons’ – Mandatory requirement [Foreign Trade (Development and Regulation) Act, 1992, S. 9]

 

FACTS

The petitioner dealt with readymade garments. It procured orders from other countries and after procurement of an order directly approached the manufacturer in India who manufactured the same and thereafter these were supplied by the petitioner to the foreign buyers.

 

The respondent issued the impugned show cause notice dated 8th November, 2019 to the petitioner stating that the DRI had informed it that an investigation is being carried out against the petitioner ‘for gross overvaluation to fraudulently avail export benefits’ and it had been requested not to issue any export incentives to the petitioner. The petitioner was asked to show cause as to why it be not placed in DEL so that benefits under Foreign Trade Policy (FTP) are stopped, including future refusal of Authorisation / Scrips under Rule 7(c), 7(j) and 7(n) of the Foreign Trade (Regulation) Rules, 1993 (‘Rules’).

 

The petitioner has challenged the show cause notice dated 8th November, 2019 on the ground that it was vague as it did not spell out the exact nature of violation for which the petitioner is sought to be proceeded against and also the impugned order dated 10th January, 2020 on the ground that the same had been passed without supplying the petitioner the documents sought to be relied upon for proceeding against it.

 

The petitioner further claimed that pursuant to the Circular No. 16/2019-Customs dated 17th June, 2019 issued by the Director, Customs, Central Board of Indirect Taxes and Customs with regard to IGST refund, the exports made by the petitioner were subjected to 100% examination and no discrepancy was found in the same. It was further claimed that even the export proceeds against these exports and other exports had been realised by the petitioner.

 

HELD

The Court held that any refusal to grant, suspend or cancel any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits can only be ‘by an order in writing’. In fact, section 9(4) expressly mandates that suspension or cancellation of any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits can only be ‘for good and sufficient reasons’. The requirement of giving reasons cannot, therefore, be dispensed with and is mandatory.

 

Further, in the order there is no reference to the show cause notices and to the replies submitted by the petitioner and how they have been dealt with and appreciated by the Authority. In fact, it gives no reason except stating that the ‘Firm is under DRI Ludhiana investigation’.

 

The impugned order dated 10th January, 2020 does not show any application of mind to these submissions as the order contains no reasons. The impugned order was set aside. Costs were imposed on the respondent.

 

CORPORATE LAW CORNER

5. Hindustan Oil Ltd. vs. Erstwhile Committee of Creditors of JEKPL Pvt.
Ltd.Company Appeal (AT) (Insolvency) No. 969 of
2020 Date of order: 17th November, 2020

 

Insolvency and Bankruptcy Code, 2016 – Implementation of a Resolution
Plan which was approved by Committee of Creditors could not be challenged by
the unsuccessful applicants

 

FACTS

H Co is an unsuccessful resolution applicant
whose Resolution Plan was rejected by the Committee of Creditors (‘CoC’). NCLT,
vide an order dated 9th September, 2020, directed
implementation of the approved Resolution Plan on or before the extended due
date, 30th September, 2020.

 

H Co urged that the Creditors of the Corporate Debtor, in connivance
with the Successful Resolution Applicant, accepted a re-negotiated fresh
Resolution Plan and the application of the CoC u/s 60(5) of the Insolvency and
Bankruptcy Code, 2016 (‘Code’) filed before the NCLT was not maintainable and
should not have been entertained by the NCLT as the CoC had become functus
officio after approval of the Resolution Plan.

 

It was further argued that NCLT had approved the Resolution Plan on 4th
February, 2020 and in terms of the approved Resolution Plan the successful
resolution applicant had to bring in Rs. 123 crores for resolution within 30
days of approval of the plan which expired on 5th March, 2020.
However, the successful resolution applicant did not implement the Resolution Plan
and the erstwhile CoC of the Corporate Debtor, in connivance with the
successful resolution applicant, accepted a fresh Resolution Plan to the
detriment of the legal rights of H Co whose Resolution Plan was rejected on the
ground that he could not provide for a lump sum time-bound payment within 30
days of the approval of its Resolution Plan.

 

HELD

NCLAT heard the appeal filed by H Co and observed that it had no locus
to question the implementation of the approved Resolution Plan of the
successful resolution applicant. Directions given in the context of the
application filed u/s 60(5) of the Code to the successful resolution applicant
follows as a necessary corollary to the dismissal of appeal filed against
approval of the Resolution Plan of the successful resolution applicant to
implement the approved Resolution Plan on or before the extended date of 30th
September, 2020.

 

It was observed that once H Co was out of the fray, it had neither locus
to call in question any action of any of the stakeholders qua
implementation of the approved Resolution Plan, nor could it claim any
prejudice on the pretext that any of the actions post approval of the
Resolution Plan of the successful resolution applicant in regard to its
implementation had affected its prospects of being a successful resolution
applicant.

 

H Co would not have any right to object if the terms of the approved
Resolution Plan of the successful resolution applicant have been varied or the
time extended to facilitate its implementation and the creditors have not
claimed any prejudice on that count. In fact, the CoC comprising of the
creditors as stakeholders did not object to the same. It was rather privy to it
on account of hardship due to the prevailing circumstances.

 

It was further observed that this was not a case of alleged material
irregularity in the Corporate Insolvency Resolution Process which is in the
final stages with the approved Resolution Plan being under implementation. The
outbreak of the Covid-19 pandemic slowed down the economic activity and
operations were adversely impacted. NCLAT held that in the given context some
necessary changes in the agreed terms and extension of time for implementation
would not be uncalled for.

 

NCLAT thus held that H Co had no locus to maintain that the
change in terms of the approved Resolution Plan in regard to extension of time
for induction of upfront amount as also implementation of the Resolution Plan
has jeopardised its legal rights qua consideration of its Resolution
Plan.

 

The appeal of H Co was accordingly dismissed.

 

6. Ratna Singh vs. Theme Export Pvt. Ltd.Company Appeal (AT) (Insolvency) No. 917 of
2020 Date of order: 18th November, 2020

 

Section 61 of Insolvency and Bankruptcy Code, 2016 – Appeal against a
liquidation order passed u/s 33 could only be made if there was a material
irregularity or fraud in relation to such an order – IBC is not meant for
initiating proceedings for prevention of oppression and mismanagement – It has
been armed with Chapters II and III for initiation of action against
wrongdoers, illegal transactions, etc.

 

FACTS

Mrs. R and Mr.
B (‘appellants’) were directors in T Co (‘Corporate Debtor’). Corporate
Insolvency Resolution Process was initiated against the Corporate Debtor by an
operation creditor Mr. R u/s 9 of the Insolvency and Bankruptcy Code, 2016
(‘the Code’). The National Company Law Tribunal (‘NCLT’) admitted the
application and appointed Mr. V as Insolvency Resolution Professional (‘IRP’).
The first meeting of the Committee of Creditors (‘CoC’) was held on 28th
September, 2019 and the second on 4th November, 2019 confirming IRP
as Resolution Professional (‘RP’) and also deciding to liquidate the Corporate
Debtor.

 

NCLT passed the
liquidation order primarily on the basis of the recommendation of the CoC which
had the strength of 98.5% voting shares. While passing the liquidation order,
NCLT took a conscious decision not to challenge the commercial wisdom of the
Financial Creditor.

 

Aggrieved by
the order, both ex-directors filed the present appeal for staying the
liquidation proceedings and quashing the impugned liquidation order. The
appellants submitted that Ms N, a director of the Corporate Debtor, siphoned
off money, evidence of some of which was submitted before the NCLAT.

 

It was further
submitted that the Corporate Debtor has availed financial credit facility from
Bank of Baroda to the tune of Rs. 25 crores, mortgaging its plant, machinery
and assets, including accessories, stock and fabric as primary security and the
factory at Okhla along with personal / corporate guarantees of the three
directors and the same was being renewed by the bank since 2005. The
performance of the Corporate Debtor started deteriorating from F.Y. 2015-16 –
from approximately Rs. 100 crores to about Rs. 30 crores in 2018-19 on account
of various frauds, leading to oppression and mismanagement by Mrs. N, director
of the Corporate Debtor, along with certain other related parties and employees.
Mr. Ravinder Rai, ex-accountant of the Corporate Debtor, even provided to the
IRP all the data of the illegal acts committed by Mrs. N on 18th
November 2019 prior to filing of liquidation proceedings by the IRP.

 

The appellants
had also written to Mrs. N demanding explanation for the theft and criminal
breach of trust amounting to oppression and mismanagement, apart from visiting
Bank of Baroda and informing the Chief Manager, Mr. Lalit Kumar Luthra, about
theft, etc., and demanded the stock statements and the fixed assets register
along with the list of machinery pledged to the Bank on 31st December,
2018.

 

The respondents
have not filed their counter objections. As per the written submission and also
the oral submission made by the respondent’s counsel, section 61(4) of the
I&B Code, 2016 clearly stated that an appeal against the liquidation order
could be challenged only on the ground of material irregularities or fraud
committed in relation to such liquidation order. It was also submitted that the
appellants did not challenge the liquidation order per se but their
grievance was against the act of oppression and mismanagement by the other
director of the Corporate Debtor.

 

It was further
submitted that the appellants failed to initiate the filing of a petition u/s
241-242 of the Companies Act, 2013 which deals with oppression and
mismanagement at the appropriate stage. Hence they cannot challenge the issue
of oppression and mismanagement u/s 61(4) of the Code and so the application
needs to be dismissed. The Liquidator further submitted that the documents are
being reviewed by the Forensic Auditor, M/s K.R.A. and Company, Chartered
Accountants, for certain transactions under sections 43, 45 and 66 of the Code
and an appropriate application shall be filed by the Liquidator based on its
findings. Further, the Liquidator argued that there were no chances of revival
of the Corporate Debtor and hence the CoC had passed a resolution liquidating
the Corporate Debtor. Thus, this application needs to be dismissed.

 

HELD

The NCLAT heard
the parties at length. It was observed that the Corporate Debtor had three
directors – the two appellants were directors and the other director was Ms N;
the shareholding of Ms N in the Corporate Debtor was 92% and of the appellants
8%.

NCLAT observed
that Chapter III of Part II of IBC, 2016 has a mechanism even during
liquidation process to initiate action for various wrongdoings from sections 43
to 51 and section 66, which are all related to undervalued transactions, avoidable
transactions, defrauding creditor, fraudulent trading or wrongful trading, etc.
It was observed that the Liquidator, who is also erstwhile IRP, was required to
take necessary action and the Bank of Baroda is to provide appropriate
assistance. Bank of Baroda was supposed to check the flow of inventory,
cash–to-cash cycle, etc., as they had lent Rs. 25 crores.

 

The NCLAT relied on judgments which had held that the commercial wisdom
of the CoC cannot be looked into by either the NCLT or the Appellate Authority.
It relied on section 61 of the Code and observed that an appeal against a
liquidation order passed u/s 33 may be filed on the grounds of material
irregularity or fraud committed in relation to the liquidation order. NCLAT did
not find any irregularity or fraud committed in relation to the impugned order.
It was observed that the Code is not meant for initiating proceedings for
prevention of oppression and mismanagement but is armed with provisions under
Part II Chapter – III for initiation of action against wrongdoers / illegal
transactions, etc. NCLAT upheld the order by passed by the NCLT and the appeal
was dismissed.

 

7. Jaideep Halwasiya vs. AA
Infraproperties (P.) Ltd. [2020] 121 taxmann.com 240 (NCLAT) Date of order: 4th September, 2020

 

At the Annual
General Meeting (AGM) and Extra Ordinary General Meeting (EOGM), new directors
were appointed and existing director ‘J’ was removed from directorship – In
view of the fact that neither any resolution nor any minutes of board meetings
were in existence, nor any notice of agenda was circulated in the prescribed
manner, the appointment of new directors and removal of ‘J’ as director was to
be stayed

 

FACTS

This appeal was
filed by ‘J’, a minority shareholder of ‘AA’ against the order dated 21st
February, 2020 passed by the National Company Law Tribunal, Kolkata Bench (‘the
Tribunal’) declining grant of interim relief requested by J. The Tribunal had
declined to record findings on the factual controversy as regards serving of
notices of AGM dated 24th September, 2019 and EOGM dated 4th
January, 2020. The Tribunal further observed that allowing interim relief as
claimed in the Company Petition would tantamount to deciding the main petition.

 

Admittedly,
there are two groups of shareholders in the company. The minority shareholders’
group comprises of J holding 12.5% shares, whereas the majority group holds
87.5% shares. Several allegations of oppression and mismanagement as regards
management and operations of the company were levelled by J which included not
being served notice of AGM dated 24th September, 2019 and notice of
EOGM dated 4th January, 2020 which was pending. It was during the
pendency of this petition that J sought interim relief alleging that the
respondents in collusion and connivance with each other illegally appointed new
directors in the AGM on 24th September, 2019 and ousted J from
directorship in the EOGM on 4th January, 2020. All these acts of
commission attributed to the respondents were alleged to have been done without
giving notice to J. Interim relief was sought on the strength of these
allegations claiming that the resolutions passed in such meetings were bad in
law and void ab initio. J further alleged that the acts of the
respondents, being oppressive in nature, are prejudicial to his interest in the
company.

 

The respondents
have refuted the allegations and pleaded that notice of the meetings in which
the resolutions inducting new directors in the company and removing J from the
post of director were passed, were given well in advance to J. It was further
pleaded that the majority shareholders were within their rights to pass such
resolutions appointing other persons as directors and removing the existing
directors, including J.

 

It was further
submitted that the respondents were illegally trying to usurp control over the
company by forcing the ouster of J from the Board and appointing new directors.
It was submitted that the Respondents adopted a modus operandi creating
an impression that new directors were appointed at the meeting held on 24th
September, 2019 and subsequent to this alleged AGM, an EOGM was held on 4th
January, 2020 wherein J was removed. It was pointed out that there was no
resolution nor any minutes of the alleged Board Meeting dated 22nd June,
2019 to show that the two directors of the company had decided to hold the AGM
on 24th September, 2019. No minutes as required u/s 118 of the Act
had been produced by the company to support its plea. It was further submitted
that as regards the alleged agenda and notice dated 6th June, 2019,
no notice or agenda was ever circulated. The documents relied upon by the
respondents in this regard were fabricated as they did not bear the necessary
signatures and were not on the letterhead of the company. The notice of AGM was
never served on J or any other shareholder. Even service was not effected
through the prevalent mode of service. The annual returns were filed without
holding an AGM and on the date of the alleged meeting one of the shareholders
(a director) was not even in India.

 

It was
submitted that since J did not attend any meeting purportedly held on 24th
September, 2019 the minimum required quorum for the General Meeting as
per section 103(1)(b) of the Act was not present. Such a meeting would therefore
have no meaning and cannot be said to exist in law. Thus, it was contended that
the AGM of 24th September, 2019 is non est and the
resolutions passed on that date deserved to be stayed. Further, the purported
resolution of 4th January, 2020 for removal of J as Director was
entirely illegal and void ab initio. There was no evidence to show that
notice of the Board Meeting to be convened on 26th November, 2019
was served on J. The genuineness of the alleged notice for the EOGM of 12th
December, 2019 was disputed. The variation in addresses was also
highlighted. Thus, the very foundation of removal of J from the Board was
nothing but fraudulent and was sought to be supported by fabricated documents.

 

HELD

The Appellate
Tribunal observed / noted as under:

 

J is admittedly a minority shareholder whilst the respondents and
associates are the majority shareholders. With allegations of the respondents
making all efforts to usurp control over the company through all means, fair or
foul, emanating from J, it is demonstrated by J that no resolution or any
minutes of the Board Meeting of 22nd June, 2019, stated to be the
edifice of the alleged AGM, was in existence to even suggest that the two
directors decided to hold the AGM on 24th September, 2019. It was
contended on behalf of J that adherence to the statutory requirement u/s 118 of
the Companies Act has not been established by respondents which justifies
drawing of an inference that neither any such Board Meeting was conducted nor
any minutes of such Board Meeting recorded. It was also pointed out that no
notice or agenda was circulated in the prescribed manner and bearing the
signatures of J. As regards the notice said to have been issued on 5th
August, 2019, similar contentions have been raised, it being further pointed
out that the prevalent modes of service have not been resorted to.

It has been
pointed out that although Form No. MGT 7 was filed even without holding the
AGM, the Annual Report falsely declared that the AGM had been attended by both
J as well as the directors. It has been pointed out that J never attended any
such meeting and one of the other directors was not in India on that date. It
was also pointed out that after the respondents realised that the fraud played
by them in this regard had been discovered, one of the respondents cooked up
another false story by setting up the plea that someone had attended the
meeting on his behalf and a clerical error had been made in the Annual Report.
No authorisation in this regard has been produced by the respondents to
demonstrate that someone else had attended as a representative in the alleged
AGM. It was submitted on behalf of J that since J did not attend any purported
meeting on 24th September, 2019 the minimum required quorum
of the General Meeting not being present, any resolutions said to have been
passed on such date were  required to be
stayed. On the strength of these relevant facts, it was contended on behalf of
J that the ouster of J as director was entirely illegal.

 

Since the foundation
was bad, it was contended that the entire superstructure was bound to collapse.
J has demonstrated all these circumstances to show that he has raised a fair
question which requires a probe in the Company Petition. The arguments raised
on this score cannot be dismissed off hand. Given the status of J, it can be
safely stated that with the existence of a prima facie case in his
favour, the balance of convenience lies to the side of J who is faced with the
prospect of his interests and legal rights being seriously jeopardised in the
wake of the Tribunal order.

 

For the
foregoing reasons, the Appellate Tribunal opined that the order of the Tribunal
suffered from grave legal infirmity besides factual frailty. Therefore, it cannot
be supported. The appeal was allowed and the order of the Tribunal was set
aside. The appointment of new directors and removal of J as director of the
company was stayed till the decision on the Company Petition.

 

8. Jaishree Dealcomm (P) Ltd. vs. Registrar of Companies [2020] 119 taxmann.com 418 (NCLAT) Date of order: 29th November, 2019

 

Section 252
read with sections 164 and 248 of the Companies Act, 2013 – Name of the company
was struck off from the register of companies – Directors filed an application
for restoration of name which was dismissed on the ground that they being
disqualified could not maintain an appeal – But from share certificates and
annual returns of the company it was found that said directors were also
shareholders and thereby entitled to file an appeal as per section 252(3) –
Further, the company had not filed annual returns since F.Y. 2013-14 onwards
though it was regularly carrying on its business as evidenced by auditors’
reports and financial statements for years ended 31st March, 2014 to
31st March, 2017 – It was held that the order striking off the name
of the company from the register of companies was prejudicial to the
shareholders and was to be set aside and the name restored

 

FACTS

J Pvt. Ltd. is
a company incorporated under the Companies Act, 1956 and having its registered
office in Kolkata. It was served notice u/s 248(1)(c) of the Companies Act,
2013. Thereafter, a public notice was issued and the company’s name struck off
from the register of companies.

 

This order was
challenged before the NCLT, Kolkata. However, NCLT dismissed the appeal on the
ground of maintainability that u/s 252(3) of the Companies Act, 2013 a company
or any member or creditor or workman can file application for restoration of
the name of the company. NCLT had, while dismissing the appeal, also observed
that as per section 164(2)(a) of the Companies Act, 2013, directors being
disqualified cannot maintain the appeal. Being aggrieved, the directors
preferred the present appeal.

 

It was submitted
that the directors who had preferred this appeal were also shareholders of the
company. Further, J was regularly carrying on business as stated in the main
object clause of the Memorandum of Association of the company and was regularly
filing income-tax returns with the Income-tax Department. However, J had
inadvertently failed to file its audited financial statements and annual
returns from financial year 2013-14 onwards which were annexed with the Memo of
Appeal. It was apparent from the audited balance sheets that J had been
carrying on business.

 

The ROC, West
Bengal, submitted that J had been grossly negligent in not filing the annual
returns and financial statements since F.Y. 2013-14, thus the order of the NCLT
/ ROC be upheld.

 

HELD

The Appellate
Tribunal observed / noted as under:

 

The Memo of
Appeal was filed by shareholders of the company and it was considered on merit.
Clearly, the company had not filed annual returns since F.Y. 2013-2014.
However, it was regularly carrying on its business and filed the reports of the
auditors and financial statements for the years ended 31st March,
2014 to 31st March, 2017. The audited financials were perused and it
was apparent that J has been carrying on its business continuously. Therefore,
the order of striking off the name of the company from the register of
companies is prejudicial to the shareholders of the company. The order is
liable to be set aside and is hereby set aside.

 

It was further ordered that within 30 days of restoration of the company’s
name in the register maintained by the Registrar of Companies, the company will
file all its annual returns and balance sheets due for the period ending 31st
March, 2014 to date. The company will also pay requisite charges / fee as well
as late fee / charges as applicable.

 

In spite of the
present orders, the ROC will be free to take any other steps, punitive or
otherwise, under the Companies Act, 2013 for non-filing / late filing of
statutory returns / documents against the company and directors.

 

 

 

The best daily investments of time:

1 hour writing

1 hour reading

1 hour of exercise

1 hour of investing / trading research

1 hour of fun

1 hour of research

1 hour maximum television

1 hour personal social media max

8 hours to make a living

8 hours of sleep

 

— Steve Burns

 

ALLIED LAWS

15. Arnab Manoranjan
Goswami vs. The State of Maharashtra & Ors. Cr.
Appeal No. 742 of 2020 (SC) Date of order: 27th November, 2020
Bench: Dr. Dhananjay Y. Chandrachud J., Indira Banerjee J.

 

Human liberty – Role of Courts – Misuse of the criminal law is a matter
to which the High Court and the lower Courts in the country must be alive
[CrPC, 1973, S. 482, Constitution of India, Art. 226, 227]

 

FACTS

The appellant
is the Editor-in-Chief of an English television news channel, Republic TV who
was arrested on 4th November, 2020 in connection with FIR No. 59 of
2018 that was registered at Alibaug Police Station under sections 306 and 34 of
the IPC. It was registered on 5th May, 2018 on the complaint of the
spouse of the deceased informant who is alleged to have committed suicide. The
deceased had not received payment for the work which was carried out by him, as
a result of which he was under mental pressure and committed suicide by hanging
on 5th May, 2018; there is a suicide note holding the appellant and
others responsible.

 

HELD

Human liberty
is a precious constitutional value which is undoubtedly subject to regulation
by validly enacted legislation. As such, the citizen is subject to the edicts
of criminal law and procedure. Section 482 recognises the inherent power of the
High Court to make such orders as are necessary to give effect to the
provisions of the Code of Criminal Procedure – or prevent abuse of the process
of any Court or otherwise to secure the ends of justice. The recognition by
Parliament of the inherent power of the High Courts must be construed as an aid
to preserve the constitutional value of liberty. The writ of liberty runs
through the fabric of the Constitution. The need to ensure the fair
investigation of crime is undoubtedly important in itself, because it protects
at one level the rights of the victim and, at a more fundamental level, the
societal interest in ensuring that crime is investigated and dealt with in
accordance with law. On the other hand, the misuse of the criminal law is a
matter to which the High Courts and the lower Courts in the country must be
alive.

 

In the present
case, the High Court could not but have been cognizant of the specific ground
which was raised before it by the appellant that he was being made a target as
part of a series of occurrences which had been taking place since April, 2020.
The specific case of the appellant is that he has been targeted because his
opinions on his television channel are unpalatable to authority.

 

In failing to make even a prima facie evaluation of the FIR, the
High Court abdicated its constitutional duty and function as a protector of liberty.
Courts must be alive to the need to safeguard the public interest in ensuring
that the due enforcement of criminal law is not obstructed. The fair
investigation of crime is an aid to it. Equally, it is the duty of Courts
across the spectrum – the district judiciary, the High Courts and the Supreme
Court – to ensure that the criminal law does not become a weapon for the
selective harassment of citizens. Courts should be alive to both ends of the
spectrum – the need to ensure the proper enforcement of criminal law on the one
hand and the need, on the other, of ensuring that the law does not become a
ruse for targeted harassment. Liberty across human eras is as tenuous as
tenuous can be. Liberty survives by the vigilance of her citizens, on the
cacophony of the media and in the dusty corridors of courts alive to the rule
of (and not by) law. Yet, much too often, liberty is a casualty when one of
these components is found wanting.

 

16. Noy Vallesina Engineering SpA vs. Jindal Drugs Limited & Ors. Civil Appeal
No. 8607 of 2010 (SC) Date of order:
26th November, 2020 Bench: S.
Ravindra Bhatt J., Indira Banerjee J.

 

Arbitration – Foreign award – Setting aside – Not maintainable
[Arbitration and Conciliation Act, 1996, S. 34]

 

FACTS

The appellant company (N.V. Engineering) was incorporated under Italian
law and was involved in the setting up and construction of plants for
production of synthetic fibres, polymers and ascorbic acid in India. The
respondent (Jindal Drugs) is a public limited company incorporated under the
Indian law. Disputes arose between the two in respect of an agreement between
them. The latter (N.V. Engineering) terminated the agreement and claimed
damages. Jindal Drugs filed a request for arbitration before the International
Court of Arbitration (ICC), Paris. But its claims were rejected by the Tribunal
via a partial award.

 

Jindal then filed a petition before the Bombay High Court u/s 34 of the
Act challenging the partial award which held that since the partial award was a
foreign award, a challenge through a petition was not maintainable u/s 34.
Jindal then preferred an appeal against this order before the Division Bench.
During the pendency of the appeal, N.V. Engineering applied for enforcement of
the two awards, i.e., the partial award and the final award under sections 47
and 48 of the Act, in the chapter relating to foreign awards. This petition was
allowed and Jindal’s objections against the two awards’ enforceability were
overruled. Jindal preferred an appeal and N.V. filed a cross-appeal

 

Pending these two appeals, the Division Bench decided Jindal’s first
appeal and held that proceedings u/s 34 could be validly maintained to
challenge a foreign award. Hence this appeal by N.V. Engineering.

 

HELD

The Court relied on the decision of
BALCO vs. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 wherein
it was held that the Arbitration Act, 1996 has accepted the territoriality
principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a
declaration that Part I of the Arbitration Act, 1996 shall apply to all
arbitrations which take place within India. Therefore, Part I of the
Arbitration Act, 1996 would have no application to international commercial
arbitration held outside India. Therefore, such awards would only be subject to
the jurisdiction of the Indian courts when the same are sought to be enforced
in India in accordance with the provisions contained in Part II of the
Arbitration Act, 1996. The provisions contained in the Arbitration Act, 1996
make it crystal clear that there can be no overlapping or intermingling of the
provisions contained in Part I with the provisions contained in Part II of the
Arbitration Act, 1996.

The appeal was allowed and costs imposed on Jindal.

 

17. Madras Bar Association vs. Union of India & Anr. Writ (C) No. 804 of 2020 (SC) Date of order: 27th November, 2020 Bench: L. Nageswara Rao J., Hemant Gupta J., S. Ravindra Bhat J.

 

Judicial Member – Qualification and experience – Appellate Tribunal and
other Authorities Qualification, Experience and Other Conditions of Service of
Members Rules, 2020 [Finance Act, 2017, Administrative Tribunals Act, 1956]

 

FACTS

The petitioner filed a petition challenging the constitutional validity
of the Tribunal, Appellate Tribunal and other Authorities Qualification,
Experience and Other Conditions of Service of Members Rules, 2020 (Tribunal
Rules) on several grounds, viz., exclusion of advocates for being considered as
a judicial member in ten out of 19 Tribunals, a minimum of 25 years of
experience for an advocate to be eligible to become a member in seven tribunals
(Central Administrative Tribunal, Income-tax Appellate Tribunal, Customs Excise
and Sales Tax Appellate Tribunal, etc.) inter alia.

 

HELD

The Hon’ble Supreme Court held that the exclusion of advocates in ten
out of 19 Tribunals for being appointed as a judicial member is contrary to the
decision in the case of Union of India vs. R. Gandhi, President, Madras
Bar Association, (2010) 11 SCC 1 and the case of Madras Bar
Association vs. Union of India, (2014) 10 SCC 1.

 

It further held that the Tribunal Rules shall
be amended to make advocates with an experience of at least ten years eligible
for appointment as judicial members in the Tribunals. While considering
advocates for appointment as judicial members in the Tribunals, the
Search-cum-Selection Committee shall take into account the experience of the
Advocates at the bar and their specialisation in the relevant branches of law.
They shall be entitled for reappointment for at least one term by giving
preference to the services rendered by them for the Tribunals.

 

18. State of UP vs. Sudhir Kumar Singh & Ors. Civil Appeal No. 3498 of 2020 (SC) Date of order: 16th October, 2020 Bench: R.F. Nariman J., Navin Sinha J., K.M. Joseph J.

 

Principle of natural justice – Arbitrary termination is held to be bad
in law [Constitution of India, Art 14, 226]

 

FACTS

The private respondents filed a case on account of illegal and arbitrary
termination of their tender upon completion of one year, whereas the term
stipulated in the tender was two years. It was prayed that the order
terminating the tender was bad in law due to violation of the principles of
natural justice, i.e., audi alteram partem.

 

HELD

The principles of natural justice have undergone a sea change. The
earlier view that even a small violation would result in the order being
rendered a nullity is not correct. Some real prejudice must be caused to the
complainant by the refusal to follow natural justice. The prejudice must not
merely be the apprehension of a litigant. No prejudice is caused to the person
complaining of the breach of natural justice where such person does not dispute
the case against him or it. There is a clear distinction between cases where
there was no hearing at all and the cases where there was mere technical
infringement of the principle. Since there was prejudice caused to the private
respondents and financial loss has occurred, the Court upheld the impugned
judgment of the High Court on the ground that natural justice has indeed been
breached.

 

CORPORATE LAW CORNER

4. Economy Hotels India Services (P) Ltd. vs. Registrar of Companies
[2020] 119 taxmann.com 271 (NCLAT) Date of order: 24th August, 2020

 

There was an ‘inadvertent typographical error’ figuring in extract of
‘Minutes of Meeting’ characterising ‘special resolution’ as ‘unanimous ordinary
resolution’. Appellant company had tacitly admitted typographical error in
extract of minutes. Registrar of Companies had noted that appellant / company
had filed special resolution with it which satisfied requirements of section 66
of the Companies Act, 2013. The petition, filed by company u/s 66(1)(b)
rejected by NCLT on ground that there was no special resolution for reduction
of share capital as prescribed u/s 66 and as required in article 9 of the
Articles of Association of company, was set aside

 

FACTS

E Private Limited (E) is a closely-held private company, limited by
shares, incorporated under the provisions of the Companies Act, 1956. In fact,
Article 9 of the ‘Articles of Association’ of the appellant company specifies
that the company may, from time to time by a special resolution, reduce its
share capital in any manner permitted by law.

 

E had filed a petition u/s 66(1)(b) of the Companies Act praying for
passing of an order for confirming the reduction of share capital wherein it
had averred as under:

 

‘That annual general meeting of E was held on 19th August,
2019 and was attended by both the equity shareholders holding 100% of the issued,
subscribed and paid-up equity share capital of E. The said equity shareholders
present at the said meeting have cast their votes in favour of the aforesaid
resolution, etc.’

 

More specifically, E in the Company Petition had sought relief to
confirm the reduction of the issued, subscribed and paid-up equity share
capital of E as resolved by the members in the AGM held on 19th
August, 2019 by passing the special resolution. Further in the said petition, E
had prayed to approve the form of minutes under sub-section 5 of section 66 of
the Act.

 

E contended that it had placed on record sufficient documents to prove
that ‘special resolution’ as required u/s 66 of the Companies Act, 2013 as well
as in terms of the requirements under Article 9 of the ‘Articles of
Association’ of E was passed.

 

The National Company Law Tribunal, New Delhi, Bench V while passing the
order on 27th May, 2020 had observed as under:

 

‘We have perused the minutes of the Annual General Meeting of the
company held on 19th August, 2019. On page 124 of the paper book, it
is recorded that the meeting has passed the resolution for reduction of capital
“as an ordinary resolution.” The minutes of the meeting have been
signed by the Chairman of the meeting.

 

Thus, we observe that the company has not met the specific requirement
of section 66 of the Companies Act by passing “Special Resolution” for
reduction of share capital. The company has also not complied with the
requirements of its own Articles of Association.

 

We are left with no choice but to reject the application in view of the
fact that there is no special resolution for reduction of share capital as
prescribed u/s 66 of the Companies Act, 2013 and as required in Article 9 of
the Articles of Association of the company. Section 66 of the Companies Act
also requires this Tribunal to approve the minutes of the resolution passed by
the Company which has been passed as ordinary resolution as against the
requirement of special resolution; the Tribunal is not in a position to
approve such minutes in this case.’

 

HELD

The Appellate Tribunal observed / noted as under:

 

E had made a plea that the National Company Law Tribunal had failed to
appreciate the creeping in of an ‘inadvertent typographical error’ figuring in
the extract of the ‘Minutes of the Meeting’ characterising the ‘special
resolution’ as ‘unanimous ordinary resolution’. Moreover, E had fulfilled all
the statutory requirements prescribed u/s 114 of the Companies Act and as such
the order of the Tribunal is liable to be set aside.

 

It transpires
that the ‘Special Resolution’ passed in the ‘Annual General Meeting’ as filed
with the e-form MGT-14 reflects that the resolution passed by the shareholders
u/s 67 of the Companies Act, 2013 on 19th August, 2019 is a ‘Special
Resolution’ which is taken on record in the MCA21 Registry.

 

Further, the Resolution passed in the ‘Annual General Meeting’ of the
appellant’s company u/s 66 of the Companies Act was found to be in order by the
ROC. Even the report of the Registrar of Companies, Delhi found that E had
filed the said resolution keeping in tune with the ingredients of section 66 of
the Companies Act, 2013.

 

The Appellate
Tribunal noted that ‘Reduction of Capital’ is a ‘Domestic Affair’
of a particular company in which, ordinarily, a Tribunal will not interfere
because of the reason that it is a ‘majority decision’ which prevails. The term
‘Share Capital’ is a ‘genus’ of which ‘Equity and Preference share capital’ are
‘species’.

 

It is further
pointed out that section 114(2) of the Companies Act, 2013 enjoins that
‘Special Resolution’ means a resolution where a decision is reached by a
special majority of more than 75% of the members of a company voting in person
or proxy.

 

On a careful
consideration of the respective contentions, this Tribunal after subjectively
satisfying itself that E has tacitly admitted the creeping in of a
typographical error in the extract of the minutes and also taking into
consideration the stand of the ROC that E had filed the special resolution with
it, which satisfies the requirement of section 66 of the Companies Act, 2013,
allows the appeal by setting aside the order passed by the National Company Law
Tribunal, Bench V.

 

The Appellate
Tribunal thus confirmed the reduction of share capital of E as resolved by the
‘Members’ in their ‘Annual General Meeting’ that took place on 19th
August, 2019 and the Tribunal further approved the form of minutes required to
be filed by E with the Registrar of Companies, Delhi u/s 66(5) of the Companies
Act, 2013.  

ALLIED LAWS

11. Ravi Dixit vs. State of U.P. and another Application u/s 482 No. 14068 of 2020
(All.)(HC) Date of order: 23rd September,
2020 Bench: Dr. Kaushal Jayendra Thaker J.

Dishonour of cheque – Intention not to make
payment – Complainant need not wait 15 days [Negotiable Instruments Act, 1881,
S. 138]

 

FACTS

A cheque of Rs. 5,00,000 was issued on 1st
March, 2019 and another cheque of Rs. 5,98,000 on 2nd March,
2019. Both were dishonoured on 28th May, 2019 as the drawer (the
petitioner here) had directed the bank to stop the payments. The complainant
sent a notice to the petitioner on 11th June, 2019. A response was
received on 25th June, 2019. But the complainant did not receive any
money; therefore, on 29th June, 2019, he filed a complaint u/s 138
of the Negotiable Instruments Act, 1881.

 

The Judge, after
referring to the dates, was satisfied that a prima facie case is made
out for issuance of notice and so on 3rd September, 2019 passed the
summoning order.

 

The petitioner
approached the High Court stating that the complainant should have waited for a
period of 15 days and should not have filed the complaint on 29th
June, 2019.

 

HELD

The provision of section 138 of the N.I. Act
cannot be interpreted to mean that even if the accused refuses to make the
payment the complainant cannot file a complaint. Proviso (c) of the said
section is to see the bona fides of the drawer of the cheque and is with
a view to grant him a chance to make the payment. The proviso does not
constitute ingredients of an offence punishable u/s 138. It simply postpones
the actual prosecution of  the offender
till such time as he fails to pay the amount, then the statutory period
prescribed begins for lodgement of complaint.

The petitioner replied to the notice which
goes to show that the intention of the drawer is clear that he did not wish to
make the payment. Once this is clarified, the complainant need not wait for the
minimum period of 15 days. The petition was dismissed with cost.

 

12. High Court on its own motion vs. the State of  Maharashtra Suo motu WP (ST) No. 93432 of 2020 (Bom.)(HC) Date of order: 29th October, 2020 Bench: Hon’ble C.J., A.A. Sayed J., S.S. Shinde
J., K.K. Tated J.

 

Covid-19 – Extension of interim orders –
Eviction, demolition and dispossession – Passed by the Courts in Maharashtra
and Goa – Until 22nd December, 2020

 

FACTS / HELD

Although the situation in the State of
Maharashtra because of the pandemic has improved over the last few days, access
to the Courts of law is not easy. To ensure that persons suffering orders of
dispossession, demolition, eviction, etc., passed by public authorities are not
inconvenienced by reason of inability to approach the Courts because of the
restrictions on movements imposed by the State Government, as well as the
requirement to maintain social distancing norms, the Court considered it just
and proper to extend the interim orders passed by it on this writ petition till
22nd December, 2020 or until further orders, whichever is earlier.

 

13. Srei Equipment Finance Ltd. vs. Seirra Infraventure Pvt. Ltd. A.P. 185 of 2020 (Cal.)(HC) Date of order: 7th October, 2020 Bench: Moushumi Bhattacharya J.

 

Arbitration – Interim relief – Jurisdiction
– Where a part of the cause of action has arisen – Valid [Arbitration and
Conciliation Act, 1996, S. 2(1)(e)(i), S. 9]

 

FACTS

The petitioner / finance company has sought
an injunction restraining the respondent / hirer from dealing with the assets
leased by it (the petitioner) to the respondent under a Master Lease Agreement
entered into between the parties on 15th March, 2018. The petitioner
has alleged outstanding rental dues as on the date of termination of the agreement
and has sought for appointment of a receiver to take possession of the assets
together with an order directing the respondent to furnish security to the
extent of Rs. 75,19,388.

 

The respondent has raised a point of
maintainability of the application on the ground that this Court does not have
territorial jurisdiction to entertain the application as would be evident from
the pleadings and documents, as also the relevant provisions of the Arbitration
and Conciliation Act, 1996.

 

HELD

An application u/s 9 of the Arbitration and
Conciliation Act, 1996 can be filed where a part of the cause of action has
arisen or where the seat of arbitration has been chosen by the parties. It is
stated that part of the cause of action has arisen within the jurisdiction of this
court.

 

Further, it
must also be borne in mind that the parties have consented to the jurisdiction
in clause 18(k) as well as the seat of arbitration as provided in clause 18(l)
of the agreement. Both these clauses point to ‘Kolkata’. Section 2(1)(e)(i) of
the 1996 Act designates the principal Civil Court of original jurisdiction in a
district, including the High Court in exercise of its Ordinary Original Civil
Jurisdiction, having jurisdiction to decide the questions forming the subject
matter of the arbitration for the purpose of applications in matters of
domestic arbitration under Part I of the Act. Therefore, the preliminary
objection of the respondent with regard to the jurisdiction of this Court,
fails.

 

14.
Paramount Prop. Build. Pvt. Ltd. through its authorised signatory Mr. Anil
Kumar Gupta vs. State of U.P. and 118 others Writ (C)
No. 12573 of 2020 (All.)(HC) Date of
order: 4th November, 2020 Bench:
Surya Prakash Kesarwani J.,  Dr. Yogendra Kumar Srivastava, J.

 

Promoters – Delay in handing over
possession of the flats – Contravention of obligation cast upon promoters –
Authority empowered to award interest [Real Estate (Regulation and Development)
Act, 2016, S. 18, S. 38]

 

FACTS

The petitioner is a promoter and the
respondent Nos. 3 to 119 are allottees. The petitioner could not deliver
possession of the flats to the allottees in time and there occurred a delay.
The allottees filed separate complaints before the Uttar Pradesh Real Estate
Regulatory Authority, Gautam Buddh Nagar, who passed the impugned orders
awarding interest.

 

A writ petition was filed on the ground that
the impugned orders are without jurisdiction inasmuch as the power to grant
interest does not vest with the Authority.

 

HELD

Section 18 of the RERA Act, 2016 is in
respect of return of amount and compensation in case the promoter fails to
complete or is unable to give possession of an apartment, plot or building.
Sub-section (1) of section 18 provides for two different contingencies. In case
the allottee wishes to withdraw from the project, the promoter shall be liable
on demand to return the amount received by him to the allottees in respect of
the apartment, plot or building as the case may be, with interest at such rate
as may be prescribed, including compensation in the manner as provided under
the Act.

 

Alternatively, where the allottee does not
intend to withdraw from the project, the promoter shall, as per the proviso
to section 18(1) of the Act, be liable to pay interest for every month of delay
till the handing over of the possession, at such rate as may be prescribed.

 

Further, section 38(1) of the Act confers
powers upon the Authority to impose penalty or interest in regard to any
contravention of obligations cast upon the promoters, the allottees and the
real estate agents, under the Act or the Rules or the Regulations made
thereunder.

 

The promoter having contravened the
aforesaid obligation with regard to giving possession of the apartment by the
specified date, and complaints in this regard having been filed by the
allottees, the Authority exercising powers u/s 38(1) of the Act is fully
empowered to impose interest in regard to contravention of the obligation cast
upon the promoter.  

 

CORPORATE LAW CORNER

2. R. Ajayender vs. Karvy Computershare (P)
Ltd. [2020] 119 taxmann.com 412 (NCLT – Hyd.) Date of order: 21st
October, 2019

 

Section 58 of the
Companies Act, 2013 – Transfer of shares – Refusal of registration and appeal
against this

 

Petitioner’s father
had purchased 100 shares of respondent company paying full sale consideration
(through a share broker from its first registered joint holders ‘M’ and ‘D’).
However, petitioner’s father being ignorant of the procedure, kept shares with
him on as-is-where-is basis. Petitioner later approached respondent company
requesting for transfer of physical shares into petitioner’s name. Respondent
company returned original transfer form and original shares stating shares as
bad delivery on account of signature mismatch and directed petitioner to
re-lodge shares with transferor’s attestation. Petitioner stated that
whereabouts of transferor were not known and so he could not submit required
documents. Petitioner filed petition u/s 58 seeking directions to respondents
to transfer share certificate from its first registered holder to him and
further to allot bonus shares and all other benefits in his favour

 

Whereas
since notice was sent to original transferor / shareholders, ‘M’ and ‘D’, but
notices could not be served and further no complaint was lodged regarding theft
/ loss of share certificate/s, respondent was directed to register transfer of
shares in favour of petitioner provided petitioner furnished indemnity for
amount to be fixed by the respondent

 

FACTS

One RM, the father of the petitioner
(P), had purchased 100 shares of HF Limited (HF) by paying full sale
consideration through a share broker from its first registered joint holders
‘M’ and ‘D’.

 

RM being ignorant of the procedure, kept
the shares with him on as-is-where-is basis. P later approached HF and the
transfer agent of HF requesting for transfer of physical shares into P’s name
along with original transfer form and physical share certificates.

 

HF returned the original transfer form
and original shares stating ‘the shares as bad delivery on account of signature
of transferor mismatch’ and directed P to re-lodge the shares with transferor
attestation, transferor bank attestation on savings bank account, transferor
PAN, address proof of transferor, etc. P requested for transferor attestation
and no objection letter to transfer the shares in favour of P but there was no
response from the transferor which was also informed to HF.

 

P submitted that the whereabouts of the
transferor were not known, as such he was not in a position to submit / enclose
documents for transferring the shares.

 

The Registrar and transfer agent (RT)
contended as under:

 

P has lodged for transfer of shares in
his name after a lapse of 20 years.

 

RT contended that upon verification it
was found that there was a signature mismatch of the original transferor and
that as requested by HF the petitioner has not complied with the bank
attestation of the signatures of ‘M’ and ‘D’ on the transfer deed, attested
copy of PAN Card and address proof of transferor.

 

RT relied on section 108(e) of
the Companies Act, 1956 r/w/s 56 of the Companies Act, 2013 which deals with
transfer of shares not to be registered except on production of the instrument
of transfer. The requirement is that the transferee should have presented the
documents for share transfer duly stamped within 60 days from the date of
execution and accompanied by proper instrument of transfer.

 

Upon verification of share transfer
instrument and accompanying documents which were filed after 20 years, there is
a signature mismatch. In the absence of proper documents, P has no right to
claim for registration of shares. Hence, Tribunal urged to dismiss the
petition.

 

HELD

The Tribunal observed as under:

i)   The shares in question were lodged for
transfer and HF had raised an objection regarding mismatch of signature of the
transferor (‘M’ and ‘D’).

 

ii) P is not able to contact the original
transferors and they are not residing in the address available as per the
records of HF.

 

iii) The Tribunal noted that nobody lodged any
complaint with HF or RT for loss of original share certificate. It goes to
establish that there was transfer of shares and therefore original transferors
have not lodged any complaint. Had there been any complaint about loss of
original share certificate at the instance of the transferors, then there is a
reasonable ground for HF to refuse to transfer the shares in the name of the
petitioner. Till date there has been no complaint by the original shareholders
about loss of the share certificate. When such is the case and to avoid future
disputes if any, HF can direct P to give an indemnity in respect of the shares
to be transferred in his name. Therefore, the Tribunal directed P to furnish an
indemnity bond of an amount which can be fixed by HF for effecting transfer.

 

iv)        The Tribunal relied on the decisions of
the Company Law Board, Eastern Region Bench, Kolkata, in the matter of SMC
Global Securities Ltd. vs. ITC Ltd. [2007] 75 SCL 509. Similarly,
counsel for petitioner further relied on the decision of the Company Law Board,
Southern Region Bench, Chennai, in the matter of Altina Securities (P)
Ltd. vs. Satyam Computer Services Ltd. [2007] 75 SCL 56. The Company
Law Board held that since the transferor has not shown any interest in spite of
notices, the company was directed to register the impugned shares in favour of
the petitioner on the authority of the order. The CLB observed that since the original transferor has not raised
any objection, the Company Law Tribunal be directed to register the shares in
the name of the purchaser. Thus, when the transferor has not raised any
objection, the Company Law Board directed the company to register the shares,
including the bonus shares, if any.

 

v)      In the light
of the decisions cited and in the circumstances of the case, NCLT allowed the
petition filed by the petitioner and directed HF to transfer 100 shares in
favour of P subject to P giving requisite indemnity bond within a period of 30
days from the date of the order.

 

3. Arenja Enterprise Pvt. Ltd. vs. Edward
Keventer (Successors) Pvt. Ltd. Company Appeal (AT)(Insolvency) No. 528 of 2020 Date of order: 16th October,
2020

 

Section 5(8)(f) of the
Insolvency and Bankruptcy Code, 2016 – Allotment of built-up area under a
settlement decree did not constitute a financial debt – No sum was raised for
allotment of such area from the allottee under the real estate project – There
was no financial debt due and such an allottee could not be regarded as a
financial creditor

 

FACTS

A Co and E Co signed a Memorandum of
Understanding (‘MOU’) dated 22nd June 1989 over a parcel of land,
followed by two other supplementary MOU’s dated 20th November, 1989
and 22nd November, 1989. During the year 1992, some dispute arose
between the parties. In accordance with the terms of the MOU, A Co paid a sum
of Rs. 2 crores in September, 1989. As per one of the MoUs signed in November,
1989, the amount of Rs. 2 crores was to be refunded to A Co and its associates
by 28th February, 1990.

 

As the MOU dated 22nd June,
1989 was not re-instated by E Co, it became void.

 

A Co filed a suit for specific
performance along with other reliefs against E Co in the year 1992. The parties
reached a settlement on 10th April, 1996 pursuant to which E Co
agreed to develop a group housing complex on a plot of land measuring 22.95
acres. Out of this, A Co was entitled to 34,000 square feet residential covered
/ built-up area along with proportionate super area. As per the terms of the
settlement, if the sanction of plans is not obtained within a period of three
years from the date of signing of the settlement, E Co would give further
built-up area of 1,700 square feet for each delayed year for a maximum period
of three years. On 10th April, 2002, 5,100 square feet of additional
land was added as per the settlement decree on account of the delay.

 

Separately, E Co did not refund the
amount of Rs. 2 crores by 28th February, 1990. A Co filed a suit in
Delhi High Court in the year 1992 and in line with the decision of the Court, E
Co returned the said amount in the month of January, 1995.

 

A Co filed an execution application in
the year 2008 before the District Court and the same was rejected. Subsequently,
A Co challenged the rejection before the High Court of Delhi. The High Court vide
order dated 6th August, 2019 stayed the execution proceedings on the
grounds that they were premature in nature.

 

A change of land use took place in the
year 2018 and A Co alleged that there was a default. By not allotting the
39,100 square feet of built-up area of the land, E Co had committed a default.
A Co claimed that it was a financial creditor as the receivable area from E Co
constituted a financial debt in terms of section 5(8)(f) of the Code.

 

A Co filed an application before the
NCLT u/s 7 of the Code, instituting insolvency proceedings against E Co, the
financial creditor. NCLT dismissed the application on the grounds that A Co was
not a financial creditor and there was no existence of a ‘financial debt’. A Co
filed an appeal with the NCLAT.

 

Before the NCLAT, it was argued by A Co
that the amount of Rs. 2 Crores which had been given to the corporate debtor
had the commercial effect of borrowing after the due date, i.e., from 28th
February, 1990 till its refund in 1995. Further, default occurred on 9th
August, 2018 when the change of land use happened and three years was granted
as per the settlement decree for approval of building plans and further three
years with delay penalty.

 

E Co, the corporate debtor, claimed that
the debt, as alleged by the appellant, is not a ‘financial debt’ as defined u/s
5(8)(f) of the Code as no sums were raised from / paid by A Co. Financial debt
can only be money raised and paid and not for any other claims. Further,
allotment as per the settlement agreement to the financial creditor was in
lieu of the claim of the financial creditor against the corporate debtor
for utilisation of Rs. 2 crores beyond the due date. The allotment was therefore
made in lieu of monetary compensation for interest-free utilisation of
Rs. 2 crores for five years beyond the due date of 28th February,
1990.

 

HELD

NCLAT heard both the
parties at length. It was observed that the Explanation attached to section 5(8)(f)
of the Code provided that any amount raised from an allottee under a real
estate project shall be deemed to be an amount having the commercial effect of
borrowing. Explanation (ii) to section 5(8)(f) provides that the expressions
‘allottee’ and ‘real estate’ project shall have the meanings respectively
assigned to them in the Real Estate (Regulation & Development) Act, 2016.

 

NCLAT held that A Co
was not an ‘allottee’ under a real estate project. The allotment of additional
area was made as monetary compensation for interest-free utilisation of Rs. 2
crores for five years beyond the due date, i.e., 28th February,
1990. Further, A Co could have claimed a financial debt as an ‘allottee’ only
when the amount raised from it as an ‘allottee’ would have been used for a real
estate project. In the facts and circumstances of the case, A Co is neither an
‘allottee’ nor is any amount ‘being raised’ or ‘raised’ from it, that may be
construed to have the effect of borrowing. Thus, there was no ‘financial debt’
in favour of A Co.

 

The fact that
execution of the decree was determined by the High Court to be premature meant
that it could not be said that there was a ‘default’ in terms of the Code.

 

The appeal was, thus,
set aside and dismissed. The order passed by NCLT was upheld by the NCLAT.

 

 

Money is a bubble that never pops. It’s a consensus
hallucination

—  Naval
Ravikant

 

 

 

Misfortune finds the weak spot

 —  Kalidasa,
AbhiGyaanShakuntalam

ALLIED LAWS

6. Abetment – Denial of loan on loan – Prudent banking – Not abetment to
suicide [Indian Penal Code, 1850, S. 306, S. 107; Code of Criminal Procedure,
1973, S. 482]

 

Santosh Kumar
vs. State of Maharashtra & Anr. Cr.A.
(APL) No. 63 of 2016 (Bom)(HC) (Nag. Bench) Date of order: 9th
September, 2020 Bench: V.M. Deshpande J. and Anil S. Kilor J.

 

FACTS

The applicant was Branch Manager, Bank of Maharashtra, Morshi Branch,
District Amravati. The complainant had a loan account with the Bank. So did his
father Wamanrao. Sudhir Gawande, the brother of the complainant, committed
suicide on 12th June, 2015 by hanging himself in his house. The
complainant approached Morshi Police Station and lodged a report against the
present applicant. As per the FIR, the bank manager had said no to Sudhir
Gawande for a fresh restructuring of a loan, which led to his suicide.

 

After
registration of the offence, since the applicant apprehended arrest, he moved
an application, vide Misc. Criminal Bail Application No. 529 of 2015,
for grant of pre-arrest bail. The Sessions Judge at Amravati on 26th
June, 2015 granted him pre-arrest bail in the event of arrest. Thereafter, the
applicant filed the present proceedings for quashing of the FIR.

 

HELD

The Court
relied on the decision of the Supreme Court in the case of Dilip s/o
Ramrao Shirasrao and Ors. vs. State of Maharashtra and Anr. 2016 ALL MR (Cri)
4328 wherein it was held that it is incumbent upon the prosecution to
show at least prima facie that the accused had an intention to aid,
instigate or abet the deceased to commit suicide. In the absence of such
material, the accused cannot be compelled to face trial for the offence
punishable u/s 306 of the IPC.

 

The loan account of the complainant was showing outstandings to the tune
of Rs. 2,32,689. The deceased was not having any loan outstanding in his name.
If a previous loan amount is outstanding and if the applicant, who is the
Branch Manager of the said Bank, refuses to grant any further loan, it can be
said to be an act of a vigilant and prudent banker, and it cannot be said that
by such act he instigated and / or abetted the person to commit suicide. The
criminal application is allowed.

 

7. Arbitration – Place of Arbitration – Only the High Court named in the
Arbitration agreement has territorial jurisdiction – Only such Court can
appoint an Arbitrator [Arbitration & Conciliation Act, 1996, S. 11(6)]

 

SJ Biz Solution
Pvt. Ltd. vs. M/s Sany Heavy Industry India Pvt. Ltd. ARBP No. 56 of
2018 (Orissa)(HC) Date of order:
1st October, 2020 Bench: Mohammad Rafiq CJ

 

FACTS

An issue arose
between the manufacturer of heavy construction equipment and its dealer in
Orissa. The petitioner filed an application u/s 11(6) of the Arbitration and
Conciliation Act, 1996 (the Act) seeking appointment of an independent
Arbitrator to arbitrate the disputes between the petitioner and the respondent.

 

The petitioner contended that although as per clause 15 of the
dealership agreement it was agreed that the place of arbitration shall be Pune,
the jurisdiction of this Court to entertain the present application filed u/s
11(6) of the Act is not excluded as the cause of action, wholly or at least in
part, has arisen in the territory of Orissa. The petitioner further contended
that in view of the definition of the Court given in section 2(1)(e) of the
Act, the Courts at Bhubaneswar would have jurisdiction to entertain the
petition u/s 9 and for the same reason the Court would also have the
territorial jurisdiction, especially in view of section 11(11).

 

HELD

It was held
that in an identical issue before the Supreme Court in the case of Swastik
Gases Private Limited vs. Indian Oil Corporation Limited (2013) 9 SCC 32,
it was held that the territorial jurisdiction to appoint an Arbitrator lies as
per the jurisdiction agreed upon in the agreement.

 

The Court
considered the decision of the Supreme Court in the case of Duro
Felguera, S.A. vs. Gangavaram Port Limited (2017) 9 SCC 729 which held
that all that the Court at the stage of section 11 of the Act needs to see is
whether an Arbitration agreement exists, nothing more and nothing less. It was
held that legislative policy and purpose is essentially to minimise the Court’s
intervention at the stage of appointing the Arbitrator. Therefore, all other
questions, including the question of territorial jurisdiction, are not open for
consideration.

 

After analysing
various decisions, the Court held that the argument of the petitioner that
while considering the petition u/s 11(6) of the Act this Court ought to only
examine the existence of the Arbitration agreement and should leave all other
questions, including that of territorial jurisdiction, open for consideration
by the Arbitrator in the scope of section 16 of the Act, cannot be
countenanced.

 

It held that the Court did not have the territorial jurisdiction to
entertain the present petition filed u/s 11(6) and accordingly dismissed the
petition as not maintainable.

 

8. Civil dispute – Legal representative – Maintainability of
applications – Inheritance of shares – NCLT has no jurisdiction [Companies Act,
2013, S. 241, S. 242, S. 244]

 

Aruna Oswal vs.
Pankaj Oswal & Ors. CA Nos. 9340,
9399 and 9401 of 2019 (SC) Date of order:
6th July, 2020 Bench: Arun Mishra J. and S. Abdul Nazeer J.

 

FACTS

These appeals
have been preferred against the judgment of the NCLAT concerning
maintainability of applications filed under sections 241 and 242 of the
Companies Act, 2013.

 

The case is the
outcome of a family tussle. The Late Abhey Kumar Oswal, during his lifetime,
held a large amount of shares in M/s Oswal Agro Mills Ltd., a listed company.
He passed away in Russia on 29th March, 2016. Prior to that, he
filed a nomination as per section 72 in favour of Mrs. Aruna Oswal, his wife.
Two witnesses duly attested the nomination in the prescribed manner. As per the
appellant, it was explicitly provided therein that this nomination shall
supersede any prior nomination made by him.

 

Mr. Pankaj
Oswal (son of the deceased) and Respondent No. 1, filed a partition suit,
claiming entitlement to one-fourth of the estate of Abhey Oswal. He also filed a company petition
alleging oppression and mismanagement in the affairs of the Respondent No. 2
company.

 

HELD

The Supreme
Court, relying on the case of World Wide Agencies (1990) 1 SCC 536
held that a legal representative has a right to maintain an application for
oppression and mismanagement without being registered as a member against the
securities of a company. Further, the Court, relying on the case of Sangramsinh
P. Gaekwad (2005) 11 SCC 314 held that a dispute as to inheritance of
shares is a civil dispute and does not attract the Company Court’s jurisdiction
and held that the matter was not maintainable before the NCLT.

 

9. Dishonour of Cheque – Post-retirement – Director – Not responsible
for daily affairs – Proceedings including the summons quashed [Negotiable
Instruments Act, 1881, S. 138, S. 141; Code of Criminal Procedure, 1973, S.
482]

 

Alibaba
Nabibasha vs. Small Farmers Agri-Business Consortium & Ors. CRL. M.C.
1602/2020, CRL. M.A. 9935/2020 (Del)(HC) Date of order:
23rd September, 2020 Bench: V. Kameswar Rao J.

 

FACTS

Proceedings
have been initiated by the Respondent No.1 against the petitioner before the
Metropolitan Magistrate, Saket Courts, u/s 138 of the Negotiable Instruments
Act, 1881 (N.I. Act) purportedly on the ground that the petitioner was a
director of the Respondent No. 2. According to the petitioner, the cheques in
question, all dated 31st December, 2018 were issued by the
Respondent No. 2 for a total amount of Rs. 45 lakhs and the same were
dishonoured due to insufficient funds vide memo dated 11th
January, 2019.

 

The petitioner
ceased to be a director of the Respondent No. 2 w.e.f. 27th October,
2010, at least eight years prior to the issuance of the cheques in question.
The petitioner was a non-executive director of the Respondent No. 2 for a brief
period between 7th October, 2009 and 27th October, 2010.
The resignation of the petitioner was also notified to the Registrar of
Companies / Ministry of Company Affairs by the Respondent No. 2 by filing Form
32 dated 4th January, 2011 which is a public document.

 

However, the
Court, in a mechanical manner, considering only the Company Master Data of the
period when the Petitioner was director, has entertained the complaint u/s 138
of the N.I. Act and without applying any judicial mind and without recording
any satisfactory reasons as to whether the offence is made out against the
petitioner, has issued the summons.

 

The petitioner
filed a petition u/s 482 of the Code of Criminal Procedure, 1973 (CrPC) to
quash the proceedings initiated by the Respondent No. 1.

 

HELD

The case of the
Respondent No. 1 is primarily that the petitioner was involved in the
discussion before an agreement was executed between the Respondent No. 1 and
the Respondent No. 2. However, Form 32, i.e. the petitioner ceasing to be a
director, is not disputed. This factum surely suggests that the
petitioner having resigned on 27th October, 2010 from the Respondent
No. 2 was not the director when the agreement dated 3rd March, 2011
was executed. Even the cheques dated 31st December, 2018 were issued
much after the petitioner’s resignation as director of the Respondent No. 2.

 

It is settled
law that mere repetition of the phraseology of section 141 of the Act that the
accused is in charge and responsible for the conduct of the day-to-day affairs
of the company may not be sufficient and facts stating as to how the accused
was responsible must be averred.

 

Further, is is a settled position of law that the High Court while
entertaining a petition of this nature shall not consider the defence of the
accused or conduct a roving inquiry in respect of the merits of the
accusation/s but if the documents filed by the accused / petitioner are beyond
suspicion or doubt and upon consideration demolish the very foundation of the
accusation/s levelled against the accused, then in such a matter it is incumbent
for the Court to look into the said document/s which are germane even at the
initial stage and grant relief to the person concerned u/s 482 CrPC in order to
prevent injustice or abuse of the process of law. The petition was allowed and
the proceedings including the summons were quashed.

 

10. Maintenance – Death of Husband – Wife has right to claim maintenance
– From estate inherited by father-in-law [Hindu Adoptions and Maintenance Act,
1956, S. 19, S. 22]

 

Sardool Singh
Sucha Singh Matharoo vs. Harneet Kaur widow of Bhupinder Singh Matharoo &
Anr. WP (ST.) No.
4054 of 2020 (Bom)(HC) Date of order:
7th September, 2020 Bench: Nitin W. Sambre J.

 

FACTS

The petitioner
had two sons. One of them, Late Bhupinder, was married to Respondent No. 1 on
12th December, 2004 and died on 21st May, 2015. The
mother of Respondent No. 1 died in the year 2016, whereas her father died in
February, 2017. It is her case that she has no independent source of income and
she and her son are completely dependent on the earnings of the petitioner.

 

Respondent No.
1 preferred the proceedings u/s 19 and 22 of the Hindu Adoption and Maintenance
Act, 1956 (Act) before the Family Court with a prayer for grant of maintenance
of Rs. 1,50,000 per month to her and Rs. 50,000 to her son. The claim was
resisted by the present petitioner. Vide impugned order dated 28th
January, 2020 the Family Court has allowed the prayer partly and granted
maintenance of Rs. 40,000 per month towards the widow and Rs. 30,000 per month
to her son.

 

It is the case
of the petitioner that he is already incurring expenses of about Rs. 95,000 per
month on the respondents. Further, he has to maintain himself (he is a cancer
patient), his aged wife, his other son and his family, and also to repay bank
loans. Therefore, he filed a Writ Petition to quash and set aside the order.

 

HELD

A plain reading of section 19 of the Act contemplates that the
respondents have every right to claim maintenance after the death of the
husband from the estate inherited by her father-in-law, i.e., the present
petitioner. As per section 19(1) the respondent has to demonstrate that she is
unable to maintain herself. It is in this eventuality that she can claim
maintenance from the estate of her husband, but still the fact remains that the
said burden can be discharged by Respondent No. 1 at an appropriate stage. The
object with which the provision is made in the statute book for grant of
interim maintenance cannot be ignored.

 

Further, the income of the petitioner for A.Y.
2018-2019 as reflected in the income-tax returns was Rs. 74,87,007. Therefore,
the maintenance awarded to the respondent appears to be justified. The petition
is dismissed.

 

CORPORATE LAW CORNER

1. P. Parameswaram vs. Union of India  [2020] 118 taxmann.com 113 (Delhi) Date of order: 23rd July, 2020

 

Section 164 read with section 167 of the
Companies Act, 2013 and Rule 11 of the Companies Act (Appointment and
Qualification of Director) Rules, 2014 – Disqualifications for appointment of
Director. Director had defaulted in filing annual returns for three consecutive
years. Another company, in which also he was a Director, had been struck off by
the Registrar of Companies on account of its defaults in filing requisite
returns. Thus, the Director was disqualified as a Director and his DIN was
de-activated. Since he had not filed necessary Form with Registrar of Companies
at the material time, his prayer of not treating him as disqualified Director
was rejected. However, since he had been disqualified as a Director, he could
not access the website of the Ministry of Corporate Affairs to file returns or
forms as a Director of any other company and further, since his DIN was not
de-activated in terms of Rule 11 of Appointment and Qualification of Director
Rules, the ROC was directed to activate his DIN

 

FACTS

PP was appointed as an Independent Director
of KHF Limited (KHF) but had resigned on 22nd May, 2016. He was not
only a Director in KHF Limited but also in another company, SLD Company Private
Limited (SLD). The name of SLD had also been struck off from the Register of
Companies as it had defaulted in filing annual returns as required under the
Companies Act, 2013. In view of the defaults committed by KHF and SLD, PP was
disqualified as a Director in terms of sections 164(2) and 167(1) of the
Companies Act, 2013.

 

HELD

The limited
questions that were to be considered by the Court were whether the decision of
the ROC in disqualifying PP was illegal? And whether the other decision of the
ROC to deactivate his DIN was sustainable?

 

The Court held
as under: There is no dispute that KHF had defaulted in filing its annual
returns for three consecutive years. Similarly, SLD had also been struck off
from the Register of Companies on account of its defaults in filing the
requisite returns under the Companies Act, 2013.

 

PP claimed
that he had resigned from the Board of Directors of KHF with effect from 26th
May, 2016. However, he had not filed the necessary form with the Registrar of
Companies at the material time.

 

The question
whether a Director would be disqualified to act as a Director by virtue of
provisions of sections 164(2)(a) and 167(1)(a) of the Companies
Act is covered by the decision of the Delhi High Court in Mukut Pathak
& Ors. vs. Union of India and Ors. [W.P. (C) 9088/2018 decided on 4th
November, 2019].

 

Insofar as the
prayer that his DIN be directed to be activated is concerned, the said issue is
also covered by the decision of the Delhi High Court in Mukut Pathak
& Ors. (Supra). It is not disputed that the DIN of PP
had been deactivated only on account of his being disqualified to act as a
Director. As held in Mukut Pathak’s case, the said action is not sustainable.
The DIN could be deactivated in terms of Rule 11 of the Companies Act
(Appointment and Qualification of Director) Rules, 2014. But admittedly, the
DIN of PP has not been deactivated in terms of the said Rules.

 

In view of the
above, the prayer that the ROC be restrained from treating PP as a disqualified
Director was rejected. However, the ROC was directed to activate PP’s DIN.

 

PP had further
prayed that he be permitted to access the website of the Ministry of Corporate
Affairs, Government of India, but it cannot be acceded to. PP has been
disqualified as a Director; therefore, he cannot access the said website to
file returns or forms as a Director of KHF or any other company.

ALLIED LAWS

1. Home-buyer –
Cannot invoke IBC – Recovery of RERA award [Insolvency and Bankruptcy Code,
2016, S. 3(10), S. 5(7) S. 7, S. 65; Real Estate (Regulation and Development)
Act, 2016, S. 40]

 

Sh. Sushil Ansal vs. Ashok Tripathi &
Ors. Company Appeal (AT) (Insolvency) No. 452 of
2020 (NCLAT) Date of order: 14th August, 2020

Bench:
Bansi Lal Bhat J. (Acting Chairperson), Anant Bijay Singh J. and Dr. Ashok
Kumar Mishra

 

FACTS

The respondents are two house allottees who
booked flats with the appellant (Ansal Builders). As per the agreements, the
appellant had undertaken to complete the project within a period of two years
from the initiation of construction in 2015. However, on account of not
fulfilling the terms as per the agreement, the respondents approached the Uttar
Pradesh RERA where they were awarded a decree of Rs. 73 lakhs. Further, RERA
also issued recovery certificates against the builders. The respondent
allottees sought recourse under IBC for the recovery of their dues.

 

HELD

The three-member Bench held that as per
section 7 of the IBC as amended by the 2020 Amending Act, to make an
application under IBC it requires a minimum of 100 buyers or 10% of all
home-buyers, whichever is lower.

 

Further, the respondents have not approached
the Adjudicating Authority in the capacity of ‘allottees of a real estate
project’, therefore they cannot be brought within the meaning of ‘financial
creditors’. They can only be construed to be decree-holders on account of
non-payment of principal amount along with penalty as decreed by UP RERA.
Therefore, a decree-holder, though covered by the definition of ‘creditor’ u/s
3(10) of IBC, does fall within the definition of a ‘financial creditor’ across
the ambit of section 5(7) of the IBC and should have taken steps for filing an
execution case in the Civil Court.

 

2. Co-operative
Societies – Part of Constitutional Scheme – Unnecessary interference to be
avoided [Maharashtra Co-operative Societies Act, 1961, S. 77, S. 80, S. 152;
Constitution of India]

 

Rambujarat
Ramraj Chaurasia vs. State of Maharashtra WP-ASDB-LD-VC 220 of 2020 (Bom) (HC) Date of order: 2nd September,
2020 Bench: Ujjal Bhuyan J. and Abhay Ahuja J.

 

FACTS

The petitioner is the Chairman of Vidhisha
Shantiniketan CHS Ltd. and the petition has been filed challenging the order of the Dy. Registrar, Thane (Respondent No. 2) directing a bank to
not allow the petitioner to operate the Society’s bank account and to allow another member, as assigned by the
Respondent No. 2, to operate the same.

 

The Society had imposed a penalty on one Mr.
Ramesh Mankar. Aggrieved by the penalty, he had approached the Respondent No. 2
who had given certain directions to the petitioner, failing which the
Respondent No. 2 would appoint an Administrator. Pursuant thereto, and on
account of inaction, Respondent No. 2 dissolved the Managing Committee of the
Society and appointed an Administrator.

 

The Society appealed before the Divisional
Joint Registrar, Co-operatives, Respondent No. 3, who quashed and set aside the
order of the Respondent No. 2 on 20th May, 2020. However, Respondent
No. 2, via a communication dated 14th July, 2020 directed the bank
to allow the Administrator, as appointed by him, to operate the accounts.

 

HELD

The Court held that the Society shall be
jointly managed under the Chairmanship of the petitioner and the Respondent No.
6 Administrator only for day-to-day affairs till the disposal of the appeal
before the Respondent No. 3. Further, that co-operative societies are now part
of the Constitutional scheme as co-operative societies have been inserted in
the Constitution of India as Part IX B by way of the Constitution (97th
Amendment) Act, 2011 w.e.f. 15th February, 2012. Therefore,
co-operative societies should have the necessary space and autonomy to function
and develop to their full potential. Interference in the affairs of
co-operative societies should be avoided unless there is serious statutory
breach or compelling necessity.

 

3. Unpaid
instalment – As per agreement – Not an operational debt [Insolvency and
Bankruptcy Code, 2016, S. 5(21), S. 9]

 

Brand Realty Services Ltd. vs. Sir John
Bakeries India Pvt. Ltd. (IB) 1677(ND) of 2019 (NCLT) (Del.) Date of order: 22nd July, 2020 Bench: Mr. K.K. Vohra and Mr. Abni Sinha

 

FACTS

Sir John Bakeries India Pvt. Ltd. (the
corporate debtor) approached Brand Realty Services Ltd. (the operational
creditor) for investment and consultancy services vide an agreement in
November, 2014. The agreement was further ratified in 2018. As per the new
agreement, the corporate debtor agreed to pay the outstanding sum of Rs. 33
lakhs via post-dated cheques. However, the corporate debtor then requested the
operational creditor to hold on and not deposit the cheques and that the
payment would be met via RTGS. However, that never happened either.

 

A legal notice and a demand notice were
issued under the IBC. The corporate debtor denied any liability in the absence
of any document and said that there exists a dispute between the parties with
respect to the debt.

 

HELD

In order to trigger section 9 of the IBC,
i.e., application for initiation of Corporate Insolvency Resolution Process by
the operational creditor, an operational creditor is required to establish a
default for non-payment of operational debt as defined in section 5(21) of the
IBC. The application u/s 9 of the IBC was filed for the breach of the terms and
conditions of the settlement agreement between the parties and not against the
invoices raised in terms of the original agreement between them. Therefore, a
default on an instalment of the settlement agreement doesn’t come within the
purview of operational debtors.

 

The application was dismissed.

 

4. Dishonour of
cheque – Not offence against society – Can be compounded – Sentence reduced
[Negotiable Instruments Act, 1881, S. 138; Code of Criminal Procedure, 1973, S.
147, S. 386, S. 401]

 

Rakesh Kumar vs. Jasbir Singh and another Crl. Rev. No. 3004 of 2019 (P&H)(HC) Date of order: 11th August, 2020 Bench: Sudhir Mittal J.

 

FACTS

The revision petitioner is the accused. He
issued a cheque dated 22nd April, 2006 to the complainant-respondent
No. 1, which was dishonoured. Vide a judgment dated 8th July,
2016, the petitioner was convicted and sentenced to undergo rigorous
imprisonment for two years. He was also directed to pay compensation equal to
the cheque amount along with interest at the rate of 9% per annum from the date
of the cheque till the date of the judgment. An appeal against the judgment of
conviction was dismissed, leading to the present revision petition.

 

HELD

Sentencing is
primarily a matter of discretion as there are no statutory provisions governing
the same. Even guidelines have not been laid down to assist the courts in this
matter. Further, provisions inserted in the Negotiable Instruments Act are for
inculcating greater faith in banking transactions as the same needed more teeth
so that cases involving dishonour of cheques are reduced. Therefore, deterrence
and restoration are the principles to be kept in mind for sentencing. At the
same time, the Court cannot lose sight of the fact that the offence u/s 138 of
the Act is quasi criminal in nature. Section 147 of the Act makes the
offence compoundable notwithstanding anything contained in the Code of Criminal
Procedure, 1973. It is not an offence against society and an accused can escape
punishment by settling with the complainant. It was further held that the
cheque amount is only Rs. 4 lakhs, and the award of maximum sentence is
arbitrary. On the facts of the case, the sentence is reduced to one year and
six months.

 

5.
Disqualification of Director – Companies Fresh Start Scheme, 2020 –
Disqualification to be set aside [Companies Act, 2013, S. 164(2)(a)]

 

Sandeep Agarwal & Ors. vs. UOI &
Anr. WP No. 5490 of 2020 (Delhi) (HC) Date of order: 2nd September,
2020 Bench: Prathiba M. Singh J.

 

FACTS

The petition has been filed by the
petitioners, Mr. Sandeep Agarwal and Ms Kokila Agarwal, both of whom are
directors in two companies, namely, Koksun Papers Private Limited and Kushal
Power Projects Private Limited. The name of Kushal Power was struck off from
the Register of Companies on 30th June, 2017 due to non-filing of
financial statements and annual returns. The petitioners, being directors of
Kushal Power, were also disqualified with effect from 1st November,
2016 for a period of five years till 31st October, 2021 u/s
164(2)(a) of the Companies Act, 2013. Pursuant to the disqualification, their
Director Identification Numbers (DIN) and Digital Signature Certificates (DSC)
have also been cancelled. In view thereof, they are unable to carry on the
business and file returns, etc. in the active company Koksun Papers. By the
present petition, the disqualification is challenged and quashing is sought of
the impugned list of disqualified directors.

 

HELD

Companies
Fresh Start Scheme (CFSS) is a new scheme which has been notified on 30th
March, 2020. This Scheme was not invoked before the learned Division Bench. The
Scheme is obviously launched by the Government in order to give a reprieve to
such companies who have defaulted in filing documents; they have been allowed
to file the requisite documents and to regularise their operations, so as to
not face disqualification. The Scheme also envisages non-imposition of penalty
or any other charges for belated filing of documents.

 

This Scheme
provides an opportunity for active companies who may have defaulted in filing
of documents, to put their affairs in order. It thus provides the directors of
such companies a fresh cause of action to also challenge their disqualification
qua the active companies.

 

In view of the
fact that in the present case the petitioners are directors of an active
company Koksun Papers in respect of which certain documents are to be filed and
the said company is entitled to avail of the Scheme, the suspension of the DINs
would not only affect the petitioners qua the company, whose name has
been struck off, but also qua the company which is active.

 

Further,
considering the Covid-19 pandemic, the MCA has launched the Fresh Start
Scheme-2020, which ought to be given full effect. It is not uncommon to see
directors of one company being directors in another company. Under such
circumstances, to disqualify directors permanently and not allow them to avail
their DINs and DSCs could render the Scheme itself nugatory; therefore, the disqualification of the petitioners as directors is set aside.
The DINs and DSCs of the petitioners are directed to be reactivated within a
period of three working days.

RIGHT TO INFORMATION (r2i)

Part
A I Decisions of Supreme Court

The information to be
gained access to / certified copies on the judicial side to be acquired through
the machinery provided under the High Court Rules, the requirements of the RTI
Act shall not be available1

 

Case name:

Chief Information Commissioner vs. High Court of
Gujarat and another

Citation:

Civil Appeal No(s). 1966-1967 of 2020 [Arising out of
SLP(C) No. 5840 of 2015]

Court:

The Supreme Court of India

Bench:

Justice R. Banumathi

Decided on:

4th March, 2020

Relevant Act/ Sections:

Gujarat High Court Rules, 1993 – Rule 149 – 154

Right to Information Act, 2005 – Sections 2(f), 2(h),
2(i), 2(j), 4(2), 6(2), 8(1), 19, 22, 28

Articles 124, 145, 216, 225 of Indian Constitution

 

 

Brief facts
and procedural history


An RTI application dated 5th
April, 2010 was filed seeking information pertaining to certain civil
applications made along with all relevant documents and certified copies. In
reply, the Public Information Officer, Gujarat High Court, informed that for
obtaining required copies one should make an application personally or through
one’s advocate by affixing court stamp fees of Rs. 3 with the requisite fee to
the ‘Deputy Registrar’; since the applicant was not a party to the said
proceedings, as per Rule 151 of the Gujarat High Court Rules, 1993 the
application should be accompanied by an affidavit stating the grounds for which
the certified copies are required and on making such application, one will be
supplied the certified copies of the documents as per Rules 149 to 154 of the
Gujarat High Court Rules, 1993.

 

Being aggrieved, the RTI
applicant preferred an appeal before the Appellate Authority-Registrar
Administration. The appeal was dismissed on the ground that for obtaining
certified copies the alternative effectual remedy is already available under
the Gujarat High Court Rules, 1993.

 

A second appeal was filed
before the Appellant-Chief Information Commissioner. The respondent reiterated
the position on the High Court Rules but was ordered to provide the information
within 20 days.

 

Challenging the order of
the Chief Information Commissioner, a special civil application was filed
before the High Court by the respondent. The learned Single Judge, while
admitting the petition, passed an interim order directing the respondent to provide
the information sought within four weeks.

 

Being aggrieved by the
interim order, the High Court preferred Letters Patent Appeal before the
Division Bench. This Bench set aside the order of the Chief Information
Commissioner by observing that when a copy is demanded by any person, the same
has to be in accordance with the Rules of the High Court on the subject.

 

The Chief Information
Commissioner, aggrieved by the order of the Division Bench, preferred an appeal
to the Hon’ble Supreme Court of India.

 

Issues before
the Court


Whether Rule 151 of the
Gujarat High Court Rules, 1993 stipulating that for providing a copy of
documents to third parties they are required to file an affidavit stating the
reasons for seeking certified copies, suffers from any inconsistency with the
provisions of the RTI Act?

 

When there are two types
of machinery to provide information / certified copies – one under the High
Court Rules and another under the RTI Act – in the absence of any inconsistency
in the High Court Rules, whether the provisions of the RTI Act can be resorted
to for obtaining certified copies / information?

 

Ratio Decidendi


(i) Grant of certified
copies to parties to the litigation and third parties are governed by Rules 149
to 154 of the Gujarat High Court Rules, 1993. As per these Rules, on filing of
an application with prescribed court fees, stamps, litigants / parties to the
proceedings are entitled to receive the copies of documents / orders /
judgments, etc. The third parties who are not parties in any of the
proceedings, shall not be given the copies of judgments and other documents
without the order of the Assistant Registrar. As per Rule 151 of the Gujarat
High Court Rules, the applications requesting for copies of documents /
judgments made by third parties shall be accompanied by an affidavit stating
the grounds for which they are required. Therefore, the access to the
information or certified copies of the documents / judgments / orders / court
proceedings are not denied to the third parties but a procedure needs to be
followed by the applicant. Hence, the Rules framed by the Gujarat High Court
are in consonance with the provisions of the RTI Act. There is no inconsistency
between the provisions of the RTI Act and the Rules framed by the High Court in
exercise of the object of the RTI Act which itself recognises the powers under
Article 225 of the Constitution of India.

 

(ii) There is a need to
protect the institutional interest and also to make optimum use of limited
fiscal resources and preservation of confidentiality of sensitive information.
The procedure to obtain certified copies under the High Court Rules is not
cumbersome and is very simple. The information held by the High Court on the
judicial side is the ‘personal information’ of the litigants like title cases
and family court matters, etc. Under the guise of seeking information under the
RTI Act, the process of the Court is not to be abused and information not to be
misused.

 

(iii) If any information
can be accessed through the mechanism provided under another statute, then the
provisions of the RTI Act cannot be resorted to as there is absence of the very
basis for invoking the provisions of the RTI Act, namely, lack of transparency.
In other words, the provisions of the RTI Act are not to be resorted to if the
same are not actuated to achieve transparency.

 

(iv) The non-obstante clause of the RTI Act does
not mean an implied repeal of the High Court Rules and Orders framed under
Article 225 of the Constitution of India, but only has an overriding effect in
case of inconsistency. A special enactment or rule cannot be held to be
overridden by a later general enactment simply because the latter opens up with
a non-obstante clause, unless there is clear inconsistency between the
two legislations.

 

Part
B I Right to Information

 

PM CARES Fund – The ‘gorilla’ in the
room


By now we are
aware that the Appellate Authority of the Prime Minister’s Office (PMO) has
held that the Prime Minister’s Citizen Assistance and Relief in Emergency Situations
Fund (PM CARES Fund) is not a public authority under the Right to Information
Act, 2005 (RTI Act). Moreover, the funds from the trust will not be transferred
to the National Disaster Response Fund (NDRF) and the fund will not be audited
by the Comptroller and Auditor-General of India, as ruled by the Supreme Court
of India. Yet, there are many questions raised and striving for answers.

 

To start with, the Prime Minister of India
is the Chairman ex-officio of the Prime Minister National Relief Fund
(PMNRF) as well as the PM CARES Fund, constituted to already have the trappings
of a public trust, the NDRF established thereunder, occupying the arena to deal
with disaster situations, then what was the need to constitute the new PM-CARES
Fund?

 

Given the federal ideologies of our
Constitution, in case of predicaments like these the amounts collected should
be deposited in the PMNRF and from there transferred to the state governments
for meeting the challenges of the pandemic and saving people’s lives.

 

A sum of Rs. 6,500 crores was collected by
the PM CARES Fund in just one week and Rs. 3,076.62 crores in four days from
the registration of the trust. This was donated by renowned philanthropists of
our country, well-known tycoons and others. Mr. Mukesh Ambani donated Rs. 500
crores and many others like Mr. Aamir Khan, Mr. Shah Rukh Khan and many more
celebrities came forward and donated to the fund.

 

The PM CARES
Fund was integrated as a ‘public charitable trust’ with the specified objective
of ‘dealing with any kind of public health crisis or other distress
circumstances, like the Covid-19 pandemic’, ‘to provide financial aid to those
affected by it’ and ‘to perform any other activity not varying with the above
two objectives’. The official website of PM CARES2 provides the
following details:

 

(a) The PM is the ex-officio Chairman
and the Minister of Home Affairs, Minister of Finance and the Minister of
Defence are its ex-officio trustees and the PM would nominate three
eminent persons to the Board.

 

(b) It receives voluntary contributions,
with Rs. 10 being the least allowable amount of support, with no budgetary
outlay.

 

(c) Foreign individuals and organisations
can contribute to a separate account exempt from the application of the Foreign
Contribution (Regulation) Act, 2010.

 

(d) Contributions made can be apportioned
towards the mandatory 2% Corporate Social Responsibility (‘CSR’) expenditure
and shall be allowed as 100% deduction to calculate taxable income for the year
2019-2020, provided that the contribution is made before 30th
June, 20203. However, contributions flowing out of budgetary sources
of the PSUs are not accepted.

 

(e) The Fund is administered on an honorary
basis by a Joint Secretary (Administration) in the PMO as Secretary to the Fund
who is assisted on an honorary basis by an Officer of the rank of Director /
Deputy Secretary (Administration) in the PMO. The Prime Minister’s Office
provides such administrative and secretarial support to the trustees for the
management and administration of the Trust as may be required by them.

 

(f) The Fund is exempted from paying
income tax as per section 10(23)(c) of the Income-tax Act, 1961.

 

(g) The PM CARES Fund has been allotted a
Permanent Account Number (PAN) AAETP3993P.

 

(h) The Fund is audited by an independent
auditor. The trustees of the Fund, during the second meeting held on 23rd
April, 2020 decided to appoint M/s SARC & Associates, Chartered
Accountants, New Delhi as the auditors of the PM CARES Fund for three years.

 

(i) There is no statutory period
prescribed for audit of the PM CARES Fund under the Income-tax Act.
However, audit will be conducted at the end of the financial year.

 

Keeping in mind the larger picture of
transparency, the PM CARES Fund should come under the purview of the Right to
Information Act, 2005. Likewise, technical reasons like the fund being set up
by the government by using government machinery to promote it and usage of
gov.in as domain name, providing tax reliefs, etc. needs to be considered.
There are multiple pleas in the High Courts and the Supreme Court of India
requesting to bring the PM CARES Fund under the purview of the RTI Act, 2005
and also asking to transfer the funds from the Trust to the NDRF, which have
been dismissed by the respective courts.

 

 

 

Part
C I Information on and Around

 

.

(1)
Appointment of architect for Balasaheb Thackeray Memorial not made by MMRDA but
a trust

 

In reply to
the RTI application filed by a Mumbai-based RTI activist, Mr. Anil Galgali, the
Mumbai Metropolitan Region Development Authority (MMRDA), the nodal agency for
the construction of the memorial of the late Balasaheb Thackeray which will be
built at Shivaji Park in Dadar, mentioned the procedure of selection of the
architect. The Thackeray Memorial had issued a tender notice directing MMRDA to
appoint a distinguished architect. But the Chairman of the Memorial held a
meeting on 14th May, 2020 wherein architects and project advisers
were selected. MMRDA being the nodal agency for the project and also because of
the taxpayer’s money being involved, should have appointed the consultant and
the architect. But in this case a private trust did it all without inviting any
tender.4

 

(2) Only 44% State Information
Commissions conduct hearings in July, 2020


The functioning of the State Information
Commissions (SICs) has fallen from 80% in June to 44% in July. This was
observed in a study conducted by the Commonwealth Human Rights Initiative
(CHRI). The study was carried out by contacting each of the 28 SICs across the
country by phone and emails and by following their websites. The first survey
(in April) found that none of the SICs was working, but during the second
survey (in May) 12 SICs had opened their offices. However, only eight were
conducting hearings. According to its third rapid telephonic survey, the
organisation found the SICs that had started attending to litigants in June had
stopped by July.5

 

(3) Bank of Maharashtra writes off Rs.
7,400 crores in the last four years owed by loan defaulters


The Bank of Maharashtra, a public
sector bank, has ‘technically written off’ an astounding Rs. 7,400 crores
unsettled by loan defaulters in the last four years. The bank has said that it
would recover the amount at a later stage and that it has not been waived
permanently. The recovery rate of such defaults is low and it takes a huge
amount of time. According to information provided by the bank, from 2011 to 2020 it
has written off a total of Rs. 7,400 crores6.

 

______________________________________________________________________________________________

1    Chief Information Commissioner vs. High
Court of Gujarat and another available at
https://main.sci.gov.in/supremecourt/2015/4228/4228_2015_5_1501_21164_Judgement_04-Mar-2020.pdf
visited on 18.08.2020

2    https://www.pmindia.gov.in/en/about-pm-cares-fund/

3    http://egazette.nic.in/WriteReadData/2020/218979.pdf

4    https://www.timesnownews.com/mumbai/article/who-appointed-architect-for-balasaheb-thackeray-memorial-mmrda-or-trust/638697

5   https://www.hindustantimes.com/india-news/only-44-state-information-commissions-conduct-hearings-chri-survey/story-tMT6otWRcVxyeC0nM7jCNN.html

6    https://indianexpress.com/article/cities/mumbai/bank-of-maharashtra-writes-off-rs-7000-cr-owed-by-loan-defaulters-6557765/

 

We live in a country where:

Driving without a license = fine of Rs. 2000,

Not having a PUC = fine of Rs. 1000,

Not wearing a mask outside = fine of Rs. 1000,

Insulting the Supreme Court = fine Rs. 1

—  social media post on the recent decision by
the SC

CORPORATE LAW CORNER

10. P. Suresh vs. Super Foodis Pvt. Ltd. IBA/541/2019 – NCLT Chennai Date of order: 20th December,
2019

 

Section 7 read with section 1(d) of the
Insolvency and Bankruptcy Code, 2016 – A franchise agreement that is disputed
before a High Court could not be regarded as a financial contract – Any claim
for insolvency on account on unpaid royalty under such a contract could not be
proceeded with

 

FACTS


Mr. P (‘Financial Creditor’) entered into a
franchise agreement with S Co (‘Corporate Debtor’) to run a vegetarian
restaurant for a period of three years from 12th August, 2016 to 11th
August, 2019. The agreement stipulated the use of brand name, quality standards
for the operations of the restaurant and 5% running royalty on the gross sale
value to the financial creditor. In the meantime, in January, 2018, the
management of the corporate debtor was changed and it was alleged that the
financial creditor was promised by the new management that they will discharge
the loan liability, if any, due from the corporate debtor and subsequently the
new management took over on 1st March, 2019. It was submitted that
there was a loan liability of Rs. 29,95,461 due to the corporate debtor on 31st
March, 2018.

 

With regard to the provisions of the
franchise agreement, the financial creditor alleged that there was a sum of Rs.
33,24,962 which was payable to him. On 19th December, 2018 the
financial creditor terminated the franchise agreement and sought for removal of
the sign board and surrender of all articles bearing the trademark ‘Sangeethas
Desi Mane’; but in spite of the said notice the corporate debtor continued to
use the trademark. The financial creditor filed a suit for infringement of
registered trademark which was pending before the High Court of Madras.

 

The entire claim of the financial creditor
was based on the alleged entry in the financial statements of the corporate
debtor which is also a subject matter of dispute in the case referred to above.

 

It was submitted by the corporate debtor
that the validity of the franchise agreement and entries in the balance sheet
were all a subject matter of dispute before the High Court. The High Court vide
order dated 18th July, 2018 had held that issues under dispute are
questions of fact which will have to be proved on trial. The corporate debtor
thus submitted that the subject issue as regards the payment of the unsecured
loan and the default was in itself an issue before the High Court.

 

HELD


The Tribunal
heard both the parties at length. It examined the provisions of sections 7 and
1(d) of the Code read with Rule 4 of IBBI (Application to Adjudicating
Authority) Rules, 2016 and Regulation 8 of IBBI (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016. It was observed that the financial
creditor had to demonstrate before the Tribunal that there was a ‘financial
contract’, the amount disbursed as per the loan / debt, the tenure of the loan
/ debt, interest payable and conditions of repayment.

 

Relying on the
decision in the matter of Prayag Polytech Pvt. Ltd. vs. Sivalik
Enterprises Pvt. Ltd. IB-312/(ND)/2019, it was observed that in order
to invoke provisions of section 7 of the Code and for initiation of CIRP
against the corporate debtor, the following conditions were required to be
satisfied: (i) there must be a disbursal of loan; (ii) disbursal should be made
against consideration for time value of money; and (iii) default should have
arisen in payment of interest or in payment of principal, or both, on part of
the corporate debtor. All the above conditions were required to be satisfied by
the financial creditor.

 

The Tribunal observed that in the absence
of a ‘financial contract’ it was not possible to ascertain the actual amount of
disbursal. There was no financial contract except the franchise agreement which
did not state the consideration for time value of money being granted to the
corporate debtor. Assuming there was a disbursal, the default had arisen in
absence of a financial instrument specifying unambiguously the term of the
financial debt within which it is repayable. In any case, the entire agreement
was in dispute before the High Court.

 

Thus, the Tribunal held
that default could not be ascertained in the absence of a requisite document
and the application was dismissed.

 

11. Tony Joseph vs. Union of India [2020] 117 taxmann.com 948 (Kerala) Date of order: 10th July, 2020

 

The disqualified directors
of the company did not intend to continue – Since the directors were
disqualified, their DIN and DSC were deactivated – Directors urged that their
DIN and DSC be activated so as to enable them to file returns and make
statutory uploadings of form STK-2 so as to enable a ‘strike off’ of name of
company – It was held that directors should approach ROC for activation of DIN
and DSC and ROC should pass appropriate orders

 

FACTS


The directors of the
company were disqualified for the reason that the company did not file annual
returns in time. Accordingly, their DIN and DSC have been deactivated taking
recourse to the provisions u/s 164(2) of the Companies Act, 2013.

 

The directors submitted
that they do not intend to continue with the company. However, it was urged
that they seek to file the returns and make statutory uploadings so as to
enable a ‘strike off’ of the company. They therefore sought to upload form
STK-2 to enable ‘strike off’ of the company from the Registrar of Companies.

 

HELD


It was
noticed by the Court that the directors have not produced any request made by
them before the ROC in this behalf. In case the directors approach ROC seeking
an activation of the DIN and DSC for the purpose of uploading form STK-2, the
ROC shall take up the application and pass appropriate orders in accordance
with the law on the same within a period of two weeks from its receipt.

ALLIED LAWS

25. Hindu
Succession Act, 1956, section 6 – Hindu Succession (Amendment) Act, 2005 –
Equal right of a daughter in HUF – Devolution of interest in coparcenary property
– Confers status of coparcener on daughters, even if born prior to the
amendment, with effect from 9th September, 2005 – And it is not
necessary that the father should be living as on 9th September, 2005
– Amendment is retrospective

 

Vineeta Sharma vs. Rakesh Sharma & Ors. Diary No. 32601 of 2018 (SC) Date of order: 11th August, 2020 Bench: Arun Mishra J., S. Abdul Naseer J.,
M.R. Shah J.

 

FACTS


Several appeals on the issue of
retrospective effect of section 6 of the Hindu Succession Act were filed before
the Supreme Court. In one of the cases, Vineeta Sharma (appellant) filed a case
against her two brothers, viz., Rakesh Sharma and Satyendra Sharma, and her
mother (respondents). The father, Dev Dutt Sharma, had three sons, one daughter
and a wife. He expired on 11th December, 1999. One of his sons
(unmarried) expired on 1st July, 2001. The appellant claimed that
being the daughter she was entitled to 1/4th share in the property
of her father. The case of the respondents was that after her marriage she
ceased to be a member of the joint family. The High Court disposed of the
appeal as the amendments of 2005 did not benefit the appellant because her
father had passed away on 11th December, 1999.

 

HELD


The Supreme Court held that the provisions
contained in substituted section 6 of the Hindu Succession Act, 1956 confer the
status of coparcener on the daughter born before or after the amendment, in the
same manner as a son, with the same rights and liabilities. Since the right in
coparcenary is by birth, it is not necessary that the father should be living
as on 9th September, 2005 (the date of the amendment).

 

26. Indian
Evidence Act, 1872, section 65B – Evidence – Electronic record – Certificate
u/s 65B(4) – Not necessary that original document itself is produced

 

Arjun Panditrao Khotkar vs. Kailash
Kushanrao Gorantyal and Ors. CA No. 20825-20826 of 2017 (SC) Date of order: 14th July, 2020 Bench: V. Ramasubramanian J., R.F. Nariman
J., S. Ravindra Bhat J.

 

FACTS


Two election petitions were filed by the present
respondents before the Bombay High Court challenging the election of the
present appellant, Arjun Panditrao Khotkar, to the Maharashtra State
Legislative Assembly for the term commencing November, 2014. The case revolved
around the four sets of nomination papers filed by the appellant. It was the
case of the present respondents that each set of nomination papers suffered
from defects of a substantial nature and, therefore, all four sets of
nomination papers having been improperly accepted by the Returning Officer of
the Election Commission, the election of the appellant be declared void. In
particular, the respondents contended that the late presentation of nomination
forms (filed by the RC after the stipulated time of 3.00 p.m. on 27th
September, 2014), meant that such nomination forms were not filed in accordance
with the law and ought to have been rejected.

 

The respondents sought to rely upon the
video camera arrangements that were made both inside and outside the office of
the Returning Officer (RO). According to the respondents, the nomination papers
were only offered at 3.53 p.m. (i.e. beyond 3.00 p.m.), as a result of which it
was clear that they had been filed after time. A specific complaint making this
objection was submitted by Kailash Kushanrao Gorantyal before the RO at 11 am
on 28th September, 2014 in which it was requested that the RO reject
the nomination forms that had been improperly accepted. This request was
rejected by the RO on the same day, stating that the nomination forms had, in
fact, been filed within time. The High Court, by its order dated 16th March, 2016, ordered the Election Commission and the
officers concerned to produce the entire record of the election of the constituency, including the original video
recordings. A specific order was made that the electronic record needs to be produced along with the ‘necessary
certificates’. The Court held that the CDs that were produced by the Election Commission could not be
treated as an original record and would, therefore, have to be proved by means
of secondary evidence. It was also found that no written certificate as
required by section 65B(4) of the Evidence Act was furnished by any of the
election officials.

 

HELD


The Supreme Court held that a certificate
u/s 65B(4) is unnecessary if the original document itself is produced. This can
be done by the owner of a laptop computer, computer tablet or even a mobile
phone, by stepping into the witness box and proving that the device concerned,
on which the original information is first stored, is owned and / or operated
by him.

 

27. Foreign
Exchange Regulation Act (FERA), 1973, sections 8, 51, 68 — Liability for
offence — Role played in company affairs — Not designation or status

 

Shailendra
Swarup vs. The Deputy Director, Enforcement CA No. 2463 of 2014 (SC) Date of order: 27th July, 2020 Bench: Ashok Bhushan J., R. Subhash Reddy
J., M.R. Shah J.

 

FACTS


Modi Xerox Ltd. (MXL) was a company
registered under the Companies Act, 1956 in 1983. Between 12th June,
1985 and 21st November, 1985, 20 remittances were made by the
company through its banker Standard Chartered Bank. The Reserve Bank of India
issued a letter stating that despite reminders issued by the authorised dealer,
MXL had not submitted the Exchange Control copy of the customs bills of Entry /
Postal Wrappers as evidence of import of goods into India. The Enforcement
Directorate wrote to MXL in 1991-1993 for supplying invoices as well as
purchase orders. MXL on
9th July, 1993 provided the documents for four transactions and
Chartered Accountant’s Certificates for balance 16 amounts for which MXL’s
bankers were unable to trace old records dating back to 1985. MXL amalgamated
and merged into Xerox Modicorp Ltd. (hereinafter referred to as “XMC”) on 10th
January, 2000. A show cause notice dated 19th February, 2001 was issued by the Deputy Director, Enforcement Directorate to MXL and its
directors, including the appellant. The notice required to show cause in
writing as to why adjudication proceedings as contemplated in section 51 of
FERA should not be held against them. The Directorate of Enforcement decided to
hold proceedings as contemplated in section 51 of the FERA, 1973 read with
sub-sections 3 and 4 of section 49 of FEMA and fixed 22nd October,
2003 for personal hearing. A notice dated 8th October, 2003 was sent
to MXL and its directors.

 

In reply the appellant stated that he is a
practising advocate of the Supreme Court and was only a part-time,
non-executive director of MXL and he was never in the employment of the company
nor had any executive role in its functions. It was further stated that the
appellant was never in charge of, nor ever responsible for, the conduct of the
business of the company. The Deputy Director, Enforcement Directorate, after
hearing the appellant and other directors of the company, passed an order dated
31st March, 2004 imposing a penalty of Rs. 1,00,000 on the appellant
for contravention of section 8(3) read with 8(4) and section 68 of FERA, 1973.

 

The appellant approached the Appellate
Tribunal for foreign exchange but his appeal was dismissed on 26th March, 2008. A criminal appeal was filed by the appellant in
the Delhi High Court but by the impugned judgment dated 18th
October, 2009 it dismissed the appeal of the appellant.

 

HELD


The Supreme Court held that for proceeding
against a director of a company for contravention of provisions of FERA, 1973
the necessary ingredient for proceeding shall be that at the time the offence
was committed, the director was in charge of and was responsible to the company
for the conduct of its business. The liability to be proceeded with for an
offence u/s 68 of FERA, 1973 depends on the role one plays in the affairs of
the company and not on mere designation or status.

 

Editor’s Note: FERA, 1973 has been substituted with FEMA, 1999. Section 51 of
FERA, 1973 is similar to section 13(1) of FEMA, 1999.

 

28. Constitution
of India, Articles 226, 300A – High Courts bound to issue Writ of Mandamus –
For enforcement of public duties – Right to property is a fundamental right and
human right

 

Hare Krishna Mandir Trust vs. State of Maharashtra
& Ors. CA No. 6156 of 2013 (SC) Date of order: 7th August, 2020 Bench: Indu Malhotra J., Indira Banerjee J.

 

FACTS


The Thorat family was the owner of a plot at
Bhamburda in Pune. By a registered deed of conveyance dated 21st
December, 1956, one Krishnabai Gopal Rao Thorat sold the northern part of the
plot jointly to Swami Dilip Kumar Roy, one of the most eminent disciples of Sri
Aurobindo, and Indira Devi, daughter-disciple of Swami Dilip Kumar Roy. Swami
Dilip Kumar Roy had moved to Pune to propagate the philosophy of Sri Aurobindo
and established the Hare Krishna Mandir with his daughter disciple, Indira
Devi, on the land purchased from Krishnabai Gopal Rao Thorat.

 

According to the appellants, the Pune
Municipal Corporation, by an order dated 20th August, 1970, divided
Plot No. 473 which was originally numbered Survey No. 1092. The final plot No.
473 B was sub-divided into four plots. On 20th August, 1970 the City
Survey Officer directed issuance of separate property cards in view of a
proposed Development Scheme under the Regional and Town Planning Act which
included Final Plot No. 473, and an Arbitrator was appointed. The Arbitrator
made an award dated 16th May, 1972 directing that the area and
ownership of the plots were to be as per entries in the property register. The
appellant contended that the Pune Municipal Corporation by its letters dated 29th
June, 1996, 4th January, 1997 and 18th January, 1997
admitted that the internal road had never been acquired by the Pune Municipal
Corporation. The Town and Planning Department also admitted that the Pune
Municipal Corporation had wrongly been shown to be the owner of the said road.

 

The Urban Development Department rejected
the proposal of the appellant and held that the Pune Municipal Corporation is
the owner of the land. The Hon’ble High Court dismissed the Writ Petition
challenging the said order and refused to issue a Writ of Mandamus.

 

HELD


The Supreme
Court held that the right to property may not be a fundamental right any
longer, but it is still a Constitutional right under Article 300A and a human
right. In view of the mandate of Article 300A of the Constitution of India, no
person is to be deprived of his property save by the authority of law. The High
Courts, exercising their jurisdiction under Article 226 of the Constitution,
not only have the power to issue a Writ of Mandamus or in the nature of
Mandamus, but they are duty-bound to exercise such power where the Government
or a public authority has failed to exercise or has wrongly exercised
discretion conferred upon it by a statute, or a rule, or a policy decision of
the Government, or has exercised such discretion mala fide or on
irrelevant consideration. The High Court is not deprived of its jurisdiction to
entertain a petition under Article 226 merely because in considering the
petitioner’s right to relief questions of fact may fall to be determined.
Exercise of the jurisdiction is discretionary, but the discretion must be
exercised on sound judicial principles.

 

 

 

 

 

 

 

 

We must never ever give up, or give in or throw in the
towel. We must continue to press on! And be prepared to do what we can to help
educate people, to motivate people, to inspire people to stay engaged, to stay
involved and to not lose their sense of hope. We must continue to say we’re one
people. We’re one family. We all live in the same house. Not just an American
house but the world house. As Dr. King said over and over again, ‘We must learn
to live together as brothers and sisters.
If not, we will perish as fools.

—  John
Lewis, 8th June, 2020, New York Interview (civil rights giant,
17-term Congressman, an ally of MLK. He passed away in July, 2020)

CORPORATE LAW CORNER

2 Indus Biotech Private Limited vs. Kotak India Venture (Offshore) Fund (earlier known as Kotak India Venture Limited) & Ors. Arbitration Petition (Civil) No. 48/2019 with Civil Appeal No. 1070 / 2021 @ SLP (C) No. 8120 of 2020 Date of order: 26th March, 2021

Section 7 of the Code and Arbitration Act – NCLT is duty-bound to examine the claim of insolvency on the grounds whether debt is due and there is a default even if the application of arbitration is filed simultaneously – Dispute before NCLT becomes matter in rem only after application is admitted by NCLT and not before that

FACTS
Kotak India Venture Fund (‘Kotak’) had subscribed to Optionally Convertible Redeemable Preference Shares (‘OCRPS’) issued by I Co (the ‘Corporate Debtor’) in the year 2007. Subsequently, the Corporate Debtor had entered into a share subscription and shareholder agreement (‘SSSA’). In pursuance of regulation 5(2) of the Securities Exchange Board of India (Issue of Capital & Disclosure Requirement) Regulations, 2018 (‘SEBI ICDR Regulations’), Kotak chose to convert the OCRPS into equity shares to make a Qualified Initial Public Offering (‘QIPO’).

During the conversion process, the parties had a dispute over the computation of the exchange ratio, the formula to be used and the valuation of the shares to be issued. The formula, which was sought to be applied by Kotak, would have yielded approximately 30% of the paid-up share capital of the Corporate Debtor. On the other hand, the formula that was sought to be applied by the Corporate Debtor (which was in line with the reports of auditors, independent valuers and the agreed formula), would have given Kotak 10% of the total paid-up share capital of the Corporate Debtor.

At the same time, the Corporate Debtor invoked the arbitration clause provided under the SSSA and requested the National Company Law Tribunal (‘NCLT’) to refer the parties to arbitration u/s 8 of the Arbitration & Conciliation Act, 1996.

The Corporate Debtor failed to redeem the debt on the redemption date. Kotak then filed an application for initiating corporate insolvency resolution process (‘CIRP’) against the Corporate Debtor under the Insolvency and Bankruptcy Code, 2016 (‘the Code’).

The NCLT observed that in a section 7 petition there has to be a judicial determination as to whether there has been a default within the meaning of section 3(12) of the Code. It was held that a default had not occurred in the instant case. The NCLT also noted that the Corporate Debtor was a solvent, debt-free and profitable company. Considering that the dispute was purely contractual in nature, the NCLT directed the parties to resolve their dispute by arbitration, thereby dismissing the application filed by Kotak under the Code.

Kotak filed a special leave petition before the Supreme Court. The primary contention raised in it was that the dispute, being a matter in rem, belongs to that class of litigation which falls out of the scope and ambit of arbitration.

HELD
The Supreme Court heard the arguments of both sides at length. It also relied on the decision laid down in Vidya Drolia vs. Durga Trading Corporation (2021 2 SCC 1) to hold that a dispute is non-arbitrable when a proceeding is in rem and IB proceedings are considered to be in rem only after being admitted.

The Court held that insolvency proceedings become in rem only after they are admitted. On admission, third-party right is created in all the creditors of the corporate debtors and will have an erga omnes effect. The mere filing of the petition and its pendency before admission, therefore, cannot be construed as the triggering off of a proceeding in rem. Hence, the admission of the petition for consideration of the CIRP is the relevant stage which would decide the status and the nature of the pendency of the proceedings and the mere filing cannot be taken as the triggering off of the insolvency process.

Further, the Supreme Court observed that the position of law that the provisions of the Code shall override all other laws as provided u/s 238 needs no elaboration. It was observed that in any proceeding which is pending before the NCLT u/s 7 of the IB Code, if such petition is admitted upon the NCLT recording the satisfaction with regard to the default and the debt being due from the corporate debtor, any application u/s 8 of the Act, 1996 made thereafter will not be maintainable.

The Court held that the NCLT is duty-bound to deal with the inquiry u/s 7 of the IBC by examining the material placed before it and record a satisfaction as to whether or not there is a default, even if an application u/s 8 of the Arbitration Act has been filed simultaneously.

It was also held that it would be premature to arrive at a conclusion that there was default in payment of any debt until the said issue is resolved and the amount repayable by the Corporate Debtor to Kotak with reference to equity shares being issued is determined. In the process, if such determined amount is not paid it will amount to default at that stage. The Court proceeded to appoint the arbitration tribunal in accordance with the provisions of the agreement.

The appeal was thus dismissed and the arbitration petition was allowed.

3 Anuj Mittal vs. Union of India 125 taxmann.com 10 (Delhi) Date of order: 15th January, 2021

Petitioners were directors who had been disqualified prior to 7th May, 2018, qua other companies in addition to the defaulting company – In such cases, proviso to section 167(1)(a) of the Companies Act, 2013 would not apply and petitioners would continue to be directors in companies other than defaulting companies and, therefore, DINs and DSCs of petitioners would be reactivated

FACTS
The petitioners were directors in ‘N’ Private Limited (hereinafter ‘N’). Due to alleged non-compliance / default by ‘N’ u/s 164(2)(a) of the Companies Act, 2013, i.e., non-filing of financial statements or annual returns for any continuous period of three financial years, the said petitioners were disqualified as directors from 1st November, 2017 to 31st October, 2022. Their DINs and DSCs were deactivated. ‘N’ had also been struck off from the Register of Companies. The petitioners were directors in other active companies and also wished to start a fresh business.

The Court, after considering the facts, analysed a few judgments and came to the conclusion that the following facts have emerged from the previous judgments. The same are tabulated for ease of reference:

Category

Situation

Decision

A

Directors who have been disqualified prior to 7th
May, 2018 qua
other companies in addition to the defaulting company

Since there is no stay on the judgment in Mukut Pathak,
it continues to hold the field. Thus, in cases where directors have been
disqualified prior to 7th May, 2018, the proviso to section
167(1)(a) of the Companies Act, 2013 would not apply and the directors would
continue to be directors in companies other than the defaulting company. The disqualification of such directors qua
active companies would therefore be liable to be set aside and their
DINs and DSCs reactivated

B

Directors who have been disqualified post 7th May,
2018 qua other ‘active’
companies

As held in Mukut Pathak, in all cases where the
directors have been disqualified on or after 7th May, 2018, the proviso
to section 167(1)(a) would apply and such directors would cease to be
directors in all the companies, including the defaulting company. In March,
2020, in light of the Covid-19 pandemic, the Ministry of Corporate Affairs vide
General Circular No. 12/2020 introduced CFSS-2020 to allow a fresh start for
defaulting companies and directors of such companies. The Court, in Sandeep
Agarwal, has analysed CFSS-2020 to conclude that the purpose of the
scheme is to provide an opportunity for ‘active’ companies, i.e., companies
whose names have not been struck off, who may have defaulted in filing of
documents, to put their affairs in order

B
(continued)

Directors who have been disqualified post 7th May,
2018 qua other ‘active’
companies

 

Thus, the DINs and DSCs of disqualified directors of struck-off
companies, who are also directors in active companies, may be reactivated qua
the active companies in line with the spirit of the CFSS-2020

C

Directors of ‘active’ companies who have been disqualified

In cases where directors of ‘active’ companies have been
disqualified, CFSS-2020 would squarely apply. Such directors would be
entitled to avail of CFSS-2020 and file documents of the defaulting company

D

Disqualified directors of struck-off companies seeking
appointment as directors in other / new companies

In furtherance of the purpose of the scheme, directors of
struck-off companies who seek to be appointed as directors of other / new
companies ought to be provided an opportunity to avail of the scheme,
provided that they have undergone (completed) a substantial period of their
disqualification. The scheme clearly seeks to provide a fresh start for
directors of defaulting companies who seek appointment in other companies or
wish to start new businesses. Therefore, if a substantial period has passed
since the disqualification of such directors, they ought to be

D
(continued)

Disqualified directors of struck-off companies seeking
appointment as directors in other / new companies

given an opportunity to avail of the scheme

At this stage, the Registrar of Companies, Delhi was requested to join the proceedings. On a specific query from the Court, he informed that the Companies Fresh Start Scheme-2020 has expired as on 31st December, 2020. However, he submitted that in case struck-off companies are willing to file their annual returns and balance sheets, the restoration of these companies is being considered by the ROC. He further informed the Court that in the case of more than 2,000 struck-off companies, their restoration has been permitted by the NCLT as the jurisdiction for restoring the struck-off companies rests with the NCLT.

After deliberations, the High Court held as under:
    
In terms of the judgment in Anjali Bhargava, the petitioners would fall in category ‘D’. Further, since the disqualification of the petitioners is prior to 7th May, 2018, they would also fall in category ‘A’. In terms of the judgment in Mukut Pathak vs. Union of India [2019] 111 taxmann.com 41 (Delhi) and Anjali Bhargava vs. UOI [W.P. (C) No. 11264 of 2020 dated 6th January, 2021] (Unreported), the DINs and DSCs of the petitioners shall be reactivated within a period of ten days. If, in addition, the petitioners wish to seek restoration of the struck-off company, they are permitted to seek remedies in accordance with law before the NCLT.

ALLIED LAWS

5 Sobha Hibiscus Condominium vs. Managing Director, M/s Sobha Developers Ltd. & Anr. AIR 2020 Supreme Court 1163 Date of order: 14th February, 2020 Bench: Mohan M. Shantanagoudar J., R. Subhash Reddy J.

Condominium – Maintainability – Complainant – Condominium is neither ‘consumer’ nor ‘recognised voluntary association’ but group of individual consumers [S. 2(1)(d), S. 12(1)(b) Consumer Protection Act]

FACTS
The appellant / complainant is a statutory body. It consists of members who are the owners of the apartments in a multi-storey building, namely, ‘Sobha Hibiscus’, situated in South Bangalore Taluk in Karnataka.

The National Consumer Disputes Redressal Commission (NCDRC) rejected the complaint filed by the appellant on the ground that the appellant condominium has no locus standi to file the complaint since neither is it a ‘consumer’ nor a ‘recognised consumer association’ within the meaning of section 12 of the Consumer Protection Act, 1986.

HELD
The Court held that the finding of the NCDRC that a recognised consumer association can file a complaint on behalf of a single consumer but cannot file a complaint on behalf of several consumers in one complaint is erroneous and there is no legal basis for it. From a reading of section 12(1)(b) of the Act read with Explanation to section 12 it is clear that a voluntary registered association can file a complaint on behalf of its members to espouse their grievances. There is nothing in the aforesaid provision of the Act which would restrict its application to the complaint pertaining to an individual complainant. If a recognised consumer association is made to file multiple complaints in respect of several consumers having a similar cause of action, that would defeat the very purpose of registration of a society or association and it would result only in multiplicity of proceedings without serving any useful purpose.

The matter is remitted back to the NCDRC with a direction to consider the complaints on merits and pass appropriate orders.

6 Shaik Janimiya vs. State Bank of India AIR 2020 Telangana 126 Date of order: 27th April, 2020 Bench: M.S. Ramachandra Rao J., T. Amarnath Goud J.

Registration – Transfer of prohibited property – Impossible – Highest bidder cannot wait until bank gets clear title – Bidder entitled to relief [Registration Act, 1908]
    
FACTS
The petitioner is the Managing Director of M/s Crescent Formulations Pvt. Ltd. which is engaged in the manufacture and marketing of pharmaceutical formulations. The respondent bank issued an e-auction notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act proposing to conduct an e-auction of several properties on 29th February, 2017 [sic]. The petitioner deposited Rs. 21,80,000 as EMD and later became the highest bidder after quoting Rs. 2,19,00,000. On 30th November, 2017 the respondent addressed a letter to the petitioner declaring him as the highest bidder and directed him to deposit the balance EMD amount of 25% (Rs. 32,75,000) immediately. The petitioner complied and another letter dated 30th November, 2017 was issued by the respondent directing him to deposit Rs. 1,61,81,000 being 75% of the sale consideration within 15 days from the date of the auction. The petitioner was also asked to make arrangements for registration of the sale certificate with the Sub-Registrar concerned.

When the petitioner approached the Sub-Registrar, the latter informed him that the properties in Sy. No. 11 of Khanamet village were in the prohibitory list notified under section 22-A of the Registration Act, 1908 by the State of Telangana and that he would not register the certificate of sale issued by the respondent in favour of the petitioner.

The petitioner contends that he demanded the respondent to refund the sum of Rs. 2,19,00,000 deposited by him with interest at 12% per annum.

HELD
It is not disputed that before the sale certificate could be registered the State Government had imposed a prohibition on the registration of plots in Sy. No. 11 of Khanamet village, in which the above property is located. Hence it became impossible for the title to the property to be conveyed to the petitioner by registering the sale certificate. The petitioner cannot be compelled to wait till the bank litigates with the State and resolves the issue.

This Court has repeatedly expressed the view that Governments and statutory authorities should be model or ideal litigants and should not put forth false, frivolous, vexatious, technical (but unjust) contentions to obstruct the path of justice.

The bona fide claims of the petitioner cannot be defeated by the respondent by raising hyper-technical pleas. The petitioner was entitled to the prayed relief. The writ petition was allowed.

7 Surender Kumar Singhal & Ors. vs. Arun Kumar Bhalotia & Ors. CM(M) 1272 of 2019 dated 25th March, 2021 Date of order: 25th March, 2021 Bench: Prathiba M. Singh J.

Arbitration – Tribunal can decide objections on its jurisdiction – High Courts have limited interference – Jurisdiction should be adjudicated first [Arbitration and Conciliation Act, 1996]

FACTS
Disputes arose between two branches of one family. The Delhi High Court referred the matter to arbitration by a sole arbitrator.

The petitioners herein then filed an application before the arbitrator u/s 16 of the Arbitration and Conciliation Act, 1996 (Act) and raised the objection that the Tribunal does not have any jurisdiction to adjudicate the claims against the petitioners. The arbitrator held that the issue of jurisdiction would be dealt with along with the final order. An application was made for recall of the said order. The said application was rejected by the arbitrator. The orders rejecting the applications were challenged in the present proceedings.

HELD
The Court observed that the arbitrator was of the opinion that a final decision on the application of the petitioners u/s 16 of the Act cannot be taken without further evidence in the matter. The property which the petitioners have purchased as per the arbitrator is clearly the subject matter of the arbitral proceedings and thus the arbitrator, after evidence being recorded, may be required to mould relief in the same manner. The Court did not deem it appropriate to interfere under Article 227. However,
the Court held that the arbitrator’s observation that the said objection shall be decided ‘while passing the award’ may also not be fully in line with the legal position as held in McDermott International Inc. vs. Burn Standard Co. Ltd. and Ors. (2006) 11 SCC 181. Thus, the question of jurisdiction raised by the petitioners would have to be adjudicated first, prior to the passing of the final award.

RIGHT TO INFORMATION (r2i)

PART A | DECISION OF HIGH COURT

Cogent reasons have to be given by the public authority as to how and why the investigation or prosecution will get impaired or hampered by giving the information in question
 

Case name:

Amit Kumar Shrivastava vs. Central Information
Commission, New Delhi

Citation:

Writ Petition (Civil) No.: 3701/2018

Court:

The High Court of Delhi

Bench:

Justice Jayant Nath

Decided on:

5th February, 2021

Relevant Act / Sections:

Section 8 of Right to Information Act, 2005

Brief facts and procedural history:

  •  The petitioner filed an RTI application on 5th September, 2016 under Rule 6 of the Right to Information Act, 2005 (‘the RTI Act’) seeking disclosure of point-wise information which was mentioned at serial Nos. 5(i) to 5(xxv) of the said application.
  •  The CPIO did not provide correct information in respect of point 5(i) of the RTI application. The CPIO hid the cases registered under IPC / PC Act. Information was not disclosed u/s 8(1)(h) of the RTI Act.
  •  The petitioner filed a first appeal on 10th October, 2016 before the First Appellate Authority. The Appellate Authority did not decide the appeal of the petitioner in the defined period. The petitioner then filed a second appeal before the Second Appellate Authority CIC. It is the grievance of the petitioner that during the hearing the respondent believed the verbal submissions of the CPIO instead of the written submissions of the petitioner and allowed them to sustain their stand for non-disclosure of the information in respect of all the points by claiming exemption u/s 8(1)(h) of the RTI Act.

Court’s observation and judgment
The Court was of the view that the facts, including details regarding the grave allegations against the petitioner and the pending criminal and departmental proceedings against him, were not disclosed. However, the CIC dismissed his appeal holding that the proceedings initiated by the CBI are pending and exemption can be claimed u/s 8 of the RTI Act that lays down certain conditions when exemptions are allowed.

Section 8(1)(h) of the Act provides that information which ‘would impede the process of investigation or apprehension or prosecution of offenders’ need not be disclosed to citizens. On examination, the High Court observed that what follows from the legal position is that where a public authority takes recourse to this section to withhold information, the burden is on the public authority to show in what manner disclosure of such information could impede the investigation. The word ‘impede’ would mean anything that would hamper or interfere with the investigation or prosecution of the offender.

Further, the word ‘investigation’ used in section 8(1)(h) of the Act should be construed rather broadly and include all inquiries, verification of records and assessments. ‘In all such cases, the inquiry or the investigation should be taken as completed only after the competent authority makes a prima facie determination about the presence or absence of guilt on receipt of the investigation / inquiry report from the investigating / inquiry officer’, said the Single Bench.

Since the CIC in its order made no attempt whatsoever to show how giving the information sought would hamper the investigation and the on-going disciplinary proceedings, the Court decided to quash its order. The Court also remanded the matter back to the CIC for consideration afresh in terms of the legal position held by the High Court in the present matter.

Justice Jayant Nath also referred to the case of Union of India vs. Manjit Singh Bali (2018) where the High Court of Delhi had held that the exclusion u/s 8(1)(h) of the RTI Act (information which would impede the process of investigation or apprehension or prosecution of the offenders) has to be read in conjunction with Article 19(2) of the Constitution of India. Such denial must be reasonable and in the interest of public order1.

PART B | DECISION OF SIC

Private medical colleges within RTI Act’s purview: Rajasthan SIC

The private medical colleges in Rajasthan have been brought within the purview of the Right to Information (RTI) Act, 2005, following an order of the State Information Commission which has imposed a fine of Rs. 25,000 on the Principal of Geetanjali Medical College in Udaipur for flouting the transparency law and refusing to provide information.

Allowing an appeal against the college, the Information Commission held in its recent order that the State Government had allotted land to the institution at concessional rates and the college was established under a law passed by the State Legislature.

‘Based on these facts, the college falls within the purview of the RTI Act. The college is governed by the rules and regulations framed by the State government’, said Information Commissioner Narayan Bareth.

He imposed the fine on the Principal for refusing to provide information sought by an applicant2.

PART C IINFORMATION ON AND AROUND
  •  Vaishno Devi temple got 1,800 kg. of gold in 20 years

The Vaishno Devi Temple in Jammu received over 1,800 kg. of gold and over 4,700 kg. of silver, besides Rs. 2,000 crores in cash, in the past 20 years (2000-2020) as donation3.

  •  Supreme Court refuses to disclose Justice Patnaik’s probe report on ‘Larger Conspiracy’ against judiciary under RTI

The Public Information Officer of the Supreme Court has refused to disclose the details of a report submitted by the former Supreme Court Judge, Mr. Justice A.K. Patnaik, on the probe into the ‘larger conspiracy’ behind the sexual harassment allegations levelled against the then Chief Justice of India, Mr. Ranjan Gogoi4.

  •  Who writes PM Modi’s speeches?

‘Depending upon the nature of event, various individuals, officials, departments, entities, organisations, etc., provide inputs for the PM’s speech and the speech is given final shape by the PM himself,’ the PMO said in its reply to an RTI query5.

  •  SBI refuses data under RTI on interest waiver claims it received

In October, 2020 the Government had appointed SBI as the nodal agency and said it will receive funds for settlement of such (interest waiver) claims. Other lenders were told to submit their claims by 15th December to India’s largest lender. The State Bank of India, in charge of collating and settling compound interest waiver reimbursement claims by lenders for the last round of the interest waiver scheme during the moratorium, has declined to provide information on the quantum of claims it received6.

  •  Centre paid Rs. 4.10 crores as commission to SBI for sale of electoral bonds

The Department of Economic Affairs, Ministry of Finance, in its reply dated 19th March, 2021 to an RTI application stated that an amount of over Rs. 4.35 crores (Rs. 4,35,39,140.86), inclusive of GST, has been charged to the Government as commission consequent to the sale of electoral bonds in 15 phases.

An aggregated amount of Rs. 4.10 crores (Rs. 4,10,16,764.60) has been paid by the Government as commission, consequent to the sale of electoral bonds in 13 phases. Commission for the 14th and 15th phases of electoral bond issuance has not been paid till date7.

 

1   https://www.latestlaws.com/latest-news/public-authority-to-give-cogent-reasons-for-claiming-exemption-from-disclosure-of-information-sought-under-the-rti-act-read-order/

2   https://www.thehindu.com/news/national/other-states/rajasthan-brings-private-medical-colleges-within-rti-acts-purview/article34135979.ece

3   https://timesofindia.indiatimes.com/city/dehradun/vaishno-devi-temple-received-over-rs-2000-crore-cash-1800-kilos-of-gold-and-4700-kilos-of-silver-in-last-20-years-rti/articleshow/81638135.cms

4   https://www.livelaw.in/top-stories/supreme-court-refuses-disclose-justice-patnaiks-probe-report-larger-conspiracy-rti-171351

5   https://www.indiatoday.in/india/story/who-writes-pm-modi-speeches-pmo-reply-to-rti-1774874-2021-03-02

6   https://www.livemint.com/companies/news/sbi-refuses-data-under-rti-on-interest-waiver-claims-it-received-11616563915641.html

7   https://www.theweek.in/news/india/2021/03/22/centre-paid-rs-4-10-crore-as-commission-to-sbi-for-sale-of-electoral-bonds.html

CORPORATE LAW CORNER

1. Puthenpurakal Properties Private Ltd. vs. UOI, Delhi and Others LSI-128-HC-2021 (Ker) Date of order: 2nd March, 2021

Kerala High Court grants liberty to the Government to proceed against petitioner companies for violating section 203 of the Companies Act, 2013 which inter alia mandates appointment of a whole-time Company Secretary where a company’s paid-up capital exceeds Rs. 5 crores

FACTS
Company P, the petitioner, is a company incorporated with the Registrar of Companies, Kerala. P has filed these writ petitions seeking to direct the respondents to permit it to file E-form ACTIVE, INC-22A without insisting on appointment of a whole-time Company Secretary (CS). P has also sought to declare that the restrictions imposed in filing E-form ACTIVE, INC-22A with regard to non-compliance of section 203 of the Companies Act, 2013 in appointment of a whole-time Company Secretary, or Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is arbitrary and illegal.

P contended that pursuant to the powers vested u/s 469 of the Companies Act, 2013 the Union of India amended the Companies (Incorporation) Rules, 2014. As per the newly-added Rule 25A, every company incorporated on or before 31st December, 2017 was required to file the particulars of the company and its registered office in E-form ACTIVE (Active Company Tagging Identities and Verification) on or before 25th April, 2019. P further contended that the website of the Ministry of Corporate Affairs was not accepting the E-form ACTIVE submitted by it for the reason that its paid-up capital is more than Rs. 5 crores and yet the petitioners have not appointed a whole-time CS.

It was the case of the petitioners that as per section 203(5) if any company makes any default in complying with the provisions, such company shall be liable for a penalty of Rs. 5 lakhs and Directors and Key Managerial Personnel are personally liable for a penalty of Rs. 50,000, and if the default is a continuing one, with a further penalty of Rs. 1,000 for each day.

The petitioners contended that they have part-time Company Secretaries and Auditors to properly look after the affairs of their companies and for the last several years they have been functioning well within the provisions of the Act without giving any room for initiating any penal proceedings. On these premises, the petitioners contended that they should not be forced to appoint a whole-time Company Secretary and should be permitted to file E-form ACTIVE, INC-22A without insisting on the appointment of a whole-time Company Secretary.

When these writ petitions came up for admission, interim orders were passed by the Court permitting the petitioners to file E-form ACTIVE, INC-22A, Form PAS-03 (change in paid-up capital) and Form DIR-12 (change in Director, except cessation) without insisting on appointment of a whole-time Company Secretary provisionally, pending further orders in these writ petitions.

When the petitions came up for final hearing, the Counsel for the respondents urged as under:

The Central Government counsel representing the respondents argued that as per the existing rules the petitioners are bound to appoint a whole-time Company Secretary as their paid-up capital is more than Rs. 5 crores. The petitioners cannot be granted any exemption from the Rules.

The Counsel further argued that non-appointment of Company Secretary by the petitioners is an offence u/s 383A of the Companies Act, 1956 with effect from 1st December, 1988. If a company fails to comply with this requirement, the Company and every one of its officers who is in default shall be punishable with a fine which may extend to Rs. 500 per day during which the default continues.

HELD
After deliberations, the Kerala High Court held as under:
    
As things stand now, the petitioners have been permitted to file E-form ACTIVE, INC-22A without insisting on the appointment of a whole-time Company Secretary on a provisional basis. Section 203(5) of the Companies Act, 2013 provides that if any company makes any default in complying with the provisions of section 203 relating to appointment of a Key Managerial Personnel, such company shall be liable to a penalty of Rs. 5 lakhs and every Director and Key Managerial Personnel of the company who is in default shall be liable to a penalty of Rs. 50,000, and where the default is a continuing one, with further penalty of Rs. 1,000 for each day after the first during which such default continues, but not exceeding Rs. 5 lakhs.

It is evident that the petitioner has not adhered to the provisions of the Companies Act, especially section 203 thereof. In such circumstances, the respondents are empowered to proceed against the petitioner companies in accordance with the law.

In the circumstances, the writ petitions were disposed of granting liberty to the respondents to proceed against the petitioners for violating section 203 of the Companies Act, 2013 if they are so advised. It is made clear that the interim orders passed in these writ petitions shall not be taken as pronouncements on merits on the legality of section 203 of the Companies Act, 2013 or Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

ALLIED LAWS

1. Uma Mittal & Ors. vs. UOI & Ors. AIR 2020 Allahabad 202 Date of order: 15th June, 2020 Bench: Shashi Kant Gupta J., Saurabh Shyam Shamshery J.

Guardian – Comatose state – No remedy under law – Wife appointed as guardian – Central Government directed to consider enacting an appropriate legislation [Constitution of India, Art. 21, Art. 226; Guardians and Wards Act, 1890, S. 7]

FACTS
Petitioner No. 1 is the wife of Sunil Kumar Mittal (SKM). The couple has four children (petitioner Nos. 2 to 5), three daughters and a son Raghav Mittal; petitioner No. 2 is a married daughter. However, petitioner Nos. 3 and 4 are unmarried daughters and petitioner No. 5 is the son.

SKM had a fall and suffered a severe head injury. After a series of medical procedures, Doctors opined that till his eventual demise SKM would remain in comatose condition.

SKM was carrying on business as a sole proprietor till December, 2018. He also had a few real estate properties and bank accounts.

Writ Petition was filed to appoint the petitioner No. 1 as the guardian of her husband to protect his interest, administer bank accounts, investments, proprietorship business, etc., and in the event of necessity, to sell the immovable property standing in the name of her husband and to use the proceeds towards medical treatment of her husband and family welfare expenses.

HELD
There appears to be no dispute that any of legislative enactments are applicable qua SKM, a person lying in a comatose state. Further, the petitioners are in dire need of money towards medical treatment of SKM and for the welfare of the family as they have exhausted their financial resources in the past one and a half years.

Further, since the petition has been filed jointly, there is no dispute amongst the legal heirs of SKM.

Petitioner No. 1, Uma Mittal, wife of SKM as the guardian of her husband who is in a comatose condition, is vested with the property of her husband to do all acts, deeds and things for the proper medical treatment, nursing care, welfare and benefit of SKM and his children and with power to do all acts, deeds and things with respect to his assets and properties.

Further, the Central Government to consider enacting an appropriate legislation pertaining to appointment of guardians qua persons lying in a comatose state, as no remedy is provided in any statute to persons in comatose / vegetative state.

2. N. Mani and Ors. vs. Babyammal AIR 2020 (NOC) 511 (Mad) Date of order: 19th September, 2019 Bench: T. Ravindran J.

Registration – Alleged relinquishment of property – Family arrangement – Instrument not registered – Agreement not sustainable [Hindu Succession Act, S. 14(1)]

FACTS
The properties in the plaint belonged to one Natesa Naicker and when it is admitted that the plaintiff and the defendants are the legal heirs of Natesa Naicker, it is found that on the demise of Natesa Naicker, the plaintiff and the defendants would be each entitled to equal share in the schedule properties.

However, the defendants have put forth the case that the defendants had effected a partition amongst the family members by a partition deed and further also put forth the case that in the family arrangement jewels and cash were given to the daughters including the plaintiff and thereby the daughters had relinquished their right in the family properties and accordingly the plaintiff is not entitled to claim any share in the family properties.

HELD
The family arrangement and the alleged relinquishment said to have been made by the plaintiff in respect of her share in the family properties has been stoutly challenged by the plaintiff and despite the same the defendants have not placed any acceptable and reliable materials to establish that the so-called family arrangement said to have been effected between the family members is true and validly effected. When the defendants are unable to put forth the clear case that the daughters had been given jewels and cash in lieu of their shares in the family properties and when the defendants have not tendered clear evidence as to when actually the jewels and cash were given to the daughters, we cannot safely accept the case of the defendants that a valid family arrangement had been effected and the daughters had been given jewels and cash in lieu of their shares and that the daughters had thereby relinquished their right in respect of their family properties.

On a perusal, when such instruments are required by law to be compulsorily registered and when it is found that they are not registered, no safe reliance could be made on the abovesaid documents for sustaining the defence version and the Courts below had rightly rejected the said documents.

3. Food Corporation of India & Anr. vs. V.K. Traders & Anr. (2020) 4 SCC 60 Date of order: 6th March, 2020 Bench: S.A. Bobde C.J., B.R. Gavai J. and Surya Kant J.

Lease deeds – Unregistered lease deeds – Not admissible as evidence – No right in lease [Registration Act, 1908, S. 17; Transfer of Property Act, 1882, S. 107]

FACTS
It was common practice in Punjab for different government agencies to allocate paddy for custom milling to hundreds of rice mills, which in turn would supply the rice, post-milling as per approved specifications, to the appellant FCI. Such allocation would take place through terms of a bipartite agreement and the same took place for the kharif marketing season (KMS) of 2004-05.

A dispute arose as to the quality of the milled rice stock for the aforementioned KMS, leading to an investigation by the Central Bureau of Investigation (CBI). Finding the quality to be defective, the CBI initiated prosecution against numerous rice millers and additionally recommended blacklisting of a total of 182 millers. Such ban was effected by the FCI vide a Circular dated 10th October, 2012.

The blacklisted rice mills, thus, were not allocated any paddy for purposes of custom milling in 2011-12. Allegedly with a view to wriggle out of the ban period, the mill owners leased out their rice mills to other similar partnership / proprietorship firms. Notably, all such lease deeds were unregistered.

These new lessees subsequently applied to the appellant FCI for allocation of paddy and asserted that none of them had committed any default or been blacklisted and that the disqualification attached to their lessors could not traverse onto their lawful entitlements. The FCI, on the other hand, declined to entertain such requests on the ground that the new lessees had simply stepped into the shoes of the earlier blacklisted lessors as the lease deeds were nothing but sham transactions to circumvent the ban.

HELD
No reliance can be placed upon the lease deeds allegedly executed between the defaulting rice miller(s) and the respondent(s), as they do not satisfy the statutory requirements of section 17(1)(d) of the Registration Act, 1908. These lease deeds thus cannot be accepted as evidence of valid transfer of possessory rights. The plea taken by the appellant FCI, that such documentation was made only to escape the liability fastened on the defaulting rice millers, carries some weight, though it is a pure question of fact. The appeal is allowed.

4. Apurva Jagdishbhai Dave vs. Prapti Apurva Dave AIR 2020 Gujarat 124 Date of order: 25th October 2020 Bench: A.P. Thaker J.

Electronic evidence – CD recording – Application dismissed – Certificate u/s 65B filed later – Admitted as primary evidence u/s 62 [Evidence Act, 1872; S. 62, S. 65B]

FACTS

The petitioner wanted to play a CD in the Court proceedings and asked a question to the respondent either to controvert or to admit the incident of a particular date and also asked the respondent whether or not it was her voice. It was contended that the petitioner had made an application for playing the CD.

The respondent raised an objection with regard to playing of the CD in the Family Court and filed a reply wherein she disputed the contents of the recording and stated that no such incident had occurred; after hearing both the parties, the trial Court rejected the application.

HELD


The trial Court dismissed the application on the ground that the certificate under section 65B of the Evidence Act has been produced at a later stage and not at the time when the original document was produced. Now, it is an admitted fact that u/s 65B of the Evidence Act, the electronic document can be produced along with the certificate which is prescribed under the Act.

In view of the provisions of section 65B of the Evidence Act, the Supreme Court in the case of Anwar P.V. vs. P.V. Basheer, reported in (2014) 10 SCC 473 has held that an electronic record by way of secondary evidence shall not be admitted in evidence unless the requirements u/s 65B are satisfied. Thus, in the case of CD, VCD, chip, etc., the same shall be accompanied by the certificate in terms of section 65B obtained at the time of taking the document, without which the secondary evidence pertaining to that electronic record is inadmissible. Although the aforesaid case clarified the position relating to certification to a large extent, it did not specify as to whether the certificate can be supplied at a later stage.

There are two decisions of the Delhi High Court and the Rajasthan High Court, i.e., Kundan Singh vs. State, 2015 SCC Online Delhi 13647 and Paras Jain vs. State of Rajasthan (2015) SCC Online Rajasthan 8331, respectively. Both the Courts have taken the view that section 65B certificate can be provided at a later stage and it is not an illegality going to the root of the matter.

Therefore, the impugned order of the Family Court regarding non-submission of the certificate at the time of production of electronic record is not legally sustainable. The document ought to have been permitted to be produced in the matter and after proper verification it could have been exhibited. Therefore, the impugned order of the trial Court is set aside and the electronic record is liable to be taken on record.

CORPORATE LAW CORNER

11. Dr. Venkadasamy Venkataramanujan vs. Securities and Exchange Board of India, Mumbai [2021] 123 taxmann.com 126 (SAT-Mum.) Date of order: 7th February, 2020

Independent Director – Where appellant was inducted as an Independent Director of company and there was no finding that act of company in collection of funds under collective investment scheme without obtaining certificate of registration occurred with appellant’s knowledge or consent, order of SEBI prohibiting appellant from accessing securities market for four years could not be sustained and same was to be quashed

FACTS

The present appeal has been filed against the order of the whole-time member (‘WTM’) of the Securities and Exchange Board of India (‘SEBI’) who held that the scheme floated by the company was nothing but a collective investment scheme (‘CIS’) in terms of section 11AA of the SEBI Act, 1992 and that this was done without obtaining a certificate of registration as required u/s 12(1B) of the SEBI Act and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999. The WTM had directed the company and its directors, including the appellant, to abstain from collecting any money from investors or to carry out any CIS, including the present scheme, and further to return the money so collected. The WTM further restrained the appellant and others from accessing the securities market and prohibited them from buying, selling or otherwise dealing in the securities market for a period of four years.

The appellant ‘V’, being one of the directors and being aggrieved by the order, has filed the present appeal.

‘V’ was appointed as an Independent Director on 26th February, 2015 and resigned on 21st July, 2015. His resignation was accepted by the company on 31st August, 2015 and intimated to the Registrar of Companies on 5th October, 2015.

‘V’ contended before the WTM and SAT that he was appointed in view of the requirement under the CIS Regulations for appointment of a professional as an Independent Director. ‘V’ was not a shareholder in the company, he was not directly associated with the persons who were running it, nor was he involved in its day-to-day running. He also urged that in view of section 149(12) of the Companies Act, 2013 an Independent Director cannot be held liable for such misfeasance which occurred without his knowledge.

It was also noted from the WTM order that ‘V’ has been held responsible only on the ground that part of the mobilisation of the fund was done during the period when he was appointed as a director.

HELD

The Tribunal came to the conclusion that the order insofar as it relates to ‘V’ cannot be sustained. There is no dispute about the fact that he was appointed as an Independent Director by the company in order to comply with the eligibility criteria for CIS application under the relevant Regulations. The Tribunal further noted that a specific assertion was made that ‘V’ did not attend any Board meeting which fact has not been disputed by the respondent. It also noted that ‘V’ was not directly associated with the persons having control over the affairs of the company, nor was he involved in the running of the company and this fact has been stated by the company itself. It was also emphasised that ‘V’ was not holding any shares in the company.

The mere fact that the company had mobilised certain funds under the CIS during the short period when ‘V’ was an Independent Director would not by itself make him liable for the misfeasance committed by the company unless it is shown that he was also involved in the decision-making process or in the collection of the funds. Neither of the two elements was present in the instant case.

The Tribunal further noted the provisions of section 149(12) of the Companies Act, 2013 and observed that a perusal of the same makes it clear that an Independent Director shall be held liable only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through a Board process, and with his consent or connivance, or where he had not acted diligently.

In the instant case, there is no finding by the WTM that the acts of the company in the collection of the funds had occurred with the knowledge of ‘V’ or that he was part of the decision-making processes through Board’s resolution, or that the activities of the company were being done with his consent or connivance.

The Tribunal observed that there is no finding that ‘V’ had not acted diligently. In fact, the record indicates that he was only appointed for a period of five months and had not attended any meeting of the Board.

Hence, the Tribunal held that the order insofar as ‘V’ is concerned cannot be sustained and quashed the order passed by the WTM.

12. Union of India, Ministry of Corporate Affairs vs. Mukesh Maneklal Choksi [2019] 101 taxmann.com 98 (NCLT-Mum.) Date of order: 3rd January, 2019

Where family members of statutory auditor were shareholders of the company and statutory auditor had issued audit report without examining books of accounts of company, provisions of section 143(3)(d) of the Companies Act, 2013 had been violated and statutory auditor would cease to function as statutory auditor of the company

FACTS

A complaint was filed alleging that shares of the respondent company were not listed on the Pune Stock Exchange. There was siphoning of investors’ money and the company had not issued financial statements after 1995.

The Inspecting Officer u/s 207(3) of the Companies Act, 2013 issued summons to all the directors of the respondent company in addition to R1, who were the Statutory Auditors of the respondent company for the financial years 2014-15 and 2015-16.

The Statutory Auditor in his statements stated that he had not audited the books of accounts of the company. However, he had signed the Audit Report of the company for the relevant period.

The petitioner Ministry of Corporate Affairs (MCA) filed a petition u/s 140(5) of the Companies Act, 2013 for direction that R1 should immediately cease to function as Statutory Auditor of the respondent company. It was also prayed that MCA be permitted to appoint an independent auditor to replace R1 in terms of the first proviso to section 140(5) of the Companies Act, 2013 read with Explanation 1 thereto.

HELD

The Tribunal on perusal of the application noted that the respondent company is not listed on any stock exchange despite the assurances given in the prospectus dated 10th October, 1996 and its present directors are apparently dummy / shadow directors of the company. The Chairman had dodged his responsibilities to assist in the inspection and it was further noted that all the commonly-known attributes of a shell company were in existence in the case of the company under inspection.

Relying on the statement on the oath of R1, it was clear that R1, i.e., the statutory auditor, has failed to exercise his duty and has further stated that he has issued the Audit Report even without examining any of the records / books of accounts of the company.

It is recorded that family members of R1 are shareholders of the respondent company, whereas section 141(3)(d) of the Companies Act, 2013 specifically prohibits a statutory auditor being appointed as such if his relative or partner is holding any security or interest in the company.

The Tribunal further noted that issuing the audit report of the company even without examining any books of accounts is a clear-cut violation of the statutory provision of section 141(3)(d) of the Companies Act, 2013.

Under the circumstances, the Tribunal ordered that R1 shall immediately cease to function as statutory auditor of the company. The MCA is permitted to appoint an independent auditor for the respondent company to replace R1 in terms of the first proviso to section 140(5) of the Companies Act, 2013 read with Explanation 1 thereto.

13. Phoenix Arc Pvt. Ltd. vs. Spade Financial Services Ltd. Civil Appeal No. 2842 of 2020 (SC) Date of order: 1st February, 2021

Sections 5(7), 5(8) and first proviso to section 21(2) of Insolvency and Bankruptcy Code, 2016 – Parties would not be regarded as Financial Creditors if they entered into collusive or sham transaction with Corporate Debtor – The transaction could not be regarded as financial debt – Parties would qualify as related party and excluded from COC if they were related at the time of creation of debt but ceased to be related parties when CIRP was initiated for the purpose of gaining a backdoor entry to the COC

FACTS

Corporate Insolvency Resolution Process (‘CIRP’) was initiated against P Co (‘Corporate Debtor’) on 18th April, 2018 by an operational creditor, Mr. H. During the process of CIRP, the Resolution Professional (‘RP’) invited claims. S Co filed its claim as a financial creditor in Form C for a sum of Rs. 52.96 crores on 10th May, 2018. S Co later revised its form to submit a claim of Rs. 109.11 crores. The basis for filing these claims was an MOU dated 12th August, 2011 which stated that inter-corporate deposits (‘ICDs’) of Rs. 26.55 crores were granted to the Corporate Debtor by S Co bearing an interest rate of 24%. Subsequently, it was submitted that ICDs worth Rs. 66 crores were granted to the Corporate Debtor between June, 2009 and January, 2013.

AAA filed its claim before the IRP in form F as a creditor other than financial or operational creditor for a sum of Rs. 109.72 crores on 23rd May, 2018. It had entered into a Development Agreement dated 1st March, 2012 with the Corporate Debtor to purchase development rights in a project. On 25th October, 2012 the Development Agreement was terminated and an agreement to sell, along with a side letter, was executed between AAA and the Corporate Debtor for purchase of flats. The sale consideration for the agreement to sell was enhanced to Rs. 86,01,00,000 from Rs. 32,80,00,000 under the Development Agreement. AAA paid a sum of Rs. 43.06 crores which along with interest at the rate of 18% increased to Rs. 109.72 crores.

The Committee of creditors (‘COC’) was established on 22nd May, 2018. On 25th May, 2018 the IRP rejected the claim of Spade inter alia on the ground that the claim was not in the nature of a financial debt in terms of section 5(8) of IBC since there was an absence of consideration for the time value of money, i.e., the period of repayment of the claimed ICDs was not stipulated. The IRP also rejected the claim of AAA on the ground that its claim as a financial creditor in Form C was filed after the expiry of the period for filing such a claim.

Phoenix was a part of the COC on the basis of its claim arising from a registered Deed of Assignment in its favour dated 28th December, 2015 pursuant to which Karnataka Bank Limited had assigned the non-performing assets relating to the credit facilities granted to the Corporate Debtor.

AAA and Spade filed an application before the National Company Law Tribunal (‘NCLT’) to be included in the COC. The NCLT on 30th May, 2018 allowed these applications where none of the other creditors such as Yes Bank or Phoenix were present. As a result of the inclusion of AAA and Spade, the voting share of Phoenix in the COC was reduced to 4.28%.

Yes Bank and Phoenix filed an application before the NCLT to exclude AAA and Spade from the COC on the ground that they were related parties. Upon hearing the submissions, NCLT held that the transactions between the Corporate Debtor and both SPADE and AAA were collusive in nature. Accordingly, they did not qualify to be considered as financial creditors. NCLT took note of the first proviso to section 21(2) of the IBC, which stated that a financial creditor who is a related party of the Corporate Debtor shall not have the right of representation, participation or voting in the COC. Therefore, the application of Yes Bank and Phoenix for exclusion of Spade and AAA was upheld by the Court.

NCLAT upheld the view taken by the NCLT to exclude Spade and AAA from the COC. However, there was an inadvertent observation that ‘admittedly’ Spade and AAA were financial creditors of the Corporate Debtor. Mr. Anil Nanda, in concert with Mr. Arun Anand and his family, had created a web of companies which were related parties to the Corporate Debtor and was now trying to gain a backdoor entry into the COC through them. Phoenix and Yes Bank thus filed an appeal before the Supreme Court challenging the observation of NCLAT that Spade and AAA were financial creditors to the Corporate Debtor.

HELD


The Supreme Court examined in detail the transactions between the Corporate Debtor, Spade and AAA which gave rise to their claims as Financial Creditors.

In the case of Spade, it was observed that the MOU dated 12th August, 2011 which provided ICDs to the Corporate Debtor charged interest at the rate of 24%. However, Spade has stated that actually only 12% interest was charged and hence its claim is on that basis. The Corporate Debtor through this MOU provided security for the ICDs through 37 flats worth Rs. 39.825 crores in their real estate project, AKME RAAGA. Further, additional security was provided through 11 plots worth Rs. 3 crores in another project. The charge was not registered. Out of the ICDs provided to the Corporate Debtor by Spade, Rs. 43.06 crores’ worth were credited to the account of Mr. Arun Anand by consent. However, this has been disputed by Spade.

As for AAA, the Supreme Court noted that the Development Agreement dated 1st March, 2012 was superseded by an agreement to sell dated 25th October, 2012 through which AAA bought a saleable area of 313,928 sq. ft. in AKME RAAGA at a price of Rs. 43.06 crores. A side letter executed on the same day noted that the area bought by AAA was 38.3% of AKME RAAGA and AAA would provide for the cost of its development accordingly.

The Supreme Court also observed that there was a close relationship between the key managerial personnel of the Corporate Debtor, Mr. Anil Nanda, and the director of Spade and AAA, Mr. Arun Anand.

The Court heard the parties at length and also their submissions on the issues.

The submission of the Corporate Debtor that the order of the NCLT dated 31st May, 2018 where it admitted AAA and Spade as financial creditors operated as res judicata was rejected by the Supreme Court on the grounds that other creditors were not heard. The order was passed without giving them an opportunity of being heard.

The next submission of the Corporate Debtor that the issue of the eligibility of Spade and AAA as financial creditors was never raised before the NCLT was found to be contrary to the material produced on record.

The next issue raised by the Corporate Debtor was that NCLAT acted beyond jurisdiction in the appeal filed by AAA and Spade in inquiring into whether they are related parties. This submission was also not accepted by the Supreme Court.

The primary contention of Phoenix and Yes Bank before the Supreme Court was to challenge the observation of the NCLAT that it was an admitted position that AAA and Spade are financial creditors. The Supreme Court examined the provisions of sections 5(7) and 5(8) of the Code which define the terms financial creditor and financial debt, respectively.

The Supreme Court observed that money advanced as debt should be in the receipt of the borrower. The borrower is obligated to return the money or its equivalent along with the consideration for a time value of money, which is the compensation or price payable for the period of time for which the money is lent. A transaction which is sham or collusive would only create an illusion that money has been disbursed to a borrower with the object of receiving consideration in the form of time value of money, when in fact the parties have entered into the transaction with a different or an ulterior motive.

Further, the Court observed that for the success of an insolvency regime the real nature of the transactions has to be unearthed in order to prevent any person from taking undue benefit of its provisions to the detriment of the rights of legitimate creditors.

Relying on the observations of the NCLT and the submissions made by Yes Bank, Phoenix and the Corporate Debtor, the Court held that the MOU entered between Spade and the Corporate Debtor was an eye-wash and collusive in nature. Similarly, the Corporate Debtor and AAA converted the Development Agreement into an agreement to sell executed along with a side letter to circumvent the legal prohibition on splitting a development license in two parts. The transaction between AAA and the Corporate Debtor was also held to be collusive in nature.

Since the commercial arrangements between Spade and AAA and the Corporate Debtor were collusive in nature, they would not constitute a ‘financial debt’. Hence, Spade and AAA are not financial creditors of the Corporate Debtor.

The Supreme Court took note of section 5(24) of the Code which defines the term ‘related party’ along with the detailed submissions of the parties on the relationship of key managerial personnel. It was observed that the definition of ‘related party’ under the Code was significantly broad. The intention of the Legislature in adopting such a broad definition was to capture all kinds of inter-relationships between the financial creditor and the Corporate Debtor.

It was observed that Mr. Arun Anand has held multiple positions in companies which form part of the Anil Nanda Group of Companies. Further, Mr. Anil Nanda has himself invested in companies owned by Mr. Arun Anand and had commercial transactions with them. Through Spade and AAA’s own admission, Mr. Arun Anand was appointed as the Group CEO of the Anil Nanda Group of Companies (for however short a period) on circular approval by Mr. Anil Nanda himself. Finally, Mr. Arun Anand’s brother in-law, Mr. Sonal Anand, has also been consistently associated with companies in the Anil Nanda Group of Companies, including the Corporate Debtor.

It was observed that there was a deep entanglement between the entities of Mr. Arun Anand and Mr. Anil Nanda, and Mr. Arun Anand did hold positions during this period which could have been used by him to guide the affairs of the Corporate Debtor. Based on this, the Supreme Court upheld the conclusion of the NCLAT that Mr. Arun Anand would be a related party of the Corporate Debtor in accordance with section 5(24)(h) and section 5(24)(m)(i). Mr. Arun Anand, Spade and AAA were related parties of the Corporate Debtor during the relevant period when the transactions on the basis of which Spade and AAA claimed their status as financial creditors took place.

The Supreme Court further noted that the COC is comprised of financial creditors, under loan and debt contracts, who have the right to vote on decisions, and operational creditors such as employees, rental obligations, utilities payments and trade credit, who can participate in the COC but do not have the right to vote. The aim of the COC is to enable coordination between various creditors so as to ensure that the interests of all stakeholders are balanced and the value of the assets of the entity in financial distress is maximised.

In the context of the first proviso to section 21(2), the issue before the Supreme Court was whether the disqualification under the proviso would attach to a financial creditor only in praesenti, or whether the disqualification also extends to those financial creditors who were related to the corporate debtor at the time of acquiring the debt.

The Court held that where a financial creditor seeks a position on the COC on the basis of a debt which was created when it was a related party of the corporate debtor, the exclusion which is created by the first proviso to section 21(2) must apply. If the definition of the expression ‘related party’ u/s 5(24) applies at the time when the debt was created, the exclusion in the first proviso to section 21(2) would stand attracted.

The Supreme Court further clarified that the exclusion under the first proviso to section 21(2) is related not to the debt itself but to the relationship existing between a related party financial creditor and the corporate debtor.

Thus, the default rule under the first proviso to section 21(2) is that only those financial creditors that are related parties in praesenti would be debarred from the COC, those related party financial creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to section 21(2), should also be considered as being covered by the exclusion thereunder.

The Supreme Court concluded that Spade and AAA were not financial creditors of the Corporate Debtor and accordingly the NCLAT observation to that extent was set aside. The exclusion of Spade and AAA from the COC was upheld for the reasons stated above.

ALLIED LAWS

24. Jayanta Ghosh & Ors. vs. Ajit Ghoshb AIR 2020 Calcutta 196 Date of order: 25th February, 2020 Bench: Shampa Sarkar J.


 

Gift deed – Unconditional registered gift deed cannot be revoked – No conditions of maintenance of parents are referred in the gift deed hence no duty cast upon son to maintain the parents [Maintenance and Welfare of Parents and Senior Citizens Act, 2007, S. 10, S. 23; Transfer of Property Act, 1882, S. 122]

 

FACTS

By a registered deed of gift dated 18th July, 2018, Ajit Ghosh (the respondent), transferred a two-storied building together with the appurtenant land to his son Jayanta Ghosh (petitioner No. 1). Thereafter, by a registered deed of gift dated 14th November, 2018, the petitioner No. 1 transferred the suit property to his wife and son (petitioners Nos. 2 and 3). The petitioners reside on the first floor and the parents on the ground floor.

 

The petitioners have alleged that the married daughters of the respondent and their husbands with ulterior motive tried to grab the said property, conspired with a few developers and created a cloud over the petitioners’ title over the suit property. Under such circumstances, being left with no other alternative, the petitioners Nos. 2 and 3 were constrained to institute a civil suit seeking a decree for declaration of title and injunction against the daughters and sons-in-law of the opposite party. The Court of the Learned Civil Judge (Jr. Division) directed the parties to maintain status quo in respect of the nature, character and possession of the suit property.

 

The respondent filed an application seeking maintenance under the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 (the Act). The Tribunal directed the petitioner No. 1 to pay maintenance of a sum of Rs. 10,000 per month. The respondents filed an application before the Tribunal seeking cancellation of the said deed of gift.

 

The Tribunal allowed the maintenance case, thereby cancelling the two registered deeds of gift dated 18th July, 2018 and 14th November, 2018 and further directing the petitioners to vacate the said property within six months from the said order. Aggrieved, this revisional application has been filed before the High Court.

 

HELD

From the recitals in the deed of gift, it appears that the respondent being pleased and satisfied with the love and respect shown by the petitioners, considered it his fatherly duty to secure his son in the future and thus had gifted the said property to the petitioner No. 1. The deed of gift was unconditional. No condition was attached with regard to the duty upon the petitioner No. 1 to provide basic maintenance and basic physical needs to the respondents. Therefore, section 23 of the said Act does not have any manner of application in this case. The revisional application is allowed.

 

25. Ashwin Kumar Ramanathan & Anr. vs. Inspector-General of Registration, Chief Controlling Revenue Authority AIR 2020 Madras 246 Date of order: 27th May, 2020 Bench: M. Govindaraj J.

 

Family arrangement – Stamp duty is not leviable – Transfer of property between family members [Stamp Act, 1899, Sch. 1 Art. 45(a)]

 

FACTS

One Mr. K. Ganesan by a Will dated 12th April, 1990 bequeathed life interest in favour of his wife and absolute interest in favour of his grandson (the appellant). On 18th October, 2002 the said Ganesan died. Since the Will was not probated, the family members have entered into a family arrangement. As per this, the wife and daughters of the deceased Ganesan have given the property to the grandchild as intended by the testator in his Will. However, the conveyance by the daughters of Ganesan was considered as settlement by non-family members as they do not fall within the definition of ‘family’. Therefore, stamp duty was imposed in respect of the shares of the daughters of Ganesan settled in favour of their brother’s son under the Indian Stamp Act.

 

HELD

It is pertinent to note that the Government in Notification No. 5450/C2/05 has clarified the definition of family for the purpose of Article 45(a) of Schedule I of the Indian Stamp Act. The clarification is given by the Government to the effect that even though the parent has died, the sisters and brother shall be construed as sons and daughters and they will fall within the definition of family. This will also apply to the children of the predeceased sons and daughters. As per the clarification, the daughters of Ganesan shall also fall under the definition of family. The conveyance or settlement made by them in favour of the children of the predeceased sons shall be considered as a transaction between the family members. They cannot be treated as members outside the family but included within the meaning of the family. The appeal is allowed.

 

26. Branch Manager, Indigo Airlines vs. Kalpana Rani Debbarma AIR 2020 Supreme Court 678 Date of order: 28th January, 2020 Bench: A.M. Khanwilkar J., Dinesh Maheshwari J.

 

Deficiency in service – Failure of passenger to reach the boarding gate after issuance of boarding pass – Airlines not duty-bound to escort every passenger [Consumer Protection Act, 1986, S. 2(1)(g), S. 21]

 

FACTS

The respondents had booked air ticket(s) for the flight from Kolkata to Agartala operated by the appellant airlines. According to them, they had reported well in time at the check-in counter and after completing the necessary formalities, they were issued boarding passes. However, they were left behind by the ground staff of the airlines and the flight departed without any information about its departure being given to the respondents. The respondents then requested the ground staff of the airlines to accommodate them in the next available flight for Agartala. Even this request was turned down.

 

As a result, the respondents had to incur expenditure for staying back at a hotel in Kolkata for two nights. They also had to incur loss of salary, mental agony, harassment, etc. Initially, the respondents sent a legal notice through their advocate on 28th January, 2017 demanding compensation of Rs. 3,32,754. As no response thereto was received, the respondents filed a complaint before the District Forum reiterating the grievance made in the legal notice and prayed for direction to the appellants for damages along with interest at the rate of 12% per annum.

 

HELD

The District Forum, the State Commission and the National Commission ruled in favour of the respondents but granted compensation of varying amounts. The matter was carried to the Apex Court.

 

The Supreme Court noted that while dealing with such a complaint, the jurisdiction or the nature of inquiry to be undertaken by the consumer fora is limited to the factum of deficiency in service and to award compensation only if that fact is substantiated by the party alleging the same. The expression ‘deficiency in service’ has been defined in section 2(1)(g) of the Consumer Protection Act, 1986 to mean any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

 

Further, the approach of the consumer fora is in complete disregard of the principles of pleadings and burden of proof. First, the material facts constituting deficiency in service are blissfully absent in the complaint as filed. Second, the initial onus to substantiate the factum of deficiency in service committed by the ground staff of the airlines at the airport after issuing boarding passes was primarily on the respondents. That has not been discharged by them. The consumer fora, however, went on to unjustly shift the onus on the appellants because of their failure to produce any evidence. In law, the burden of proof would shift on the appellants only after the respondents / complainants had discharged their initial burden in establishing the factum of deficiency in service.

 

Further, after the boarding pass is issued, the passenger is expected to proceed towards the security channel area and head towards the specified boarding gate on his own. There is no contractual obligation on the airlines to escort every passenger, after the boarding pass is issued at the check-in counter, up to the boarding gate. Further, the airlines issuing boarding passes cannot be made liable for the misdeeds, inaction or so to say misunderstanding caused to the passengers, until assistance is sought from the ground staff of the airlines at the airport well in time. It is not the case of the respondents that the boarding gate was changed at the last minute or there was any reason which created confusion attributable to airport / airlines officials, so as to invoke an expansive meaning of ‘denied boarding’. The factual situation in the present case is clearly one of ‘Gate No Show’ and the making of the respondents and not that of ‘denied boarding’ as such.

 

The appellant airlines cannot be blamed for the non-reporting of the respondents at the boarding gate. The appeal is allowed.

 

27. Seelam Pra vs. Ganta Mani Kumar AIR 2020 Telangana 189 Date of order: 19th July, 2019 Bench: M.S. Ramachandra Rao J.

 

Recording evidence through video conferencing – Wife working in USA – Unable to come to India – Cannot be compelled to give up her job to appear in Court – Evidence can be led through video conferencing [Hindu Marriage Act, 1955, S. 13, S. 21; Evidence Act, 1872, S. 65-B]

 

FACTS

The petitioner is employed in the USA and lives there along with a son born to the parties. The petitioner is represented by her father / G.P.A. holder. She sought recording of evidence by video conference from her residence in the US on the ground that she was living there and it was not possible for her to appear before the Family Court, Hyderabad on the several dates of adjournment. But the trial Court declined to give such permission observing that in the premises of the City Civil Court, Hyderabad where the Family Court was located, infrastructure / facility for video conferencing has not been provided.

 

HELD

In a situation where one or both of the parties to a matrimonial proceeding is living abroad and is unable to come to India to give evidence on account of his / her employment there, and there is a risk of the party losing his / her employment if he / she were to return to India, it would be unjust to compel the said party to give up her job there so that she can appear on every date of adjournment in the Family Court in India where her case is pending. It is common knowledge that pendency in some of the Family Courts is very high and there is every possibility of the matter getting dragged on indefinitely.

 

Further, that the petitioner cannot be penalised if her evidence could not be recorded when she was in India in the year 2018 because she admittedly attempted to file her documents through her G.P.A. which was rejected and permitted only much later.

 

The Principal Judge, Family Court, was directed to record the chief-examination / cross-examination of the petitioner through video conferencing at the video conferencing facility available in City Civil Court, Hyderabad after fixing an appropriate time with the consent of both parties and their counsel.

 

28. Abhilasha vs. Parkash & Ors. AIR 2020 Supreme Court 4355 Date of order: 15th September, 2020 Bench: Ashok Bhushan J., R. Subhash Reddy J., M.R. Shah J.

 

Maintenance – Unmarried daughter unable to maintain herself even after attaining majority – The obligation which is cast on the father to maintain his unmarried daughter can be enforced by her against her father [The Hindu Adoptions and Maintenance Act, 1956, S. 20(3); The Code of Criminal Procedure, 1973, S. 125]

 

FACTS

The respondent No. 2, mother of the appellant, on her behalf as well as on behalf of her two sons and the appellant daughter, filed an application u/s 125 CrPC against her husband, the respondent No. 1, Parkash, claiming maintenance for herself and her three children. The Judicial Magistrate dismissed the application u/s 125 CrPC of the applicants and allowed the same for respondent No. 1 (appellant before us) for grant of maintenance till she attains majority.

 

Two questions arise for consideration in this appeal:

 

(i) Whether the appellant, who although she had attained majority but is still unmarried, is entitled to claim maintenance from her father in proceedings u/s 125 CrPC although she is not suffering from any physical or mental abnormality / injury?

 

(ii) Whether the orders passed by the Judicial Magistrate as well as the Revisional Court limiting the claim of the appellant to claim maintenance till she attains majority on 26th April, 2005 deserves to be set aside with a direction to the respondent No. 1 to continue to give maintenance even after 26th April, 2005 till the appellant remains unmarried?

 

HELD

Section 20(3) of the Hindu Adoptions and Maintenance Act, 1956 (Act) is nothing but recognition of the principles of Hindu Law regarding maintenance of children and aged parents. Section 20 of this Act casts a statutory obligation on a Hindu to maintain his daughter who is unmarried and unable to maintain herself out of her own earnings or other property. Hindu Law prior to the enactment of the Act of 1956 always obliged a Hindu to maintain an unmarried daughter who is unable to maintain herself. The obligation, which is cast on the father to maintain his unmarried daughter, can be enforced by her against her father if she is unable to maintain herself by enforcing her right u/s 20. 

RIGHT TO INFORMATION (r2i)

Supreme Court refuses to recall 2015 verdict directing RBI to divulge information about banks under RTI1
 

Case name:

Reserve Bank of India vs. Jayantilal N.
Mistry & Anr.

Citation:

M.A. No. 2342 of 2019, M.A. No. 805/2020,
M.A. No. 1870/2020, M.A. No. 534/2020, M.A. No. 1046/2020, M.A. No.
1129/2020, M.A. No. 1646/2020, M.A. No. 1647/2020, M.A. No. 1648/2020, M.A.
No. 2008/2020, M.A. No. 560/2021, M.A. No. 573/2021 in transferred case
(Civil) No. 91 of 2015

Court:

The Supreme Court of India

Bench:

Justice L. Nageswara Rao and Justice Vineet Saran

Decided on:

28th April, 2021

Relevant Act / sections:

Sections 8(1)(a)(d) and (e) and 2(f) of Right to
Information Act, 2005

Brief facts and procedural history:

  •  An RTI activist named Jayantilal Mistry from Gujarat way back in 2010 had sought information under the RTI Act, 2005 from the RBI about a Gujarat-based co-operative bank.
  •  The information pertained to the annual inspection reports prepared by the RBI which had not been put into the public domain. Mistry filed an application under the RTI Act in October, 2010 before the Central Public Information Officer (CPIO) of the RBI.
  •  The RBI, however, did not provide the requested details. The information seeker then filed an appeal before the designated First Appellate Authority (FAA) of the RBI.
  •  On 30th March, 2011, the FAA disposed of the appeal by upholding the order of the CPIO. The aggrieved Mistry filed a second appeal before the Central Information Commission (CIC), New Delhi.
  •  The CIC in its judgment dated 1st November, 2011 directed the RBI to provide information before 30th November, 2011.
  •  Aggrieved by the decision of the CIC, the RBI filed a writ petition before the Delhi High Court for quashing of the CIC’s judgment. The High Court, while issuing notice, stayed the operation of the CIC’s order.
  •  The matter was finally challenged before the Supreme Court of India.
  •  The Supreme Court in its 2015 judgment on the applicability of RTI has made a detailed reference to section 2(f) of the RTI Act, 2005 which defines ‘information’. The RBI collects inspection reports from various banks. Since these reports fall within the definition of ‘information’, the same must be provided to citizens. Ideally, the RBI should make these reports public through its website.
  •  A joint plea / recall petition was filed by the Central Government and ten banks seeking a recall of the 2015 judgment.

Issues before the Court:

  •  Whether an application can be filed to recall the judgment of the Hon’ble Supreme Court?

Ratio decidendi:

  •  The dispute relates to information to be provided by the RBI under the RTI Act. Though the information pertained to banks, it was the decision of the RBI which was in challenge and decided by this Court.
  •  No effort was made by any of the applicants in the Miscellaneous Applications to get themselves impleaded when the transferred cases were being heard by this Court. The applications styled as recall are essentially applications for review.
  •  The nomenclature given to an application is of absolutely no consequence; what is of importance is the substance of the application – M.C. Mehta vs. Union of India.
  •  A close scrutiny of the applications for recall makes it clear that in substance the applicants are seeking a review of the judgment in Jayantilal N. Mistry (2015).

Decision:

  •  The Court was of the opinion that these applications were not maintainable. It made it clear that it is not dealing with any of the submissions made on the correctness of the judgment of this Court in Jayantilal N. Mistry (2015).
  •  The dismissal of the applications shall not prevent the applicants from pursuing other remedies available to them in law. All the Miscellaneous Applications were dismissed.

PART B | HIGHLIGHTS OF CIC ANNUAL REPORT, 2019-20

  •  Total number of Public Authorities: 2,193
  •  Total number of Public Authorities who have submitted all the four quarterly returns: 2,131
  •  Total number of Public Authorities who have not submitted all the four quarterly returns: 62 (the defaulters include public authorities of four Union Territories and 21 Ministries)
  •  Opening balance of RTI requests received by Public Authorities (as on 1st April of the reporting year): 3,10,110
  •  Total number of RTI requests received during the reporting year: 13,74,315
  •  Total number of RTI requests including opening balance: 16,84,425
  •  Total number of RTI requests transferred to other Public Authorities u/s 6(3): 1,82,988
  •  Total number of first appeals received: 1,52,354
  •  Total number of first appeals disposed: 96,812
  •  Total number of RTI requests rejected by Public Authorities: 58,634
  •  Total number of cases where disciplinary action has been initiated against an officer in respect of administration of the RTI Act: 23
  •  Total amount collected by Public Authorities (in INR): 93,08,534
  •  Total number of designated CAPIOs: 60,432
  •  Total number of designated CPIOs: 21,756
  •  Total number of designated FAAs: 8,923
  •  Number of second appeals / complaints registered during reporting year: 22,243
  •  Number of second appeals / complaints disposed during reporting year: 16,720
  •  Number of second appeals / complaints pending for disposal as on 1st April of reporting year: 35,178
  •  One out of every three RTIs is rejected using section 8 (1)2.

PART C | INFORMATION ON AND AROUND

  •  Two bribery and disproportionate assets complaints had been received against Sachin Waze but no inquiry was going on against him till March, 2021

The Anti-Corruption Bureau of Maharashtra Police has sent a proposal to the Home Department for an open inquiry against allegations of corruption and disproportionate assets against suspended and jailed Assistant Police Inspector Sachin Waze. A Right to Information (RTI) query has separately revealed that the ACB ignored a complaint alleging bribery and disproportionate assets against Waze last year, soon after he was reinstated in the police force3.

  •  Orissa High Court refuses to grant interim stay on OIC order

OIC had issued the order on 9th July 9, 2020 on a complaint for bringing OOA under the ambit of RTI to ensure greater transparency and accountability in its operations. While issuing the order, OIC had directed OOA to comply with the provisions of the Act within 30 days from the date of receipt of the order. The OOA operates and maintains the Barabati Stadium in Cuttack which had come up on land given by the Government under a long-term lease for development of sports in Odisha. OOA is affiliated to the Indian Olympic Association (IOA) which has already subjected itself to the provisions of RTI in compliance with the order passed by the High Court of Delhi in some writ petitions in 20104.

  •  28,000 cases lodged under section 188 of IPC pending with Pune Police

Section 188 of the IPC states that any person who disobeys an order given by a public servant can be imprisoned for up to one month. Even though in 2020 the then State Home Minister Anil Deshmukh had announced that the Government would withdraw cases against people booked for violating Covid lockdown norms, yet the pending cases are in huge numbers5.

_______________________________________________________
1    https://www.livelaw.in/pdf_upload/rbi-v-jayantilal-n-mistry-2021-392582.pdf
2    https://cic.gov.in/sites/default/files/Reports/CIC%20Annual%20Report%202019-20%20-%20English.pdf
3    https://indianexpress.com/article/cities/mumbai/anti-corruption-bureau-sends-proposal-to-home-dept-for-open-inquiry-against-waze-7295985/
4    https://www.newindianexpress.com/states/odisha/2021/may/22/orissa-high-court-refuses-to-grant-interim-stay-on-oic-order-2306012.html
5    https://www.hindustantimes.com/cities/others/28000-cases-lodged-under-section-188-of-ipc-pending-with-pune-police-101621605589107.html

CORPORATE LAW CORNER

4 JCT Limited vs. BSE Limited Before Securities Appellate Tribunal, Mumbai Date of order: 12th November, 2020 Appeal No. 553 of 2019 (Unreported)

If company issues shares against waiver of interest of 3%, said issue is to be considered as for ‘consideration other than cash’

FACTS

The appellant company JCT Limited is listed on the Bombay Stock Exchange (BSE). It availed several credit facilities from a consortium of banks and also issued Foreign Currency Convertible Bonds which were due for redemption. But the FCCBs could not be redeemed due to its unsound financial condition and the bond-holders initiated winding-up proceedings in the Punjab and Haryana High Court.

Even a settlement agreement in terms of the direction of the High Court could not be honoured because the appellant company defaulted in paying the instalments. The company then approached Phoenix ARC Private Limited (‘Phoenix’) which agreed to a one-time settlement of the obligations of FCCBs for a total consideration of Rs. 100 crores as well as for a need-based working capital loan to the company up to Rs. 20 crores. Therefore, the said agreement was for a total loan of Rs. 120 crores with a tenure / maturity of five years to be repaid with interest @ 19% per annum.

But the company contended that the interest rate of 19% was on the high side. The two (the appellant and Phoenix) agreed to revise the interest rate to 16% p.a., with interest payable on a monthly basis and 3% to be paid upfront at the time of assigning / first draw-down of the loan.

It was also agreed that equity shares would be allotted to Phoenix in lieu of the 3% interest component and in September, 2018, Phoenix conveyed its final sanction of the loan on the above terms.

In December, 2018 the company’s Board of Directors approved the issue of fresh equity shares in lieu of the 3% interest which came to Rs. 9.16 crores on discounted value basis; therefore, 3,64,72,067 equity shares of a face value of Rs. 2.50 had to be issued.

In January, 2019 the company submitted an application to the BSE for in-principle approval of the said issue and allotment. Various clarifications were sought by BSE which were replied to.

Next, in February, 2019 at an extraordinary general body meeting of the company, a special resolution was passed empowering the Board of Directors to issue the said shares.

In July, 2019 the company submitted a representation to SEBI seeking in-principle approval for the said issue and allotment.

And in August, 2019 a personal hearing was held before SEBI in which officials from BSE were also present. At this meeting, SEBI endorsed the view taken by the BSE officials and informed the company that approval could not be granted to the proposed issue and allotment in terms of Regulation 169(1) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

In the same month, the company received an e-mail communication from BSE stating that if as part of an agreement of liquidating a future obligation / liability an issue and allotment is made, it shall be treated as for ‘other than cash consideration’.

An appeal was filed by JCT Limited against BSE and SEBI wherein the proposal to issue 3,64,72,067 equity shares to a lender on preferential basis was rejected.

Interpretation by Department of Company Affairs (‘DCA’)

The DCA had issued a Circular and stated that if the consideration for the allotment of shares is actual cash, only then the allotment would be for cash. It stated that ‘cash’ is actual money or instruments, e.g., cheques which are generally used and accepted as money. If the consideration for allotment is not flow of cash but some other mode of payment, such as cancellation of a genuine debt or outstanding bills, for goods sold and delivered, marketable securities, time deposits in banks, etc., then the allotment cannot be treated as for cash. However, the DCA issued a clarification, re-examined the earlier Circular and stated that allotment of shares by a company to a person in lieu of a genuine debt due is in compliance with the provisions of section 75(1) of the Companies Act, 1956. The DCA clarified that ‘the act of handing over cash to the allottee of shares by a company in payment of the debt and the allottee in turn returning the same cash as payment for the shares allotted to him is not necessary for treating the shares as having been allotted for cash. What is required is to ensure that the genuine debt payable by a company is liquidated to the extent of the value of the shares.’

HELD


SAT opined that if, as part of an agreement of liquidating a future obligation / liability an issue and allotment is made, it shall be treated as for ‘other than cash consideration’. SAT rejected the respondents’ (i.e., BSE and SEBI) contention that it has to be an existing debt obligation. It observed that ‘it is a very tight and narrow interpretation, particularly in the context of a beneficial economic legislation where some degree of freedom of doing business is to be granted while interpreting provisions of such law in the absence of any allegation of violation, manipulation or other offences.’

SAT noted that the appellant company was on the brink of liquidation, trying to pay up its past obligations to the financial institutions by availing a term-loan from an ARC who, for its own business considerations, is ready to give such a term loan though at an exorbitant rate of interest of 19%. While noting that 19% was too high (which might again make the company non-viable), SAT appreciated that the company had entered into an agreement with an ARC for a reduction in the interest liability in terms of giving some shares of the company, which the ARC was willing to accept and for which NPV calculation was also agreed to by the parties.

By the NPV method, a potential liability of Rs. 21.55 crores was converted into Rs. 9.16 crores. SAT stated that ‘There are lots of genuine business decisions in terms of this agreement. Even if it is possible to read such an interest adjustment for shares as for cash consideration, it is also possible to read the same futuristic NPV-based consideration as not for cash’. In such a context of ‘right versus right’ and that, too, in the case of business decisions, ‘we need to read it with a positive spirit’ for enabling business and genuine business decisions.

SAT held that the said issue by the company to issue and allot shares in lieu of 3% reduction in interest is clearly ‘other than cash’. It observed that ‘These words are clear, plain and unambiguous and need no further interpretation, and therefore use of any additional words to give a purposeful meaning to the provision is not required, especially when clarifications, as quoted above, have been made.’

ALLIED LAWS

8 Chief Information Commissioner vs. High Court of Gujarat AIR (2020) SC 4333
Date of order: 4th March, 2020 Bench: R. Banumathi J., A.S. Bopanna J., Hrishikesh Roy J.

Right to Information – Certified copies to third parties – Only on affidavit – Not inconsistent with RTI Act – RTI Act will not override High Court Rules [Right to Information Act, 2005, S. 6(2), S. 11, S. 12; Gujarat High Court Rules, R. 151]

FACTS

An RTI application dated 5th April, 2010 was filed by respondent No. 2 seeking information pertaining to certain cases along with all relevant documents and certified copies. In reply, by a letter dated 29th April, 2010, the Public Information Officer, Gujarat High Court, informed respondent No. 2 that for obtaining the required copies he should make an application personally or through his advocate by affixing a court fee stamp of Rs. 3 along with the requisite fees to the ‘Deputy Registrar’. It was further stated that as respondent No. 2 is not a party to the said proceedings, as per Rule 151 of the Gujarat High Court Rules, 1993 his application should be accompanied by an affidavit stating the grounds on which the certified copies are required and on making such application he will be supplied with the certified copies of the documents as per Rules 149 to 154 of the Gujarat High Court Rules, 1993.

HELD

Rule 151 of the Gujarat High Court Rules stipulates that a third party to have access to the information / obtaining the certified copies of the documents or orders is required to file an application / affidavit stating the reasons for seeking the information, and this is not inconsistent with the provisions of the RTI Act but merely lays down a different procedure from the practice of payment of fees, etc., for obtaining information. In the absence of any inherent inconsistency between the provisions of the RTI Act and other laws, the overriding effect of the RTI Act would not apply.

For information to be accessed / certified copies on the judicial side to be obtained through the mechanism provided under the High Court Rules, the provisions of the RTI Act shall not be resorted to.

9 In Re: Expeditious trial of cases u/s 138 of the Negotiable Instruments, Act, 1881 Suo motu W.P. (Crl) No. 2 of 2020 Date of order: 17th April, 2021 Bench: A.S. Bopanna J., B.R. Gavai J.,  L. Nageswara Rao J., Ravindra Bhat J., S.A. Bobde CJI

Dishonour of cheques – Long pendency of disputes – Guidelines issued [S. 138, Negotiable Instruments Act, 1881]

FACTS


Special Leave Petition (Criminal) No. 5464 of 2016 pertains to dishonour of two cheques on 27th January, 2005 for an amount of Rs. 1,70,000. The dispute has remained pending for the past 16 years. Concerned with the large number of cases filed u/s 138 of the Negotiable Instruments Act, 1881 (the 1881 Act) pending at various levels, a Division Bench of this Court decided to examine the reasons for the delay in disposal of these cases. The Registry was directed to register a suo motu Writ Petition (Criminal).

HELD

Courts are inundated with complaints filed u/s 138 of the 1881 Act. The cases are not being decided within a reasonable period and remain pending for a number of years. This gargantuan pendency of complaints has had an adverse effect on disposal of other criminal cases. Concerned with the large number of cases pending at various levels, a larger bench of the Supreme Court has examined the reasons for the delay in disposal of cases. The following conclusions were arrived at:

1) The High Courts are requested to issue practice directions to the Magistrates to record reasons before converting trial of complaints u/s 138 from summary trial to summons trial.
2) Inquiry shall be conducted on receipt of complaints u/s 138 to arrive at sufficient grounds to proceed against the accused when such accused resides beyond the territorial jurisdiction of the court.
3) For the conduct of inquiry u/s 202 of the Code, evidence of witnesses on behalf of the complainant shall be permitted to be taken on affidavit. In suitable cases, the Magistrate can restrict the inquiry to examination of documents without insisting on examination of witnesses.
4) We recommend that suitable amendments be made to the Act for provision of one trial against a person for multiple offences u/s 138 committed within a period of 12 months, notwithstanding the restriction in section 219 of the Code.
5) The High Courts are requested to issue practice directions to the Trial Courts to treat service of summons in one complaint u/s 138 forming part of a transaction, as deemed service in respect of all the complaints filed before the same court relating to dishonour of cheques issued as part of the said transaction.
6) Judgments of this Court in Adalat Prasad [(2004) 7 SCC 338] and Subramanium Sethuraman [(2004) 13 SCC 324] have interpreted the law correctly and we reiterate that there is no inherent power of Trial Courts to review or recall the issue of summons. This does not affect the power of the Trial Court u/s 322 of the Code to revisit the order of issue of process in case it is brought to the court’s notice that it lacks jurisdiction to try the complaint.
7) Section 258 of the Code is not applicable to complaints u/s 138 and findings to the contrary in Meters and Instruments [(2004) 13 SCC 324] do not lay down the correct law. To conclusively deal with this aspect, amendment to the Act empowering the Trial Courts to reconsider / recall summons in respect of complaints u/s 138 shall be considered by the committee constituted by an order of this Court dated 10th March, 2021.
8) All other points, which have been raised by the Amici Curiae in their preliminary report and written submissions and not considered herein, shall be the subject matter of deliberation by the aforementioned committee. Any other issue relating to expeditious disposal of complaints u/s 138 shall also be considered by the committee.

10 Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal & Anr. CA No. 323 of 2021 Date of order: 15th April, 2021 Bench: Rohinton Fali Nariman J., B.R. Gavai J., Hrishikesh Roy J.

Period of Limitation – Balance Sheet entries – Acknowledgement of debt [S. 18, Limitation Act, 1963]

FACTS

In 2009, Corporate Power Ltd. (corporate debtor) set up a thermal power project in Jharkhand and availed of loan facilities from various lenders, including the State Bank of India (SBI). The account of the corporate debtor was declared as a non-performing asset by SBI on 31st July, 2013. On 27th March, 2015, SBI issued a loan-recall notice to the corporate debtor in its capacity as the lenders’ agent. On 20th June, 2015, the appellant issued a notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) on behalf of itself and other consortium lenders to the corporate debtor.

On 1st June, 2016, the appellant took actual physical possession of the project assets of the corporate debtor under the SARFAESI Act. On 26th December, 2018, the appellant filed an application u/s 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal, Calcutta (NCLT) for a default amounting to Rs. 59,97,80,02,973 from the corporate debtor. As the relevant form indicating the date of default did not indicate any such date, this was made up by the appellant on 8th November, 2019 by filing a supplementary affidavit before the NCLT, specifically mentioning the date of default and annexing copies of balance sheets of the corporate debtor which, according to the appellant, acknowledged periodically the debt that was due.

On 19th February, 2020, the section 7 application was admitted by the NCLT, observing that the balance sheets of the corporate debtor, wherein it acknowledged its liability, were signed before the expiry of three years from the date of default and entries in such balance sheets being acknowledgements of the debt due for the purposes of section 18 of the Limitation Act, 1963 (Limitation Act), the section 7 application is not barred by limitation. The corporate debtor filed an appeal before the National Company Law Appellate Tribunal (NCLAT), which held that entries in balance sheets would not amount to acknowledgement of debt for the purpose of extending limitation u/s 18 of the Limitation Act on account of a NCLAT Full Bench decision in the case of V. Padmakumar vs. Stressed Assets Stabilisation Fund, Company Appeal (AT) (Insolvency) No. 57 of 2020 (decided on 12th March, 2020).

HELD

The default had been admitted by the corporate debtor and the signed balance sheet of the corporate debtor for the year 2016-17 was not disputed by it. As a result, the NCLT held that the section 7 application was not barred by limitation and therefore admitted the same. It further held that the majority decision of the Full Bench in V. Padmakumar (Supra) is contrary to a catena of judgments and hence set aside.

11 In Re: Cognizance for Extension of Limitation Suo motu W.P. (C) No. 3 of 2020 Date of order: 27th April, 2021 Bench: S.A. Bobde CJI, Surya Kant J., A.S. Bopanna J.
    
Covid-19 – Supreme Court – Relief for litigants and lawyers [Constitution of India, Articles 141, 142]
    
FACTS

Due to the onset of the Covid-19 pandemic, this Court took suo motu cognizance of the situation arising from difficulties that might be faced by the litigants across the country in filing petitions / applications / suits / appeals / all other proceedings within the period of limitation prescribed under the general law of limitation or under any special laws (both Central or State).

The Supreme Court in the same case vide order dated 23rd March, 2020 had extended the due date till further orders. The said order was extended from time to time.

Thereafter, on 8th March, 2021, it was noticed that the country is returning to normalcy and since all the Courts and Tribunals have started functioning either physically or by virtual mode, extension of limitation was regulated and brought to an end. The period between 15th March, 2020 and 14th March, 2021 stood excluded.

The Supreme Court Advocates on Record Association (SCAORA) has now, through this Interlocutory Application, highlighted the daily surge in Covid cases in Delhi and stated how difficult it has become for the Advocates-on-Record and the litigants to institute cases in the Supreme Court and other courts in Delhi. Consequently, restoration of the order dated 23rd March, 2020 has been prayed for.

HELD

The period from 14th March, 2021 till further orders shall also stand excluded in computing the periods prescribed under sections 23(4) and 29A of the Arbitration and Conciliation Act, 1996, section 12A of the Commercial Courts Act, 2015, and provisos (b) and (c) of section 138 of the Negotiable Instruments Act, 1881 and any other laws which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.

12 The Chief Election Commissioner of India vs. M.R. Vijayabhaskar & Ors. CA 1767 of 2021 Date of order: 6th May, 2021 Bench: Dr. D.Y. Chandrachud J., M.R. Shah J.

Oral comments – reported by media – Sanctity and validity [Article 19, 226, Constitution of India]

FACTS

The Madras High Court entertained a Writ Petition under Article 226 of the Constitution to ensure that Covid-related protocols are followed in the polling booths at the 135-Karur Legislative Assembly Constituency in Tamil Nadu. During the hearings, the Division Bench is alleged to have made certain remarks, attributing responsibility to the Election Commission (EC) for the present surge in the number of cases of Covid-19, due to its failure to implement appropriate safety measures and protocol during the elections. The Court observed, ‘the institution that is singularly responsible for the second wave of Covid-19…’ and that the EC ‘should be put up for murder charges’. These remarks, though not part of the order of the High Court, were reported in the print, electronic and tele-media.

The issue is that these oral remarks made by the High Court, which the EC alleges are baseless, tarnished the image of the EC which is an independent constitutional authority.

HELD


Courts must be open both in the physical and metaphorical sense. Our legal system is founded on the principle that open access to courts is essential to safeguard valuable constitutional freedoms. The concept of an open court requires that information relating to a court proceeding must be available in the public domain. Citizens have a right to know about what transpires in the course of judicial proceedings. The dialogue in a court indicates the manner in which a judicial proceeding is structured. Oral arguments are postulated on an open exchange of ideas.

Article 19(1)(a) of the Constitution guarantees every citizen the right to freedom of speech and expression. The Constitution guarantees the media the freedom to inform, to distil and convey information and to express ideas and opinions on all matters of interest. Freedom of speech and expression extends to reporting the proceedings of judicial institutions as well. Courts are entrusted to perform crucial functions under the law. Their work has a direct impact not only on the rights of citizens but also the extent to which the citizens can exact accountability from the executive whose duty it is to enforce the law.

The independence of the judiciary from the executive and the legislature is the cornerstone of our Republic. Independence translates to being impartial, free from bias and uninfluenced by the actions of those in power, but also recognises the freedom to judges to conduct court proceedings within the contours of the well-established principles of natural justice. Judges in the performance of their duty must remain faithful to the oath of the office they hold which requires them to bear allegiance to the Constitution. An independent judiciary must also be one which is accountable to the public in its actions (and omissions).

CORPORATE LAW CORNER

7. Karn Gupta vs. Union of India & Anr. Delhi High Court W.P.(C) 5009/2018 and CM No. 19290/2018 Date of order: 23rd May, 2018

The Director of a company who has resigned from the Directorship would not incur disqualification u/s 164 of the Companies Act, 2013

FACTS
• Mr. KG in his writ petition complained that he had been appointed as a Director in a company registered under the name of M/s EWC Pvt. Ltd. on 11th July, 2012. He resigned on 5th December, 2012.

• The company failed to submit Form 32 regarding his resignation in accordance with the provisions of the erstwhile Companies Act, 1956 with the Registrar of Companies.

• On 6th September, 2017 and 12th September, 2017, MCA notified a list of Directors who had been disqualified u/s 164(2)(a) of the Companies Act, 2013 as Directors with effect from 1st November, 2016.

•  Mr. KG’s name featured in this list, despite his resignation. As a result, he was prohibited from being appointed or re-appointed as a Director in any other company for a period of five years.

• It was submitted before the Delhi High Court that Mr. KG had resigned from the Directorship of the company a long time back. Therefore, he would not incur disqualification u/s 164 of the Companies Act, 2013.

• Consequently, he pleaded that the disqualification as notified in the lists dated 6th September, 2017 and 12th September, 2017 by the Registrar of Companies was incorrect and illegal.

HELD
• The Delhi High Court held that the disqualification of Mr. KG as notified in the impugned list as disqualified
Director of the company and the resultant prohibition u/s 164(2)(a) of the Companies Act, 2013 by virtue of his name featuring in the lists dated 6th September, 2017 and 12th September, 2017 was incorrect, set aside and quashed.

• The Court further directed the Registrar of Companies to ensure that its records are properly rectified to delete the name of Mr. KG from the lists.

8. The Registrar of Companies West Bengal vs. Sabyasachi Bagchi National Company Law Appellate Tribunal, New Delhi Company Appeal (AT) No. 12 of 2019 Date of order: 24th June, 2020

NCLT cannot ignore the provisions relating to minimum penalty for compounding of offence as per sub-section (6) of section 165 of Companies Act, 2013

FACTS
• Mr. SB was holding Directorship in 17 companies as on 1st April, 2014 when section 165(1) of the Act came into force. However, he vacated Directorship of three companies during the period from 1st April, 2014 to 31st March, 2015.

• Later, he received a show cause notice from the Registrar of Companies, West Bengal, (ROC). After receipt of the said notice, Mr. SB resigned from the Directorship of four companies on 22nd February, 2016; thus, he had contravened the provisions of section 165(1) of the Companies Act, 2013 for the period from 01st April, 2015 to 21st February, 2016 – i.e., for 326 days.

• The reply to the show cause notice of Mr. SB was found unsatisfactory; therefore, the ROC filed a complaint u/s 165 (6) against him before the Chief Metropolitan Magistrate, Kolkata. During the pendency of the prosecution, Mr. SB filed an application u/s 441(1) of the Act before the National Company Law Tribunal, Kolkata (NCLT) for compounding the offence.

• The ROC filed his report on the compounding application before the NCLT. After hearing the parties, NCLT allowed the application subject to payment of the compounding fees of Rs. 25,000 within 15 days from the date of the order.

• But the ROC being aggrieved with the NCLT order, preferred to file an appeal against this before the National Company Law Appellant Tribunal (NCLAT) along with an application for condonation of delay in filing the appeal. After hearing the parties and being satisfied, NCLAT, in exercise of its powers condoned the delay of 41 days in filing the appeal.

HELD
NCLAT observed and held that:
• Mr. SB had violated the provisions u/s 165(1) read with section 165(3) of the Act for the period from 1st April, 2015 to 21st February, 2016 which was punishable u/s 165(6) of the Act before amendment.

• Further, NCLAT noted that the Tribunal had failed to notice the minimum fine prescribed under sub-section 6 of section 165, which was applicable at the relevant time, i.e., before the amendment.

• Hence, taking into consideration the facts and circumstances of the case, NCLAT set aside the NCLT order and imposed a minimum fine at the rate of Rs. 5,000 for every day for the period from 1st April, 2015 to 21st February, 2016, i.e., 326 days, adding up to a total of Rs. 16,30,000. Thus, the appeal of the ROC was allowed.

9. In the Supreme Court of India, Civil Appellate Jurisdiction Civil Appeal No. 1650 of 2020 Dena Bank (now Bank of Baroda) vs. C. Shivakumar Reddy & Anr.

FACTUAL BACKGROUND
The instant appeal was filed u/s 62 of the Insolvency and Bankruptcy Code, 2016. It was filed against the judgment passed by the National Company Law Appellate Tribunal (NCLAT) which had held that the petition of the appellant bank u/s 7 of the IBC was barred by limitation. The verdict passed by the Supreme Court goes on to resolve issues regarding what can and what cannot be accepted as an acknowledgment of debt by the corporate debtor, the period of limitation, and whether belated filing of additional documents can be done at a later stage under the IBC.

HELD BY NCLT & NCLAT
In October, 2018, the appellant bank filed the petition before the NCLT u/s 7 of the IBC. Further, in 2019, it filed an application under Rule 11 of the NCLT Rules, 2016 read along with Rule 4 for permission to place on record the final judgment of the DRT and the Recovery Certificate that was issued; this application was allowed by the Adjudicating Authority. In March, 2019, a similar application was filed once again, this time to take permission to place on record additional documents, including the letter dated 3rd March, 2017 of the corporate debtor (CD) to the said bank proposing a one-time settlement; the annual report of the CD for the years 2016-2017; the financial statement of the CD for the period from 1st April, 2016 to 31st March, 2017; and also for the period from 1st April, 2017 to 31st March, 2018 – and this application, too, was allowed.

Further, in February, 2019, the CD filed its preliminary objections to the petition filed by the bank u/s 7 of the IBC, inter alia contending that the said petition was barred by limitation. This objection was rejected by the Adjudicating Authority, the petition filed by the bank was allowed and an Interim Resolution Professional was appointed in March, 2019. The CD filed an appeal against this order before the NCLAT u/s 61 of the IBC. The NCLAT allowed the appeal and set aside the earlier judgment passed by the NCLT, stating that the petition filed by the appellant bank u/s 7 of the IBC was barred by limitation.

ISSUES INVOLVED
Whether a petition u/s 7 of the IBC would be barred by limitation on the sole ground that it had been filed beyond three years from the declaration of the loan account as an NPA, even though the corporate debtor may have subsequently acknowledged the liability?

Whether a final judgment and decree of the DRT in favour of the financial creditor, or a Recovery Certificate, would give rise to a fresh cause of action to initiate proceedings u/s 7 of the IBC?

Whether there is any bar in law to the amendment of pleadings to include additional documents under a section 7 petition?

APPELLANT’S CONTENTIONS
(1) It was contended that the corporate debtor had, in its annual reports for the financial years 2016-2017 and 2017-2018, acknowledged its liability in respect of the loan taken by it from the appellant bank.

(2) That NCLAT reversed the initial judgment of the Adjudicating Authority and held that the petition was barred by limitation on the basis of the fact that there was nothing on record that suggested that the CD had acknowledged its debt to the appellant bank, thereby ignoring the documents filed by the bank which were allowed by the Adjudicating Authority. The petition u/s 7 of the IBC was filed well within three years from the date of such acknowledgment.

(3) Further, placing reliance on Sesh Nath Singh and Anr. vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. and Ors.; Laxmi Pat Surana vs. Union Bank of India and Ors.; and Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Ors., it was argued that section 18 of the Limitation Act applied to proceedings under the IBC.

RESPONDENT’S CONTENTIONS
(A) Under the scheme of the IBC, NCLAT is the final forum for determination of facts and the factual determination by the NCLAT is that the records reveal no acknowledgment of debt for the purpose of extending limitation. Since this appeal has been filed on the basis of documents that were brought on record before the Adjudicating Authority (NCLT) at a belated stage, it was contrary to the provisions of IBC and the law laid down by this Court.

(B) The appellant bank filed its petition u/s 7 of the IBC on 12th October, 2018, about five years after the date of default, and was thus well beyond the period of limitation of three years under Article 137 of the Schedule to the Limitation Act.

(C) That u/s 7(3) of the IBC, a financial creditor is required to furnish ‘record of the default recorded with the information utility or record of evidence of default as may be specified’ and ‘any other information as may be specified by the Board’.

(D) Section 62 of the IBC, under which the instant appeal has been filed, is restricted to questions of law, unlike an appeal to the NCLAT from an order of the Adjudicating Authority (NCLT), which is an appeal both on facts and in law. Further, it was contended that the foundation for a plea of extension of limitation by virtue of acknowledgment of debt should be in the pleadings and cannot be developed at a later stage.

(E) Lastly, that the petition u/s 7 of the IBC was not based on the Recovery Certificate issued by the DRT or the judgment and order of the DRT. Therefore, there could be no question of reckoning limitation from the date of failure to make payment in terms of the Recovery Certificate.

COURT’S OBSERVATIONS
(i) An application to the Adjudicating Authority (NCLT) u/s 7 of the IBC in the prescribed form cannot be compared with the plaint in a suit.

(ii) The application does not lapse for non-compliance of the time schedule. Nor is the Adjudicating Authority obliged to dismiss the application. On the other hand, the application cannot be dismissed without compliance with the requisites of the proviso to section 7(5) of the IBC.

(iii) As per the provisions of the IBC, and in particular the provisions of section 7(2) to (5) of the IBC read
with the 2016 Adjudicating Authority Rules, there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed.

(iv) There is no penalty prescribed for inability to cure the defects in an application within seven days from the date of receipt of notice, and in an appropriate case the Adjudicating Authority may accept the cured application, even after expiry of seven days for the ends of justice.

HELD BY SUPREME COURT
The Supreme Court has inter alia held that a final judgment, decree and / or a recovery certificate passed / issued by a court or tribunal would give rise to a fresh cause of action for a financial creditor to initiate proceedings u/s 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The Court, while placing reliance on Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Anr.; Bengal Silk Mills Co. vs. Ismail Golam Hossain Ariff; and Re Pandem Tea Co. Ltd., held that an acknowledgment of liability that is made in a balance sheet can amount to an acknowledgment of debt. Thus, entries in books of accounts and / or balance sheets of a corporate debtor would amount to an acknowledgment u/s 18 of the Limitation Act.

Further, referring to the observations made in Ferro Alloys Corporation Limited vs. Rajhans Steel Limited, the Court held that the order / decree of the DRT and the Recovery Certificate gave a fresh cause of action to the appellant bank to initiate a petition u/s 7 of the IBC and the Court also held that an offer of one-time settlement of a live claim, made within the period of limitation, can be construed as an acknowledgment to attract section 18 of the Limitation Act.  

ALLIED LAWS

9 Rohit Nath vs. KEB Hana Bank Ltd. AIR 2021 Madras 241 Date of order: 28th July, 2021 Bench: Sanjib Banerjee CJ

Guarantor’s liability – Insolvency proceedings can be initiated before appropriate Debts Recovery Tribunal [Insolvency and Bankruptcy Code, 2016 (Code), S. 95, S. 79, S. 60; Companies Act, 2013, S. 408; Recovery of Debts and Bankruptcy Act, 1993, S. 3; Contract Act, 1872, S. 128]

FACTS
An individual (petitioner) had stood as a guarantor to a credit facility taken by a corporate entity. On non-payment of the credit facility the bank (respondent) proceeded against the petitioner by serving a notice as per Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019. Pursuant thereto, the bank initiated proceedings before the Debts Recovery Tribunal. It is the case of the petitioner that insolvency proceedings cannot be initiated against an individual u/s 95 of the Insolvency and Bankruptcy Code, 2016 (the Code).

HELD
Section 95(1) of the Code read with section 79(1) thereof permits a creditor to apply to any Debts Recovery Tribunal for initiating an insolvency resolution process under such provision.

Section 95(1) of the Code, in its ordinary form, allows a creditor to initiate an insolvency resolution process. It does not specify as to who the debtor may be. Further, the enactment is a complete code in itself and the three classes of persons indicated to be governed by the Code are corporate persons, partnership firms and individuals. The Debt Recovery Tribunal having jurisdiction over such firms and individuals is the adjudicating authority in matters related to insolvency.

Further, in view of section 128 of the Contract Act, 1872, the liability of a guarantor is co-extensive with that of the principal-debtor, unless it is otherwise provided by the contract. Therefore, the petitioner can be held liable as a guarantor to the credit facility taken by the company. The petition was dismissed with Rs. 50,000 costs.

10 R. Selvam vs. R. Mani C.M.P. No. 8020 of 2016 (Mad)(HC) Date of order: 22nd July, 2021 Bench: G.K. Ilanthiraiyan J

Gift Deed – Unilateral cancellation by the donor – Invalid [Transfer of Property Act, 1882, S. 123, S. 126]

FACTS
The suit is filed for declaration and permanent injunction in respect of the suit property. The case of the plaintiff is that the suit property belonged to the first defendant as per the preliminary decree passed in O.S. No. 18 of 2010 dated 8th December, 2011 on the file of the Fast-Track Court No. 2, Salem. The first defendant filed a suit against her brothers and the suit property was allotted in her favour. Thereafter, the first defendant had executed a registered gift settlement deed in favour of the plaintiff on 8th March, 2012. From the date of the gift settlement deed, the plaintiff had taken possession of the suit property and he is in possession and enjoyment of the same.

According to the plaintiff, in the meanwhile, under the influence of defendants 2 to 4, the first defendant unilaterally executed a registered cancellation deed dated 3rd July, 2012.On the same day, the first defendant executed another gift settlement deed in favour of the plaintiff and defendants 2 to 4. The said cancellation deed and the subsequent gift settlement deed executed by the first defendant are void ab initio. The plaintiff’s case is that once the first defendant had lost her title to the suit property, after execution of the registered settlement deed in favour of the plaintiff, she has no title over the property. On the strength of the settlement deed executed in favour of defendants 2 to 4, they created encumbrance by execution of an agreement for sale with defendant 5 and hence, the suit for declaration and permanent injunction.

According to the second defendant, the registered gift settlement deed in favour of the plaintiff was obtained by the plaintiff by misrepresentation or undue influence and he played fraud without knowledge of the first defendant. This was not acted upon and the first defendant rightly cancelled the gift deed by cancellation.

HELD
The Court noted that the entire issue was revolving around the first defendant. Even then, the other defendants failed to examine the first defendant to support their case whether the gift settlement deed in favour of the plaintiff was obtained on compulsion, misrepresentation or by fraud or undue influence.

The Court held that there is a specific recital that the first defendant has no power to revoke the gift deed and even if she cancelled the deed, the said cancellation would not be valid. When no right has been reserved by the first defendant to cancel the settlement deed, the Court below rightly declared the title in respect of the suit property in favour of the plaintiff. It is settled law that in settlement, once the ‘settlee’ accepts the transfer, it is presumed that the said document has been acted upon irrespective of the fact whether the ‘settlee’ has obtained possession immediately or not. Referring to the judgment of the Supreme Court of India in the case of Jamil Begum vs. Shami Mohd. [(2019) 2 SCC 727], the Court held that there is a presumption that a registered document is validly executed. The appeal suit was dismissed.

11 Davesh Nagalya (D) vs. Pradeep Kumar (D) AIR 2021 Supreme Court 2717 Date of order: 10th August, 2021 Bench: Hemant Gupta J, A.S. Bopanna J

Tenant – Partners – Business in suit premises – Death of partners – Results in dissolution of partnership – Property will be vacant [Urban Buildings Act, 1972, S. 12, S. 25, S. 41; Indian Partnership Act, 1932, S. 42]

FACTS
An application was filed by one Pradeep Kumar in July, 1982 before the Court of the Rent Control and Eviction Officer in terms of the Urban Buildings Act (Act) stating that after the death of the tenant partner, he inducted the legal heir of the deceased, one Subhash Chand, and continued the business in the same premises. The application was, however, opposed by the landlord. The District Magistrate permitted Subhash Chand to be inducted as a partner on 15th November, 1982. The landlord challenged the order passed by the District Magistrate before the District Judge. The revision petition was dismissed on 12th December, 1983. A further challenge before the High Court through a writ petition also remained unsuccessful vide order dated 10th October, 2007. The appellant challenged the said order by way of a Special Leave Petition before this Court but the same was dismissed on 10th January, 2008.

The appellant filed an application for review before the High Court inter alia on the ground that pursuant to the death of the tenant, Pradeep Kumar, i.e., one of the partners of the firm, the partnership does not survive in view of section 42(c) of the Partnership Act.

The review was dismissed vide order impugned in the present appeal on the ground that the petitioners have entirely set up a new case and the grounds urged are different from those of the writ petition. As on record, both the partners, i.e., Pradeep Kumar and Subhash Chand, had died on 21st May, 2004 and 25th June, 2014, respectively. Hence, now the argument is that in terms of section 42(c) the partnership stands dissolved by law. There is no clause in the partnership deed which permits the legal heirs of the deceased partners to continue with the partnership firm. Therefore, by operation of law, the partnership has come to an end.

HELD
The order of permitting Subhash Chand as partner with Pradeep Kumar has come to an end by efflux of time and operation of law. In terms of section 42(c) of the Partnership Act, the partnership stands dissolved by death of a partner. One of the partners, i.e., Pradeep Kumar, died on 21st May, 2004. The High Court has not taken note of such fact in the review petition and failed to take into consideration the subsequent events which were germane to the controversy. Subhash Chand, the other partner, also died during the pendency of the appeal on 25th June, 2014. It was represented to the District Magistrate by Pradeep Kumar that Subhash Chand is a divorcee and has no children but such assertion was not found to be correct as he had two children, a son and a daughter, who were impleaded as his legal heirs.

Therefore, with the death of both the partners and not having any clause permitting continuation of the partnership by the legal heirs, the non-residential tenanted premises is deemed to be vacant in law as the tenant is deemed to have ceased to occupy the building. In view thereof, the order passed by the High Court in the Review Application dated 23rd April, 2008 is set aside. Therefore, the tenant is deemed to cease to occupy the premises in question. Consequently, the tenanted property has fallen vacant as well. The appellants may take recourse to remedy as may be available to them and may proceed in accordance with law and the provisions of the Act.

12 Hemraj Ratnakar Salian vs. HDFC Bank Ltd. and Ors. AIR 2021 Supreme Court 507 Date of order: 17th August, 2021 Bench: S. Abdul Nazeer J, Krishna Murari J

Registration – Tenancy – Claim of tenancy not supported by a registered document – Claim of tenant as ‘tenant in sufferance’ – No protection under the Rent Act [Maharashtra Rent Control Act, 2000, S. 3(2)]

FACTS
HDFC Bank had granted financial facility to the respondent Nos. 2 and 3 (the borrowers). They had mortgaged a property in favour of the bank with an intention to secure the said credit facility.

The accounts of the borrowers were declared as non-performing assets (NPA) on 31st October, 2013. On 25th January, 2014, the bank issued a notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) to the borrowers. It is the case of the appellant that he is a tenant of the secured asset on a monthly rent since 12th June, 2012. And he has been paying rent regularly to his landlord since the inception of his tenancy.

The appellant filed an application before the Magistrate seeking protection of his possession of the secured asset as the Magistrate was seized with the petition u/s 14 of SARFAESI filed by the respondent No. 1 Bank. The intervention application of the appellant was dismissed by the Magistrate holding that there was no registered tenancy agreement placed on record by the appellant.

HELD
There is a serious doubt as to the bona fides of the tenant, as there is no good or sufficient evidence to establish his tenancy. According to the appellant, he is a tenant of the secured asset from 12th June, 2012. However, the documents produced in support of his claim are photocopies of the rent receipts and the first copy of the rent receipt is of 12th May, 2013 which is after the date of creation of the mortgage. The borrowers have not claimed that any tenant is staying at the secured asset. The appellant has pleaded tenancy from 12th June, 2012 to 17th December, 2018. This is not supported by any registered instrument. Further, even according to the appellant, he is a ‘tenant in sufferance’, therefore, he is not entitled to any protection of the Rent Act. Secondly, even if the tenancy has been claimed to be renewed in terms of section 13(13) of SARFAESI, the borrower would be required to seek consent of the secured creditor for transfer of the secured asset by way of sale, lease or otherwise, after issuance of the notice u/s 13(2) of SARFAESI and, admittedly, no such consent has been sought by the borrower in the present case. The appeal was dismissed.  

CORPORATE LAW CORNER

3 CADS Software India Pvt. Ltd. and Ors. vs. K.K. Jagadish & Ors. National Company Law Appellate Tribunal Company Appeal (AT) No. 320 of 2018 Date of order: 7th May, 2019

Removal of a Director due to loss of confidence not covered under provisions of the Companies Act, 2013 hence the Managing Director who was removed was eligible for compensation for loss of office

FACTS
KKJ was functioning as Managing Director of M/s CADS since its incorporation in 1996. He was not appointed for a fixed tenure and was removed from the company w.e.f. 7th August, 2015 at an EGM of M/s CADS held pursuant to section 169 of Companies Act, 2013 through a special notice.

Upon his removal, KKJ filed a petition before the NCLT, Chennai Bench for relief against oppression and mismanagement under sections 241 and 242 of the Companies Act, 2013 and that he was entitled to compensation for loss of office of Rs. 10 crores as per section 202 of the said Act.

CADS argued that KKJ was removed due to loss of confidence and that he was not legally entitled to any compensation for the loss of office as Managing Director. It further contended that KKJ was not entitled to claim any exemplary damages and his exit package would come to around Rs. 1 crore, including his terminal benefits on the basis of last salary drawn in the F.Y. 2013-14, which was Rs. 33.79 lakhs.

NCLT held that the action of removal of the KKJ from the post of MD by the majority shareholders cannot be questioned. Hence, his removal from the office would remain valid.

It was further held that with regard to the claim for damages, in terms of section 202(3) of the Companies Act, 2013 upon removal the MD would be entitled to receive remuneration which he would have earned if he had been in office for the remainder of his term or for three years, whichever is shorter. Accordingly, NCLT deemed it fit to order a compensation of Rs. 105 lakhs (calculated at the rate of Rs. 35 lakhs p.a. for three years) together with interest @ 10% from the date of removal of the petitioner, plus other benefits as already offered till the date of payment to him by M/s CADS.

Aggrieved by the order, M/s CADS preferred an appeal before NCLAT u/s 421 of the Companies Act, 2013, contending that KKJ was not legally entitled to any compensation for the loss of office since his appointment as MD was not for any fixed period.

HELD
NCLAT held that loss of confidence as argued by M/s CADS was not covered in the Companies Act, 2013 and accordingly NCLT had rightly given its findings and arrived at a compensation. NCLAT did not find any merit in the appeal and hence dismissed the same.

4 Sabse Technologies Private Limited vs. Registrar of Companies, Mumbai National Company Law Tribunal, Mumbai Bench-IV Compounding application CP No. 1740/441/NCLT/MB/MAH/2019 Date of order: 18th December, 2019

Where the compounding application was filed before NCLT, Mumbai Bench by the company for violating the provisions of section 96 of the Companies Act, 2013 as it was not able to conduct its Annual General Meeting within the permissible time, such compounding application was maintainable

FACTS
M/s STPL had appointed M/s B & Co., Chartered Accountants, as the statutory auditors to conduct statutory audit for the financial year ended 31st March, 2018. However, M/s. B & Co. resigned on 24th September, 2018, thereby causing a vacancy in the office of auditors of the company. M/s STPL then appointed M/s S & Associates, Chartered Accountants, at an EGM held on 24th October, 2018 to conduct the statutory audit for the financial year ended 31st March, 2018.

The said AGM for the F.Y. 2017-2018 was held on 3rd November, 2018 where no shareholders were present and therefore the meeting was adjourned to the following week at the same time and place, i.e., on 10th November, 2018. (The company should have conducted the AGM for the financial year ended 31st March, 2018 on or before 30th September, 2018.) Since the meeting was held on 10th November, 2018 after a delay of 41 days beyond the prescribed limit specified in the Act, there was a violation of the provisions of section 96 of the Companies Act, 2013.

The compounding application was filed before the NCLT, Mumbai Bench by M/s STPL for non-compliance with the provisions of section 96 of the Companies Act, 2013 as it had failed to conduct its AGM within the permissible time. It was averred in the compounding application that the default was not intentional and the circumstances were beyond the control of the management. It was further averred that M/s STPL had not deliberately conducted the said offence and had subsequently made good the committed default.

HELD
NCLT held that the company had violated the provisions of section 96 of the Companies Act, 2013 and that the said violation was punishable as per section 99 of the Act. The compounding fee of Rs. 25,000 by the company and Rs. 25,000 each by the two Directors was levied as a deterrent for not repeating the default in future. The offence stood compounded subject to the remittance of the compounding fee.

5 M/s K.C. Agro Private Limited vs. Registrar of Companies, Mumbai National Company Law Tribunal, Mumbai Bench-IV Compounding application CP No. 332/44 /NCLT/MB/MAH/2017 Date of order: 6th November, 2019

Where the compounding application was filed before NCLT, Mumbai Bench by the company for violating the provisions of section 137(1) of the Companies Act, 2013, since company was not able to file financial statements within the permissible time, such compounding application was maintainable

FACTS
During the F.Y. ended 31st March, 2014, a member of M/s KCPL had filed a petition with the Company Law Board (CLB), Mumbai Bench against its Directors and members. On 29th April, 2015, the CLB passed an order against M/s KCPL. Thereafter, the latter preferred an appeal before the Bombay High Court which stayed the judgment pronounced by the CLB.

M/s KCPL was continuously involved in the litigations pending before the High Court and the necessary compliances in respect of convening and holding the Annual General Meeting could not be observed.

Due to the deadlock, M/s KCPL held the Annual General Meeting and thereafter the financial statements were filed. The financial statements for the F.Y. ended 31st March, 2014 needed to be filed within 30 days of the AGM but the financial statements in e-Form 23AC and e-Form 23ACA were filed only on 1st April, 2017. Thus, the default period in respect of non-compliance of filing the financial statements was 885 days.

M/s KCPL had not deliberately committed the said offence and subsequently, after ascertaining the correct position, made good the committed default.

The compounding application was filed before the Registrar of Companies, Mumbai (hereinafter ‘ROC’) and the same was forwarded to the NCLT, Mumbai along with the ROC report. The application was filed because M/s KCPL had violated the provisions of section 137(1) of the Companies Act, 2013 and had failed to give an explanation for the non-filing of financial statements within the permissible time.

HELD
NCLT held that the company had violated the provisions of section 137(1) and the said violation was punishable u/s 137(3) of the Companies Act, 2013. A compounding fee of Rs. 10,000 by the company and Rs. 5,000 each by three Directors totalling Rs. 25,000 (Rupees twenty five thousand only) was levied as a deterrent for not repeating the default in future. NCLT further held that the offence stood compounded subject to the remittance of the compounding fee.

6. Pratap Technocrats (P) Ltd. & Ors. vs. Monitoring Committee of Reliance Infratel Limited & Anr. Civil Appellate Jurisdiction, Civil Appeal No. 676 of 2021 (SC)

FACTS
The CIRP was commenced against Reliance Infratel Limited (‘RIL’) vide order dated 15th May, 2018 by the NCLT.

Pursuant to such order, an Interim Resolution Professional (‘IRP’) was appointed and the CoC was formed on 24th May, 2019. The IRP was replaced with Mr. Anish Niranjan as the resolution professional (‘RP’). The process for inviting resolution plans ensued and subsequently four prospective resolution applicants submitted plans. After due deliberations between the CoC and the prospective resolution applicants, the plan submitted by Reliance Digital Platform and Project Services Limited (‘Successful Resolution Applicant / SRA’) was approved by the CoC with 100% vote on 2nd March, 2020, on the basis of its feasibility, viability and implementability’. An application u/s 30(6) of the IBC was submitted for approval of the resolution plan, which was approved by the NCLT vide order dated 3rd December, 2020.

QUESTION OF LAW
Whether once a resolution plan in respect of the corporate debtor is approved by 100% voting share of the Committee of Creditors (CoC), exclusion of certain financial debts and hence, exclusion of certain financial creditors from CoC, will be of no consequence; resolution plan continues to be approved with 100% majority even after their exclusion.

RULING IN CASE
Once the resolution plan is approved by 100% voting share of the CoC, exclusion of certain financial debts and hence exclusion of certain financial creditors from the CoC will be of no consequence; the resolution plan continues to be approved with 100% majority even after their exclusion.

HELD
In the present case, the resolution plan has been duly approved by a requisite majority of the CoC in conformity with section 30(4). Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100% voting share of the CoC. The jurisdiction of the Adjudicating Authority was confined by the provisions of section 31(1) to determining whether the requirements of section 30(2) have been fulfilled in the plan as approved by the CoC. As such, once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law.

ALLIED LAWS

5 Korukonda Chalapathi Rao & Ors. vs. Korukonda Annapurna Sampath Kumar CA (No.) 6141 of 2021 (SC) Date of order: 1st October, 2021 Bench: K.M. Joseph J, S. Ravindra Bhat J


Deed of family settlement – Merely recording of past transaction – Registration not mandatory – It may not require to be stamped [Registration Act, 1908., S. 17, S. 49; Code of Civil Procedure, 1908, Ord. 13, R. 3]

 FACTS

An issue regarding partition of property arose between the plaintiff and the respondents. The High Court did not admit the Kharurunama (family settlement) as the same was not registered or stamped.

The contention of the appellants was that the Kharurunama dated 15th April, 1986 merely sets out the arrangement arrived at between the brothers which is the family arrangement and it was a mere record of the past transaction and therefore by itself it did not create or extinguish any right over immovable property. As a result, the document did not attract section 17(1)(b) of the Registration Act.

HELD

As per section 49(1)(a) of the Registration Act, a document which it is compulsory to register but which is not registered, cannot have any effect on the rights in immovable property by way of creation, declaration, assignment, limitation or extinguishment. Thus, it prevents an unregistered document being used ‘as’ evidence of the transaction, which ‘affects’ immovable property.

If the Kharurunama by itself does not ‘affect’ immovable property, there would be no breach of section 49(1)(c) of the Registration Act, as it is not being used as evidence of a transaction affecting such property. The transaction or the past transactions cannot be proved by using the Kharurunama as evidence of the transaction. Merely by admitting the Kharurunama containing a record of the alleged past transaction, it is not to be understood as if those past transactions require registration or that it would have any legal effect on the immovable properties in question.

 It is further held that the Kharurunama being a record of the alleged transactions, it may not require to be stamped. The appeal is allowed.

 

6 Asha John Divianathan vs. Vikram Malhotra AIR 2021 Supreme Court 2932 Date of order: 26th February, 2021 Bench: A.M. Khanwilkar J, Indu Malhotra J, Ajay Rastogi J
 

Foreign Citizen – Transfer of immovable property – Without taking mandatory prior approval from RBI – Transfer unenforceable [Foreign Exchange Regulation Act, 1973 (FERA), S. 31]

 

FACTS

Mrs. F.L. Raitt, widow of the late Mr. Charles Raitt, is a foreigner and the owner of the immovable property. The property was gifted to respondent No. 1 (Vikram Malhotra) without obtaining previous permission of the Reserve Bank of India u/s 31 of FERA. Before executing the gift deed, she had executed an agreement of sale in favour of one Mr. R.P. David, father of the appellant (Asha John Divianathan).

The appellant filed a suit against the respondent No. 1 to declare the gift deed and the supplementary as null and void.

The Karnataka High Court held that lack of permission u/s 31 of FERA does not render the subject gift deeds as void much less illegal and unenforceable. An appeal was filed against this order of the Karnataka High Court.

HELD

A contract is void if prohibited by a statute under a penalty, even without express declaration that the contract is void, because such a penalty implies a prohibition. The condition predicated in section 31 of FERA of obtaining ‘previous’ general or special permission of the RBI for transfer or disposal of immovable property situated in India by sale or mortgage by a person, who is not a citizen of India, is mandatory.

Until such permission is accorded, in law, the transfer cannot be given effect to; and for contravening that requirement, the person concerned may be visited with penalty u/s 50 FERA and other consequences provided for in the 1973 Act.

The decision of the High Court taking the view that section 31 of the 1973 Act is not mandatory and the transaction in contravention thereof is not void or unenforceable, is not a good law. The Appeal was allowed.

 

7 Jagannath & Ors. vs. Radheshyam and Ors. AIR 2021 (NOC) 645 (Chh) Date of order: 19th August, 2020 Bench: Sanjay K. Agarwal J        

Deeds – Unregistered gift deed – Immovable property – Not admissible [Transfer of Property Act, 1882, S. 123; Registration Act, 1908, S. 17] 

FACTS

The dispute relates to the property left by Parau and his wife Sumrit Bai. They had four daughters, namely, Samundra Kunwar (defendant No. 1 is her son), Badki Kani (defendant No. 2), Majhali Kani (defendant No. 3) and Nanki Kani (defendant No. 4). The plaintiff, Radheshyam, is the son of defendant No. 4. The plaintiff filed a suit for permanent injunction and, in the alternative, restoration of possession pleading inter alia that the suit property was originally held by Parau and he was in possession of the suit property during his life time.

The defendants filed their joint written statement stating inter alia that they have never surrendered their share by way of gift deeds in favour of the plaintiff and that they are in possession of the suit property jointly and, as such, the suit deserves to be dismissed.

The trial court upon appreciation of oral and documentary evidence available on record, by its judgment and decree dated 7th April, 2007, dismissed the suit holding that the alleged gift deeds are inadmissible in evidence for want of registration, therefore, no title has been conveyed in favour of the plaintiff and the plaintiff is not in exclusive possession of the suit land.

 
The first Appellate Authority held that the plaintiff cannot be dispossessed from the suit land without following the due procedure of law and accordingly granted decree for permanent injunction in favour of the plaintiff restraining the defendants from interfering with his possession.

 
The defendants are in appeal against the said order.

 
HELD

The gift deeds by which the defendants have allegedly gifted the property to the plaintiff are unregistered gift deeds and by virtue of the provisions contained in section 123 of the Transfer of Property Act, 1882 gift deeds are required to be registered. In view of the matter, they are inadmissible in evidence for want of registration and thereby no title was conveyed to the plaintiff.

 
As the gift deeds have been held to be inadmissible by two Courts and affirmed by this Court, the first appellate Court could not have restrained the defendants from using the joint property by decree of permanent injunction.

 
The appeal was allowed.

 

8 High Court of Judicature at Madras Rep. by its Registrar-General vs. M.C Subramaniam and Others AIR 2021 Supreme Court 2662 Date of order: 17th February, 2021 Bench: Mohan M. Shantanagoudar J, Vineet Saran J

Court fee – Refund of Court fee – To be granted even in case of private settlement of dispute outside court [Court Fees Act, 1870, S. 16; Civil Procedure Code, 1908, S. 89; Tamil Nadu Court Fees and Suit Valuation Act, 1955, S. 69A]

FACTS

The respondent No. 1 purchased two vehicles from respondent No. 2. As per the terms of the agreements, respondent No. 1 was to pay sums in instalments to the respondent No. 2 as per the stipulated terms. On account of non-payment, the respondent No. 2 filed suits and sought recovery of the balance amounts along with interest thereon. Both the suits were partly decreed by the Courts.

The respondent No. 1 preferred an appeal before the High Court. While the appeal was still pending consideration, the parties entered into a private out-of-court settlement, thus resolving the dispute between them. The respondent No. 1 sought withdrawal of the appeal and refund of the court fee. Despite the order of the High Court, the Registry orally refused respondent No. 1’s request for refund of court fees on the ground that such refund is not authorised by the relevant rules.

The respondent No. 1 filed a Miscellaneous Application before the High Court which was allowed. The Registry is in appeal against the said order.

 

HELD

The provisions of section 89 of CPC must be understood in the backdrop of the long-standing proliferation of litigation in the civil courts, which has placed undue burden on the judicial system, forcing speedy justice to become a casualty. As the Law Commission has observed in its 238th Report on Amendment of section 89 of the Code of Civil Procedure, 1908 and Allied Provisions, section 89 of the CPC has now made it incumbent on civil courts to strive towards diverting civil disputes towards alternative dispute resolution processes and encourage their settlement outside of court. These observations make the object and purpose of section 89 crystal-clear – to facilitate private settlements and enable lightening of the overcrowded docket of the Indian judiciary. This purpose is sacrosanct and imperative for effecting timely justice in Indian courts. Section 69A of the Tamil Nadu Court Fees and Suit Valuation Act, 1955 also encourages settlements by providing for refund of court fees.

 

Further, the Court observed that the Court Fees Act is a taxing statute and has to be construed strictly and the benefit of any ambiguity has to go in favour of the party and not to the State. The High Court’s order was upheld.