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Ethics and U

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Arjun (A) — Hey Shrikrishna, we have been meeting every month to discuss
the ethical issues, disciplinary mechanism and things like that. But
tell me, where shall I find all this information?

Shrikrishna
(S) —There are many sources. But you are always on the battlefield.
Always fire-fighting! Where will you find time to read. You can always
ask me!

A — That is alright. But you are not that easily accessible to all, no? That’s the problem.

S — That’s true. I am reachable by ‘Bhakti’ alone. True devotion my dear, real, genuine devotion

A — But if we want you to save us from disciplinary case, how do we worship you? What is the Bhakti that you like?

S
— That’s a good question. The best form of my worship is to do your
duty i.e. karma religiously. U nfortunately, many of you are operating
very loosely; in an unprofessional manner. You never upgrade your
skills.

A — Why? We do have to complete our quota of CPE hours ! 30 hours every year, You see !

S
— I know. Don’t tell me how most of you just ‘manage’ it. You people do
it merely as a compliance. That too, because it is compulsory! Its
spirit is lost.

A — And there also, we always seek ‘extension’. Anyway, first tell me which books to refer.

S — Arjuna, you CAs must have read a lot of books, but I bet you have not read your ‘CA Act, 1949’.

A
— Yeah, you are right. I am only aware that there is a CA Act. But have
never gone through the same. Perhaps it was there in our final CA
syllabus.

S — Great Memory ! But my dear, it was amended in the year 2006.

A — May be! Who has time to read? You see.

S
— Ah…the common excuse – ‘No time’! See Arjuna, your CA Act is the
base of Code of Ethics. And you should atleast make an effort to go
through that. Chapter V of that Act deals with misconduct.

A — Oh! I see. S — Next is CA Regulations. Just as you have Income tax Rules, there are CA Regulations also.

A
— Achha. But these are bare texts. How will I understand everything
only by reading these. Besides, reading bare texts is so boring!

S
— Ya…there you are! You also have a book – ‘Code of Ethics’ published
by your Institute. This is like a commentary. It has elaboration on
various sections and both the Schedules. At the end of this book, one
can also see Council General Guidelines.

A — Oh that’s good. That means I have to read CA Act, Regulations and this commentary. This is so less compared to Income tax!

S
— No, wait…there is more to it. For your better understanding, the
Institute has also published FA Qs. You also have Appellate Authority
(Procedure) Rules, Enquiry Rules and so on.

A — But, Prabhu,
sometimes I have practical doubts like, how to enrol an article, how to
open a second office and many such things. Reading these books and
guidelines will help me? Or should I call the Institute office directly.

S — Arjuna, your Institute is very smart!. For such practical
queries, you have a ‘Manual For Members’. It has all information like,
which form to fill up, what is the time limit, what is the limit for
enrolment of articles, how much is the fees etc.

A — Do we have any online material for quick reference?

S
— Yes, of course! Your generation does not want the pain to go through a
book!!!…Online search is always a better option for you guys.

A — Hey Bhagwan, you know me so well….you see, when its online, we can always do ctrl+F and make things faster!

S
— Yes… the famous ctrl+F and google search. That’s the reason your
generation is so fast. But most of the time its half baked knowledge.
Anyway, my dear Arjuna, all this material is available on the
Institute’s website. You also have ESB website.

A — ESB? What is that?

S — It is Ethical Standards Board. Do you remember CESURA?

A
— Ya…I had read about that in CA Final. As far as I remember it is
Committee on Ethical Standards and Unjustified Removal of Auditors.

S
— Yes, that CESURA is now renamed to ESB. Even ESB has got good
technical stuff on its website. It has also uploaded Ethics Plus, a
brochure in question-answer form. Why don’t you go through the ESB
website yourself? I can’t spoon feed you everything.

A — Wow….Bhagwan, I never knew, we have so much literature on our Code of Ethics.

S
— Arjuna, remember, this literature is for your help and clarity only.
But eternal vigilance still stands. Always be upright and independent.
That’s what your profession stands for. And that is my real worship.
Understand?

A — Yes, Prabhu! Well said!

Om shanti !!!!!

Note
This dialogue intends to give information about various technical materials available on the Code of Ethics.

Corporate Law Corner

 1.      
Deccan
Chronicle Holdings Ltd. (DCHL) vs. ROC [2017] 83 taxmann.com 315 (NCLT – Hyd.) Date of Order: 5th July, 2017

Section 297 read
with section 621A of Companies Act, 1956 – Money was advanced to a related
party without any interest without obtaining prior approval of concerned
authority – Even though the amount was returned by such a related party; the
same still violated section 297 – Offence could be compounded subject to
payment of hefty fees.

FACTS

“D Ltd.” a listed company, filed an
application for compounding an offence committed u/s. 297 of Companies Act,
1956 (“the Act”). Section 297 prohibited related party transaction except with
the consent of the Board of Directors and in case the company had a paid up
share capital of not less than Rs. 1 crore, prior approval of Central
Government was required. D Ltd. had transferred Rs. 99 crores to a company ‘F
Ltd.’ towards aircraft maintenance and other fund transfers. ROC issued a notice
demanding an explanation for violation of section 297. D Ltd. submitted that
the transactions with F Ltd. were out of purview of section 297 and also that
owing to some other reasons, F Ltd. was asked to repay all the sums transferred
to it and F Ltd. had duly complied with such request. In view of these facts,
proceedings, if any should be dropped. D Ltd filed an application with NCLT
which was dismissed by it. The Applicants therefore filed an appeal and
Appellate Tribunal directed the NCLT to examine the case in terms of section
621A of the Act which provides for compounding of offences.

Before the Tribunal, D Ltd. urged that the
transactions had been fairly concluded and all amounts remitted to F Ltd. had
been received back. As the offence did not continue, the same qualified for
compounding.  

HELD

The Tribunal observed that although the
amounts advanced to F Ltd. were recovered in full, there was no payment of any
interest by F Ltd. Such advancing of money without payment of interest caused
loss to the shareholders of D Ltd. The Tribunal observed that transparency in
operations is one of the key elements of listed company and appropriate
disclosures of related party transactions are very essential to various
stakeholders and as such, the same is the duty of the Company/Board of
Directors to give true and fair picture of the functioning of the Company to
its shareholders especially any decision having adverse financial impact on the
Company which in turn will have an impact on the shareholders whether directly
or indirectly.

The Tribunal held that D Ltd. was guilty of
violation of section 297 of the Act and directed that offence may be compounded
u/s. 621A upon payment of heavy charges in respect thereof.

2.             Chartered Accountants Act, 1949, In
re

[2017]
84 taxmann.com 175 (All)  Date of Order: 2nd
August, 2017

Sections 21 and
22 of Chartered Accountants Act, 1949 – Chartered Accountant had resigned from
Board of company prior to the opening of its public issue but signed the
prospectus for the same – The Chartered Accountant was held to be guilty of
other misconduct.

 FACTS

Mr. ‘S’ was a member of the Institute of
Chartered Accountants of India (ICAI) and a director of B Co. S had resigned
from the company before opening of its public issue, but his resignation was
accepted on 09.09.1997 which was after the close of issue. Public issue of BCo
opened on 25.07.1996 and closed on 05.08.1996. Mr. S signed the prospectus of
this public issue on 17.06.1996 which named him as a director of BCo. Mr. S did
not object to the inclusion of his name in the prospectus of BCo.

The disciplinary committee of the ICAI found
him guilty of “other misconduct”. The Council of ICAI considering the said
findings recommended the removal of his name as a member for a period of three
months to the High Court.

Mr. S argued that although he resigned prior
to opening of public issue, his resignation was accepted only on 09.09.1997. He
further submitted that since no public money was received by BCo; there was no
question of misleading investors and inducing them to subscribe to the shares
of the said company.

Counsel appearing for the ICAI urged that
under the Companies Act, 1956, resignation of a director comes into effect the
moment it is tendered. As Mr. S accepted that he in fact resigned from the
company before the opening of the public issue, his name should not have
appeared as a director in the prospectus.

HELD

The High Court observed that the Companies
Act, 1956 did not have any specific provision relating to resignation of
director from the company. Neither of the parties produced the Memorandum Of
Association and Articles Of Association of the company to show anything in this
regard. Accordingly, it was held that common law principle would apply in so
far as resignation of directors was concerned.

The Court having relied on various judgements,
came to a conclusion that resignation of a director of a company was a
unilateral act that came into effect as soon as the resignation was tendered by
the director of the company. The directors were merely agents of the company
and agents were competent to determine the agency at their own end.

As Mr. S had resigned before the opening of
the public issue, his name should not have appeared in the prospectus as a
director of the company which was in fact there. The Court held that such an
act amounted to lending of name to the prospectus and misleading the investors.
It was immaterial whether any investor was actually mislead. The act of
misconduct was nonetheless completed.

The High Court accordingly upheld the
finding of disciplinary committee that held Mr. S guilty of other misconduct
under sections 21 and 22 of the Chartered Accountants Act and accepted the
recommendation of Council on removal of name of Mr. S from the register of
members of Chartered Accountants for a period of three months. 

3.             APC Credit rating (P.) Ltd. vs. ROC

[2017]
84 taxmann.com 75 (NCLT – New Delhi)       Date
of  Order: 19th July, 2017

Section 420 of
Companies Act, 2013 – NCLT does not have an inherent power to review its own
decision – NCLT can only rectify its decision.

FACTS

ACo had violated various provisions of the
Companies Act, 1956 and filed applications with the Tribunal u/s. 441 of the
Companies Act, 2013 for compounding the same. The Tribunal dismissed the
applications vide order dated 26.09.2016 for reasons mentioned therein.
Subsequently, ACo preferred application under Rule 154 of National Company Law
Tribunal Rules, 2016 (“Rules”) for review of the orders in light of certain
decisions which were not considered by the Tribunal. The Tribunal, vide order
dated 28.04.2017, dismissed the applications by holding that review was
different from appeal and it was not possible to replace one order with
another. 

ACo challenged
this order before the Tribunal and also filed an application for condonation of
delay in filing the appeal.

HELD

The Tribunal examined the provisions of
section 420 of Companies Act, 2013 along with Rules 11 and 15. The Tribunal
observed that it has limited power to rectify any mistake apparent from the
record and to amend the order accordingly, but there is no inherent power to
review its own order.

It held that the present case did not fall
within the meaning of ‘mistake apparent on the face of the record’ of appellant
and therefore, there was no occasion for the Tribunal to exercise power
conferred by section 420 (2) of the Act. Further, non-reference to previously
rendered judgement did not constitute an “omission”.

 

As more than 9 months had elapsed from the order
dated 26.09.2016, the Tribunal held that it could not condone the delay in
filing appeal as law capped the power to condone the delay for a maximum of 90
days from the date of order.

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

85. FED Master Direction No. 9/2015-16 dated January 1, 2016

Master Direction – Insurance

This Notification contains the
updated Master Direction 9 on Insurance. The Master Directions have been
updated up to November 17, 2016 and are Annexed to this Notification. The
Master Direction prescribes the manner in which insurance business, in foreign
exchange, has to be conducted and deals with the following topics: –

1.  Introduction.

2.  Foreign Exchange Regulations
relating to General / Health / Life Insurance from Insurers outside India.

3.  Foreign Exchange Regulations
relating to General/ Health Insurance from insurers in India.

4.  Foreign Exchange Regulations
relating to Life Insurance from insurers in India.

86. Corrigendum dated November 25, 2016

Notification No. FEMA.362/2016-RB dated February 15, 2016

This corrigendum replaces
paragraph 2(C) (iv), S. No. 9.3 and 9.3.1 of Notification No. FEMA.362/2016-RB
dated February 15, 2016 as under: –

9.3

Air Transport Services

 

 

 

(1)   (a) Scheduled Air Transport Service /   Domestic Scheduled Passenger Airline

      (b) Regional Air Transport Service

 

49%

(100% for NRIs)

Automatic

 

(2) Non-Scheduled Air
Transport Service

100%

Automatic

 

(3) Helicopter services/
seaplane services requiring DGCA approval

100%

Automatic

9.3.1

Other Conditions

 

 

 

(a) Air Transport Services would include Domestic Scheduled
Passenger Airlines; Non-Scheduled Air Transport Services, helicopter and
seaplane services.

(b) Foreign airlines are allowed to participate in the equity of
companies operating Cargo airlines, helicopter and seaplane services, as per
he limits and entry routes mentioned above.

 

 

 

9.3.1

Other Conditions

 

 

 

(c) Foreign airlines are also allowed to invest in the capital
of Indian companies, operating scheduled and non-scheduled air transport
services, up to the limit of 49% of their paid-up capital. Such investment
would be subject to the following conditions:

(i)    It would be made under the Government approval route.

(ii)   The 49% limit will subsume FDI and FII/FPI investment.

(iii)  The investments so made would need to
comply with the relevant regulations of SEBI, such as the Issue of Capital
and Disclosure Requirements (ICDR) Regulations/ Substantial Acquisition of
Shares and Takeovers (SAST) Regulations, as well as other applicable rules
and regulations.

(iv)   A Scheduled Operator’s Permit can be
granted only to a company:

      a) that is registered and has its
principal place of business within India;

      b) the Chairman and at least two-thirds
of the Directors of which are citizens of India; and

        c) the substantial ownership and
effective control of which is vested in Indian nationals.

(v)    All foreign nationals likely to be
associated with Indian scheduled and non-scheduled air transport services, as
a result of such investment shall be cleared from security view point before
deployment; and

(vi)   All technical equipment that might be
imported into India as a result of such investment shall require clearance
from the relevant authority in the Ministry of Civil Aviation.

 

 

 

 

 

 

 

Note: (i) The FDI
limits/entry routes, mentioned at paragraph 9.3(1) and 9.3(2) above, are
applicable in the situation where there is no investment by foreign airlines.

(ii) The dispensation for
NRIs regarding FDI up to 100% will also continue in respect of the investment
regime specified at paragraph 9.3.1(c) (ii) above.

(iii) The policy mentioned
at 9.3.1(c) above is not applicable to M/s Air India Limited

87.  A. P. (DIR Series)
Circular No. 20 dated November 09, 2016

Issue of Pre-Paid Instruments to foreign tourists

This circular: –

1.  Supersedes A. P. (DIR Series) Circular No. 16
dated November 11, 2016 regarding Withdrawal of the legal tender character of
the existing and any older series banknotes in the denominations of ? 500 and ?
1000.

2.  Provides that foreign citizens (i.e. foreign
passport holders) are permitted to exchange foreign exchange for Indian
currency notes up to a limit of ? 5,000/- per week until December 15, 2016. The
foreign tourist will have to give, at the time of exchange, a self-declaration
that he / she has not availed of this facility during the week and also provide
a copy of their passport.

3.  Provides that foreign tourists can continue to
avail facility of Pre-Paid Instruments as mentioned A. P. (DIR Series) Circular
No. 17 dated November 11, 2016.

88.  A. P. (DIR Series)
Circular No. 22 dated December 16, 2016

Exchange facility to foreign citizens

This circular provides that the facility for
exchange of foreign exchange for Indian currency, available to foreign citizens
(i.e. foreign passport holders) whereby they were permitted to exchange foreign
exchange for Indian currency notes up to a limit of Rs. 5,000/- per week will
continue up to December 31, 2016. The foreign tourist will have to give, at the
time of exchange, a self-declaration that he / she has not availed of this
facility during the week and also provide a copy of their passport.

Allied Laws

1. Advocate – Professional Misconduct – Advocate cannot file an affidavit in his own name on behalf of his client. [Advocates Act, 1961, Section 30, S ection 35]

Baljeet Singh vs. Pratap Singh and Others. AIR 2017 ALLAHABAD 165

The simple issue before the Hon’ble court was whether the counsel for the appellant before the lower appellate court could have filed the affidavit in support of the present appeal as a family friend?

It was observed that an advocate gets his right to practise in a court only u/s. 30 of the Act. ‘Practise’ in itself means to appear on behalf of his client before a Court or Tribunal in the best interest of his client. Practise, however, certainly does not give liberty to an advocate to identify himself with his client and step into the shoes of his client, so far as the rights of his client are concerned.

It was held by the Hon’ble Court that the said counsel who filed the affidavit is guilty of professional misconduct in identifying himself with his client and filing an affidavit in support of the appeal, but considering that he himself expresses that he had acted under naivety and has submitted an unconditional apology, the matter may not be referred to the Disciplinary Committee of the State Bar Council.

2. Evidence – Admissibility of evidence during the appellate proceedings. [Evidence Act, 1872, Section 65B(4)].

Sonu alias Amar vs. State of Haryana AIR 2017 SUPREME COURT 3441

An objection w.r.t. electronic record being not admissible unless it was accompanied by a certificate was raised in the appellate proceedings.

The only issue is the permissibility of an objection regarding inadmissibility of evidence at the Appeal stage. Admittedly, no objection was taken when the CDRs were adduced in evidence before the Trial Court. It does not appear from the record that any such objection was taken even at the appellate stage before the High Court.

It was observed that objections as to admissibility of documents in evidence may be classified into two classes: (i) an objection that the document which is sought to be proved is itself inadmissible in evidence; and (ii) where the objection does not dispute the admissibility of the document in evidence but is directed towards the mode of proof alleging the same to be irregular or insufficient.

It was held by the Hon’ble Court that it is clear that an objection relating to the mode or method of proof has to be raised at the time of marking of the document as an exhibit and not later. Objections regarding admissibility of documents which are per se inadmissible can be taken even at the appellate stage. Admissibility of a document which is inherently inadmissible is an issue which can be taken up at the appellate stage because it is a fundamental issue. The mode or method of proof is procedural and objections, if not taken at the trial, cannot be permitted at the appellate stage.

3. HUF – Ancestral property – Deemed to be joint – Unless proved otherwise. [Hindu Law]

Adiveppa & Ors. vs. Bhimappa & Anr. CIVIL APPEAL No. 11220 OF 2017 SUPREME COURT (www.itatonline.org)

The disputes were regarding ownership and extent of the shares held by the Appellants (Plaintiffs) in the agricultural lands.

It was alleged that while some properties were ancestral while others were self-acquired and hence the Plaintiffs (Appellants) have 4/9th share in the ancestral properties as members of the family. The Respondents (Defendants) denied the plaintiffs’ claim and averred inter alia that all the suit properties were ancestral properties. It was alleged by the Respondents that during the lifetime of the father of the plaintiff, an oral partition had taken place amongst the family members in relation to the all the suit properties pursuant to which all family members were placed in possession of their respective shares.

It was held by the Hon’ble Court that it is a settled principle of Hindu law that there lies a legal presumption that every Hindu family is joint in food, worship and estate and in the absence of any proof of division, such legal presumption continues to operate in the family. The burden, therefore, lies upon the member who after admitting the existence of jointness in the family properties asserts his claim that some properties out of entire lot of ancestral properties are his self-acquired property. Since the Plaintiffs themselves had based their case by admitting the existence of joint family nucleus and also could not prove with any documentary evidence that the suit properties described were their self-acquired properties, the appeal was dismissed.

4. Search/Survey – Undated cheques for collection of differential duty – Illegal. [Central Excise Act, 1944, Section 12F]

Digipro Import & Export Pvt. Ltd. vs. Union of India & Ors. 2017 (350) E.L.T. 145 (Del.).

Five undated cheques totalling to Rs. 1.25 crore were collected from the Petitioner by the officers of the Anti-Evasion Wing, Commissioner of Central Excise, Delhi-I during a Search/Survey conducted under the Central Excise Act, 1944.

The only issue was whether such an act of the department of collecting ‘undated cheques’ constituting the differential duty liability during the process of a visit/search or survey was sustainable.

The Hon’ble Court relying on various decisions held that there was no provision of law or any notification or any circular that permitted the officers who visited the Petitioner’s business premises to collect undated cheques which purportedly constitute the differential duty. It must be realised that the officers of the Anti-Evasion Wing of the Central Excise Department have to function within the four corners of the law. They are bound by not only the Central Excise Act and the Rules made thereunder but all the notifications/circulars/instructions issued from time to time including those issued by the CBEC. There is no scope at all to collect duty and that too without even quantifying the extent of duty evasion.

5. Rectification of mistake apparent – Within 6 months – Date of Order not to be seen. [Central Excise Act, 1944 –Section 35C, Section 37C]

Liladhar T. Khushlani vs. Commissioner of Customs 2017 (351) E.L.T. 36 (Guj.)

The short question, which was posed for consideration was, whether for the purpose of filing the rectification application, period of limitation of six months would commence from the date of the order, which is sought to be rectified or from the date of receipt of the order sought to be reviewed/rectified by the concerned assesse under the Central Excise Act, 1944?

It was held by the Hon’ble court that unless and until a party to the appeal is in a position to go through and study the order it would not be possible, nor can it be envisaged, that a party can claim to be aggrieved by the mistake apparent from the record. Hence, even on this count, the period of limitation has to be read and understood so as to mean from the date of the receipt of the order. In the result, the impugned order passed by the learned CESTAT was quashed and set aside.

Allied Laws

11.  Delay in filing objections – Period of
Limitation only applicable to the initial filing of objections and not to
re-filing. [Arbitration and Conciliation Act, 1996; Section 34]

 

Northern Railway vs. Pioneer Publicity
Corporation Pvt. Ltd. (2017) 11 Supreme Court Cases 234

 

There
was a refusal to condone the delay of 65 days in re-filing the objections u/s.
34 of the Arbitration and Conciliation Act, 1996 (Act). Admittedly, the
objections originally were filed within the time stipulated u/s. 34 of the Act.
However, since there were objections, time was granted by the Deputy Registrar
of the High Court to remove the objections within a period of 7 days. This was not
done. Eventually, the appellant re-filed the matter where there was a delay of
65 days.

 

The
Court held that section has no Application in re-filing the Petition but only
applies to the initial filing of the objections u/s. 34 of the Act.

 

12.  Hindu Law 
   Joint   Hindu  
Family      Family Settlement
– Outsider can be a party to such family settlement. [Transfer of Property Act,
1882; Section5]

 

Thimma Reddy vs.
Chandrashekara Reddy and Ors. AIR 2018 KARNATAKA 54

 

The
plaintiffs 1 – 3(sons of first defendant) and plaintiffs 4 – 5 (sons of second
defendant) pleaded that their grandfather owned a number of immovable
properties. He died intestate. No partition had taken place during his
lifetime. On 8.9.1986 there took place a partition among defendants 1 to 3 and
in this partition, properties described in schedule ‘C’ properties fell to the
share of third defendant. But, the third defendant was a stranger to the
family. Since he was not a member of the joint family, he was not entitled to
share. The defendants 1 and 2 colluded with the third defendant and entered
into a partition and thus the schedule ‘C’ property was allotted to him. This
allotment of ‘C’ schedule property to third defendant was alleged to be
illegal.

 

Reliance
was placed on the Supreme Court’s decision of Kale and others vs. Deputy
Director of Consolidation and others AIR 1976 SC 807
, wherein it was
observed that it is absolutely clear that the word ‘family’ cannot be construed
in a narrow sense so as to confine the parties to the family arrangement only
to persons who have a legal title to the property.

 

It was
held by the High Court that it is clear that a family settlement or arrangement
need not be necessarily among the members of joint family having a right of
succession, but even an outsider to the family can be given a share.
Requirement is that such an arrangement must be fair and bona fide.

 

13.
Mesne Profits –Property not renovated by lessee – Damages to be paid to lessor
on service of notice.
[Transfer of Property Act, 1882; Sec. 108]

 

The General Manager, Bharat Sanchar Nigam
Limited (BSNL) vs. Radhika Chettri AIR 2018 (NOC) 285 (SIK.)

 

Respondent,
the lessor, is the absolute owner of the flat. The said property was leased out
to the Appellant, the lessee, for a monthly rent for a period of 5 years. A
Clause existed in the Lease Deed that the lessee shall have the option of
renewing the lease of the said premises for further periods, on giving notice
of such intention, to the lessor at least three months prior to expiration of
the lease. The lessee, however, failed to take necessary steps as provided,
hence on expiry of the lease period, the respondent’s husband vide letter, and
requested the appellant to either increase the house rent by 30% or to vacate
the occupied premises. The appellant, vide letter intimated the respondent that
the suit property would be handed over and the said letter be treated as
“Notice” of three months. That, on checking the suit premises it was
found to be in a dilapidated condition which the appellant was bound to repair
before handing over.

 

In view
of sections108(h) & (m), the court held that T.P. Act requires that damages
caused to the suit property be made good within three months, which was not
complied with in the instant case. The term “mesne profit” includes
not only the profits which the person in wrongful possession actually received,
but also those which he might have received with ordinary diligence, but does
not include profits due to improvements made by person in wrongful possession.
Given a wider connotation it would mean that which the Appellant has lost on
account of the wrongful act of the Respondent, in other words the amount the
Respondent might reasonably be expected to have made, had he been in
possession. Hence, the Respondent is entitled to mesne profits.

 

14.  Property – Right of a Female – Scope and
Object of  Section14(1).   [Hindu 
Succession  Act,  1956; Section
14(1)]

 

Daulatarao Ramachandra Jadhav and Ors. vs.
Janabai Anandarao Jadhav and Ors. AIR 2018 KARNATAKA 62

 

It was
observed by the High Court in regard to section 14(1) that under the Hindu
Succession Act, it is clear that section 14(1) has a very wide and extensive
application and has to be read in a comprehensive manner as the Act overrides
old law governing the properties of the female. The Act confers full heritable
capacity and absolute ownership on the female heir. This section dispenses with
the traditional limitations of conferring limited estate on the female Hindu to
hold and transmit the property. It should be borne in mind that under Hindu Law
which in operation prior to the coming into force of this Act, a woman’s
ownership of property was hedged in by certain delimitations on her right of
disposal and also on her testamentary power in respect of that property and
also with reference to her absolute ownership. By virtue of interpretation of
the provision u/s. 14 of the Hindu Succession Act, in the enactment, the above
said barricades have been completely removed and the Act presupposes if any
property possessed by a female Hindu whether acquired before or after
commencement of the Act becomes absolute property of the said lady, if the said
property was given in recognition of her pre-existing right.

 

15.
Will – Attestation – Two witnesses mandatory – May not be present at the same
time. [Evidence Act, 1872; Section 68]

 

Sanjeev Juneja vs. State
and Ors. AIR 2018 DELHI 79

 

The Hon’ble High Court held
that the law requires attestation by minimum two witnesses, it is not mandatory
that both must have been present at the time when the testator executed the
document, the presence of the testator being more important when the witnesses
attest and further that, for proof of such execution and attestation, the
testimony of only one of such witnesses is enough, that also only if such
witness is alive and available.

RBI /FEMA

Given below are the highlights of certain RBI Circulars & Notifications

12.    FED Master Direction No. 1/2016-17 dated February 22, 2017

Master Direction – Money Transfer Service Scheme (MTSS)

This Notification contains the updated Master Direction 1 on MTSS. The Master Directions contains a list of Circulars and Notifications that have been consolidated vide this Direction and are Annexed to this Direction. Reporting instructions with respect to this Direction are mentioned in the Master Direction on Reporting.

13.    Notification No. FEMA.385/2017-RB dated March 03, 2017

Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2017

This notification contains two amendments to Notification No. FEMA 20/2000-RB dated 3rd May 2000 – Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017. Both the amendments pertain to FDI in an Indian LLP.

1.    Sub-Regulation (9) of Regulation 5 is substituted as follows: –

    “5 (9) A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), not being a Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines, may contribute foreign capital either by way of capital contribution or by way of acquisition / transfer of profit shares in the capital structure of an LLP under Foreign Direct Investment, subject to the terms and conditions as specified in Schedule 9”

2.    Schedule 9 is substituted by a new Schedule 9.

    The new Schedule 9 will be known as – The Scheme for Foreign Direct Investment (FDI-LLP) in Limited Liability Partnerships (LLP) formed and registered under the Limited Liability Partnership Act, 2008.

    The details as to eligible investors, eligible investment, eligibility of LLP, pricing, mode of payment and reporting are given this Notification.

Corporate Law Corner

4. 
(2018) 142 CLA 78 (NCLT – New Delhi)

Axis Bank Ltd. vs. Edu Smart Services Pvt.
Ltd.

Date of Order: 27th October, 2017

Regulations 12 and 13 of Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 – Corporate guarantee provided by Corporate debtor matured
after the commencement of insolvency resolution process – claim to accept the
invocation could not be accepted as the insolvency resolution process had
commenced prior to crystallization of liability


FACTS

E Ltd.   had  
provided   A Ltd.   a 
corporate  guarantee  of Rs. 396.76 crore in respect of loan
advanced by A Ltd. to group concern of E Ltd. A Ltd. filed a claim before the
Insolvency Resolution Professional (“IRP”) which was turned down by it. A Ltd.
filed an application before the National Company Law Tribunal (“NCLT” or the
“Tribunal”) in order to invoke a corporate guarantee after the date of
commencement of Corporate Insolvency Resolution Process (“CIRP”). The date of
commencement of the insolvency process was 27.06.2017 whereas the corporate
guarantee was invoked on 21.07.2017. E Ltd. sent a letter stating that
corporate guarantee could not be invoked as CIRP had been initiated and
moratorium was in force.

The loan agreement provides that in the
event of default by the Borrower the guarantor shall be liable to pay the
amounts payable by the Borrower. Accordingly, A Ltd. invoked the guarantee
which was not accepted by the IRP owing to the fact that date of invocation of
guarantee was much after the date of commencement of CIRP.

IRP argued that Regulations 12 and 13 of
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 (“the Regulations”) which deal with
submission of proof of claims and verification of claims clearly postulate that
IRP is required to verify only those claims which are existing as on the
insolvency commencement date. Accordingly, any claims which have not matured as
on the date of commencement of CIRP cannot be accepted.

IRP further pointed out that A Ltd. had
separately filed for recovery against the Borrower in a separate insolvency
proceeding and which claim has been accepted in the application filed before
NCLT.

 

HELD

The limited issue before the Tribunal was
whether A Ltd. was entitled to make a claim against E Ltd. by invoking the
corporate guarantee after the date of commencement of the insolvency process.

The Tribunal perused the terms of the loan
documents, as well as Regulations 12 and 13. It held that in order to qualify
as a ‘debt’, the provisions of the corporate guarantee must be satisfied by
raising a demand which is expressed by invoking the corporate guarantee and the
date of its invocation has to precede the insolvency commencement date. In the
present case, although CIRP commenced on 27.06.2017, the corporate guarantee
was only invoked on 21.07.2017. IRP would not be in a position to verify the
claim as it will not be reflected in the books of accounts which are supposed
to be updated as on 27.06.2017. In the absence of any record to verify the
claim, it would be impossible for the IRP to accept any such claim which became
a debt after 27.06.2017.

The Tribunal further examined the provisions
of section 3(6), 3(8), 3(10), 3(11) and 3(12) of Insolvency and Bankruptcy
Code, 2016 which defined the terms claim, corporate debtor, creditor, debt and
default in order to conclude that a debt did not exist on the date insolvency
process commenced.

A Ltd. argued that liability of guarantor
under the Indian Contract Act, 1872 is joint and several and accordingly it had
a right to enforce the liability against E Ltd. However, Tribunal held that
liability only crystallised after the commencement of CIRP and the argument put
forth had no merit. A Ltd. further urged that there is no provision in the Code
declaring the insolvency commencement date as the date to determine the claims
of the parties. The Tribunal however observed that invocation of corporate
guarantee against E Ltd. would result in enforcing of security interest and it
would thus, be in violation of the moratorium provision of section 14(1)(c) of
the Code.

The Tribunal also observed that A Ltd. had
already filed separate proceedings against the borrower and its claim was
accepted in such separate proceedings.

The Tribunal therefore, dismissed the
application filed by A Ltd.

 

5. 
(2018) 1 CompLJ 36 (NCLAT – Kol)

Surojit Kumar vs. ROC

Date of Order: 08th March, 2017

Section 128(6) of Companies Act, 2013 – The
provision comes into effect from 01.04.2014 – Accordingly, penalty stipulated
therein cannot apply to offences committed up to 31.03.2014


FACTS

S and 2 other directors (for sake of brevity
referred to as S) filed an application u/s. 621A of the Companies Act, 1956
(“1956 Act”) for compounding offence for violating section 209 of the Companies
Act, 1956 during the year ending between 31.03.2011 to 31.03.2014 (“Petition
1”).

Another application was filed u/s. 621A of
1956 Act for compounding of offence for violation of section 217(2) of
Companies Act, 1956 during the year ending between 31.03.2011 to 31.03.2014
(“Petition 2”).

Petition 1 was admitted and NCLT compounded
the offence by levying a fee of Rs. 5,000 whereas Petition 2 was admitted by
NCLT and the compounding fees levied were Rs. 10,000.

S had no objections under both the petitions
in respect of financial years ending on 31.03.2011 to 31.03.2013. However, in
so far as financial year 31.03.2014 was concerned, NCLT levied the penalty
taking into consideration provisions of section 128(6) of the Companies Act,
2013. S thus, filed the present appeal to challenge the application of
Companies Act, 2013 in respect of financial year ended on 31.03.2014 by the
NCLT.

 

HELD

ROC before the Appellate Tribunal (NCLAT)
submitted that company regularised the mistake in the financial year ended
31.03.2015. However, NCLAT proceeded to hold that prospective regularisation
cannot be used as an excuse to apply the provisions of Companies Act, 2013
retrospectively in respect of offences which were committed prior to its coming
into force.

NCLAT held that 128(6) could not be applied
in respect of violation of section 209 committed during the financial year ended
31.03.2014. It thus set aside the order of NCLT to that extent and imposed a
fee similar to what had been laid down in respect of earlier years.

The appeal filed by S was thus accepted.

Order in matter of Insider Trading in the
Scrip Of Deep Industries Limited in respect of Rupeshbhai Kantilal Savla; Sujay
Ajitkumar Hamlai and V-Techweb India Private Limited

 

6. 
SEBI/WTM/MPB/IVD/ID–6/162/2018

Date of Order: 16th April, 2018

SEBI (Prohibition of Insider Trading)
Regulations, 2015 – Persons who are friends on Facebook can be regarded as
connected persons – Likes and other activity on the social media platform can
be looked into for the purpose of determining whether such persons are
“connected persons” or not


FACTS

D Ltd was engaged in the business of oil
exploration and allied activities and its shares were listed on National Stock
Exchange (NSE) as well as Bombay Stock Exchange (BSE). Between 17.07.2015 to
14.10.2015 (“Investigation period”) D Ltd. was awarded three contracts from
ONGC for hiring of mobile drilling rigs spanning across a period of several
months.

Some details in respect of these contracts
are as follows:

First contract: The bid for the same was
opened on 17.07.2015 and D Ltd. was declared as L1 bidder.

Second contract: The bid for the same was
opened on 01.07.2015. However, D Ltd. was not declared to be L1 bidder. ONGC
subsequently requested D Ltd. to match the evaluated day rate of L1 bidder on
17.08.2015. D ltd. submitted this bid on 18.08.2015.

Third contract: The bid for the same was
opened on 27.07.2015 and D Ltd. was declared as L1 bidder.

The stage at which the company was declared
as L1 bidder was the stage at which process of tendering got completed and what
remained pending was merely award of contract.

The receipt of these contracts was notified
to the stock exchanges after D Ltd. received the notification of award of
contract. The dates were 03.09.2015 for first and second contract and
14.10.2015 for third contract. Pursuant to these corporate announcements, there
was a rise in the price at which these scrips were being traded on the
exchanges.

 

HELD

Issues before SEBI and their disposal is as
follows:

SEBI observed that value of the two
contracts for which the announcement was made on 03.09.2015, constituted a substantial
52.47% of the annual turnover of the company for the FY 2015-16 and 87.65% of
the annual turnover for the FY 2014-15 i.e. immediately preceding financial
year. Similarly, the value of the single contract for which announcement was
made on 14.10.2015 constituted 53.40% of the annual turnover of the company for
the FY 2015-16 and 89.21% of the annual turnover for the FY 2014-15 i.e.
immediately preceding financial year. Considering the magnitude of the value of
the three contracts, the information relating to bagging of these orders by D
Ltd. constituted price sensitive information and the same was likely to
materially affect the share price of the company, once published.

UPSI periods were the periods where the
information was available with company regarding receipt of contracts and
ceased to exist on the day the same was notified to the exchanges.  Accordingly, period between 17.07.2015 and
14.10.2015 was determined as the UPSI period.

On the basis of the investigations conducted
by SEBI, R, V Ltd. and A were identified as insiders for the Investigation
period as per the Regulations.

R being the Managing director of D Ltd. was
held to be an insider as well as a connected person.

S and directors of V Ltd. were regarded as
connected persons on the basis of their being friends on social media platform
“Facebook” with R and his wife. Wife of S was also friends with wife of R. SEBI
also observed instances where they had “liked” each other’s pictures posted on
the platform. Thus, S and V Ltd. were held to be insiders and connected persons
owing to their social relationship.

SEBI observed that insiders had traded in or
brought shares of D Ltd. during the Investigation period and SEBI proceeded to
compute the gains and ordered that such gains be impounded from the insiders.

 


Allied Laws

6. Union of
India and Ors. vs. Manju Lata Tiwari AIR 2018 PATNA 28           

 Adhaar Card –
Sufficient identity proof. [Government Savings Bank Act, 1873, S.4-A]

A widow wanted
a refund of the money deposited in the savings account with the post office
deposited by her late husband who had not made it either a joint account or
declare the wife as the nominee. When a demand or claim was made by the wife,
it was rejected after quoting various rules.

It was
contended that the Post Office Savings Bank Manual Volume-I stated that in
absence of a nomination there was no occasion to release any amount up to Rs.
one lakh or above without production of a succession certificate or a probate
of a Will or letter of administration, and hence the widow was not entitled to
the refund.

The Court
observed that there were enough official evidences available including the
so-called Aadhar Card, which is being used for large number of Government
dealings for measure of identification. Aadhar Card is also being used for the
purposes of disbursement of funds by the Central Government to the so-called
beneficiaries, then why a hapless widow has to go through the rigmarole of
litigation, spend time, money and energy for years together by moving a civil
Court before she can beget her rightful claim of her deposit left behind by her
husband on this technicality is not appreciated by this Court.

In view of the
above, the Hon’ble Supreme Court held that the guidelines mentioned in the Post
Office Savings Bank Manual Volume-I, are only directive and the same cannot be
used for unnecessary harassment of a bona fide depositor or a legal heir.

7. Danamma
alias Suman Surpur and another vs. Amar and Ors. AIR 2018 SUPREME COURT 721

Hindu Law –
Coparcenary – Daughter – Suit for Partition – Entitled to share in property
since birth – Even though amendment came into effect after such birth. [Hindu
Succession Act, 1956 S.6]

A suit was
filed for partition for a share in the property, by the daughters of the
deceased. However, this suit was filed in the year 2002 i.e. 1 year after the
death.

It was observed
that, S.6, as amended, stipulates that on and from the commencement of the
amended Act, 2005, the daughter of a coparcener shall by birth become a
coparcener in her own right in the same manner as the son. It is apparent that
the status conferred upon sons under the old Section and the old Hindu Law was
to treat them as coparceners since birth. The amended provision now statutorily
recognises the rights of coparceners of daughters as well since birth. The
section uses the words in the same manner as the son. It should therefore be
apparent that both the sons and the daughters of a coparcener have been
conferred the right of becoming coparceners by birth. It is the very factum of
birth in a coparcenary that creates the coparcenary, and therefore the sons and
daughters of a coparcener become coparceners by virtue of birth. Devolution of
coparcenary property is the later stage of and a consequence of death of a
coparcener. The first stage of a coparcenary is obviously its creation as
explained above, and as is well recognised. One of the incidents of coparcenary
is the right of a coparcener to seek a severance of status. Hence, the rights
of coparceners emanate and flow from birth (now including daughters) as is
evident from sub-s (1)(a) and (b) of S.6.

In light of the
observation made, the Hon’ble Court held that, in the present case, the rights
of the appellants i.e. the daughters had crystalised when the amendment came
into effect. Hence, even the daughters would be entitled to 1/5th
share in the property.

8. Jayant Verma
and Ors. vs. Union of India (UOI) and Ors. AIR 2018 SUPREME COURT 1079

 Precedent –
Exparte judgment without discussion is Per incurium hence not binding.

The issue was
whether one of the judgements relied upon were binding on the Court.

It was observed
that where such a matter is not argued at all by the Respondent, and the
judgement is one of reversal, it would be hazardous to state that the law can
be declared on an ex parte appraisal of the facts and the law, as
demonstrated before the Court by the Appellant’s counsel alone. That apart,
where there is a detailed judgement of the High Court dealing with several
authorities, and it is reversed in a cryptic fashion without dealing with any
of them, the per incuriam doctrine kicks in, and the judgement loses
binding force, because of the manner in which it deals with the proposition of
law in question. Also, the ratio decidendi of a judgement is the
principle of law adopted, having regard to the line of reasoning of the Judge
which alone binds in future cases. Such principle can only be laid down after a
discussion of the relevant provisions and the case law on the subject. If only
one side is heard and a judgement is reversed, without any line of reasoning,
and certain conclusions alone are arrived at, without any reference to any case
law, it would be difficult to hold that such a judgement would be binding and
the same has to be followed.

In view of the
same, it was held by the Hon’ble court that such judgment was not binding on
them.

9. SRD Nutrients Private Limited vs. Commissioner
of Central Excise, Guwahati (2018) 1 Supreme Court Cases 105

Precedent –
Judicial Discipline – Reference to Larger Bench in case of contradicting views.

It was observed
by the Hon’ble Court that when a view was taken by one bench of the CESTAT Tribunal
on one issue then another view or a contrary view cannot be taken by the
co-ordinate bench of the CESTAT Tribunal. Judicial discipline warranted
reference of the matter to the Larger Bench.

In view of the
same, the Hon’ble Court held that it is also trite that when two views are
possible, one which favours the Assessees has to be adopted.


10. B. Sunitha vs. The State of Telengana
and Ors. (2018) 1 Supreme Court Cases 638

Professional Misconduct – Advocate –
Percentage of decretal amount. [Contract Act, 1872; S.23]

The proceedings
were initiated by the Respondent who is an advocate in whose favour the
Appellant executed a cheque allegedly towards his fee. The cheque was
dishonoured. The stand of the Appellant is that section 138 of the Act is not
attracted as there was no legally enforceable debt, as fee claimed was
exorbitant and against law. The Appellant having already paid a part of the
fee, stated that fee could not be demanded on percentage of amount awarded as
compensation to the Appellant which was in violation of the Advocate Fee Rules
and Ethics.

It was argued
that charging percentage of decretal amount by an advocate is hit by section 23
of the Contract Act being against professional ethics and public policy and
hence the cheque issued by the Appellant could not be treated as being in
discharge of any liability by the Appellant.

It was observed
that mere issuance of cheque by the client may not debar him from contesting
the liability. If liability is disputed, the advocate has to independently
prove the contract. Claim based on percentage of subject matter in litigation
cannot be the basis of a complaint u/s. 138 of the Act. Having committed a
serious professional misconduct, the Respondent i.e. the Advocate, could not be
allowed to avoid the adverse consequences which he may suffer for his
professional misconduct. The issue of professional misconduct may be dealt with at appropriate forum.

It was held by
the Hon’ble Court that the claim of the Respondent advocate being against
public policy and being an act of professional misconduct, proceedings in the
complaint filed by him have to be held to be abuse of the process of law and
have to be quashed.

Company Law

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1. Companies (Acceptance of Deposits) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification No GSR 639 (E ) dated 29th June 2016, notified amendments to the Companies (Acceptance of Deposit) Rules, 2014. Among other amendments, it has excluded an amount of Rs. 25 Lakh or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.

A Start-up Company means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 180(E) dated 17th February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.

A Convertible Note means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.

In Rule 3 to the Principal rule which limits the eligible Company to accept or renew any deposit from its members, the limit has been increased from 25% to 35% of the aggregate of the paid-up share capital and free reserves of the company.

Also the following proviso to Rule 3 of the Principal rules, after sub Rule 3 has been inserted-

“Provided that a private company may accept from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.

Rule 16 A pertaining to “Disclosures in the financial statement” has been introduced as follows:

(1) Every company, other than a private company, shall disclose in its financial statement, by way of notes, about the money received from the director.

(2) Every private company shall disclose in its financial statement, by way of notes, about the money received from the directors, or relatives of directors.

The full notification can be accessed at http://www. mca.gov.in/Ministry/pdf/Rules_30062016.pdf

2. Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide notification No. G.S.R. 646(E) dated 30th June 2016 issued amendments to the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014.

The disclosures applicable to listed companies as mentioned in Rule 5 of the principal rules, sub-rule (1), “clauses (v), (vi), (vii) and (ix) to (xi)” have been omitted:

(v) the explanation on the relationship between average increase in remuneration and company performance;

(vi) comparison of the remuneration of the Key Managerial Personnel against the performance of the company;

(vii) variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;

(ix) comparison of the each remuneration of the Key Managerial Personnel against the performance of the company;

(x) the key parameters for any variable component of remuneration availed by the directors;

(xi) the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year;

Following Disclosures in the Directors report are also required:

Details of remuneration of every employee drawing in excess of Rs 1,02,00,000/- pa or Rs. 8,50,000/- per month is to be disclosed alongwith the names of the top ten employees in terms of remuneration drawn.

Further the filing of Form No. MR-1 for the appointment of Chief Executive Officer, Chief Financial Officer and Company Secretary has been omitted.

The full notification can be accessed at http://www. mca.gov.in/Ministry/pdf/AmendmentRules_01072016. pdf

3. Removal of Difficulties Third Order – Rotation of Auditors

The Ministry of Corporate Affairs has vide Order no S.O. 2264(E) dated 30th June 2016, issued the Removal of Difficulties Third Order, which is deemed to be effective from 1st April 2014.

The third proviso of section 139 (2) (pertaining to Appointment of Auditors) of the Companies Act 2013 states that every company existing on or before the commencement of the Act and falling within the ambit of section 139 (2) (i.e. provisions relating to rotation of auditors) of the Act, are required to comply with the requirements of the said sub-section within 3 years from the date of commencement of the Act.

Given the above, difficulties have arisen regarding compliance with the provisions of the third proviso to section 139 (2) of the Act in so far as they relate to the period within which companies would comply with the provisions of section 139 (2) of the Act. In this regard, the Central Government has made the order by which, the third proviso to section 139 (2) of the Act would be substituted with the following proviso:

“Provided also that every company, existing on or before the commencement of this Act which is required to comply with the provisions of this sub-section, shall comply with requirements of this sub-section within a period which shall not be later than the date of the first annual general meeting of the company held, within the period specified under sub-section (1) of section 96, after three years from the date of commencement of this Act.”

This order aims to remove the difficulties that have arisen regarding compliance with Rotation of Auditors. The provisions of third proviso to section 139(2)in so far as they relate to the period within which companies would comply with provisions of section 139(2) of the said Act is substituted as follows:

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/ROD_Third_Order_2016.pdf

4. Companies (Incorporation) Third Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification No G.S.R. 743(E) dated 27th July 2016 issued Companies (Incorporation) Third Amendment Rules, 2016 to amend the Companies (Incorporation) Rules 2014.

Rule 3(2) has been substituted as follows:

“(2) A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company”

Rule 26 with respect to Publication of the name of the Company has been substitutes as follows :

(1) Every company which has a website for conducting online business or otherwise, shall disclose/publish its name, address of its registered office, the Corporate Identity Number, Telephone number, fax number if any, email and the name of the person who may be contacted in case of any queries or grievances on the landing/home page of the said website.”

In Rule 28(2) the following proviso has been added after 2nd Proviso:

“Provided also that on completion of such inquiry, inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, shifting of registered office shall be allowed. R ule 29 (1) is substituted as follows:

“(1) The change of name shall not be allowed to a company which has not filed annual returns or financial statements due for filing with the Registrar or which has failed to pay or repay matured deposits or debentures or interest thereon:

Provided that the change of name shall be allowed upon filing necessary documents or payment or repayment of matured deposits or debentures or interest thereon as the case may be.”

The rule for Conversion of unlimited liability company into a limited liability company by shares or guarantee have been incorporated in newly added Rule 37.

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesThridAmendementRules_28072016.pdf

5. Companies (Share Capital and Debentures) Fourth Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification No G.S.R. 791(E) dated 12th August 2016 notified amendments to Companies (Share Capital and Debentures) Rules, 2014.

Rule 18, after Sub-rule (10), the following sub-rule shall be inserted.

“(11) Nothing contained in this rule shall apply to rupee denominated bonds issued exclusively to overseas investors in terms of A.P. (DIR Series) Circular No. 17 dated September 29, 2015 of the Reserve Bank of India.”

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesFourthAmendmentRules_17082016.pdf.

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

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Business Transparency
In its simplest sense, business transparency means clear, unhindered honesty in the way that s/he does business. But it’s more than that. One business dictionary defines transparency as a “lack of hidden agendas or conditions, accompanied by the availability of full information required for collaboration, cooperation, and collective decision making.” The same source describes it as an “essential condition for a free and open exchange whereby the rules and reasons behind regulatory measures are fair and clear to all participants.” Meanwhile, another source defines transparency as “the full, accurate, and timely disclosure of information.”

In many cases, the word transparency is used as little more than a buzzword, a marketing opportunity. Whether it’s a corporate executive looking to win back disillusioned consumers and shareholders or a politician making whatever promises necessary to obtain public office, this term seems to have earned a bad rap over the years. And as a result, many have come to question the authenticity of those who use transparency as a part of their normal vernacular.

While observing the steady decay of this word would be a fascinating study in itself, there is another, more beneficial lesson to be learned in the wake of this linguistic disaster— particularly as it pertains to the way businesses are run.

This lesson can be learned, at least in part, by simply rediscovering what true transparency is—what does transparency actually mean? After that, one can utilize that understanding to discern the purpose of remaining transparent in the way s/he does business, as well as the often detrimental consequences of flouting that responsibility. Finally, with that new-found understanding, one can generate useful, ingenuous action plan for increasing transparency in his or her own business.

Transparency is one of those subtle things that can make a dramatic impact on a business. Yes, it will impact your bottom line. But that’s not the whole point. The point is that it helps everyone do business better—you, your clients, your team member. A culture of transparency is the way business ought to be done

RTI Clinic in September 2016: 2nd, 3rd, 4th Saturday, i.e. 10th, 17th, and 24th 11.00 to 13.00 at BCAS premises.

Ethics and U

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Shrikrishna (S) — Arjun, you are looking very much tensed up today. Any problem?

Arjun (A) —Yes. Already having a tough time facing scrutiny assessments. Plus advance tax work is on. Again, after the Union Budget, some urgent study and action will be required.

S — But that is normal in this part of the year. You should be quite used to such pressure!

A — I agree. But suddenly my friend is insisting that I should accompany him to Delhi.

S — Delhi? What for? To meet the PM or FM? Ha Ha Ha!

A — No Bhagwan. He is a very low profile CA. Poor fellow was held guilty of misconduct in a very trivial matter. Probably, he was not represented properly.

S — So, what is there at Delhi now?

A — When he consulted a senior member, he advised him to approach the Appellate Authority of our Institute.

S — I know. It is presided over by a High Court Judge.

A — Unfortunately, Appellate Authority does not have camps in regional offices! One has to attend at Delhi only.

S — Oh! It would be very expensive. Travel, counsel’s fee, and so on!

A — True. He is very much afraid of all this. He has engaged a counsel; but he is insisting that I should also accompany him.

S — He may be a little diffident.

A — Yes. Actually, he is from a rural area. Does not have the exposure and smartness to organise all this.

S — Then better rethink as to whether it is worthwhile contesting the issue. What is the punishment by the way?

A — Actually, the punishment is a mere reprimand. But he feels it is a stigma.

S — I know of another CA who was awarded one week’s suspension of membership. But he did not find it worth contesting, though his case had a lot of merit.

A — Why? One should always fight for justice.

S — I agree. But justice at what cost? And what is the guarantee of result? Are you aware of the procedure of Appellate Authority?

A — No. I will be attending for the first time.

S — See, in the notice, they must have mentioned as ‘preliminary hearing’.

A — Yes. What does that mean? .

S— It means, they will only hear your side and ascertain whether there is any substance in your appeal.

A — And then what?

S — Then, sometime later, they will hear the other side – that means the Council’s side. And they will decide whether the appeal is to be admitted! You also will be called for that hearing.

A — Oh! That means like the regular High Court. But both sides are not heard together?

S — Only after the preliminary hearing!

A — Very strange!

S — Yes. And if the appeal is admitted, then only they will fix up a date for hearing both sides.

A — Oh, my God! So the poor respondent will have to travel to Delhi thrice – with the Counsel?

S — Yes, my dear!

A — Then double the cost! And again so much of time! Doesn’t seem worth the trouble.

S — To avoid all this, the best thing is not to commit any misconduct even inadvertently! Not even in your dream!

A — What you say is absolutely correct! Prevention is better than cure. I must tell all this to my friend. One should really do the cost-benefit analysis of the whole thing.

S — Unfortunately in our system, justice is becoming more and more costly; and illusory.

A — Bhagwan, after all, this is your ‘leela’. You alone can save us from disaster!

Om shanti !!!!!

Note
The above dialogue intends to introduce our readers to the procedure followed by the Appellate Authority. The readers can go through section 22A of the Chartered Accountants Act, 1949 for their self study.

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

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Openness, accountability, and honesty define government transparency. In a free society, transparency is government’s obligation to share information with citizens. It is at the heart of how citizens hold their public officials accountable.

Governments exist to serve the people. Information on how officials conduct the public business and spend taxpayers’ money must be readily available and easily understood. This transparency allows good and just governance.

“A lack of transparency results in distrust and a deep sense of insecurity.”
– Dalai Lama

Part C Information on & Around

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Chief Minister’s office (Maharashtra ) paying nearly Rs. 8 lakh a month to eight officers on special duty:
An RTI query filed by activist Anil Galgali has revealed that the Chief Minister’s Office (CMO) incurs a monthly expenditure of Rs. 7.7 lakh to pay the officers on special duty (OSD). Galgali feels that the performance of these officers ought to be evaluated and appraised to justify the remuneration.

The CMO, however, feels these OSDs are discharging important duties. “All these officers have contributed immensely in various projects and flagship programmes of the government and the chief minister monitors their performance personally”, the CMO reacted in a written note. It mentioned that governance programmes, such as Aaple Sarkar, Right to Services Act and War Room that led to “good and speedy governance” were handled by OSDs.

The state is also using modern communication platforms such as Twitter, Facebook and WhatsApp. These candidates are handling it for the government to make the state schemes and decisions reach out to people. The OSDs have played an important role in the recent Make in India Week. The CMO still has vacancy for two OSDs.

‘Make In India’ logo designed by foreign firm
The logo of Prime Minister Narendra Modi’s much-hyped Make in India initiative, which aims to brand India as a manufacturing hub is designed by a foreign company’s Indian arm, reveals an RT I query. Replying to query by a Madhya Pradesh-based activist, Chandra Shekhar Gaur, Union Commerce and Industry ministry replied, “No tenders were invited for designing Make in India logo. In 2014-15, tenders were invited by the ministry for appointing a creative agency. And on the basis of this tender, Weiden+Kennedy India Limited, was chosen”.

While replying to another query, the ministry informed that Weiden+Kennedy India Limited was hired for Rs. 11 crore for advertising and promotion of Make In India campaign, for 3 years — Rs. 4.32 crore for financial year 2014-15, Rs. 3.6 crore each for 2015-16 & 2016-17, said the reply in the last week of December.

Speaking to TO I, Gaur said, “It feels good to hear about ‘Make in India’ and the campaign also talks good about our country. It’s a good initiative, but it would have been better and sent a stronger message if this was done by an Indian firm. There is no dearth of creative talent in India.”

HC refuses info under RTI for want of manpower
The Public Information Officer (PIO) of the Madras High Court Bench has refused to furnish information sought for by an advocate under the RT I Act, since “it is not readily available and collection of the same involves verification of voluminous records and huge manpower which is not possible.”

K. H. Elavazhagan, Registrar (Administration)-cum- PIO of the Bench, had said so in a written reply sent to the RT I applicant, A. Kannan, who had sought details of private cases filed by law officers representing the State government before their appointment to the posts of Special Government Pleader, Additional Public Prosecutor and Government Advocate in June 2011.

10 Janpath bigger than PM’s 7 RCR
Congress president Sonia Gandhi has one of the largest residences among politicians in the country, bigger than even the Prime Minister’s official abode at 7 Race Course Road in size. President Pranab Mukherjee and Vice-President Hamid Ansari are the only others who can boast of set-ups more palatial than the politically potent 10 Janpath. But while Rashtrapati Bhavan, the Vice- President’s residence and 7 RCR are official residences, Gandhi’s home at 10 Janpath is specifically allotted to her, irrespective of her status as Member of Parliament. The Gandhi residence is spread over 15,181 sq. m. while the Prime Minister’s is smaller at 14,101 sq. m., according to the Central Public Works Department.

Apex Court refuses to share pending ruling data
Fifteen years after its verdict that the confidence of litigants would be shaken if judgments were kept pending for years, the Supreme Court recently refused to share information under the RT I Act on the cases reserved for judgment. It also dismissed a plea to maintain the data on its pending judgments and make the information public under the RT I Act.

Closing the option for litigants and public-spirited persons to know details of cases which have been waiting endlessly for final decision, even though arguments are long over, the apex court refused to interfere with a Delhi High Court decision which said the court registry could not be directed to collect information on how long judgments on cases remained pending under the Right to information Act.

After a case is heard by a court, it reserves its verdict in the case. There is a certain time gap between this and declaration of the court’s decision or judgment. The case remains pending till the judgment is delivered. However, the Supreme Court’s refusal to be made accountable under the RT I Act is despite the Central Information Commission (CIC) ruling to disclose the number of pending or “reserved” judgments.

60% of discretionary fund used for Karnal, Gurgaon ignored

Haryana Chief Minister, Manohar Lal Khattar had released Rs. 14.30 crore for the state in 2014-15 under the discretionary fund. However, an RT I reply from the government has revealed that it has not spent a penny of this fund in Gurgaon.

The government in its reply said Rs. 8.76 crore, a whopping 60% of the entire amount was spent in Karnal, the CM’s constituency.

Chief Ministers’ discretionary fund is meant to provide immediate relief during calamities, disasters and other similar incidents when the other government machinery is slow and bound by rules and regulations. The apex court in 2011 had upheld this quota stating that the power of the chief minister to give monetary relief was power accompanied with duty.

While the funds in the CM’s discretionary quota are meant exclusively for an emergency, what is surprising is that Khattar has bestowed a major part of his largesse to only six villages in Karnal for development work.

Part B RTI Act, 2005

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In 3 months, Delhi government to accept RTI applications online

As a part of its e-governance initiatives, the Delhi government will begin accepting online filing of RTI applications within the next 3 months. According to government sources, the online RT I project is in the pipeline along with the project to set up e-Mandis, which will also make the sale of agricultural produce more transparent.

The project will help citizens file applications seeking information pertaining to any government department, make payments online and receive replies through e-mail. Currently, RTI applications are filed in person or by post.

The online applications, sources said, will have a payment gateway similar to an e-commerce platform and payments will be enabled by credit or debit cards, or netbanking. The government is currently working on setting up the infrastructure to ensure appropriate channeling of applications to the concerned departments. A back-end set up will also have to be created to channel the RT I fees to the concerned department, said sources. In addition, the government is also training its officials to gradually shift the RTI setup to a paperless office. Sources said training of government employees will also take some time before all RT I operations become paperless. The government, however, will rope in various departments to be able to complete the process within the next three months. About the e-Mandi project, sources said it was conceptualised to regulate the prices of agricultural produce and eliminate the monopoly of some vendors. This will ensure that details of all products are online. If the sale of some product is stuck, their availability or otherwise can be seen online, said a source. The project is still nascent and will take time to be planned and executed. While both the projects have received the government’s nod, the cost involved in setting them up is still being worked out, said officials. The majority of the expenses, they said, would be on setting up the online platforms and back-end operations.

Part A Decision of Supreme Court

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Public Service Commissions within RTI ambit

The Supreme Court held that candidates in recruitment examinations can seek scanned copies of answer sheets and tabulation of interview marks under the Right to Information (RT I) Act, but the right to information does not extend to disclosure of names of examiners.

A Bench of Justices M.Y. Eqbal and Arun Mishra in the case ‘Kerala Pub. Service Commn. & Ors. vs. State Information Commn. & Anr’ said disclosure of those who evaluated their mark sheets would not be in public interest.

The Apex Court held:
“The request of the information seeker about the information of his answer sheets and details of the interview marks can be and should be provided to him. It is not something which a public authority keeps it under a fiduciary capacity. Even disclosing the marks and the answer sheets to the candidates will ensure that the candidates have been given marks according to their performance in the exam. This practice will ensure a fair play in this competitive environment, where candidate puts his time in preparing for the competitive exams, but, the request of the information seeker about the details of the person who had examined/checked the paper cannot and shall not be provided to the information seeker as the relationship between the public authority i.e. Service Commission and the Examiners is totally within fiduciary relationship. The Commission has reposed trust on the examiners that they will check the exam papers with utmost care, honesty and impartially and, similarly, the Examiners have faith that they will not be facing any unfortunate consequences for doing their job properly. If we allow disclosing name of the examiners in every exam, the unsuccessful candidates may try to take revenge from the examiners for doing their job properly. This may, further, create a situation where the potential candidates in the next similar exam, especially in the same state or in the same level will try to contact the disclosed examiners for any potential gain by illegal means in the potential exam.”

Ethics and U

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(Updating of knowledge)

Shrikrishna (S) — Yes Arjun, how was the budget?

Arjun (A) —You mean Union Budget of 2016-17? It was very nice!

S — What was nice about it?

A — FM has touched upon many pain-points of tax payers. Has tried to rationalise many provisions.

S — Oh! You CAs believe that Budget means Finance Bill. That too, only Direct tax. One needs to see the broader picture; the economic part as well.

A — I agree. But those astronomical figures of a few lakh crores; and high-dream schemes really don’t make any meaning. Statistics is always deceptive.

S — Still, you should try to understand those things.

A — What you say is right. But who has the time to go through it? You know how hectic March is for us.

S — But you have no choice. Clients will expect a communication from you about the salient features.

A — So many people and firms bring out the booklets. Our BCAS budget booklet is excellent. S — T hat’s true. But have you bothered to buy them and distribute among your clients? You should educate your clients.

A — We are running around for completion of scrutiny assessments; service tax calculations, and what not!

S — And what about bank audits that will come in April?

A — That reminds me. I need to attend branch audit seminars. I have also to complete my CPE hours! A headache!

S — But why did you not complete it before? Why wait till the last date; and do it only in extended time?

A — That is in our blood now! We CAs don’t like to do things in time.

S — So that at the last moment, you can act to be too busy!

A — But these compliances keep us busy round the year. There is no respite to think of anything creative.

S — There is one more important thing that you CAs have not taken seriously! And that may invite trouble.

A — He Bhagwan! What do you mean? Any more burden?

S — Yes. Income Computation Disclosure Standards. ICDS.

A — I have heard about it. What exactly is it?

S — You are mainly practising income tax. Then you should know it. There are 10 ICDS and the Income for financial year 2015-16 was supposed to be computed by applying ICDS.

A — Oh, My God! Really, is it applicable? So our advance tax estimates also were to be done by ICDS?

S — Of course! Materiality, Revenue Recognition, Foreign Exchange, Inventory Valuation and so many of them. All affecting taxable income.

A — But have they not postponed it? Such a new thing made applicable all of a sudden!

S — They brought it last year only. But you always expect extension of every compliance.

A — Lord, we meet here to discuss our Code of Ethics. What has ICDS to do with the Code of Ethics?

S — You are mistaken, my dear! Technical competence is a fundamental part of ethics. You are a professional. If you are not up-to-date in knowledge, how will you render proper service?

A — That’s a point.

S — Technical lapses, lack of basic knowledge on the part of a CA, are considered to be misconduct.

A — Is it negligence?

S — Certainly.

A — But is there any effect on accounts?

S — No. On account of ICDS, you need not change the accounts. But tax provision will be affected.

A — Then our audit will also be affected. It is a part of statutory compliance.

S — And not doing it properly is a gross-negligence; or at least a lack of due diligence!

A — Clause (7) of part I of Second Schedule! Right? S — Very good! You remember so much!

A — So now, I need to update myself on Ind AS and ICDS! That means, my summer vacation is gone!

S — Don’t sacrifice your vacation. But always have knowledge update in your priority list. Be pro-active and avoid last moment tensions.

A — I agree. It affects our health; quality of work suffers; and in general, there is trouble.

S — Timely action will bring you peace in practice.

A — You are absolutely right, Lord, as always! Om shanti !!!!!

Corporate Law Corner

Editor’s note: For a long time, the flavour of company
law has been missing from the journal. From this issue, we recommence digesting
decisions on Company Law. We hope readers will find these useful.

1.  Esquire Electronics
vs. Netherlands India Communications Enterprises Limited

(2017) 1 CompLJ 131 (NCLT)  

Date of Order: 6th October, 2016

Sections 241 And 242 of Companies Act, 2013 – Order passed
by NCLT is a decree – Proceedings under sections 241 and 242 are in the nature
of the suit – Petition can be filed under sections 241 and 242 only if the same
is not barred by period of limitation as is prescribed under Limitation Act.

FACTS

Petitioners along with a company (SCo) and 2 other companies
entered into a Joint Venture Agreement dated 29.12.1995 wherein they decided to
establish a company in the name and style of NCo. Subsequently, all the parties
to the JV Agreement agreed to subscribe to the shares of SCo in the same
proportion as was agreed in the JV Agreement and the idea of formation of NCo
was supposedly dropped.

Petitioner alleged that NCo was secretly established in the
year 1996 with the same name as was agreed to in the JV Agreement. It was
further stated by the Petitioners that existence of this company was not
disclosed to them. Amongst other things, the Petitioners alleged various
irregularities on part of NCo such as non-conduct of Annual General Meeting
(AGM) from 2002 to 2010, non-existence of any office of NCo (violating
provisions of sections 17, 18 and 19 of Companies Act, 1956), illegal holding
of AGM in the year 2012, oppression and mismanagement by few directors of NCo,
amongst others.

Petitioners, filed a petition under sections 241 and 242 of
Companies Act, 2013 (the Act) with the National Company Law Tribunal (NCLT or
the Tribunal) against 5 respondents being NCo and its 4 directors on 25th July,
2016. The petition claims that the directors of NCo should be removed from the
company and its board be reconstituted excluding the aforesaid directors. They
have further prayed that all resolutions passed by NCo allotting shares to
various shareholders between 2000 and 2012 be declared as null and void. 

The Petitioners however, did not agitate any cause against
NCo prior to this petition.

HELD

The Tribunal observed that the last AGM of NCo was conducted
on 29.09.2012. Upon perusing the filings made to the Registrar of Companies,
the Tribunal noted that the Petitioners were neither shareholders nor directors
of NCo.  The Tribunal dismissed the
petition filed on two counts:

The Tribunal observed that section 433 of the Act makes it
patent that the Limitation Act would apply to the proceedings or appeals before
the Tribunal or the Appellate Tribunal. Referring to sections 424 and 425 of
the Act it held that it has powers vested in a Civil Court under the Code of
Civil Procedure while trying a suit in respect of specified matters and that
the orders passed by it are executable as a decree of Court. Once it is
established that the order passed by it is a decree then it follows that the
proceedings under sections 241 and 242 of the Act are necessarily proceedings
in a suit. It has all trappings of a suit. Therefore, the period of limitation
provided for suits would, ipso facto, be applicable as the Limitation
Act has been specifically made applicable by section 433 of the Act.

The Tribunal observed that since the last AGM of NCo was
conducted on 29.09.2012, in terms of Article 113 of Limitation Act, the period
of limitation would be three years from the date the right to sue accrues. The
cause of action, if any, arose to the Petitioners on 30.09.2012 and the instant
petition having been filed on 25.07.2016 was clearly beyond the period of three
years provided by Article 113 of the Limitation Act.

Further, since the Petitioners were neither directors nor
shareholders of NCo at any point of time, there was no locus standi available
for them to file the aforesaid petition.

The Tribunal, therefore, dismissed the petition with cost of
Rs. 25,000.

2.  West Hills Realty
Private Ltd. vs. Neelkamal Realtors Tower Pvt. Ltd.

[2017] 200 CompCas 179 (Bom)

Date of Order: 23rd December, 2016 

Section 433(e) of Companies Act, 1956 read with Rule 5 of
Companies (Transfer of Pending Proceedings) Rules, 2016 – Winding up petitions
which are pending before the High Court would not be transferred to NCLT if the
notice has already been served on the Respondent irrespective of whether they
have been admitted by the High Court or not

FACTS

Two company petitions were filed before the Hon’ble Bombay
High Court u/s. 433(e) r.w. section 434 of Companies Act, 1956 in April 2016
seeking winding up of respondent companies on account of inability to pay its
debts. In terms of notification dated 07.12.2016, issued by the Central
Government, all petitions relating to winding up u/s. 433(e) pending before
High Courts, and which have not been served on the Respondent as required by
Rule 26 of the Companies (Court) Rules, 1959, stand transferred to the
appropriate Bench of the National Company Law Tribunal (NCLT) exercising
territorial jurisdiction over the mater.

Respondent urged that the petitions were covered in the
mandate of the notification and stand transferred thereunder, whilst the
Petitioners submitted that the petitions having been served on the Respondent
as required by Rule 26, the transfer notification does not apply to them and
accordingly, the High Court retains its jurisdiction over them.

Since the issue would arise in several cases pending before
the Court, any interested party whose petition was pending before the Court
were allowed to appear and file submissions in this regard.

HELD

The crucial question before the Court was whether or not the
petition has been served on the Respondent “as required under Rule 26 of the Companies (Court) Rules, 1959”.

Counsel for the Respondents urged that service of petition
contemplated by Rule 26 was a post-admission service. It was submitted that the
service of a petition under Rule 26 contemplates a simultaneous service of the
notice of the petition, which, as Rule 27 provides, must be in Form No. 6 given
under the Rules. That form was to be served after the petition was admitted by
the court. It was further contended that there was no rule under the Companies
(Court) Rules, 1959, which required a pre-admission notice of the petition to
the Respondent.

Petitioner on the other hand urged that requirement under
Rule 26 was without any reference to the admission of the petition. It was
stated that service of the petition under Rule 26 and notice of the petition
under Rule 27 are two entirely different matters.

For ease of reference the said rules have been reproduced as
under:

“26. Service of petition – Every petition shall be
served on the respondent, if any, named in the petition and on such other
persons as the Act or these rules may require or as the Judge or the Registrar
may direct. Unless otherwise ordered, a copy of the petition shall be served
along with the notice of the petition.

27. Notice of petition and time of service – Notice of every
petition required to be served upon any person shall be in Form No. 6, and
shall, unless otherwise ordered by Court or provided by these Rules, be served
not less than 14 days before the date of hearing.”

The Court observed that

(i)  service of petition implied service on the
respondent or other person, as the case may be, of a copy of the petition,
whereas notice of the petition connoted notice of the hearing of the petition
before the court. Rule 26 provides for service of petition, whilst Rule 27
provides for notice of petition. 

(ii) if a respondent was named in the petition, the
requirement of service of the petition on such respondent is the requirement of
Rule 26 itself. One does not have to go to the other provisions of the Act or
the Rules or the orders of the Judge or the Registrar for such requirement.
Rule 26 has no reference to the order of admission of the petition.

Those petitions, which are pending admission and which have
been served on the respondent as required under Rule 26, shall continue to
remain in the High Court pending their admission, whilst the petitions pending
admission, which have not been served on the Respondent as required under Rule
26, shall be transferred to, and considered for admission by NCLT.

As the notice of the petitions had already been served upon
the Respondents, it held that the same were to be dealt with by the Court only.

3.  (2017) 77 taxmann.com
210 (NCLT – New Delhi)

JVA Trading (P.) Ltd., In re

Date of Order: 13th January, 2017

Sections 230, 231 and 232 of the
Companies Act, 2013 and Rules 3 and 5 of Companies (Compromise, Arrangement and
Amalgamation, Rules, 2016) – Compromise and arrangement – Tribunal does not
have the power to dispense the conduct of meeting of members / shareholders

FACTS

JCo (being a transferor) is engaged in business of trading in
electric and electronic goods whereas CS Co (being a transferee) is engaged in
the business of manufacturing the same. The Board of Directors of both the
companies had passed a resolution approving of the merger.

JCo  and CS Co  filed an application to the Tribunal under
sections 230 to 232 of the Act read with the Companies (Compromises,
Arrangements and Amalgamation) Rules, 2014 in relation to a scheme of
amalgamation proposed between JCo and CS Co 
requesting it to dispense the requirement to convene meeting of equity
shareholders of JCo and issue necessary orders / directions for conducting
meetings of creditors of JCO, equity shareholders and creditors of CS Co
amongst others. A scheme of Amalgamation was also filed with the Tribunal.

The companies also filed with the Tribunal their combined
capital structure; list of equity shareholders, secured and unsecured creditors
of both the companies; respective Memorandum and Articles of Association,
Certificate of Incorporation, provisional financial statements up to a cut off
date.  

HELD

The Tribunal upon perusing the necessary facts held that it
did not have the power to dispense with the requirement of convening the
meeting of shareholders / members under the provisions of the Companies Act,
2013.

It did proceed to give directions in respect of conduct of
meetings in respect of both the companies, appointment of Chairperson for the
aforesaid meetings, manner in which the notices would be sent, manner of
voting, amongst others.

4.  Sanjay Sadanand Varrier
vs. Power Horse India (P.) Limited [2017] 80 taxmann.com 47 (Bombay) Date of
Order: 22.03.2017

Section 433, read with sections
434 and 439 of the Companies Act, 1956 – An unpaid employee being a creditor of
the company can file a petition for winding up of the company – A winding-up
petition at instance of trade union for recovery of dues payable to its members
was maintainable

FACTS:

Petitioner (S), an employee of the Respondent Company (PCo)
was initially appointed as a Regional Sales Manager and thereafter as the
Manager, Key-Accounts and Trade Marketing. S alleged that since October 2009
till he resigned in March 2012, his entire salary was outstanding. S therefore
issued a statutory notice to PCo u/s. 434 of the Companies Act, 1956 for payment
of his dues, failing which he would initiate winding up proceedings. Since PCo
did not make the said payment, S filed a winding up petition before the High
Court. PCo relying on decision of Mumbai Labour Union vs. Indo French Time
Industries Ltd. [2002] 38 SCL 924 (Bom.)
contended that S was not a
creditor of the company and therefore, petition u/s. 439 cannot be
maintained. 

The decision rendered in the case of Mumbai Labour Union was
overruled in the case of Khandelwal Tube Mill Kamgar Sangh vs. Government of
Maharashtra [2006] 1 CLR 51
wherein it was held that workman or an
individual employee, being a creditor within the meaning of the relevant
statutory provisions of the Companies Act, can institute or file a Petition for
winding up of a Company.

The only surviving issue before the Court was whether a Trade
Union could file a Petition so as to espouse the cause of workmen who are members of such a Trade Union.

HELD:

Court examined the provisions of the Companies Act, 1956 as
well as Trade Unions Act, 1926. It was noticed that Registered Trade Unions can
prosecute or defend any legal proceeding to which the Trade Union or member
thereof is a party. The Court held that a Trade Union, though having a
legitimate claim, cannot be shut out from approaching the appropriate forum for
winding up the Company on the ground that its members have not been paid their
wages and/or salaries.

It was therefore held that an employee can maintain a
petition for winding up of a company u/s. 439 r/w sections 433(e) and 434 of
the Companies Act, 1956 as a creditor based on the claim of the recovery of his
unpaid salary and wages. Further, a winding up petition at the instance of a
Trade Union and for the dues that are payable to its members is maintainable as
it clearly fell within section 439 of the Companies Act, 1956.

5.  Shabbir Ahmed vs.
Safedabad Cold Storage and Allied Industries (P.) Ltd.

[2017] 80 taxmann.com 46 (NCLT – Kolkata)            Date of Order: 1st March,
2017

Section 13, read with sections 12 and 241, of the Companies
Act, 2013 – company having its registered officer in West Bengal had shifted
its registered office from West Bengal to state of Uttar Pradesh without
issuing any notice to a shareholder – Company had acted in a manner prejudicial
to the interest of shareholders – The shifting of office was illegal – Prayer
to shift the petition to Uttar Pradesh was not allowed

FACTS:

Directors of Respondent Company (SCo) convened an Extra
ordinary general meeting (EOGM) for shifting its registered office from the
State of West Bengal to the State of Uttar Pradesh and in the said meeting, a
special resolution was passed by the members. Petitioner (S) holding 21.76%
shares in SCo alleged that due process was not followed in convening the
meeting and that they were not served any notice of the meeting.

SCo however did not produce any proof of service of notice
upon S. S accordingly pleaded that such resolution passed should be declared as
null and void and also filed Company Petition for mismanagement and oppression
challenging the shifting of registered office amongst other things.

HELD:

SCo failed to show or prove the service of notice upon the S
or upon any other members/shareholders as was required under Rule 30 of the
Companies (Incorporation) Rules, 2014. SCo relied only on the order of Regional
Director who allowed the application for change in its registered office from
state of West Bengal to state of Uttar Pradesh.

The Tribunal also observed that office of the company was
shifted locally within Kolkata and the same was reflected in the Master data
obtained from the MCA portal. However, SCo did not produce any document to show
that due procedures were complied, in regard to the shifting of the registered
office locally within the State.

The Tribunal found that the equity was in favour of S. It
held that the conduct of the SCo and its directors was prejudicial to the
interest of the S and it would be highly unjust to allow the prayers sought by
the director of company to transfer the Company Petition to Safedabad in Uttar
Pradesh.

The Tribunal, rejecting the grant of relief stated that
relief if allowed would be highly oppressive to S as SCo had acted in the
manner not only prejudicial to the interest of the S but also acted in
violation of the established principles/procedures of law while shifting the
registered office of the company.

Company Law

1.   MCA is actively considering Aadhaar
Integration for availing various MCA21 related services. As a preparatory step,
all individual stakeholders viz. DIN holders/Directors/Key Managerial
Personnel/Professionals of the Institute of Company Secretaries of
India-Institute of Chartered Accountants of India-Institute of Cost Accountants
of India (whether in employment or in practice) are requested to obtain Aadhaar
as early as possible for integrating their details with MCA21 and also ensure
that the information in Aadhaar is in harmony with PAN. When implemented, all
MCA21 services shall be available based on Aadhaar based authentication ONLY.
The date of Aadhaar integration with MCA21 would be announced shortly.
Stakeholders are requested to plan accordingly on PRIORITY so as to avoid
future inconvenience.

2.   Form STK-2 –Form for application by company
for removing its name from register of companies is now available on the MCA
Portal.

3.   The Companies ( Registration of Charges)
Amendment Rules 2017

      The Ministry of Corporate Affairs has vide
Notification dated 7th April 2017 revised the Forms CHG-1, CHG-4 and
CHG-9. The following details are also required to be filled:

(i)   ranking of charges,

(ii)  particulars of the principal terms and
conditions of the charge,

(iii)  particulars of the property or asset(s)
charged (including complete address and location of the property),

(iv) description of document by which the
borrower/third party acquired the title etc.

(v)  If the ‘Type of Charge’ is ‘immovable property
or any interest therein’, the location parameters (Latitude and Longitude)
shall be mandatory

   The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/companiesRegistrationofChargesAmendmentRules_08042017.pdf

4.   Form 3 (Information with regard to Limited
Liability Partnership agreement and changes, if any, made therein) has been
mandatorily filed for initial agreement before filing of Form 8 (Statement of
Account & Solvency) and Form 11 (Annual Return of Limited Liability
Partnership (LLP).

5.   The Companies ( Removal of Names of
Companies from the register of Companies ) Amendment Rules 2017

    The Ministry of Corporate Affairs has vide
Notification dated 12th April 2017 inserted the following Proviso
after the proviso to Rule 7 (1) which provides for the  publication of the Public notice pursuant to
it and  Section 248(1) and 248 (4) of the
Companies Act 2013 in the format as per Form No STK-5A

  The full notification can be accessed
athttp://www.mca.gov.in/Ministry/pdf/CompRemovalofNamesRules_13042017.pdf

6.   Companies (Meetings of Board and its Powers)
Amendment Rules, 2017.

     The Ministry of Corporate Affairs has vide
Notification dated 30th March 2017 amended the Companies (Meetings
of Board and its Powers) Rules, 2014. In rule 15, in sub-rule (3), in clause
(a)—

     in item (i), item (ii), item (iii) and
item (iv), for the words “exceeding ten per cent.” Whereverthey occur, the
words “amounting to ten per cent. or more” shall be substituted;

      and(b) in item (iii), for the words “ten
per cent. of turnover” the words “ten per cent. or more ofturnover” shall be
substituted.

   The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/CompaniesMeetingsofBoard_31032017.pdf

7.   The Companies (Indian Accounting
Standards)(Amendment) Rules, 2017

      The Central Government, in consultation
with the National Advisory Committee on Accounting Standardshas vide
Notification dated 17th March 2017 amended the the Companies (Indian
Accounting Standards) Rules, 2015

      The full notification can be accessed at

       http://www.mca.gov.in/Ministry/pdf/CompaniesIndianAccountingStandards_21032017.pdf

8.   Section 234 of the Companies Act 2013
pertaining to Merger and Amalgamation of company with Foreign Company notified

      The Ministry of Corporate Affairs has vide
Notification dated 13th April, 2017 informed that Section 234 of
Companies Act 2013 pertaining to Merger and Amalgamation of company with
Foreign Company is effective w.e.f 13th April 2017.

      The full notification can be accessed at

      http://www.mca.gov.in/MinistryV2/companiesact2013.html

9. The Companies (Compromises, Arrangements and
Amalgamations) Amendment Rules, 2017

      The Ministry of Corporate Affairs has vide
Notification dated 13th April 2017, inserted Clause 25A pertaining
to Merger or Amalgamation of a foreign Company with a Company and vice
versa.

   The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/CompaniesCompromises_14042017.pdf

10. Amendments to Schedule III of the Companies Act
2013

      The Central Government has vide
Notification dated 30th March 2017 
no G.S.R. 308(E) issued the following 
amendments to Schedule III of the said Act with effect from the date of
publication of this notification in the Official Gazette, namely:-

      In the Companies Act, 2013 in Schedule
III, in Division I, in Part I under the heading “General instructions for
preparation of Balance Sheet” in paragraph 6, after clause ‘W’, the following
clause shall be inserted namely:-

“X.
Every company shall disclose the details of Specified Bank Notes (SBN) held and
transacted during the period from 8th November, 2016 to 30th
December, 2016 as provided in the Table below:-

 

SBNs

Other
denomination

Notes

 

Total

Closing cash in hand as on
08.11.2016

 

 

 

(+) Permitted receipts

 

 

 

(-) Amount deposited in
Banks

 

 

 

Closing cash in hand as on
30.12.2016

 

 

 

  

Explanation : For the purposes of this clause, the
term ‘Specified Bank Notes’ shall have the same meaning provided in the
notification of the Government of India, in the Ministry of Finance, Department
of Economic Affairs number S.O. 3407(E), dated the 8th November, 2016.”

In the Companies Act, in Schedule III, in Division II, in
Part I under the heading “General instructions for preparation of Balance
Sheet” in paragraph 6, after clause ‘J’, the following clause shall be inserted
namely:-

“K. Every company shall disclose the details of
Specified Bank Notes (SBN) held and transacted during the period 08/11/2016 to
30/12/2016 as provided in the Table below:- 

 

SBNs

Other
denomination

Notes

 

Total

Closing cash in hand as on
08.11.2016

 

 

 

(+) Permitted receipts

 

 

 

(-) Amount deposited in
Banks

 

 

 

 

 

 

Closing cash in hand as on
30.12.2016

 

 

 

 Explanation : For the purposes of this clause, the
term ‘Specified Bank Notes’ shall have the same Meaning provided in the
notification of the Government of India, in the Ministry of Finance, Department
of Economic Affairs number S.O. 3407(E), dated the 8th November, 2016.”.

Full Notification can be
accessed at 
http://www.mca.gov.in/MinistryV2/companiesact2013.html

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

17.  Notification No.
FEMA.387/2017-RB dated March 09, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Fourth
Amendment) Regulations, 2017

This notification contains two
amendments to Notification No. FEMA 20/2000-RB dated 3rd May 2000 –
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2017.

The amendments are as under: –

1.    Insertion of new sub-regulations in
Regulation 2: –

(ii E) E-commerce:

a. ‘E-commerce’ means buying and selling of goods and services including
digital products over digital & electronic network.

b. ‘E-commerce entity’ means a company incorporated under the Companies
Act, 1956 or the Companies Act, 2013 or a foreign company covered under section
2 (42) of the Companies Act, 2013 or an office, branch or agency in India as
provided in Section 2 (v) (iii) of FEMA 1999, owned or controlled by a person
resident outside India and conducting the e-commerce business.

c. ‘Inventory based model of e-commerce’ means an e-commerce activity
where inventory of goods and services is owned by e-commerce entity and is sold
to the consumers directly.

d. ‘Market place model of e-commerce’ means providing of an information
technology platform by an e-commerce entity on a digital & electronic
network to act as a facilitator between buyer and seller.

2.    Substitution of existing entry 16.2 in Annex
B to Schedule 1:
    (Table given below)

16.2

E-Commerce

%
of equity/FDI Cap

Entry
Route

16.2.1

B2B
E-commerce activities

100%

Automatic

 

Such
companies would engage only in Business to Business (B2B) e-commerce and not
in retail trading, inter alia implying that existing restrictions on
FDI in domestic trading would be applicable to e-commerce as well.

16.2.2

Market
place model of e-commerce

100%

Automatic

16.2.3

Other
Conditions

 

 

 

a)
  Digital & electronic network will
include network of computers, television channels and any other internet
application used in automated manner such as web pages, extranets, mobiles
etc.

b)
  Marketplace e-commerce entity will be
permitted to enter into transactions with sellers registered on its platform
on B2B basis.

c)
   E-commerce marketplace may provide
support services to sellers in respect of warehousing, logistics, order
fulfilment, call centre, payment collection and other services.

d)
  E-commerce entity providing a
marketplace will not exercise ownership over the inventory i.e. goods
purported to be sold. Such an ownership over the inventory will render the
business into inventory based model.

e)
  An e-commerce entity will not permit
more than 25% of the sales value on financial year basis affected through its
marketplace from one vendor or their group companies.

f)
   Goods/services made available for
sale electronically on website should clearly provide name, address and other
contact details of the seller. Post sales, delivery of goods to the customers
and customer satisfaction will be responsibility of the seller.

g)
  Payments for sale may be facilitated
by the e-commerce entity in conformity with the guidelines of the Reserve
Bank of India.

h)
  Any warranty /guarantee of goods and
services sold will be responsibility of the seller.

i)
    E-commerce entities providing
marketplace will not directly or indirectly influence the sale price of goods
or services and shall maintain level playing field.

j)     Guidelines
on cash and carry wholesale trading as given in S.No. 16.1.2 (stated above)
shall apply to B2B e-commerce activities.

Note:
FDI is not permitted in inventory based model of e-commerce.

16.2.4

Sale
of services through e-commerce shall be under automatic route subject to the
sector specific conditions, applicable laws/regulations, security and other
conditionalities.

28. A. P. (DIR Series) Circular No. 41 dated March 21, 2017 Notification
No. FEMA No.384/2017-RB dated March 17, 2017

Risk Management and Inter-bank
Dealings: Operational flexibility for Indian subsidiaries of Non-resident
Companies

This circular has amended the
provisions of Notification No. FEMA.25/RB-2000 dated May 3, 2000 dealing with
Foreign Exchange Derivatives Contracts.

This circular now permits, subject
to certain terms and conditions, a non-resident to enter into a foreign
exchange derivative contract with a bank in India to hedge an exposure to
exchange risk of and on behalf of its Indian subsidiary in respect of the said
subsidiary’s transactions.

The detailed terms and conditions,
etc. are contained in 2 Annex’s to this circular.

29. A. P. (DIR Series) Circular No. 42 dated March 30, 2017

Purchase of foreign exchange from
foreign citizens and others

This circular has withdrawn the
restrictions on purchase of foreign exchange from customers by authorised
persons and restored the position as contained in paragraph 4.4 (e) (iii) of
Annex to A.P. (DIR Series) Circular No.17 dated November 27, 2009.

The said paragraph provides as
under: –

iii) (a) Requests for payment in
cash in Indian Rupees to resident customers towards purchase of foreign
currency notes and / or Travellers’ Cheques from them may be acceded to the
extent of only US $ 1000 or its equivalent per transaction.

(b) Requests for payment in cash
by foreign visitors / Non-Resident Indians may be acceded to the extent of only
US $ 3000 or its equivalent.

(c) All purchases within one month
may be treated as single transaction for the above purpose and also for
reporting purposes.

(d) In all other cases, APs should
make payment by way of ‘Account Payee’ cheque / demand draft only.

30. A. P. (DIR Series) Circular No. 43 dated March 31, 2017

Investment by Foreign Portfolio
Investors in Government Securities

This circular has increased the
limits for investment by FPI in Central Government Securities and State
Development Loans (SDL) for the quarter April-June 2017 by Rs. 110 billion and
Rs. 60 billion respectively.

The details of the revised limits
are as under: –

Rs. Billion

 

Central Government securities

State
Development Loans

Aggregate

 

For all FPI – General Category

Additional for Long Term FPI

Total

For all FPI (including Long Term FPI)

 

Existing Limits

1,20

680

2,200

210

2,410

Revised limits for quarter April-June, 2017

1,565

745

2,310

270

2,580

Allied Laws

5. Precedent –
Contrary decisions of co-ordinate benches – Decision with better of reasoning
to be chosen [Central Excise Act, 1944; Section 11AC].

CCE vs. Otis Elevator Co. (I) Ltd. 2017(345) E.L.T. 512
(Bom.)(HC)

The issue in the case was with respect to application of a
provision retrospectively or prospectively. While resolving the issue, several
case laws were quoted where contrary views were expressed. However, one of the
case laws did not have threadbare discussion or reasoning.

Relying on the decision of the Court in the case of Kamleshkumar
Ishwardas Patel vs. Union of India, 1994 Mh.L.J. 1669 (FB)
, it was held
that when the Court is confronted with contrary decisions of higher courts,
both being binding on the subordinate courts by reason of their hierarchy, the
courts have to undertake the unpleasant task of choosing that one which appears
to be one with better reasoning.

6. Advocate, no
Objection Certificate of earlier Advocate not required – Appointment of New
Advocate – Party to litigation has absolute right to appoint advocate of
choice. [Constitution of India; Art.225, Advocate Act, 1961. Section 35]

Karnataka Power Transmission Corporation Ltd. Mysore vs.
M. Rajashekar and others. AIR 2017 Kar. 1

The issue in question was whether a new Advocate’s
Vakalatnama can be accepted in the absence of a no objection certificate from
the earlier advocate?

It was held that a party to the litigation has an absolute
right to appoint an advocate of his choice, to terminate his services and to
appoint a new advocate. A party has the freedom to change its advocate at any
time and for whatever reason.

However, fairness demands that the party should inform his advocate
already on record, though this is not a condition precedent to appoint a new
advocate. There is nothing known as an irrevocable Vakalatnama. The right of a
party to withdraw the authorisation given is an absolute one. On discharging
the advocate, the party has the right to have the case file returned to him.
However, if the advocate, on being discharged, has a genuine claim against the
client relating to the fee payable to him, the appropriate course for him is to
return the brief and to agitate his claim in an appropriate forum, in
accordance with law.

Hence the Registry will not ask for ‘No Objection’ of an
advocate already on record, to accept the Vakalatnama filed by a new advocate.

7. Evidence –
Newspaper Report – Only hearsay Evidence – Editor to be examined. [Evidence
Act, 1872; Section 3]

Govind Rhukhdu Ji Sirvi vs. Ranjana Baghel (Smt.) AIR 2017
Madhya Pradesh 41.

The election result of the Respondent was called in question
on several grounds w.r.t. malpractices before the Court. One of the ground was
that the respondent visited a village where she, by way of gratification of
voters, distributed currency notes of Rs.1,000/-. Photographs of the incident
were taken and distributed to various daily newspapers.

In the matter at hand, it was alleged that the respondent had
distributed currency notes which amounted to corrupt practices. The Petitioner
adduced the newspaper reports, ocular evidence and the photographs.

However, this allegation was denied by the respondent’s
Counsel on the ground that a news item as such is no evidence in the eyes of
law. Hence, the evidence should not be admissible.

It was held that a newspaper report by itself is no evidence
of its contents and that such evidence is only hearsay evidence. To prove the
contents of the newspaper reports, the reporter, editor or the publisher who
can testify as to how, when, from where and in what manner the material
published in the newspaper was collected should be examined.

8. Power of
Attorney executed outside India – Power of Attorney notarised in accordance
with law – Document to be admissible and not impoundable [Registration
Act,1908; Section 85].

Active Promoters Pvt. Ltd. vs. Assotech Reality Pvt. Ltd.
& Another AIR 2017 Punjab and Haryana 41

A Revision petition was filed before the court in a suit for
specific performance of the sale agreement. The Petitioner had moved an
application for the impounding of the special power of attorney, having been
executed outside India.

Plaintiff-Respondent filed
a suit for specific performance of the sale agreement under which the
Defendant-petitioner had agreed to sell his land. A written agreement was
executed between the parties for which the defendant-petitioner received
earnest money as well.

When the Defendant failed
to execute the sale deed, the Plaintiff filed Civil suit seeking specific
performance of the agreement to sell. Suit was at the stage of the Plaintiff’s
evidence. When the evidence of a special power of attorney was furnished, no
objection was raised for months and an issue was raised thereafter for
impounding the special power of attorney.

It was held that since the document, which was notarised by
the Notary Public of State of Florida, strictly in accordance with the laws of
America, met the requirements of law contained in section 85 and section 32 of
the Indian Evidence Act, and since no objection had been raised by the
opposition w.r.t the admission of the evidence at the inception, the evidence was
admissible.

However, any plea w.r.t. the evidentiary value could be
raised at the appropriate stage. Hence, the Special Power of Attorney was not
to be impounded by the Court.

9. Judgment – To
be pronounced in open Court, signed and dated – Mere declaration does not
amount to judgment. [Criminal Procedure Code, 1974; Section 353]

Ajay Singh and Another vs. State of Chhattisgarh and
Another AIR 2017 Supreme Court 310.

The issue was whether the Trial Court could pass an order
acquitting the accused as per a judgment typed separately.

The issue in the Trial Court was with respect to dowry death,
cruelty, etc., wherein finally the Judge passed a judgment stating in
the Order sheet that recorded that the accused persons had been acquitted as
per the judgment separately typed, signed and dated.

A complaint was filed before the Registry of the High Court,
appropriate action was taken and all the cases before the concerned Trial Judge
were transferred before the High Court for re-hearing.

Hence, two issues cropped up namely, whether the Trial Judge
had really passed an order for acquittal and whether the High Court had the
power to transfer the cases adjudicated upon by the Trial Court already, for
rehearing.

On verification, it was held that the Trial Court had not
pronounced any judgment in the open court.

According to section 353, the process and method of passing a
judgment is defined, wherein it specifies that a judgment has to be pronounced
in the Open Court, either immediately after the trial or at some subsequent
day, with prior notice given to the Parties. Section 363 provides that a copy
of judgment should be given to the accused and the other persons.

It was held that, the provisions clearly spelt
out that it was imperative on the part of the learned Trial Judge to pronounce
the judgment in the open court by delivering the whole of the judgment or by
reading out the whole the judgment or by reading out the operative part and
explaining the substance of the judgment.

Part C Information on & around

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Maharashtra government makes another attempt to cripple RTI Act; move draws flak

The Maharashtra government is proposing a series of RTI rules, which, if implemented, would sound the death knell of the Act. Earlier, during the tenure of the previous government, some RTI rules were made.

What are the controversial proposals?

One is that an applicant would not be given details that “involve fresh collection of non-available data” or “compilation of existing data”. The other is not to give information on queries that seek “justification”.

How will the proposals kill the Act?

Already, there are complaints that many public information officers (PIOs) do not part with information largely because they do not even keep the records properly with them. The proposals also take away the onus of giving reasons for not providing information from the PIOs. The government is also looking to set a limit on the information it can provide online.

PMO discloses salary of its staff; IAS officer Bhaskar Khulbe highest paid

The monthly salary of all officers working in the prime minister’s office (PMO) has been made public as part of suo motu disclosure under the Right to Information (RTI ) Act with senior Indian Administrative Service (IAS) officer Bhaskar Khulbe the highest paid at Rs.2.01 lakh.

Khulbe, who is secretary to the prime minister, gets a monthly remuneration of Rs.2.01 lakh, according to details of the salary as on 1 June 2016 put on the PMO website.

Update details of officers handling RTI matters: Govt to depts

All central government departments have been asked to ensure that updated details of officers responsible for handling RTI applications are available in the public domain.

One of the items to be disclosed proactively by the public authorities (or government departments) under the Right to Information (RTI) Act pertains to the names, designations and other particulars of the Central Public Information Officers (CPIO) and its updation on a yearly basis.

Army canteens most profitable retail chain in India, ahead of Future & Reliance Retail

Which is the most profitable Retail chain in India? Answer: The defence canteen stores. Its earnings exceeded those of all other chains, including Future Retail and Reliance Retail. The Canteen Stores Department (CSD), which, incidentally, is a not-for-profit organisation, earned Rs 236 crore during FY14-15, according to a Right to Information query. Comparatively, Avenue Supermart, which runs D’Mart stores, made a profit of Rs 211crore.

118 sexual harassment cases filed in BMC in 4 years, reveals RTI

In the last four years (2013-16) the Brihanmumbai Municipal Corporation (BMC) officials have registered 118 cases of sexual harassment in its offices, reveals a right to information (RTI ) response.

In a reply to the RTI filed by activist Anil Galgali requesting number of sexual harassment complaints filed in the civic administration and action taken, the civic body replied saying 21 sexual harassments cases were registered by its women employees till June this year.

According to this information, from 2013 to 2016, the average number of complaints registered with committee which works under Women Sexual Harassment Prevention chief and ‘Savitribai Phule Women Resource Centre each year should be 29. While in 2013 and 2014, 32 and 34 complaints were lodged respectively, there was marginal decline in 2015 as 31 cases were filed.

Part B RTI Act, 2005

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Constitution bench to decide if SC is exempted from RTI Act

A five-judge Constitution bench of the Supreme Court will decide whether the apex court is liable to disclose information on judicial appointments under the Right to Information Act.

The bench will hear a case filed by its administrative wing through the Central Public Information Officer.

A three-judge bench led by Justice Ranjan Gogoi referred the question to the country’s top court, following a case filed by the CPIO of the Supreme Court against an earlier Delhi High Court ruling.

The Delhi High Court in 2014 upheld a similar order by the Central Information Commission and ruled that the Supreme Court is not exempt from disclosing information under the RTI . The high court thus allowed the public to seek information related to appointment of judges, and number of cases pending and disposed off in the apex court through RTI applications.

The Delhi High Court directed the Supreme Court registry to maintain all records, even judgments that had been reserved, to ensure that all information is available under RTI .

In 2011, the CIC had given a similar direction to the Supreme Court to maintain its records regarding all cases in such a way that information can be made available to RTI applicants. The Supreme Court has however, refused to give any directions with respect to divulging any details under the RTI during hearings of several public interest litigations.

The CIC gave its order in 2011 based on the apex court’s 2001 ruling in the case titled Anil Rai vs. State of Bihar. This judgement has been cited in most cases pleading for transparency in judiciary’s functioning on account of observations made on maintaining confidence of litigants. Several drafts of the Memorandum of Procedure prepared by the government for appointment of judges exclude appointments from the ambit of the RTI .

Part A Decision of CIC

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[Introductory Note to the following CIC Decision: In 2010 the Environment Minister placed a moratorium on release of Bt Brinjal, which would have been the first genetically modified (GM) food crop in India – despite it having been cleared as ‘safe’ by the Regulator, the Genetic Engineering Appraisal Committee (GEAC). This was done in the light of the analysis of the test data by scientists in India and abroad, who found many lacunae in the test results done by the applicant and accepted by the GEAC. There were also public hearings at 7 locations where the scientists as also consumers, farmers and NGOs could put their view point. Currently GM mustard has been through testing and may be cleared for release, but data was not being put in the public domain for analysis. An RTI application has resulted in the following landmark order]

GM mustard trials: CIC asks govt to reveal bio-safety data

The Central Information Commission (CIC) has directed the environment ministry to reveal safety data regarding trials of genetically modified (GM) mustard without further delay, noting that “any attempt to postpone or delay the disclosure will block the public discussion” on the controversial issue.

In April, the information panel had pulled up the Union ministry of environment, forest and climate change (MoEFCC) over its lack of transparency on trials of GM crops and directed it to make public all information, including bio-safety data, related to the field trials of the GM mustard crop before 30 April.

The CIC also directed the ministry to put in the public domain bio-safety data pertaining to all other GMOs (genetically modified organisms) in the pipeline.

The CIC’s directions came on an application by environment activist Kavitha Kuruganti, who sought information regarding field trials of GM mustard from the MoEFCC, but was denied.

“Instead of furnishing information as ordered by 30 April 2016, the public authority requested for two more months. The public authority did not honour its own commitment to furnish in that time and on 28 June they sought another extension, this time for 90 days. To furnish a copy of a report or to place the agenda and minutes of the GEAC (Genetic Engineering Approval Committee) meeting, they need no time at all. They are just asking for time though they do not require it,” information commissioner M. Sridhar Acharyulu noted in his order.

He also held that there appears “to be no seriousness in seeking extension” and the environment ministry is “routinely asking for extension without specifying the period”.

In his order, Acharyulu said that the information sought is of “high public importance, concerning public health, and it should have been in (the) public domain”.

“Public authority is attempting to keep vital information out of public discussion. It amounts to prevention of constitutionally guaranteed freedom of speech and expression of the appellant, who are interested in discussing the pros and cons of GMOrelated issues of GM mustard, which if permitted would cause serious impact on the public health of consumers on a large scale,” he said.

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

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Corporate Transparency
There is considerable debate on how corruption must be reduced in the government. It spawned a movement, – which shook the nation;- and subsequently a political party. Most organisations in Western countries do not have specific Vigilance departments, whereas most of our government departments cannot do without these. Since the Vigilance departments are ineffective we have an Anticorruption bureau. To ensure independent investigation we have a CBI. Since these are not adequate we have the CVC, and now the talk of a Lokpal as the panacea for corruption.

The objective of this article is to see whether a method can be evolved to curb the corruption which takes place by collusion between big business and government functionaries. This hurts the nation seriously, since it is now estimated to be in millions of dollars. As many people point out, there are basically two types of corruption in government offices:

1) Extortionist- where bribes are demanded for a legitimate service or as a price to avoid harassment.

2) Collusive- where the giver is eager to give bribes so that he can indulge in an illegal act, or enrich himself at the cost of the public. This is usually of very large value and hurts public finances significantly.

This piece is an attempt to suggest that non-government action can lead to reduction of the second kind of corruption, which results in huge scams and great cost to public exchequer. Let me make an attempt to outline how this could be achieved. I am basing my suggestions on the following assumption:

A small percentage of the corporate would collapse if corruption were to be curtailed, since their profits depend on them. A comparable number of corporate lose a lot of business opportunities to the former because of unwillingness to adopt unethical practices. Most of the corruption of the collusive kind is indulged in by the former. For corporate of the second kind, there is a business need to curtail the collusive corruption. Apart from this there may be a consideration of ethics and a genuine desire to curb corruption. If a few such companies decide to take active steps to curtail corruption, and are quite clear that they will not adopt this route of getting unfair or unjust advantage from the government, they can make a difference to the overall national scenario. Taking a proactive role to achieve this goal is in their business interest and could translate to higher profits.

Unfair advantages by collusive corruption are obtained by paying lower taxes or getting unfair reliefs in paying taxes. Another area is getting lands or other infrastructure in a manner which gives them an effective subsidy. One more avenue is to bid competitively for providing services or for public private partnerships, and subsequently changing the conditions to affect public interest adversely. The idea is that those who wish to promote honesty and look at it as their social responsibility publicly pledge to display all transactions with governments on their websites.

Companies could also declare a policy for disclosure in which they could declare that certain information, which may harm their commercial interests would not be displayed. This would be very little, which might harm the legitimate commercial interests of the companies. They could declare the kind of information in government transactions which they would not display and explain their reasons. Many business leaders regret the lack of transparency and the corruption in government. They can take the lead and demonstrate their willingness to be transparent and also to transform the nation. It would be very good if a few businesses got together and announced their commitment to be transparent in their transactions with government. If they have taken a conscious decision to refuse the route of corruption to get undue advantage they would lose nothing and certainly gain respect from citizens and peers. Businesses may well argue that citizens should get the information from the government departments. These departments usually do not give information which would reveal favours despite this being a violation of their obligation in Right to Information Act. There could be two benefits for companies who publicly announce and practice transparency in all transactions with government:

1) They would be recognized by public for their commitment to transparency and corporate social responsibility.

2) Over a period of time if more companies follow suit, it would create a pressure on others to accept this level of transparency.

As the law stands most of this information should be accessible to citizens from government departments using RTI , except that which is exempt. However, when large corruption is involved, the information is usually denied and a citizen finds it difficult to battle this unjust denial.

Private action could have the potential of curbing corruption. I am hoping a few will take the lead. Corporates can make an effective contribution to bringing transparency and accountability and reducing corruption in the nation. Will some corporate take the lead? This could also be achieved if regulatory agencies,- like SEBI in India,- make it mandatory for all companies.

Part C Information on & Around

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Haryana: Charge for RTI application reduced from Rs. 50 to Rs. 10
The Haryana government has reduced the charge for filing an application under Right to Information (RTI ) Act from Rs. 50 to Rs. 10. The Haryana Right to Information Rules, 2009, has been amended and now will be known as the Haryana Right to Information (Amendment) Rules, 2016. A spokesman of the Administrative Reforms Department said that a notification to this effect had been issued. He said that according to the amendment, an application for obtaining any information would warrant a fee of Rs. 10.

Delhi HC directs Central Information Commission to start maintaining daily order sheets within six months
In a recent order, Justice Manmohan of Delhi High Court has directed the Central Information Commission to start maintaining daily order sheets within six months. The direction came while disposing the writ petition filed by R. K. Jain, a renowned authority on indirect taxation, and the Editor of Excise Law Times. In his order, Justice Manmohan held that since the CIC is a quasi-judicial body, its records must reflect a true and correct state of affairs. Dr. L. C. Singhvi, counsel for CIC, told the court that the CIC was willing to maintain daily order sheets, and sought time to evolve a procedure. Jain had complained that during hearing of his appeal in a recent case, it was allowed by the CIC, but in the order which was passed by CIC after a long delay, the appeal was dismissed.

RTI query exposes scam in appointments at CCSU
A report obtained under the Right to Information Act (RTI ) has thrown light on alleged corruption in the appointment procedure of assistant professors at Chaudhary Charan Singh University(CCSU).

As per the interview procedure, a suitable candidate is judged on the basis of his performance in the academic record & research programme and domain knowledge. In the 13 appointments made in February 2015, marks in domain knowledge were allegedly increased that led to the appointment of these aspirants.

However, a complaint was filed against one such aspirant following which the appointment was terminated. However, the remaining 12 candidates continue to be staff members.

Three Public Sector Banks With High Non-Performing Assets Rejected Most RTI Requests in 2014-15

A day after the Reserve Bank of India (RBI) submitted a list of the big defaulters – those who owe banks over Rs. 500 crore each – before the Supreme Court, with the plea that the names not be made public, an analysis of the data on the disposal of right to information (RTI ) applications has revealed that three public sector banks (PSBs), which figure high on the list of those with large non-performing assets (NPAs), rejected the most number of applications. While the rejection rate of some banks was less than 12%, many banks had a rate as high as 50%, indicating that perhaps they have something to hide, said RTI activist Venkatesh Nayak, programme coordinator at the Commonwealth Human Rights Initiative (CHRI), who examined the annual reports released by the Central Information Commission, which contains RTI application statistics submitted by 24 PSBs u/s. 25 of the RTI Act.

SIC imposes Rs. 5K fine on town planning officers

The Nagpur bench of State Information Commission (SIC) levied a fine of Rs. 5,000 on the public information officer of town planning department here for not complying with its earlier order for providing answers to queries under Right to Information (RTI ) Act, 2005. Commissioner Vasant Patil directed to recover this amount from information officer and be paid to RTI activist Mangesh Gakre, who had lodged a complaint.

Part B RTI Act, 2005

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Four law students take Delhi High Court to Court over exorbitant RTI fees; win

In a landmark decision, the Division Bench headed by the Chief Justice of Delhi High Court, amended the RTI Rules 2006 of the HC, while hearing a PIL filed by four law students, bringing the fees at par with other public authorities

Students objected to the following rules:

a) Exorbitant Fees prescribed under Rule 10 of the Delhi High Court RTI Rules, 2006 i.e. Rs. 50 as application fee and Rs. 5 per page for obtaining the photocopy/ physical/ Xerox Copies.

b) No provision for supply of information at free of cost for the citizens falling below poverty line (BPL) category, which is a mandatory provision under the main Act to provide free access to information to such citizens.

c) Provision of filing separate applications for each unrelated information as per Rule 3 of the Delhi High Court RTI Rules, 2006

They filed a public interest litigation (PIL) in the Delhi High Court in October 2015. Paras Jain and Kumar Shanu argued this matter in person without taking help from any advocate before the Division Bench of Chief Justice of Delhi High Court. They got the first two rules a) and b) amended in conformity with the provisions of the main RTI Act. The Bench, however, rejected main contention of the petitioners (students) on quashing of Rule 3 of the Delhi, which requires a separate RTI application for each information.

Jain says, “There is no provision in the RTI Act for filing separate applications in case of unrelated information, but Rule 3 of the Delhi High Court Rules states that for each piece of information sought, a separate application should be made.” The Court stated that the provision was required as it prevents frivolous applications seeking roving inquiries into various subjects.

Part A Decision of CIC

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CIC finally slams BCI hard for continuously failing to disclose information required by RTI Act

The Bar Council of India (BCI) has not satisfactorily complied with the Right to Information Act 2005 (RTI Act) provision which requires that it publish all its affairs on its website, held the Central Information Commission (CIC). The CIC said it is inclined to impose maximum penalty on BCI chairman Manan Kumar Mishra, if the BCI does not comply in a definite amount of time.

Chief Information Commissioner Prof Sridhar Acharyulu, formerly Registrar at Nalsar Hyderabad, stated in his 7th April, 2016 order:

“It is noticed that the Bar Council of India has not satisfactorily complied with the section 4(1) (b) requirements. It is a major breach of RTI by prestigious organization called BCI. It is also surprising that they are repeatedly taking a plea that, though they have such information in computer, they have not posted it on website. They have already exhausted 10 years of time in fulfilling this obligation. Commission directs the public authority to furnish annual report in compliance with 4(1)(b), as required u/s. 19(8)(a)(vi) and directs the PIO to show cause why maximum penalty should not be imposed for this breach of RTI. Commission directs the Chairman, BCI to file an affidavit explaining when they would be complying with 4(1)(b) on their official website. All the responses should reach the commission by May 9, 2016. If not, Commission will be compelled to initiate appropriate action against the Chairman, BCI for non-compliance of section 4(1)(b).”

Ethics and U

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(Negligence)

 Shrikrishna (S) — Arjun, I met your friend the other day. The one whom you introduced to me last Sunday.

Arjun (A) —Oh! He came to my office yesterday and was very much under tension.

S — Why? Any love letter from your Institute?

A — Yes! How do you know?

S — I guessed it. He was enquiring about some formalities under the Company Law, asking me how serious it is! I could make out that he was worried about it.

A — Actually, he has a client which is a private limited company. There was a dispute between two groups of shareholders and directors.

S — That is very common. When two persons come together for business, one should take it for granted that they are bound to quarrel between themselves one day or the other.

A — You said it! Nowadays, no relation is cordial forever! It is bound to break.

S — Not even matrimonial! Ha Ha Ha! We are in kaliyug. But what happened to that company?

A — The two groups separated. The outgoing group had some loans given to the company. They started demanding it back.

S— But how was your CA friend involved?

A — The continuing group played a trick. They showed a backdated allotment of shares to the outgoing shareholders at a very high premium; and loan was adjusted.

S — Just to ensure that their shareholding does not become a majority holding. Right?

A — Absolutely. And they got the return of allotment prepared in Form No. 2. The form was certified as correct by this CA friend of mine; and uploaded to ROC!

S — Oh! But didn’t he verify the requirements?

A — He checked things like the resolution in the Board meeting, entries in the books of account and so on.

S— But did not check the share application form. Correct?

A — Yes. And I tell you Lord, in a private limited company, no one is really bothered about share application form. Everything goes on good faith. Oral understanding.

S — But when the allotment is backdated, that too at a high premium and especially in the name of a disputing group, your friend should have been more cautious.

A — The real story is that the dispute between the two groups has gone to the CLB and the CLB also has pointed out the same flaw. All other things may be there; but the basic factor is the application or consent of the allotttees.

S — Obviously. Such small things have great importance. Actually, you people tend to take it lightly, thinking that it is an internal document, not required to be submitted any where!

A — You are right. Previously, none of us used to take any appointment letter for audit assignments of small organisations. But now, for filing the forms to the ROC, we have started taking it. It’s a good thing, we now realise!

S — Actually, you feel irritated when the Regulators ask you to upload more and more things. But that brings discipline in corporate functioning; and indirectly can protect you as auditor.

A — Same is the case with Board meetings. They are just shown to have been held on paper; and minutes are written. But in reality, there are no notices on record, no signatures of attendance, no circulation of minutes.

S — Everything is doctored later on! But it is dangerous to leave such loose ends. I understand the practical realities; but one has to cover them up by timely paper work. Otherwise, it could be fatal.

A — Till the time everything is smoothly going on, nobody bothers. But once there are disputes or when any third party enters – like when you are selling out a company, all these things come to surface.

S— Especially in the case of your friend, he should have been on the guard since he was obviously aware of the dispute. It should trigger suspicion.

A — Fortunately, at the time of separation, there was a Memorandum of Understanding signed by both the parties that the unsecured loans would be covered by allotment of shares at a premium.

S— Good! Something to fall back on. So what did CLB say on this?

A — The complainant is disowning his signature on MOU. Now it is with handwriting expert; and disputed in court.

S — It is a good lesson to all of you; even the certificates required for your tax audit are not actually taken from the management.

A — True! We just say –‘Yes- certificate is obtained’. But in reality ………

S — So the Regulator is actually helping you by framing a specific question in form 3CD but you take it lightly. Many times clients disown any such confirmation given by them if it is not taken in writing.

A — I agree. Henceforth, I will also start insisting on such documents. My poor friend is being held guilty for negligence. We should, henceforth, also verify the signatures.

S— And it also brings disrepute to the profession. It is a lack of due diligence.

A — Lord! Now, you only save my friend.

S— You know that God helps only the diligent! Now, leave it to Destiny.

Don’t take things for granted.

Om shanti !!!!!

Company Law

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1. Companies (incorporation) amendment rues 2016

The Ministry of Corporate Affairs has issued an Amendment to the Companies (Incorporation) Rules, 2014 which are in force w.e.f 26th January 2016. Following are the changes in Rule 8 pertaining to “Undesirable names”: The name of the Company need not be in consonance with the principal objects as set out in the Memorandum of Association. However, when there is some indication of objects in the name, then it shall be in conformity with the objects mentioned in the memorandum.

a) Abbreviated names based on the first initial of the promoters would not be allowed.

b) If the name is misleading with regard to the scope of the activities which are beyond the resources at its disposal, such names are not allowed.

c) A time limit of 6 months has been given for changing the name of the Company, in case there has been a change in the activities of the Company and this is not reflected in the name.

The No Objection of a person who has been named in the key word of the proposed name for the Company, proof of the relationship and proof that the coined word is made out of the names of the promoters or their relatives, is not mandatory to be attached.

Further, after the resubmission of the documents and on completion of second opportunity, if the Registrar still finds that the documents are defective or incomplete, he shall give third opportunity to remove such defects or deficiencies;

Provided that the total period for re-submission of documents shall not exceed a total period of thirty days.

2. Companies (accounts) amendment rules, 2015

The Ministry Of Corporate Affairs has vide Notification dated 16th January, 2015 amended the Companies (Accounts) Rules, 2014 with the Companies (Accounts) Amendment Rules, 2015.

After Rule 2 the following is inserted –
“2A. Notice of address at which books of account are to be maintained.—For the purposes of the first proviso to sub-section (1) of section 128, the notice regarding address at which books of account shall be in Form AOC-5” and

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

In rule 6, after the third proviso, the following proviso shall be inserted, namely:—

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

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

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

Rule 2 (aa) ‘Central Excise Tariff Act Heading” means the heading as referred to in Additional notes in First Schedule to Central Excise Tariff Act 1985.

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

Applicability of Cost Records: The Rules has categorized the Entities into:

Regulated Sector (namely Telecommunication services; Power generation, Transmission, Distribution and Supply; Petroleum products; Drugs and Pharmaceuticals; Fertilisers; Sugar and Industrial alcohol) and

Unregulated Sectors ( i.e steel, minerals oil, electrical, education services, health services, textiles, milk powder, medical devices etc. businesses);

Applicability of Cost Audit : Applicable for entities under as follows :

Regulated sectors having overall annual turnover of Rs. 50 crores or more and the aggregate turnover of the individual products or services of Rs. 25 crore

Unregulated Sector having annual turnover of Rs. 100 crores or more and the aggregate turnover of the individual products or services of Rs. 35 crore or more.

The applicability for their Cost Records Audit is for financial years commencing from 1st April 2015.

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

4. Whether huf/its karta can be a partner/ designated partner ( dp) in an llp

The Ministry of Corporate Affairs has vide notification dated 15th January 2016 clarified that a HUF or its Karta cannot be a designated Partner in an LLP since the Section 5 of LLP Act, 2008 mentions that only an individual or a body corporate can be a partner in a LLP. HUF not being a body corporate, neither the HUF nor through its Karta can it be a Partner.

5. Frequently asked questions (faqs) with regard to corporate social responsibility under section 135 of the Companies Act, 2013

The Ministry of Corporate Affairs has vide Notification dated 12th January 2016 issued an FA Q on Corporate Social responsibility.

Corporate Law Corner

10. Kediya Ceramics, In re

[2017] 86 taxmann.com 166 (NCLT – Ahd.)                               
Date of Order: 22nd September, 2017


Sections 230 to 232 of Companies Act, 2013 – Partnership firm
which is not registered under the provisions of Companies Act, 2013 is a body
corporate but not a company – The firm cannot participate in the amalgamation
proceedings under sections 230 to 232 of the Companies Act, 2013.

 

FACTS

K Co
(the applicant) was a partnership firm, registered under the Indian Partnership
Act, 1932 and was formed on 05.02.2015. The Applicant along with six other
companies sought to amalgamate with a company under a scheme of amalgamation
filed before the NCLT.

 

The
primary issue before the Tribunal was whether a registered partnership firm,
being a body corporate, could be treated as a “company” for the
purpose of sections 230-232 of the Companies Act, 2013.

 

The
Applicant put forth the following contentions before the Tribunal:

 

1.  Section 2(11) read with section 2(95) of
Companies Act, 2013 (the Act) indicates that a firm is a body corporate and
therefore, entitled to proceed u/s. 232 of the Act for an amalgamation.

 

2.  Section 366 of the Act which deals with
entities authorised to register as a “company” includes any
partnership firm. It was also stated that Explanation (b) to section 375(4)
stipulates that the expression “unregistered company” shall include
any partnership firm consisting of more than seven members.

 

3.  Reference was drawn to section 394(4)(b) of
Companies Act, 1956 which stipulates that transferee company does not include
any company other than a company within the meaning of the Act, whereas a
transferor company includes any body corporate within the meaning of the said
Act or not.

 

4.  It was further contended that section 234(2)
of the Companies Act, 2013 provides for merger of a foreign company (whether a
company or a body corporate) into a company registered under the Act or vice-versa.

 

5.  Reliance was placed on judgments of Bombay
High Court in Philip J. vs. Ashapura Minechem Ltd. [2016] 66 taxmann.com
328/134 SCL 416, Kerala High Court in Co. Pet. No. 30/2014 in the matter of
Manjilas Agro Foods (P.) Ltd. and High Court of Calcutta in the matter of
Rossell Industries Ltd., In re [1995] 6 SCL 79 (Cal.)           

 

HELD

The
Tribunal examined the various arguments that were put forth by the Applicant.
It was observed that section 2(20) defines a company as a company incorporated
under the provisions of the Act or under any previous company law. The
Applicant is not a company incorporated under the Companies Act, 2013 or under
any other previous Companies Act that was in force on the date of the
registration of the firm; and consequently not a “company” as defined under section
2(20) of the Act.

 

It was
held that the Applicant, being a partnership firm was “body corporate” within
the meaning of section 2(11) of the Act. Regarding the first two contentions,
the Tribunal observed that section 2(95) applied only when the phrase used has
not been defined under the Act. Since the word company has been defined,
recourse cannot be taken to provisions of section 2(95). Further, section 366
only contemplates which entities are authorised to be registered as a company
under the Companies Act. Thus, the Tribunal was of the view that a partnership
firm unless registered under the Companies Act by making use of section 366 of
the Companies Act cannot be included as a company.

 

The
Tribunal examined the provisions of section 394(4)(b) of Companies Act, 1956
which permitted a scheme of amalgamation between a transferor company
registered as a partnership firm and a transferee company, but not vice-versa.
It was held that there was no similar provision in sections 230 and 232 of the
Act. In the absence of such specific provision in the Companies Act, 2013
relating to amalgamation, it could not be said that even a body corporate can
participate in the scheme of amalgamation.

 

The
Tribunal further observed that section 234 had no application in the case of a
body corporate incorporated in India.

 

Lastly,
the Tribunal distinguished the cases relied upon by the Applicant and proceeded
to hold that the applicant, being a registered partnership firm and a body
corporate, is not a company within the meaning of the Companies Act, 2013 and,
therefore, it cannot participate in the amalgamation proceedings that are
initiated under the provisions of sections 230 to 232 of the Act.

 

11. India Awake for Transparency vs. UOI

[2017] 88 taxmann.com 101 (Delhi)                             
Date of Order: 5th December, 2017

 

Section 124(6) – Section 124(6) does not contemplate a statutory
vesting of property in shares the dividends of which have not been claimed for
more than seven years – Such shares merely stand transmitted to the Investor
education and protection fund that continues to hold them as a custodian –
Companies are required to comply with requirement of giving 3 months’ notice to
the shareholders before giving effect to such transfer of shares.

 

FACTS

I Co
is a non-profit company and filed a public interest litigation for strict
enforcement of Investor Education and Protection Fund Authority (Accounting,
Audit, Transfer and Refund) Rules, 2016 (“the 2016 Rules”) by every
company transferring shares to the Investor Education and Protection Fund (“the
Fund”). Companies Act, 2013 (the Act) provides that unpaid dividends accruing
in a company are to be transferred to an Unpaid dividend account (UDA). The Act
also provides for transfer of funds from UDA to the Fund, if no payout were
made for seven years. New section 124(6) has been introduced which further
provides that shares which yield dividends that remain unpaid for over seven
(7) years, would be transferred to the Fund.

 

The
petition describes the scheme of the Rules framed on 05.07.2016. It was
submitted that an impractical procedure was devised, which the authorities
realised and therefore, amended the Rules on 28.02.2017 (“first
amendment”) and later, on 13.10.2017 (“second amendment”). Rule
6.

 

It was
argued that there was complete lack of clarity with respect to the three month
period to be given to shareholders for the purpose of applying to claim their
shares from the respective companies before their vesting to the Fund.

 

HELD

The
High Court observed that the crux of controversy was operationalisation of
section 124(6) which statutorily transfers shares to the Fund in the
eventuality of dividends lying unclaimed for over seven years. Such shares are
merely transferred for safekeeping by the Fund and do not become the property
nor do they vest in the Central Government. Thus, the shareholder continues to
retain title but loses agency.

 

The
Court held that the sum and substance of the Rules was that the companies were
mandated to follow two crucial steps – one, inform the shareholders about the
manner of vesting of shares and in that regard provide three clear months
before the date of statutory transfer and two, ensure that the further
conditions and changes introduced by the first and second amendments, granting
relief to certain classes of shareholders who might have either in the interim
encashed dividends or approached them to reclaim the shares, were protected.

 

The
due date of transfer was an unclear concept under the old Rules – originally
notified on 05.09.2016, the Rules were modified and the date of transfer
shifted to 31.10.2017. However, several instances of non-compliance of three
months notice period were highlighted by the Applicant. The Court, however,
held that it could not go into specific violations and non-compliances in this
PIL.

 

The
Court held that section 124(6) did not result in a statutory vesting of any
property; it merely transferred (through transmission of) shares in companies
which have yielded dividends for seven years that have not been claimed to the
Fund which then holds them as a custodian. The Court directed the Central
Government to devise appropriate procedures to enable shareholders to reclaim
their property in the shares, by an appropriate procedure.

 

For
the duration of transfer of the shares, the companies could   not  
issue  bonus shares or add
anything prohibited u/s.126.
The Rules, especially the first and second amendments, had the effect of giving
companies adequate time to notify and comply with the three month public notice
period to their shareholders about the event of transfer. The Court also
observed that the transfer of such shares is not a one-time measure but an
ongoing event given the obligation of each company to identity such shares
after the holding of every Annual General Meeting.

 

12. 
Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. CIVIL APPEAL
NO. 9405 OF 2017

 

Section 8 of the Insolvency and Bankruptcy Code, 2016 – Definition
of ‘dispute’ is an inclusive definition – Word ‘bonafide’ cannot be
imported before the word ‘dispute’ – Adjudicating Authority is only required to
ascertain if the dispute in fact exists and is not a patently feeble legal
argument or an assertion of fact unsupported by evidence – Meaning of ‘dispute’
and ‘existence’ decoded.

 

FACTS

K Co
rendered certain services to M Co, the payment for which was to be made by M
Co. There was a non-disclosure agreement signed between K Co and M Co in
respect of these services; the terms of which were allegedly breached by K Co.
Since the services were rendered, K Co raised the invoices to M Co. M Co
refused to make these payments as there was a breach of terms contained in the
NDA K Co filed a petition in NCLT Mumbai initiating insolvency resolution
process against M Co. The Tribunal dismissed the application citing that there
existed a dispute and the case was hit by section 9(5)(ii)(d) of the Insolvency
and Bankruptcy Code, 2016 (the Act).

 

K Co
filed an appeal before the NCLAT Mumbai which held that NCLT should have
considered what constituted ‘dispute’ and in the facts of this case, defence
claiming dispute was not a bonafide one. Accordingly, it directed NCLT to
consider the application if it was a complete one.

 

M Co
filed a statutory appeal before the Supreme Court against the order of
Appellate Tribunal.

 

HELD

The
Supreme Court examined the history of the legislation as also the existing
framework of the legislation. The Supreme Court also went on to observe the
evolution in language of definition of the word ‘dispute’ as used in draft of
the Insolvency and Bankruptcy Code submitted by the Bankruptcy Law Reform
Committee in November 2015 (the “BLRC Draft”) vis-a-vis the definition
placed on record of the statute. The original definition of “dispute” has now
become an inclusive definition and the word “bona fide” before “suit or
arbitration proceedings” stands deleted.

 

The
Supreme Court examined the scheme of Act. Under section 8(1) of the Act, an
operational creditor, may, on the occurrence of a default (i.e., on non-payment
of a debt, any part whereof has become due and payable and has not been
repaid), deliver a demand notice of such unpaid operational debt or deliver the
copy of an invoice demanding payment of such amount to the corporate debtor in
certain specified form. Under section 8(2)(a), the corporate debtor, within a
period of 10 days of the aforesaid receipt must bring to the notice of the
operational creditor the existence of a dispute and/or the record of the
pendency of a suit or arbitration proceeding filed before the receipt of such
notice or invoice in relation to such dispute. It was observed that the
existence of the dispute and/or the suit or arbitration proceeding must be
pre-existing – i.e. it must exist before the receipt of the demand notice or
invoice, as the case may be.

 

The
Supreme Court, taking into account the importance of the term ‘existence’
occurring before the word ‘dispute’ under sections 8(2)(a) and 9(5)(ii)(d) of
the Act, laid down a checklist for the adjudicating authority to consider
admission or rejection of application u/s. 9 of the Act for initiating the
insolvency resolution process. It proceeded to state that the word ‘and’ used
in section 8(2) was to be read as ‘or’.

 

The
Court held that word ‘bonafide’ could not be read into the present framework.
All that the adjudicating authority is to consider is whether there is a
plausible contention which requires further investigation and that the
“dispute” is not a patently feeble legal argument or an assertion of fact
unsupported by evidence. Principles laid down in Madhusudan Gordhandas vs.
Madhu Woollen Industries Pvt. Ltd.
[(1972) 2 SCR 201] are inapplicable to
the Act.

 

Examining
the contentions raised by the counsels, the Supreme Court came to a conclusion
that the dispute in relation to the NDA did in fact exist and therefore,
Appellate Tribunal was incorrect in characterising the defense as vague, got-up
and motivated to evade liability.

 

The order
passed by NCLAT was thus set aside. _


Allied Laws

16. 
Foreign Decree – Execution in India. [Code of Civil Procedure, 1908,
Sections 13, 44].

 

In the present
case, the primary contention raised is that the parties are foreign nationals
and the direction by the Canada Court can only be executed at Canada and not in
India.

 

Hanifa
Kalangattu vs. Shaista Khan AIR 2017 KERALA 217

 

It was contended that, as per section 44A of
the Code of Civil Procedure, a decree of the foreign Court can be executed only
if the certified copy of decree of any of the Superior Courts of any
reciprocating territory has been filed before the District Court. However,
there was no material to indicate that Canada is a reciprocating territory which
would enable the said foreign judgment to be enforced and executed by this
Court.

 

It was held by the High Court of Kerela that
since no materials were produced either before the Family Court or before this
Court to indicate that Canada is a reciprocating territory as far as Government
of India is concerned, in the absence of any such material, there is a clear
bar of jurisdiction for entertaining the execution petition which has been
totally ignored by the Court below.

 

17.  Hindu female dying intestate – Inheritance
after death of her second husband – Devolution of Property – To go back to
husband’s heirs when not self acquired [Hindu Succession Act, 1956; Sections
14, 15, 16]

 

Suldeep (Through Legal heir) vs. Hira Lal
and Ors. AIR 2017 CHHATTISGARH 164

 

The only issue which was to be adjudicated
here was whether the property in question would devolve upon the heirs of the
deceased second wife or upon the heirs of the deceased husband, who was the
owner of the property.

 

The facts of the case are that the plaintiff
instituted a suit for declaration of title and vacant possession of the suit
property (house and hotel) by submitting, inter alia, that his father
was the owner of it and after his death, it was inherited by him. It is pleaded
that defendant No.1, the second wife of the deceased father (since deceased,
now represented by her legal representatives) was his father’s servant as she
was working as such in his hotel business and used to take care of him whenever
he fell ill. It was pleaded in the plaint that defendant was put in  possession over the suit property only for
its proper care where she was
residing with her son, the defendant No. 2, who has thrown his bag and baggage from the suit property.
Therefore, the plaintiff has been constrained in filing the suit in the instant
nature.

 

The Supreme
Court held that the Source of acquisition of such property was supposed to be
seen before the general rules of succession would apply. Since in the present
case, the defendant no.2(Son) was outside the wedlock of the defendant no.1 and
the deceased father, in such a situation, the interest of defendant
no.1(deceased wife), who expired intestate, shall be reverted to her deceased
husband’s heirs by virtue of clause (b) of sub-section (2) of section 15 of the
Act of 1956. The property in question is admittedly not the self-acquired
property of the said defendant no.1(deceased wife), and therefore, the general
rules of succession defined in sub-section (1) of section 15 of the Act of 1956
would not be attracted. Consequently, her interest would be devolved upon her
deceased husband’s heirs, i.e., the plaintiff and his sister and, not from
heirs of the deceased wife’s first husband, i.e., the present appellant
Son(Defendant No.1), as per the provisions prescribed u/s. 15(2)(b) of the Act
of 1956.

 

18.  Land – Valuation of part of the building can
be made without the land attached to such building. [Land Acquisition Act,
1894; Sections 3, 23, 49]

 

State of Maharashtra and Ors. vs.
Reliance Industries Ltd. and Ors. AIR 2017 SUPREME COURT 4490

 

The question which arose for consideration
was whether, under the Land Acquisition Act, 1894 (the ‘Act’), acquisition of
Part of the building can be made without acquiring land underneath such
building.

 

The Supreme Court, while deciding the issue
of whether acquisition of any building or part thereof de hors the
underlying land or not, held that when land and building once married becomes
one unit, neither land nor building can thereafter be valued separately. The
expression “land” includes benefits to arise out of land and, things
attached to the earth or permanently fastened to anything attached to the
earth. But this would not come in the way of determining the valuation of a
particular floor, all the aspects of the owner’s interest and the bundle of
other rights can be taken into consideration including support provided by the
land and value of the land in the locality etc. Value of the part of the
building can also be accordingly assessed.

 

19.  Tenancy – Tenancy not to automatically get
terminated even though the property is forfeited [Smugglers And Foreign
Exchange Manipulators (Forfeiture Of Property) Act, 1976; Section 3]

 

Domnic Alex Fernandes (D) through L.Rs.
and Ors. vs. Union of India (UOI) and Ors. AIR 2017 SUPREME COURT 4007

 

The question for consideration was whether
tenancy of a property, ownership of which is acquired by a person to whom the
Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
(SAFEMA) applied, would be treated as “illegally acquired property”
within the meaning of section 3(1)(c) of SAFEMA and can be subjected to
forfeiture under the provisions thereof, due to which the said tenancy would be
terminated.

 

The Supreme Court held that rights of a bona
fide
tenant, not having any relation with the person to whom the provisions
of SAFEMA apply, will not stand automatically terminated by forfeiture of
property and vesting thereof in the Central Government. Such forfeiture will
extinguish the rights of the person to whom the Act applies i.e. the owner of
the property or his/her relative or associate having nexus with him/her in
relation to the said property.

 

20.  Will – Licence cannot be granted merely on
the basis of will, without being legal heir of manufacturer or partner in firm
– Legal Successor – Construed to be read in a restricted sense [Succession Act,
(39 of 1925) Section  63 ]

 

Dharam Chand vs. Dharam Paul and Ors. AIR
2017 JAMMU AND KASHMIR 138

 

The issue in the appeal was whether a
person’s name can be incorporated as a co-licensee since the person had
acquired the status of a legal successor-in-interest of the deceased licensee,
based on a will followed by a Probate and letter of administration, as granted
in his favour by a competent Court.

 

It was observed that a subsequent Circular,
dated 27.03.1971, provided that in case of an existing manufacturer or a
surviving partner of a licenced unit, besides his son(s), wife or wives may
also be admitted as additional partners. It was further decided that where a
manufacturer or a partner of the firm has no son(s) or wife, only his legal
successor(s) would be entitled to be admitted as partner(s) or additional
partner(s), as the case may be.

 

The Supreme Court held that the subsequent
Circular was to regulate the entry of other persons in the existing licensed
units so as to safeguard the legitimate interest of the successor-members of
the family of the existing manufacturers and to prevent mala fide
trading in such licences or their transfer to outsiders.

 

On the basis of the principle of ejusdem
generi
, the word ‘legal successor’ had to be given a restricted meaning
bearing in mind the objective/basic policy behind issuance of the subsequent
communication to safeguard the legitimate interest of the successor-members of
the family of the existing manufacturer and to prevent mala fide trading in
such licences or their transfer to outsiders through backdoor methods, to mean
that person who is in some way related to the licensee and would succeed in the
absence of wife or son.
_

Part C Iinformation On & Around

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Cabinet decisions come under RTI Act , sa ys Kerala CIC

In a significant development that may make government business more transparent, the Kerala Information Commission has ordered that all decisions by the state government, once finalized in the cabinet, come under the ambit of the RTI Act.The Commission also suggested that the government publish the cabinet decisions on its official website.“The details of all cabinet decisions should be given once the procedures regarding those decisions are completed. It also should be considered seriously to upload the cabinet decisions on the government website,” the Commission observed.

Gujarat High Court Stays CIC Order On PM Modi’s Degree

The Gujarat High Court issued a stay on an order of the Central Information Commission (CIC) asking the Gujarat University to provide details of the MA degree of Prime Minister Narendra Modi to Delhi Chief Minister Arvind Kejriwal, who had alleged that it was fake. A division bench of Chief Justice R Subhash Reddy and Justice VM Pancholi also issued notices to Central Information Commissioner M Sridhar Acharyulu and Kejriwal. The university had earlier approached a single bench of Justice SH Vora on June 20 seeking a stay on the CIC order, but it later approached the division bench after it failed to get relief from the court. In its application, the Gujarat University has stated that it “is not a party to any of the proceeding before the Information Commission. Hence, the order of the CIC is adverse to the interest of the University”.

Former CIC writes to Rajasthan CM on removal of Chapter on RTI from school books
The chapter was removed during a restructuring of school syllabus in the State. Former Chief Information Commissioner Wajahat Habibullah has written to the Chief Minister Vasundhara Raje expressing displeasure at the removal of a chapter on the Right to Information (RTI ) Act from school text books in Rajasthan.The chapter on the law that was passed in 2005 to improve transparency in government was removed as part of the Rajasthan government’s revised school syllabus for the year 2016. The syllabus has also removed a page highlighting the Right to Information (RTI ) Act. According to reports, a prominent section on page 105, which was part of chapter 12 of the previous Social Science textbook for Class VIII in State schools, has now been removed in the “restructured” book.

Right to Information: A new journey begins
On June 24, 2016, Parliament of Sri Lanka unanimously adopted the Right to Information (RTI ) law.This marks the culmination of over two decades of advocacy by civil society groups and journalists. It also fulfills a key promise of the yahapalana government.Passing the law was no easy task, as it went through a year of drafting, judicial review by the Supreme Court, and considerable political scrutiny. The government and other political parties in Parliament – who rarely agree on anything – came together to pass the law without a vote.

Part B RTI Act, 2005

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If you thought that RTI queries are only about serious issues, the Prime Minister’s Office (PMO) just proved you wrong. And how!

The PMO website released a list of queries about Prime Minister Narendra Modi that were raised by people under the Right to Information (RTI ) Act.

Here are some of the excerpts from the list of queries released by the PMO website:

Request: What is the speed of internet of Wi-Fi in the PMO?

Information: The speed of internet access in PMO is 34 mbps.

Request: How many and which type of cylinder had been used in kitchen in month of October, 2014. Provide Xerox copies of bills of cylinders and how many and which type of cylinder had been used in month of May, 2015. Please provide the copies of bills of cylinders in respective months.

Information: It is stated that the kitchen expenses of the Prime Minister is personal in nature and not incurred on government account.

Request: Has the Principal Secretary to PM, Shri Nripendra Misra, ever taken his subordinates, in the Prime Minister’s office, on a picnic?

Information: No picnic/excursion was organized by PMO/Principal Secretary to PM Shri Nripendra Misra. Hence, the question of providing other details sought by the application does not arise.

Request: Please tell me PMO Office issue (sic) mobile number for their staff yes or no if yes please provide all staff number in written

Information: PMO provides mobile numbers to officers/ staff based on entitlements and functional requirements. However, disclosure of the mobile numbers would cause unwarranted invasion of privacy of the individual; as such the same is exempted from disclosure under Section 8(1) (j) of the RTI Act.

Request: Is there any information (sic) how many sick or casual leave or health leave is availed by Prime Minister of India in the last 10 years?

Information: It may be noted that no leave has been availed by the present Prime Minister i.e. Shri Narendra Modi since taking over office.

Request: Enclose all the proper records and documents which show that the present Prime Minister of India, Shri Narendra Modi is The Prime Servant of India and not the Prime Minister.

Information: There is no proposal to change the official designation of PM. Hence, the information sought does not form part of records held by this office.

Request: Has the Prime Minister read the Indian constitution? Is the Prime Minister supposed to read the Indian constitution? Is the Prime Minister assumed to have read Indian constitution? Has anyone in the PMO till date told the Prime Minister what his duties are towards India?

Information: Information sought does not fall under the definition of information. Request: Who helps the Prime Minister in sending tweets in regional and foreign languages? Names of individual(s) for each regional language. Information: Information sought is not maintained on record. (Another reply says that the Prime Minister himself is managing his personal social media accounts.)

Request: Number of sick or casual or health leave availed by the Prime Minister in the last 10 years.

Information: No leave has been availed by the present Prime Minister since taking over the office. (Replying to a related query on whether Prime Minister Modi was on leave during the Bihar election campaign last year, the PMO responded: Tours on election campaign are not official.)

Request: Percentage of marks Modi secured while graduating in 1977 from Delhi University.

Information: Does not form part of records.

Part A Decision of CIC

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CIC – pro-disclosure order on Land Acquisition Ordinance

Central Information Commission has given a prodisclosure order and directed the rural development ministry to divulge Cabinet note, file notings and all government communication on the controversial Land Acquisition Ordinance under the Right to Information (RTI ) Act In separate applications,

RTI activist Venkatesh Nayak and journalist Chitrangada Choudhury had sought copies of Cabinet note, file notings and all communication within the government leading up to the promulgation of the controversial Ordinance, which has now lapsed. Though the department of land resources under rural development ministry was the nodal agency for the move, it had denied information saying it held no such records.

Hearing the plea of the applicants last week, Information Commissioner Sudhir Bhargava directed the government to provide the information.

“The Commission after hearing the submissions of the complainant and perusing the records, notes that the information sought has not been provided by the respondent to the complainant. Further, as per the Legislative Department, the records relating to the promulgation of the said Ordinance would be available with the Department of Land Resources. In view of this, the Commission directs the respondent to provide information sought to the complainant within four weeks, from the date of receipt of a copy of this decision under intimation to the commission.” Mr. Bhargava said in his order

Ethics And U

Arjun (A) — (Chanting
bhajan) Hare Rama hare Rama, Rama Rama Hare Hare!

Hare
Krishna Hare Krishna, Krishna Krishna Hare Hare!

Shrikrishna (S) — Arey.
Arjun! What makes you chant so ardently? Any serious problem?

A —    I have learnt that in this kaliyug,
Namasmaran
is the only remedy. Finding it difficult to survive.

 

S —    What
happened? This is your normal grumbling.

 

A —    This
profession is so demanding and absorbing that you can’t think of anything else.
Compliance! Compliance!! and compliance!!! – or else, penalty and prosecution.
There is no other thought in mind!

 

S —    I
had told you, change of work is the best relaxation. That keeps your creativity
alive.

 

A —    But
what else to do? We don’t get time to come out of the work.

 

S —    You
should have developed some hobby. That would keep you mentally at peace.

 

A —    CA
pass hote hote jaan nikal gayi. Hobby ke liye time kidhar tha!

 

S —  You
have to take out some time. Have some social life. Come out of this obsession
of practice.

 

A —    Social
work? That reminds me. My friend is in deep trouble because of this social
work!

 

S —    How?
What happened?

 

A —    He
was helping a social organisation of which he was a member. They were doing
purely social work.

 

S —    Very
good.

 

A —    No.
That only brought him into trouble.

S —    How?

 

A —    Since
he is a CA professional, they expected him to streamline the administrative
things. He was neither a trustee nor an office bearer.

 

S —    Then
what was the problem?

 

A —   In
their constitution, there was a mention that the Trust may appoint an
administrator and a token remuneration was also allowed in the bye-laws.

 

S —    Oh!
Then what?

 

A —   They
started calling him `Administrator!’ But he was working purely honorarily. He
did not even think of the remuneration. He never received any such honorarium.

 

S —    Then
where is the problem?

 

A —   Earlier,
there was an office bearer who had committed many irregularities. My friend
exposed his mis-deeds. So he had to leave. He was waiting for vengeance.

 

S —    But
what wrong did your friend commit?

 

A —    Actually,
my friend was a partner in a CA firm. The audit of the trust was pending due to
the disorganised functioning of that old office-bearer. So my friend, with good
intentions, got the audit completed in his firm. The partner did it. My friend
was never involved in the process of audit. As an administrator, he guided and
helped the staff of the institution in complying with the audit requirements.
He was like a friend and guide.

 

S —    Finally
what happened?

 

A —  The
old office-bearer has filed a complaint to ICAI that my friend did the audit of
an organisation of which he was himself the Administrator! They say it is
conflict of interest.

 

S —    Very
sad. One needs to be very cautious.

 

A —    Actually,
he was not a part of decision making nor had any executive powers. He was
described as Administrator merely because he was helping them out to clean up
the old mess.

 

S —    Poor
fellow! I feel, he will be absolved if one considers the scenario in totality.
Things happen inadvertently.

 

A —    It
is a big lesson to all such ‘social workers’ who are practicing as CAs.

 

S —    I
agree with you. But don’t worry. Your friend should come out clean if what you
say is true. If his karma is bonafide, it is my duty to give the fruit
accordingly.

 

A —    Let’s
hope, he will be absolved. He is very nervous now. The ultimate result may be
favourable; but the process of enquiry is very cumbersome. The mental agony in
itself is a punishment.

 

S —    But
that should not deter you from doing good social work. Only a little more
caution is required. For this, these should be a constant hammering of the code
of ethics.

 

A —    True.
I must thank BCAS for making us aware of all such realities of life. I will
certainly think of taking up some good social work.

 

S —    Good.
You are blessed!

 

          Om
shanti.

 

The purpose of this dialogue is to bring out some real life
situations where things happen inadvertently.
_

 

Corporate Law Corner

7.  Navbharat Gasflame Pvt. Ltd. vs. ROC

[2017] 87 taxmann.com 160 (NCLT – New Delhi) Date of Order: 27th October,
2017

Section 560 of Companies Act, 1956 –
Company failed to file its annual return from 1998 to 2014 – There was no proof
of any activities carried out by the company in the said period – ROC’s action
in striking off the name was upheld by the Tribunal.

Section 3(3) of Companies Act, 1956 – No
effort was made by a private company to increase its paid up capital to minimum
amount of Rs. 1 lakh in the time stipulated by Companies (Amendment) Act, 2000
– Company was deemed to be a defunct company.

FACTS

NCo. was a private company incorporated on
24.11.1997 engaged in the business of trading of fabrics, textiles goods and
other related activities. The subscribed capital of NCo was Rs. 300/- divided
into 30 equity shares of Rs. 10/- each. NCo had failed to file its annual
return right from 1998 up to 2014 as per the reply filed by the Registrar of
Companies (ROC). Name of the company was struck off vide notification dated
23.06.2007 published in the official gazette. NCo filed an application for
restoration of its name u/s. 560 of Companies Act, 1956 (the Act). ROC
submitted that company had not filed any annual return or income-tax return
right since its incorporation till 2014.

NCo submitted that it had carried out its
operations and that it had filed its income-tax return for assessment year
2014-15. ROC submitted that there was no acknowledgement of any tax paid or
return filed by NCo. NCo had merely submitted its accounts which was not a
conclusive evidence of any operations being carried out by it.

HELD

The Tribunal examined the provisions of
section 560 of the Act which required that in order to pass the direction for
restoration of name with ROC, the Tribunal needs to be satisfied that the
company at the time of striking off had been carrying on business or in
operation or otherwise it is just that the company be restored to the register
of the Registrar of Companies.

The Tribunal observed that the company did
not give any proof of its operations in the year 2007 when its name was struck
off. Also, there was no explanation furnished as to why the company did not
respond from 2007 to 2014 and the nature of its business activity in the said
period.

Further, the Tribunal examined section
3(1)(iii) of the Act which defined a private company as a company which has a
minimum paid-up capital of one lakh rupees or such higher paid-up capital as
may be prescribed by its articles. The consequence of not enhancing the paid-up
capital was that such a company shall be deemed to be a ‘defunct company’
within the meaning of section 560 and the Registrar would be under a legal
obligation to strike off the name of such a company from its register.

The Tribunal observed that NCo had failed to
increase its paid up capital in the time stipulated under Companies (Amendment)
Act, 2000. Accordingly, it upheld the action of striking off of the name of
company by the ROC and dismissed the petition with a cost of Rs. 20,000.

8.  N.
C. Karany & Co. vs. New Timonhabi Tea Co. Pvt. Ltd.

C. P. No. 19/140(1)/140(4)/GB/ 2017                           

Date of Order: 22nd November, 2017

Sections 101, 139 and 140 of Companies Act,
2013 – Non-ratification of appointment of an auditor gives rise to a casual
vacancy envisaged u/s. 139 – Auditor should however, be given an opportunity of
being heard – Removal of auditor without applying this principle was held to be
bad in law.

 

FACTS

N Co was appointed as statutory auditor of
NT Pvt. Ltd. (Respondent) in the AGM held on 26.09.2014. The re-appointment was
confirmed for a block of four years in the AGM held on 26.09.2015. The notice
of said appointment was filed in form ADT-1 with the ROC in due course.
Respondent then proceeded to appoint A Co as the statutory auditor prior to the
term of N Co getting over without any prior intimation of such appointment. On
13.02.2017, NCo received a letter from one of the directors of the Respondent
company stating that A Co had been appointed as its auditor and requested it to
furnish its resignation at the earliest. N Co also received a letter from A Co
on 03.04.2017 seeking its NOC for appointment of A Co. Subsequently, on
08.05.2017, N Co received an email from one of directors of respondent that his
appointment was not ratified in the AGM and therefore, his appointment stands
vacated from the company.

Respondent submitted that appointment of A
Co was arising out of a casual vacancy in light of N Co’s non-reappointment at
the AGM of the company. Accordingly, the subsequent appointment of A Co was in
accordance with section 139(8) of the Companies Act, 2013 (the Act). Accordingly,
the Respondent was not required to follow the procedure laid down u/s. 140 of
the Act. N Co submitted that its removal and subsequent appointment of A Co was
illegal and in violation of provisions of section 101 and 140 of the Act.

HELD

The Tribunal examined the provisions of
sections 139(8), 140(1) and 140(4)(i) of the Act. Section 140(1) provides that
a statutory auditor appointed u/s. 139 can be removed from his office before
the expiry of the term provided a special resolution is passed at the general
meeting and prior approval of Central Government is obtained. Additionally, the
auditor concerned is given an opportunity of being heard.

However, section 139(8) provides that the
procedure laid down u/s. 140(1) need not be followed where a casual vacancy
arises in the office of an auditor.

Respondent submitted that non-ratification
of appointment of N Co gave rise to a casual vacancy; a claim which was
strenuously disputed by N Co; and therefore, the same was duly filled by the
Board of Directors in accordance with section 139(8) of the Act.

The Tribunal examined the meaning of the
term “casual vacancy” using various dictionaries which suggested that “Casual”
means something which occurs without being foreseen or expected. What required
attention of the Tribunal was whether non-ratification of appointment of the
auditor at the AGM constituted casual vacancy. The Tribunal held that
resignation of the auditor was tantamount to a casual vacany arising in the
office of the auditor as a company always expects the auditor to complete his
term of appointment. Non-ratification of appointment of auditor stood on a
similar footing as the company would expect the shareholders to ratify the
appointment already made. Such non-ratification therefore, did give rise to a
casual vacancy.

The Tribunal held it was sine-qua-non
for a company to give an opportunity of being heard to its Auditor who is
sought to be removed from his office prior to the expiry of his term. A
conjoint reading of sections 101 and 146 of the Act makes it imperative that an
auditor is required to be given an opportunity of being heard in case his
appointment is not being ratified by the shareholders in the AGM. A removal
without following the aforesaid procedure would make such an act unsustainable
in law.

In the facts of the present case, the
Respondent did not give a notice of the AGM to its statutory auditor N Co which
is the mandate of section 101 of the Act. The Tribunal observed that
Respondents stand that there was a casual vacancy in the office of auditor did
not hold good on several grounds. Firstly, respondents submitted that they sent
letter dated 13.02.2017 seeking resignation of N Co and notice dated 03.04.2017
seeking NOC of N Co.

This conduct, as per the Tribunal, was
against the stand that casual vacancy arose owing to non-ratification of
appointment of the auditor at the AGM. Secondly, the Act or the Rules do not
give any authority to the Board of directors to seek resignation of the auditor
before the expiry of its term unless procedure laid down u/s. 140 of the Act
has been duly complied with.

The Tribunal further held that N Co had
filed the petition in the time frame stipulated under the Limitation Act, 1963
which was applicable in respect of proceedings under the Act. Claim of the
respondents that conduct of N Co was barred by principle of delay and latches
was wholly without any substance.

Accordingly, the Tribunal held that removal
of N Co was illegal and consequent appointment of ACo as the auditor was
equally illegal and therefore unsustainable in law. The position – N Co was
reinstated as the auditor of the company till expiry of its term, unless it was
removed following due procedure of law.

9.  Ramesan Maithiyeri vs. UOI

[2017] 85
taxmann.com 19 (Kerala)                            
Date of Order: 19th July, 2017

Section 234 of
Companies Act, 1956 – No action can be taken against a person who was
wrongfully named as a director of the company in the annual returns filed by it
until scrutiny and enquiry by ROC is complete.

 FACTS

An individual R
was named as a director in the annual returns of company (B Ltd.) from 2005 to
2014 where in fact he was neither a shareholder nor a director. His name was suo
motu
deleted as the director from the year 2015 onwards. R contended that
inclusion of his name as director was illegal and he apprehended that he will
be liable for any misdemeanour of the Board of the company for this period. He
therefore filed a writ petition praying that ROC be directed to initiate
proceedings u/s. 234 of the Companies Act, 1956 (the Act) for correction of the
books of the company.

Central
Government accepted that as per the inquiry and investigation conducted by
them, R had never been a director or a shareholder of B Ltd. R further informed
the court that he made investments in B1 Ltd. and purchased a flat in the
property being developed by B1 Ltd. B Ltd and B1 Ltd. had common directors. And
there were separate allegations of manipulation and misappropriation on part of
directors of B Ltd.

 HELD

The High Court
examined the provisions of section 234 of Companies Act, 1956 and held that ROC
had powers to cause a scrutiny into books and documents maintained by the
company. These provisions are intended and designed to vest with ROC, the power
of inspection, enquiry and investigation into the affairs of the Company and to
rectify mistakes or deliberate entries in the books and documents maintained by
it. Regulation No. 17 of the Companies Regulations, 1956 also empowers ROC to
examine the documents and to direct the company to rectify the defects and
additionally mandates that no document of the company can be taken on record
unless the defects are rectified.

In light of the
facts, the High Court directed the ROC to carry out scrutiny and investigation
into the books and documents maintained by the company and follow it up with
such action as is warranted and mandated by law.

 It was further
held that as name of R was wrongfully inserted as a director from 2005 to 2014,
no action shall be taken against him until the scrutiny by the ROC was
complete.
_

Corporate Law Corner

1.  Jella Jagan Mohan
Reddy, In re

(2017) 82 taxmann.com 422 (NCLT – Hyd.)               

Date of Order: 5th June, 2017

Sections 211, 621A of Companies Act, 1956 read with Schedule
VI – Incorrect disclosure of Issued Capital in the Balance Sheet of the Company
was in violation of section 211 – The submission that there was no prejudice
caused to the members, creditors or public did not hold good – The application
for compounding was accordingly dismissed

FACTS

JCo was incorporated on 14.11.2006 as a private limited
company and was converted to a public company on 12.01.2009 under Companies
Act, 1956 (the Act). The Office of Regional Director carried out an inspection
of books of accounts of JCo for the years 2006-07 to 2012-13 and found that it
had violated provisions of section 211(1) read with Schedule VI of the Act. The
Balance Sheet of JCo as at 31.03.2009 disclosed the Issued Capital as Rs. 84.41
crore instead of Rs. 100 crore. The same allegedly resulted in a disclosure of
false particulars in the said Balance Sheet.  

JCo admitted to the default and submitted that the same was
not intentional and that it was of a nature that did not prejudice interest of
members, creditors or others dealing with the company. JCo further pleaded that
the default did not in any way affect the public interest. JCo therefore filed
an application u/s. 621A for compounding of offence.

ROC highlighted that JCo did not mention how the offence was
made good and therefore be put to strict proof of
the same.   

HELD

The Tribunal observed that it had the necessary power to
compound the offence as was established under Cambridge Technology Enterprises
Ltd., In re (2017) 77 taxmann.com 270 (NCLT – Hyd.). The Tribunal
observed that the Balance Sheet of JCo as at 31.03.2008 disclosed its Issued
capital as Rs. 106.41 crore whereas the same was reflected as Rs. 84.41 crore
in the Balance Sheet as at 31.03.2009. There was no mention of any reduction
being carried out in any of the Balance Sheets of JCo. Both the Balance Sheets
were signed by two whole-time directors of the Company, its Company Secretary
and reputed firm of Chartered Accountants.

The Tribunal further observed that the Balance Sheet was an
important financial statement used by the stakeholders for various purposes.
The factual error therein was not in accordance with section 211(1) of the Act
in as much as “True & Fair view” was not depicted in the Balance
Sheet, thereby resulting in disclosure of false particulars of Issued Capital.
In light of the aforesaid observations, it was held that the submission that
the error did not cause any prejudice to the creditors or members does not hold
good and the Tribunal proceeded to dismiss the application for compounding.

2. Hasmukh Bachubhai Baraiya
vs. Symphony Ltd.

(2017) 82 taxmann.com 420
(NCLT – Ahd.)                               

Date of Order: 26th April,
2017

Sections 56, 58 and 59 of Companies Act, 2013 – Tribunal
does not have power to issue directions for issue of duplicate share
certificate – The dispute as to title of shares has to be heard by a Civil
Court and the National Company Law Tribunal (NCLT) does not have the authority
to decide upon the same.

FACTS

H, a shareholder of SCo, a listed public company, alleged
that he misplaced the share certificates of the company. H made a request to
the share transfer agent of SCo for issue of duplicate share certificates
through a letter dated 11.09.2015. Subsequent letters were written to the Share
transfer agent on 07.10.2015 and 02.11.2015 for the same purpose. H visited the
office of Share transfer agent on 15.10.2015 and the office of SCo on
16.10.2015 and produced the relevant documents for verification in respect of
application for issue of duplicate share certificates. Upon failure of SCo and
Share transfer agent to issue the duplicate share certificate, H filed an
application before the NCLT under sections 56, 58 and 59 pleading it to issue
directions for issue of duplicate share certificate.

There was another Party who contested the ownership of the
shares in question stating that the same were acquired by him in the year 1997.
The said Party also sent the transfer deeds to the Share transfer agent but was
not issued the share certificates because there was a deficit in payment of
stamp duty. This claim of ownership by the Party has been disputed by H.

The Party had filed a civil suit to establish its case for
ownership and the said suit was pending in the Civil Court. SCo directed H and
Party to settle their dispute or produce an order from a Competent Court of
law.

HELD

Tribunal held that relief u/s. 58 was not available to H
since it was not his case that SCo refused to register his name in the register
of members.

Section 59 deals with rectification of Register of Members if
the name of any person is without sufficient cause entered into the Register of
members of a Company or without sufficient cause omitted the name of a Member
from the Register of Members or in case where a default was made or unnecessary
delay was made in making entry in the Register of Members. As the case of H did
not fall under any of the said categories, relief u/s. 59 was also held to be
not available to H.

Upon examining the provisions of section 56, the Tribunal
observed that where the instrument of transfer had been lost, the power to
issue duplicate shares was available with the Board of the Company. There was
nothing in section 56 which indicated that the Tribunal can give a direction to
the Company to issue duplicate shares.

The Tribunal proceeded to state that there was no specific
provision under the Companies Act, 2013 or rules framed thereunder which gave
it the authority to issue directions to a company for issue of duplicate
shares. When the Statute creates a right to obtain duplicate shares upon
satisfying the Board of a company about loss of shares and when the Board did
not exercise its discretion in the manner in which it is expected to exercise,
then the judicial authorities or quasi- judicial authorities are certainly
entitled to give appropriate directions.

It however observed that although H alleged that shares were
misplaced, he did not specify when they were misplaced. H did not inform the
Police about misplacement of shares either at the time when they were misplaced
nor when the Party contested his claim for ownership of the shares.

Also, in the aforesaid case, the challenge involved a dispute
as to title of the shares. The Tribunal dismissed the Petition by observing
that such title disputes could not be decided by it and only a Civil Court had
the jurisdiction to decide upon the same.

3.  Himalay Dassani vs.
Isolux Corsan India Engineering & Construction (P.) Ltd.

(2017) 82 taxmann.com 143 (NCLT-Chd.)

Date of Order: 8th May, 2017

Section 9 of Insolvency and Bankruptcy Code, 2016 – Where an
application was already filed u/s. 9 against the subsidiary of Corporate Debtor
for recovery of debt, parallel proceedings on the same cause of action could
not be initiated against the Corporate Debtor.

FACTS

ICo being the respondent was incorporated on 25.06.2008. ICo
availed consultancy service of H (being the operational creditor) in respect of
awarding of a project for developing and executing the transmission system at
Mainpuri and associated works on a build, own, operate and transfer (BOOT)
basis. ICo entered into a Service Agreement for the same with H on 08.07.2010
by virtue of which it agreed to pay a consultancy fee of Rs. 84 crore plus
applicable taxes in respect of the services to be rendered by H. The amount was
payable within 120 days of signing the agreement or upon financial closure of
project; whichever was later. H alleged that final financial closure of the
project took place on 1.5.2014.

On 15.03.2016, ICo entered into a Final Settlement and
Consultancy Agreement dated 15.03.2016 (Final Settlement Agreement) in order to
fully and finally settle its claims and dues with H. H alleged that the same
was done fraudulently and without an intention to honour the obligations. In
terms of Final Settlement Agreement, SCo, a subsidiary of ICo had undertaken to
pay H a sum of Rs. 38 crore along with applicable taxes in full and final
settlement of amount due by ICo. H filed a petition before Allahabad Bench of
NCLT in order to take recourse against SCo u/s. 9 of the Code for payment of
sum of Rs. 59.2 crore due in terms of Final Settlement Agreement. H
subsequently filed an application before this Tribunal u/s. 9 of the Code for
recovering an amount of Rs 96.6 crore.

HELD

The Tribunal observed that there were two different amounts
recorded as payable in respect of the same service rendered by H. The date of
default in the present application was stated to be 1.5.2014, whereas before
the Allahabad Bench, the date of default against SCo was 15.03.2016. Thus, the
Tribunal held that there was a dispute so far as the ICo is concerned, and
hence, the present petition u/s. 9 could not be admitted.

The Tribunal further held that as H had alleged fraud and
inducement on part of ICo and there was a counter defence to the same by ICo;
the existence of dispute could not be ruled out. Final Settlement Agreement did
not have a provision that if the payment was not honoured, H would be entitled
to fall back on the original agreement of the year 2010.

The said recourse was further denied as H had already
commenced the proceedings against SCo.

As the Final Settlement Agreement was already in
place with SCo and proceedings for default under the same were already
initiated, the application was dismissed by the Tribunal and a cost of Rs.
50,000 was imposed upon H.

Ethics and You

Section 132 of the Companies Act, 2013 – NFRA provisions

 

Arjun
(A) — (talking on phone to some CA friend).

Oh! So you mean to say, all power’s of our Institute for disciplinary
matters have gone away? That means, it will be handled by Government officials?
(waits for response from that friend).

Baap re! Mar gaye! We are already tired of facing the revenue
authorities ………… (again a response from the other person)

Oh My God! You also don’t know much? Don’t worry.  I will understand from Bhagwan Shrikrishna
right now! HE is here.

 

Shrikrishna
(S) — Cool down, Arjun. Don’t get hyper. You are a professional.

 

A —    As usual, Bhagwan,
You came at the right time! I thought of You and You arrived.

    

S —    You are my most favourite
friend and devotee! What are you worried about?

 

A —    I don’t understand these new
NFRA rules. I feel like closing down the practice.

 

S —    So much panic? And that too
without understanding the so called new Rules! It is unbecoming of a
professional.

 

A —    What else can we do? My
friend says – now our misconduct cases will be handled by NFRA. Our Institute
has lost control over disciplinary cases!

 

S —    NFRA?

 

A —    Yeah! That National
Financial Reporting Authority! The name NFRA sounds like Nafrat!

 

S —    Oh, you are talking about
Section 132 of Companies Act! Have your read it?

 

A —    No! Who has time to read
such things? Here, we are simply fire-fighting with compliances and scrutiny
hearings!

S —    Then do read it. Most of
your fear will go away.

 

A —    How do you say so? Somebody
told me that at present, our Council Members in the Disciplinary Committee
understand the practical difficulties of our profession. We don’t know what
these Government guys will do! They will simply harass us; and I don’t know
what they will expect!

 

S —    But why don’t you think of
not committing any misconduct in the first place? Prevention is better than
cure.

 

A —    I agree. But you are aware
how our CAs are unnecessarily dragged into the disciplinary cases. There are
disputes between two parties and CAs are made scapegoats.

 

S —    That I know. But do you know
the new Rules? How is ‘misconduct’ defined in those rules?

 

A —    No. I am totally in the dark.

 

S —    My dear Arjun, there is no
change in the definition of ‘misconduct’. It is the same thing as before. Same
two schedules. No changes at all. Only the jurisdiction has changed.

 

A —    So all these small items of
misconduct will be seen by NFRA?

 

S —    Yes. But not in all cases.

 

A —    What do you mean?.

 

S —    Relax Arjun. NFRA will deal
with only large firms. For small and medium firms like yours, the jurisdiction
is still with your Institute.

 

A —    What do you mean by large
firms?

 

S —    Large means those firms who
are auditing more than 200 companies; or more that 20 listed companies, or
those who are auditing the companies listed abroad.

A —    Oh!  I won’t have such big audits in this birth.
Next birth, I will surely not be a CA! Please help me in my next birth; and
keep me away from this profession.

 

.S —   Don’t be so negative and
skeptical. You need to do the profession properly.

 

A —    Anyway! Good news is that an
average CA will not have to face NFRA. Right? What relief to all small and
medium firms like ours! Lord, you are very kind!

         

S —    But do read and understand
what is NFRA about.

 

A —    Leave it. Bhagwan,
for the time being, explain it to me next time we meet. Now I have to complete
VAT audits and understand the Union Budget.

 

S —    I know all of you CAs! You
will study it only when it pinches you. You will be sleeping until a thing
starts biting you!  That always keeps you
under some fear or the other. Learn to update your knowledge constantly. Not by
merely managing your CPE hours.

 

A —    I agree. Our BCAS motto is ‘Na
bhayam Chaasti Jaagratah’
. He who is awake and alert has nothing to be
afraid of! Next time, please tell me about NFRA in more detail.

 

S —    Sure, dear.

 

A —    Bhagwan, Pranaam to
you!

 

          !!OM Shanti!!

 

Note: The above dialogue discusses about the proposed NFRA
provisions (section 132 of the Companies Act, 2013) and gives a glimpse on its
applicability. _

 

Corporate Law Corner

13. 
Jotun India Private Limited vs. PSL Limited

Company Application N. 572 of 2017 [Bom HC]

Date of Order: 5th January, 2018

 

Insolvency and Bankruptcy Code, 2016 – NCLT
continues to retain its jurisdiction for petition filed by any creditor even
where the winding-up petition has already been admitted by the jurisdictional
High Court.

 

FACTS

On 10.03.2015, J Co supplied goods to P Co
worth Rs. 7.25 crores. Upon failure of P Co to pay the stipulated amount, it
filed a company petition under sections 433 and 435 of the Companies Act, 1956
seeking winding up of P Co.

 

On 19.06.2015, J Co filed a petition with
Board of Industrial and Financial Reconstruction (“BIFR”) under Sick Industrial
Companies (Special Provisions) Act, 1985 (“SICA”) which was admitted on
09.03.2017 although Official Liquidator was not appointed.

 

Insolvency and Bankruptcy Code, 2016 (“IBC”)
was enacted which resulted in repeal of SICA and all matters pending before
BIFR stood abated. However, companies were granted a window of 180 days to file
fresh applications before National Company Law Tribunal (“NCLT”) under the IBC
regime. Thus, on 29.05.2017, J Co filed an application before the NCLT within
the 180 day period granted under the IBC.

 

Subsequently, P Co filed an application
before the Hon’ble Bombay High Court for appointment of provisional liquidator.
An order was passed by the High Court on 19.07.2017, restraining the NCLT from
continuing with the application filed before it.  Present application was filed by J Co
requesting the High Court to recall the order dated 19.07.2017 which imposed a
stay on the IBC proceedings.

 

Parties and Intervenors made extensive
arguments before the High Court.

 

HELD

The matter which arose before the High Court
was whether it had the jurisdiction to grant a stay on the proceedings filed by
a Corporate Debtor before the NCLT, although a previously instituted
Company   Petition had been admitted, but
where a Provisional Liquidator had not been appointed.

 

The High Court observed that the most
fundamental distinction between the provisions of Companies Act and IBC is that
winding up of companies is for the Court to decide and under IBC there is a
paradigm shift in as much as it displaces the management and Insolvency
Resolution Professional is appointed and Creditors committee is left to decide
the fate of the company.

 

High Court placed reliance on the Supreme
Court in the case of Madura Coats Limited [2016] 7 SCC 603 where it was held
that even during the regime of SICA, SICA was to have primacy over the
provisions of Companies Act, 1956. It was held that since SICA is repealed and
replaced by IBC, the provisions of IBC should prevail over the provisions of
the Companies Act, 2013.

 

J Co had filed a reference which was pending
before the BIFR when SICA was not repealed. 
It had also made an application to NCLT within the stipulated period of
180 days. Further, placing reliance on Supreme Court’s decision in the case of
Bank of New York Mellon [2017] 5 SCC 1, it was held that in terms of section
252 of the IBC even in the case of a company where a winding up order has been
passed, it is open to such a company, whose reference was deemed to be pending
with BIFR, to seek remedies under IBC before NCLT. Also, there was no express
provision under Companies Act which stated that a post notice winding up
petition which is governed by the Companies Act, 1956 against the same company
(and which is retained by the Company Court), cannot be entertained by NCLT and
if entertained will be nullified.

 

It was held that admission of the winding up
petition by the jurisdictional High Court would not mean that NCLT either loses
jurisdiction or cannot exercise jurisdiction in case of a petition which is
filed by another creditor. It was observed that provisions of section 64(2) of
IBC indicated that the legislature did not intend that the Company Court would
have the power to injunct proceedings before NCLT. 

 

High Court held that a new petition filed
under the IBC could still apply to the post notice winding up cases that
continue to be governed by the Companies Act, 1956. The mere fact that post
notice winding up proceedings are to be “dealt with” in accordance with the
provisions of the Companies Act, 1956 does not bar the applicability of the
provisions of IBC in general to proceedings validly instituted under IBC, nor
does it mean that such proceeding can be suspended.

 

The High Court went on to state that NCLT is
not a court subordinate to the High Court and hence as prohibited by the
provisions of section 41 (b) of the Specific Relief Act, 1963 no injunction
could be granted by the High Court against a corporate debtor from institution
of proceedings in NCLT.

 

Reading section 141 of the Code of Civil
Procedure, 1908, along with Rule 9 of the Companies (Court) Rules, 1959 it was
held that High Court had sufficient power to recall any order previously passed
by it.

 

The order dated 19.07.2017 was thus recalled
by the High Court.

             

14. 
Ind-Swift Ltd., In re

[2018] 89 taxmann.com 149 (NCLT-Chd)

Date of Order: 8th December, 2017

 

Section 73 of Companies Act, 2013 – Company
facing liquidity problems approached NCLT for extension of time in repaying its
fixed deposits – Extension was denied in view of the fact that Company Law
Board had already granted a huge extension in 2013 – There was no reason to
grant any further extension.

 

FACTS

I Co was incorporated on 06.06.1986 and was
listed on the stock exchange. I Co had been accepting deposits from the public
since the year 2002 and regularly and punctually paid back the fixed deposits
up to 28.02.2013. In the financial year ending on 31.03.2013, it started facing
liquidity problems and incurred losses. It filed a petition before the Company
Law Board (“the Board”) pleading for extension of time in repayment of deposits
which was sanctioned by the Board on 30.09.2013 with certain directions. It was
also clarified that non-compliance with order of the Board would result in
penalty u/s. 58A (10) and section 274 (1) (g) of Companies Act, 1956 (“1956
Act”).

 

As a result of ongoing financial and
liquidity crunch, I Co filed a fresh application with the NCLT on 27.09.2016
seeking further extension of time for repayment of deposits u/s. 74 of the
Companies Act, 2013 (“2013 Act”) read with Rule 11, 15 and 73 of the National
Company Law Tribunal Rules, 2016 read with section 58AA of 1956 Act.

 

I Co was directed to publish notice of the
hearing by advertisement in two newspapers which was duly complied by it. I Co
pointed out that out of the total number of 5575 depositors, the company
received 45 objections seeking speedy payment of their deposits. Registrar Of
Companies (“ROC”) jointly with Regional Director filed a statement before the
NCLT that it regularly received complaints against the company for repayment of
fixed deposits, all of which were forwarded to the company for necessary
action.

 

HELD

I Co filed a fresh scheme of repayment
detailing the manner in which payments would be made to the deposit holders.
The Tribunal noted that I Co had not made any payment to the fixed deposit
holders since the institution of the application.

 

Tribunal held that once the company had
sought the sanction of the scheme from the Board by bringing its financial
position to its notice at the relevant time in the year 2013 and got the relief
of huge extension, there was no reason to accept the plea for further extension.
Tribunal noted that it in coming to a decision of whether or not to grant an
extension it would not only have to consider the financial position of the
company but also safeguard the interest of the fixed deposit holders. The
legislature had laid down severe punishment in case of failure by the company
to make the payments to the deposit holders within the extended time and this
provision will have to be implemented in letter and spirit.

 

In view of the extension already granted by
the Board and lack of sincere efforts on part of I Co to repay the deposits,
Tribunal rejected the application seeking further grant of extension in
repayment of fixed deposits. I Co was directed to abide by the terms of order
of the Board and any non-compliance would entail penalties as listed out in the
2013 Act.

 

15. 
Sree Gayathri Leisure India (P.) Ltd. vs. ROC

[2018] 89 taxmann.com 34 (NCLT – Hyd.)

Date of Order: 29th December, 2017

 

Section 252 of Companies Act, 2013 –
Company was carrying out regular business and there was a delay in filing
statutory returns – Name of company which was struck-off for the non-filing was
ordered to be restored upon payment of additional fees.

 

FACTS

S Co was a private company incorporated on
29.04.2013 in the state of Andhra Pradesh. The main objects of the Company were
to act as commission agent for referring and enrolling members into any
resorts, clubs, hotels, family parks and other related activities etc. S
Co did not file annual accounts and annual returns for the Financial Years 2013-2014
to 2015-2016. It was the claim of S Co that it had been carrying out normal
business activities in the said period and the non-filing was wholly
inadvertent. ROC vide notice dated 21.07.2017 read with grounds mentioned in
public notice dated 05.05.2017 struck off the name of S Co.

 

S Co contended that company had been
regularly carrying out its business and was under the impression that all the
returns are being regularly filed. While filing of pending return on MCA portal
for pending period did the company realise that its name has been struck off.
It was pleaded that action of striking off of the Company would adversely
affect not only the company but its customers and various stake holders etc
alike. S Co submitted that it was ready to comply by filing annual returns in
question within the stipulated time as granted by the Tribunal, along with
required fees.

 

HELD

Tribunal examined the provisions of section
248 to 252 of the Companies Act, 2013 which deal with striking off the name of
the company. It was observed that before taking final action to strike off a
company u/s. 248(5), the ROC, is under duty to follow section 248, which
mandates the ROC to satisfy itself that sufficient provisions have been made
for realization of all amounts due to the company and for payment or discharge
of its liabilities and obligations etc. In the case of S Co, company had
ongoing business and there were people who depended on the company.

 

Considering the interest of company, its
employees and public employment, the Tribunal allowed the application of S Co
and directed the Registrar to restore its name in the Register of Companies
subject to filing of all the pending returns and payment of prescribed
additional fees. The Tribunal also imposed a cost of Rs. 30,000.  
_

Allied Laws

21. Condonation of Delay – Delay of 3671 days – No reason to decline
benefit merely due to delay in filing of appeal when in similar cases benefit
was derived by similar concerns [Land Acquisition Act, 1894; Sections 4, 5, 18,
54]

 

K.
Subbarayudu and Ors. vs. The Special Deputy Collector (Land Acquisition) (2017)
12 Supreme Court Cases 840

 

The issue was
whether the lower authority could decline the benefit available to the
appellant only due to the reason of delay of 3,671 days in filing an appeal.

 

It was observed
by the Court that, when the concerned court has exercised its discretion either
condoning or declining to condone the delay, normally the superior court will
not interfere in exercise of such discretion. The true guide is whether the
litigant has acted with due diligence. Since the Appellants/claimants are the
agriculturists whose lands were acquired and when similarly situated
agriculturists were given a higher rate of compensation, there is no reason to
decline the same to the Appellants. Merely on the ground of delay, such benefit
cannot be denied to the Appellants. Accordingly, the delay was condoned.

 

22. Family Settlement Limitation – Suit challenging the deed of family
settlement after period of 9 years of deed of family settlement was held to be
barred by limitation. [Limitation Act (36 of 1963, Art. 157)]

 

Jose
Floriano Cristovam Pinto and Ors. vs. Michelle N. Pinto Souza and Ors. AIR 2017
BOMBAY 263

 

One of the
issues to be decided was whether a suit filed for repudiation of the deed of
family settlement after a gap of 9 years be allowed?

 

It was held
that there was substantial delay and laches on part of Respondents to
approach Court in seeking the repudiation of the Deed of Family Settlement of
2005 in a suit of 2014 and on that premise, could not have secured the
plaintiffs with the relief of injunction and also that the appellants could
well have disposed off other properties between this period of filing the suit
and the deed of settlement and in that context of apathy and inaction of the
plaintiffs did not entitle them to the relief of injunction, hence deed of
family arrangement cannot be held to be invalid.

 

23. Interpretation – Deed and documents – The terms of the contract will
have to be understood in the way the parties wanted and intended them to be.
[Arbitration and Conciliation Act, 1996, Section 34]

 

Bharat
Aluminium Company vs. Kaiser Aluminium Technical Services Inc. (2016) 4 Supreme
Court Cases 126

 

The only issue
was whether the parties, by agreement, express or implied, have excluded wholly
or partly, Part I of the Arbitration Act, where Art. 17 mentions that English
law would be applicable and Art. 20 mentions that Indian Law would be
applicable.

 

In the facts of
the present case, disputes arose out of an agreement which was executed. The
same were referred to arbitration in England where the arbitral Tribunal made
two awards in favour of the Respondent. The Appellant filed applications, u/s.
34 of the Arbitration Act before the District Judge, Bilaspur, which were
dismissed. Aggrieved, the Appellant filed appeal before the High Court of
Chhattisgarh. The High Court dismissed the appeal.

 

It was observed
by the Supreme Court that the parties have agreed in expressed terms that the
law of arbitration would be English Arbitration Law. In the case before us,
being a contract executed between the two parties, the court cannot adopt an
approach for interpreting a statute. The terms of the contract will have to be
understood in the way the parties wanted and intended them to be. In that
context, particularly in agreements of arbitration, where party autonomy is the
grundnorm, how the parties worked out the agreement, is one of the
indicators to decipher the intention, apart from the plain or grammatical
meaning of the expressions and the use of the expressions at the proper places
in the agreement. Contextually, it may be noted that in the present case, the
Respondent had invoked the provisions of English law for the purpose of the
initiation of the unsettled disputes. In view of the above, the Supreme Court
held that the arbitration agreement was not governed by the Indian Law.

 

24. Jurisdiction – on jurisdiction is mandatory – At any stage of the
proceeding, issue of jurisdiction which goes to the root of the matter has to
be tried once it is brought to the notice of the court– Remanded. [CODE OF
CIVIL PROCEDURE, 1908; ORDER I, RULE 8]

 

S.N.D.P.
Sakhayogam vs. Kerala Atmavidya Sangham (2017) 8 Supreme Court Cases 830

 

One of the
issues were whether the Plaintiff, who is a juristic person, i.e.,
“Society” is entitled to invoke the provisions of Order 1 Rule 8 of
the Code for filing a suit in a “representative capacity” i.e.
whether the Lower authority had the jurisdiction to try such a suit.

 

The facts of
the present case deal with the fact that the Plaintiff treated their suit to be
in the nature of a “representative suit” within the meaning of Order
1 Rule 8 and, therefore, applied to the Trial Court under Rule 8 of the Code
seeking permission to prosecute the suit in the representative capacity. This
permission appears to have been granted to the Plaintiff by the Trial Court
without any objection from the side of the Defendants and, therefore, Issue No.
1 was answered in Plaintiff’s favour.

 

The Court held
that the Trial Court was expected to decide several material questions, namely,
whether the Plaintiff, who is a juristic person, i.e., “Society” is
entitled to invoke the provisions of Order 1 Rule 8 of the Code for filing a
suit in a “representative capacity”. In other words, the Trial Court
should have examined the question as to whether the expression
“person” occurring in Rule 8 also includes “juristic
person”. Secondly, if the Plaintiff is held entitled to file such suit,
whether the facts pleaded and the reliefs claimed in the plaint can be said to
be in the nature of representative character so as to satisfy the ingredients
of Order 1 Rule 8 of the Code which are meant essentially for the benefit of public
at large for grant of any relief and lastly, if the facts pleaded and the
reliefs claimed in the plaint do not satisfy the requirements of Order 1 Rule 8
of the Code for grant of relief to the public at large then whether such suit
is capable of being tried as a regular suit on behalf of the Plaintiff for
granting reliefs in their personal capacity, because the suit relates to
ownership of land, namely, who is the owner of the suit land. Since there was
neither any discussion much less finding on any of the aforesaid issues by any
of the Courts below, though these questions directly and substantially arose in
the case, we are of the considered opinion that it would be just and proper and
in the interest of justice to remand the case to the Trial Court to answer
these issues and then decide the suit depending upon the answer in accordance
with law.

 

The Hon’ble
Court observed that the issue of jurisdiction which goes to the root of the
case if found involved has to be tried at any stage if the proceedings once
brought to the notice of the Court.

 

25. Nominee – Not entitled to withdraw from bank especially when dispute
raised by another legal heir [Banking Regulation Act, 1949, Section 45ZA]

 

Vishwanath
Yadav and Ors. vs. Kashinath Yadav and Ors. AIR 2017 BOMBAY 258

 

The questions
for consideration was whether a nominee can recover the amounts from the Bank
on behalf of all the legal representatives when the legal representatives
themselves have put up a claim to recover such amount from the concerned Bank and
whether such amounts can be claimed only after the Inventory Proceedings are
initiated.

 

It was observed
by the Court that it is clear that whenever a depositor appoints his nominee
and the depositor dies before the maturity of the fixed deposit for release,
the nominee so appointed would certainly be entitled to collect the amount
payable on such fixed deposit amount on its maturity for release. However, that
would not take away the right of the legal heirs of the deceased depositor from
claiming right to the amount standing to the credit of the deceased depositor
in accordance with the provisions of law of succession in force. This is so
because a nominee is merely a representative of the lawful successor of the
deceased depositor to receive the payment on the maturity of the deposit for
release. The nominee does not step in the shoes of the legal heirs merely on
account of nomination by a depositor.

 

In view of the observations
made, it was held that merely relying upon section 45ZA of the Banking Regulations
Act, it cannot be contended that he is entitled to withdraw the amounts
specially when the Appellants have raised a dispute in the present case. It was
also held, taking into account the second issue, that the amounts can be
withdrawn only after Inventory Proceedings.

Allied Laws

11.  Evidence – Doubt that the exported goods were
overpriced cannot be sustained – No business interests between the parties
hence held to be at arm’s length price – Monies received through banking
channel – Cannot be held as hawala. [Customs Act, 1962 – Sections 114, 114A,
127A, 127B, 14, 17, 156, 28]

UOI vs. Padmini Polymers Ltd. and Ors.
2017 (353) E.L.T. 25 (Del.)

The ground on which the impugned order was
challenged is that the settlement commission had erred in overlooking the fact
that during settlement proceedings, it is not for the petitioner to establish
respondent’s guilt beyond reasonable doubt; instead it was for the license
holder to establish its innocence apropos the issues raised in the show
cause notice.

It was held that in the absence of
sufficient proof being led, Revenue’s doubt about the FOB value of the goods
cannot be sustained. It has not substantiated its contention that the exported
goods were overpriced. Furthermore, there was nothing on record to conclude
that there were business interests between Respondent and its importers in
Singapore, United States and USA so as to doubt that the transactions between
them were not in the normal course of trade or that it was not a transaction at
arms’ length. Hence, the declared FOB would have to be accepted.

Since Revenue has not led any evidence to
indicate either a ‘Hawala’ transaction or a back flow of money to Respondent
through illegal means regarding the value of the exported goods, the export
transaction cannot be viewed with suspicion. In any case, all monies were received by
Respondent through the banking channels as have been so certified by its
bankers through remittance certificates. In view of the same, the petition was
dismissed.

12. Interest – No
provision in Act to pay – Govt. to pay interest on currency seized at the time
of
refund of such amount. [Central Excise Act]

R.H.L. Profiles Ltd. vs. Commr. of Cus.,
Ex. and Service Tax, Kanpur 2017 (352) E.L.T. 349 (All.)

The only issue was whether the Tribunal was
justified in rejecting the claim of interest on the amount refunded on the
ground that there was no provision for paying interest on such amount?

 It was observed that nowhere the Government
can enrich itself at the cost of the others. The Government cannot deny payment
of interest merely for the reason that there is no express statutory provision
for payment of interest on the refund of excess amount/tax collected by the
Revenue.

It was held that the amount which was
illegally confiscated by the Revenue and was ultimately refunded, the
assessee-appellant was entitled to interest and that the department is under
obligation to pay the same.

13.
Money Laundering – Attachment of money alleged to be proceeds of illegal
transactions – No link between sum of money attached and the alleged proceeds
of crime – Fixed deposit receipt to be returned together with the accretions.
[Section 5, PMLA, 2002]

 Satish Estate Pvt. Ltd. vs. Union of
India 2017 (353) E.L.T. 21 (P & H)

The Petitioner owns a piece of land which it
sought to sell to TI Ltd. TI Ltd. advanced a sum of Rs. 25 lakh towards earnest
money by two cheques. Disputes and differences arose between the petitioner and
TI Ltd. TI Ltd. filed an FIR against the petitioner for offences inter alia
u/s. 420 of the Indian Penal Code. However, the suit and the FIR filed by TI
Ltd. came to an end and the petitioner forfeited the earnest money of Rs. 25
lakh.

TI Ltd. had entered into another agreement
with a third party for the sale of an entirely different property for a total
consideration of Rs. 3.61 crore and advance/earnest money was paid by third
party of a sum of Rs.11 lakh and Rs. 3.50 crore, respectively, where also,
differences and disputes arose due to which the third party filed an FIR
against TI Ltd. and for the sale of an entirely different property and charges
were framed pursuant to that FIR against the respondent under Sections 420,
467, 468 and 471 of the Indian Penal Code.

The petitioners had forfeited an amount of
Rs.25 lakh, in respect of which the Enforcement Directorate had passed a
provisional attachement order against the director of the petitioner and not
against the petitioner directly.

It was stated that the amount of Rs. 25 lakh
paid to the petitioners by TI Ltd. was from the proceeds of crime i.e. from the
sale of the land to the third party consequent to which the an FIR had been
filed by the third party against TI Ltd., and hence, such amount of Rs. 25 lakh
was to be attached.

The petitioner sought an order for the
return of the sum of Rs. 25 lakh which stood attached by the Directorate of
Enforcement in exercise of powers under the Prevention of Money Laundering Act,
2002.

It was held that the director was not a
party to the transaction in his personal capacity but only as a Director of the
petitioner. The maintainability of such proceedings itself is doubtful.
Secondly, there was no connection between the land which was a subject matter
of the agreement between the petitioner and the Respondent on the one hand, and
the land that was a subject matter of the agreement between the Respondent and
the third party entered on the other hand. Since there was no link between the
said sum of Rs. 25 lakh and the alleged proceeds of crime namely the sum of Rs.
3.61 crore received by Respondent from third party. In the circumstances, the
petition was allowed.

 The FDR was directed to be returned together
with the accretions thereto, if any. It was clarified that in the event of any
evidence being obtained by the respondents in respect of the said sum of Rs. 25
lakh, they are always at liberty to take necessary action in accordance with
law.

14. Money
Laundering – Person in possession of proceeds of crime – Not charged with
offence of crime [PMLA, 2002; Sections 3, 
24]

 Jafar Mohammed Hasanfatta and Ors. vs.
Deputy Director and Ors. 2017 (353) E.L.T. 55 (Guj.)

The allegation against each of the
petitioner is of commission of offence u/s. 3 of PMLA, which is punishable u/s.
4 of PMLA. Section 3 describes the offence of money-laundering where whosoever
directly or indirectly attempts to indulge or knowingly assists or knowingly is
a party or is actually involved in any process or activity connected with the
proceeds of crime including its concealment, possession, acquisition or use and
projecting or claiming it as untainted property shall be guilty of offence of
money-laundering.

It was held
that section 24 shows legislative intent of attachment and confiscation of
proceeds of crime by presuming involvement of proceeds of crime in money
laundering irrespective of whether the person concerned is or not charged with
the offence of money laundering. Thus, there shall be a legal presumption in
any proceeding relating to proceeds of crime under PMLA that such proceeds of
crime are involved in money-laundering. Burden would be on the person concerned
to show to the contrary.

However, section 24 clearly indicates that
even a person in possession or connected with any proceeds of crime may or may
not be charged with the offence of money laundering. Whether a person shall be
charged with money laundering or not shall thus depend only upon satisfying the
requirements of Section 3 of PMLA.

In the instant
case, neither there was anything to raise a presumption of fact or law that any
of the petitioners was aware that the monies received in their bank accounts
through banking channels were ‘proceeds of crime’ derived from any ‘scheduled
offence’, nor is there anything to further presume that the petitioners were
intentionally projecting or claiming any proceeds of crime as untainted one. In
absence of the same, offence of money laundering u/s. 3 of PMLA even on prima
facie
basis would not be attracted.

15. Tenancy – Devolution – Brother – Not
family nor heir. [Hindu Succession Act, 1956, S.3(a), S.15(2)(b)].

Durga Prasad vs. Narayan Ramchandani (D)
thr. AIR 2017 SUPREME COURT 915

In the present case, the suit property was
taken on rent by the father-in-law of deceased tenant-Lalita that is Hem Ram
Sharma and after his death, his son Baldev (husband of Lalita) became tenant of
the suit property. Upon his death, Lalita became the tenant of the suit
property. The Appellant is the brother of deceased Lalita, who was the tenant
of the Respondent herein. Upon death of Lalita, in terms of section 15(2)(b) of
the Hindu Succession Act, in the absence of any son or daughter of deceased
Lalita, the tenancy would devolve upon the heirs of her husband. Since the
Appellant is the brother of deceased Lalita and does not fall under the
category of ‘heir’ of Lalita’s husband, the tenancy of the suit property will
not devolve on him nor can he be called as an ‘heir’ u/s. 3(a) of the U.P. Act
XIII of 1972.

Section 3(g) defines ‘family’, in relation
to landlord which includes the spouse that is husband or wife of a person, male
lineal descendants which means his or her son, son’s son, son’s son’s son and
so on, parents, grandparents, unmarried, widowed, divorced daughter or
granddaughter, etc.

The definition given in the Clause is an
inclusive one and is supposed to be construed in its technical meaning which
implies that,what is not given has to be excluded as not forming part of the
family of landlord or tenant.

Therefore, sisters and brothers of landlord
and tenant are excluded from his/her family. In the facts of the present case,
the Appellant being brother of deceased tenant cannot be held to be the
‘family’ as the inclusive list given under the Act clearly omits “brother
and sister” and the same cannot be read therein as the list has to be read
and interpreted strictly.
_

Corporate Law Corner

4.  M.D.
Frozen Foods Exports (P.) Ltd. vs. Hero Fincorp Ltd.

[2017] 86 taxmann.com 92 (SC)  Date of Order: 21st
September, 201
7

Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) –
Proceedings under SARFAESI and Arbitration Act can be conducted simultaneously
– Provisions of SARFAESI Act would become applicable in respect of all debts owing
and live when the Act became applicable to NBFC.


FACTS

MCo borrowed
money for its business from lenders against security of immovable properties by
the creation of an equitable mortgage by deposit of title documents (seven such
properties) on 30.09.2015 and 21.10.2015. Due to financial indiscipline, the
account of MCo soon turned into a ‘Non-Performing Asset’ (‘NPA’) within the
meaning of section 2(1)(o) of the SARFAESI Act on 06.07.2016 itself. Lender
invoked the arbitration clause on 16.11.2016. Pursuant to notification dated
05.08.2016, the lender NBFC was covered in the ambit of SARFAESI as well. NBFC
issued a notice u/s. 13(2) of the SARFAESI Act on 24.11.2016 for one of the
seven properties. The statement of claim was filed by the respondent before the
Arbitrator on 14.12.2016 and interim orders were granted by the Arbitrator on
05.01.2017, restraining MCo from creating any third party interest over the
properties. On 16.02.2017, the lender issued another notice u/s. 13(2) of the
SARFAESI Act for two more of the seven properties. MCo filed an appeal against
the final arbitration order which was dismissed by the High Court on
13.07.2017.

The following
issues came up for determination before the Supreme Court in light of these
facts –

 (i)  Whether
the arbitration proceedings initiated by the lender can be carried on along
with the SARFAESI proceedings simultaneously?

(ii) Whether
resort can be had to section 13 of the SARFAESI Act in respect of debts, which
have arisen out of a loan agreement/mortgage created prior to the application
of the SARFAESI Act to the NBFC?

 (iii) A
linked question to question (ii), whether the lender can invoke the SARFAESI
Act provision where its notification as financial institution u/s. 2(1)(m) has
been issued after the account became an NPA u/s. 2(1)(o) of the said Act?

 

HELD

The Supreme
Court heard the extensive arguments and examined the divergent decisions laid
down by various High Courts. The Court observed that arbitration is an
alternative to the civil proceedings. The provisions of the SARFAESI Act are a
remedy in addition to the provisions of the Arbitration Act. Liquidation of
secured interest through a more expeditious procedure, is what has been
envisaged under the SARFAESI Act and the two Acts are cumulative remedies to
the secured creditors. SARFAESI proceedings are in the nature of enforcement
proceedings, while arbitration is an adjudicatory process. In the event that
the secured assets are insufficient to satisfy the debts, the secured creditor
can proceed against other assets in execution against the debtor, after
determination of the pending outstanding amount by a competent forum. The Court
upheld the judgements in case of Orissa High Court in Sarthak Builders Pvt.
Ltd. vs. Orissa Rural Development Corporation Limited 2014 SCC OnLine Ori 75
,
the Full Bench of the Delhi High Court in HDFC Bank Limited vs. Satpal Singh
Bakshi (supra)
and the Division Bench of the Allahabad High Court in Pradeep
Kumar Gupta vs. State of U.P AIR 2010 All 3.

In respect of the
second issue, the Supreme Court proceeded to hold that SARFAESI Act applies to
all the claims which would be alive at the time when it was brought into force.
Thus, in respect of the lender or the other NBFCs, it would be applicable
similarly from the date when it was so made applicable to them. The scheme of
the SARFAESI Act was to provide a procedural remedy against security interest
already created. Therefore, an existing borrower, who had been granted
financial assistance was covered u/s. 2(f) of the said Act as a ‘borrower’. The
right to proceed under SARFAESI Act accrued once the Notification was issued.

The scheme of
the SARFAESI Act sets out an expeditious, procedural methodology, enabling the
bank to take possession of the property for non-payment of dues, without
intervention of the court. The mere fact that a more expeditious remedy is
provided under the SARFAESI Act did not mean that it was substantive in
character or created an altogether new right. The Court held that argument of
MCo that substantive law cannot be made retrospective was bad in law and could
not be upheld for reasons specified above. The provisions of the SARFAESI Act
would become applicable qua all debts owing and live when the Act became
applicable to the NBFC.

The Supreme
Court observed that since the appeal was devoid of merit and an endeavour to
prolong the date of judgment, it dismissed the appeal and imposed cost of Rs.
20,000 on MCo.

5. 
Arvind Aggarwal vs. Trinetra Cements Ltd.

[2017] 86 taxmann.com 53 (NCLAT – New Delhi)     Date of Order: 12th September,
2017

Section 232 read with section 230 of
Companies Act, 2013 – Minority shareholder failed to show any irregularity in
the valuation report made by the valuer in a scheme of amalgamation – Plea for
modification of scheme was therefore rejected.

FACTS

Scheme of
Amalgamation of TCo1 and TCo2 with ICo was filed before the Madras High Court.
After the first motion, this scheme was transferred to the Tribunal at the
stage of second motion. Shareholders holding 2.37% stake in TCo1 (the
Appellants) sought modification of the Scheme of amalgamation and the same was
rejected by NCLT vide order dated 13.04.2017. Aggrieved, the Appellants have
preferred an appeal to the Appellate Tribunal.

The Appellants
filed objections under Rule 34 of the Companies (Court) Rules, 1959 challenging
the valuation arrived at by the Valuer on the ground that it was unfair and
non-transparent.

The Appellants
urged that the Tribunal had disregarded the fact that Valuation report and
Fairness opinion issued by the Valuer and Merchant Banker respectively carried
the same date, being 26.02.2014, which implied that they were working in tandem
and not independently as required under the law. It was further urged that the
Scheme could not be approved as the unaudited balance sheet for the nine months
as on 31.12.2013 relied on and referred to by TCo1, was not on record. It was
submitted that the Tribunal also failed to consider the surplus land available
with TCo1 and the ‘market deal of barring private equity’.

TCo1 and TCo3
argued that the objectors were not present, either in person or by proxy,
during the shareholders’ meeting held on 25.03.2015, when no objection to the
Scheme was raised by the shareholders and the resolutions were passed
unanimously. It was further submitted that no objections were raised by the
shareholders of TCo1 and that belated objections of the Appellants could not
have been taken into consideration after more than two years, as the decision
was taken on 25.03.2015 (inadvertently stated as 25.03.2013 in the order) and
as the scheme became effective on 28.04.2017.

HELD

The Appellate Tribunal
observed that the multiple steps for the ‘Scheme’ taken on a single day
(26.02.2014 herein) would not render the reports invalid. Validity of one or
other report can be looked into if specific illegality is brought to the notice
of the Hon’ble High Court/Tribunal. The external institutions engaged for
providing the valuation and fairness opinions were all professionals and
reputed institutions. It is usual practice by companies across India that the
reports are provided to the Board for approval on the same day.

It was held
that mere allegation made by the ‘minority shareholders’ (Appellants) that the
valuation was not properly made will not hold good, till certain illegalities
in the matter of valuation are highlighted. As the Appellants failed to show
any such illegality in the valuation made by the Valuer, the said reports could
not be interfered with.

With respect to
the surplus assets, it was held that the same were not valued separately
because the Company had to be treated as ‘going concern’. It was on this
premise, that valuation of both TCo1 and ICo, the ‘Net Asset Value’ method was
not used. TCo1 and ICo, both had power plants, mining leases etc., which
were their business assets. Adding the market value of business assets to the
enterprise value would be grossly erroneous, as the very cash flows were
generated using those business assets.

The Tribunal
thus dismissed the petition filed by the Appellant.

 6. 
Reebok India Co., In re

[2017] 79 taxmann.com 35 (NCLT – New Delhi)        Date of Order: 6th February,
2017

Section 621A read with sections 193, 211,
217, 255, 256, 295 and 297 of the Companies Act, 1956 – Compounding of offences
– The Tribunal cannot compound the offences where defaults committed by the
Managing Director (MD) were not due to any bonafide omission.

 

FACTS

R Ltd. was a
company incorporated in India, the holding company of which was a foreign
company. The main objects of the company were to design, style, manufacture,
produce, merchandise, buy, sell, export and import all types of footwear, parts
and components thereof, and accessories thereto. ‘S’ was appointed as Managing
Director of the company on 01.10.2003 and resigned from the company on
28.03.2012. In August 2009, R Ltd. received notices from ROC for violating provisions
of sections 295, 297, 255 & 256, 193(2), 217(4) & 211(1) of Companies
Act, 1956 (the Act).

Office of ROC
initiated prosecution and certain offences were referred to SFIO which in turn
launched criminal prosecution for serious offences under sections 477A, 464,
471, 405 r/w 406, 418, 107, 409, 120A r/w 120B of the Indian Penal Code. The
investigation carried out by the office of SFIO established that the sale of
products of R Ltd. were grossly inflated by S in connivance with other
executives by raising fictitious invoices and manipulating other documents.
These activities were carried out with criminal intention and in conspiracy
with selected vendors and channel partners of R Ltd. Bills were discounted on
fictitious basis. Further, in violation of the provisions of section 58A of the
Companies Act, 1956, deposits were also accepted under the guise of a franchise
referral programme.

R Ltd. filed an
application seeking compounding of various offences under Companies Act, 1956.

 

HELD

The Tribunal
observed that discretion to compound an offence under the Act was with the
Tribunal and should primarily be exercised in cases of inadvertent technical
aberrations. The technicalities under the Act are vast, complicated, time bound
and tend to often escape the notice of even professionals. The provisions for
compounding primarily exist to impose fines for such inadvertent defaults with
a gateway to escape the trauma of a protracted trial for a bonafide mistake.
The discretion to compound the offence has therefore to be considered on the
merits of each case, whether such a mistake was inadvertent and bonafide or
deliberate.

The Tribunal
held that non-adherence to statutory compliances was both deliberate and
malafide. Defaults in this case were incurable and could not have been
rectified. Compounding of these offences would demolish and prejudice the
prosecution under the penal provisions as well.

The Tribunal
further held that the prayer to compound could not be granted since the
offences were not due to any bonafide omission or a delayed rectification of a
statutory requirement. Compounding of the offences under the Act would hamper
the criminal prosecutions. The Tribunal was of the view that no accused should
be allowed to get away with deliberate large-scale bungling and fabrication of
documents carried out with criminal intention and accordingly dismissed the
application for compounding filed by R Ltd.

Allied Laws

Contempt –
Protecting fair name of judiciary also extends to protecting registry from
false and unfair allegations. [Contempt of Courts Act, 1971 – Section 2(c), 14]

 Suo Motu Contempt Petition AIR 2017
SUPREME COURT 3836

 The advocate on record contended in an
extremely agitated manner that a great manipulation had occurred in the
Registry of the Court, in order to favour the opposite party with the objective
of “Bench Hunt”. Alleging that unscrupulous litigants aimed to bench
hunt, the Advocate on record also alleged the involvement of the registry
stating that in deviation from normal Rule of listing the matter before regular
bench, and indulging in constituting a special bench at the eleventh hour is
non-conventional and mischievous act on part of Registry.

It was observed that the contemnor was an
Advocate-on-Record, practicing in that capacity since the year 2009 – not a
novice in the field. He had been representing prestigious institutions, State
Government and Authorities and is obviously quite familiar with the practices
of the Court. He cannot be said to be oblivious to the fact that no bench is
constituted by the Registry, but by the Chief Justice of this Court. Thus, in
an indirect manner, an imputation was impliedly made even against the Chief
Justice, though in the garb of a virulent attack on the Registry.

The contempt jurisdiction is not only to
protect the reputation of the concerned Judge so that he can administer Justice
fearlessly and fairly, but also to protect “the fair name of the
judiciary”. The protection, in a manner of speaking, extends even to the
Registry in the performance of its task, and false and unfair allegations which
seek to impede the working of the Registry and thus the administration of
Justice, made with oblique motives, cannot be tolerated.

It was held that the allegations sought to
be made against the Registry with insinuations directed even against the
Judges, led to the prima facie satisfaction, that the Advocate-on-Record
had committed contempt in the face of the Court, by making such insinuations
and allegations and hence the contemnor was not permitted to practice as an
Advocate-on-Record, for a period of one month from the date of the order.

Joint Property –
Income from joint property used for purchasing property – Joint property.
[Hindu Law]

Pana Devi and Ors. vs. Ayodhaya Prasad
and Ors. AIR 2017 PATNA 145

A partition 
suit  was filed to claim a share
in the property.

The issue was whether the property was
purchased out of the income of the joint property or from the individual’s own
income, since if the property was from the income of individual’s own income,
the plaintiffs would be entitled to get a larger share in the property.

The Honourable Court held that since there
was no reliable evidence to show that there was separate source of income as
claimed by the plaintiffs, the property was considered to be acquired out of
the income of the Joint Property and hence, such property would also be treated
as the joint property.

License to drive
Light Motor Vehicle – Can also drive transport vehicle – Should be of same
class. [Motor Vehicles Act, 1988, Sections 
2(10), 2(21), 2(15), 2(47), 2(48), 3, and 10]

Mukund Dewangan vs. Oriental Insurance
Company Limited AIR 2017 SUPREME COURT 3668

The issue was, what was the meaning to be
given to the definition of “light motor vehicle” as defined in
section 2(21) of the Motor Vehicles Act? Whether transport vehicles were
excluded from it?

It was held by the Honourable Court that
‘Light motor vehicle’ as defined in section 2(21) of the Act would include a
transport vehicle as per the weight prescribed in section 2(21) read with
sections 2(15) and 2(48). Such transport vehicles are not excluded from the
definition of the light motor vehicle. There is no requirement to obtain
separate endorsement to drive transport vehicle, and if a driver is holding
licence to drive light motor vehicle, he can drive transport vehicle of such
class without any endorsement to that effect.

Power of Attorney
holder can appear as witness [Evidence Act, 1872 –Section 118]

Radha Sharan Dubey and Ors. vs. Ram Niwas
and Ors. AIR 2017 (NOC) 828 (ALL.)

The founder trustees had created trust
through their Power of Attorney. The power of attorney was present in the
office of the sub-registrar and had admitted execution of the trust deed. The
trustees had executed separate power of attorneys in favour of the power of
attorney holder which were duly registered, before execution of the trust deed.
Thus, the Power of Attorney had power to depose, having personal knowledge of
the affairs of the trust. His oral deposition cannot be ignored for the fact of
being Power of Attorney holder of the trustees.

The question which arose for determination
before the Court was, as to whether the oral deposition of Power of Attorney
can be ignored only on the ground that he was only Power of Attorney Holder of
the plaintiff trust and, therefore, he had no personal knowledge of the facts
deposed.

It was held that a comprehensive reading of
the procedure as provided under Order III Rule 1 and 2 of Civil Procedure Code
indicates that it does not deal with the merit of the evidence to be adduced in
a civil proceeding as to who may testify or depose. A careful reading of the
Order III Rule 1 CPC further shows that it does not deal with the power of the
General Power of Attorney to depose or the right of the Principal to authorise
his Power of Attorney to depose in his favour. There was also no prohibition
under the Evidence Act for a Power of Attorney to appear and depose on behalf
of his principal. The Power of Attorney Holder is a competent witness and is
entitled to appear as such. His evidence cannot be refused to be taken into consideration
merely on the ground that the parties to the suit i.e. the plaintiff or
defendant choose not to appear in the witness-box. Section 118 of the Evidence
Act provides the category of persons who are incapable of being witness in a
legal proceeding. The Power of Attorney does not fall in any of the said
categories. By cross-examination of the Power of Attorney, it can be seen
whether he has personal knowledge about the facts in controversy. The
evidentiary value of his deposition may be determined after due consideration
of his answer in the cross-examination.

It was thus concluded that the Power of
Attorney Holder was a competent witness and was entitled to appear as such, his
deposition will be read in evidence on record.

Surety – Liability
of surety co-extensive – Prerogative of decree holder as to against which
judgment debtors he should proceed against. [Chit Funds Act 1982, Section 25;
Contract Act 1872, Section 128].

Punyamurthula Venkata Viswa Sundara Rao
vs. Margadarsi Chit Fund Pvt. Ltd. and Ors. AIR 2017 (NOC) 774 (HYD.) (HC)

Civil revision petitions were filed to
execute an order passed against all the judgement debtors in the Arbitration
proceedings. The decree holder represented by its Principal Officer obtained
the award against the principal debtor and all the judgement debtors.

The simple issue which came up for
consideration was whether the decree holder has to proceed against all the
judgement debtors, who are guarantors, by claiming proportionate amount
decreed.

The
Honourable Court held that the law is well settled i.e. the decree holder has
an option to proceed against either the principal debtor or any of the
guarantors or against all of them. The liability of a surety is co-extensive
with that of the principal debtor, unless it is otherwise provided by the
contract, as section 128 of the Indian Contract Act is clearly worded. Hence,
it was concluded that it is completely the prerogative of the decree holder, as
to against whom he should proceed, for realising the debt.
_

Part C Information on & around

fiogf49gjkf0d
Targeting RTI in the House

MPs must not run down a law
that promises a more informed citizenry. As part of the assessments,
20,000 RTI applications filed to different public authorities in the
country were collected, of which detailed analysis of a randomly
selected sample of 5000 applications was undertaken. The Right to
Information (RTI ) Act has undoubtedly been a most empowering
legislation for citizens. The law has initiated the vital task of
redistributing power in a democratic framework. It is perhaps this
paradigm shift in the locus of power that has resulted in consistent
efforts by the powerful to denigrate it. The latest attack on the
legislation was witnessed recently in the Rajya Sabha, with several
members of Parliament, across party lines, demanding amendments to the
act. A key allegation made on the floor of the House was that the RTI is
being widely misused, especially to blackmail public functionaries. It
was also argued that government servants are unable to take decisions
objectively for fear of the RTI. This is not the first time that the
issue of misuse of the RTI Act has been flagged. The previous prime
minister alleged that a large number of frivolous and vexatious RTI
applications are being filed resulting in a negative impact on the
efficiency of the government. These assertions, however, are not backed
by data or evidence — a point which the office of the previous PM had to
publicly concede when the RTI was invoked to ask for the basis of the
PM’s views! Similarly, one of the MPs who raised these issues in the
Rajya Sabha has reportedly admitted that his statements were based on
anecdotal evidence drawn from some isolated cases

No fee to be paid for appeals and complaints related to RTI

State
information commission has said that the RTI applicant needs to pay
fees only for the first application for information and no fees shall be
paid for appeals or complaints. The commission issued the notification
in the wake of instances where applicants were made to pay fees for
appeals and complaints as well.

The complaints filed before the
commission as per section 18 of Right to Information act and appeals
filed as per section 19 does not require fees, the commission said. It
has also been pointed out that postal orders, money orders will not be
considered as fees for matters under the control of state government.
Section 6 of the RTI act says that the applicant has to pay the fees as
prescribed by the state government while filing an application for
information. The state government has determined Rs 10 as application
fee as per Kerala Right to Information (Regulation of fee and cost)
rules.

Stay on order exempting ‘T’ branch from RTI Act

A
Division Bench of the Kerala High Court on Friday stayed a January 27
Government Order exempting the T (Top secret) branch of the State
Vigilance and Anti-Corruption Bureau from the purview of the Right to
Information Act. The Bench of Justice P.N. Ravindran and Justice Sunil
Thomas, while issuing the stay order, made it clear that the RTI Act
would continue to apply to the T branch of the VACB. The Bench observed
that a prima facie case had been made out for staying the Government
Order. The order came on a writ petition filed by A. Jayasankar, general
secretary, Indian Association of Lawyers, and its State committee.
According to the petitioner, the T branch was probing the allegations of
corruption against Chief Minister Oommen Chandy, Ministers, MPs, MLAs
and top IAS/IPS officials. The petitioner contended that the order was
sheer abuse of power. The RTI Act provided for exempting only
Intelligence and security organisations from its purview. In fact, the
VACB was an agency tasked with the job of probing corruption charges
against public officials. The exemption order was issued to cover up
large-scale corruption indulged in by Ministers and higher officials and
with a mala fide intention to prevent the public from knowing the
details of the probe being conducted into the corruption charges against
Ministers and top officials before the Assembly election.The petitioner
pleaded that unless the order was stayed, it would cause irreparable
harm to the general public.

CIC pulls up Civil Aviation Ministry for ‘casual’ approach in RTI

The
Central Information Commission has pulled up the Civil Aviation
Ministry for “casual and callous approach” in handling Right to
Information applications which it said “defeats the spirit” of the law
for empowering citizenry. Chief Information Commissioner Bimal Julka
made these hard-hitting observations while hearing the case where the
ministry could not satisfactorily answer queries on ground handling
services such as “Which out of these are part of Central Government (i)
Indian Airlines (2) BWFS (3) Air India SETS (4) CELBI”.Delhi-based
Jagpal had sought information on a number of queries related to ground
handling work through his RTI application filed in 2013 but satisfactory
responses were claimed to have not been furnished and the application
kept getting transferred from one authority to another including Air
India and Airports Authority of India.

CIC ruling: Cabinet Secretariat to disclose details of agenda under RTI Act

The
Central Information Commission ( CIC) has ruled Cabinet Secretariat
cannot deny access to items on the agenda of the Cabinet after the
meeting is over under Right to Information Act.

In a
pro-disclosure order, chief information commissioner R K Mathur has
directed Cabinet Secretariat to disclose all agenda items under the RTI
Act once the meetings are over.

In a ruling on an RTI plea by
RTI activist Venkatesh Nayak of Commonwealth Human Rights Initiative
(CHRI), the CIC has also advised the Cabinet Secretariat to “put in
place” a mechanism to monitor departments and ministries for their
compliance with the requirement of sending monthly reports of work done
by them to it.

The order further says that it is “advisable” for
ministries and departments to upload the “unclassified portions” of
their monthly reports to Cabinet Secretariat on their respective
websites. Nayak had filed an RTI application with Cabinet Secretariat
seeking details of Cabinet agenda between August 2014 and December 2014.

Ethics and U

fiogf49gjkf0d
Disrepute to the profession

Arjun (A) — (chanting) Hare Krishna! Hare Krishna!

Shrikrishna (S) Vatsa, whenever you think of me with devotion, I appear before you!

A — ‘He Bhagwan’ ! Trahi maam! Please save me.

S — Why? What happened? Surely, some one of your friends is in trouble with your Institute.

A — Yes. For that only I have to meet you so often; every month!

S — Tell me, in the first place why do you people accept the assignments which you cannot carry out properly?

A — Bhagwan, this complaint is not for doing the work negligently; but for not accepting the work!

 S — Is it so? Tell me what really happened?

A — See, my friend’s firm was empanelled with some Regulator’s office for audit of its members. He did the audits assigned to him diligently for a few years.

S— Then what happened?

A — For 2013-14, audits of 3 such member units were allotted to his firm.

S — Good.

A — He also received the allotment of audit of the Regulator’s office itself. In a routine course, he communicated his acceptance and within a few days, went to the Regulator’s office to discuss the work.

S — Very good.

A — The officer over there expressed surprise as to how the firm was allotted that work, when audit of 3 member units had already been allotted to them.

S— Strange!

A — The officer also said that the scope of work was much larger and that the allotment was for 2 years probably to compensate for lower annual fees.

S — Then?

A — My friend noticed that the scope was really very wide and his firm was not equipped or geared up to do certain aspects of the work.

S — Such as?

A — Like system audit.

S — Oh!

A — So he came back, and immediately wrote to them that he would not be able to do the audit assignment.

S — Fair enough! Was he too late?

A — Not at all! He received the letter in mid June, met them in 10 days and by end June, he informed his inability. There were at least two more months for the deadline. But still, to his surprise, the Regulator cancelled his empanelment altogether for two years. They did not even give any opportunity of being heard.

S— Very surprising. I feel, it was some ego issue of the person in the Regulator’s office. Did they file a complaint?

A — No. They just passed on the information that the member’s conduct would bring disrepute to the profession, since he refused the work after having accepted it once.

S— Really, this is rather too much!

A — That’s what I am saying. Now-a-days, such complaints from Regulators are becoming too rampant.

S — Yes. MCA is also very active now.

A — Good that you mentioned about MCA.

S — Why?

A — My another friend received a notice from ROC’s office regarding the audit of a company. It contained 30 to 40 queries. Most of them were rather trivial. Actually, while scrutinising, one particular reality was overlooked by them and therefore, most of the queries were redundant.

S— So he must have replied to them.

A — Of course, he did. But unfortunately what they do is without applying their mind on your replies, they simply forward the queries to ICAI!

S— That means, waste of time of the member as well as the directorate of ICAI.

A — True! MCA could have easily dropped many of the points and sent only the points not explained to their satisfaction.

S— I agree. If what you say is true, there should be proper representation to the Regulator’s office.

A — It is becoming unbearable. Many of the members are keen to run away from the profession. They feel, the situation will still worsen in the years to come!

S— All of you collectively must seek some way out. Running away is not the solution.

A — True. That is why ‘hum aapki sharan mei hein!’

Om shanti !!!!!

Note:
The above dialogue shows how a Member should be cautious enough while dealing with Government authorities / Regulators. In the above case, had Arjuna’s friend verified the scope of work properly before accepting the assignment, he would have been saved from all troubles created later on. One may argue that the above act does not bring any disrepute to the profession as such.

Corporate Law Corner

16.
Vivek Vijay Gupta vs. Steel Konnect (India) (P.) Ltd.

[2018] 90 taxmann.com 78 (NCLT – Ahd.)

Date of Order: 15th January, 2018

 

Section 31 read with section 30 and 25 of
the Insolvency and Bankruptcy Code, 2016 – NCLT does not have any power or
authority to interfere with the decision of committee of creditors in rejecting
a resolution plan submitted for its consideration. 

 

FACTS

Financial Creditor instituted Insolvency
proceedings against S Co u/s. 7 of the Insolvency and Bankruptcy Code, 2016
(“the Code”). The appeals filed by SCo were dismissed by the National Company
Law Tribunal (“NCLT”) and subsequently by the Supreme Court. Resolution
Professional (“IRP”) was appointed and a valuation report was finalised by him
on 10.11.2017 which pegged the value of S Co at Rs. 39 crore. Promoters of S Co
submitted a resolution plan for Rs. 85 crore on 25.11.2017. In view of the
Ordinance passed by the Central Government amending section 29 of the Code, the
resolution plan submitted by the Promoters was rejected as they were not
eligible to submit a resolution plan and the Committee of Creditors (“COC”) did
not accept the same. Pursuant to an advertisement filed by the IRP an Asset
Reconstruction Company (“ARC”) filed a resolution plan for Rs. 93.42 crore
which was also rejected by the IRP. ARC filed a modified plan which was placed
before the COC and the same was also rejected by the COC.

 

Present application was filed by the
Promoter / Director of S Co alleging that the plan submitted by the ARC was in
compliance with the provisions of the Code and that COC had simply rejected the
plan with a remark that the same was not in compliance with the Code without
assigning any reasons even though the plan was in the interest of S Co and its
stakeholders. It was prayed that NCLT should intervene and overturn the
decision of COC which rejected the resolution plan.   

 

HELD

NCLT observed that it has two fold powers
granted to it u/s. 31 of the Code, namely:

 

(i)  accept the plan which is
approved by the COC; or

(ii) reject the plan which
though approved by the COC does not meet the requirements of the Code.

 

In case if no resolution plan is placed before
NCLT before the expiry of the Insolvency Resolution Process period or the
extended period, then NCLT is bound to pass an order for liquidation. Section
33(1)(b) of the Code gives authority to the NCLT to order liquidation in case
it rejects the resolution plan u/s. 31(2) for non-compliance of the
requirements specified therein. Therefore, even at the stage of ordering
liquidation, NCLT has no authority to consider a resolution plan that was
rejected by the COC.

 

It was observed that NCLT does not have any
power to sit over the judgment on resolution of COC in the rejecting the
resolution plan. The Tribunal held that it had no power to or authority to
interfere with the decision of the COC in rejecting the resolution plan.

 

When the information is there before the COC
regarding the non-compliance of the requirements of the Code and Regulations,
COC is perfectly justified in rejecting the resolution plan. It was held that
there were no facts and circumstances that warrant interference by NCLT in the
rejection of the resolution plan.

 

The IRP, in carrying out its duties,
submitted the plan which it received from the ARC before the COC. It also
brought out the fact that the same was not in accordance with the provisions
contained in the Code. The NCLT further observed that in light of the fact
pattern of this case, there was no lapse on part of the IRP in carrying out its
duties enumerated under the Code.

 

There was a contention raised that the
Promoters and directors of S Co (who filed the application) are persons
aggrieved or not. Since the resolution plan was in the interest of S Co and its
stakeholders, it could be said that its promoters and directors were also
aggrieved persons. However, NCLT observed that although promoters and directors
were invited to be a part of the meeting of COC they did not choose to attend
the same. Without demonstrating how the plan was beneficial to S Co and its
stakeholders it could not be held that the Promoters / directors were aggrieved
persons.

 

The NCLT, thus rejected the application
filed before it. 

 

17. Bengal Chemists and Druggists Association
vs. Kalyan Chowdhury

[2018] 90 taxmann.com 112 (SC)  

Date of Order: 02nd  February, 2018

 

Section 421 read with section 433 of the
Companies Act, 2013 – Proviso to section 421(3) is peremptory in nature – Any
appeal filed after the period specified therein becomes time barred – Delay
cannot then be condoned by resorting to the provisions of Limitation Act, 1963.

 

FACTS

B Co being aggrieved by an order passed by
National Company Law Tribunal filed an appeal before the National Company Law
Appellate Tribunal (“NCLAT”). NCLAT dismissed the appeal on the grounds that
the same was filed 9 days after the expiry of period of limitation of 45 days
as well as further period of another 45 days. NCLAT held that the appeals were
not maintainable in lines with section 421(3) of the Companies Act, 2013 (“the
Act”).

 

B Co filed an application before the Supreme
Court against the order of NCLAT dismissing the appeal.  

 

It was argued before the Supreme Court that
section 421(3) of the Act does not contain the language of section 34(3)
proviso of the Arbitration Act, 1996 which contains the words “but not
thereafter”. It was further argued that in terms of section 433 of the Act,
provisions of the Limitation Act, 1963 shall, as far as may be, apply to
Appeals before the Appellate Tribunal. Section 5 would therefore be applicable
to condone the delay beyond the period of 90 days.

 

HELD

The Supreme Court considered the provisions
of sections 421 and 433 of the Act. It observed that a cursory reading of
section 421(3) made it clear that the proviso provides a period of limitation
different from that provided in the Limitation Act, and also provides a further
period not exceeding 45 days only if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within that period. 

 

It was observed that section 433 cannot
apply because the provisions of the Limitation Act only apply “as far as may
be”. There is a special provision contained in proviso to section 421(3) and as
a corollary, section 5 of the Limitation Act cannot apply.

 

The Supreme
Court held that 45 days is the period of limitation, and a further period not
exceeding 45 days is provided only if sufficient cause is made out for filing
the appeal within the extended period. If the Court was to accept the argument
put forth by the Applicant, it would mean that notwithstanding that the further
period of 45 days had elapsed, the NCLAT may, if the facts so warrant, condone
the delay. This would be to render otiose the second time limit of 45 days,
which is peremptory in nature.

 

In coming to this conclusion, the Supreme
Court relied on its own decision in the case of Chhattisgarh SEB vs. Central
Electricity Regulatory Commission, 2010 (5) SCC 23
. The Supreme Court also
distinguished the decisions which were relied upon by the counsel for B Co.

 

The appeal filed by B Co was thus dismissed
by the Supreme Court.

 

18. Prem Prakash Sethi vs. Union of India

[2018] 89 taxmann.com 234 (Delhi)             

Date of Order: 10th January, 2018

 

Section 252 of Companies Act, 2013 read
with Condonation of Delays Scheme, 2018 – Name of company was struck-off from
the Register of Companies owing to non-compliances – Petition filed u/s. 252 was still pending before the NCLT – Directors of the
company could avail the benefit of Condonation of Delays Scheme, 2018

 

FACTS

S Co was in an active business and it
defaulted in making certain statutory compliances under Companies Act, 2013
(“the Act”) and requisite returns were not filed by them. Registrar of
Companies (“ROC”) believed that directors of S Co were disqualified u/s.
164(2)(a) of the Act and that S Co was disqualified u/s. 248(1) of the Act.

 

ROC
therefore, issued a show cause notice in March 2017 requiring S Co to show
cause as to why it was not liable to be removed from the Register of Companies.
S Co failed to respond to this notice, resulting in passing of an order of
removal of the company from the Register of Companies. S Co then invoked remedy
available u/s. 252(3) of the Act by filing a petition with the National Company
Law Tribunal (“NCLT”) praying for revival of 
the company.

 

Director of S Co filed the present writ
petition before the High Court expressing that it was desirous of availing the
Condonation of Delays Scheme, 2018 (“CODS-2018”) but was unable to do so
because name of S Co had been struck off from the Register of Companies. It was
prayed before the High Court that they be permitted to avail the benefit of
CODS-2018, subject to the outcome of the proceedings initiated u/s. 252 of the
Act. 

 

S Co also conceded that non-filing of
returns was a bonafide mistake on part of the company and it was stated that it
was ready to submit all the relevant documents which were required by the ROC.

 

HELD

The High
Court observed that S Co deserves to be fairly given an opportunity to avail
the benefit of CODS-2018 given that order striking off its name from the
Register of Companies was itself pending consideration before  the NCLT.

 

The High Court therefore, directed S Co to
file all the requisite returns in relation to the company and submit necessary
application along with requisite charges to the ROC in order to enable it to
avail the benefits provided under the CODS-2018.

 

The High Court also directed NCLT to dispose
the application expeditiously given that benefit under CODS-2018 is available
only up to 31.03.2018. In the event the NCLT is unable to dispose of the appeal
within the time as requested for the reasons that are not attributable to S Co,
it was directed that the ROC shall ensure that the Scheme under CODS-2018 is
extended in respect of the directors of S Co.

 

The High Court held that directors of S Co
would not be deprived of the opportunity to avail the CODS-2018 only on account
of pendency of the petition before NCLT. 

 

It was also clarified that if directors of S
Co did not avail of the CODS-2018 or file necessary documents then, in addition
to other consequences, they would also be liable for prosecution for Contempt
of Court.

 

Petition filed by S Co was thus allowed.

 

19.
Real time Interactive Media Pvt. Ltd. vs. Metro Mumbai Infradeveloper Pvt. Ltd.

[2018] 90 taxmann.com 89 (Bombay)

Date of Order: 12th January, 2018

 

Section 271 read with section 248 of
Companies Act, 2013 – High Court has the power to order winding up of company
although its name has been struck off from the Register of Companies.

 

FACTS

R Co was engaged in the business of
publishing and managing advertisements on BEST TV LED screens in the BEST buses
(BEST TV) running in Mumbai. R Co was the sole agent of BEST in respect of
airing such advertisements on BEST TV. M Co engaged R Co for displaying
advertisements on BEST TV in 1300 Non AC buses and 250 AC buses for a period of
3 months from 07.10.2011 till 07.01.2012 for a consideration of Rs. 15 lakhs
plus taxes. In terms of the agreement, R Co aired those advertisements and
raised invoices of Rs. 5,16,665 in respect of each of the months for which the
service was provided. Invoices raised also mentioned that interest would be
charged if the same were not paid on or before the due date.

 

M Co paid in installments a total amount of
Rs. 5 lakhs and as on 16th April, 2012 after adjusting this Rs. 5
lakhs from the total invoice of Rs. 15,49,995 there was a balance outstanding
of Rs. 10,49,995. As no payments came forth, R Co issued a statutory notice
dated 27.05.2014 to M Co. M Co did not file any reply to the statutory notice
issued to it.

 

R Co urged before the Court that the
registered address shown in the Company Master Data is the same address to
which notice under Rule 28 of the Companies Court (Rules), 1959 (“the Rules”)
has been sent and that is the same address which reflected even in the cause
title to which statutory notice was also sent. As on date, recent MCA website
extract indicates the status of M Co as “Strike Off”.

 

The Court was approached to decide whether
winding up proceedings can be initiated against a company which has been struck
off the Register of Companies.

 

HELD

The High Court observed that in light of the
facts it was possible to hold that the statutory notice was duly served as
required under Rule 28 of the Rules.

 

The High Court after examining the
provisions of section 248 of Companies Act, 2013 (“the Act”) observed that
there was nothing in section 248 which shall affect the power of the Court to
wind up a company the name of which has been struck off from the register of
companies. The effect of company notified as dissolved was that the company
shall on and from the date mentioned in the notice u/s. 248(5) of the Act cease
to operate as a company and the Certificate of Incorporation issued to it shall
be deemed to have been cancelled from such date except for the purpose of
realising the amount due to the company and for the payment or discharge of the
liabilities or obligations of the company.

 

The High Court held that just because the
name of the company was struck off the register u/s. 248 of the Act, the same
will not come in the way of the Court to pass an order of winding up of
company.

 

It was further observed that M Co neither
filed any affidavit opposing the petition nor did it reply to the statutory notice
that was duly served. The High Court had the power to order winding up on the
presumption of inability to pay the amounts claimed and not denied. The High
Court held that where no response has been made to the statutory notice, the
company runs a risk of winding up petition being allowed. By virtue of section
434 of the Companies Act, 1956 a presumption of the indebtedness could be
legitimately drawn by the court where no reply to the statutory notice was
forthcoming.

 

The High Court thus, ordered winding up of
M Co and proceeded to appoint Official Liquidator who would take charge of the
winding up proceedings to be carried out against M Co.
_

Allied Laws

26  Arbitration – Main agreement not registered – Arbitration clause cannot be acted upon.
[Arbitration and Conciliation Act, 1996 Section 7, 11, 37, 38]

Ansal Properties and Infrastructure Limited vs. Jhamru Chandaram and Ors. AIR 2017 RAJASTHAN 52

An application was filed before the court u/s. 11 of the Arbitration and
Conciliation Act, 1996, praying for appointment of the sole Arbitrator
to adjudicate its dispute with the respondents. Applicant signed two
MOUs. However, it was contested that the MOU had been annulled.

It was argued that an arbitral agreement within the MoU/agreement to sale, even if an unregistered document, can be used as evidence for collateral purpose as provided in proviso to section 49 of the Registration Act and is severable from the main contract.

The question which arose was whether any unstamped or insufficiently stamped agreement/MoU for sale containing clause can be acted upon.

It was held that the question as to insufficiency of stamp duty in view of section 16 of the Act should be left to be decided by the Arbitrator, cannot be countenanced and has to be rejected in view of clear law laid down by the Supreme Court in SMS Tea Estates Pvt. Ltd. which mandates that such a issue has to be decided in the application u/s. 11 of the Act itself.

27   Interrogation – Presence of Counsel – Only to avoid coercion, if any. [Customs Act, 1962, Section 108]

Sangit Agarwal vs. The Director General, Directorate of Revenue Intelligence and Ors . 2017 (356) E.L.T. 518 (Del.)

A prayer as to permit the interrogation in presence of the interrogatee’s Advocate who would sit at a visible distance not at audible range, was made by the petitioner.

It was observed that a lawyer has no role to play whatsoever during the interrogation, except to be at a distance beyond hearing range to ensure that no coercive methods were used during the interrogation.

It was accordingly directed that the petitioners’ advocate should be allowed to be present during the interrogation of the petitioners. He/they should be made to sit at a distance beyond hearing range, but within visible distance and the lawyer must be prepared to be present whenever the petitioners are called upon to attend such interrogation.

28  Power of Attorney – Intimation not given after death – Not valid to act as power of attorney. [Mines and Minerals Act, 1957 (Section 13, R.25A)]

State of Odisha vs. Government of India and Ors. AIR 2017 (NOC) 1023 (ORI.)

The question for consideration was whether the intimation of the death of the grantee was given to the State Government immediately after his death, but there was no document to support the said contention, there could be grant of additional time for fulfillment of statutory compliance, to the power of attorney holder, as the period of lease had already expired.

It was observed that Rule 25-A of the Mineral Concession Rules, 1960 provides that where an applicant for grant or renewal of mining lease dies before the order granting him mining lease, the application for grant of mining lease shall be deemed to have been made by his legal representatives. The question of the power of attorney acting on behalf of the grantee as legal representative would arise only when intimation of the death of the grantee is given to the State Government. Without such intimation having been given, it would be presumed that the power of attorney continued to act as power of attorney on behalf of a deceased person. A power of attorney can act on behalf of a living person, be it a natural person or juristic person. Once a person, who has given power of attorney, is no more there, the question of power of attorney continuing to act on behalf of such deceased person, would not arise. Had it been a case of the legal representative of the grantee having informed the State Government of the death of the grantee, and then proceeded with the matter as legal representative of the grantee, then the position would have been different. Such is not the case in hand.

In view of the above, it was held that there was no merit in the case of legal heir of the grantee for grant of additional time for fulfillment of statutory compliance.

29  Nominee – No beneficial ownership over persons entitled to inheritance [Companies Act, 1956, Section 109A]

Shakti Yezdani and Another vs. Jayanand Jayant Salgaonkar and Ors. (2017) 200 Comp case 143
(Bom) (HC)

The questions for consideration was whether a nominee of a holder of shares or securities is entitled to the beneficial ownership of such shares or securities to the exclusion of the other persons entitled to inherit the estate of the holder as per the law of succession.

It was observed by the Court that as per the consistent view taken by the Apex Court under various provisions held that the nominee does not get an absolute title to the property subject matter of the nomination. The reason is by its very nature when a share holder or a deposit holder or other, makes a nomination during his lifetime, he does not transfer his interest in favour of the nominee. It is always held that the nomination does not override the law in relation to testamentary or intestate succession. The provisions regarding nomination are made with a view to ensure that the estate or the rights of the deceased, subject matter of nomination are protected till the legal representatives of the deceased take appropriate steps. The object of the provisions of the Companies act is not to either provide a mode of succession or to deal with succession. The object of section109A is to ensure that the deceased shareholder is represented by someone.

In view of the same, it was held that the so called vesting u/s.109A does not create a third mode of succession and the nominee does not get a beneficial ownership of such shares or securities to the exclusion of the other persons entitled to inherit the estate.

30  Recovery of tax arrears – No charge on defaulter’s property – Hence no liability of the purchaser of such defaulter’s property. [Tamil Nadu Sales Tax, 1959, Section 24(2)]

Noor M. Saied vs. Commercial Tax Officer, Chennai. 2018 (9) G.S.T.L (Mad.)

A Sale was effected in a public auction, where the petitioner was a successful bidder. Admittedly, there was no charge on the property in question for the alleged sale tax arrears. At a later point in time, the respondent sent a notice to the petitioner that the sales tax arrears was to be paid by the petitioner, which was earlier payable by the Seller or the defaulter.

The issue to be decided was whether the petitioner can be proceeded against for Sales tax arrears payable by the defaulter.

It was held that, since there was no charge on the property and there was no doubt about the purchase made by the Petitioner being bonafide, hence the petitioner cannot be proceeded against for the recovery of the sales tax arrears payable by the defaulter. The court is of the firm view that the writ petition is allowed and that the impugned notice is unsustainable in law and is set aside. _

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

117.  A. P. (DIR
Series) Circular No. 23 dated 27th December, 2016

Purchase and sale of securities
other than shares or convertible debentures of an Indian company by a person
resident outside India

This circular permits Foreign
Portfolio Investors to undertake transactions of non-convertible debentures /
bonds issued by Indian companies either directly or in any manner as per the
prevalent / approved market practice.

118.  A. P. (DIR
Series) Circular No. 24 dated 3rd January,  2017

Exchange facility to foreign
citizens

This circular provides that the
facility for exchange of foreign exchange for Indian currency, available to
foreign citizens (i.e. foreign passport holders) whereby they were permitted to
exchange foreign exchange for Indian currency notes up to a limit of Rs.
5,000/- per week will continue up to 31st January, 2017. The foreign
tourist will have to give, at the time of exchange, a self-declaration that he
/ she has not availed of this facility during the week and also provide a copy
of their passport.

119.  Notification No.
FEMA. 377/2016-RB dated 10th January, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Fifteenth
Amendment) Regulations, 2016

This
notification has made the following two changes Notification No. FEMA.
20/2000-RB dated 3rd May 2000): –

1.  A new definition ‘convertible
note’ has been inserted vide clause (iiA), as under, in Regulation 2: –

“(iiA) ‘convertible note’ means an
instrument issued by a startup company evidencing receipt of money initially as
debt, which is repayable at the option of the holder, or which is convertible
into such number of equity shares of such startup company, within a period not
exceeding five years from the date of issue of the convertible note, upon
occurrence of specified events as per the other terms and conditions agreed to
and indicated in the instrument;”

2.  A new Regulation 6D which deals
with Issue of Convertible Notes by startup companies has been added.

120.  Notification No.
FEMA. 383/2016-RB dated 10th January, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Amendment)
Regulations, 2017

This notification has made the
following changes in Schedule 1, in Annex B of Notification No. FEMA.
20/2000-RB dated 3rd May 2000): –

A.  The existing Paragraph F.4 shall
be substituted by the following namely: –

F.4

Infrastructure Company in the Securities Market

 

 

F.4.1

Infrastructure companies in Securities Markets,
namely, stock exchanges, commodity derivative exchanges, depositories and
clearing corporations, in compliance with SEBI Regulations.

49%

 

Automatic

F.4.2

Other Conditions:

 

 

 

(i)    Foreign
investment, including investment by FPIs, will be subject to the Guidelines/
Regulations issued by the Central Government, SEBI and the Reserve Bank from
time to time.

(ii)   Words
and expressions used herein and not defined in these regulations but defined
in the Companies Act, 2013 (18 of 2013) or the Securities Contracts
(Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of
India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) or in
the concerned Regulations issued by SEBI shall have the same meanings
respectively assigned to them in those Acts / Regulations.

 

 

B.  The existing Paragraph F.6 shall be deleted.

C.  The existing Paragraphs F.7, F.8, F.9 and F.10
shall be re-numbered as F.6, F.7, F.8 and F.9
respectively.

121.  A. P. (DIR
Series) Circular No. 27 dated 12th January, 2017

Evidence of Import under Import Data Processing and
Monitoring System (IDPMS)

This circular: –

1. States that the procedure for submission of
hardcopy of Evidence of Import documents i.e. Bill of Entry, has been
discontinued with effect from 1st December, 2016, as the same is
available in IDPMS.

2.  Lays
down the revised procedure to be followed by Banks with respect to evidence of
import under IDPMS.

122.  A. P. (DIR
Series) Circular No. 28 dated 25th 
January, 2017

Notification No. FEMA 382/2016-RB dated 2nd
January, 2017

Prohibition on Indian Party
from making direct investment in countries identified by the Financial Action
Task Force (FATF) as “Non Co-operative countries and territories”

Presently, an Indian Party, in terms of FEMA Notification No.
FEMA.120/RB-2004 dated 7th July, 2004, can undertake investment in
any country.

This circular prohibits an Indian Party from undertaking ODI,
in terms of FEMA Notification No. FEMA.120/RB-2004, in an entity, either
directly by setting up or acquiring a JV/ WOS or indirectly by way of a step
down subsidiary, which is located in countries identified as “non co-operative
countries and territories” by the FATF.

The list is available on the FATF website –
www.fatf-gafi.org.

123.  A. P. (DIR
Series) Circular No. 29 dated 2nd February, 2017

Foreign Exchange Management Act, 1999 (FEMA) Foreign
Exchange (Compounding Proceedings) Rules, 2000 (the Rules) – Compounding of
Contraventions under FEMA, 1999

This circular states that the powers to compound the
contraventions pertaining to delay in filing the Annual Return on Foreign
Liabilities and Assets (FLA return), by all Indian companies which have received
Foreign Direct Investment in the previous year(s) including the current year,
have been delegated to the Regional Offices of RBI.

All Regional Offices except the Regional Offices at Kochi and
Panaji can compound the contraventions without any limit as to the amount of
contravention.

The Regional Offices at Kochi and Panaji can compound the
contraventions up to Rs. 10,000,000. Contraventions in excess of Rs. 10,000,000
will be compounded by the Central Office at Mumbai.

124.  A. P. (DIR
Series) Circular No. 30 dated 2nd February, 2017

Notification No. FEMA 378/2016-RB dated 25th
October, 2016

Risk Management and
Inter-bank Dealings: Permitting Non Resident Indians (NRIs) access to Exchange
Traded Currency Derivatives (ETCD) market

This circular now permits NRI, subject to certain terms and
conditions, to hedge their currency risk arising out of their investments in
India by using the products available on the exchange traded currency
derivatives market in India. This facility is in addition to the existing
hedging facilities that are available to NRI.

125.  A. P. (DIR
Series) Circular No. 31 dated 17th February, 2017

Issuance of Rupee denominated bonds overseas – Multilateral
and Regional Financial Institutions as Investors

Presently, Rupee denominated bonds can be issued only in a
country and to a person resident in a country: –

1.  That is a member of Financial Action Task
Force (FATF) or a member of a FATF Style Regional Body; and

2.  Whose securities market regulator is a
signatory to the International Organization of Securities Commission’s
(IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or
a signatory to bilateral Memorandum of Understanding with the Securities and
Exchange Board of India (SEBI) for information sharing arrangements; and

3.  That should not be a country identified in the
public statement of the FATF as: –

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

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

This circular now, in addition to the above, now
permits Indian entities to issues Rupee denominated bonds to Multilateral and
Regional Financial Institutions in which India is a member country.

Allied Laws

24. Family & Personal Laws –
Family arrangement /settlement in respect of immovable property worth more than
Rs. 100, when orally made, no registration is required and is admissible in
evidence but when reduced in writing same has to be registered- but even if
unregisterd, same can be used as corroborative evidence. [Sections 17 & 49
of the Registration Act, 1908.]

Subraya M.N. vs. Vittala M.N. And Others (2016) 8 scc 705 (sc).

The Appellant-Defendant and the Respondents- Plaintiffs are
the sons of one late Narayana. The suit scheduled property comprises of item
No. 1 measuring 1.00 acre; item No. 2 measuring 0.25 acre. Appellant-Defendant
claimed that so far as item Nos. 1 and 2 are concerned, Plaintiffs have sold
their shares – 0.50 acre of land to the Defendant and the third Plaintiff as
per sale deed dated 28.04.1976 and Plaintiffs have no right to claim partition
in respect of item Nos. 1 and 2. It is further averred that there was a
panchayat in the village on 18.03.1995 wherein Plaintiff Nos. 3 and 4 and Defendant
participated and it was agreed between the parties that the Defendant will give
Rs. 50,000/- to the Plaintiff Nos. 3 and 4 and Defendant will have all rights
over item Nos. 1 and 2. The trial court as well as the High Court held that in
the absence of any conveyance deed, it cannot be established that Plaintiff
Nos. 3 and 4 have forfeited their rights in respect of item Nos. 1 and 2 of the
suit scheduled property. The Supreme court reversing the order of trial court
and high court held that in the facts and circumstances of this case and the
conduct of the parties, Panchayat resolution appears to record the family
settlement already arrived at between the parties. There is no provision of law
requiring family settlements to be reduced to writing and registered, though
when reduced to writing the question of registration may arise. Binding family
arrangements dealing with immovable property worth more than rupees hundred can
be made orally and when so made, no question of registration arises. If,
however, it is reduced to the form of writing with the purpose that the terms
should be evidenced by it, it required registration and without registration it
is inadmissible; but the said family arrangement can be used as corroborative
piece of evidence for showing or explaining the conduct of the parties. In the
present case, panchayat resolution reduced into writing, though not registered
can be used as a piece of evidence explaining the settlement arrived at and the
conduct of the parties in receiving the money from the Defendant in lieu of
relinquishing their interest in item Nos. 1 and 2.

25. Nomination under Companies Act,
1956 will not override succession [Sections 109A and 109B of Companies Act,
1956].

Shakti Yezdani & Ors vs. Jayanand Jayant Salgaonkar and
Ors. Appeal No. 313 Of 2015 & Appeal No. 311 of 2015 dtd 1.12.2016
(Bom,)(HC)

The questions to be decided by the division bench of the
Bombay High Court were as under:

(i)    Whether a nominee of a holder of shares or
securities appointed u/s. 109A of the Companies Act, 1956 read with the
Bye-laws under the Depositories Act, 1996 is entitled to the beneficial
ownership of such shares or securities to the exclusion of all other persons
who are entitled to inherit the estate of the holder as per the law of succession?

(ii)   Whether a nominee of a holder of shares or
securities on the basis of the nomination made under the provisions of the
Companies Act, 1956 read with the Bye-laws under the Depositories Act, 1996 is
entitled to all rights in respect of such shares or securities to the exclusion
of all other persons or whether he continues to hold the securities in trust
and in a capacity as a beneficiary for the legal representatives who are
entitled to inherit securities or shares under the law of inheritance ?

(iii)  Whether a bequest made in a Will executed in
accordance with the Indian Succession Act, 1925 in respect of shares or
securities of the deceased supersedes the nomination made under the provisions
of Sections 109A and Bye-Law No. 9.11 framed under the Depositories Act,
1996?.”

The Bombay High court held as under:

(i)    The Apex Court in the case of Indrani
Wahi vs. Registrar of Co-op. Societies and Others (2016) 6 SCC 440

considered the provisions of nomination under Sections 69 and 70 of the West
Bengal Co-operative Societies Act, 1983 and came to the conclusion that where a
member of a Co-operative Society nominates a person in consonance with the
provisions of the Rules framed under the West Bengal Act of 1983, the
Co-operative Society is mandated to transfer all the shares or interest of such
member in the name of the nominee. This view was taken by the Apex Court in the
light of the express provisions of section 80 of the said Act of 1983 read with
Rule 127 of the Rules of 1987 framed under the West Bengal Act of 1983.
Sections 79 and 80 of the said Act of 1983 appear to be different from the
provisions relating to the nomination in the Maharashtra Cooperative Societies
Act, 1960. After issuing the directions to the Co-operative Society to transfer
the shares of the deceased member in the name of the Appellant who was a
nominee, the Apex Court specifically observed that it will be open for other
members of the family of the deceased member to pursue their case of succession
or inheritance in consonance with law. Thus, the conclusion drawn by the Apex
Court was that a Cooperative Society is bound by the nomination made by the
member. In case of such nomination, the Society has no option except to
transfer the shares in the name of the nominee after the death of the member.

     However, those who are claiming
inheritance will be entitled to pursue their remedies and claim title in the
shares on the basis of inheritance. Thus, the conclusion drawn by the Apex
Court was not that the nomination binds the legal representatives of the
deceased shareholder or a member of the Society or that it overrides the law of
succession.

(ii)   Even assuming that the format of the
nomination requires attestation as required by a will under the Indian
Succession Act, 1925, the nomination does not become a testamentary
disposition.

(iii)  The provisions relating to nominations under
the various enactments have been consistently interpreted by the Apex Court by
holding that the nominee does not get absolute title to the property subject
matter of the nomination.

     The reason is by its very nature, when a
shareholder or a deposit holder or an insurance policy holder or a member of a
Co-operative Society makes a nomination during his life time, he does not
transfer his interest in favour of the nominee. It is always held that the
nomination does not override the law in relation to testamentary or intestate
succession. The provisions regarding nomination are made with a view to ensure
that the estate or the rights of the deceased subject matter of the nomination
are protected till thelegal representatives of the deceased take appropriate
steps.

None of the provisions of the aforesaid Statutes providing
for nominations deal with the succession, testamentary or non-testamentary.

(iv)  The object of the provisions of the Companies
Act is not to either provide a mode of succession or to deal with succession.
The object of the Section 109A is to ensure that the deceased shareholder is
represented by someone as the value of the shares is subject to market forces.

      Various advantages keep on accruing to
shareholders. For example, allotment of bonus shares. There are general
meetings held of the companies in which a shareholder is required to be
represented. The provision is enacted to ensure that the commerce does not
suffer due to delay on the part of the legal heirs in establishing their rights
of succession and claiming the shares of a company.

(v)   The so called vesting u/s. 109A does not
create a third mode of succession. It is not intended to create a third mode of
succession. The Companies Act has nothing to do with the law of succession.

(vi) The
first question is answered in the negative and the third question in the
affirmative. The second question is answered accordingly.

Editor’s Note – A reference may be made to the Feature Laws
and Business published in the May 2015 issue of the BCAJ in which this subject
is analysed.

26. Sales Tax – Minor admitted to
benefits of partnership not liable for dues of the firm. [Sections  25, 30 of Indian Partnership Act, Section 21
of Kerala General Sales Tax Act, 1963]

J. Rajmohan Pillai vs. District Collector, Kollam &
Ors (2016) 93 vst 397(ker)

The petitioner, while he was a minor was inducted as a
partner of the firm M/s. Malabar Cashew and Allied Products with effect from
01/01/1975. The partnership was reconstituted on 01/01/1976 by which the
petitioner and three other minors were excluded from the partnership. The firm
was liable to pay sales tax dues and accordingly, revenue recovery proceedings
were initiated by the 1st respondent. The 1st respondent
proceeded on the basis that the petitioner, being a partner, was also liable
for the arrears of sales tax dues and accordingly, steps were taken against the
petitioner u/s. 65 of the Revenue Recovery Act.

The Kerala High Court held that when a firm is liable, each
of the partners in the firm are jointly and severally liable for the amount due
until he retires. It is very clear from the provisions of the Act, that a minor
can only be admitted to the benefits of the partnership and cannot become
liable to the debts or the loss of the partnership. It is trite, that a minor
cannot be made liable for the liability of the firm. The District Collector had
referred to sections 30(7), 35 and 25 of the Partnership Act to impose a
liability on the petitioner. Section 30 of the Partnership Act, relates to
admitting a minor to the benefits of partnership. The Statute indicates that
though a minor may not be a partner of the firm, he may be admitted to the
benefits of the partnership. Though the minor’s share is liable for the acts of
the firm, but the minor is not personally liable for any such act.

27. Investigation and Enquiry –
Summons under Customs Act – Presence of counsel during interrogation of
Petitioner – To be within visible range but beyond hearing range – Counsel must
be prepared to be present for every summons made. [Customs Act, 1971; Section
108]

Vijay Sajnani vs. Union
Of India 2017 (345) E.L.T. 323 (S.C.)

Section 108 of the Custom’s Act gives the power
to summon any person to give any evidence or produce documents. The section
also states, that the person so summoned, is bound to state the truth upon any
subject, on inquiry. The section had no mention of whether the counsel of the
person so summoned would be able to witness such inquiry/interrogation.
However, in the present case, the Supreme Court had allowed the Counsel of the
petitioners to be present during the interrogation of the petitioners. But this
allowance was subject to the counsel being present at a reasonable and visible
distance, beyond hearing range, during such interrogation It was also directed
that the petitioner’s counsel should always be prepared to be present whenever
the petitioners are called upon to attend such interrogation.

Company Law

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1. Companies (Authorised to Register) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification dated 31st May 2016 made rules to amend the Companies (Authorised to Registered) Rules, 2014. These Rules are applicable for conversion of a partnership firm into company, and for conversion of an LLP into company. Full text of the Rules can be accessed at
http://www.mca.gov.in/Ministry/pdf/NotificationOrder_ 01062016.pdf

2. Companies (Corporate Social Responsibility Policy) Amendment Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 23rd May 2016 notified the rules to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Rule 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, is substituted by, “The Board of a company can decide to undertake its CSR activities approved by the CSR Committee, through
(a) A company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or along with any other company, or
(b) A company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature

Provided that if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilization of funds of such projects and programs and the monitoring and reporting mechanism.

Further vide Notification dated 16th May 2016, the Ministry of Corporate Affairs has clarified that while taking CSR activities under the Act, the Company must not contravene any other laws of the land including Cigarette and Other Tobacco Products Act 2003.

The rules can be accessed at
http://www.mca.gov. in/Ministry/pdf/Notification_CSR_30052016.pdf and notification at http://www.mca.gov.in/Ministry/pdf/General_ circular05_16052016.pdf

3. Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification dated 4th April 2016 made an Amendment to the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015.

Rule 3 has been substituted with the following proviso “Provided that the companies in banking, insurance, power sector, non-banking financial companies and housing finance companies need not file financial statements under this rule”.

The rules can be accessed at
http://www.mca.gov.in/ Ministry/pdf/Rules_06042016.pdf

4. Notification constituting the National Company Law Tribunal and National Company Law Appellate Tribunal under Sections 408 and 410 respectively of the Companies Act, 2013

The Central Government has by Notification No S.O. 1933 (E ) dated 1st June 2016 constituted the National Company Law Appellate Tribunal for hearing appeals against the orders of the National Company Law Tribunal with effect from the 1st day of June, 2016

The Notification can be accessed at
http://www.mca. gov.in/Ministry/pdf/Notification_02062016_II.pdf

5. Commencement Notification under Section 1(3) of the Companies Act, 2013 and Notification constituting the Benches of National Company Law Tribunal
The Ministry of Corporate Affairs has vide Notification S.O. 1934(E) dated 1st June 2016 has notified the various sections of the Companies Act 2013 that have come into force.

The list can be accessed at http://www.mca.gov.in/ Ministry/pdf/Notification_02062016_I.pdf

The Central Government has also constituted the following Benches of the National Company Law Tribunal:

6. Transfer of matters or proceedings or cases pending before the Company Law Board to National Company Law Tribunal

The Ministry of Corporate Affairs has vide Notification S.O. 1936(E) dated 1st June 2016 declared that w.e.f 01st day of June, 2016, all matters or proceedings or cases pending before the Board of Company Law Administration (Company Law Board) shall stand transferred to the National Company Law Tribunal and it shall dispose of such matters or proceedings or cases in accordance with the provisions of the Companies Act, 2013 or the Companies Act, 1956.

The Notification can be accessed at
http://www.mca. gov.in/Ministry/pdf/Notification_02062016_III.pdf

7. Special Courts Under Section 435 Of Companies Act, 2013

The Ministry of Corporate Affairs has vide Notification S.O. 1796(E) dated 18th May 2016 after obtaining the concurrence of the respective Chief Justices of the High Courts, designates the following Courts mentioned in the Table below as Special Courts for the purposes of trial of offences punishable under the Companies Act, 2013 with imprisonment of two years or more in terms of section 435 of the Companies Act, 2013, namely:

The aforesaid Courts shall exercise the jurisdiction as Special Courts in respect of jurisdiction mentioned.

The notification can be accessed at             
http://www.mca.gov.in/Ministry/pdf/NotificationOrder_19052016_2.pdf

8. The Companies Amendment Bill 2016
The Companies Amendment Bill 2016 as passed by the Lok Sabha can be accessed at http://www.mca. gov.in/Ministry/pdf/Company_AmendentBill_2016.pdf. The same is not in force as yet.

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

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“Ethics has to do with what my feelings tell me is right or wrong.”

“Ethics has to do with my religious beliefs.” “Being ethical is doing what the law requires.”
“Ethics consists of the standards of behavior our society accepts.”
“I don’t know what the word means.”

Don’t you think on similar lines? The meaning of “ethics” is hard to pin down, and the views many people have about ethics are shaky.

What, then, is ethics? At its simplest, ethics is a system of moral principles. They affect how people make decisions and lead their lives. Ethics is concerned with what is good for individuals and society and is also described as moral philosophy. The term is derived from the Greek word ethos which can mean custom, habit, character or disposition.

Ethics covers the following dilemmas:

how to live a good life

our rights and responsibilities

the language of right and wrong

Moral decisions – what is good and bad?

Our concepts of ethics have been derived from religions, philosophies and cultures. They infuse debates on topics like abortion, human rights and professional conduct.

RTI Clinic in July 2016: 2nd, 3rd, 4th Saturday, i.e. 9th, 16th, and 23rd 11.00 to 13.00 at BCAS premises.

Part C Iinformation On & Around

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Committee to look into feasibility of special stamps for RTI
The Department of Posts said it has to constitute a fresh committee, with the approval of competent authority, to examine the feasibility of usage of RTI stamps as RTI fee and furnish a report on their recommendations.

A previous committee comprising representatives from postal department, DoPT and Central Information Commission had concluded that the amount charged under RTI is a fee not related to a postal article thus according to the present Indian Postal Act, 1898, postage stamps cannot be used for payment of RTI fee or costs.

RTI gets a memorial in Rajasthan

Ironic though it may sound, a unique memorial celebrating the Right to Information has come up in the Beawar town of Rajasthan — where the RTI movement had started 20 years ago — at a time when the Bhartiya Janata Party government in the State has opted to delete chapters on the evolution of RTI campaign and law from its school textbooks. Hundreds of people from all walks of life, who gathered at Chang Gate in Beawar on Thursday night to commemorate the historic 40-day dharna of 1996 for RTI , witnessed unveiling of the aesthetically-built memorial and demanded restoration of chapters dealing with common people’s contribution to RTI in the textbooks.

RTI plea: It took Govt of India 16 months to disclose report recommending new coastal regulation norms
Sixteen months after a Right to Information (RTI ) application was filed, the Ministry of Environment, Forest and Climate Change (MoEFCC) has disclosed a copy of the “Report of the Committee to Review the Issues relating to the Coastal Regulation Zone, 2011” to Kanchi Kohli, a well-known environmental expert. This disclosure came after an order of Information Commissioner Prof. M Sridhar Acharyulu on May 13, 2016 which stated that the ministry “cannot invent a new defense or exemption such as ‘the report is under submission’, ‘file is pending consideration’ and ‘unless approved it cannot be given’, etc, which are not available under RTI Act, 2005, such an illegal refusal will amount to denial of information which would invite penal proceedings u/s. 20 of RTI Act, 2005.

IGNOU to offer diploma course on Right to Information

In order to encourage people to understand societal relevance of the Right to Information Act and its nuances, the Indira Gandhi National Open University (IGNOU) has decided to introduce certificate and diploma courses in the subject. The Central Information Commission (CIC) has extended its support to the university to work out the courses, which will form compulsory part of the training module for all Central Government employees.

the subject. The Central Information Commission (CIC) has extended its support to the university to work out the courses, which will form compulsory part of the training module for all Central Government employees.

Part B RTI Act, 2005

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Delhi High Court criticised the Legislative Department for filing an unnecessary Writ Petition against the Order of Central Information Commission (of M Sridhar Acharyulu, CIC) directing the Government to update and upload all the latest amended bare Acts, to examine the functionality of its e-mail ID and develop an appropriate RTI filing mechanism. Justice Manmohan of Delhi High Court directed Legislative Department to recover Rs.10,000/- which was awarded as compensation by CIC, from the salary of the Government officials who authorized the filing of this unwarranted writ petition and pay the same to the Library. Vansh Sharad Gupta, a student of NLSUI, had filed this RTI application through e-mail, to know the e-mail ID of CPIO, Legislative department. He could not access the text of Indian Christian Marriage Act, 1972 from the website, though he could find the Bare Act. It was impossible to read as that PDF of Bare Act was not formatted and each sentence was intercepted by trash. He appealed to provide the bare Acts (enactments without commentary) in a readable PDF format. The Commission directed the Department to inform the complainant as to what action had been taken including details of the programme of updation, the possible date of its completion, expenditure involved, personnel employed etc. CIC had also directed the petitioner to pay Rs.10,000/- to the library of University, for causing loss of time of several law students, more specifically of the appellant, not providing easy access to email, or not making email ids easily available, delaying the information etc, within one month. The Department chose to challenge this order in Delhi High Court. In the writ petition, Legislation department contended that student never filed an RTI application in the prescribed form with the requisite fee and did not even file first appeal. Rejecting this petition Justice Manmohan held; “This Court is not an appellate Court of the CIC. Technical and procedural arguments cannot be allowed to come in the way of substantial justice. The directions given by the CIC in the impugned order are not only fair and reasonable but also promote the concept of rule of law. It is unfortunate that the petitioner did not take the initiative on its own to upload the latest amended bare Acts. Public can be expected to follow the law only if law is easily accessible ‘at the click of a button’. HC said: “In fact, as rightly pointed out by the CIC, the RTI Act itself mandates the Government to place the texts of enactments in public domain. This Court also took judicial notice of the fact that in challenging the imposition of costs of Rs.10,000/-, the Government of India would have spent more money in filing the present writ petition. Consequently, this Court is of the view that the costs of Rs.10,000/- which was directed to be paid by the CIC, should be recovered from the salary of the Government officials who authorized the filing of the present writ petition”.

Some learning from the case:
1. It is the duty of law ministry to upload updated enactments for people.

2. Department has to change their systems in response to the issues raised in RTI requests.

3. People have right to know law in their own language

4. It is the duty of Law Ministry to disclose the law, which they want people to follow.

5. Public Authority has to pay compensation for violation of sections 4 and 3

6. State should not be a cantankerous litigant

7. There is no routine appeal available from decision of Information Commission

Part A Decision of CIC

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CIC judgment: Delhi Lt . Governor reports to Centre can be made available under RTI

The decision by Information Commissioner Sridhar Acharayulu stated that the office of the Delhi Lieutenant Governor (LG) was a “public office” under the RTI Act.

“The Commission agrees with the contention of appellant that Article163(3) of the Constitution does not apply to the Union Territory of Delhi, which could be invoked only in case of a full-fledged state and not to a UT with an assembly like Delhi. Delhi is a union territory and there are specific provisions under the Constitution of India in Article 239AA. There is no mention of any provision like protecting the advice given to LG as available under Article 74 (2) (regarding President) and Article 163 (3) (regarding governors). More over Article 163(3) applies specifically to the ‘advice of a Council of Ministers to the Governor’. The information sought here is a report sent by the UT Administrator to Union Government or President. Article 163 has nothing to do with this communication,” says the order.

Going a step further, the CIC has held that even in case of information given to the President or Governor of a state, the material on the basis of which decisions are taken is not privileged information and is open to scrutiny.

“Even in those cases where Article 163(3) applies, there is no immunity from disclosure,” said the order.

“If the documents pertain to affairs of state, they cannot be withheld by state as privileged documents under Evidence Act, but has to disclose under RTI Act, subject only to section 8 and 9. Privilege for non disclosure of documents in the name of ‘affairs of state’ under Section 123 of Evidence Act is no more available to any public authority with the advent of transparency regime, which overrides the archaic law of privilege as specified in section 22, Right to Information Act 2005. Privilege as an excuse for secrecy of information about affairs of state is antithesis to democracy, and not available,” held the CIC.

“There is no bar against citizen from having a copy of the advice/report of LG to Union government. The Supreme Court has clarified in a landmark case S. R. Bommai case that the material forming basis of advice given to Governor could be subject matter of judicial review, which clearly means information could be disclosed,” said the order.

ETHICS AND U

Vulnerability of the profession:

Shrikrishna
(S) — Arjun, you are looking very much upset today.

Arjun
(A) — Not only upset; but terribly afraid.

S —    Your BCAS’s motto is ‘Na Bhayam Chaasti Jaagratah’
He who is awake has nothing to fear about.

A —  That is alright in a motto. One can give a
big sermon on that. But what actually happens in practice?

S —    What happened?

A —  My friend has been trapped very badly. He
was unnecessarily dragged into disciplinary proceedings.

S —    But why? Has he done everything right?

A —    No. Actually, he was an auditor of an
executor and trustee company. In that audit, certain disclosures on a few
accounting standards remained to be made.

S —    Then what is wrong if he is faced with
disciplinary case?

A —    The reason why and how his lapses came to
surface are very strange.

S —    That does not matter. How he got exposed is
not relevant.

A —    But nobody is aggrieved by his lapses.

S —    That is also not material. Whether anybody
suffered or not is of no consequences.

A —    That is true. But the aggrieved party had
nothing to do with the audit. The real dispute was something else. Altogether
different.

S —    What was that?

A —    This executor and trustee company executed
the will of somebody. That is their normal business.

S —    Yes. What about that?

A —    One lady felt that in the process of
execution of the will, there was some injustice to her.

S —    Then why didn’t she write to the company?

A —    She did. But the company did not heed to her
complaints. So she wanted to teach a lesson to the company.

S —    Then what did she do?

A —    She made complaints to all possible forums;
and kept on following up vigorously.

S —    Oh!

A —    And she engaged some CAs to find out the
flaws in the financial statements of the company. Actually, that had nothing to
do with the company’s act of executing the will.

S —    Bad luck!

A —    My friend who was the auditor, was called by
ROC’s office. So were the directors.

S —    What then?

A —    Regional Director pointed out the flaws.
There was nothing wrong in financials; but a few disclosures had been omitted.

S —    So what did he do?

A — He agreed that the lapses were very
technical in nature. He suggested for compounding of offence. So, my friend
paid composition money of Rs.5,000/- and got the matter closed. Directors also
were summoned.

S —    Actually, when you compound an offence,
indirectly you admit the lapse.

A —    Agreed. But my friend felt that was the end
of the matter. ROC’s office forwarded the matter to our institute.

S —    Arere!

A —    Poor fellow! The directors also paid their
composition money and are now free! That lady got nothing in her hands. But
this friend of mine is facing the music of disciplinary action. This is unfair!

S —    Cool! Arjun, cool down. You may feel it is
unfair. I also feel sorry for your friend. But unfortunately, this is not a
case of ‘complaint’ against him. And the fact remains that there were flaws.

A —    If it is not a complaint, what is it?

S —    It is an ‘information’ case. The lady is out
of the picture. Due to some reason or the other, the institute has received the
information. They have to take it to the logical end.

A —    How vulnerable our profession is! Even a
person unconcerned with our work can create problems for us! He may not be even remotely affected by our work.

S —    That’s right, Arjun. Your Council feels that
a CA’s work should be perfect in absolute terms. Not in relative terms.

A —    This is a good lesson to all of us. But what
will happen in this case?

S —    He may be held guilty under clause (7) of
Part 1 of Second Schedule. ‘Gross negligence or lack of due diligence’. 

A —    Oh! That is very serious. Then there may be
a punishment!

S —    Since you aspire for independence, the
eternal vigilance is its cost. You have to be on your toes all the time. A
little laxity may expose you to so many risks.

A —    I agree with you. The new Company Law is
also like a nightmare to auditors! We are so vulnerable that we cannot even
imagine what will happen; when and how!

S —    So Arjun, just as I am holding the reigns of
this chariot tightly, you also have to do like that. A little looseness may
cost your dearly!

A —    Yes, My Lord! This is nothing but your
message of karmayga from Geeta! I bow before you. Pranaam!

Om Shanti.

(The purpose of this
dialogue was to underline the importance of perfection in our work and point
out the vulnerability).

Corporate Law Corner

6.   Vaibhav Goyal Ltd., In
re

(2016) 76 taxmann.com 249 (Rajasthan)                    Dated:
18.11.2016

Section 100 of the Companies Act, 1956 read with section 52
of the Companies Act, 2013 – Whether a company could utilise the balance held
in Securities Premium Account to adjust the accumulated losses – Held yes,
provided the same was permitted under its Articles and adjustment was approved
by requisite majority of equity shareholders

FACTS

Petitioner company (VCo) was engaged in the business of
dealing in gems and jewellery. The Incidental or ancillary objects clause of
the Memorandum of Association (MOA) of the company provided for activity of
investment. As per the Balance sheet as at 31.03.2015, VCo had a balance of Rs.
589.72 crore in its securities premium account and accumulated losses of Rs.
264.27 crore in its reserves and surplus. The accumulated losses were on
account on diminution in the value of investments made in the subsidiary
companies. The shareholders of VCo in a meeting held on 16.01.2016 passed a
special resolution approving the adjustment of such accumulated losses against
balance held in securities premium account. Articles of Association (Articles)
of VCo permitted reduction of share capital of the company.

The Registrar of Companies (ROC) challenged the reduction on
the grounds that company did not comply with provisions of section 149(2A) and
372A of the Companies Act, 1956 (1956 Act). ROC further argued that diminution
in the value of investments was not a permitted purpose for use of securities
premium in terms of section 52 of the Companies Act, 2013 and accordingly, the
special resolution passed was ultra vires. It also raised objections on
non-registration of VCo under RBI Act, 1934 in the context of investments made
in its subsidiaries. 

HELD

The High Court examined the provisions contained in section
52 of the Companies Act, 2013 as well as section 100 of the 1956 Act (which
were applicable for reduction of share capital). It was held section 52 equates
the securities premium account of a company to its paid up share capital.
Balance in share premium account could be used for purposes specified therein
without any approval of Court. For other purposes, the provisions of sections
100-104 of the 1956 Act applied and approval of the court was to be sought for
the reduction of paid up share capital of the company. 

It was observed that if the reduction of share capital of a
company u/s. 100(1) of the 1956 Act was authorised by its Articles of
Association and supported by a special resolution of equity shareholders, the
court of which approval is sought should merely evaluate whether it is
reasonable, just and fair and not prejudicial to the interest of the
shareholders, creditors or any other stakeholders of the company.

In the facts of the present case, Court observed that
contemplated adjustment would not entail any outflow of funds or assets and the
same was a commercial decision taken by the company with approval of
shareholders. Also, the said adjustment would not prejudice any creditor of VCo
or entail a reduction in the value of its shares. Court thus, upheld the
validity of resolution which permitted the utilisation of balance held in
securities premium account for adjustment of accumulated losses. It relied on
judgements rendered by various other High Courts in respect of utilisation of
securities premium account beyond the purposes specified u/s. 78 of the 1956
Act as long as the same was permitted by the Articles of the Company and
approved by requisite majority of equity shareholders.

Argument of ROC that VCo was not permitted to make
investments was not maintainable owing to the fact that the Incidental and
ancillary objects of VCo permitted the activity of making investments. Section
17 read with section 149(2) of the 1956 Act were also held to be inapplicable
for the same reason. Further, the Court observed that ROC did not have anything
on record to show that the investments in question beginning 2004-2005 were at
any point of time objected to by any statutory authority.

The Court also dispensed the procedure required u/s. 101(2)
of the 1956 Act as well as the formality of using the words “And reduced” while
describing its capital structure.

7.  SPC & Associates, Chartered Accountants
vs. DVAK & Co.

[2017] 80 taxmann.com 48
(NCLT – Hyd.)                  Dated:
17.03.2017

Sections 139 and 140 of the Companies Act, 2013 –CA firm was
appointed as auditor for 5 years – The appointment was not ratified at the
succeeding AGM – The only reason for the same was a nominal hike in audit fees
– CA firm was not given any opportunity before the decision of non-ratification
was taken – Whether such an act was bad in law – Held yes 

FACTS

Respondent company (NCo) appointed the Petitioner (SCo) as
its statutory auditor for a block of 5 years in its 17th Annual
General Meeting (AGM) held on 28.08.2015 till the conclusion of AGM in the year
2020. However, NCo proceeded to appoint Respondent No. 2 (DCo) as its statutory
auditor for a period of five years from the 18th AGM till the
conclusion of AGM in the year 2021. Two partners working in SCo had resigned
and established a new firm in the name and style of DCo. 

NCo alleged that it had an understanding with SCo that audit
fees would remain fixed for the tenure of 5 years. NCo admitted that the
ratification for appointment of SCo was not carried out because of a 10%
increase in the audit fees charged by SCo. NCo urged that SCo was not removed,
only its appointment was not ratified by the members of the company.

SCo thus approached the Tribunal with the prayer that removal
of SCo and appointment of DCo be declared as illegal and that Tribunal direct
NCo to appoint SCo as its auditor.

HELD

Although an auditor is appointed for a block of 5 years in
terms of section 139(1) of the Act, its appointment is required to be ratified
by the members in every AGM.  Section
140(5)(1) requires a company to pass a special resolution and obtain the
approval of Central Government before it removes the existing auditor. The
Tribunal observed that said approval was not obtained by NCo. The only ground
for non-ratification of appointment of SCo was the proposed fee hike. The
Tribunal noted that there was no documentary evidence furnished by NCo to
establish the alleged understanding that audit fees would remain fixed for 5
years. It was of the view that 10% rise in fees was reasonable.

The Tribunal noted that SCo should have been provided with a
sufficient opportunity before its non-ratification. It was directed that DCo
would be removed as auditor of NCo and that its appointment was improper. The
Tribunal also held that SCo would continue to be the auditor till the next AGM
and that NCo may take necessary course of action in accordance with law.

8.  Bimla Kothari vs.
Unitech Ltd.

(2016) 75 taxmann.com 151 (NCLT – New Delhi)      Dated: 06.10.2016

Section 73 of the Companies Act, 2013 – Law does not
distinguish between deposits accepted prior to commencement of 2013 Act and
ones accepted after it – Remedy to approach NCLT upon failure of company to
repay them was available to both the set of depositors. 

FACTS

A company (UCo) accepted deposits from public prior to
01.04.2014. It was not able to repay the same upon their maturity. UCo filed an
application with the erstwhile Company Law Board seeking an extension of time
to repay the deposits which was rejected. Various investors approached NCLT
u/s. 73(4) of the Companies Act, 2013 for redressal of their grievances. It was
also alleged that UCo had siphoned off the money raised from public deposits.

UCo urged that since the deposits in question were accepted
under Companies Act, 1956 it would not be covered by the term “deposits” as
referred u/s. 73 of the Companies Act, 2013. UCo argued that investors could
not approach NCLT as they were not “depositors” within the meaning of the
Companies Act, 2013 and that the only available recourse to them was filing a
suit with the Civil Courts.

HELD

The Tribunal observed that it had trappings of a Court with
adjudicatory rights for exercising all equitable jurisdiction. It was further
held that Legislature did not intend to differentiate between depositors prior
to 01.04.2014 or thereafter. The remedies available cannot be any different.
Rule 19 of the Companies (Acceptance of Deposits) Rules, 2014 clarifies the
applicability of sections 73 and 74 of Companies Act, 2013 to deposits accepted
from public by eligible companies, prior to or after coming into force of the
2013 Act.

It was held that the term every deposit would mean and
include all previous deposits accepted by a company. Petition u/s. 73(4) was
accepted by the Tribunal for recovery of the deposits. UCo assured the Tribunal
to sell six parcels of land owned by it and use the proceeds for repayment of
deposits. Separately, ROC had started proceedings for prosecution and was
directed by the Tribunal to investigate into the allegations of siphoning off
of funds.

9.  Rupak Gupta vs. U.P.
Hotels Ltd., In re

(2016) 71 taxmann.com 158 (NCLT – New Delhi)      Dated:
22.06.2016

Section 173 of the Companies Act, 2013 read with Rule 3 of
Companies (Meetings of Board and its Powers) Rules, 2014 – Directors are
entitled to use video conference facility to participate in Board Meetings even
if the intimation for such use has not been furnished at the beginning of the
calendar year.

FACTS

Applicant and his mother (A) were directors on the Board of a
company (UCo) along with R2 and one other independent director (G). R2 and A
were joint Managing Directors. A received a notice on 28.05.2016 for attending
a board meeting scheduled to be held on 04.06.2016. Since A and his mother were
travelling overseas on that date, it was agreed to re-schedule the same on
01.06.2016. A received another notice on 30.05.2016 which further re-scheduled
the meeting to its original date being 04.06.2016. R2 assured that A and his
mother could participate in the Board Meeting through a video conference. On
03.06.2016, A and his mother were denied the permission to attend the meeting
through the video conference and meeting was conducted as per the schedule
without A and his mother being present there.

R2 submitted to the Tribunal that the video conferencing
facility was denied with a view to comply with provisions of Rule 3(3e) of
Companies (Meeting of Board and its Powers) Rules, 2014 (Rule) which requires a
director to intimate his intention of participating in a Board meeting through
video conference facility at the beginning of the calendar year.

In addition to the items specified in the agenda, R2 proposed
to appoint B as an additional director of UCo. G had objected the denial of
video conference to A and his mother as well as appointment of B. Another Board
meeting was scheduled on 22.06.2016 to confirm the minutes of meeting held
previously, as well as to appoint B as a non-executive independent Chairman of
UCo.

A approached the Tribunal to order a stay on the meeting to
be held as well as on operation of resolution passed in the meeting of
04.06.2016.

HELD

The Tribunal noted that R2 had assured to provide the video
conference facility to A and his mother on 30.05.2016 and on the basis of this
assurance, they left for overseas. The said Rule which was cited as a reason
for denial was also in force on the date of providing the assurance. The
Tribunal held that if at all any person backed out from the assurance given,
and if the assured proceeded on that assurance, then such statement was hit by
doctrine of estoppel.

The Tribunal further held that Rule 3 was meant for providing
video conferencing. It was the obligation of the directors convening the
meeting to provide every facility to the directors asking video conference and
enable them to participate in the Board meeting. Sub-rule 3(e) merely provided
that intimations given at the beginning of the calendar year would continue to
remain valid for the entire calendar year. It did not in any way intend that in
absence of such intimation at beginning of the calendar year, directors would
not be entitled to use video conference facility during the year. Owing to the
unfairness in the manner of holding the Board meeting on 04.06.2016, the
Tribunal stayed the operation of resolutions passed therein. 

The Tribunal noted that there was a separate
petition challenging the appointment of B and therefore did not direct anything
in that regard.

Ethics and You

Arjun (A) — Hey Bhagawan, I always envy you. You are always
enjoying without any worries !

Shrikrishna (S) — Why? What did I do to enjoy?

A —  See, we are slogging here on GST; struggling
to somehow push the returns; and you played ‘Govinda’ dancing on music
with people !

          This year you enjoyed the independence
day by breaking the Dahihandi.

S —  What you are saying is right ! But it is not
that I enjoyed because it was my birthday. It is my very nature to be cheerful.
That is Karmayoga with detachment that I preached through Geeta to you.
Did you forget it?

A — It is very easy to say so; but you don’t
know our plight in complying with the tax laws. It is a nightmare !

S —  I appreciate that. But see my case. I was
born in prison at midnight. If king Kansa had known about my birth, he would
have killed me. Then it was heavily raining. There was a flood in river Yamuna.
In that situation, my father took me across the river and left me at Gokul.

A —  Yes, I am aware.

S —  Further, right in my early childhood, there
were attacks on my life, from cruel demons! I had a hard life.

A —   I know, you had to fight with many Rakshasas
throughout your life.

S —   So enjoyment and cheerfulness is my very
nature – ‘Swabhaava’. It does not depend on external factors. You have
to do your karma religiously.

A —  That is OK. But here the Government has made
it a total mess ! They are pushing the GST when their own machinery is not
geared up.

S —   Arjuna, you have faced many more challenging
situations when you were in exile for 12 years, and when you fought at Kurukshetra
in Mahabharata !

A — That is true; but our Government authorities
are more dangerous and fierceful than those Kauravas. Here, there is
nothing but confusion.

S —  Cool, Arjun. Cool down. Things will be
settled soon. You only put in sincere efforts. Start in time.

A —  But simultaneously, we have to do tax
audits. That deadline is also approaching. There are festivals in between.
Articles are on leave. I wonder how we are going to manage all this !

S —  They will give you enough time. Don’t worry.

A —  Don’t tell me. Nowadays, they have stopped
giving extension !

S —   Never give up hope. Think positive.

A — Actually, I forgot to tell you one incident
of one lady CA. She is a very average practitioner mainly into traditional
work.

S —  What happened to her?

A —  She had two new clients. One wanted some big
amount of loan. By coincidence, the other client claimed to be rendering
financial services; arranging for bank-loans and so on.

S —  Good. So she introduced one to the other.
Right?

A — Yes. And that person asked for advance fees
by cheque as well as cash for expenses. The client who wanted loan insisted
that he would do this only through this CA lady.

S —  Oh ! That’s dangerous.

A — You guessed it right. She collected fees,
issued her receipt; and passed on the amount to the other person through bank.

S —  Even cash ?

A — No. That she delivered physically.

       She sent email to him saying that she
has passed on to him the full amount. He confirmed it by return email; but with
a little vague wording.

S —  That person must have let her down.

A — Absolutely ! He ditched both – the lady as
well as that other client. And both the clients have filed criminal complaints
against each other, dragging the CA also into it.

 S —  So sad !

A — And on the top of it, he also filed a
complaint to our Institute! Poor lady. She just allowed the amount to be routed
through her hands and is now in deep trouble !

S —  That is because she issued a receipt as if
she was going to render the service ! I know, she did it innocently, with
honest intention.

A —  So vulnerable our profession is !

S —  So, again I tell you; Be very cautious. You
will be signing many audit reports this month. Be proactive. Be clear in
communicating. Don’t risk your own image while accommodating a client. Do
proper documentation. Keep all working papers. Don’t have too much good faith
in others. If there are new assignments, write to the previous auditor
immediately. Ensure, by careful verification and in writing that previous
auditors’ audit fees have been really paid – Get proper appointment letter and
engagement letter.

           And………

A —  Oh Lord ! You are telling me the entire Code
of Ethics now perhaps for the 50th time! I know it by heart.

S —  But unfortunately, you don’t follow it and
then succumb to remorse ! It is my duty to tell you, advise you till you get
it. Just as I did it in Geeta.

A —  And Bhagawan, I do put your advice in
action most dutifully !

S — True ! But you must follow it more
skillfully for yoga is skill in action! Do your Karma diligently;
perform your part of duty diligently; and the fruit will follow. That is my
duty !

          Om Shanti.

            The purpose of this
dialogue was to underline the importance of documentation in our work and point
out the vulnerability. Acts done in good faith and to accommodate others may
sometime backfire very badly.

Allied Laws

10. Books of Accounts – Entries in
loose papers – Incriminating materials seized in raids conducted on industries
– Not maintained in the regular course of business – Not admissible [Evidence
Act (1 of 1872), Section 34; Criminal Procedure Code (2 of 1974), Section  156].

Common Cause (A Registered Society) and Ors. vs. Union of
India (UOI) and Ors. AIR 2017 SUPREME COURT 540

There was a raid on some industries by the C.B.I., followed
by another raid by the Income tax Department, which reportedly led to recovery
of incriminating documents.

The Court stated that loose sheets of papers should be in the
form of “Books of Account”. While defining the term ‘books of account’, it
stated that entries in loose papers/sheets are irrelevant and not admissible
u/s. 34 of the Evidence Act, and that, a book is a book of account and such a
book of account should be regularly kept in the course of business.

The Court also stated that the value of entries in the books
of account shall not alone be sufficient evidence to charge any person with
liability, even if they are relevant and admissible. They are only
corroborative evidence. It is incumbent upon the person relying upon those entries
to prove that they are in accordance with the facts.

It was held that loose sheets of papers are wholly irrelevant
as evidence being not admissible u/s. 34 so as to constitute evidence with
respect to the transactions mentioned therein having no evidentiary value.

11. Consumer – Trust not a Person
and hence not a Consumer – Complaint filed under Consumer Protection Act – Not
maintainable. [Consumer Protection Act (68 of 1986); Section 2]

Pratibha Pratisthan and Ors. vs. Manager, Canara Bank and
Ors. AIR 2017 SUPREME COURT 1303

The issue in question was whether a complaint can be filed by
a trust under the provisions of Consumer Protection Act, 1986?

Section 2 (c) of the Act provided for the various reasons why
anyone could file a complaint.

However, a Complainant is defined u/s. 2 (b) of the Consumer
Protection Act, 1986, which states that a complainant could be a consumer, any
voluntary consumer association registered under the Companies Act, 1956, the
Central Government or the State Government, one or more consumers or the legal
heirs of a Consumer.

The inclusion of a trust was not apparent from the bare
reading of the text of the Section.

Section 2(d) defines consumer, where it describes the
activities performed by a ‘Person’, which would term him/her as a consumer. No
mention of a Trust or any other form of person is mentioned.

To have complete understanding, even the definition of
‘Person’ u/s. 2(m) of the Act was considered where it is declared that Person
does not include Trust.

It was then held by the Supreme Court that on perusal of the
above mentioned provisions, it is clear that a Trust is not a person and
therefore not a consumer. Consequently, it cannot be a complainant and cannot
file a consumer dispute under the provisions of the Act.

12. Evidence – Subsequent events
during litigation – Having direct bearing on the issue can be considered by the
Court even if it is brought before the Court for the first time[Evidence Act,
1872; Section 56].

Dinshaw Rusi Mehta vs. State of Maharashtra AIR 2017
Supreme Court 1557

The appeal came up before the Supreme Court out of the Writ
petition filed before the Hon’ble High Court. The brief facts of the issue to
appreciate the matter at hand will show that there was one Public and Charitable
Trust called the ‘Parsi Lying in Hospital’ (PLIH) located in Fort, Mumbai. PLIH
owned a land which had been allotted by the Secretary of State for India, for a
period of 99 years by executing an indenture of Lease, for setting up a
charitable hospital in Bombay.

In the year 1924, PHIL resolved to transfer the said land to
another Public Trust called the ‘Bombay Parsi Punchayat’ (BPP) vide High Court
Order. Insofar as the management of the hospital was concerned, a management
committee used to look after its day to day management. Some Trustees of BPP
were also the Trustees of PLIH.

The hospital continued for a few years and remained closed
for various years for various reasons. The Trust decided to re-start the
hospital in collaboration with one company called the ‘Krimson Health Ventures
Private Limited’(KHPL), which is an expert at running and managing hospitals.

The Trustees applied to the Charity Commissioner, the
approval for which was granted to execute the lease deed and the work to be
started by KHPL.

The Hon’ble High Court dismissed the Writ petition filed
against the approval granted.

The appeal filed before the Supreme Court was against the
order of the High Court.

During the pendency of the
litigation before the Supreme Court, KHPL, in whose favour the land had been
transferred for setting up a new hospital, vide their letter to
BPP/PLIH, informed them of the disinterest of KHPL in continuing the project
for the reasons mentioned in the letter.

It was held by the Court that, since, the subsequent events
brought to the notice of the Court, have a direct bearing over the controversy
involved in the case, they deserve to be taken note of for deciding the appeal
before them.

13.
Property Inheritance – Property from husband or father in law cannot be
alienated by unregistered compromise decree in favour of sister’s son –
Property to revert back to husband’s legal heirs. [Hindu Succession Act, (30 of
1956), Section 15(2)(b); Registration Act, (16 of 1908), Section 17]

Hari Ram and Another vs. Madan Lal and AnotherAIR 2017
PUNJAB AND HARYANA69

An ancestral property which was inherited by 4 sons having
1/4th share  each. One of the son’s wife
(Defendant no.2), after the death of her husband, voluntarily executed a decree
in favour of her sister’s son (Defendant no.1) transferring the property to
him.

The other 3 sons (Plaintiffs) contested the said transfer on
the ground that the compromise decree was supposed to be registered u/s. 17 of
the Registration Act, 1908, which was not done. Secondly, in view of section
15(2)(b) of the Hindu Succession Act, the property, after the death of
defendant no.2 (wife), would revert back to the legal heirs of her husband,
since the wife’s sister’s son would not even have the remote chance of
succession and only the successors of the Husband would be entitled to receive
the property in question.

The High Court held that the decree having purportedly
created a legal right in defendant no.2 for the first time. Defendant no.2 did
not have any pre-existing right in the property. The right created for the 1st
time was of a value of more than Rs.100 and hence was legally required to be
registered, which was not done in the present case. Connectivity of Defendant
no.1 vis-a-vis defendant no.2 being sister’s son having no such remote
chance of succession to the property left by defendant no. 2 was also
established. Hence the order was passed in favour of the plaintiffs.

14. Power of Attorney – No existing
obligation nor any obligation created in favour of agent by the principal – Can
be revoked by principal even if the title suggests document to be irrevocable.
[Power of Attorney Act, (7 of1882, Section 2; Contract Act, (9 of 1872),
Section 202]

Siddareddy Venkatanagaraja Reddy vs. Shahamat Ali Khan AIR
2017 HYDERABAD 59.

The principal (defendant), in order to meet his necessities
and to discharge the liabilities, intended to sell dwelling units including
land apurtenant. The principal being pre-occupied, requested the General Power
of Attorney holder (GPA-Plaintiff) to act for him and on his behalf, to do all
the acts, deed and things necessary and as stipulated under the General Power
of Attorney.

However, the GPA nowhere mentioned that the same is supported by
consideration or with reciprocal remunerative obligation of anything incurred
by the agent. Section 201 of the Contract Act states that an agency is
terminated by the principal by revoking his authority, etc. Section 202
states that, if the agent himself has an interest in the property which forms
the subject matter of the agency, the agency cannot, in the absence of express
contract, be terminated to the prejudice of such interest.

The High Court held that in the present case, as
per the facts, it falls u/s. 201 and not section 202 of the Contract Act, since
there is nothing to show the interest of the agent in the subject matter, i.e.
there was nothing to show any consideration or obligation of the agent involved
to be fulfilled by the principal with any express contract therefrom to make it
irrevocable. Even though the nomenclature mentions it to be irrevocable, the
wording does not make the GPA irrevocable for the principal got always absolute
power to revoke.

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

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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 propert
ies.

 

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)