Corporate And Other Laws Archives

ALLIED LAWS

11.
Adverse possession – Gratuitous licensee – No rights acquired in case of
gratuitous possession [Limitation Act, 1963, Article 65]

Lawrence
Ranchhodbhai Christian vs. Gujarat Christian Service Society, AIR 2019, Gujarat
161

The
suit was preferred by the plaintiff. The suit premises were owned by the
defendant institution and the plaintiff was living in the premises since
childhood because he had been adopted by the defendant as an orphan. Since the
acceptance of the plaintiff by the defendants, the physical possession of the
suit premises was handed over to him within the knowledge of the defendant and
trustees of the defendant. Nobody had made any disturbance in the possession of
the plaintiff since the last 25 years or more. It was clarified that he was not
a tenant of the suit premises.

But the plaintiff claimed
that he was in vacant and peaceful possession of the suit premises since the
last 25 years and by way of adverse possession he was the owner of the said
premises.

The Court observed that
admittedly the plaintiff was an orphan and since his childhood was permitted by
the defendant institution to live in the suit premises. He cannot create any
dispute by claiming any ownership of the said premises as he has not acquired
any title. Long possession even of many years or decades could not acquire
(bestow) any rights or interest in the suit premises by the plaintiff. An
orphan can never acquire any interest in the property irrespective of his long
possession. Such possession cannot be protected by a court of law. Such
protection can only be granted or extended to a person who has a valid,
subsisting rent agreement, a lease agreement or a license agreement in his
favour. The plaintiff has acquired no right or interest whatsoever in the suit
property irrespective of his long stay and possession.

It was held that the
appellant shall hand over the vacant possession and mesne profit of the
suit premises to the defendant who is admittedly the owner of the property.

12.
General power of attorney holder (GPA) – When no legal practitioner
appears for the principal and the GPA holder undertakes not only the signing of
pleadings but also the job of a legal practitioner, he must necessarily file
the affidavit of the principal authorising him to do so [Civil Procedure Code,
1908; O. 3, R. 2; Andhra Pradesh Civil Rules of Practice and circular orders,
R. 32]

Ruhina
Khan and Ors. vs. Abdur Rahman Khan and Ors. AIR 2019, Hyderabad 117

The issue was regarding the
nature of the procedure prescribed by Rule 32 which dealt with an agent other
than an advocate appearing for a party and Rule 33 of the Civil Rules of
Practice which dealt only with signing or verification of proceedings by an
agent; and should it be construed to be merely directory or mandatory to the
extent of holding non-compliance therewith to be fatal?

It was
observed by the Court that Rule 32(1) was clear w.r.t. its application to a
situation where a party appears as an agent other than an advocate. Therefore,
the said agent would appear for the party in all respects and not merely for
the purpose of signing and verifying pleadings. When the party appears through
an agent other than an advocate, the agent is required, before he appears or
acts in the Court or makes an application thereto, to file the power of
attorney, or written authority, or a properly authenticated copy thereof along
with an affidavit that the said authority, whereby he is empowered to do so, is
still subsisting. In the event of an agent carrying on a trade or business on
behalf of a party without a written authority, an affidavit stating the
residence of his principal; the trade or business carried on by the agent on
his behalf; the connection of the same with the subject matter of the suit; and
that no other agent is authorised to make or do such appearance, application or
act; shall be filed. Rule 32(2) provides that the Judge may thereupon record in
writing that the agent is permitted to appear and act on behalf of the party
and unless and until the said permission is granted, no appearance, application
or act of the agent shall be recognised by the Court.

Rule 33 deals with an agent
signing and verifying on behalf of his principal and states that if any
proceeding, which under any provision of law or the Civil Rules of Practice, is
required to be signed or verified by a party but is signed or verified by the
agent, a written authority in this behalf signed by the party shall be filed in
Court, together with an affidavit verifying the signature of the party and
stating the reason for his inability to sign or verify the proceedings and
stating the means of knowledge of the facts set out in the proceedings of the
person signing or verifying the same and that such person is a recognised agent
of the party, as defined by Order 3 Rule 2 CPC, and is duly authorised and
competent to do so.

The Division Bench held
that where the GPA holder merely signs the pleadings in a case where the
principal is represented by a legal practitioner, it is sufficient if the Court
satisfies itself that he has the authority to sign such pleadings and the
filing of an affidavit is not mandatory. Any defect in this regard can also be
cured at a later stage by convincing the Court that such GPA holder was duly
authorised by the principal to represent him in the matter. However, in a case
where the GPA holder not only signs the pleadings but also adduces evidence and
advances arguments on behalf of the principal, he would necessarily have to
file an affidavit of the principal affirming that he authorised the GPA holder
to do so.

In
view of the above observations, the Court held that Rule 32 of the Civil Rules
of Practice is not mandatory seems to be an oversight as it is Rule 33 which
was held to be not mandatory, but no mention was made of the said Rule in the
concluding paragraph. Rule 32, on the other hand, was clearly held to be
mandatory as the Bench observed that when no legal practitioner appears for the
principal and the GPA holder undertakes not only the signing of pleadings but
also the job of a legal practitioner, he must necessarily file the affidavit of
the principal authorising him to do so.

13. Hindu Undivided Family (HUF) – Sale
by karta – Failure to prove legal necessity – Sale not binding on
members of joint family [Civil Procedure Code, 1908; O. 32, R. 1]

Sangnath
and Ors. vs. Babu and Ors., AIR 2019 (NOC) 685 (Bom.)

The appeal was filed by the
original defendants. The present respondents No. 1 and 2 were the original
plaintiffs. They had filed a suit for partition and separate possession. They
were minors at that time and therefore the suit was filed through their cousin
as next friend. The original defendant is the father of the plaintiffs.

It was contended that the
plaintiffs and the defendant are the members of a joint Hindu family. However,
after the wife expired, the father (defendant) did not pay attention to the
family. He got addicted to liquor and ganja and in order to fulfil his
vices, he started selling the joint Hindu family properties. It is stated that
there was absolutely no necessity for the defendant to sell the lands. The sale
transactions were not for legal necessity and they were not binding on the
share of the plaintiffs. The defendant filed a written statement and denied the
statement that the defendant was addicted to liquor and in order to satisfy his
vices, he had sold out the lands.

It was
argued that the land which was near a rivulet (nala) was barren and was
not giving any income to the father, therefore he sold it to defendant No. 2.
It was for the necessities of the family. So also a portion of the land was
sold since the father did not have bullocks and other agricultural implements to
cultivate it. Thus, according to defendants No. 2 to 4, the lands had been sold
for legal necessity and those transactions were binding on the plaintiffs.

Taking into consideration
the evidence on record and hearing both sides, the Civil Judge, Junior Division
held that the plaintiffs would get 2/3^rd share. The first appeal
before the Joint District Judge was dismissed.

In the 2^ndappeal
before the High Court, heavy reliance was placed on ratio expounding
that karta of the family can sell the property for legal necessity.

The
High Court held that casual statements made in the sale deed regarding sale of
the land for ‘necessity’ is not sufficient evidence for the simple reason that
the details of the necessity were not given in the recital of the sale deeds.
Further, there was also no need to challenge the sale deeds for the simple
reason that, though the sale deeds were executed by the defendant No. 1 without
any legal necessity, those sale deeds cannot be said to be binding on the share
of the plaintiffs. Accordingly, the appeal was dismissed.

14.
Secured creditors would have priority over all debts and government dues
[Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002; section 35]

Kulbir
Singh Dhaliwal vs. UT Chandigarh, AIR 2019 P&H 151

The earlier owner of the
property in question through its Directors had availed of a loan facility in
the amount of Rs. 13.15 crores from respondent No. 3 – Punjab National Bank – against
security by way of equitable mortgage. The respondent bank had got the details
of the secured asset registered. The loan account subsequently became irregular
as the borrowers could not maintain financial discipline and hence the same was
classified as an NPA (Non-Performing Asset). Thereafter, the respondent bank
initiated recovery proceedings under the provisions of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 (SARFAESI Act), which culminated in taking over of the possession of the
secured asset. A public auction was fixed at a reserve price of Rs. 11.50
crores vide a notice in which the petitioners emerged as the highest bidders.
After the deposit of the entire bid amount of Rs. 13.92 crores against the
reserve price of Rs. 11.50 crores, physical possession of the property was
handed over to the petitioners by respondent No. 3 (the bank) along with the
sale certificate under Rule 9(6) of the Security Interest (Enforcement) Rules,
2002. It may be emphasised here that there was no mention at all in the public
notice regarding any dues or encumbrances which may have stood against the said
property.

When the petitioners and
the authorised officer of the secured creditor approached respondent No. 2
(Sub-Registrar, UT) for registration of the sale certificate under the
Registration Act, 1908 (the 1908 Act), he refused to register the same holding
that the property in question already stood attached by the Government of
Maharashtra u/s 4 and 5(1) of the Maharashtra Protection of Interest of
Depositors (in Financial Establishments) Act, 1999 (the MPID Act). On refusal
of registration of the sale certificate, the petitioners impugned the order by
preferring an appeal u/s 72 of the 1908 Act before the Deputy
Commissioner-cum-Registrar, respondent No. 1, who dismissed the same. It was in
this background that the instant writ petition came to be filed before the High
Court.

The question which arose
for consideration was whether the recovery of a secured debt would take
precedence over a crown debt; the issue is no longer res integra.

It was observed that a
reading of section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 which
starts with a non-obstante clause, makes it amply clear that the right
of a secured creditor to realise a secured debt shall have priority over all
debts and government dues including revenues, taxes, cesses and rates due to
the Central Government, State Government or Local Authority.

Accordingly it was held
that it cannot be over-emphasised that the property in question was auctioned
by the respondent bank to recover its secured debts and the attachment order
issued by the Government of Maharashtra must yield to the rights of the
respondent bank. Therefore, the auction proceedings must be taken to their
logical end and no reason was seen as to why the registration of the sale
certificate be refused to the auction purchasers, i.e., the petitioners.

BCAJ Admin

ALLIED LAWS

15. Appeal dismissed – Merger of
the High Court order into the Supreme Court Order. [Constitution of India,
Article 141, 136]

Archana
Mishra and Ors. vs. State of U.P. and Ors. AIR 2018 Allahabad 278

The
question before the Court for consideration was with respect to whether Dr.
Vishwajeet Singh’s case and the Full
Bench decision in Heera Lal’s case have been correctly decided.

It
was observed that the decision in Dr. Vishwajeet Singh had been subjected to
challenge before the Supreme Court in Civil Appeal Nos. 6385-6386 of 2010, and
the same was dismissed without any discussion. Hence, it was not in dispute
that if it is ultimately held that the view/opinion expressed by the Division
Bench in Dr. Vishwajeet Singh’s stands confirmed and merged in the order of the
Supreme Court, it would not be necessary for the reference to be addressed on
merits.

It
was held by the Court that their unequivocal answer therefore to the issue
framed would be that the decision in Dr. Vishwajeet Singh stood duly
affirmed by the Supreme Court. The said decision consequently merged in the
order of the Supreme Court. The order of the Supreme Court came to be rendered
after grant of leave. Once the decision of this Court stood merged in the order
of the Supreme Court, it would not be legally permissible for this Full Bench
to consider the correctness or otherwise of Dr. Vishwajeet Singh. This Court is
bound by the said order of the Supreme Court irrespective of the absence of a
“speech” or recordal of elaborate reasons on the legal issues which
arose therein. The issue essentially is not one of the Court being faced with a
precedent but primarily of merger. Once, as we have found, the decision of the
Division Bench stood subsumed in the order of the Supreme Court after grant of
leave with a positive affirmation of the view taken therein, it is no longer
open for this Court to revisit the said decision.

16. Benami
Property – Land in name of Family member – Cannot be considered as Benami.
[Benami Transactions (Prohibition) Act, 1988; Section 4]

Narendra
Prasad Singh vs. Ram Ashish Singh and Ors. AIR 2018 Patna 205

The stand of the appellant was that the claim of the
plaintiff’s title and not the title of the defendants, over the suit property,
was barred u/s. 4 of the Benami Transaction (Prohibition) Act, 1988. It was
observed by the court that such a view could not have been accepted since
acquisition of the land in the name of a member of a family from the joint
family property cannot be regarded as a benami transaction within the meaning
of section 2 of the Benami Transaction (Prohibition) Act, 1988. Benami
transaction has been defined u/s. 2(a) of the Benami Transaction (Prohibition)
Act, 1988 as any transaction in which property is transferred to one person and
a consideration is paid or provided by another person. In the present case, the
consideration has been found to have been provided by the joint family fund
which cannot be treated as fund of another person.

It
was therefore held that the said provision does not have any application at all
in the present facts and circumstances. This is also to be noted that the
plaintiff claimed his title purely on the basis of the family arrangement and
not a benamidar and, therefore, the suit cannot be said to be hit by Benami
Transaction (Prohibition) Act, 1988. The said question was answered
accordingly.

17. Partition – Oral Agreement
–Registered document not required. [Registration Act, 1908; S.17]

Santosh
Kumar Tiwari and Ors. vs. Meena Bai and Ors. AIR 2018 Chhattisgarh 167

The
plaintiffs had proved that the registered deed was executed amongst the
successors-in interest of Chhedilal and their three brothers namely Ramdulare,
Ramjharokha and Ramnarayan, in which also, such fact was mentioned. The deed
had been duly proved by Santosh Kumar (P.W. 1). Therefore, the evidence led by
all the joint owners and their successors-in-interest is coherent that the oral
partition had taken place amongst four brothers way back in the year 1966-67.
The defendant-Motilal is an outsider. As against common stand taken by all the
shareholders of the property that the partition was effected in the year
1966-67, the defendant/Motilal, except denying such partition, has failed to
place on record any clinching evidence, oral or documentary in nature, to prove
that partition had taken place in the year 1962-63, except suggestions being
given to the witnesses.

In
view of the above, the Court held that the learned Trial Court fell in error in
holding that the plaintiffs failed to prove the partition amongst themselves.
It has to be noticed that the factum of partition has been proved from
the oral evidence of Ramnarayan, Ramjharokha and Ramdulare who were three brothers
in the partition proceedings with their fourth brother – Chhedilal. Learned
Trial Court appears to be swayed from the fact that a subsequent deed was not a
registered document. The effect of that document being unregistered would only
be that it would not be inadmissible in evidence as proof of partition,
however, the plaintiffs have led their evidence to prove partition amongst four
brothers. When three out of four brothers have deposed in the Court that they
had partitioned a joint family property amongst themselves in the year 1966-67,
in the considered opinion of this Court, law does not require that it should be
proved only by a registered document and not otherwise. Once there is reliable
oral evidence of partition amongst the joint holders of the property, the law
does not require that it should be only by way of registered deed of partition.

18. Precedent – Mere pendency of
appeal cannot operate as stay on order – Order appealed against holds good.

R.K. Ganapathy Chettiar vs. Assistant Commissioner (CT),
Kangeyam 2018 (16) G.S.T.L. 562 (Mad.)

In
case of an issue where reliance was place on a certain judgment by the
petitioner, the Learned counsel appearing for the respondent submitted that
writ appeals have been preferred by the State, against the order in the case of
Everest Industries Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad),
and the appeals are yet to be numbered.

It
was held by the honourable Court that, as on date, the writ appeals filed by
the State challenging the correctness of the decision in Everest Industries
Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad), are yet to be
numbered and mere pendency of such appeals cannot operate as stay of orders in Everest
Industries Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad).
Therefore as on date, the said order holds good. Thus, on the second aspect
also, the assessment requires to be re-done.

19. Public Interest Litigation –
Encroachment by shopkeepers – Mandatory Directions. [Constitution of India;
Article 226, 227, 21]

Manmohan
Lakhera vs. State and Ors. AIR 2018 Uttarakhand 187

The
fact of the matter state that despite repeated directions issued the Court,
neither the State Government nor the MDDA nor the Nagar Nigam Dehradun had
taken any effective steps to remove the encroachment from the public
streets/pavements.

It was observed
by the honourable Court that the Public streets are for public convenience.
These should be free from encroachment. The citizen must have a free access to
footpaths. The Court can take judicial notice of the fact that the children and
elderly people also use the footpaths. The shopkeepers, firstly, are permitted
to construct temporary khokhas and, thereafter, they make them pucca. There are
permanent bottlenecks as noticed in the report, and highlighted by us. The
footpaths are being permitted to be used for placing big generators causing
noise and air pollution. The shopkeepers are permitting the vegetable and fruit
vendors to sit in front of their shops. The residential premises have been
converted into commercial complexes, more particularly, in the oldest colony
i.e. Nehru Colony. Similar is the plight of other localities. There is chaos
all over Dehradun. The traffic moves at snail’s pace. The public authorities
cannot be oblivious to the loss of precious time of commuters. The Court can
take judicial notice of the fact that the roads, encroached upon with impunity
with the connivance and collusion of the authorities, are also ridden with
garbage. Every citizen has a right to access to footpaths, roads, parks and
public utilities under Article 21 of the Constitution of India. It is the duty
cast upon the MDDA and the Nagar Nigam to keep the roads clean. Recently, there
was a strike by the Safai Karamchari which further deteriorated the position.
There was no alternative plan available with the Nagar Nigam and MDDA. The
garbage was not removed from the streets for days together. The respondents are
putting wool over the eyes of the Court by giving assurances from time to time
that they are doing their best to remove the encroachment, but till date,
Dehradun town is still suffering from this menace. The decision was taken by
the High Power Committee on 10^th July 2014. We are in 2018. Since
then, the things have worsened instead of improving. The simple reason for
encroachments, extension of shops and unauthorised construction is
manifestation of the human greed with the collusion of functionaries of
government and municipal bodies. The employers did not take any disciplinary action
against the persons responsible for keeping the cities and towns free from
encroachment.

In
view of the same, The Municipal Corporation/MDDA/State functionaries are
directed to remove all the unauthorised encroachment on public
footpaths/streets/roads/pavements including unauthorised constructions made
over them within a period of four weeks from today by using its might.

The
Chief Secretary to the State of Uttarakhand is directed to initiate
disciplinary proceedings against the officers/officials, during whose tenure,
government land/municipal land/forest land have been encroached, with impunity,
by the unscrupulous people, and other related parties.

It was also mentioned that in case of
non-compliance, he shall be personally liable for contempt as well as
disciplinary proceedings.

BCAJ Admin

FEMA FOCUS

Analysis of Recent Compounding Orders

An
analysis of some interesting compounding orders passed by Reserve Bank of India
in recent months of August 2018 and September 2018 and uploaded on the website[1]
are given below. Article refers to regulatory provisions as existing at the
time of offence. Changes in regulatory provisions are noted in comments
section.

A. (Comment: Deleted since this section covers
orders passed under FDI / ECB and investment in partnerships, otherwise should
be bifurcated as (a) FDI compounding orders (b) ODI Compounding orders and (c)
Other compounding orders)

Aditya
Birla Idea Payments Bank Limited

Date
of order: 6^th August 2018

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

Issue:
Delay in meeting minimum capitalisation norms beyond the stipulated time
period.

Facts

Applicant[2]
is engaged in Banking Business, i.e., to accept deposits from individuals,
small businesses, other entities and public, as permitted by the Reserve Bank
of India from time to time.

Idea Mobile Commerce Services Limited (IMCSL)
merged with Applicant and accordingly Applicant is successor entity of IMCSPL
for violation committed by IMCSPL .

Until March 2014, IMCSL (wholly owned
subsidiary of Idea) was a business correspondent for a private sector bank in
India. Pursuant to authorisation dated 25^th November 2013, granted
by RBI, IMCSL was engaged in the business of issuing prepaid payment
instruments (PPIs).

As per the extant guidelines, activity of
issuing PPIs is covered under the 18 permitted NBFC activities where foreign
investment is permitted under 100% automatic route subject to complying with
minimum capitalisation norms.

On 10^th January 2007, Idea had
obtained an approval of the erstwhile Foreign Investment Promotion Board (FIPB)
for foreign equity participation of up to 74% in its paid-up capital, by virtue
of which it was now a foreign owned and controlled company, and thus, its WOS,
IMCSL also became foreign owned and controlled. IMCSL was thus required to
comply with the minimum capitalisation norms of USD 5 million.

However, there was a delay in meeting these
norms. The norms were finally met on 26^th April 2016, when the
applicant completed bringing in the deficit amount of Rs. 26,79,00,000/-
thereby fulfilling the shortfall amount in meeting the capitalisation
requirement of Rs. 31,29,00,000 (USD 5 million).

Regulatory
provisions:

Regulation
5(1) of Notification No. FEMA 20/2000-RB permits purchase of shares by certain
persons resident outside India under Foreign Direct Investment Scheme, subject
to terms and conditions specified in Schedule I.

Further,
Paragraph 24.2(1) (ii), later renamed as Paragraph F.8.2 (1) (iii) of Annexure
B of Schedule I of Notification No. FEMA 20/2000-RB specifies the minimum
capitalisation norms subject to which foreign investment in NBFC is allowed
under the automatic route. It specifies the same as “US $5 million for foreign
capital more than 51% and up to 74% to be brought up front.”

Contravention:

Relevant Para of FEMA 20 Regulation

Nature of default

Amount involved (in INR)

Time period of default

Paragraph F.8.2 (1) (iii) of Annexure B of Schedule I

Delay in meeting the minimum capitalisation norms.

Rs. 26,79,00,000/-

2 years 4 months approximately

Compounding
penalty:

Compounding
penalty of Rs.16,57,400 was levied.

Comments:

(I) Scenario until October, 2016

• Until October, 2016, 100% FDI in NBFC
sector under automatic route was permitted only for prescribed 18 activities.
Further, such activities were classified as fund based and non-fund based
activities and the investment was subject to minimum capitalisation norms as
prescribed in the FDI Policy and FEMA 20.

(II) Replacement of NBFC sector by OFS in October
2016

• On 25^th October, 2016,
Department of Industrial Policy and Promotion (DIPP) released Press Note 6 of
2016[3] and liberalised the FDI Policy by replacing
the existing NBFC sector with Other Financial Services
(OFS) Sector.

• OFS includes activities which are regulated
by any financial sector regulator — RBI, SEBI, IRDA, Pension Fund Regulatory
and Development Authority, National Housing Bank or any other financial sector
regulator as may be notified by the government in this regard.

• OFS are categorised as (A) Regulated OFS
and (B) Unregulated / Unregistered / Exempted OFS. Entities engaged in
Regulated OFS are permitted to receive up to 100% FDI under automatic route
whereas entities engaged in Unregulated OFS are permitted to receive up to 100%
FDI only with Government approval.

• The said Press Note further provided that
FDI in OFS Sector (both Regulated OFS and Unregulated OFS) shall be subject to
conditionalities and minimum capitalisation norms that may be prescribed by the
concerned Financial Services Regulator or Government agency, as applicable.
However, the Government did not prescribe such minimum capitalisation norms
pursuant to Press Note 6.

• The same conditions applicable to OFS
Sector under the 2016 FDI Policy have been retained under the current
consolidated FDI policy of 2018, FEMA 20R and RBI Master Directions on FDI in
India.

(III) 2018 Press Release introducing Minimum
Capitalisation Norms for unregulated OFS

• Ministry of Finance vide press release
dated 16^th April 2018[4],
proposed to introduce Minimum Capital Requirements for Unregulated OFS. The
said press release prescribes minimum FDI Capital of US $ 20 Mn for Unregulated
/ Exempted / Unregistered Fund-Based activities and US $ 2 Mn for Unregulated /
Exempted / Unregistered Non Fund-Based activities. It has further given a list
of what activities which are fund based and non-fund based.

• However, it may be noted that this press
release has not yet been notified.

B. Aircom International India Private Limited

Date of Order: 23^rd August 2018

Regulation:
FEMA 3/2000-RB Foreign Exchange Management (Borrowing or Lending in Foreign
Exchange) Regulations, 2000

Issue:

1. Availing ECB from a non-recognized lender

2. Availing ECB for an end-use that was not
permitted

3. Drawdown of ECB before obtaining Loan
Registration Number (LRN) from RBI

4. Delay in meeting the reporting requirements

Facts:

Applicant is engaged in the business of import
of software for further resale in India and export of management services, software
consultancy and training services, and is the wholly owned subsidiary (WOS) of
M/s Aircom International Limited, UK.

Applicant raised foreign currency loan of GBP
75,000 (equivalent to INR 51,15,398) on 7^thFebruary 2001 from its
holding company for general corporate expenses. The lender was not a recognised
lender at the time of giving loan and became eligible only from June 2001.

The applicant company also raised foreign
currency loans of GBP 3,93,000 and USD 5,33,477 (in totality equivalent to INR
5,56,75,886) in 7 tranches from July 15, 2004 to May 15, 2006 from the parent
company, for working capital purposes and without obtaining LRN. ECB was
allowed for working capital purposes only from 4^th September 2013.

Reporting requirements were also not adhered
to.

Regulatory
Provisions:

Regulation
6 of Notification No. FEMA 3/2000-RB read with paragraphs 1(iii), 1(iv), (xi)
and (xii) of Schedule I.

Contravention:

Relevant
Para of FEMA 20 Regulation

Nature
of default

Paragraph 1(iii) of
Schedule I

Availing ECB from a
non-recognised lender.

Paragraph 1(iv) of
Schedule I

Availing ECB for an
end-use that was not permitted.

Paragraph 1(xi) of
Schedule I

Drawdown of ECB
before obtaining LRN from RBI

Paragraph 1 (xii)
of Schedule I

Delay in meeting
the reporting requirements.

Period of default is approximately 4 months to
17 years and total amount of default is Rs. 6,07,91,284/-.

Compounding
penalty

Compounding
penalty of Rs. 5,05,935 was levied.

Comments:

Under
the erstwhile ECB Policy, ECB was not permitted to be utilised for General
Corporate Purpose. RBI vide notification[5]
dated 4^th September 2013, permitted eligible borrowers to avail ECB
under approval route from their foreign equity holder company for general
corporate purposes subject to certain conditions.

As a
simplification measure, RBI vide notification[6] dated 16^th May 2014 permitted
companies belonging to manufacturing, infrastructure, hotels, hospitals and
software development sectors to avail ECB only from Direct Equity Holders
for general corporate purpose (including working capital financing) under
the Automatic Route.

As
on date, ECB Policy permits Eligible Borrowers to avail ECB for general
corporate and working capital purpose from ‘Foreign Direct Equity
Holders as well as Indirect Equity Holders and Group Companies (as defined
under FEMA 3/2000) under Automatic Route provided that the minimum
average maturity period is of 5 years.

Further,
extant ECB guidelines permits companies engaged in software development sector
to avail ECB for general corporate purpose (including working capital).
Software development sector is not defined but it would generally mean
development of software. In facts of case, applicant is engaged in business of
import of software for further resale in India and export of management
services, software consultancy and training services. Accordingly, even though
other disabilities in terms of permitted lender, end-use restriction are
removed over period of time, trading of software would not fall within scope of
‘software development sector’. It is advisable to obtain upfront clarification
from RBI by companies engaged in IT and ITES services before obtaining ECB.

C. ElringKlinger Automotive Components (India)
Private Limited.

Date of Order: 6^th September 2018

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

Issue:

Neither equity instruments were issued nor
money was refunded to foreign investor within 180 days of receipt of inward
remittance.

Delay in reporting receipt of foreign inward
remittance towards subscription to equity.

Delay in submission of Form FC-GPR to RBI
after issue of shares to foreign investor.

Failure to obtain, specific and prior
Government approval for issue of shares to person resident outside India against
pre-operative / pre-incorporation expenses.

Facts:

Applicant is engaged in the business of
designing, assembling, manufacturing, selling, distributing, importing,
exporting etc., of cylinder head gaskets, cover modules and shielding parts and
related and allied products.

Applicant received foreign inward remittance
from Elringklinger AG, Germany, towards equity / preference share capital and
reported the same to RBI with delay.

In respect of remittances amounting to Rs
8.31 crore, applicant allotted shares after 180 days of receipt of such
investment.

Applicant is Wholly Owned Subsidiary (WOS)
of Elringklinger AG, Germany. In November, 2006 Applicant’s WOS directly made a
payment of Rs.1.95 crore to Maharashtra Industrial Development Corporation (‘MIDC’)
on behalf of the Applicant to acquire land for setting up its manufacturing
plant in Pune, Maharashtra as pre-operative/pre-incorporation expenses.

In February 2007, Applicant allotted
19,50,505 equity shares to Elringklinger AG, Germany against pre-incorporation
expenses without obtaining prior approval of Foreign Investment Promotion Board
(FIPB). Later on Company made application to FIPB for approval. However, same
was denied vide FIPB letter dated 31^st March 2017 and Applicant was
also directed to unwind the said transaction by way of repatriation of
investment proceeds to the parent entity. In order to implement the said order,
Applicant unwounded the transaction on 29^th December 2017.

Contravention:

Relevant
Para of FEMA 20 Regulation

Nature
of default

Amount
involved (in INR)

Approx.
Time period of default

Paragraph
8 of Schedule 1

Shares
were not issued to person resident outside India within 180 days from date of
receipt of inward remittance / share application money not refunded to person
resident outside India within 180 days from date of receipt of inward
remittance.

Rs.8,31,25,640

5
days

Paragraph
9(1) (A) of Schedule 1

Delay
in reporting of receipt of foreign inward remittance towards subscription to
shares.

Rs.37,10,75,095

3
to 5 years

Paragraph
9(1) (B) of Schedule 1

Delay
in submission of Form FC-GPR to RBI

Rs.62,14,24,090

12
days to 5 years

Para
3 (e) of schedule 1

Issue
of shares against pre-incorporation expenses without prior FIPB Approval

Rs.
1,95,05,050

11
Years

Compounding
penalty:

Compounding
penalty of Rs.35,28,759/-was levied.

Comments:

Erstwhile
FEMA Regulations did not permit issue of shares against pre- incorporation
expenses.

Existing
FDI Regulations permit issue of Capital Instruments against pre -incorporation
/ pre-operative expenses by Indian Entities which are WOS of a non-resident
entity subject to the following conditions:

• WOS should be operating in a sector where
100 percent foreign investment is allowed under the automatic route and there
are no FDI linked performance conditions.

• Issue of Capital Instruments by such WOS
against such pre -incorporation expenses is allowed only upto 5% of the
Authorised Share Capital of the Indian Entity or USD 500,000 whichever is less.

• Form FC-GPR to be filed by the Indian
Entity within 30 days from the date of issue of such Capital Instruments but
not later than 1 year from the date of incorporation

• Certificate
issued by the statutory auditor of the Indian company that the amount of
pre-incorporation/ pre-operative expenses against which capital instruments
have been issued has been utilised for the purpose for which it was received
should be submitted with Form FC-GPR.

An
inclusive definition of Pre-incorporation/ pre-operative expenses has been set
out in the regulations which is as under :

“Pre-incorporation/
pre-operative expenses will include amounts remitted to the investee Company’s
account or to the investor’s account in India if it exists or to any consultant
or attorney or to any other material/ service provider for expenditure relating
to incorporation or necessary for commencement of operations”

As
can be seen, issue of shares to compensate parent for pre-incorporation/
pre-operative expense even though permitted is subject to various conditions
especially that WOS is operating in sector where 100% FDI is permitted and
there are no FDI linked performance condition. In facts of case, FIPB has taken
a strict view and asked Applicant to unwind said transaction by repatriation of
proceeds to parent. Unwinding may have significant tax and regulatory
implications and hence FEMA regulations should be complied at threshold.

D. Expedition Voyages

Date
of Order: 3^rd September 2018

Regulation:
Notification No. FEMA 24/2000-RB Foreign Exchange Management (Investment in
Firm or Proprietary Concern in India) Regulations, 2000

Issue:
FDI in partnership without obtaining prior approval.

Facts:

Expedition Voyages (Applicant)
is a Partnership Firm formed vide a Deed of Partnership made on 23^rd
March 2015 between a New York Resident Individual and individual resident of
India with a profit sharing ratio of 70:30. Main business of partnership firm
is to carry on travel and tourism business from India by undertaking cruise
travel which include ultra-luxury cruises also, marketing expeditions and all
allied services.

The foreign resident
remitted approx. Rs.38.51 lakh in five tranches in India.

Applicant subsequently
reversed the transaction and remitted the above amount back to the foreign resident
on 28^th May 2018.

Applicant has not taken
RBI approval for investment by a person resident outside India by way of
contribution to capital of the Applicant partnership firm thereby contravening
Regulation 3 of FEMA 24/2000-RB.

Regulatory
Provision:

Regulation
3 of FEMA 24/2000-RB – a person resident outside India shall not make any
investment by way of contribution to the capital of a firm or a proprietary
concern or any association of persons in India without prior approval of RBI

Contravention:

The
period of default is around 2 years approximately and total amount of
contravention is Rs.38,51,373.22

Compounding
penalty:

Compounding
penalty of Rs. 73,108/- was levied.

Comments:

FEMA regulations also do not allow non-residents to
invest in / contribute to the capital of any firm or proprietary concern in
India without prior approval of RBI. However, NRIs or OCIs are allowed to
invest on a non-repatriation basis, by way of contribution to the capital of a
firm or a proprietary concern in India provided such firm or proprietary
concern is not engaged in any agricultural/ plantation activity or print media
or real estate business. Accordingly it is necessary to undertake suitable restructuring
in partnership firm to ensure that entity in which FDI capital is infused is
FEMA compliant.

E. Invesco Asset Management (India) Private
Limited

Date
of Order: 9^th August 2018

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

Issue: Indirect foreign investment in Indian
Company without prior Government approval.

Facts:

Applicant, Invesco Asset Management (India)
Private Limited is an Asset Management Company (AMC). On 30^th June
2014, MF Utilities India Private Limited (MFU) issued 5,00,000 equity shares of
Rs. 1 each amounting to Rs.5,00,000 to the applicant.

At the time of this investment, 51%
shareholding of the applicant was held by resident entities [Religare
Securities Ltd. (RSL) 46.5% and RGAM Investment Advisors Pvt. Ltd.(RGAM) –
4.5%]. Subsequently in April 2016, RSL and RGAM transferred their shareholding
of 51% to Invesco Hong Kong Ltd., and Invesco Asset Management Pacific Ltd.
Applicant thus became a foreign owned and controlled company and accordingly,
investment in MFU by the applicant became an indirect foreign investment in
MFU.

In September 2017 FIPB (Foreign Investment
Promotion Board) granted post facto approval for the indirect investment in MFU
subject to the applicant applying for compounding to the Reserve Bank. At the
time of investment, activity of MFU was under other financial activities
requiring Government approval. Pursuant to FEMA Notification No.375 dated 9^th
September 2016, the activity was brought under automatic route. As post facto
approval from FIPB has been received the administrative action is complete in
this regard.

Regulatory
Provision:

Regulation14(6)(i)
of FEMA 20 – Downstream investment by an Indian Company owned or controlled by
Non Residents have to comply with the relevant sectoral conditions on entry
route, conditionalities and caps

Para 2(1) of Schedule 1 to FEMA 20 – An Indian company,
not engaged in any activity / sector mentioned in Annex A to this Schedule may
issue [shares or convertible debentures or warrants] to a person resident
outside India, subject to the limits prescribed in Annex B to this Schedule, in
accordance with the Entry Routes specified therein and the provisions of
Foreign Direct Investment Policy….”

Sr.No.F.8
of Annex B to Schedule 1 of FEMA 20 – Foreign investment in ‘Other Financial
Services’, other than those specifically stated therein, would require prior
approval of the Government.

Contravention:

Period
of default is 5 months approximately and total amount of contravention is Rs.
5,00,000/-

Compounding
penalty:

Compounding
penalty of Rs. 52,500 /-was levied.

Comments:

Until
October, 2016, 100% FDI in NBFC sector under automatic route was permitted only
for prescribed 18 activities. This did not include mutual funds.

On
25^th October, 2016, Department of Industrial Policy and Promotion
(DIPP) released Press Note 6 of 2016[7]
and liberalised the FDI Policy by replacing the existing NBFC sector with Other
Financial Services (OFS) Sector.

OFS
includes activities which are regulated by any financial sector regulator —
RBI, SEBI, IRDA, Pension Fund Regulatory and Development Authority, National
Housing Bank or any other financial sector regulator as may be notified by the
government in this regard

Foreign
owned and controlled Indian Entities need to be extra cautious before making
any downstream investment in other Indian Entities and especially check whether
the operations carried on by such Investee Indian Entities fall under the
Automatic or Approval route of RBI. Sectoral caps and other conditionalities
associated with the operations of the Indian Investee Entities also need to be
taken care of. Furthermore, compliance in term of sectorial condition is not to
be seen at the time of investment but needs to be monitored continuously. This
aspect is relevant just not for FDI entity receiving investment but also for
downstream investment held by FDI entity.

F. Jetair Private Limited

Date
of Order: 28^th August 2018

Regulation:
Notification No. FEMA 20/2000-RB Foreign Exchange Management (Transfer or
Issue of Security By a Person Resident Outside India) Regulations, 2000.

Issue: Delay in reporting of downstream investment to the designated
agencies within 30 days of such investment

Facts:

Applicant company, owned and controlled by
non-resident entities, is engaged in the business of acting as travel and
tourist agents for every mode of travel by sea, air or land, and arranging for
tourists and travellers, the provision of conveniences, reserve places, hotel
and lodging accommodation etc.

In May 2015, Applicant made downstream
investment in India to the extent of Rs. 4.81 crore into Jetair Tours Private
Limited (Investee Indian Company).

This downstream investment made by applicant
company, on account of the aforesaid indirect FDI, was required to be reported
to the (then) Secretariat of Industrial Assistance (SIA), Department of
Industrial Policy and Promotion (DIPP) and the then Foreign Investment
Promotion Board (FIPB) within 30 days of such investment.

However, there was a delay in meeting the
above-mentioned reporting requirements beyond the stipulated period of 30 days.

Regulatory
Provision:

Regulation
14(6)(ii)(a) of Notification No.FEMA.20/2000-RB, as then applicable –
Downstream investments by Indian companies was required to be notified to
Secretariat for Industrial Assistance (SIA), DIPP and FIPB within 30 days of
such investment.

Contravention:

The
period of default is 2 years 11 months approximately. Total amount of
contravention is Rs. 4.81 crore.

Compounding
penalty:

Compounding
penalty of Rs. 1,55,833/- was levied.

Comments:

Under
the existing regulations, downstream investments made by Indian companies which
are majority owned / controlled by non-residents are required to be reported to
DIPP in Form DI within a period of 30 days of the Indian Entity making such
downstream Investment.

G. Take Business Cloud Private Limited

Date of Order: 8^th August 2018

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

Issue:

1. Delay in reporting outward remittances made
to overseas entity

2. Delay in receipt of share certificate
towards outward remittance made to overseas entity

3. Disinvestment
of stake in overseas entity with write-off without necessary prior approval
when Applicant was not eligible to undertake disinvestment under automatic route

4. Disinvestment from the overseas entity
without submission of Annual Performance Reports (APRs).

Facts:

In March 2007, Applicant made outward
remittance amounting to USD 21 million to an overseas entity in USA viz Navitas
Inc (formerly Take Solutions Inc). Such outward remittance was reported in Form
ODI with delay. There was also a delay in receipt of share certificate in
relation to the said outward remittance

In March, 2012, Applicant disinvested its
stake in Navitas Inc with write-off and transferred its stake to another
overseas entity viz Take Solutions Global Holdings Pte Ltd, Singapore without
obtaining RBI Approval. Also, disinvestment was made without filing of APRs

As the applicant was an unlisted company and
the amount of the overseas direct investment in the overseas entity was in
excess of USD 10 million, the applicant was not permitted to undertake
disinvestment with write-off under the automatic route.

Contravention:

Relevant Para of FEMA 20 Regulation

Nature of default

Amount involved
(in INR)

Approx time period of default

Regulation 6(2)(vi)

Applicant
did not report investments made in overseas entity within prescribed time
period of 30 days

USD 21 million
(Rs.92.82 crore)

10 years

Regulation 15(i)

Delay
in receipt of the share certificate towards the outward remittance made to
the overseas entity.

USD 21 million
(Rs.92.82 crore)

10 years

Regulation 16(1)(v)

Applicant
disinvested its stake in overseas JV without submission of APRs

USD 184,68,121 (Rs.
94.72 crore)

5 years

Regulation 16(1A)

Applicant
disinvested its stake in overseas entity with write off without obtaining

prior RBI approval

USD 184,68,121 (Rs.
94.72 crore)

5 years

Compounding
penalty:

Compounding
penalty of Rs.1,49,78,167 was levied.

Comments:

Indian
Entities to take care of various FEMA compliances while remitting funds outside
India and also at the time of disinvestment as such non-compliance / breach of
regulations invites heavy compounding penalties.

H. Wipro Limited

Date
of Order: 10^th August, 2018

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

Issue: Issuance of corporate guarantees by Applicant
on behalf of its overseas step-down subsidiaries beyond the 1^st level
subsidiary, without prior RBI approval

Facts:

Applicant is engaged in the business of
providing software and IT services.

Applicant incorporated multiple wholly owned
subsidiaries (WOSs) in Mauritius and Cyprus.

Applicant issued corporate guarantees in
favor of step-down subsidiaries (SDSs) of these WOSs, beyond the 1^st
level, without prior approval of RBI.

Regulatory Provisions:

Regulation
6(4) of Notification No. FEMA.120/2004-RB, as then applicable provided that An
Indian Party may extend a loan or a guarantee to or on behalf of the Joint
Venture/ Wholly Owned Subsidiary abroad, within the permissible financial
commitment, provided that the Indian Party has made investment by way of
contribution to the equity capital of the Joint Venture.

Contravention:

Issuance
of corporate guarantees by the applicant on behalf of its overseas step-down
subsidiaries, which were 2nd, 3rd and 4th level step down subsidiary, i.e.
beyond the 1st level subsidiary, without prior approval of the Reserve Bank of
India.? Period of contravention is 8 to 10 years. ? Amount of contravention is
Rs. 855.71 crore.

Compounding penalty:

Compounding penalty of Rs. 69,17,862/- was
levied.

Comments:

Under the erstwhile ODI Regulations, an Indian Party was permitted
to extend corporate guarantees only on behalf of its JV / WOS.

In
2013, ODI Regulations have been amended whereby in addition to the above,
Indian Parties are permitted to extend corporate guarantees on behalf of its
firstgeneration step down operating company within the prevailing ODI Limit.
Issue of Corporate guarantee on behalf of second level or subsequent level
operating step-down subsidiaries may be permitted with RBI Approval.It is to be
noted that the above Amendment has been given retrospective effect from 27th
May, 2011.

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

[2] Currently, Idea
Cellular Limited (Idea) and Grasim Industries Limited (Grasim), hold 49% and
51% stake in the applicant respectively. Subject violation was prior to change
in shareholding of Applicant

[3] http://dipp.nic.in/sites/default/files/pn6_2016.pdf

[4] http://pib.nic.in/PressReleaseIframePage.aspx?PRID=1529264

[5] RBI/2013-14/221
A.P. (DIR Series) Circular No.31

[6] RBI/2013-14/594
A.P. (DIR Series) Circular No.130

[7] http://dipp.nic.in/sites/default/files/pn6_016.pdf

BCAJ Admin

CORPORATE LAW CORNER

7. Religare Finvest Ltd. vs. Bharat Road Network Ltd. CP(IB) No. 540/KB/2018 & CP(IB) No.
1060/KB/2018 Date of order: 28^thAugust, 2019

Section 7(1),
read with sections 14 and 33 of the Insolvency and Bankruptcy Code, 2016 – An
admission of debt and default was sufficient to initiate the corporate
insolvency resolution process – Any document bypassing such admission was not
to be looked into – Provisions of Indian Stamp Act, 1899 to ascertain the
validity of these documents would not be considered to the extent they are
inconsistent with the Code – A person would be considered as a financial
service provider only when there is license / registration with a regulator to
that effect

FACTS

R Co, a non-banking financial institution
(NBFC), advanced a sum of Rs. 50 crores to B Co as a short-term loan for one
year and executed a memorandum of understanding (MOU) for the same on 14^th
December, 2016. The same was payable with interest on 14^thDecember,
2017. Stamp duty on the MOU was paid by B Co. A loan recovery notice dated 28^th
February, 2018 was issued to B Co.

R Co contended that the genuineness of the
MOU was not in dispute. Further, B Co had in its balance sheet dated 31^st
March, 2019 disclosed the loan payable to R Co and the fact that insolvency
proceedings u/s 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) were
commenced against it.

B Co raised three objections against the
initiation of corporate insolvency resolution proceedings (CIRP). Firstly, the
MOU was a bond within the meaning of the Stamp Act, 1899. Irrespective of the
nomenclature, if the relevant provisions of the Stamp Act applied, it was to be
construed as a bond. Further, if the same was inadequately stamped then the
document would not be enforceable in law and such a document could not be
considered as evidence. Reliance was placed on various decisions to advance
this contention.

The second argument was that B Co was a core
investment company and an NBFC as on 31^stDecember, 2018, and most
certainly it was one on 31^st March, 2019. It was urged that B Co was
a financial service provider within the meaning of the Code. Although
registration as an NBFC from the Reserve Bank of India (RBI) was yet to be
received, the eligibility for authorisation was to be considered as a
requirement to qualify as a financial service provider under the Code.

Thirdly, the person initiating the
proceedings did not have adequate authority to do so.

HELD

The National Company Law Tribunal (NCLT)
heard both the parties at length.

It was taken on record that R Co was a
registered NBFC and in the course of its business granted the short-term loan
to B Co as per the terms and conditions agreed through the MOU. The amount of
loan, the rate of interest and the fact of failure to repay are not in dispute.
Hence, R Co has filed an application for insolvency.

As regards the first contention of B Co,
NCLT examined the meaning of the terms ‘claim’, ‘default’, ‘debt’ and the judicial
precedents on these subjects. It was observed that B Co had obtained a loan,
enjoyed it subject to the MOU and the same constituted a legal and equitable
obligation of B Co. Admitted facts need not be proved and, consequently, there
was no need to examine the legal validity of a document bypassing the admission
of facts made by B Co. Since the facts have been admitted by B Co in its annual
audited statements, there was no need to examine the nature of the MOU or its
enforcement for insufficiency of stamp duty. Further, applicability of the
Stamp Act, 1899 was not to be considered to the extent that its provisions were
inconsistent with the Code.

The NCLT also held that in terms of section
3(17), a financial creditor was a person to whom the authorisation was issued
or registration granted by the regulator. In the facts of the present case, B
Co had merely applied for a license / registration with the RBI. There was no
license or registration either on the date of taking the loan, or on the date
of filing the petition u/s 7, or even on the date of the order by NCLT. Thus,
the contention that B Co was a financial services provider was rejected by
NCLT.

The contention
as to authorisation was discarded by NCLT on the ground that the person filing
the petition had authority vide a board resolution to file a petition before
the adjudication authority. The adjudication authority being NCLT, the petition
was held to be in order.

The contentions raised by B Co were all
discarded and NCLT passed an order admitting the application made by R Co and
initiated the CIRP. A moratorium was declared and an order to make necessary
public announcements was passed by the NCLT.

8. Alliance Commodities (P) Ltd. vs. Office of
Registrar of Companies [2019] 110 taxmann.com 219 (NCLAT, Delhi) Date of order: 9^th July, 2019

ROC was justified in striking off name of
‘A’ company where company had failed to file financial statements and annual
returns for various financial years – At the time of striking off ‘A’ company
was not carrying on business or operations

FACTS

‘A’ company was
incorporated on 1^stFebruary, 2008 with the object of doing business
of trading in all types of commodities. It had been complying with the
statutory requirements of filing returns and financial statements till 2013,
but thereafter failed to abide by the statutory compliances. This resulted in
its name being struck off by the Registrar of Companies.

In its appeal
before the Tribunal, ‘A’ company contended that it was unaware of the notice
issued by the ROC and thus the default committed by it was unintentional. It
sought restoration of its name on the aforesaid ground.

The Registrar
of Companies contested the appeal on the ground that ‘A’ company failed to file
its annual returns and financial statements for more than two consecutive years
and it did not pray for obtaining the status of a ‘Dormant Company’. The ‘A’
company was accordingly struck off after complying with the mandate of section
248 as there were reasonable grounds to believe that the appellant company was
not carrying on any business, or was not in operation for a period of two
immediately preceding financial years.

HELD

It was observed
by the Appellate Tribunal that the notice contemplated u/s 248(1) of the
Companies Act, 2013 read with Rule 3 of the Companies (Removal of names of
companies from the Register of Companies) Rules, 2016 was issued by speed post
to ‘A’ company and its directors. A copy of the notice was published in the
official website calling for objections to the proposed removal / striking off
of the name of the company within 30 days from the publication of the same . A
copy of the notice was published in the official gazette. A public notice was
published in the Times of India and in a regional newspaper. The notice
published in the official website notified that the ‘company stands struck off
from the Register of Companies’. Thus, no legal infirmity or flaw was pointed
out in adherence to the provisions relevant to the process of striking off of
‘A’ company. It was done after following due procedure laid down in the Act.

On the crucial issue of ‘A’ company being in
operation and doing business in consonance with its objects, it was noticed
that the financial statements covering the fiscal period beginning 2013 through
2017 demonstrated that ‘A’ company was not in operation and did not conduct any
business of the nature bearing nexus with its intended object/s. The Tribunal
had tabulated the factual position arising from such financial statements
reflecting the assets, liabilities and turnover of the company as NIL. It was
further observed that indulging in business activity not falling within the
ambit of the objects of the company, or not being incidental or ancillary
thereto, cannot be termed as a legitimate business for demonstrating that the
company was in operation.

‘A’ company has
failed to make out a just ground warranting interference with the order passed
by the Tribunal which is neither shown to be legally infirm, nor the findings
recorded therein shown to be erroneous, much less perverse.

In view of the
above facts and being devoid of merit, the appeal against the order passed by
the ROC was dismissed.

BCAJ Admin

CORPORATE LAW CORNER

11. Housing Development Finance Corporation Ltd.
vs. RHC Holding (P) Ltd. [2019] 107
taxmann.com 200 (NCLAT – New Delhi) Date of order: 10^th
July, 2019

Sections 3(8), 3(16) and 3(17) read with
section 7 of the Insolvency and Bankruptcy Code, 2016 – A company which is
registered as a non-deposit-taking NBFC with the Reserve Bank of India would
qualify as a financial service provider – Accordingly, it would be outside the
purview of the definition of corporate debtor and hence the provisions of the
Code would not apply to it in such capacity

FACTS

H Co initiated insolvency proceedings
against R Co by filing an application u/s 7 of the Insolvency and Bankruptcy
Code, 2016 (the Code) which was rejected by the National Company Law Tribunal
(NCLT) on the grounds that R Co being a non-banking financial institution was
rendering ‘financial services’ and was, therefore, out of the purview of the
Code. Aggrieved by the order, H Co filed the present petition before the
National Company Law Appellate Tribunal (NCLAT).

H Co argued that R Co was a holding company
that invested in the shares, bonds, debentures, debts or loans of group
companies and gave guarantees on behalf of group companies. None of these
activities qualified as rendering of financial services. H Co even elaborated
how the activities carried out by R Co did not fall in any of the limbs of
section 3(16) of the Code which defines financial services.

R Co, on the
other hand, argued that it was a financial institution within the meaning of
the Reserve Bank of India Act, 1934 and therefore a financial service provider.
Accordingly, it would not qualify as a corporate person and provisions of the
Code could not be enforced against it.

HELD

The Tribunal examined the provisions of the
Code and the Reserve Bank of India Act, 1934. It was observed that the
definition of financial services u/s 3(16) of the Code was an inclusive
definition. This would imply that there were other services which would come in
the definition of financial services. The argument of H Co would not hold good
on that count.

It was also observed that R Co being a
non-banking financial institution was carrying on the business of financial
institution and thus, it being a financial service provider, would not come
within the definition of Corporate Debtor. Accordingly, the provisions of the
Code could not be applied to R Co in its capacity as a Corporate Debtor.

The order passed by the NCLT was upheld by
the NCLAT and the appeal was dismissed.

12. Janak Goyal vs. Satyendra Jain [2019] 107
taxmann.com 68 (NCLAT) Company appeal
(AT) (Insolvency) No. 202 of 2019 Date of order: 10^th
June, 2019

Section 7 read with section 12A of the
Insolvency and Bankruptcy Code, 2016 – Once the parties had settled the matter
inter se between them, the application u/s 7 was treated as withdrawn and
therefore dismissed

FACTS

Mr. S filed an
application u/s 7 of the Code against O Co which was admitted by the National
Company Law Tribunal (NCLT). It was argued before the NCLT that the loan given
by O Co is time-barred. However, it was observed that there was a suit filed
against O Co which was decided against it. O Co thereafter moved the Supreme
Court and that appeal was dismissed by the Supreme Court as well. Mr. S also
filed an execution case for the same.

The Committee of Creditors had been formed
and two meetings of the same held. The Resolution Professional was appointed in
one of those meetings. O Co sought time to settle the matter and in the third
meeting of the Committee of Creditors the Resolution Professional was informed
that O CO had settled the matter and Form FA was duly submitted.

It was unanimously agreed in the meeting
that the corporate insolvency resolution process would be withdrawn against O
Co and an application to that effect should be made before the authority.

HELD

The NCLAT observed that the consent of all
the financial creditors to withdraw the application had been obtained by O Co.
Further, the dues of the Resolution Professional were also paid to him.

In view of the
above, NCLAT permitted the withdrawal of the application filed before it u/s 7
of the Code. The order passed by NCLT was set aside and disposed of as
withdrawn. All other orders of moratorium, appointment of Resolution
Professional and advertisements given in the newspapers were also set aside.
NCLT was directed to close the proceedings and O Co was permitted to function
independently through its Board of Directors with immediate effect. The appeal
was thus allowed.

BCAJ Admin

Corporate Law Corner

13. Scheme
of amalgamation between Real Image LLP with Qube Cinema Technologies Pvt. Ltd.

TCA/157/CAA/2018

CP/123/CAA/2018

Date of Order: 11^th June, 2018

Section 232 of Companies Act, 2013 –
Amalgamation of Indian LLP with Indian company – Permissible as long as the
scheme was reasonable and not contrary to public policy

FACTS

R LLP proposed to amalgamate with Q Co as a
going concern. R LLP is incorporated under the provisions of Limited Liability
Partnership Act, 2008 (“LLP Act”) whereas Q Co is incorporated under the
provisions of Companies Act, 2013 (“Companies Act”). The intention behind the
proposed amalgamation was to consolidate the business operations and provide
efficient management control and system.

The proposed scheme provided for:

(a) transfer of entire business of the Limited
Liability Partnership (“LLP”) to the company;

(b) protection of interest of employees of LLP; and

The parties to the amalgamation were regular
in filing their returns with statutory authorities and maintained their books
in accordance with provisions of law.

HELD

The issue before the Tribunal was whether an
LLP could be allowed to amalgamate with a private company under a scheme of
amalgamation filed before it. It was pointed out to the Tribunal that both the
LLP Act and Companies Act provide for similar language with respect to
provisions dealing with amalgamation and both the Acts empower the Tribunal to
sanction a scheme of amalgamation.

It was further submitted that u/s. 394(4)(b)
of Companies Act, 1956 there was no bar for a transferor to be a body corporate
which included an LLP. However, there is no such provision u/s. 232 of
Companies Act, 2013. It was further highlighted that section 234 of Companies
Act did provide for amalgamation of foreign LLP with Indian company. Thus,
while foreign LLP could merge with an Indian company, similar benefit has not
been extended to an Indian LLP.

The Tribunal observed that intent of both
the Acts was to facilitate ease of doing business. However, absence of specific
provision under Companies Act resulted in a case of “casus omissus”. It
was observed that if the intention of the Parliament was to merge foreign LLP
with an Indian company, then it was incorrect to presume that the Act prohibits
a merger of Indian LLP with Indian company.

As the scheme was fair and not contrary to
public policy, the Tribunal allowed the Indian LLP to merge with the Indian
company subject to obtaining other necessary approvals and due compliance of
law.

14. Sushant
Aneja vs. J. D. Aneja Edibles (P.) Ltd.

[2018] 94 taxmann.com 443 (NCLT – New Delhi)

Date of Order: 4^th June, 2018

Section 5(8) read with sections 3(12) and 7
of the Insolvency and Bankruptcy Code, 2016 – Corporate debtor claimed that
amounts disclosed in the balance sheet as “unsecured loans” were in fact
“capital contributions” – There being no reason for such a categorisation, the
same was treated as “financial debt”; non-repayment of which led to initiation
of insolvency proceedings

FACTS

SA and NA (HUF) (“Applicants”) advanced
loans to J Co during Financial Years 2004-05 to 2012-13. During the F.Ys.
2013-14 to 2016-17, J Co neither paid the interest nor deposited the TDS,
however, the original loan amounts were reflected in the balance sheet of J Co.
Applicants wrote demand letters dated 16.11.2016 demanding outstanding loans.
They also sent legal notices for remittance of outstanding amounts. This was
followed by two separate notices sent on 15.09.2017, acceptance of which was
denied by J Co. In November 2017, applicants filed the application before
National Company Law Tribunal (“NCLT”).

J Co submitted that the amount in question
was not a “financial debt”. It was further submitted that since the amount was
given as quasi-capital there were no terms and conditions for repayment, and no
date was specified as to when the amount would become due and payable and thus,
there is no default in repayment of the said amount. Applicants contended that
absence of a written agreement prior to extension of credit did not entitle the
J Co to escape liability.

HELD

NCLT observed that advancement of the amount
from the Applicants to J Co is not in dispute. However, the nature of the money
advanced is disputed. The Tribunal further observed that the reflection of the
amounts in the balance sheets under the head of ‘Unsecured Loan’, the payment
of TDS on interest by the J Co on behalf of the Applicants and the fact that
interest was to be paid by J Co to the Applicants point towards the fact that
the money was taken by J Co from the Applicants against the consideration for
the time value of money. J Co failed to explain why the amount claimed to have
been taken as quasi capital contribution was treated as unsecured loan in its
balance sheet.

The Tribunal thus held that there was a
financial debt which was owed by J Co to the Applicants.

In connection with the fact whether there
was a default or not, the Tribunal observed that while Applicants sent legal
notices to J Co; J Co did not reply to the same nor did it produce any proof of
payment before the Tribunal.

The Tribunal considering the facts of the
case held that a default had been committed in terms of section 3(12) of the
Code of financial debt as defined u/s. 5(8) of the Code and that the Applicants
had rightly invoked the provisions of the Code.

Tribunal accordingly proceeded to appoint an
Insolvency Resolution Professional and initiated the corporate insolvency
resolution process laid down u/s. 7 of the Code.

15. Principal
Director General of Income Tax vs. Spartek Ceramics India Ltd.

[2018] 94 taxmann.com 1 (NCLAT)

Date of Order: 28^th May, 2018

Section 61 read with section 242 of the
Insolvency and bankruptcy Code, 2016 – Notification S.O.1683(E), dated
24.05.2017 is inconsistent with maximum period of limitation granted u/s. 61(2)
of the Code – NCLAT has no jurisdiction to entertain an appeal beyond 45 days.

FACTS

S Co had a scheme of demerger sanctioned by
Board for Industrial and Financial Reconstruction (“Board”) u/s. 18 of the Sick Industrial Companies (Special Provisions) Act, 1985
(“SICA Act, 1985”). Income-tax department preferred an appeal against
the said scheme stating that the same was in violation of the principle of
natural justice and provisions of ‘SICA Act, 1985’ which is prejudicial to the
interest of revenue involving huge loss of income tax. The appeal was preferred
for removal of the grievances.

The other Appeal was preferred by the ‘G Co’
u/s. 32 of the I&B Code read with 3^rd proviso to section 4(b) of
the ‘Sick Industrial Companies (Special Provisions) Repeal Act, 2003’
(“SICA Repeal Act, 2003”) as amended by the Eighth Schedule to the
I&B Code and by the Insolvency and Bankruptcy Code (Removal of
Difficulties) Order, 2017. G Co in the appeal, challenged the same very scheme
of demerger sanctioned by Board, for restructuring S Co. An appeal was also
preferred by G Co before the Appellate Authority for Industrial and Financial
Reconstruction (“AAIFR”), which stood abated in view of the SICA
Repeal Act, 2003. The main challenge has been made on the ground that the Board
has not discussed the objections raised by G Co nor has taken into consideration
that G Co is the Creditor of S Co, which was required to take the
responsibility and other liabilities which were not recorded in the books of
Neycer.

The appeals have been filed under the Eighth
Schedule of the I&B Code.

HELD

The issues before NCLAT was whether the
Central Government u/s. 242 of the I&B Code can empower the NCLAT to hear
an appeal against an order passed by the Board; the Eighth Schedule of the
I&B Code, having not been amended by a legislative Act, but by an executive
order? In this connection, it was observed that Notification S.O. 1683(E) dated
24^th May, 2017, was issued in view of difficulties arisen to give
effect to review or monitoring of the schemes sanctioned u/s. 18 of the SICA
Act, 1985, in view of SICA Repeal Act, 2003 and omission of sections 253 to 269
of the Companies Act, 2013. It did not relate to removal of any difficulty
arising in giving effect to the provisions of the I&B Code, which is the
only ground for which Central Government can exercise power conferred u/s. 242.

In absence of any ground shown for removing
any difficulty in giving effect to the provisions of the I&B Code and as
the Central Government cannot exercise powers conferred under section 242 of
the I&B Code for removing the difficulties arisen due to ‘SICA Repeal Act,
2003’ or omission of provisions of the ‘Companies Act, 2013’, NCLAT could not
act pursuant to Notification S.O. 1683(E) dated 24th May, 2017 to entertain the
appeal.

It was
further held that executive instruction issued by the Central Government u/s.
242 was contrary to the provisions of section 4 of the ‘SICA Repeal Act, 2003’.

The second issue before the NCLAT was
whether the provision to prefer the appeal within 90 days before the NCLAT, as
made by the Central Government Notification dated 25^th May, 2017 is
in conflict with section 61(2) of the I&B Code, which provides 30 days
period to prefer an appeal before the NCLAT? It was observed that grounds to
prefer appeal u/s. 61 of the I&B Code against an order of approval of plan
passed by the Adjudicating Authority u/s. 31, should be such as mentioned in
section 61(3). As per section 61(2), the appeal is required to be filed within
30 days before the NCLAT. NCLAT is empowered to condone the delay of another 15
days after the expiry of the period of 30 days in preferring the appeal; that
too for a sufficient cause.

The NCLAT observed that the Central
Government u/s. 242, is competent to make provision to remove the difficulty in
giving effect to the provisions of the I&B Code, but it cannot be in
conflict with nor can change the substantive provisions of the I&B Code.
The period of limitation as prescribed by Notification S.O. 1683(E) dated 24^th
May, 2017 was in conflict with the maximum period of limitation granted u/s.
61(2) of the I&B Code and beyond forty-five days. NCLAT was thus, not
empowered to entertain the appeal.

It was held that appeals filed by both G Co
and Income-tax department were barred by limitation and were otherwise not
maintainable u/s. 61 of the I&B Code. To maintain the judicial decorum,
though NCLAT noticed the conflict in the order passed by the Hon’ble High Court
of Delhi and the Notification S.O. 1683(E) dated 24^th May, 2017, it
refrained from giving any specific declaration about the same.

Further, in view of the facts of the Scheme,
NCLAT held that the same was illegal. However, in in absence of its
jurisdiction to exercise of powers u/s. 61 of the I&B Code, being barred by
limitation, it would not be desirable to set aside the impugned illegal Scheme.

BCAJ Admin

Allied Laws

21.
Demerger – No prior approval taken before demerger to transfer the lease
rights – Transfer fee rightly charged. [Companies Act, 1956]

Sections 391 and 394 – Allenby Garments Pvt. Ltd. and Ors. vs. West Bengal Industrial
Development Corporation Ltd. and Ors. AIR 2018 (NOC) 527 (CALcutta)

The
facts of the case are that with a view to promoting garment trade, the Garment
Corporation undertook a project called Garment Park Module. It invited
applications from interested parties for allotment of commercial space (module)
and car parking space in the project. A company by the name of Eastern Metalik
applied for it.

Physical
possession of the module was given to Eastern Metalik and possession
certificate dated 11 September, 2008 was issued by the Corporation in favour of
Eastern Metalik. Eastern Metalik filed an application for its demerger under
the provisions of the Companies Act, 1956. The scheme of demerger was sanctioned
by the Court by reason whereof the garment division of Eastern Metalik stood
transferred to and vested in Allenby. Thereafter, Allenby wrote a letter to the
Managing Director of the Corporation recording the factum of demerger of
Eastern Metalik and vesting of the garment division of Eastern Metalik in
Allenby and requesting for effecting registration of the said module in favour
of Allenby. However, the Corporation had decided to register the said module
along with car parking space in the name of Allenby subject to payment of Rs.
30.34 lakh as transfer fee to the Corporation.

A Writ
petition was filed stating that the additional amount of transfer fee charged
was illegal and arbitrary.

The
Court observed that the transfer processing fee of 5% of the initial sub-lease
premium would be applicable where the transfer of the sub-lease is made with
prior permission of the Corporation. In the present case, admittedly no prior
consent was taken by Eastern Metalik before going through the process of demerger
and transferring its garment division to Allenby. No prior permission of the
Corporation was asked for or obtained before putting Allenby in physical
possession of the Module in question. The scheme of demerger is not binding on
the Corporation.

Since
Allotment does not give any indefeasible right to have a lease/sub-lease
executed in favour of the allottee, the allotment of the module which was in
favour of Eastern Metalik, Allenby cannot be called as an allottee. Hence,
neither Eastern Metalik nor Allenby can be presently said to be a sub-lessee in
respect of the said module.

It was
held that, although Allenby might have stepped into the shoes of Eastern
Metalik in so far as the garment division of Eastern Metalik is concerned by
reason of demerger, the fact remains that Eastern Metalik and Allenby are two
separate legal entities and it cannot be said that Allenby is an allottee due
to the reason of demerger. Since specific approval was supposed to be taken,
which was not done in the present case, Allenby is rightly charged the transfer
fees.

22.
Gift Deed – Attestation by two witnesses mandatory. [a. Hindu Succession
Act, 1956;

b. Transfer of Property Act, 1882]

a. Section 14, b. Section 123 – Radha Sah vs.
Girja Devi AIR 2018 PATNA 115

The
plaintiffs filed a case against the appellant for declaration that the
registered deed of gift executed by the plaintiff’s husband in favour of the
defendant and registered deed of gift executed by the plaintiff’s husband’s
first wife in favour of the defendants in respect of a property were void. The
plaintiffs alleged that the said transaction i.e. the deeds of gift to transfer
of property does not bind the plaintiffs.

The
main contention of the plaintiffs was that the property in question is a co-parcenary
property and such property was alienated in the form of gifts against the
mandate of law and that the gift deeds were sham and void.

It was
observed by the court that the property acquired by the plaintiff’s husband’s
first wife was a self-acquired property in terms of section 14 of the Hindu
Succession Act, 1956. Hence, she could alienate the property. It was also
observed that there was no bar even on a co-parcener and he/she can make a gift
of his undivided interest in the coparcenary property to another coparcener or
to a stranger with the prior consent of all other coparceners. Such a gift
would be quite legal and valid.

The
court held that property which the plaintiff’s husband’s first wife had gifted
was her self-acquired property. Hence, she was competent to gift the same.
However, the deed of gift executed by Tulni Devi is not according to law or as
required by section 123 of the Transfer of Property Act as it is not attested
by two witnesses. In view of the aforementioned defect, the said deed of gift
stood void and is not executed according to law.

23. Mesne Profits – Tenant did not vacate the
building for 18 years – Was liable to pay damages at the rate of Rs. 5/- per
square feet per month with a 10% escalation. [Transfer of Property Act, 1882]

Section
106 – Badri Vishal vs. The Kshatriya Rajput Sabha Kutbiguda, Hyderabad AIR 2018
(NOC) 516 (UTR.)

In the
present case, the defendant-tenant had not vacated the property for a period of
18 years even after the notice of termination from the lessor.

The
Court observed that a tenancy that was terminated in the year 1999 has still
not resulted in the tenant vacating the building. The tenant is continuing to
enjoy the building by paying rent at old rate after 18 years also. The Hon’ble
Supreme Court of India in various cases talks of the need to award damages etc.,
as per market value and mesne profits to offset the delays. Even while granting
injunction, in one case, the need for imposing a condition to give mesne
profits and market rent while granting injunction has also been stressed by the
highest court of law. The law which admittedly is not static should change and
recognise the need for modification to suit the times. Therefore, to offset
legal delays; to protect an innocent landlord and to discourage a clever tenant
the Court has to award damages for use and occupation at the prevalent/current
market rents. This will deter unscrupulous tenants from clinging onto the
property for years together, taking advantage of the period in which the matter
is pending in the Court. Even if the delay is genuine, there will be a
realistic amount realized by awarding damages at current rates.

The
Court held that the defendant is liable to pay damages for use and occupation
of the premises @ Rs. 5/- per square feet per month for the suit property from
the date of the suit till the date of this order along with escalation of 10%
per annum as is being paid by all other tenants in the building and as noticed
by the lower Court.

24.
Succession of Property – Property in India – Can be inherited by a
foreign national. [Succession Act, 1925]

Section 2 – B. C. Singh
vs. J.M. Utarid AIR 2018 SUPREME COURT 2374

Plaintiff,
an Indian-Christian had purchased a property in India. However, the plaintiff
died leaving no issue. The question arose as to who was entitled to inherit the
property.

The
plaintiff had invited the defendants to stay at the property that he had
purchased. After the death of the plaintiff, the legal representatives of the
deceased contested in the court that the defendants were only licencees and the
license was terminated, and were not the owners or co-owners of such property.
The contention of the defendants was that they were the relatives of the
plaintiff and hence, the property was to devolve upon the defendants.

There
was an alternate contention that even if the defendants were related to the
plaintiff, they could not succeed since the plaintiff had a sister and that she
would be a preferential heir as compared to the defendants.

The
defendants argued that the sister of the plaintiff would not be entitled to the
property since she was a Pakistani National.

The
Court held that the Indian Succession Act, 1925 would be applicable to the
succession of the property left by the plaintiff. This Act does not bar the
succession of property of any Indian Christian by a person who is not an Indian
national. There is no prohibition for succession of the property in India by a
foreign national by inheritance.

25.
Will – Testator blind – No restriction of execution of a Will by a blind
person. [Indian Succession Act, 1925]

Section 59 – Chhotey Lal
and Ors. vs. Ram Naresh Singh and Ors. AIR 2018 (NOC) 621 (ALLahabad)

One of
the issues was that the unregistered Will set up by the respondent was
surrounded with doubt and uncertainty particularly on account of admission that
the testator was blind, illiterate and was of extreme old age and hence the
Will was not a genuine document and was not executed properly.

The
Court observed that where a document is registered, there is a general
presumption that the same has been executed and registered in accordance with
law, unless the presumption is rebutted by placing reliable and cogent evidence
but where the document is unregistered and creates suspicion on the face of it,
the propounder of the Will is required to prove its due execution and in such
cases the duty of the court also increases so as to satisfy itself that the
Will is not surrounded by any suspicious circumstances and has been executed by
the executant out of his or her freewill and also that the executor was in free
mental condition at the time of execution of Will.

The
Court held that section 59 of the Indian Succession Act provides, that every
person of sound mind not being a minor may dispose of his property by way of
Will. It has further been clarified that a married woman may also dispose of by
Will, any property which she could transfer by her own act during her life.

It is also provided
that the persons who are deaf, dumb or blind are not incapacitated for making a
Will if they are able to know what they do by it. Thus, there is no restriction
on execution of a Will by a blind person, provided, of course, that he is able
to know what he is doing.

BCAJ Admin

FEMA FOCUS

ANALYSIS OF RECENT COMPOUNDING ORDERS

An analysis of some interesting
compounding orders passed by the Reserve Bank of India in the months from
November, 2018 to March, 2019 and uploaded on the website[1] are given below. The article refers to
regulatory provisions as existing at the time of offence. Changes in regulatory
provisions are noted in the comments section.

BORROWING OR LENDING IN FOREIGN EXCHANGE

A. Respoint Shoes Private Limited

Date of Order: 11^th
October, 2018

Regulation: FEMA 3/2000-RB
Foreign Exchange Management (Borrowing or Lending in Foreign Exchange)
Regulations, 2000

ISSUE

1) Loan proceeds were used to meet company
formation and related expenses, which were not permitted end-uses;

2) Drawdown
of proceeds before obtaining Loan Registration Number (LRN);

3) Reporting
guidelines not met.

FACTS

The applicant company received Euros 5,000
(Rs. 2,88,600) from Hollre B.V., its parent company situated in the
Netherlands.

Out of the said amount of Rs. 2,88,600, the
applicant accounted for Rs. 1,00,000 towards issuance of 10,000 equity shares
of Rs. 10 each and treated the remaining Rs. 1,88,600 as external commercial
borrowing (ECB) from its parent company.

The said amount was utilised towards company
formation and related expenses.

Regulatory provisions

As per Regulation 6 of Notification No. FEMA
3/2000-RB, a person resident in India may raise in accordance with the
provisions of the Automatic Route Scheme specified in Schedule I, foreign
currency loans of the nature and for the purposes as specified in that
Schedule.

Paragraph 1(iv) of Schedule I to FEMA
Notification No. FEMA 3/2000-RB provides the end-uses for which ECB is
permitted. However, loan towards ‘company formation and related expenses’ is
not a permitted end-use route.

Paragraph 1(xi) of Schedule I to FEMA
Notification No. FEMA 3/2000-RB states that drawdowns of borrowing in foreign
exchange shall be made strictly in accordance with the terms of the loan
agreement only after obtaining the loan registration number from the Reserve
Bank.

Paragraph 1(xii) of Schedule I to FEMA
Notification No. FEMA 3/2000-RB states that the borrower shall adhere to the
reporting procedure as specified by the Reserve Bank from time to time.

Contravention

Relevant
Para of FEMA 3 Regulation

Nature
of default

Amount
involved
(in Rs.)

Time
period of default

Regulation
6 of Notification No. FEMA 3/2000-RB read with Paragraphs 1(iv), (xi) and
(xii) of Schedule I to this Regulation

Issue
1:
Loan proceeds were used to meet company
formation and related expenses, which were not permitted end-uses

Issue
2: Drawdown of proceeds before obtaining
Loan Registration Number (LRN)

Issue
3: Reporting guidelines not being met

Rs.
1,88,600

April,
2007 to July, 2018

Compounding penalty

Compounding penalty of Rs. 51,415
was levied.

Comments

Under provisions of Notification No.
FEMA 20(R)/2017-RB, if capital instruments are not allotted by the Indian
company within 60 days of receipt of consideration, the amount can be refunded
to the foreign company within 15 days of completion of the 60 days’ limit and
subject to satisfaction of the AD Bank.

Alternatively, equity shares can
also be allotted against pre-incorporation expenses incurred by the holding company
subject to fulfilment of certain conditions.

It
is relevant to note that under the new ECB Regulations notified vide
Notification No. FEMA 3R/2018-RB dated 17.12.2018 there is a negative list of
end-uses for which ECB cannot be utilised. The said negative end-use list
specifies that ECB cannot be utilised for general corporate purposes except if
it’s raised from foreign equity holder. However, this would not cover cases
where ECB is raised along with or prior to the issue of equity to the foreign investor.

B. Glenmark Life Sciences Limited

Date of Order: 7^th
December, 2018

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

ISSUE

Borrowing by Indian company without
issuance of Non-Convertible Debentures (NCDs) and non-compliance with reporting
requirements.

FACTS

The applicant company’s NRI Director and
shareholder remitted Rs. 38,00,000 out of his NRE account. Out of the above
amount, Rs. 33,330 was utilised towards allotment of shares and the balance
amount of Rs. 37,66,670 was treated as loan in the books of the applicant
company.

The applicant neither issued any NCDs to the
NRI lender nor complied with the reporting requirements. However, the applicant
reversed the transaction and remitted the amount of Rs. 37,66,670 to the NRI.

Regulatory provisions

In terms of Regulation 5(1) of Notification
No. FEMA 4/2000-RB a company incorporated in India may borrow in rupees on
repatriation or non-repatriation basis from a non-resident Indian or a person
of Indian origin resident outside India by way of investment in non-convertible
debentures (NCDs) subject to the conditions specified therein.

Contravention

Relevant Para of FEMA 4 Regulation

Nature of default

Amount involved (in Rs.)

Time period of default

Regulation 5(1)

Borrowing undertaken by the applicant company without
issuance of NCD

Rs. 37,66,670

Two years five months to six years ten months, approximately.

Compounding penalty

A compounding penalty of Rs. 75,300
was levied.

Comments

This case reflects one common
violation wherein an Indian company obtains loan from an NRI director to meet
short-term funds. Such loan is permissible under the Indian Companies Act but
is in violation of FEMA provisions. Schedule 4 of FEMA 20(R) which deems
investment by an NRI to be domestic investment at par with the investment made
by residents, is restricted to capital instrument or convertible notes.
Borrowing and lending regulations are yet to be liberalised resulting in
limited avenues for an Indian company to raise finance from outside India. The
conclusion would have been similar even if the loan was lent from an NRO
account, subject to the provisions of Schedule 7 as contained in Notification
No. FEMA 5(R)/2016-RB.

RETENTION OF ASSETS ABROAD

C. Pradeep Khemka

Date of Order: 1^st
October, 2018

Regulation: FEMA 348/2015-RB of
Foreign Exchange Management (Regularisation of assets held abroad by a person
resident in India) Regulations, 2015

ISSUE

Retention
of assets abroad that were declared under the Black Money Act (BMA) beyond 180
days from the date of declaration without prior approval of Reserve Bank.

FACTS

The applicant, a resident Indian, declared
foreign assets (Seaworld Foundation, Liechtenstein, of which he was the settlor
and first beneficiary) to the extent of US $ 30,46,861 on 26.09.2015 under the
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act,
2015 (BMA) and paid a tax of Rs. 11,57,19,780 on 28.12.2015 on the same.

The applicant received an amount of $
29,71,165.38 on 13.10.2015 after liquidation of his foreign assets. However,
the balance amount of $ 89,369.04[2] was not remitted to India within the
specified period of 180 days, as prescribed under Regulation 4 of FEMA 348.

No approval was sought from RBI by the
applicant for retaining the amount beyond the period of 180 days as required in
terms of Regulation 4 of FEMA 348 read with para 3(c) of A.P. (DIR Series),
Circular No. 18 dated 30.09.2015.

Regulatory provisions

FEMA 348
provided immunity from FEMA violation in respect of declaration made by the
resident person under amnesty scheme of BMA.

Proviso
to Regulation 4 of FEMA 348 permitted the resident person to hold declared asset
outside India beyond 180 days from date of declaration after obtaining specific
permission from RBI.

If
aforesaid permission is denied, regulation mandates bringing back of proceeds
within 180 days from date of refusal of permission.

Contravention

Relevant Para of FEMA 348 Regulation

Nature of default

Amount involved
(in Rs.)

Time period of default

Regulation 4

Retention of assets abroad that were declared under the BMA
beyond 180 days without prior approval of Reserve Bank

Rs. 58,08,988

2 years approximately

Compounding penalty

Compounding penalty of Rs. 81,949
was levied.

Comments

Regulation 348 is applicable only to
person making declaration under amnesty scheme of BMA. It was a one-time
relaxation provided by the government to encourage people to declare
undisclosed assets held abroad and absolve themselves from draconian consequences
of BMA.

ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY

D. Mrs. Rajini Kodeswaran

Date of Order: 28^th
August, 2018

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

ISSUE

Acquisition of immovable property in
India by a Sri Lankan citizen without RBI permission.

FACTS

The applicant, a Sri Lankan citizen, had
acquired an immovable property in the year 2008 without obtaining prior
permission from the Reserve Bank of India. Subsequently, she constructed a flat
on the same property.

The immovable property was acquired for
total consideration of Rs. 6,84,000; the cost of construction of the flat is
Rs. 32,97,085, aggregating to Rs. 39,81,085.

Regulation 7 of FEMA 21/2000 prohibits Sri
Lankan citizens from acquiring immovable property without prior permission of
RBI. Since no prior permission was obtained, the applicant was asked to
immediately sell the property to a person resident in India.

Pursuant to the aforesaid direction, the
property was sold by the applicant for Rs. 44,00,000.

Regulatory provision

As per Regulation 7 of Notification
No. FEMA-21/2000, no person being a citizen of Pakistan, Bangladesh, Sri Lanka,
Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong shall acquire or
transfer immovable property in India, other than lease, not exceeding five
years without prior permission of the Reserve Bank.

Contravention

Relevant Para of FEMA 21/2000 Regulation

Nature of default

Amount involved (in Rs.)

Approx. Time period of default

Regulation 7

Purchase of immovable property by Sri Lankan citizen without
RBI permission

Rs. 39,81,085

9 years
2 months

25 days

Compounding penalty

Compounding penalty of Rs. 18,78,208
was levied.

Comments

It was represented based on a
valuation report that the value of land appreciated to Rs. 24,82,350.
Accordingly, undue gain was computed at Rs. 17,98,350 (difference between cost
of land Rs. 6,84,000 and value appreciation of property). Period of default was
computed from date of acquisition of immovable property till date of disposal,
i.e., regularisation. The quantum of penalty reflects the stringent view taken
by RBI on purchase of immovable property by citizens from select countries. The
said restriction is not applicable if such nationals are OCI card holders[3].

FOREIGN DIRECT INVESTMENT (FDI)

E. ND Callus Info Services Pvt. Ltd.

Date of
Order: 13^th December, 2018

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

ISSUE

Downstream investment by a
foreign-owned and controlled company in an Indian company engaged in core
investment activity without seeking FIPB approval.

FACTS

The applicant company is engaged in investment
activities as a core investment company. Shareholding structure of applicant
pre- and post-acquisition is as under:

The Mau
Co acquired the remaining 51% stake from Indian shareholders and accordingly
ICO1, ICO2 and the applicant became directly and indirectly foreign-owned and
controlled companies.

The
applicant did not take government / erstwhile FIPB approval as was required
since the applicant was engaged in core investment activities.

The
applicant became part of Vodafone group which acquired control over Hutchison
group through indirect transfer.

Regulatory provision

Regulation 14(6)(ii) of Notification
No. FEMA 20/2000-RB states that foreign investment in an Indian company,
engaged only in the activity of investing in the capital of other Indian
company/ies, will require prior government / FIPB approval, regardless of the
amount or extent of foreign investment.

Contravention

The amount of contravention is Rs.
508,31,13,300 and the period of contravention is 4 years and 3 months
approximately.

Compounding penalty

Compounding penalty of Rs.
3,56,31,793 was levied.

Comments

This case reveals the care and
precaution to be taken at the time of increase in stake by a foreign investor
in an Indian company. Not only FEMA compliance needs to be undertaken by Target
company but also by downstream investment held by the Target company.
Regulations are not only applicable at the time of making downstream
investment, but also on account of subsequent change in holding company
shareholding making regulations applicable to investment already made by the
Indian company.

Under revised FEMA 20(R)/2017-RB as
amended from time to time, a core investment company is covered under other
financial services under which 100% foreign investment is permitted under the
automatic route subject to compliance of applicable RBI regulations.

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

[2] Initially balance amount was
declared as $ 75,695.62 but this increased to $ 89,369.04 due to increase in
market value as per submissions of the applicant

[3] FAQ No. 4 on purchase of immovable
property in India by non-resident individuals https://m.rbi.org.in/Scripts/FAQView.aspx?Id=117]

BCAJ Admin

CORPORATE LAW CORNER

2.
Principal Director-General of Income-tax vs. Synergies Dooray Automotive
Ltd. [2019] 103 taxmann.com 361 (NCLAT) Company Appeal (AT) (Insolvency) No. 205
of 2017 and 309, 559, 671 & 759 of 2018 Date of Order: 20^th March,
2019

Section
5(20) of the Insolvency and Bankruptcy Code, 2016 – Income-tax Department,
Sales tax department and other statutory bodies fall within the ambit of
“operational creditors” and the monies owed to them on account of these
statutory dues is an “operational debt”

FACTS

Various regulatory
authorities preferred appeals against resolution plans approved by the National
Company Law Tribunal (“NCLT”) where the demands owed by the corporate debtors
to them were classified as operational debt and their names were included as
operational creditors of such companies. Accordingly, the demands owed were
substantially reduced under the resolution plans and they were not given an
opportunity to attend the meetings of the committee of creditors (“COC”). As
the legal issue arising in the appeals was the same, all of them were combined
and heard together.

HELD

There were arguments from
both sides on interpretation of the term ‘operational debt’ as defined u/s.
5(21) of the Code. The National Company Law Appellate Tribunal (“NCLAT”)
examined the definition and observed that there was no ambiguity in it. NCLAT
further observed that ‘Operational Debt’ in normal course meant a debt arising
during the operation of the company (‘Corporate Debtor’). The ‘goods’ and
‘services’, including employment, were required to keep the company (‘Corporate
Debtor’) operational as a going concern. If the company (‘Corporate Debtor’) is
operational and remains a going concern, only in such case will the statutory
liability, such as payment of Income-tax, Value Added Tax, etc., arise. As the
‘Income Tax’, ‘Value Added Tax’ and other statutory dues arising out of the
existing law arises when the Company is operational, it was held that such
statutory dues had a direct nexus with operation of the company. It was further
held that all statutory dues including ‘Income Tax’, ‘Value Added Tax’, etc.,
came within the meaning of ‘Operational Debt’.

As the statutory
authorities were treated at par with similarly situated ‘operational
creditors’, there was no reason to interfere in the orders passed by the NCLT.

NCLAT dismissed the appeals
so filed.

3. Forech India Limited vs. Edelweiss Assets
Reconstruction Co. Ltd. [2019]
101 taxmann.com 451 (SC) Civil
appeal No. 818 of 2018 Date
of Order: 22^nd January, 2019

Section
255 of the Insolvency and Bankruptcy Code, 2016 read with Rule 5 of the
Companies (Transfer of Pending Proceedings) Rules, 2016 as well as Rules 26 and
27 of the Companies (Court) Rules, 1959 – In a winding-up petition filed before
the High Court where a notice has been served and which is pending in the High
Court, application to transfer the same to NCLT under the Code can be made –
High Court would transfer such a proceeding and it would be treated as an
insolvency petition under the Code

Sections
11 and 10 of the Insolvency and Bankruptcy Code, 2016 – Application of section
11 is limited in nature – It merely bars a corporate debtor from initiating a
petition u/s. 10 of the Code in respect of whom a liquidation order has been
made – It does not follow that until a liquidation order has been made against
the corporate debtor, an Insolvency Petition may be filed u/s. 7 or u/s. 9 as
the case may be

FACTS

F Co filed a winding-up
petition against the corporate debtor in the year 2014 for inability to pay its
dues. Notice in this petition had been served, the existence of debt or
liability has been admitted. Meanwhile, E Co being the financial creditor moved
to the National Company Law Tribunal (“NCLT”) and filed an insolvency petition
u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) in May/June,
2017. This petition was admitted on 07.08.2017. F Co filed an appeal against
the order of admission before the NCLAT and the same was dismissed on the
ground that since the winding-up order had not been passed by the High Court,
insolvency petition was maintainable in the eyes of law.

F Co argued that in light
of the provisions of the law, it should be the winding-up petitions filed before
the High Court that should be allowed to continue and not the insolvency
petitions filed by the creditors before the NCLT. E Co, on the other hand,
contended that the whole object of the Code would be frustrated if petitions
for winding up in the High Court were to continue in the face of the insolvency
petitions that have been filed under the Code.

HELD

The Supreme Court examined
various arguments and referred to section 255 of the Code along with various
amendments brought out by the Eleventh Schedule to the Code, section 434 of the
Companies Act, 2013 (which relates to transfer of certain pending proceedings),
Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, as well
as Rules 26 and 27 of the Companies (Court) Rules, 1959.

It was pointed out that
there were divergent views on the interpretation of the aforesaid rules. The
Bombay High Court in Ashok Commercial Enterprises vs. Parekh Aluminex Ltd.
[2017] 80 taxmann.com 359/141 SCL 363, had stated that the notice referred
to in Rule 26 was a pre-admission notice and hence, held that all winding-up
petitions where pre-admission notices were issued and served on the respondent
will be retained in the High Court. On the other hand, the Madras High Court in
M.K. & Sons Engg. vs. Eason Reyrolle Ltd. in CP/364/2016 held that
the notice under Rule 26 is referable to a post-admission position of the
winding-up petition and accordingly held that only those petitions where a
winding-up order is already made can be retained in the High Court. For this
purpose, the Madras High Court strongly relied upon Form No. 6 appended to Rule
27 and the expression “was admitted” occurring in the Notice of
Petition contained in the said Form.

The Supreme Court held that
the view taken by the Bombay High Court was correct in law and the reasoning
laid down by the NCLAT in its order was incorrect.

Further, in the context of
section 11 of the Code it was observed that the same was of limited application
and only barred a corporate debtor from initiating a petition under section 10
of the Code in respect of whom a liquidation order has been made. From a
reading of this section, it does not follow that until a liquidation order has
been made against the corporate debtor, an Insolvency Petition may be filed
u/s. 7 or section 9 as the case may be.

The financial creditor’s
application which was admitted by the Tribunal was held to be an independent
proceeding which would be decided in accordance with the provisions of the
Code. The order of the NCLAT dismissing appeal was upheld by the Supreme Court
and F Co was granted an opportunity to apply before the Supreme Court under the
proviso to section 434 of the Companies Act (added in 2018), to transfer the
winding-up proceeding pending before the High Court of Delhi to the NCLT, which
can then be treated as a proceeding u/s. 9 of the Code.

4. SGM Webtech (P.) Ltd. vs. Boulevard Projects
(P.) Ltd. [2019]
103 taxmann.com 176 (NCLT – New Delhi) Company
petition (IB) No. 967(PB) of 2018 Date
of Order: 8^th February, 2019

Sections
5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016 – Commercial Unit
allotted in a real estate development project was not completed in time –
Amounts advanced had to be refunded to the allottee and default in doing so
constituted a default in repayment of financial debt as contemplated under the
Code – Proceedings under the Code could be initiated for the default

FACTS

S Co, a private company,
agreed to purchase a commercial unit in a project being developed by B Co. Over
a period of time, B Co raised various demands on S Co which were duly met by
it. An “Office/Unit Buyer Agreement” dated 08.01.2013 was entered into between
the parties. The agreement fructified the terms between the parties qua
the rights of S Co in the commercial unit and the project, B Co’s obligations
of delivery of completed commercial unit as per specifications within 36 months
and consequences of delay thereof including penalty for the period of delay, S
Co’s right to terminate the agreement and also to seek refund with interest.

B Co, despite repeated
assurances, failed to complete the construction in the stipulated time. Various
letters were issued by S Co demanding the refund of its money along with
interest for which no reply was furnished by B Co. S Co further stated that a
failure on part of B Co would necessitate further action under Real Estate
(Regulation and Development) Act, 2016. The said action was initiated and the
U.P. Real Estate Regulatory Authority (“UPRERA”) and the authority levied
penalty on B Co.

B Co owed money to S Co
which had fallen due on various dates on account of its default in completion
of the allotted unit within time and the default in re-payment (despite
demands) of amount paid by S Co along with compound interest @ 18% per annum
from the actual dates of receipt of payment by B Co till date of repayment
to/realisation of the entire amount to S Co, and penalty thereon as ordered by
UPRERA.

S Co thus filed a petition
initiating Corporate Insolvency Resolution Process (“CIRP”) under the
Insolvency and Bankruptcy Code, 2016 (“the Code”) and proposed the name of Amit
Agarwal for appointment as Interim Resolution Professional. B Co, on the other
hand, had filed a further petition with UPRERA and it was contended that since
the proceedings there were pending, the proposed application may not be
proceeded with. It was further contended by B Co that delay arose due to
demonetisation and the order passed by the NGT in respect of the Okhla Bird
Sanctuary; and that in view of force majeure, the claim of S Co was
premature.

HELD

The National Company Law
Tribunal (“NCLT”) examined the provisions of section 5(7), 5(8), 7(1) read with
the Insolvency and Bankruptcy (amendment) Ordinance, 2018. The Ordinance provided
that any amount raised from an allottee under a real estate project shall be
deemed to be an amount having the commercial effect of a borrowing and thus
will come within the definition of ‘Financial Debt’ under the Code. The
definition of ‘Financial Debt’ has been amended to specifically include dues of
home buyers and the home buyers are recognised as “Financial
Creditor” under the Amendment Act.

The Tribunal observed that
S Co had advanced a sum of Rs. 4,10,68,472 to B Co and a Builder-Buyer Agreement
had also been executed between the parties. It was observed that the present
application was filed by S Co u/s. 7 and all the relevant files and documents
as required for the same along with Form I had been duly filled.

The only point of
contention that remained was whether a default in payment of financial debt was
committed by B Co. In that connection, NCLT observed that B Co had failed to
show how the demand made by S Co was premature. The fact that the claim of S Co
had been admitted by UPRERA established that the said claim was in fact a
financial debt as defined under the Code and that there was default on the part
of B Co in repayment of financial debt.

NCLT thus admitted the
petition to initiate the CIRP against B Co and declared moratorium in terms of
section 14 of the Code with a direction to the IRP to take further steps as
prescribed under the Code.

5. Satyendra Jain vs. OmwayBuilestate (P.) Ltd. [2019]
103 taxmann.com 111 (NCLT – New Delhi) Company
petition (IB) No. 1013 (PB) of 2018 Date
of Order: 12^th February, 2019

Section
238A read with section 7 of the Insolvency and Bankruptcy Code, 2016 –
Insolvency Resolution Process can be initiated against the corporate debtor
even though recovery suit has already been filed and decree has been passed
more than 5 years ago – The applicable period of limitation being 12 years,
application under the Code was maintainable

FACTS

O Co took a loan of Rs.
4.35 crore from Mr. S in the year 2010 which it failed to repay as per the
agreed terms and conditions. Mr. S filed a recovery suit before the Delhi High
Court which passed a decree on 19.03.2013 for Rs. 5.75 crore along with pendente lite and future interest. O Co did
not pay its dues even 5 years after the passing of the decree. Mr. S has claimed
that as on 20.07.2018, the total outstanding amount including interest due was
Rs. 10.14 crore.

O Co has objected to the
application primarily on the ground that the claim of Mr. S was barred by
limitation. It was further submitted that the Delhi High Court had passed a status
quo on the assets of O Co which was still in operation and hence no action
could be taken against it.

Mr. S brought to the notice
of the National Company Law Tribunal (“NCLT”) that the decree dated 19.03.2013
was modified by the High Court on 04.02.2016 and the said decree had still not
been satisfied by O Co.

HELD

The
primary objection to the admission of the application was that the claim was
barred by limitation. NCLT examined section 238A of the Insolvency and
Bankruptcy Code, 2016 (“the Code”) which makes the provisions of the Limitation
Act, 1963 applicable to proceedings or appeals applicable to the Code. However,
NCLT observed that Article 136 of the Limitation Act, 1963 provides for a
period of 12 years with respect to execution of order or decree of a Civil
Court. In light of this, the argument of application being barred by limitation
did not hold good and NCLT rejected the same.

The fact of existence of
the loan which is recoverable with applicable interest has not been disputed by
either parties. Either parties also do not dispute the default of O Co in
repayment of loan in accordance with agreed terms. Mr. S had filled out a duly
complete form along with necessary documents to initiate the proceedings u/s. 7
of the Code.

Thus, the application of
Mr. S was accepted by the NCLT and Mr. Lekhraj Bajaj was appointed as the
Interim Resolution Professional (“IRP”). NCLT further declared moratorium in
terms of section 14 of the Code with a direction to the IRP to take further
steps as prescribed under the Code.

BCAJ Admin

FEMA FOCUS

REVISED ECB REGULATIONS

(I) Background

RBI has completely
revamped existing regulations relating to External Commercial Borrowings, Trade
credits & Borrowing and lending in INR (‘ECB’) by issuing a revised
Notification No. 3(R) /2018-RB – Foreign Exchange Management (Borrowing and
Lending) Regulations, 2018 dated 17^th December 2018 (‘New ECB
Regulations’). Further, RBI has also issued A.P. (DIR Series) Circular No. 17
dated 16^th January 2019 (‘Circular 17’) providing for new ECB
framework.

Earlier there were
following three regulations governing borrowing/lending by person resident in
India with persons resident outside India:

Sr. No.

Name of regulation

Relevant Notification No.

Scope of regulation

Foreign
Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations,
2000 ( ‘Old ECB Regulations’)

FEMA 3 /2000-RB dated
3^rd May, 2000

i) Borrowing in foreign currency by
persons other than AD

ii) Borrowing in foreign currency by AD

iii) Borrowing in Indian currency by
Company

iv) Trade credits

Foreign
Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 (‘INR
Borrowing Regulations’)

FEMA 4 /2000-RB dated
3^rd May, 2000

i)
Borrowing in Indian currency by Indian Company through issuance of NCDs;

ii)
Borrowing in Indian currency by persons other than company

Para
21 of Foreign Exchange Management (Transfer or Issue of Any Foreign Security)
(Amendment) Regulations, 2004 (‘ODI Regulations’)

FEMA 120/ RB-2004 dated
7^thJuly, 2004

i)
Lending in foreign currency by Indian company to its overseas subsidiary/ JV

RBI has now
consolidated all above Regulations relating to borrowing and lending in foreign
currency and Indian currency and issued Revised FEMA 3/2019 (‘New ECB
Regulations’) dealing with foreign currency and Indian currency borrowing /
lending by Indian residents. Further, certain aspects of ECB have also been
clarified by RBI through issuing Circular 17. Earlier there four-tier structure
of ECB which have now been rationalised as under:
i) Track I & Track II have been merged as Foreign Currency denominated ECB;
and

ii) Track III &
Rupee denominated bonds have been merged as Rupee denominated ECB.

Key aspects of new
ECB framework are given below:

(II) New definitions

New ECB Regulations
has inserted following new definitions for the purpose of clarity:

? External Commercial lending
– It means lending by person resident in India to borrower outside India in
accordance with policy decided by RBI

? Real estate activity –
means any activity involving

• own or leased property for buying, selling
and renting of commercial and residential properties or land

• activities either on a fee or contract basis
assigning real estate agents for intermediating in buying, selling, letting or
managing real estate.

However, this would
not include

• development of integrated township; or

• purchase/long term leasing of industrial
land as part of new project/modernisation or expansion of existing units or;

• any activity under ‘infrastructure
subsectors’ as given in the Harmonised Master List of Infrastructure
sub-sectors approved by the Government of India vide Notification F. No.
13/06/2009-INF, as amended/updated from time to time.

? Restricted End Use: It
means end uses where borrowed funds cannot be deployed and shall include the
following:

• In the business of chit fund or Nidhi
Company;

• Investment in capital market including
margin trading and derivatives;

• Agricultural or plantation activities;

• Real estate activity or construction of farm
houses; and

• Trading in Transferrable Development Rights
(TDR),

? It has been specifically
clarified that use of credit cards in India by person resident outside India
and outside India by person resident in India shall not be subject to ECB
regulations.

? Also, it has been
clarified that any borrowing permitted under erstwhile regulations can be
continued up to the due date of repayment.

(III) Key changes in ECB Policy

Key changes between
old ECB regulations relating to borrowings in INR/foreign currency by Indian
resident entity from person resident outside India are highlighted below:

Eligible borrower

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

The list of entities eligible to raise ECB were
classified under the three tracks is set out in the following table.

All entities eligible to receive FDI are eligible borrowers and
there is no more Track 1, Track 2 and Track 3. Further, following entities
are also eligible to raise ECB:

a) Port Trusts;

b) Units in SEZ;

c) SIDBI;

d) EXIM Bank; and

e) Registered entities engaged in micro-finance activities,
viz., registered Not for Profit companies, registered
societies/trusts/cooperatives and Non-Government Organisations (permitted
only to raise INR ECB).

Under new ECB regulations, all entities, including companies and
LLP would be eligible to receive FDI under FEMA 20 can raise ECB irrespective
of the sector in which they operate. New regulations now paves way for
service sector enterprise, companies engaged in ITES activities etc to raise
finance via ECB route. Further ECB route is open even for sectors which are
subject to sectorial cap or FDI is permitted subject to performance linked
conditions.

Track :1

i. Companies in mfg & software development sectors.

ii. Shipping and airlines companies.

iii. SIDBI.

iv. Units in SEZs

v. Exim Bank (only under the approval route).

vi. Companies in infra sector, NBFC-IFCs, NBFC-AFCs, Holding
Companies and CICs. Also, Housing Finance Companies, regulated by the
National Housing Bank, Port Trusts constituted under the Major Port Trusts
Act, 1963 or Indian Ports Act, 1908.

Track :2

i. . All entities listed under Track I.

ii. REITs & INVITs (governed by SEBI)

Track
:3

i. All entities listed under Track II.

ii. NBFCs coming under the regulatory purview of RBI.

iii. NBFCs-MFIs, Not for Profit companies registered under the
Companies Act, 1956/2013, Societies, trusts and cooperatives (registered
under the Societies Registration Act, 1860, Indian Trust Act, 1882 and
State-level Cooperative Acts/Multi-level Cooperative Act/State-level mutually
aided Cooperative Acts respectively), NGOs which are engaged in micro finance
activities.

iv. Companies engaged in miscellaneous services viz.
R&D, training (other than educational institutes), companies supporting
infrastructure, companies providing logistics services. Also, companies
engaged in maintenance, repair and overhaul and freight forwarding.

v. Developers of SEZs/ National Manufacturing and Investment
Zones (NMIZs).

Borrowing by IBC Cos

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

No specific exemption / relaxation for companies
in IBC

An entity which is under restructuring scheme/
corporate insolvency resolution process can raise ECB only if specifically
permitted under the resolution plan.

Likely to boast restructuring of companies under
IBC. Resolution plan can now substitute high interest debt with low interest
bearing ECB

Eligible lenders

The list of recognised lenders/investors for the
three tracks will be as follows:

The lender should be resident of FATF or IOSCO compliant
country, including on transfer of ECBs. However,

a) Multilateral and Regional Financial Institutions where India
is a member country will also be considered as recognised lenders;

b) Individuals as lenders can only be permitted if they are
foreign equity holders or for subscription to bonds/debentures listed abroad;
and

c) Foreign branches/subsidiaries of Indian banks are permitted
as recognised lenders only for FCY ECB (except FCCBs and FCEBs).

Foreign branches/subsidiaries of Indian banks, subject to
applicable prudential norms, can participate as arrangers/
underwriters/market-makers/traders for Rupee denominated Bonds issued
overseas. However, underwriting by foreign branches/subsidiaries of Indian
banks for issuances by Indian banks will not be allowed.

Under the new ECB regulations, any person can be eligible lender
provided they are resident of FATF or IOSCO compliant country. However,
individuals as lenders can only be permitted if they are foreign equity
holders or for subscription to bonds/ debentures listed abroad. Further,
Financial institutions located in International Financial Services Centres in
India are not specifically included in definition of recognised lender which
were included in the old ECB regulations.

Track :1

i. International banks.

ii. International capital markets.

iii. Multilateral financial institutions (such as, IFC, ADB,
etc.) /regional financial institutions and Government owned (either wholly or
partially) financial institutions.

iv. Export credit agencies.

v. Suppliers of equipment.

vi. Foreign equity holders.

vii. Overseas long term investors such as:

a. Prudentially regulated financial entities;

b. Pension funds;

c. Insurance companies;

d. Sovereign Wealth Funds;

e. Financial institutions located in International Financial
Services Centres in India

viii. Overseas branches/ subsidiaries of Indian banks

Track :2

All entities listed under Track I (excluding
overseas branches /subsidiaries of Indian banks)

Track :3

All entities listed under Track I (excluding overseas branches/
subsidiaries of Indian banks.

In case of NBFCs-MFIs, other eligible MFIs, not for profit
companies and NGOs, ECB can also be availed from overseas organisations and
individuals.

Minimum Average Maturity Period

The minimum average maturities for the three
tracks are set out as under:

Minimum average maturity period (MAMP) will be 3 years. However,
manufacturing sector companies may raise ECBs with MAMP of 1 year for ECB up
to USD 50 million or its equivalent per financial year. Further, if the ECB
is raised from foreign equity holder and utilised for working capital
purposes, general corporate purposes or repayment of Rupee loans, MAMP will
be 5 years. The call and put option, if any, shall not be exercisable prior
to completion of minimum average maturity.

For ECB exceeding USD 50 million, no MAMP is specified and
hence, could be considered as 3 years

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

Track:1

i. For ECB up to USD 50 million or its equivalent for Cos in Mfg
sector only – 1 year;

ii. For ECB upto USD 50 million or its equivalent – 3 years;

iii. For ECB beyond USD 50 million or its equivalent – 5 years

iv. 5 years for ECB taken from equity holder for working capital
purposes

v. 5 years for FCCBs/ FCEBs irrespective of the amount of
borrowing. The call and put option, if any, for FCCBs shall not be exercisable
prior to 5 years.

Track :2

10 years irrespective of the amount.

Track: 3

Same as under Track I.

All-in-cost ceiling per annum and other cost

The all-in-cost requirements for the three tracks
will be as under:

i) No change in all in cost ceilings

No change

Track :1

i. The all-in-cost ceiling is prescribed through a spread over
the benchmark, i.e., 450 basis points per annum over 6 month LIBOR or
applicable benchmark for the respective currency.

ii. Penal interest, if any, for default or breach of covenants
should not be more than 2 per cent over and above the contracted rate of
interest.

Track :2

i All-in-cost ceiling – Same as Track I

ii Penal interest – same as Track I

Track :3

i. All-in-cost ceiling – 450 basis points per annum over the
prevailing yield of the Government of India securities of same maturity.

ii. Penal interest – Same as Track I

End-uses (Negative list)

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

The end-use prescriptions for ECB raised under the three tracks
are as under:

The negative list for all Tracks would include the following:

a. Investment in real estate or purchase of land except when
used for affordable housing as defined in Harmonised Master List of
Infrastructure Sub-sectors notified by Government of India, construction and
development of SEZ and industrial parks/integrated townships.

b. Investment in capital market.

c. Equity investment.

Additionally, for Tracks I and III, the following negative end
uses will also apply except when raised from Direct and Indirect equity
holders or from a Group company, and provided the loan is for a minimum
average maturity of five years:

d. Working capital purposes.

e. General corporate purposes.

f. Repayment of Rupee loans.

Finally, for all Tracks, the following negative end use will
also apply:

g. On-lending to entities for the above activities from (a) to
(f)

The negative list for which ECB proceeds cannot
be utilised is largely similar as erstwhile ECB regulations. However, earlier
negative list used the phrase investment in real estate or purchase of land.
In the new ECB regulations, above phrase has been replaced by real estate
activities which has been defined above. Further, proceeds of ECB cannot be
used for payment of interest / charges for ECB.

Real estate activity specifically excludes
purchase / long term leasing of industrial land as part of new project /
modernisation or expansion of existing unit. Hence, going forward ECB can be
utilised towards purchase of industrial land for expansion of existing unit
or setting up of new unit.

Change of currency of borrowing

Designated AD Category I banks may allow changes
in the currency of borrowing of the ECB to any other freely convertible currency
or to INR subject to compliance with other prescribed parameters. Change of
currency of INR denominated ECB is not permitted.

No change

Individual limits of borrowing

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

The individual limits of ECB that can be raised
by eligible entities under the automatic route per financial year for all the
three tracks are set out as under:

a. Up to USD 750 million or equivalent for the
companies in infrastructure and manufacturing sectors, Non-Banking Financial
Companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance
Companies (NBFC-AFCs), Holding Companies and Core Investment Companies;

b. Up to USD 200 million or equivalent for
companies in software development sector;

c. Up to USD 100 million or equivalent for
entities engaged in micro finance activities;

d. Up to USD 500 million or equivalent for
remaining entities; and

e. Up to USD 3 million or equivalent for
startups;

ii. ECB proposals beyond aforesaid limits will
come under the approval route. For computation of individual limits under
Track III, exchange rate prevailing on the date of agreement should be taken
into account.

iii. In case the ECB is raised from direct equity
holder, aforesaid individual ECB limits will also subject to ECB liability:
equity ratio requirement. The ECB liability of the borrower (including all
outstanding ECBs and the proposed one) towards the foreign equity holder
should not be more than seven times of the equity contributed by the latter.
This ratio will not be applicable if total of all ECBs raised by an entity is
up to USD 5 million or equivalent.

All eligible borrowers (excluding startups) can
now raise ECB up to USD 750 million or equivalent per financial year under
auto route. Rest of the conditions, including ECB equity ratio in case of
borrowings from foreign equity holder would remain the same.

Expansion of individual limits

Parking of ECB proceeds

ECB proceeds are permitted to be parked abroad as
well as domestically in the manner given below:

Parking of ECB proceeds abroad: ECB proceeds meant only for
foreign currency expenditure can be parked abroad pending utilisation. Till
utilisation, these funds can be invested in the following liquid assets (a)
deposits or Certificate of Deposit or other products offered by banks rated
not less than AA (-) by Standard and Poor/Fitch IBCA or Aa3 by Moody’s; (b)
Treasury bills and other monetary instruments of one year maturity having
minimum rating as indicated above and (c) deposits with overseas branches/
subsidiaries of Indian banks abroad.

Parking of ECB proceeds domestically: ECB proceeds meant for
Rupee expenditure should be repatriated immediately for credit to their Rupee
accounts with AD Category I banks in India. ECB borrowers are also allowed to
park ECB proceeds in term deposits with AD Category I banks in India for a maximum
period of 12 months. These term deposits should be kept in unencumbered
position.

No change

Reporting

Loan Registration Number (LRN): Any draw-down in respect
of an ECB as well as payment of any fees / charges for raising an ECB should
happen only after obtaining the LRN from RBI. To obtain the LRN, borrowers
are required to submit duly certified Form 83, which also contains terms and
conditions of the ECB, in duplicate to the designated AD Category I bank. In
turn, the AD Category I bank will forward one copy to the Director, Balance
of Payments Statistics Division, Department of Statistics and Information
Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400
051, Contact numbers 022-26572513 and 022-26573612. Copies of loan agreement
for raising ECB are not required to be submitted to the Reserve Bank.

Changes in terms and conditions of ECB: Permitted changes in ECB
parameters should be reported to the DSIM through revised Form 83 at the
earliest, in any case not later than 7 days from the changes effected. While
submitting revised Form 83 the changes should be specifically mentioned in
the communication.

Reporting of actual transactions: The borrowers are required
to report actual ECB transactions through ECB 2 Return through the AD
Category I bank on monthly basis so as to reach DSIM within seven working
days from the close of month to which it relates. Changes, if any, in ECB
parameters should also be incorporated in ECB 2 Return. Format of ECB 2
Return is available at Annex III of Part V of Master Directions – Reporting
under Foreign Exchange Management Act.

Reporting on account of conversion of ECB into
equity: In case of partial or full
conversion of ECB into equity, the reporting to the RBI will be as under:

i. For partial conversion, the converted portion
is to be reported to the concerned Regional Office of the Foreign Exchange
Department of RBI in Form FC-GPR prescribed for reporting of FDI flows, while
monthly reporting to DSIM in ECB 2 Return will be with suitable remarks
“ECB partially converted to equity”. ii. For full conversion, the
entire portion is to be reported in Form FC-GPR, while reporting to DSIM in
ECB 2 Return should be done with remarks “ECB fully converted to equity”.
Subsequent filing of ECB 2 Return is not required.

iii. For conversion of ECB into equity in phases,
reporting through ECB 2 Return will also be in phases.

Name of form for obtaining LRN from RBI has
changed from old Form 83 to new Form ECB. Hence, wherever Form 83 was
required to be filed, going forward Form ECB would be required to be filed.
However, contents of the form are same. Further, ECB 2 filing continues to
remain as before. Additionally, in part D of Form ECB 2 details with respect
to proceeds of ECB parked domestically is also required to be stated.

Change in name of Form 83 to Form ECB and details
of ECB parked domestically to be provided in Form ECB 2

Late submission fees

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

No such provision existed earlier. Any late
filing of forms was subject to compounding proceedings

Late Submission Fee (LSF) for delay in reporting:

Any borrower, who is otherwise in compliance of ECB guidelines,
can regularise the delay in reporting of drawdown of ECB proceeds before
obtaining LRN or delay in submission of Form ECB 2 returns, by payment of
late submission fees as given in Annexure 1

Going forward, process of regularising ECB non compliances
relating to late filing of forms or drawdown of ECB before obtaining LRN
would be much simpler and would not be subject to compounding proceedings.
However, with respect to past non-compliances, compounding proceedings would
still need to be undertaken

Exchange rate

The exchange rate for foreign currency – Rupee
conversion shall be the market rate on the date of settlement for the purpose
of transactions undertaken for issue and servicing of the bonds

No change

Hedging Requirements

Borrowers eligible shall have a board approved
risk management policy and shall keep their ECB exposure hedged 70 per cent
at all times in case the average maturity is less than 5 years. Further, the
designated AD Category-I bank shall verify that 70 per cent hedging
requirement is complied with during the currency of ECB and report the
position to RBI through ECB 2 returns. Also, the entities raising ECB under
the provisions of tracks I and II are required to follow the guidelines for
hedging issued, if any, by the concerned sectoral or prudential regulator in
respect of foreign currency exposure.

Operational aspects on hedging: Wherever hedging has been
mandated by the RBI, the following should be ensured:

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

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

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

No change

Available routes for raising ECB

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

Under the ECB framework, ECBs can be raised
either under the automatic route or under the approval route. For the
automatic route, the cases are examined by the Authorised Dealer Category-I
(AD Category-I) banks. Under the approval route, the prospective borrowers
are required to send their requests to the RBI through their ADs for
examination. While the regulatory provisions are mostly similar, there are
some differences in the form of amount of borrowing, eligibility of
borrowers, permissible end-uses, etc. under the two routes. While the first
six forms of borrowing can be raised both under the automatic and approval
routes, FCEBs can be issued only under the approval route.

No change

ECB for untraceable entities

No specific regulation earlier

Specific Standard Operating Procedure (SOP) laid
down which has to be followed by designated AD banks in case of untraceable
entities who are found to be in contravention of reporting provisions for
ECBs by failing to submit prescribed return(s) under the ECB framework,
either physically or electronically, for past eight quarters or more.

i. Definition: Any borrower who has raised
ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/ promoter(s) of entity are not
reachable/responsive/reply in negative over email/letters/phone for a period
of not less than two quarters with documented communication/reminders
numbering 6 or more and it fulfills both of the following conditions:

a) Entity not found to be operative at the
registered office address as per records available with the AD Bank or not
found to be operative during the visit by the officials of the AD Bank or any
other agencies authorized by the AD bank for the purpose; AND

b) Entities have not submitted Statutory
Auditor’s Certificate for last two years or more;

ii. Action: The followings actions are to be
undertaken in respect of ‘untraceable entities’:

a) File Revised Form ECB, if required, and last
Form ECB 2 Return without certification from company with ‘UNTRACEABLE
ENTITY’ written in bold on top. The outstanding amount will be treated as
written-off from external debt liability of the country but may be retained
by the lender in its books for recovery through judicial/ non-judicial means;

b) No fresh ECB application by the entity should
be examined/processed by the AD bank;

c) Directorate of Enforcement should be informed
whenever any entity is designated ‘UNTRACEABLE ENTITY’; and

d) No inward remittance or debt servicing will be
permitted under auto route.

Entire new process has been laid down to find
untraceable entities who have taken ECB

(IV) Key changes in Regulations governing
Trade Credits

Key changes between
old ECB regulations and new ECB regulations relating to trade credits are
highlighted as under:

Particulars

Old ECB Regulations

New ECB Regulations

Comments

Amount of borrowing

USD 20 million per import transaction

USD 50 million per import transaction

Increase in limit of trade credit

Period

Import of capital goods – 5 years from date of
shipment

Import of non-capital goods – 1 year from date of
shipment or operating cycle, whichever is less

Import of capital goods – 3 years from date of
shipment

Import of non-capital goods – 1 year from date of
shipment or operating cycle, whichever is less

Trade credit period for import of capital goods
has been reduced from 5 years to 3 years

Trade credit beyond permitted period

No specific provision in respect of trade credit
extending beyond above specified period

Specifically provides trade credit beyond 3 years
period to be ECB

There have been several instances wherein RBI has
compounded non compliances relating to trade credit extending beyond
specified period by viewing it as ECB. The same has now been specifically
included in new ECB regulations.

Recognised lenders

Overseas suppliers, banks, financial
institutions,

Lenders to also include foreign equity holders
and financial institutions in IFC

Recognised lenders list expanded to include
foreign equity holders and financial institutions in IFC. Hence, they can
also give trade credits

Cost

All-in-cost ceiling for raising trade credit was
350 basis points over 6 month LIBOR

All-in-cost ceiling for raising trade credit
reduced to 250 basis points over 6 month LIBOR

Reduction in all in cost ceiling for raising
trade credits

(V) Key changes in Regulations governing
borrowings in INR by Indian residents

Borrowing by
Indian companies

Under the erstwhile
ECB regulations, investment in Non convertible debentures (NCD) issued by
Indian companies to Registered Foreign Portfolio Investors was not covered
under the ECB framework. The said position continues even under the new ECB
regulations.

Further, under INR
Borrowing Regulations, Indian companies could borrow in rupees from NRIs/PIOs
by issuing NCDs and subject to fulfilment of conditions laid down therein.
However, under New ECB regulations, there is no specific regulations governing
issuance of NCDs by Indian companies to NRI/PIOs. Accordingly, we would need to
wait for further clarity on this issue.

Borrowing by
Indian individuals

Under the erstwhile
INR Borrowing regulations, person resident in India (other than an Indian
company) could borrow in rupees from NRI/PIO on non-repatriation basis subject
to fulfilment of certain conditions. Under the New ECB Regulations, person
resident in India (other than an Indian company) can borrow in Indian Rupees
from NRI/ Relatives who are holding OCI Card subject to terms and conditions as
would be specified by RBI in this behalf.

Thus, as against
borrowings from any NRI/PIO permissible earlier, under New ECB Regulations, INR
borrowings can be taken only from NRI or Relatives who are holding OCI Card.

Deposits by
person resident in India

Any person resident in India can accept deposits from person resident
outside India in accordance with Foreign Exchange Management (Deposit)
Regulations, 2016. Hence, there is no change with regards to acceptance of
deposits.

(VI) Key changes in Regulations governing
borrowings by financial institutions, students studying abroad and from
relatives

Borrowing by
financial institutions

Under the new ECB
regulations, financial institutions set up under an act of Parliament have been
given permission to raise ECB under the approval route for the purpose of
onward lending and subject to provisions contained in ECB regulations.

Borrowing by
students studying abroad

Under the new ECB
regulations, individual resident in India but studying abroad can raise loan
not exceeding USD 250,000 for payment of education fees and maintenance abroad
subject to terms and conditions specified by RBI. However, it is interesting to
note that as per A.P.(DIR Series) Circular No. 45 dated 8 December 2003, Indian
students studying abroad would be treated as Non-residents, i.e. person
resident outside India. In such a scenario, applicability of FEMA on the such
students would need to be evaluated.

Borrowing in
foreign currency by Indian individuals

Under the old ECB regulations, individual resident in India could borrow
a sum not exceeding USD 250,000 from his relative subject to fulfilment of
certain conditions. The same position continues even under new ECB regulations.

(VII) Regulations governing lending in foreign currency by Indian entities

New ECB regulations
provide that an entity resident in India can provide external commercial
lending in foreign exchange to foreign entity in accordance with provisions of
ODI Regulations. Hence, there is no change with respect to the said
regulations.

(VIII) Regulations governing issuance of
Foreign Currency Convertible Bonds & Foreign Currency Exchangeable Bonds by
Indian companies

Regulation 21 of
ODI Regulations which dealt with issuance of Foreign Currency Convertible Bonds
and Foreign Currency Exchangeable Bonds has now been omitted and it would be
governed under the process specified in New ECB Regulations read with Circular
17.

Way forward

Going forward, it
is expected that RBI would issue Circulars clarifying various aspects of New
ECB Regulations as well as issue Regulations governing hybrid instruments in
the nature of optionally convertible debentures which are at present covered
under ECB Regulations.

Annexure 1 – Matrix for computing late
submission fee for delay in reporting

No.

Type of Return/Form

Period of delay

Applicable LSF

Form ECB 2

Up to 30 calendar days from due date of submission

Rs. 5,000

Form ECB 2/Form ECB

Up to 3 years from due date of submission/date of drawdown

Rs. 50,000 per year

Form ECB 2/Form ECB

Beyond 3 years from due date of submission/date of drawdown

Rs. 100,000 per year

BCAJ Admin

ALLIED LAWS

5. Attachment –
Bank accounts of directors cannot be attached when company is in default for
payment of taxes [Central Goods and Services Tax Act, 2017; Section 2, Section
89]

H.M. Industrial Pvt. Ltd. vs. Commissioner
of CGST and Central Excise 2019 (22) G.S.T.L. 13 (Gujarat)

By a provisional attachment order u/s. 83,
the bank accounts of the directors of the petitioner-company were attached. The
question was whether the bank accounts of the directors of the company can be
attached?

Section 83 of the CGST Act shows that it
empowers the Commissioner to attach provisionally any property, including bank
accounts, belonging to the taxable person. The term “taxable person”
has been defined under sub-section (107) of section 2 of the CGST Act to mean a
person who is registered or liable to be registered u/s. 22 or u/s. 24 of that
Act.

In the present case, it was the
petitioner-company which was registered under the provisions of the CGST Act
and was, therefore, the taxable person. Under such circumstances, provisions of
section 83 could not have been invoked against the directors of the
petitioner-company.

It was argued by the respondents (i.e.
Commissioner of CGST) that section 89 of the CGST Act permits recovery of the
dues of a private company from its directors in case such amount cannot be
recovered from the company. However, the Court dismissed the arguments of the
respondent on the grounds that section 89 of the Act relates to recovery of any
tax, interest or penalty due from a private company in respect of supply of
goods or services and hence is not applicable to the current case.It was
further mentioned that even if such amount cannot be recovered from the private
company, the directors of the company do not ipso facto become liable to
pay such amount and it is only if the director fails to prove that non-recovery
cannot be attributed to any gross neglect, misfeasance or breach of duty on his
part in relation to the affairs of the company, that the same can be invoked.

In view of the same, it was held that the
attachment of the bank accounts in the present case was without any authority
of law and hence the bank accounts were directed to be released.

6. Attachment – Provisional attachment immediately after issuance of
show-cause notice – Department asked to explain the urgency – Bank accounts
released [Gujarat Goods and Services Tax Act, 2017; Section 83]

Mono Steel (India) Ltd. vs. State of
Gujarat 2019 (22) G.S.T.L. 184 (Gujarat)

Show-cause notices were issued and
immediately thereafter, the order of provisional attachment was made. The bank
statement showed huge cash reserves lying at the disposal of the company with
the banks concerned which were attached.

It was observed by the Court that the
assessee was not a fly-by-night operator, i.e., the assessee was not someone
who could not be trusted and would desperately try to avoid the payment of the
taxes due. This observation was due to the reason that the assessee had paid
duty to the tune of more than Rs. 100 crore in the previous year. Under such
circumstances, the respondent was asked to explain the expediency and rationale
behind ordering attachment of all the bank accounts.

It was held that the bank accounts were to
be released subject to the petitioner/assessee maintaining a certain amount in
one of its bank accounts.

7. Courts,
Tribunals – Duty to exercise power in accordance with law though the litigant
does not point out the relevant principles and provisions of law

Champa Lal vs. State of Rajasthan and Ors.
(2018) 16 SCC 356

The litigation revolves around two
notifications issued by the state government.

It was observed by the Court that various
parameters mandatorily required were not taken into consideration in the two
above-mentioned notifications. Therefore, it was observed that the two
notifications cannot be treated as notifications.

It was held by the Hon’ble Court that,
unfortunately, this aspect had not been noticed by the High Court obviously
because it was not brought to its notice. The fact that a litigant before the
Court does not point out the relevant principles and provisions of law does not
prevent the Court from examining the issues involved in the lis, more
particularly, when the process which is the subject matter of litigation before
the Court is inconsistent with the mandate of the Constitution. It is a settled
principle of law that Courts are bound to take note of the Constitution and the
laws.

8. Hindu law –
Inheritance of property – Individual property and not ancestral property or
joint Hindu family property [Hindu Succession Act, 1956, Section 8]

Jagat Ram vs.
Rajo AIR 2019 Punjab and Haryana 38

The issue in the present case was whether
the property inherited by Class-I heir Mr. P (Father) from his father (Mr. T)
as per section 8 of the Hindu Succession Act, 1956 would be his (Mr. P’s)
individual property or would it be ancestral property or joint Hindu family
property?

It was observed by the Court that the
property came to Mr. P u/s. 8 of the Hindu Succession Act, 1956. Once, on the
death of a common ancestor, property has devolved upon his Class-I heirs or
Class-II heirs as per section 8 of the Hindu Succession Act, 1956, such heirs
would become the absolute owners of the property and such property would not be
either joint Hindu family or coparcenary or ancestral property in the hands of
such legal heirs, in absence of any other evidence to this effect.

It was held that, in the present case, the
entire property which came to be inherited by Mr. P (Father) from Mr. T (Mr.
P’s Father) is individual property of Mr. P (Father).

9. Unregistered sale agreement – Admissible in evidence for specific
performance of a contract [Registration Act, 1908 – Section 17 and Section 49]

Sanjeeva Shetty vs. B. Chittaranjan Rai and
Ors. AIR 2019 Karnataka 36

The Trial Court permitted to tender the
unregistered agreement of sale as evidence in a suit for specific performance
of the contract.

It was observed that proviso to section 49 of
the Registration Act, 1908 reads as under:

“Provided that an unregistered document
affecting immovable property and required by this Act or the Transfer of
Property Act, 1882 (4 of 1882), to be registered may be received as evidence of
a contract in a suit for specific performance under Chapter II of the Specific
Relief Act, 1877 (3 of 1877) or as evidence of any collateral transaction not
required to be effected by registered instrument.”

In appeal before the High Court, it was held
that if section 17(1A) and proviso to section 49 of the Registration Act, 1908
are read conjointly, it is evident that there is no prohibition under proviso
to section 49 of the Registration Act, 1908 for receiving an unregistered
document as evidence of a contract in a suit for specific performance under
Specific Relief Act, 1877. In view of the clear statutory proviso in this
regard, it was held that the Trial Court had rightly admitted the unregistered
document in a suit for specific performance of the contract.

BCAJ Admin

CORPORATE LAW CORNER

9 Amira Pure Foods Pvt. Ltd. vs. Canara Bank
Ltd.

[2019] 105 taxmann.com 326
(Delhi)

W.P. (C) No. 5467/2019

Date of order: 20^th
May, 2019

Section 18 of the
Insolvency and Bankruptcy Code, 2016 – Debt Recovery Appellate Tribunal should
have recalled its order of taking control and possession of assets of corporate
debtor and handing over the same to the Insolvency Resolution Professional in
exercise of its mandate u/s. 18 of the Code – DRAT should have modified its
order as it has adequate powers to do the same

FACTS

CB (“Financial Creditor”)
had approached the Debt Recovery Tribunal (“DRT”) for recovering its dues from
A Co under the Recovery of Debts Due to Banks & Financial Institutions Act,
1993; arising from these proceedings, the matter reached the Debt Recovery
Appellate Tribunal (“DRAT”). DRAT, vide its order dated 15^th
November, 2018 appointed Joint Court Commissioners to take over the assets of A
Co including its perishable assets. Soon thereafter, CB also initiated
proceedings against A Co under the Insolvency and Bankruptcy Code, 2016 (“the
Code”) and pursuant to the same, an Interim Resolution Professional (“IRP /
RP”) was appointed on 11^th December, 2018.

Upon appointment, the IRP
approached DRAT for taking over the properties and assets of A Co and prayed
for an early hearing. CB also accorded its consent to the said application
being allowed. But DRAT did not consider the application for early hearing and
the matter was adjourned. IRP then filed a writ petition with the High Court
where an order was passed instructing DRAT to hear and dispose of the matter
within a week. Consequently, DRAT passed an order on 22^nd April,
2019 dismissing the petition filed by IRP on the grounds that as a moratorium
u/s. 14 of the Code was operational, all proceedings against A Co were to be
stalled. The IRP challenged this order of DRAT before the High Court.

HELD

It was submitted by A Co /
IRP that section 14 of the Code imposes a restriction of proceedings which are
against the corporate debtor. It does not bar undertaking of proceedings which
are not considered as being “against the corporate debtor”. Further, since IRP
is required to act in a time-bound and efficient manner, appointment and continuation
of Court Commissioners with vesting of assets was detrimental to the interest
of IRP. Since CB did not object to continuation of proceedings under IBC, the
order of DRAT was bad in law.

The High Court heard the parties and held that DRAT was not powerless
to modify its own order whereby the two Court Commissioners had been appointed
to take over control of the assets of A Co. DRAT should have recalled its order
so that the IRP / RP could take over the assets of A Co in the exercise of its
mandate under the Code. The order of DRAT was accordingly set aside and IRP was
permitted to exercise its powers in terms of the Code. The costs of
Commissioner were to be paid by the IRP.

10 Pranatpal Tradelink (P.) Ltd., In re

[2019] 105 taxmann.com 308
(NCLT – Ahd)

C.P. No.
32/441/NCLT/AHM/2018

Date of order: 28^th
March, 2019

CL: Where a company
contravened provisions of section 217 by not attaching board report with its
balance sheet while filing e-form 23AC with MCA portal, in view of fact that
alleged offence was made compoundable and could be compounded because it was
punishable with imprisonment up to six months or with fine alone or both,
application for compounding of said offence was to be allowed

FACTS

In the instant case, during
the course of technical scrutiny of the balance sheet of P-Company Pvt. Ltd.
(the applicant), the Registrar of Companies observed that the applicant
company’s Board report was not attached with the balance sheet in e-form 23AC
filed with the MCA portal for the financial year 2010-11; thus, P-Company Pvt.
Ltd. had violated provisions of section 217(1) of the Companies Act, 1956
[Section 134 of The Companies Act, 2013].

The directors of P-Company
Pvt. Ltd. admitted that such violation was unintentional and with no mala fide
intention. However, they had later on attached the Board report along with
their compounding application and, thus, they had made good the alleged lapses.

HELD

The NCLT observed as
under:

P-Company Pvt. Ltd. (applicant) in the compounding
application submitted that the violation of not attaching the Board report
along with the balance sheet for the financial year 2010-11 was totally
erroneous and there was no wrongful intention on the part of the directors;

P-Company Pvt. Ltd. admitted the default and filed
a compounding application for compounding of the offence committed u/s. 217(1)
of the Companies Act, 1956;

The provisions of section 217(5) of the Companies
Act, 1956 read as under:

If any person, being a
director of a company, fails to take all reasonable steps to comply with the
provisions of sub-sections (1) to (3), or being the chairman, signs the Board’s
report otherwise than in conformity with the provisions of sub-section (4), he
shall, in respect of each offence, be punishable with imprisonment for a
term which may extend to six months, or with fine which may extend to twenty
thousand rupees, or with both.

The Central Government has declared that matters
transferred from the Company Law Board to the National Company Law Tribunal
shall be disposed of by NCLT in accordance with the provisions of the Companies
Act, 2013 or the Companies Act, 1956;

The provisions of Section 441 of the Companies
Act, 2013 also confer necessary power to NCLT for compounding of certain
offences. Such violations / offences are made punishable u/s. 217(5) of the
Companies Act, 1956 but are also made compoundable u/s. 621A of the same
Companies Act, 1956;

On perusal of the material available on record,
the NCLT observed that the alleged contravention seems to be technical in
nature and due to some procedural lapses on the part of its directors of not
enclosing the Board’s report along with the company’s balance sheet as on 31^st
March, 2011. However, P-Company Pvt. Ltd. has attached the Board’s report for
the financial year 2010-2011 along with a compounding application. Thus, they
have made good the alleged lapses. P-Company Pvt. Ltd. has further explained
that non-attaching of the Board’s report with the balance sheet was erroneous,
and without any wrongful intention on the part of its Directors. Thus, it was
observed that P-Company Pvt. Ltd. has admitted the default, but has sought
compounding of offence;

The NCLT held that the compounding application for
the offence was to be allowed as the alleged offence could be compounded
because it was punishablewith imprisonment up to six months or with fine alone or both.

BCAJ Admin

ALLIED LAWS

15 Deficiency of service – Delay in obtaining
occupation certificate – Reasonable cause for termination of agreement –
Eligible for refund with interest [Consumer Protection Act, 1986, S. 2(1)(g)]

Pioneer Urban Land and
Infrastructure Ltd. vs. Govindan Raghavan and Ors. AIR 2019 Supreme Court 1779

A builder entered into an
agreement with a purchaser to deliver the possession of the flat along with the
occupancy certificate within 39 months from the date of excavation, with a
grace period of 180 days. The builder, however, failed to apply for the
occupancy certificate as per the stipulations in the agreement.

The purchaser filed a
consumer complaint before the National Commission alleging deficiency of
service on the part of the builder for failure to obtain the occupancy
certificate and hand over possession of the flat. Admittedly, the
appellant-builder offered possession after an inordinate delay of almost three
years (on 28^th August, 2018). On account of the inordinate delay,
the respondent (flat purchaser) had no option but to arrange for alternate
accommodation in Gurugram. Hence, he could not be compelled to take possession
of the apartment after such a long delay.

It was observed that the
builder had obtained the occupancy certificate almost two years after the date
stipulated in the agreement with the purchaser. As a consequence, there was a
failure to hand over possession of the flat within a reasonable period. The
purchaser has made out a clear case of deficiency of service on the part of the
builder. The purchaser was justified in terminating the agreement by filing the
consumer complaint and cannot be compelled to accept the possession whenever it is offered by the builder. The purchaser was
legally entitled to seek refund of the money deposited by him along with
appropriate compensation.

It was held that the
builder failed to fulfil his contractual obligation of obtaining the occupancy
certificate and offering possession of the flat to the purchaser within the
time stipulated in the agreement or within a reasonable time thereafter. The
purchaser could not be compelled to take possession of the flat, even though it
was offered almost two years after the grace period under the agreement
expired. During this period, the purchaser had to service a loan that he had
obtained for purchasing the flat by paying interest @ 10% to the bank. In the
meanwhile, the purchaser also located an alternate property in Gurugram. In
these circumstances, the purchaser was entitled to be granted the relief prayed
for, i.e., refund of the entire amount deposited by him with interest.

16 Dishonour of cheques – Cheques issued
in pursuance of agreement to sell is also a duly enforceable debt or liability
[Negotiable Instruments Act, 1881, S.138]

Ripudaman Singh vs.
Balkrishna AIR 2019 Supreme Court 1625

The issue pertained to
dishonour of cheques for part payment of sale consideration. Two people sold
their agricultural land to one Mr. X (respondent). Part payment was already
done by Mr. X. Two post-dated cheques were issued to the sellers. However, on
the due date the cheques were returned unpaid with the remark ‘insufficient
funds’. Legal notices were issued and complaints were initiated u/s. 138 of the
Negotiable Instruments Act, 1881 before the judicial magistrate. The magistrate
dismissed the applications seeking discharge of the complaint cases and charges
were framed u/s. 138. The respondent then filed a petition u/s. 482 before the
High Court.

The High Court held that
the cheques had not been issued for creating any liability or debt but for the
payment of balance consideration and hence the respondent did not owe any money
to the complainants. Accordingly, the complaint u/s. 138 was quashed.

On appeal, the Supreme
Court held that the cheques were issued under and in pursuance of the agreement
to sell. Though it is well settled that an agreement to sell does not create
any interest in immovable property, it nonetheless constitutes a legally enforceable
contract between the parties to it. A payment which is made in pursuance of
such an agreement is hence a payment made in pursuance of a duly enforceable
debt or liability for the purposes of section 138. Hence, the order quashing
the complaint was set aside.

17 Hindu Law – Right of daughter to
coparcenery property – Amendment not applicable to cases where the transfer of
such property had already taken place [Hindu Succession Act, 1956, S.6]

Jayaraman Kounder vs.
Malathi and Ors. AIR 2019 Madras 113

A property which was
inherited from the parents was sold by the son and grandchildren on 2^nd
June, 1994. All the children were male. Thereafter, the Hindu Succession Act
got amended wherein section 6 brought the daughters on par with the sons as
coparceners.

After the amendment in the
Hindu Succession Act, the daughters filed a suit against the father / brothers
in connection with the sale of property which was done 18 years prior to the
amendment.

The High Court while
answering the question whether the sale deed dated 2^nd June, 1994
executed in favour of the appellant by the father and brothers of the first and
second respondents / sisters is valid or whether, by virtue of becoming
coparceners, they are entitled to set aside the same even after getting a
decree of partition; the Court held that the proviso to sub-section 4 of
section 6 of the Hindu Succession Act made it clear that the properties which
have been alienated, including through partition, will be affected by virtue of
the amendment which came into force on 20^th December, 2004.
Admittedly, the properties were sold by the father and brothers as early as on
2^nd June, 1994. De hors the theory of the Will, the property
was already alienated on 2^nd June, 1994. Therefore, the properties,
which had been sold to the appellant are exempted from the amendment.

18 Power of Attorney
holder – Only a right to appear but not plead [Advocates Act 1961; S.29; High
Court (Original Rules) 1914, Ch.1 R.5]

Usha Kanta Das and Ors. vs. Sefalika Ash AIR 2019 Calcutta 145

The issue before the Court
was whether appearance, application or acting by a recognised agent of a party
would include within such scope the right to plead and argue before a court of
law as defined in rule 2 of order III?

In the present case, Mr. N
admittedly was a power of attorney holder on behalf of the caveatrix and claims
a right to argue the case of the caveatrix, including examining witnesses in
the proceedings on the basis of the authorisation arising from the power of
attorney.

It was observed that three
propositions emerge: first, order III rule 1 specifically excludes the
expression ‘plead’ from the purview of ‘appearing’ or ‘acting’. The expression
‘plead’, on the other hand, arises from the definition of ‘pleader’ u/s. 2(15)
of the CPC. Second, advocates, vakils and attorneys of a High Court have
been specifically included in the class of those who are entitled to plead for another before a court. Third, ‘pleading’ as an
exclusive domain has been formalised under chapter I rule 1(i)(a) of the
Original Side Rules which has specifically excluded ‘pleading’ from ‘acting’.

It was held that only a
special class of persons, namely, advocates enrolled under the Advocates Act,
1961, have been authorised to plead and argue before a court of law. It should
further be noted that the ‘special reason’ of permitting ‘any other person’
under rule 5 of chapter 1 of the Original Side Rules relates only to appearance
and not pleading.

19 Surety /
Guarantor – Liability co-extensive with original borrower [Contract Act, 1872;
S.128]

Bharatbhai Sagalchand
Thakkar vs. State of Gujarat AIR 2019 Gujarat 81

A co-operative society had
advanced money to one of its members where two guarantors had also given surety
for the same. Later, the original borrower defaulted in payment of the loan. A
question for consideration was that since the loan was disbursed in favour of
the original borrower, whether there is a duty cast upon the co-operative
society or the bank, as the case may be, first to recover the loan advanced to
the borrower and then to take steps against the guarantor or steps may be taken
against anyone?

It was held that the
liability of a guarantor is co-extensive with that of the original borrower. It
is always open for the co-operative society to first proceed against the guarantor for
the recovery of the loan amount. It is not necessary that the co-operative
society should first go after the original borrower and only thereafter proceed
against the guarantor.

BCAJ Admin

CORPORATE LAW CORNER

9. Lalit Mishra vs. Sharon Bio Medicine Limited
Company Appeal (AT) (Insolvency) No. 164 of 2018 Date of Order: 19^th
December, 2018

Insolvency and Bankruptcy Code, 2016 –
Shareholders and promoters are not creditors – Right available to surety (who are
also the promoters and shareholders) under contract law will not be applicable
in case of an approved resolution plan

FACTS

National Company Law Tribunal (“NCLT”) passed an order whereby a
resolution plan was approved in respect of S Co. L was a promoter of S Co.
Predominantly, the grounds of appeal are that L and others although are
promoters and shareholders, no amount has been provided for them; and some of
the promoters being personal guarantors are discriminated against.

L has also submitted that the security interest which include the
personal guarantees of L have been reduced to ‘nil’ and thereby the ‘Resolution
Plan’ have been submitted against the provisions of sections 133 and 140 of the
‘Indian Contract Act’.

HELD

NCLAT examined the various clauses of the resolution plan approved by
the NCLT. It was observed that restructuring of the financial debt as part of
the ‘Resolution Plan’ approved by the NCLT under the Code did not envisage
complete discharge of the liability of personal guarantors of the S Co. The
plan mentioned that all securities/ collaterals/ margin money/ fixed deposit
with lien provided by S Co shall be deemed to be released immediately on
Effective Date. It is subsequently mentioned that the personal guarantee provided
by the existing promoters of S Co shall not result in any liability towards S
Co or the ‘Resolution Applicants’.

This ‘treatment of security’ and with regard to personal guarantee
provided by the existing promoters of S Co is alleged to be in violation of
section 140 and section 133 of the ‘Indian Contract Act’.

However, it was held that intention of the law was maximisation of the
value of the assets of the ‘Corporate Debtor’, then to balance all the
creditors and make availability of credit and for promotion of entrepreneurship
of the ‘Corporate Debtor’. The Code prohibits the promoters from gaining,
directly or indirectly, control of the ‘Corporate Debtor’, or benefiting from
the ‘Corporate Insolvency Resolution Process’ or its outcome. The Code seeks to
protect creditors of the ‘Corporate Debtor’ by preventing promoters from
rewarding themselves at the expense of creditors and undermining the insolvency
processes.

The NCLAT held that the shareholders and promoters are not creditors and
thereby the ‘Resolution Plan’ cannot balance the maximisation of the value of
the assets of the ‘Corporate Debtor’ at par with the creditors. They were also
ineligible to submit the ‘Resolution Plan’ to again control or takeover the
management of the ‘Corporate Debtor’. Further it was held that there was no
discrimination if no amount is given to the promoters/shareholders and the
other equity shareholders who are not the promoters have been separately
treated by providing certain amount in their favour. The appeal was accordingly
dismissed.

10.
KKR Jupiter Investors (P.) Ltd. vs. JBF Petrochemicals Ltd. [2018]
100 taxmann.com 341 (NCLT-Ahd.) Date of Order: 19^th November, 2018

Section 60(5)(c) r.w.s 7 of Insolvency and
Bankruptcy Code, 2016 -_ Proceedings u/s. 7 can only be initiated by or against
the corporate debtor – No other person (including a financial investor,
promoter or shareholder) can intervene in the proceedings so initiated

FACTS

K Co, is a financial investor of J Co. In April 2018 K Co came to know
that corporate insolvency resolution process u/s. 7 of the Insolvency
Bankruptcy Code, 2016 has been initiated against J Co by one of its financial
creditors. K Co as a financial investor submitted that it proposed to implement
a comprehensive solution to the problems faced by all the stakeholders of J Co
within a reasonable time period and sought the co-operation of the financial
creditor. This was mainly based on the contention that corporate insolvency
resolution process would not serve any beneficial purpose to the stakeholders
including financial creditor and the proposed financing would resolve the
issues whereby the lender would receive payment of outstanding principal amount
under the facility arrangement and K Co’s interest would also be preserved. The
applicant thus filed intervention application for affording an opportunity to
it to raise all the issues for the effective adjudication in the matter.

HELD

National Company Law Tribunal (“NCLT”) examined the provisions of
section 60(5) of the IBC which deal with adjudicating authority for corporate
persons. It observed that an application/proceeding u/s. 60(5) of the IBC could
be filed by or against the corporate debtor. This was unlike the K Co’s case,
where, the intervention application was filed against the financial creditor.

NCLT further observed that section 60(5)(c) had no applicability at the
stage of adjudication on admissibility of application filed u/s. 7 of IBC. This
was because section 60(5)(c) dealt with questions of priorities or any question
of law or facts “arising out of or in relation to the insolvency resolution or
liquidation proceedings of the corporate debtor” or corporate person. NCLT,
thus, concluded that the intervener cannot resort to section 60(5)(c) to invoke
jurisdiction of the Tribunal to entertain the intervention application in a
case where the proceedings are initiated by the financial creditor u/s. 7 of
the IBC which is under way and the insolvency resolution process against the
corporate debtor has not been initiated.

NCLT relied on the decision of the NCLAT in Axis Bank vs. Lotus Three
[2018] 97 taxmann.com 96 wherein it was held that, third party i.e. an
entity other than the financial creditor/corporate debtor is not offered the
right to be heard and/or to intervene in a proceeding initiated u/s. 7. NCLT
thus held that adjudicating authority was only required to satisfy that the
default had occurred and the corporate debtor was entitled to point out that
the default had not occurred, i.e. the debt was not due. No other person had
the right to be heard at the stage of admission of application u/s. 7 and 9
including the shareholder or the personal guarantor. The Tribunal also relied
on the decision of the Supreme Court in the case of Innoventive Industries
Ltd. vs. ICICI Bank Ltd. [2017] 84 taxmann.com 320 (SC) to draw support for
this position held by the Tribunal. NCLT, thus, rejected the application filed
by K Co.

11. Vestal Educational
Services (P.) Ltd. v. Lanka Venkata Naga Muralidhar [2018] 100 taxmann.com 286
(NCL-AT) Date of Order: 16^th November, 2018

Section 62 of Companies Act, 2013 – Money was
given by ex-director to Company for re-payment of loans taken by the company –
Company alleged that amount was advanced against equity shares and not loan as
was claimed by the ex-director – Company was required to establish that a valid
offer of shares was made to and accepted by the ex-director and that procedure
laid down u/s. 62 was complied with – Inability to prove the same rendered the
allotment null and void.

FACTS

L is a shareholder of V Co and acted as a director of the same from
December 2006 to October 2011. V Co had borrowed loan from SBI in 2009 against
which properties of V Co were mortgaged and L also gave a personal guarantee.

The term loan became NPA in 2013 (i.e. after L ceased to be a director
in October 2011). There was a one-time settlement agreed by V Co. Since the
company could not meet its liability as per the one-time settlement scheme
entered into with the Bank, it approached L to lend Rs. 1.54 crore. L deposited
the said sum in the account of V Co.

L claimed that he sent reminders to the company for repayment of the
amount and also sent legal notices asking for payment of amounts advanced by
him to the company. Meanwhile, V Co sent a courier to the original petitioner
showing the latest shareholding and on verification, the original petitioner
found that amount lent by him had been converted into equity without his
knowledge, intimation or authorisation and that the action on the part of company to convert the amount
into equity was to avoid the payment of money to him and clearly an
afterthought.

The NCLT observed that there was no evidence as regards issue of notice
offering shares and ultimately set aside the allotment made by the company and
directed that the amount be paid to L.

V Co filed the present appeal pleading that amounts were advanced by L
as a consideration for issue of shares and not as a loan as was held by NCLT.

HELD

NCLAT observed that having regard to the opposing nature of claims,
burden was on V Co to show that when the payments were made by L, he had agreed
that against the said amount, shares be issued to him. V Co was also required
to establish that procedures laid down u/s. 62 of Companies Act, 2013 were
complied with.

The NCLAT observed that there was no match between the amounts advanced
by L and shares alleged to be allotted by V Co in light of ledger maintained by
V Co.

NCLAT held that V Co was unable to establish at any point of time that L
had in fact consented to the issue of equity shares against money advanced by
him. Further, additional documents that V Co tried to submit in order to
further its claim were never filed before NCLT and there was a concern on the
genuineness of the documents so tendered for filing. NCLAT further held that
had the documents been considered, the conclusion would still be the same as
NCLT. V Co was unable to prove that shares were offered to L or that L had in
fact accepted the offer alleged to have been made.

The appeal filed by V Co was accordingly aside and a cost of Rs.
1,50,000 was imposed upon V Co.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

SC notice to RBI on pleas seeking
contempt proceedings for violating RTI

The Supreme Court (SC)
sought RBI’s response on two pleas seeking contempt proceedings against the
central bank and its former Governor Urjit Patel for non-disclosure of
information under RTI about some banks.

A bench headed by Justice L
N Rao issued the notice to the Reserve Bank of India (RBI) for not disclosing
information about the list of banks on whom certain fines were imposed for
violating some banking rules.

The court has asked RBI to
file a reply within four weeks and listed the matter for hearing in March.

The pleas, filed by Girish
Mittal and Subhash Chandra Agrawal, claimed that RBI and Patel had
“willfully and deliberately” disobeyed the top court’s judgement
asking the central bank to disclose information under the Right to Information
(RTI) Act.

Agrawal had sought complete
information including related documents from RBI on the imposition of fines on
some banks for violating rules.

He had also sought the list
of banks and the default for which show cause notices were issued to them
before the fine was imposed.

Despite the apex court’s
judgement for disclosure of such information, RBI had issued a “Disclosure
Policy” under which it has listed certain information as being exempted
from being disclosed of the RTI Act.

“It is to be noted
that this specific information is similar to what were held not to be exempted
by the Supreme Court,” claimed the plea, filed through lawyer Prashant
Bhushan.

RBI had refused to disclose
such information on the grounds of economic interest and holding such
information in fiduciary relationship with these individual banks.

Such reason is in direct
contempt with this court’s judgment. The information titles which are in
contempt belong to Department of Banking Regulation, Banking Supervision,
Cooperative Banking Regulation/Department of Cooperative Banking Supervision
and Consumer Education and Protection Department.

“This exempted
information under the policy were held to be not exempted by the Supreme Court.
Thus, this exemption leads to contempt of this court’s order,” the plea
said.

The Supreme Court had in
2015 held that RBI should take rigid action against those banks and financial
institutions which have been indulging in “disreputable business
practices” and said it cannot withhold information on defaulters and other
issues covered under the RTI Act.

It had further clarified
that RBI cannot withhold information under the “guise” of confidence
or trust with financial institutions and is accountable to provide information
sought by the general public.

The pleas claimed that the
disclosure policy framed by the RBI headquarters is like an instruction to its
Public Information Officers (PIOs) not to furnish virtually all kinds of
information.

“Under the RTI Act,
2005, it is the PIOs who have been cast with the statutory duty to comply with
the provisions of the RTI Act (as interpreted by the Courts) and it is the PIOs
who face a penalty for non-compliance.

“The policy provides
with different titles of information divided department wise that are not to be
disclosed under the RTI Act, 2005. The reason for non-disclosure of information
by RBI under its Disclosure Policy has been based on economic interest and
fiduciary relation with the individual banks,” the pleas said.

(Source:https://www.business-standard.com/article/pti-stories/sc-issues-notice-to-rbi-on-pleas-alleging-violation-of-right-to-information-law-119012501365_1.html
)

Part B
IRTI ACT, 2005

Step
by step guide to file an RTI application

Right to Information Act 2005 mandates timely response to citizen requests
for government information.

It is an initiative taken by Department of Personnel and Training,
Ministry of Personnel, Public Grievances and Pensions to provide an RTI Portal
Gateway to the citizens for quick search of information on the details of first
Appellate Authorities,PIOs etc. The url of the RTI software is :
https://rtionline.gov.in

Steps to file an RTI

1. For submitting RTI application click on submit
request option.

2. On clicking on submit request option
‘Guideliens for use of RTI ONLINE PORTAL’ screen will be displayed.This screen
contains various guidelines for using RTI online portal. Citizen has to click
on the checkbox ‘I have read and understood the above guidelines’ and then
click on submit button.

3. Then Online
RTI Request Form screen will be displayed. Ministry or Department for which the
applicant wants to file an RTI can be selected from Select
Ministry/Department/Apex body dropdown.

4. Applicant will receive sms alerts in case
he/she provides mobile number. The fields marked * are mandatory while the
others are optional.

5. If a citizen belongs to BPL category, he has to
select the option ‘Yes’ in ‘Is the applicant below poverty line?’ field and has
to upload a BPL card certificate in supporting document field. (No RTI fee is
required to be paid by any citizen who is below poverty line as per RTI Rules,
2012)

6. On submission
of the application, a unique registration number would be issued, which may be
referred by the applicant for any references in future.

7. If a citizen
belongs to Non BPL category, he has to select the option ‘No’ in ‘Is the
applicant below poverty line?’ field and has to make a payment of Rs 10 as
prescribed in the RTI Rules, 2012.

8. ‘Text for RTI
request application’ should be upto 3000 characters. If the text is more than
3000 characters, then the application can be uploaded in supporting document
field.

9. After filling all the details in the form, click on
the ‘make payment’ option.

10. On clicking
the option, Online Request Payment form will be displayed. The payment mode can
be selected in this form, which can be; internet banking, ATM-cum-debit card or
credit card.

11. After clicking
on the ‘Pay’ button, applicant will be directed to SBI payment gateway for
payment. After completing the payment process, applicant will be redirected
back to RTI Online Portal.

12. The applicant
will get an email and sms alert on submission of application.

Note: Only alphabets A-Z a-z
number 0-9 and special characters , . – _ ( ) / @ : & % are allowed in
text for RTI request application.

The application filed through this web portal would reach electronically
to the nodal officer of concerned Ministry/Department, who would transmit the
RTI application electronically to the concerned CPIO.

What to do if your RTI
request is rejected?

There is fundamental difference between RTI Request and RTI Appeal.

RTI Request is filing
application for the first time. Request is made by the citizen to one person
(i.e. PIO) to provide information. This means that it involves only the citizen
and PIO.

RTI Appeal is appeal
before senior officer against decision of PIO. This means that here, a third
person (i.e. Appellate Authority) comes between the citizen and the PIO.

Appeal is only filed when the citizen is not
satisfied with the reply of PIO or PIO rejects citizen’s request for
information.

This means RTI request is application process while RTI appeal is
appellate procedure against decision on RTI application.

Steps for filing RTI First
Appeal

1. For submitting First appeal application, click on
‘submit first appeal’ option. Upon clicking, ‘guidelines for use of RTI online
portal’ screen will be displayed. This screen contains various guidelines for
using RTI online portal.

2. Citizen has to click on the checkbox ‘I have read
and understood the above guidelines’ and then click on submit button.

3. Online RTI first appeal form screen will be
displayed. Applicant has to enter registration number, email ID and security
code in the form.

4. Upon clicking the submit button, online RTI first
appeal form will be displayed. The applicant can then select reason for filing
appeal application from ‘ground for appeal’ dropdown field.

5. Text for RTI first appeal application should be
upto 3000 characters. If the text is more than 3000 characters, then the
application can be uploaded in supporting document field. (As per RTI Act, no
fee has to be paid for first appeal).

6. On submission of the application, a unique
registration number would be issued, which may be referred by the applicant for
any references in future.

(Source:
https://www.indiatoday.in/information/story/rti-application-online-filing-steps-1440321-2019-01-27
)

Part C IINFORMATION ON
& AROUND

Govt breached rules in filling RTI commission, Supreme Court told

The Supreme Court heard that the Centre had violated provisions of the
Right to Information Act by appointing commissioners who had not even applied
for the posts.

A bench headed by Justice A.K. Sikri took on record the affidavit filed
by RTI activist Anjali Bharadwaj and adjourned the matter by a week to enable
the Centre and the states to submit comprehensive status reports on the filling
of vacant posts.

In December the top court had directed the Centre and the states of
Bengal, Andhra Pradesh, Odisha, Telangana, Maharashtra, Gujarat, Kerala and
Karnataka to file status reports mentioning the steps taken to fill up the
vacant posts of information commissioners and also the manner in which the
governments planned to hire.

The court had passed the directions on a PIL jointly filed by Bharadwaj,
Lokesh Batra and others alleging that a large number of vacancies in the
Central Information Commission (CIC) and the state information commissions
showed that the governments wanted to throttle the functioning of the RTI Act,
which was not good for democracy as the main purpose behind the legislation was
to ensure transparency. The petitioners complained that the Centre had issued a
notification dated 4^th January, 2019, on the website of the
department of personnel and training and in some newspapers inviting
applications for four vacant posts in the CIC.

They alleged that the advertisements were not in keeping with the
provisions of the RTI Act, 2005, as they stated that “the salary, allowances
and other terms and conditions of service of the Information Commissioners
shall be as may be specified at the time of appointment of the selected
candidate”.

According to the petitioners this is at variance with the provisions of
the RTI Act that specifies the terms and conditions of service of information
commissioners of the CIC. Sub-sections 2 and 5 of section 13 of the RTI Act
define the tenure and salaries and allowances payable to the chief information
commissioner and the information commissioners at the CIC.

“As per the said section, ‘every Information Commissioner shall hold
office for a term of five years from the date on which he enters upon his
office or till he attains the age of sixty-five years, whichever is earlier,
and shall not be eligible for reappointment as such Information Commissioner’,”
the PIL said.

“13(5) says ‘the salaries and allowances payable to and other terms and
conditions of service of — (a) the Chief Information Commissioner shall be the
same as that of the Chief Election Commissioner; (b) an Information
Commissioner shall be the same as that of an Election Commissioner’,” the
petition added.

According to the petitioners the Centre had deliberately worded the
advertisements vaguely by not specifying the tenure and salaries to undermine
the selection process.

“It would be unreasonable to expect people of eminence to apply for a
post without knowing the terms and conditions of service,” the petitioners
contended.

The petitioners also alleged that some of the four commissioners
appointed by the Centre had not applied for the post.

The petition said the Centre did not upload the list of shortlisted
candidates during the process of appointment.

“…The search committee acted arbitrarily and beyond the mandate to
selectively shortlist individuals who had not even applied… Therefore, the
shortlisting of persons who had not applied is illegal. In the case of the
Chief Information Commissioner, 5 people were shortlisted, 4 of whom had not
even applied. While for information commissioners, 14 persons were shortlisted
of which 2 had not even applied for the post…. One such individual has been
appointed as an information commissioner… Further, minutes of meetings do not
record the rational criteria on the basis of which names were shortlisted,” the
petitioners stated.

The petitioners alleged that Bengal had failed to inform the Supreme
Court about the number of vacancies at the state information commission.

Quoting statistics available on the website of the Bengal information
commission, the petition said several matters filed more than 10 years ago were
heard in 2018. The petition alleged that it would take two years to clear the
backlog and also the matters filed in the intervening period if the commission
continued to dispose of cases at the current rate — 4,500 a year.

Such long waiting periods defeat the purpose of the RTI Act, which is to
ensure information disclosure in a time-bound manner, the petitioners said.

The Andhra Pradesh commission website shows that the panel has been
defunct since May 2017, the petitioners said. No appeals or complaints had been
heard since then. On the web portal of the Andhra government details such as
the names of search committee members and shortlisted candidates and the selection
criteria could not be located, the petitioners said.

Information submitted by the Telangana
commission on affidavit shows that on average it disposes of about 2,000
matters annually, the petitioners said. If the commission functions at the same
rate, it will take six years to just dispose of the 11,762 cases that are
pending as on December 2018. Nine posts of information commissioners are
vacant.

The petitioners said that on the website of the Maharashtra general
administration department no details regarding names of search committee
members and shortlisted candidates and the selection criteria could be located.
Two posts of information commissioners are vacant and 42,000 cases pending.

In Gujarat nine posts of information commissioners are vacant. The
commission was functioning with one chief and one commissioner as of 21^st
January, 2019. Nearly 5,200 cases are pending. Although advertisements for
appointments were issued nearly two years ago, no appointments had been made.

In Kerala five posts of state information commissioners are lying vacant
because of the pendency of some writ petitions in the high court.

In the affidavit filed on behalf of the Karnataka government it is
mentioned that one post of state information commissioner is vacant and that an
advertisement had been put out seeking applicants. However, Karnataka High
Court has stayed the appointment process now.

(Source:https://www.telegraphindia.com/india/govt-breached-rules-in-filling-rti-commission-supreme-court-told/cid/1682549)

Service book is personal and does not fall under RTI: SIC

In a landmark order, State Information Commission said the Service Book
of an employee is “personal” and
cannot be provided to third party under the Right to Information Act.

Hearing the appeal from Excise inspector Amit Morajkar, SIC Juino
D’Souza expresses serious concern the First Appellate Authority has passed an
Order directing the PIO to provide certified copies of the Service Book of the
third party without even hearing and considering the objections of the ‘Third
Party’.

Also, it is seen that the procedure under section 11 has not been
followed and which includes giving notice to the concerned officer, he said.

The Commission further observed that the FAA in the present case is a
senior IAS officer, holding the post as ‘Commissioner of Excise’ and being a
quasi-judicial authority should have applied his mind and decided the First
Appeal as per 19(1) purely on merits as per the RTI act 2005. The FAA is duty
bound to see that the justice is done.

“The Service Book of an employee is essentially a matter between the
employer and employee more so as it contains important records such as annual
confidential report, family nomination, health status, disciplinary proceedings
taken against the employee and other such information that is Personal in
nature and every Government servant has a right to guard the same,” he
observed.

Further, the order stated, unless larger public interest is shown, the
furnishing of such records can cause prejudice and unwarranted invasion of
privacy to the concerned government servant, besides the information can also
be misused against the employee by unscrupulous elements using RTI as a
cover.

The SIC cautioned the FAA is accordingly instructed to be more cautious
in future while dealing with information that is ‘Personal’ in nature and which
may cause invasion of privacy and also information falls under the ambit of
exemptions under section 8 of the RTI act 2005, specially the exemption under
section 8(1)(j) of the RTI act 2005.

“With these observations all proceedings in Appeal case stand closed,”
the order states.

(Source:https://www.heraldgoa.in/Goa/Service-book-is-personal-and-does-not-fall under-RTI-SIC/141726.html
)

Highest RTI applications filed 2017-18, lowest rejected since 2005:
Central Information Commission data

A record 12.3 lakh RTI applications were filed in 2017-18 with 96 per
cent of them being responded to by government offices, making it the best
performing year since the law was enacted in 2005, the Central Information
Commission data shows.The data from the latest CIC annual report, shared by the
Ministry of Personnel, Public Grievances and Pensions shows that during
2017-18, 12.33 lakh RTI applications were received by the registered Central
Public Authorities (PAs).

“This is higher by 3,17,458 or 26 per cent than what was reported
during 2016-17. The Central PAs rejected 4 per cent (63,206) of the RTI
applications processed during 2017-18 showing a downward trend in rejections
which have come down by 2.59 per cent from the 6.59 per cent reported in
2016-17,” it said.The four per cent rejection rate is the lowest since
2005 when the RTI Act was enacted by Parliament giving people the right to get
information from government offices on a payment of INR 10. The public authorities used
exemptions provided under section 8, section 9, section 11 and section 24 of
the RTI Act to reject plea for information.

Thirty-two per cent of applications were rejected citing other reasons.
Section 8 lists nine subsections covering issues such as national security,
commercial confidence, parliamentary privilege, cabinet papers, personal
information among others under which information can be denied to a person.

Section 9 pertains to information related to infringement of copyright,
section 11 deals with third party information and section 24 is related to security
and intelligence organisations exempted from the RTI Act. The year proved
successful to the efforts of the Central Information Commission that all public
authorities file their annual returns with it which is mandatory under the RTI
Act. On this front, 100 per cent compliance was witnessed during 2017-18 which
is a first since enactment of the transparency law, the data showed.

(Source:https://economictimes.indiatimes.com/news/politics-and-nation/highest-rti-applications-filed-2017-18-lowest-rejected-since-2005-central-information-commission-data/articleshow/67369101.cms
)

Part D IRTI ARTICLE

SC Seeks Explanation for Arbitrary Appointment of Information
Commissioners

The Supreme Court took note of the arbitrary
and haphazard manner in which the information commissioners in the Central
Information Commission were selected recently and directed the Department of
Personnel & Training (DoPT) to reply by 29^th January, at the
next hearing.

This is a sequel to Supreme Court’s directive to DoPT to upload on its
website details of the process of information commissioner appointments by the
selection and search committee. Thanks to legal intervention by three right to
information (RTI) activists, Anjali Bharadwaj, Amrita Johri and Commodore
Lokesh Batra (retd), these documents, in the public domain now, reveal how the
selection committee violated several norms to appoint the Chief Information
Commissioner and four information commissioners of “their choice.”

Now, it is clear that the appointment of Sudhir Bhargava, an information
commissioner until now in the CIC and four information commissioners—Vanaja N
Sarna (the only lady), formerly, chief of the Central Board of Excise and
Customs (CBEC); Yashwardhan Kumar Sinha, former High Commissioner of India to
the UK; Suresh Chandra, former Union law secretary and Neeraj Kumar Gupta,
secretary in the department of investment and public asset management are not
as per the norms laid out for these
committees as per the RTI Act.

One of the petitioners, Anjali Bharadwaj, pointed out in the Supreme
Court, “the search committee had, in violation of its mandate, short-listed
persons who had not even applied for the post in response to advertisements.
Further, the minutes of the search committee meeting revealed that no rational
criteria were adopted on the basis of which the short-listing was done. Also,
the minutes showed the completely ad-hoc manner of functioning of the search
committee, wherein people who were appointed members of the committee, also
applied for the post and had to be subsequently replaced and were finally even
short-listed. One of the person who has been appointed- Shri Suresh Chandra,
had not even applied for the post.”

The Supreme Court took serious note of all the issues and directed that
the government should file a report on all the issues highlighted by the
petitioners and listed the matter. All the states were also directed to file
their reports before the hearing.

Research scholar and RTI activist, Venkatesh Nayak has closely studied
the documents put up by the DoPT regarding the selection committee’s glaring
bias of appointing present and former government servants as information
commissioners, by throwing to the winds rules under section 12 (5) and 15(5) of
the RTI Act as well as the Supreme Court ruling in the matter of Union of India
vs. Namit Sharma [ AIR 2014 SC 122], which clearly state that eminent persons
from various fields should also be chosen for the posts.

The following is Venkatesh Nayak’s observations
and analysis, along with those of Commodore Batra:

The file notings show that 64 applications were received within the
stipulated deadline, from across the country against the vacancy advertised in
two English language and two Hindi language newspapers. Four applications were
received after the lapse of the deadline. The DoPT has only disclosed the names
of these applicants and withheld their applications and bio data by invoking
Section 8(1)(j) of the RTI Act which seeks to exempt personal information of an
individual from disclosure. About 20 pages of documents contained in the files
have been withheld from disclosure in this manner.

Who were the search committee members?

The six-member search committee headed by the cabinet secretary
included the secretaries of the DoPT and the dept. of expenditure (in the
finance ministry), the information & broadcasting, and the additional
secretary to the prime minister of India. The director of the Institute of
Economic Growth was the independent member. Interestingly, the secretary, dept.
of expenditure declared that he had applied for the post of information
commissioner. So after consultations with the PMO, he was retained on the
search committee

How many times did the search and the selection committees meet?

Only four members of the search committee met on 24^th
November, 2018 in the committee room of the cabinet secretariat to draw up the
shortlist. According to the file notings disclosed by the DoPT, the secretary
I&B and the secretary, expenditure could not attend the meeting.

The selection committee comprising the Prime Minister, his nominee, the
finance minister and the leader of the single largest party in opposition in
the Lok Sabha met on the 11^th of December to finalise their
recommendation to the President of India. Only one name of the appointee was
recommended. In fact, contrary to media reports, the selection of the chief
information commissioner preceded the finalisation of the names of the
information commissioners.

Whom did the search committee shortlist?

The search committee shortlisted
four candidates for the consideration of the selection committee. All four of
them were retired IAS officers including the newly appointed chief information
commissioner, Sudhir Bhargava. No women were included in this short list. The
list of 68 applicants reveals the names of at least four women. No candidate
from other areas of specialisation mentioned in the RTI Act was shortlisted.
This is a clear breach of the Supreme Court’s directions.

Further, the serving information commissioners, Bimal Julka and D. P.
Sinha who had also applied for the post of the chief information commissioner,
were not even shortlisted. Further, three of the four shortlisted candidates
had not even applied in response to the advertisement for the vacancy of the
chief information commissioner. They included Madhav Lal, a former secretary of
the ministry of micro, small and medium enterprises, Alok Raawat, a former secretary of DoPT’s
sister department, department of administrative reforms and public
grievances, R P Watal, the current
principal adviser Niti Ayog and former secretary, dept. of expenditure and Dr.
S. K. Nanda, former addl. chief secretary, government of Gujarat.

Observes Nayak, “The search committee meeting minutes indicate that its
members considered names of other serving and retired civil servants who had
not applied at all. This is perplexing to say the least. One of the women
applicants had recently retired as the chief secretary of the government of
Karnataka. How her candidature was given lesser weightage than that of the
former addl. chief secretary of Gujarat who had not even put in his application
in the first place, is a mystery. The minutes of the search committee meeting
are silent on this issue. This raises serious questions about the manner in
which the search committee determined “eminence” in public life.
Neither the committee nor the DoPT have publicised the criteria adopted for
determining “eminence in public life”. Further, how the claims of the
two serving information commissioners were undervalued in comparison to the
three shortlisted retired bureaucrats who had no previous experience of
adjudicating RTI disputes in any information commission is also a mystery that needs
to be cleared.’’

Tenure and terms and conditions of service of
the new appointees

It may be remembered here that
the government sought to amend the RTI Act mid-2018 to give itself the power to
determine the tenure and the terms and service conditions of the information
commissioners across the country. Despite giving notice of its intention to
introduce a bill to this effect in the Rajya Sabha, the government was not able
to introduce it during the 2018 monsoon session. The documents disclosed by the
DoPT indicate that the government sought to make the changes through the
ordinance route. However, this plan did not materialise and the documents that
the DoPT has disclosed on its website are silent on the underlying causes. The
file notings indicate, the government was planning to reduce the term of the
information commissioners to three years.

The only good part of these appointments:

The selection intimation letters issued to the new appointees indicate
that the terms of appointment are in accordance with the provisions of the RTI
Act, namely five years (including term served as information commissioner)
subject to the maximum age limit of 65. Salaries will be equal to that of the
chief election commissioner and the election commissioners, as the case may be,
in accordance with the provisions of the RTI Act. So despite advertising that
the government would determine the tenure and service conditions of the chief
information commissioner and information commissioners, the government has had
to eat humble pie by toeing the line of the law.

Box

How much time did the Committees spend making the final selections?

The documents released by the DoPT reveal only the date, time and venue
of the meetings of the search and the selection committees.

The search committee met on three occasions (twice for shortlisting the candidates for appointing as ICs and once
for shortlisting the candidate for appointment as the chief information
commissioner).

The selection committee met twice. The duration of these meetings is not recorded in the meeting minutes.
However, the minutes indicate that the search committee looked at all eligible
applications (the number is not known- whether all applications received were
found eligible or not) and also discussed names of other serving and retired
civil servants suggested by its members.

The minutes of the selection committee indicate that it not only
examined the applications shortlisted by the search committee but also all
eligible applications. A simple thought experiment may be conducted to estimate
the time required to consider all applications:

Chief information commissioner’s post: There were 64 applicants
who submitted their applications in a timely manner. The search committee
recommended three more names. So the selection committee had to examine 67
applications. Assuming that each bio data would require at least 5 minutes to
read and familiarise oneself, each member of the selection committee would
require to spend 335 minutes. In other words this implies spending at least 5.5
hours merely examining all applications. If the 4 late applicants’ bio data are
included, another, 20 minutes will have to be added to this figure.

Information commissioners’ post: There were 281 applicants who
submitted their applications in a timely manner. The search committee
recommended one more name. So the selection committee had to examine 282
applications. Assuming again that each bio data would require at least 5
minutes to read and familiarise oneself, each member of the selection committee
would require to spend 1,410 minutes, that is, at least 23.5 hours – or almost
an entire day examining all applications. If the 10 late applicants’ bio data
are included, another 50 minutes will have to be added to this figure. Taken
together, the selection committee would have to spend at least 29 hours merely
reading the applications. How much time would be required to “consider all
relevant factors” before arriving at a consensus on the five names (one
chief and 4 ICs) as mentioned in the minutes is anybody’s guess.

Asks Nayak, “Did the committee
actually spend so much time on the selection process? The government must
urgently answer.’’

(Source:https://www.moneylife.in/article/sc-seeks-explanation-for-arbitrary-appointment-of-information-commissioners/56177.html
)

______________________________________________

RTI Clinic in
February 2019: 2^nd, 3^rd, 4^th Saturday, i.e. 9^th,
16^th and 23^rd
11.00 to 13.00 at BCAS premises

BCAJ Admin

ALLIED LAWS

20. Additional Evidence – Translated document would not amount to
additional Evidence. [Civil Procedure Code, 1908; Or. 41 R. 27]

Chandreshwar Bhuthnath Devasthan vs. Baboy Matiram
Varenkar (2018) 12 Supreme Court Cases
548

The Defendant
in support of the title had filed certain documents in Portuguese language in
trial court. The English translation of the said document was submitted before
the First appellate court. The first appellate court in para 43 of its judgment
observed that there was no application filed under the provisions of Order XLI
Rule 27 of the Code of Civil Procedure, 1908 (in short ‘the CPC’) for producing
the additional translation of the original document. As such translation could
not be taken on record prayer had been disallowed for taking English version on
record, which the High Court upheld.

It was held
that the translated version of the already filed document could not be said to
be constituting additional evidence as the original document was already on
record of the trial court. It was thus in order to facilitate the just decision
of the matter and to enable the court to read the document, its translated
version had been filed which ought to have been taken on record without any
demur by the court below. Interest of justice required it to be taken on record
being document recording title. Accordingly, the matter was set aside to the
first appellate authority to re-assess the evidence taken into consideration.

21. Conditional Gift – Cancellation during lifetime is held to be
proper. [Transfer of Property Act, 1882; Section 122, 123]

S. Sarojini Amma vs. Velayudhan Pillai Sreekumar AIR 2018 Supreme Court
5232

In the facts of
the case, in expectation that, Respondent would look after Appellant and her
husband and also for some consideration, appellant executed a purported gift
deed in favour of Respondent. Gift deed clearly stated that, gift would take
effect after death of Appellant and her husband.

It observed
that a conditional gift with no recital of acceptance and no evidence in proof
of acceptance, where possession remains with the donor as long as he is alive,
does not become complete during lifetime of the donor. When a gift is
incomplete and title remains with the donor the deed of gift might be
cancelled. Moreover, a conditional gift only becomes complete on compliance of
the conditions in the deed.

It was held
that, in the present case, since the appellant applied for cancellation before
the death of the appellant, there was no completed gift of the property in
question by the Appellant to the Respondent and the Appellant was within her
right in cancelling the deed.

22. Consumer – Person purchasing goods for self employment is considered
as a ‘consumer’. [Consumer Protection Act, 1986; Section 2(1)(d)]

Paramount Digital Color Lab and Ors. vs. Agfa India Pvt. Ltd. and Ors.
AIR 2018 Supreme
Court 3449

Complaint was
filed where the State Commission directed Respondents to pay compensation on
account of loss, mental and physical torture and expenses of Appellants. Appeal
was filed by Respondents which was allowed on ground that Appellants should not
be considered as consumers.

The facts show
that the appellants being unemployed graduates decided to start a business of
photography in partnership for self-employment and for their livelihood. For
such purpose, they purchased a developing and printing machine which eventually
failed to work due to a defect in a pre-loaded software. A contention was made
by the respondents that the Appellants do not come under the definition of
‘Consumer’ under the Consumer Protection Act, 1986, since the appellant
intended to use the goods for ‘Commercial Purposes’, which the ‘Act’
specifically prohibits.

It was observed that the point to be considered was whether the
Appellants had purchased the machine in question for “commercial
purpose” or exclusively for the purposes of earning their livelihood by
means of “self-employment”.

It was held by
the Hon’ble Supreme Court that the Appellants purchased the machine for their
own utility, personal handling and for their small venture which they had
embarked upon to make a livelihood. The same is distinct from large-scale
manufacturing’ or processing activity carried on for huge profits. There is no
close nexus between the transaction of purchase of the machine and the alleged
large-scale activity carried on for earning profit. Since the Appellants had
got no employment and they were unemployed graduates, that too without
finances, it is but natural for them to raise a loan to start the business of
photography on a small scale for earning their livelihood. Accordingly, the
appeals were allowed.

23. Hindu Law – Under the principles of prestine Hindu Law, daughters
would not inherit properties of their father if there are male survivors and
widows. [Hindu Succession Act, 1956; Section 14]

Kunnath Narayani and Ors. vs. Kunnath Kochan and Ors. AIT 2018 Kerala
141 Full Bench

There was a
difference of opinion between the different schools of Hindu law as to the
nature of the right that would be inherited by a daughter. The Courts in Bengal
and Madras have consistently decided in a series of decisions that the daughter
takes only a qualified estate, though the courts of Bombay have taken the view
in some cases that the daughter inherits the property absolutely. Where the
daughter succeeds to the estate of the father in the absence of male survivors
under the principles of pristine Hindu law, the estate would be a qualified one
and the same would certainly ripen into an absolute one by virtue of section 14
of the Act. Hence the full bench was constituted in order to resolve such
issue.

Before the Full
bench, the facts stated that the Plaintiff is the sister of the defendants. The
suit was filed raising the contentions that the suit property belonged to the
father of the parties, Perachan, who died prior to enforcement of the Hindu
Succession Act. The deceased was survived by his wife, his sons, the defendants
and his daughters; they contended that since the plaintiff (daughter) and her
sister were unmarried, they acquired limited ownership in the suit properties
on the death of their father; they also contended that the said limited
ownership became absolute ownership by virtue of section 14 of the Act; further
they contended that the plaintiff’s sister died unmarried and issueless on
10-9-1972; that the mother died on 22-8-1985 and that since the plaintiff’s
sister and mother are survived by the plaintiff and defendants, the plaintiff
is entitled to l/3^rd share over the suit properties which are in
joint possession of the plaintiff and defendants. As defendants did not accede
to the demand of the plaintiff to partition the property, the suit was laid.

Defendants
contested the suit contending mainly that they being the male children of
Perachan (father), the suit properties devolved on them exclusively on the
death of their father in terms of the principles of Hindu Mitakshara Law
applicable to them and they are in exclusive possession of the same.

The Full bench
held that Hindu Woman’s Right to Property Act was introduced in circumstances
to give better rights to woman in respect of property. However, said statute
only applies to Hindu widows and not to other Hindu females. Rights to Hindu
females are governed by principles of Hindu Law till the Act came into force.
Under the principles of Mithakshara Law, self-acquired properties and separate
properties of the Hindu male devolves in the heirs by succession and not to his
coparceners. But, daughter, mother and to grandmother were recognised as heirs
only to one who died without male issues. As regards order of succession among
them, daughter does not inherit until all widows are dead and gone. Under
principles of Hindu Law, daughters would not inherit properties of their father
if there are male survivors and widows. In case where daughter succeeds to
estate of father in absence of male survivors under principles of Hindu Law,
estate would be qualified one and same would certainly ripen into absolute one
by virtue of section 14 of Act.

In the facts of the present case, the plaintiff being the daughter of
Perachan was not covered by the Hindu Women’s Rights to Property Act. The Court
held that as the plaintiff was unmarried at the time when the succession
opened, she had only a right to claim maintenance out of the income from the
properties till her marriage. When the plaintiff has not acquired any right in
the property, as explained in the various decisions of the Apex Court and High
Courts referred to in the case, the application of section 14 of the Act does
not arise in her case.

24. Partnership Firm – Properties allotted to
Partners vide a valid dissolution deed – Transfer not valid if no valid deed of
Conveyance. [Partnership Act, 1932; Section 48, 14; Registration Act, 1908;
Section 17(1)]

State of Kerala and Ors. vs. V.D. Vincent AIR 2018 Kerala 199

The facts of the case show that there were partners in a Firm who were
entitled to a transfer of registry of the properties accruing to them
consequent to the dissolution of the Firm, without there being a registered
document, transferring the interest of the partner, who had the ownership of
the property, prior to it being brought into the stock of the Firm.

It was observed that a dissolution deed, that merely allocates items of
immovable properties to a partner, proportionate to his share in the assets of
the firm without conveying title of the said property to him, does not confer
on the said partner a right to obtain mutation of the property in his name,
under the Transfer of Registry Rules.

It was held that only a
valid deed, duly registered, can convey the title over immovable property to
the writ petitioners, and it is only thereafter that they can seek a transfer
of registry in respect of the said items of immovable property.

BCAJ Admin

ALLIED LAWS

20. Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002, sections 2(c) and 5(c), Banking Regulation Act, 1949,
sections 5(b) and 6(1) – Co-operative banks – Definition of ‘banks’ – SARFAESI
Act – Power of the Central Government to legislate

Pandurang
Ganpati Chaugule vs. Vishwasrao Patil Murgud Sahakari Bank Limited; Civil
Appeal No. 5674 of 2009 (SC); Date of order: 5^thMay, 2020

Bench: Arun
Mishra J., Indira Banerjee J., Vineet Saran J., M.R. Shah J., Aniruddha Bose J.

FACTS

A question
arose with respect to the legislative field covered by Entry 45 of List I, viz.
‘Banking’ and Entry 32 of List II of the Seventh Schedule of the Constitution
of India, consequentially the power of the Parliament to legislate and the
applicability of the SARFAESI Act to co-operative banks.

HELD

The Supreme Court held that the
co-operative banks under the State legislation and multi-state co-operative
banks are ‘banks’ u/s 2(1)(c) of the SARFAESI Act and while state laws might
regulate co-operative societies regarding their incorporation, regulation and
winding up, the Parliament was competent to enact laws to regulate their
banking function.

Further,
recovery is an essential part of banking; as such, the recovery procedure
prescribed u/s 13 of the SARFAESI Act, a legislation relatable to Entry 45 List
I of the Seventh Schedule to the Constitution of India, is applicable.
Parliament has legislative competence under Entry 45 of List I of the Seventh
Schedule of the Constitution of India to provide additional procedures for
recovery u/s 13 of the SARFAESI Act with respect to co-operative banks.

21. Covid-19 –
Period of limitation – Applicable to Arbitration & Conciliation Act, 1996,
and Negotiable Instruments Act, 1881

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 6^th May, 2020

Bench: Chief Justice S.A. Bobde, Deepak
Gupta J., Hrishikesh Roy J.

Counsel: K.K. Venugopal, Tushar Mehta

FACTS

The Hon’ble
Supreme Court had in the same petition vide order dated 23^rd
March, 2020 held that to ease the difficulties faced by the litigants and their
lawyers across the country in filing their petitions / applications / suits /
appeals, irrespective of the limitation prescribed under the general law or
Special Laws whether condonable or not, shall stand extended w.e.f. 15^th
March, 2020 till further order/s to be passed by the Court in the present
proceedings. A clarification was sought with respect to the applicability of
the order to the Arbitration and Conciliation Act, 1996 and the Negotiable
Instruments Act, 1881.

HELD

The Supreme
Court has clarified that all periods of limitation prescribed under the
Arbitration and Conciliation Act, 1996 and u/s 138 of the Negotiable
Instruments Act, 1881 shall be extended with effect from 15^th March,
2020 till further orders.

It further held
that in case the limitation has expired after 15^th March, 2020, then
the period from 15^th March, 2020 till the date on which the lockdown
is lifted in the jurisdictional area where the dispute lies or where the cause
of action arises, shall be extended for a period of 15 days after the lifting
of the lockdown.

22. Partnership Act, 1932, sections 37 and 42 – Partnership firm – Only
two partners – Retirement of one partner – Dissolution – Accounts to be settled
accordingly

Guru Nanak Industries vs. Amar Singh
(deceased) through LR

Civil Appeal No. 6659-6660 of 2010 (SC);
Date of order: 26^th May, 2020

Bench: Sanjiv Khanna J., N.V. Ramana J.,
Krishna Murari J.

FACTS

The firm had two partners and one of them
agreed to retire. The dispute arose as to whether the same amounted to ‘dissolution of a partnership firm’ or ‘retirement of a partner’ as
the same would have a direct bearing on the accounting treatment for settling
of the accounts.

HELD

The Supreme Court held that there is a clear
distinction between ‘retirement of a partner’ and ‘dissolution of a partnership
firm’. On retirement of the partner, the reconstituted firm continues and the
retiring partner is to be paid his dues in terms of section 37 of the
Partnership Act. In case of dissolution, the accounts have to be settled and
distributed as per the mode prescribed in section 48 of the Partnership Act. In
the present case, there being only two partners, the partnership firm could not
have continued to carry on business as a firm. A partnership firm must have at
least two partners. When there are only two partners and one has agreed to
retire, the retirement amounts to dissolution of the firm.

23. Indian
Evidence Act 1872, sections 65 and 66 – Wills – Existence of a Will – Secondary
evidence to establish its existence

Jagmail Singh vs. Karamjit Singh; Civil
Appeal No. 1889 of 2020 (SC); Date of order: 13^th May, 2020 Bench: Navin Sinha J., Krishna Murari J.

FACTS

During the pendency of a land dispute, an
application under sections 65 and 66 of the Evidence Act was moved by the
appellants seeking permission to prove a copy of a Will dated 24^th
January, 1989 by way of secondary evidence. The application was made on the
ground that the said original Will was handed over by the appellants to revenue
officials for sanctioning the mutation in their favour. The revenue officials
were issued notice for production of the original Will dated 24^th
January, 1989 but they failed to produce the said Will. The application was
then dismissed.

HELD

The Supreme Court held that a perusal of
section 65 makes it clear that secondary evidence may be given with regard to
the existence, condition or the contents of a document when the original is
shown or appears to be in possession or power against whom the document is
sought to be produced, or of any person out of reach of, or not subject to, the
process of the Court, or of any person legally bound to produce it, and when,
after notice mentioned in section 66 such person does not produce it. It is a
settled position of law that for secondary evidence to be admitted foundational
evidence has to be given being the reasons as to why the original evidence has
not been furnished.

Further, during cross-examination the
(revenue) officials did not unequivocally deny the existence of the Will and
the scribe of the Will and another witness had admitted the existence of such a
Will. Therefore, the appellants would be entitled to lead secondary evidence in
respect of the Will in question. However, such admission of secondary evidence
does not automatically attest to its authenticity, truthfulness or genuineness
which will have to be established during the course of the trial in accordance with
law.

24. Covid-19 –
General law – Service of notices, summons and exchange of pleadings / documents

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 10^th July, 2020

Bench: Chief Justice S.A. Bobde, R. Subhash
Reddy J., A.S. Bopanna J.

Counsel: K. K. Venugopal, Tushar Mehta

FACTS

Service of notices, summons and exchange of
pleadings / documents is a requirement of virtually every legal proceeding.
Services of notices, summons and pleadings etc. have not been possible during
the period of lockdown because this involves visits to post offices, courier
companies or physical delivery of notices, summons and pleadings. The Supreme
Court took cognisance of this fact.

HELD

The Hon’ble Supreme Court held that such
services may be effected by e-mail, FAX, commonly used instant messaging
services, such as WhatsApp, Telegram, Signal, etc. However, if a party intends
to effect service by means of said instant messaging services, the party must
also effect service of the same document / documents by e-mail simultaneously
on the same date.

BCAJ Admin

ALLIED LAWS

24. HUF – Rights of daughter – Coparcenary property – Partition
deed and settlement deed indicating that defendant’s son is absolute owner of
suit premises – Plaintiff having married prior to enforcement of Hindu
Succession Act – Not entitled to claim share in suit properties [Hindu
Succession Act, 1956, S. 6; Hindu Succession Amendment Act, 2005]

Amsaveni vs.
Viswanathan; AIR 2020 Madras 20

The plaintiff is the daughter and the
second defendant is the son of the first defendant. The plaintiff was married
to one Rajaram in the year 1987 and they had two children. The plaintiff’s
husband began to ill-treat the plaintiff and therefore she left the company of
her husband six years ago and came to her parents’ house along with the male
child. Subsequently, the male child was taken away by the plaintiff’s husband.
The plaintiff was provided a separate residence by the defendants and
accordingly the plaintiff was also enjoying the suit property as a joint family
member of the defendants and therefore, according to the plaintiff, she is
entitled to obtain her share in the suit properties.

The Court held that the plaintiff has
admitted that she was married to one Rajaram in the year 1987. Therefore, as
determined by the first appellate court, the plaintiff having got married prior
to the enactment of the Hindu Succession (Amendment) Act 1989 and the Hindu
Succession (Amendment) Act, 2005, she
would not be entitled to claim share in the suit properties claiming to be a
coparcener of the same.

25. Precedent – Two mutually irreconcilable decisions of co-equal
Benches of the Supreme Court – Earlier decision to prevail – Subsequent view
would be held as per incuriam [Constitution of India, Art. 141]

Vasanthi Shridhar
Bangera vs. Vishala Bokapatna Laxman; AIR 2020 Bom. 31

The plaintiff is the
younger sister of the respondent. She sued her elder sister and brother-in-law
for eviction. The suit was decreed. Vasanthi, the elder sister, and her husband
appealed, but without success. In the meanwhile, her husband died. So, along
with her children, the respondent filed this Civil Revision Application. The
issue No. 3 was pertaining to the retrospective applicability of the Benami
Transaction (Prohibition) Act, 1988.

A three-judge bench of the Hon’ble
Supreme Court in the case of R. Rajagopal Reddy, in principle, accepted that
the Act is prospective. However, the petitioners relied on a three-judge bench
of the Hon’ble Supreme Court in the case of K. Govindraj wherein, in a case
pertaining to Minor Mineral Concession Rules, it was held that the legislature
can legislate prospectively or retrospectively.

It was held that the decision in the
case of K. Govindraj, a co-equal bench of the Supreme Court upsets R. Rajagopal
Reddy’s proposition. However, firstly, a decision that deals with an
issue directly should take precedence over a decision which deals with the same
issue collaterally. Secondly, in the event of the two co-equal bench
decisions, the former prevails and the latter can also be per incuriam
if it is not possible for the Court to reconcile its ratio with that of
a previously pronounced judgment. It was further held that the former case does
not dilute nor overrule the latter case.

26. Registration – Compulsory – Unregistered agreement of mortgage
by conditional sale – No evidentiary value [Registration Act, 1908, S. 17, 49]

Tukaram S/o Shankar
Gondkar vs. Dnyaneshwar S/o Sopanrao; AIR 2020 (NOC) 123 (Bom.)

The petitioner is the original plaintiff
in Regular Civil Suit No. 80/1990. He claims to have purchased the land
admeasuring 40 R. out of Survey No. 167 vide sale deed dated 29^th
April, 1981. The petitioner, by preferring the suit for redemption of mortgage
of 40 R. land from Survey No. 167/5/A, contended that respondent No. 1 had
entered into a mortgage deed dated 30^th July, 1979 with the
petitioner for a period of five years. The said period ended on 30^th
July, 1984 and the mortgage was to be redeemed by respondent No. 1 in favour of
the petitioner. Since he failed to do so, the petitioner was constrained to
prefer the said suit.

It was held that the document at issue
was necessarily required to be registered. Since it was an unregistered
document, it was struck by section 49 of the Registration Act under which no
document required to be registered u/s 17 of the Act would have any evidentiary
value.

27. Website – Order/Judgment from official website has sanctity –
Should not be refused

Ibrahim Sk. Rasool
vs. Mohommad Zahir Mohammad Sharif and Ors.; Civil Application No. 411 of 2018
in Second Appeal No. 157 of 2017; Date of order: 19^th March, 2018
(Bom.)(HC)

The counsel for the applicant had
approached the office of the appellate court in order to deposit the amount of
Rs. 5,000 in terms of the judgment and order dated 4^th September,
2017, relying upon the copy of the said judgment and order obtained from the
official website of the Court. But the office of the Court below refused to
accept the said amount on the ground that it would do so only when an official
copy of the said order was received from the Court.

It was held that
the insistence on an official copy of the order of the Court was absolutely
uncalled for and the applicant / appellant ought to have been permitted to
deposit costs on the basis of the copy of the judgment and order obtained from
the official website of the Court. Further, a printout of the orders of the
Court from the official website has sanctity and the trial Courts are expected
to consider the said orders, if they are cited after taking a printout from the
official website. The said orders are also available before the trial Court
from the official website and there can be a counter verification to find out
whether such an order is actually uploaded to the official website or not.

BCAJ Admin

CORPORATE LAW CORNER

6. Mahesh Sureka vs. Marathe Hospitality [2020] 116 taxmann.com 552 (NCLT-Mum.) C.P.(IB) No. 3603/(MB)/2018 Date of order: 20^th March, 2020

Section 238 of the Insolvency and
Bankruptcy Code, 2016 – Assets attached by EOW were to be released in favour of
RP as non-obstante clause appearing in the later legislation would
precede the former – Transfer of assets to a partnership firm (where one of the
partners was a tax adviser of the corporate debtor) for an inadequate
consideration without prior consent of the mortgagee was a fraudulent
transaction and was set aside

FACTS

Insolvency
proceedings were admitted against the corporate debtor P Co on 14^th
March, 2018 on an application filed by U Bank (the ‘Financial Creditor’). One
of the properties of the corporate debtor was financed by way of mortgage by U
Bank. The corporate debtor had leased the said property to MH (a partnership
firm) on a long-term basis for a sum of Rs. 25,000 per month vide lease
deed dated 18^th May, 2016. Mr. AN, who was a partner in MH, was also
a tax adviser to the corporate debtor. Further, the said property was leased to
MH without obtaining the prior approval of U Bank.

The Resolution Professional (RP) learned
that one of the directors of the corporate debtor was in jail (in judicial
custody) and that the Economic Offences Wing (EOW) had attached several of the
properties of the corporate debtor which included its registered office. The RP
mentioned that due to the attachment of the registered office of the corporate
debtor and unavailability of the Directors and other staff members, it was
impossible to prepare essential details of the assets and liabilities of the
corporate debtor. The property mentioned above was also attached by the EOW.

Mr. AN contended that although it was the
duty of the corporate debtor before giving the said property on lease to seek
prior permission of U Bank, MH could not be prejudiced for the wrong-doings of
the corporate debtor. Further, as per section 46 of the Insolvency and
Bankruptcy Code, 2016 (the Code) the relevant time for avoidance of undervalued
transaction was one year prior to commencement of the Corporate Insolvency
Resolution Process (CIRP) of the corporate debtor. It was pleaded that since
the said lease agreement was entered into on 18^th May, 2016, and
hence was beyond the one-year period from the CIRP commencement date, it could
not be covered u/s 46 of the Code.

HELD

The Tribunal heard both the parties at
length. It observed that the lease rental for a period of ten years was a
paltry sum of Rs. 25,000 per month payable by the 10th of the subsequent month
and that the lease could be renewed for a further period by the lessee as per
the said agreement. The fact that Mr. AN was a partner in MH and a tax adviser
to the corporate debtor indicated that it was a case of preferred transaction.
The fact that there was no provision for an annual increment and the extension
was only at the prerogative of the lessee, leads to the conclusion that the
transaction was a fraudulent one.

The Tribunal
relied on the provisions of section 65A(2)(c) of the Transfer of Property Act,
1882 which provided that no lease shall contain a covenant for ‘renewal’. It
was observed that the lease agreement of the corporate debtor with a related
party MH provided for a total rent of a sum of Rs. 25,000 per month in respect
of huge commercial property measuring about 2,310 sq. metres along with a
two-storey building structure with no increase in rental for a period of ten
years. In addition, as per the lease agreement, there was a provision for
further extension at the will of the lessee. In view of this, the lease
agreement entered into between the corporate debtor and MH was held to be
illegal as per the relevant provisions of the Transfer of Property Act, 1882.

Besides, the mortgage deed signed by the
corporate debtor with U Bank provided that the corporate debtor could not let
or license its interest in the said property, or part with its possession,
unless it obtained the written consent of U Bank. Since the said consent was
not obtained, the Tribunal held that the transaction of lease was invalid and mala
fide.

The NCLT observed that the attachment of the
assets of the corporate debtor by the EOW would hamper the claim of the
creditors of the corporate debtor. Thus, to protect the interest of the bank
and the present creditors, NCLT directed the EOW and other Government
Departments to release the property and assets of the corporate debtor
currently attached with them so that the CIRP of the corporate debtor could be
conducted in the substantial public interest.

In the context of section 238 of the Code
which has a non-obstante clause, the Tribunal relied on the decision of
the Supreme Court in the case of Solidaire India Ltd. vs. Fairgrowth
Financial Services Pvt. Ltd., wherein it was held that where two statutes
contain the non-obstante clause, the latest statute would prevail.

Thus, the lease agreement was held as null
and void and the attachment of assets by the EOW was directed to be released in
favour of the RP for carrying out the CIRP in the best interest of the
creditors of the corporate debtor.

7. American Road Technology & Solutions
(P) Ltd. vs. Central Government, Hyderabad [2020] 115 taxmann.com 16 (NCL-Beng.) Date of order: 31^st December,
2019

Where company filed application for
revision of financial statements in F.Y. 2017-18, three preceding years for
purpose of revision of financial statements would be 2016-17, 2015-16 and
2014-15 (which was one of the years in which incorrect financial reporting had
been detected and in respect of which approval for revision had been sought),
since a true and fair picture of company’s finances would not emerge for F.Y.
2014-15 unless financial statements for 2012-13 and 2013-14 were also revised –
Application for revision of financial statements for years 2012 to 2015 was to
be allowed

FACTS

Company A Pvt. Ltd., the applicant, was
incorporated in the year 2012 under the Companies Act, 1956 with the Registrar
of Companies, Karnataka at Bangalore. Its business was mainly carried out in
Bangalore.

During the year 2014-15, the majority
shareholder was informed by one of the ex-senior employees that the affairs of
A Pvt. Ltd. are not run as per the provisions of the Companies Act and the
applicable rules and regulations, and further that there were several financial
irregularities and even falsification of accounts has taken place.

The majority shareholder and A Pvt. Ltd.
decided to appoint an independent auditor to conduct a forensic audit of the
company. The independent auditor submitted his investigation report. This
report was examined internally and expert views were also taken in consultation
with the independent auditor and the statutory auditor.

The statutory auditors had opined that A
Pvt. Ltd.’s records need improvement to ensure controls which are not
commensurate with the size of the company and the nature of its business, with
regard to execution of contracts and raising invoices.

The findings of
the statutory auditor were incorporated in the annual returns filed for the
financial year 2014-15 and it was noted that suspicious transactions have taken
place and falsification of accounts has been done. It was noted that the annual
returns and balance sheets for the years 2012-13, 2013-14 and 2014-15 were
filed without even reconciling the bank statements with the actual activities
of the company that have taken place during the relevant period.

After consideration of the independent
auditor’s report, the management had lodged various criminal proceedings. The
statutory auditor has advised A Pvt. Ltd. to move u/s 131 of the Companies Act,
2013 for the accounts to be redrafted for the period and recasting of the books
for the periods 2015-16 and 2016-17 to incorporate the changes in the opening
balances, subject to ratification by members in a general meeting. Accordingly,
the present petition was filed before the Tribunal.

Based on above factual matrix, the Tribunal
ordered notices to be issued to the respondents, namely, the Registrar of
Companies, the Regional Director, the Income Tax Officer concerned and the
auditor of the company.

The regional director (RD) submitted that
the company has filed the application u/s 131 of the Companies Act, 2013 for
revision of financial statement and board reports for the Financial Years
2012-13, 2013-14 and 2014-15. The RD raised an interesting issue that the application is not made for revision of any of
the three immediately preceding financial years but for all the earlier
years. Hence the same does not fall under the provisions of section 131
of the Act and that, too, for revision of financial statements to reflect
suspicious transactions and falsification of accounts that had taken place in
the company.

As per the Regional Director, u/s 131(2) of
Companies Act, 2013 the revisions must be confined to – (a) The correction in
respect of which the previous financial statement or report do not comply with
the provisions of section 129 or section 134; and (b) The making of any necessary
consequential alteration. He further stated that the petitioner company has
sought blanket revision of financial statements for the years 2012-13, 2013-14
and 2014-15 without actually specifying or limiting itself to any particular
entry or disclosure. Hence the petition is not maintainable. Further, the RD
reiterated that it appears that the revision of financial statements based on
alleged fraud will not fall within the ambit of section 134 of the Companies
Act, 2013.

HELD

The Tribunal, after considering the
objections raised by the RD, observed as under:

(i) The petition seeks approval for
voluntary revision of financial statements and board reports for the financial
years 2012-13, 2013-14 and 2014-15.

(ii) It is the contention of A Pvt. Ltd. that
this provision permits it to voluntarily revise its accounts for any three
preceding financial years, whereas the other respondents in these proceedings
have opposed this view and stated that the same is permitted only for any of
the three immediately preceding financial years and not beyond.

Section 131 of the Act reads as under:

Voluntary Revision of Financial
Statements or Board’s Report:

(1) If it appears to the directors of a
company that –

(a) the financial statement of the
company; or

(b) the report of the Board

do not comply with the provisions of
section 129 or section 134 they may prepare revised financial statement or a
revised report in respect of any of the
three preceding financial years after obtaining approval of the
Tribunal on an application made by the company in such form and manner as may
be prescribed and a copy of the order passed by the Tribunal shall be filed
with the Registrar…:’ (emphasis added).

The Tribunal observed that the petition is
filed on 22^nd January, 2018 and falls within the F.Y. 2017-18.
Section 131, even going by the contention of the respondent that the words ‘in
respect of any of the three preceding financial years’ should mean
‘immediately’ preceding three financial years, then such preceding three
financial years would be 2016-17, 2015-16 and 2014-15. Thus, F.Y. 2014-15,
which is one of the years in which the incorrect financial reporting has been
detected and in respect of which approval for revision has been sought, is
squarely covered by section 131.

The Tribunal
further observed that when a balance sheet is drawn for a particular year, it
brings forward balances of the preceding year/s, and as such will necessarily
impact the balance sheet for the Y.E. 31^st March, 2015, i.e., for
F.Y. 2014-15, and for this reason the years 2012-13 and 2013-14 will
necessarily have to be considered for revision of the accounts that are not
giving a true and fair picture of the accounts for these years, for the reasons
mentioned herein above. This accounting compulsion cannot be ignored.
Once this is made clear, the issue whether the accounts of the three F.Y.s
referred to in the petition could be revised or not in view of an
interpretation of section 131, becomes redundant and of mere academic interest.

In section 131
the term ‘immediately preceding’ is not used. Instead, the section speaks of ‘any
of the three preceding financial years‘.

In order to
determine the intent of the Legislature, it is necessary to look into the 57^th
Report of the Standing Committee on Finance on the Companies Bill, 2011. The
relevant portion of the said Report of the Standing Committee is extracted
below:

‘The change
proposes to provide procedural requirement in respect of revision in
accounts in certain cases. The present law is silent in respect of re-opening
or re-casting of accounts. In certain cases, particularly in cases relating
to fraud, there may be need to re-open / re-cast accounts to reflect true and
fair accounts. In case of Satyam, such re-casting was ordered
by the Court. The provisions in the Bill mandate such re-opening on the order
of the Court or Tribunal. In other cases the re-opening is being permitted,
through order of Tribunal, with adequate safeguards.’ (Emphasis supplied.)

The Tribunal
further observed that considering that the thrust of several provisions of the
Act is either to prevent financial misdemeanour or oppression and
mismanagement, all such provisions need to be understood and interpreted in
this light.

Since the
instant case is prima facie that of mismanagement, misreporting and
alleged fraud, the Tribunal observed that the section has to be interpreted in
the spirit of the Act and the exercise of correcting the same cannot become a
victim of interpretation of allowable time. Such time limits can at best be considered
to be advisory and not mandatory, since the same is only a procedural
requirement, as mentioned in the Standing Committee Report.

Thus, the
Tribunal observed that the words ‘in respect of any of the three preceding
financial years’ have to be read as any three previous years. It
further elaborated that even otherwise, the Tribunal is competent to initiate
reopening / revision of accounts u/s 130 in cases of the kind in hand, for
which no time limit is prescribed. It cannot be the case that if an application
is made u/s 131 where the grounds are similar to section 130, the accounts
prepared incorrectly, or when the affairs are
mismanaged, the revision of accounts would be prevented by any one view on time
limitation. Hence, in view of the totality of facts and circumstances, all
three years, i.e. F.Y.s 2012-13, 2013-14 and 2014-15, would be covered for
revision, not only because of the accounting compulsion, since F.Y. 2014-15 is
in any case covered, and the earlier years’ accounts have a bearing on the
same, but also as per the provision contained in section 131 of the Act.

The Tribunal
accordingly held that in the facts and circumstances of the case, this is a fit
case for granting approval u/s 131 to prepare revised financial statements and
/ or revised reports in respect of the F.Y.s 2012-13, 2013-14 and 2014-15 in
the case of A Pvt. Ltd. and the same was accordingly granted.

BCAJ Admin

CORPORATE LAW CORNER

1. Flat
Buyers’ Association Winter Hills-77 vs. Umang Realtech Pvt. Ltd.

Company Appeal (AT)(Ins.) No. 926 of 2019

Date of order: 4^th February, 2020

Insolvency and Bankruptcy Code, 2016 – Reverse Corporate
Insolvency Resolution Process is to be followed in the case of real estate
companies – The CIRP initiated for one project of a real estate company is
restricted to that project alone – It does not extend to the other assets or
projects of the said company

FACTS

R and A were allottees in the real
estate project of U Co. They moved an application u/s 7 of the Insolvency and
Bankruptcy Code, 2016 (Code) for initiating Corporate Insolvency Resolution
Process (CIRP) against U Co. NCLT passed an order admitting the application and
directed that R and A deposit a sum of Rs. 2 lakhs with the Interim Resolution
Professional (IRP). Under the Code, it is the duty of the IRP to keep the
company a going concern which would be very difficult in the facts of the
present case where Rs. 2 lakhs would be insufficient for the said purpose.

The typical issue for real estate
companies stems from the fact that while homebuyers / allottees are financial
creditors, the homes / projects are often assets of the corporate debtor that
are offered as security against loans taken from banks or Non-Banking Financial
Companies (NBFCs). The assets of the corporate debtor as per the Code cannot be
distributed, they are secured for secured creditors. On the contrary, the
assets of the corporate debtor are to be transferred in favour of the allottees
/ homebuyers and not to the secured creditors such as financial institutions /
banks / NBFCs.

Normally, the banks / financial
institutions / NBFCs also would not like to take the flats / apartments in
lieu of the money disbursed by them. On the other hand, the
‘unsecured creditors’ have a right over the assets of the corporate debtor,
i.e., the flats / apartments which constitute the assets of the company.

The NCLAT was to examine whether
during the CIRP a resolution could be reached without approval of the
third-party resolution plan.

One of the promoters, UH Co, agreed
to remain outside the CIRP but intended to play the role of a lender (financial
creditor) to ensure that the CIRP reaches success and the allottees take
possession of their flats / apartments during the CIRP without any third-party
intervention. The Flat Buyers’ Association of Winter Hills-77, Gurgaon also
accepted the aforesaid proposal. ‘JM Financial Credit Solutions Ltd.’, one of
the financial institutions, has also agreed to co-operate in terms of the
agreement on the condition that they will get 30% of the amount paid by the
allottees at the time of the registration of the flats / apartments.

The CIRP progressed and a number of
allottees took the possession of their flats and had the sale deeds registered
in their favour. UH Co invested a certain amount as an outside financial
creditor and as promoter co-operating with the IRP. The specific details of the
project were laid out before the NCLAT and which were also endorsed by the IRP.
The claim of JM Financials was also satisfied at the time of registration of
flats.

HELD

NCLAT
observed that there were some aspects which were typical to real estate
companies. The decisions of the Supreme Court in the cases of Committee
of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta as
well as Pioneer Urban Land and Infrastructure Limited & Anr. vs.
Union of India were referred to. It was observed that ‘allottees’
(homebuyers) come within the meaning of ‘financial creditors’. They do not have
any expertise to assess the viability or feasibility of a corporate debtor.
They don’t have commercial wisdom like financial institutions / banks / NBFCs.
However, these allottees have been provided with voting rights for approval of
the plan. NCLAT observed that many such cases came to its notice where the
allottees were the sole financial creditors. However, it was not made clear as
to how they can assess the viability and feasibility of the ‘Resolution Plan’
or commercial aspect / functioning of the corporate debtor.

Further, it was observed that in a
CIRP against a real estate company if allottees (financial creditors), or
financial institutions / banks (other financial creditors), or operational
creditors of one project initiated a CIRP against the corporate debtor (the
real estate company), it is confined to the particular project. It cannot
affect any other project(s) of the same real estate company (corporate debtor)
in other places where separate plan(s) are approved by different authorities;
land and its owner(s) may be different and mainly the allottees (financial
creditors), financial institutions (financial creditors), operational creditors
are different for such separate projects. Accordingly, all the assets of the
corporate debtor are not to be maximised. CIRP should be on a project basis as
per plans approved by the Competent Authority. Any other allottees (financial
creditors), or financial institutions / banks (other financial creditors), or
operational creditors of other projects cannot file a claim before the IRP of
the other project of the corporate debtor and such claim cannot be entertained.

It was thus held that CIRP against a
real estate company (corporate debtor) is limited to a project as per the plan
approved by the Competent Authority and does not extend to other projects which
are separate and for which separate plans are approved.

Further,
a secured creditor such as a bank or financial institution, cannot be provided
with the asset (flat / apartment) in preference over the allottees (unsecured
financial creditors) for whom the project has been approved. Their claims are
to be satisfied by providing the flat / apartment. While satisfying the
allottees, one or other allottee may agree to opt for another flat / apartment
or one tower or another tower if not allotted otherwise. In such a case, their
agreements can be modified to that effect.

The prayer of any allottee asking
for a refund cannot be entertained in view of the decision of the Supreme Court
in the case of Pioneer Urban Land and Infrastructure Limited & Anr.
vs. Union of India & Ors. [(2019) SCC OnLine SC 1005]. However,
after offering allotment it is open to an allottee to request the IRP /
promoter, whoever is in charge, to find out a third party to purchase the said
flat / apartment and get the money back. After completion of the flats /
project or during the completion of the project, it is also open to an allottee
to reach an agreement with the promoter (not corporate debtor) for a refund of
the amount.

In a CIRP, NCLAT was of the view
that a ‘Reverse Corporate Insolvency Resolution Process’ could be followed in
cases of real estate infrastructure companies in the interest of the allottees
and survival of the real estate companies, and to ensure completion of projects
which provides employment to large numbers of unorganised workmen.

UH Co, in the facts of the present
case, was directed to co-operate with the IRP and disburse amounts (apart from
the amount already disbursed) from outside as lender (financial creditor) and
not as promoter, to ensure that the project is completed within the time frame
given by it. The flats / apartments should be completed in all aspects by 30^th
June, 2020. All internal fitouts for electricity, water connection should be
completed by 30^th July, 2020. The financial institutions / banks
should be paid simultaneously. Common areas such as swimming pool, clubhouse,
etc. as per the agreement be also completed by 30^th August, 2020.
The allottees are allowed to form a ‘Residents’ Welfare Association’ and get it
registered to empower them to claim the common areas. Only after getting the
certificate of completion from the Interim Resolution Professional / Resolution
Professional and approval of the Adjudicating Authority (National Company Law
Tribunal), unsold flats / apartments, etc. be handed over to the promoter / UH
Co.

If the ‘promoter’ fails to comply with the
undertaking and fails to invest as financial creditor, or does not co-operate
with the Interim Resolution Professional / Resolution Professional, the
Adjudicating Authority (National Company Law Tribunal) will complete the
Insolvency Resolution Process.

BCAJ Admin

ALLIED LAWS

1. Appeal
– High Court – Non-appearance of counsel – Matter dismissed by the High Court
on merits – Unjustified – Matter remanded [Civil Procedure Code, 1908, S. 100,
O. 41, R. 17]

Prabodh Ch. Das and Ors. vs. Mahamaya Das and Ors.; AIR 2020
SC 178

The question for consideration is whether the High Court is
justified in dismissing the second appeal on merits in the absence of the
learned counsel for the appellants. It was held that, with the explanation that
was introduced in Order 41 Rule 17(1) w.e.f. 1^st February, 1977 to
clarify the law by making an express provision that where the appellant does
not appear, the Court has no power to dismiss the appeal on merits – thus, Order
41 Rule 17(1) read with its explanation makes it explicit that the Court cannot
dismiss the appeal on merits where the appellant remains absent on the date
fixed for hearing.

In other words, if the appellant does not appear, the Court
may, if it deems fit, dismiss the appeal for default of appearance but it does
not have the power to dismiss the appeal on merits. Therefore, the impugned
judgment was set aside and it was directed to remit the matter to the High
Court for fresh disposal in accordance with the law.

2. Hindu
Undivided Family (HUF) – Recovery of debt – Auction sale – Coparcener
challenging sale as property mortgaged without his consent – Material produced
– Property purchased by mortgager in his own name for his own business –
Property never brought into the HUF – Bank would have every right to sell
property for recovery of loan [Recovery of Debts Due to Banks and Financial
Institutions Act, S. 25]

Abhimanyu Kumar Singh vs. Branch Manager, I.D.B.I. Bank Ltd.
and Ors.; AIR 2020 Patna 22

The petitioner filed a case that the property in question
which was mortgaged with the bank by his father and an equitable mortgage was
created by way of deposit of title deed, happened to be a joint Hindu family
property. The fact that the petitioner is a coparcener and the property in
question had been mortgaged without his consent, means that the 1/4^th
share of the petitioner cannot be attached and sold by auction.

The High Court held that the fact remains that the property
in question is in the individual name of the father of the petitioner
(mortgagor), the mutation and rent receipts remained in his individual name and
he could very well satisfy the bank that he happened to be the absolute owner
of the property and for his business he was mortgaging the land with the bank
by deposit of title deed.

Further, in a Hindu Undivided Family there would be a
presumption of jointness and the burden to prove that there was a partition
lies upon the person who claims the partition. It is well settled that even
within an HUF, a member of the family may create self-acquired and personal
property. It is only when such self-acquired property is brought into the
hotchpotch of the joint family that the property acquires the status of a joint
family property.

3. Partnership
– Dissolution– Partnership which is not at will cannot be terminated by notice
u/s 43 [Partnership Act, 1932, S. 43]

Manohar Daulatram Ghansharamani vs. Janardhan Prasad
Chaturvedi and Ors.; AIR 2019 Bombay 283

An issue arose with respect to the dissolution of a
partnership firm upon issuance of a notice u/s 43 of the Indian Partnership
Act, 1932. It was held that the terms of the partnership deed clearly stipulate
that the partnership was entered into for the purpose of developing the
property and constructing buildings. Thus, the partnership deed did not
expressly spell out a fixed term of duration. Nevertheless, the terms of the
contract indicate that the partnership was to end after completion of
construction of the buildings, obtaining completion certificates and execution
of conveyance in favour of the society. The terms of the contract thus imply
that the duration of the partnership was until completion of construction and
execution of conveyance. Further, the partnership deed also provides for
dissolution of partnership in the event of insolvency or death of any of the
partners.

Therefore, it was held that where a partnership deed which
contains a provision for duration of the partnership or for the determination
of the partnership, cannot be a partnership at will. As a corollary thereof,
the partnership that is not a partnership at will cannot be legally terminated
by a notice u/s 43 of the Partnership Act. Consequently, sending of notice u/s
43 of the Partnership Act, 1932 seeking dissolution of partnership is of no
consequence.

4. Will
– Onus to prove – None of the witnesses appeared before the Court to prove the
Will – Petitioner assured to produce the witnesses – No assistance taken from
Court to issue summons – Document in question cannot be said to be a validly
executed last Will [Succession Act, 1925, S. 222, S. 223, S. 246]

Chankaya vs. State and Ors.; AIR 2020 Delhi 30

A petition was filed u/s 226 of the Indian Succession Act,
1925 seeking grant of probate in respect of the document, purported to be the
validly executed last Will of deceased Shri D.C.S., grandfather of the
petitioner.

The petitioner has contended that he is aware of the
whereabouts of the witness and time and again assured that he would produce the
said witness before the Court. However, the same was not done. Later the
petitioner contended that the whereabouts of the witness was not known. The
petitioner did not exhaust all the remedies for producing the witness before
the Court. The petitioner could have resorted to Order 16 Rule 10 of the Civil
Procedure Code, 1908 for the purpose of seeking appearance of the attesting
witness. No assistance was taken from the Court to summon the said witness.

The Court held that, the burden of proof in the present case,
to prove the document claimed to be the validly executed last Will of the
deceased, lay on the petitioner who propounded the same. Indisputably, none of
the attesting witnesses had appeared before the Court to prove the Will. Thus, the
petitioner has failed to prove that the document is a Will executed by the late
Shri D.C.S. and accordingly the said issue is decided against the petitioner.
Therefore, the said Will has not been proved.

5. Writ
– Jurisdiction of High Court – Alternative remedy – Writ jurisdiction can be
exercised in respect of orders passed by the Armed Forces Tribunal (AFT) – No
blanket ban on exercise of writ jurisdiction because of alternative remedy
[Armed Forces Tribunal Act, 2007, S. 34, S. 15, Constitution of India, Art.
226]

Balkrishna Ram vs. Union of India; AIR 2020 SC 341

An issue arose before the Hon’ble Supreme Court whether an
appeal against an order of a single judge of a High Court deciding a case
related to an Armed Forces personnel pending before the High Court is required
to be transferred to the Armed Forces Tribunal, or should be heard by the High
Court. It was held that the principle that the High Court should not exercise
its extraordinary writ jurisdiction when an efficacious alternative remedy is
available, is a rule of prudence and not a rule of law. The writ courts
normally refrain from exercising their extraordinary power if the petitioner
has an alternative efficacious remedy. The existence of such a remedy, however,
does not mean that the jurisdiction of the High Court is ousted. At the same
time, it is a well-settled principle that such jurisdiction should not be
exercised when there is an alternative remedy available. The rule of
alternative remedy is a rule of discretion and not a rule of jurisdiction.
Merely because the Court may not exercise its discretion is not a ground to
hold that it has no jurisdiction. There may be cases where the High Court would
be justified in exercising its writ jurisdiction because of some glaring
illegality committed by the AFT.

One must also remember that
the alternative remedy must be efficacious and in case of a Non-Commissioned
Officer (NCO), or a Junior Commissioned Officer (JCO), to expect such a person
to approach the Supreme Court in every case may not be justified. It is
extremely difficult and beyond the monetary reach of an ordinary litigant to
approach the Supreme Court. Therefore, it will be for the High Court to decide
in the peculiar facts and circumstances of each case whether or not it should exercise
its extraordinary writ jurisdiction. There cannot be a blanket ban on the
exercise of such jurisdiction because that would effectively mean that the writ
court is denuded of its jurisdiction to entertain such writ petitions.

BCAJ Admin

CORPORATE LAW CORNER

10. Anand Rao Korada (Resolution
Professional) vs. Varsha Fabrics (P) Ltd. [2019] 111 taxmann.com 474 (SC) Civil Appeal Nos. 8800-8801 of 2019 Date of order: 18^thNovember,
2019

Sections 14, 231 and 238 of Insolvency and
Bankruptcy Code, 2016 – High Court cannot continue with auction proceedings to
sell the assets of corporate debtor if the proceedings under the Code have been
initiated and order declaring the moratorium has been passed by the NCLT

FACTS

I Co held shares in H Co. Pursuant to a
share purchase agreement (SPA) dated 10^thJuly, 2006 it sold its
entire shareholding in H Co to V Co, IF Co and M Co. H Co shut down its factory
on 8^th May, 2007. Subsequently, their stake in H Co was sold to IW
Co.

The workers of
H Co through their union (hereinafter referred to as the Union) filed writ
petitions before the Odisha High Court for cancellation of the SPA dated 10^thJuly, 2006 and payment of the arrears and current salaries of the
workmen. The High Court vide order dated 14^thMarch, 2012 directed
the Deputy Labour Commissioner to recover the workmen’s dues by sale of the
assets of H Co through a public auction. The Supreme Court in the said matter
passed an order dated 3^rd August, 2015 wherein it was directed that
the issue of quantifying the compensation payable to the workmen should be
determined by the Labour Court. In the event V Co, IF Co and M Co failed to pay
the compensation so determined, the assets of H Co would be sold in a public
auction and the proceeds would be used to disburse the arrears of workmen.

Pursuant to an order of the High Court dated
12^th January, 2017, the sale of a parcel of land of H CO was
completed and the amounts recovered compensated a portion of the total dues of
the workmen.

During the pendency of proceedings with the
High Court, N Co, a financial creditor of H Co, initiated corporate insolvency
resolution proceedings (CIRP) against H Co for default in payment of financial
debt. The National Company Law Tribunal (NCLT) admitted the petition and
declared a moratorium in accordance with the provisions of sections 13 and 15
of the Insolvency and Bankruptcy Code, 2016 (the Code) vide order dated 4^th
June, 2019.

The writ petitions came up for further
hearing and orders were passed by the High Court on 14^th August,
2019 and 5^th September, 2019. The Resolution Professional filed a
civil appeal to challenge the interim orders of the High Court on the ground
that since CIRP were already underway, the proceedings before the High Court
ought to be stayed.

HELD

The Supreme Court heard the parties at
length. It examined the provisions of sections 13, 14, 231 and 238 of the Code
and observed that section 238 gave an overriding effect to the Code over all
other laws. The provisions of the Code vested exclusive jurisdiction on the
NCLT and the NCLAT to deal with all issues pertaining to the insolvency process
of a corporate debtor and the mode and manner of disposal of its assets.
Further, section 231 of the Code bars the jurisdiction of civil courts in
respect of any matter in which the adjudicating authority, i.e. the NCLT or the
NCLAT, is empowered by the Code to pass any order.

In view of the said provisions, it was held
that the High Court ought not to have proceeded with the auction of the
property of H Co once the proceedings under the Code had commenced and an order
declaring moratorium was passed by the NCLT. It was observed that if the assets
of H Co were alienated during the pendency of the proceedings under the Code,
it would seriously jeopardise the interest of all the stakeholders.

The interim orders of the High Court were
set aside by the Supreme Court and it was held that the sale or liquidation of
assets of H Co would now be governed by the Code. Further, the union was
directed to file its claim under Regulation 9 of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 for payment of arrears, salaries and other dues before the
competent authority. All the parties were granted liberty to pursue the
available remedies in accordance with law.

11. Omega Finvest LLP vs. Direct News (P)
Ltd. [2019] 112 taxmann.com 297 (NCLT, N.Del.) C.P. (IB) No. 1478 (PB) of 2019 Date of order: 30^th September,
2019

Section 5 of Insolvency and Bankruptcy
Code, 2016 – Providing a place on lease for the purpose of carrying on
day-to-day activities was a supply of services – Lessor was an operational
creditor who was entitled to commence resolution proceedings when there was a
default in payment of rent

FACTS

D Co, a private
limited company, had entered into a lease agreement with S Co on 28^th
August, 2008. S Co was demerged into O Co and O Co was converted into an LLP in
the year 2012. In order to continue the lease of the premises, the parties had
entered into a lease deed dated 13^th July, 2016 for a period of
three years from 1^st July, 2016 to 30^th June, 2019. D Co
paid a sum of Rs. 1.25 crores to O Co pursuant to the lease deed. O Co submitted
that upon execution of the modification deed dated 14^th June, 2018,
D Co issued 13 post-dated cheques for payment of rent for each month from 1^stJune, 2018 to 30^th June, 2019 for a sum of Rs. 21,60,000,
inclusive of the base rent of Rs. 20,00,000 along with Goods and Services Tax @
18% amounting to Rs. 3,60,000. It is claimed by O Co that cheques issued
towards payment of rent for the months of April, 2019 and May, 2019 got
dishonoured.

O Co furnished a demand notice dated 28^th
May, 2019 to D Co u/s 8 of the Insolvency and Bankruptcy Code, 2016 (the Code).
O Co alleged that there was no reply to the notice so served.

D Co opposed the petition on the ground that
the debt claimed does not fall in the ambit of the definition of ‘operational
debt’ and therefore O Co was not an ‘operational creditor’. D Co further
submitted that a reply to the demand notice was communicated in due time. There
was prior communication to adjust the rent against the security deposit and
accordingly, it was alleged that there was a pre-existing dispute even before
notice u/s 8 was served.

HELD

The National Company Law Tribunal (NCLT)
heard both the sides at length. It examined the provisions of sections 5(20)
and 5(21) of the Code which define operational creditor and operational debt.
It was observed that in the facts of the present case, lease of premises was
for functioning of day-to-day operations and it was directly related to the
input and output of the supply of services by D Co. O Co had provided
infrastructure services to D Co for its functioning. Thus, leasing of premises
was held to be supply of services. Reliance was also placed on the report of
the Bankruptcy Law Reforms Committee dated 4^th November, 2015 which
also mentions that… ‘the lessor. that an entity rents out space from is an
operational creditor to whom the entity owes monthly rent’. It was held
that O Co was an ‘operational creditor’ within the meaning of section 5(20) of
the Code.

NCLT perused the communication between D Co
and O Co regarding adjustment of security deposit towards rent. The request for
adjustment was not met with by O Co and it proceeded to deposit the cheques
issued and the same were returned for want of sufficient funds.

NCLT also examined the provisions of the
rent agreement and observed that the security deposit had an entirely different
purpose. O Co had never agreed to adjust the rent from the security deposit.
The assumption of D Co that the agreement would extend to August, 2019 was
unfounded and the submission that there was a pre-existing dispute could not be
accepted.

As the default
stood established, NCLT proceeded to admit the petition
for initiating corporate insolvency resolution
process against D Co and declared a moratorium over its assets. An
interim resolution professional was also appointed.

12. Anil Syal
vs. Sanjeev Kapoor [2020] 113
taxmann.com 52 (NCLAT) Company Appeal
(AT)(Insolvency) No. 961 of 2019 Date of order:
8^th November, 2019

Sections 8 and 9 of the Insolvency and
Bankruptcy Code, 2016 – Dues claimed in the demand notice related to sister
concern of the corporate debtor and not the corporate debtor itself – Service
of such a notice was not valid – Application for initiating corporate
insolvency resolution proceedings was not maintainable for want of appropriate
notice

FACTS

A service
contract was entered into and executed between Sanjeev Kapoor, proprietor of
Kapoor Logistics (operational creditor) and Flywheel Logistics Solutions
Private Limited (corporate debtor) for running route vehicles in freight-line
haul operations between Pantnagar and Pune. Anil Syal is ex-director and
shareholder of the company Flywheel Logistics Solutions Pvt. Ltd. (corporate
debtor).

The operational creditor submitted that
Logistics Services were provided to the corporate debtor and pursuant to that
invoices were raised for the amount totalling Rs. 66,00,860 for the period
January, 2017 to August, 2017. Part payment of Rs. 35,68,484 was received from
the corporate debtor against the pending bills. Anil Syal stated that the balance
confirmation of Rs. 30 lakhs was admitted by the corporate debtor vide e-mail
dated 27^thJuly, 2018. But despite repeated e-mails and reminders,
the outstanding dues were not paid by the corporate debtor. The operational
creditor claimed that a demand notice was furnished calling upon the corporate
debtor to pay the total outstanding amount of Rs. 33,69,997.

The corporate debtor challenged the
submission stating that the demand notice and invoices were never received and
therefore the application was not maintainable for want of a valid demand
notice. Further, it was alleged that the demand notice was furnished to a
sister concern which was a separate legal entity by the name of Flywheel
Logistics Pvt. Ltd. having a different CIN and registered address, separate and
distinct from the corporate debtor. It was also submitted that the National
Company Law Tribunal (NCLT) which passed an order for initiation of the
corporate insolvency resolution process (CIRP) against the corporate debtor did
not take into account the evidence establishing a pre-existing dispute.

HELD

The National Company Law Appellate Tribunal
(NCLAT) observed that invoices were issued against M/s Flywheel Logistics Pvt.
Ltd. but the demand notice was issued to Flywheel Logistics Solutions Pvt. Ltd.
being the corporate debtor. The two are different corporate entities having
different CIN numbers and registered addresses.

NCLAT held that the operational creditor had
no right to claim dues relating to the invoices issued against ‘M/s Flywheel
Logistics Pvt. Ltd.’ from the corporate debtor, ‘M/s Flywheel Logistics
Solutions Pvt. Ltd.’ which is a separate corporate entity, having a different
CIN number.

It was observed that the mandatory primary
requirement for filing a petition u/s 9 of the Code was the service of the
demand notice u/s 8 of the Code. Since the demand notices related to the dues
of another corporate entity, it could not be treated as a valid and proper
service. The order passed by NCLT was thus set aside by NCLAT. It was further
held that this order would not prejudice the right of the operational creditor
to proceed against Flywheel Logistics Pvt. Ltd.

13. Indiavidual Learning (P) Ltd. vs.
Registrar of Companies [2019] 112 taxmann.com 101 (NCLT-Beng.) Date of order: 10^th October, 2019

In the Board
Report of the company filed with the ROC, certain matters were unintentionally
omitted to be reported – It could be permitted to revise the said Board Report
if the same would not prejudice the interests of the company, its shareholders
or stakeholders, or violate any provisions

FACTS

The Audited Financial Statements of I Pvt.
Ltd. (company), which included the Board’s Report for the financial year
2015-16, were approved by the Board of Directors. The Auditor’s Report attached
to the Financial Statements was sent to the shareholders of the company. The
same were laid before and adopted at the Annual General Meeting. The Audited
Financial Statements, together with the Board’s Report, was filed with the ROC
in due course.

It was brought
to the notice of the Bench that in the aforesaid Board’s
Report for the financial year 2015-16, certain matters to be covered in terms
of the provisions of section 134 of the Companies Act, 2013 were
unintentionally omitted to be reported. Those inadequacies were noticed by
the company later on, when it was reviewing the documents filed with the NCLT
in connection with a proposed reduction of share capital. It was further stated
in the petition that the inadequacies and omissions arising from non-compliance
of various applicable provisions happened purely due to inadvertence and no
part of it was prejudicial to the interests of any of the stakeholders.

A decision was taken at the meeting of the
Board of Directors of the company to revise the Board’s Report for the
financial year 2015-16, subject to approval of the Tribunal, and accordingly
the petition filed sought permission to revise the Board’s Report.

The notice of the petition was served on the
ROC concerned. Even though notice was served on the ROC and sufficient time
granted, ROC had not filed any response.

HELD

The proviso to section 131(1) of the
Companies Act, 2013 mandates that the Tribunal shall give notice to the
statutory authorities and it shall take into consideration the representations,
if any made by such authorities, before passing any order under this section.
Since ROC had not filed any representation on the petition, it appeared to the
Bench that it had no representation against the petition. Therefore, on the
principle of ease of doing business, it was held that orders are to be passed as
per merits of the case.

The inadequacies noticed in the Board’s
Report were as under:

(i) The financial highlights of the performance
of the company in terms of Rule 5(i) of the Companies (Accounts) Rules, 2014;

(ii) Details of subsidiaries, joint ventures or
associate companies in terms of Rule 5(iv) of the said Rules;

(iii) Details relating to deposits in terms of Rule
5(v) of the said Rules;

(iv) Details in respect of frauds reported by
auditors in terms of section 134(3)(ca) of the Companies Act, 2013;

(v) Disclosures on details of the Employee Stock
Option Scheme in terms of the Companies (Share Capital and Debentures) Rules,
2014;

(vi) The statutory auditor had made a qualification
stating that ‘no employee compensation expenses is accounted as required by
ICAI guidelines in absence of the fair value option, the impact on loss for the
year is not ascertained’. As per provisions of section 134(2)(f) of the
Companies Act, 2013, the Board was required to include in the Board’s Report
explanations or comments of the Board on every qualification, reservation or
adverse remark or disclaimer made by the Auditor in his report, if any.
However, there was an omission in this respect also since in the Board’s Report
dated 6^th September, 2016 no explanation was provided for the
adverse remarks / comments of the statutory auditors in their Report;

(vii) In terms of the provisions under the Sexual
Harassment of Women at Workplace (Prevention and Prohibition and Redressal)
Act, 2013 the company had to make certain disclosures on the complaints
received, if any, under the said Act. While the company had during the F.Y.
2015-16 complied with the requirements under the said Act, a statement to that
effect was omitted in the Board’s Report; and

(viii) In respect of the paragraph under
Directors’ Responsibility Statement in terms of section 134(3)(c) read with
section 134(5) of the Companies Act, 2013, the wording in the said paragraph
was not on the lines prescribed under the Act and, therefore, warranted a
correction.

On perusal of
the inadequacies of the Board’s Report as noticed and pointed out, it was
observed that they were not serious in nature and happened due to inadvertence
and if permitted to be revised as sought for, would not prejudice the interests
of the company, its shareholders, or stakeholders, or violate any provisions of
the Act. They have also declared that the company has been prompt in all annual
filings with the ROC in the past and all statutory registers and records were
maintained in accordance with the provisions of the Act. Therefore, considering
the fact that the instant petition is filed duly following the provisions of
the Act and the rules made thereunder and thus, by following the principle of
ease of doing business, the company petition is to be disposed of subject to
compliance of provisions of the applicable NCLT rules.

In the result, the company was permitted to
revise its Board’s Report for the financial year 2015-16 in terms of section
131(1) of the Companies Act, 2013.

However, it was made clear to the company
that the order would not absolve the company of any other violation(s)
committed by it and the statutory authorities were entitled to take appropriate
action in accordance with law.

BCAJ Admin

ALLIED LAWS

19. Auction sale of secured assets – Bank
obliged to disclose any dues on secured assets in notice of sale – Failure of
disclosure – Auction purchaser cannot be fastened with the liability to pay the
same [SARFAESI Act, 2002, S. 13, 38]

Corporation Bank and Ors. vs. Jayesh Kumar
Jha; AIR 2019 Cal 328

The auction purchaser successfully
participated in the e-auction for the sale of an immovable property undertaken
by the bank through its officers under the provisions of the SARFAESI Act,
2002. On receipt of the consideration price fixed by the auction, the appellant
bank issued sale certificate in favour of the respondent in respect of the
property in question. The sale was free from all encumbrances.

Subsequent to this, the purchaser was
charged for payment of property tax and maintenance tax in respect of the
property for the period prior to the auction payable to the Kolkata Municipal
Corporation. Contending that he was not liable to pay any such tax or charge
levied for the period prior to the sale, the purchaser moved Court with a
prayer for issuance of a writ of mandamus directing the bank authorities
to set aside the letter under which it communicated to him that the bank was
not liable to any outstanding dues with a further writ of mandamus
directing the bank authorities to reimburse the amount paid by the purchaser
towards the outstanding property tax to the Kolkata Municipal Corporation with
interest.

The Court held that Rules 8 and 9 of the
Security Interest (Enforcement) Rules, 2002 deal with the stage anterior to the
issuance of sale certificate and delivery of possession. Rule 9(8) casts a duty
upon the authorised officer to deliver the property to the purchaser free from
encumbrances (or) requiring the purchaser to deposit money for discharging the
encumbrances. The ignorance of the second creditor regarding the encumbrance on
the property is no longer a good and acceptable defence in view of the
statutory provisions and various precedents by the Hon’ble Supreme Court and
different High Courts on the subject… The SARFAESI Act and the Rules have
replaced the rule of caveat emptor by caveat venditor. When a
property is put to sale, the bank is under statutory obligation to sell the
secured asset with a clear title free from any encumbrance. As the bank did not
disclose the pre-sale property tax dues which are a charge on the land or
building in respect of the secured asset, therefore, the bank has failed to discharge
its statutory obligation.

After completion of the sale and delivery of
possession, the auction purchaser-respondent cannot be fastened with the
liability to discharge such encumbrances.

20. Hindu law – Right in coparcenary
property – No document to show that property was purchased with the money of
the HUF – Partition taken place – Devolution of coparcenary property takes
place only when succession opens and not before that – Father of the plaintiff
(daughter) is still alive – Suit claiming right in coparcenary property was not maintainable [Hindu
Succession Act, 1956, S. 6]

Chandribai and Ors. vs. Tulsiram and Ors;
AIR 2019 MP 206

The plaintiff (daughter) filed a suit for
declaration as well as for setting aside the sale deed which had been executed
in favour of the defendant. It was alleged that the disputed property is
ancestral undivided property of the plaintiffs and the plaintiffs have right,
title and interest in the property since their birth. It was also alleged that
the property has been purchased by transfer of ancestral property and that it
continued to remain so.

The trial Court, after framing the issues
and recording the evidence, held that the plaintiffs have 1/6^th
share each in the disputed property and they are entitled for partition and
possession. The trial Court further held that the property is not a
self-acquired one. The 1^st Appellate Court reversed the judgment
passed by the trial Court.

The Hon’ble High
Court upheld the order of the 1^stAppellate
Court that there is no presumption of a property being joint family property
only on account of the existence of a joint Hindu family. The one who asserts
this has to prove that the property is a joint family property and the onus
would shift on the person who claims it to be self-acquired property to prove
that he purchased the property with his own funds and not out of the joint
family nucleus (corpus) that was available.

Further, it is significant to note that the
phrase ‘devolution of coparcenary property’ only takes place when succession
opens and not before that. It is well settled that succession opens on the
death of the karta. As a necessary corollary, the karta being
alive, the suit in issue was not maintainable.

21. Tenancy rights – Inheritance of tenancy
right is not applicable to a joint family [Bombay Rent Act, 1947, S. 5, 13, 15]

Vasant
Sadashiv Joshi. & Ors vs. Yeshwant Shankar Barve through Lrs & Ors.; WP
2371 of 1977; Date of order: 2^nd January, 2020 (Bom)(HC)(UR)

The petition was filed by a tenant who was
being evicted from the suit premises. The original tenant was his father and
upon his death the rent receipt came to be transferred in the name of the
petitioner. The premises was occupied by his cousin as the petitioner had moved
to an alternate accommodation. The petitioner argued that tenancy rights can be
inherited by any and every member of the joint family.

The Court held
that the provisions of the Bombay Rent Act, which pertain to tenancy rights
would not be applicable to a joint family unit. After the death of the original
tenant, tenancy rights cannot be inherited by any member of the family of the
deceased by claiming to be in a joint family set-up.

22. Will – Attestation – Signature of the
testator on the Will is undisputed where the attesting witnesses deposed that the testator came to them individually with his own
signed will and read it out to them after
which they attested it [Succession Act, 1925, S. 63]

Ganesan (D) through Lrs. vs. Kalanjiam and
Ors.; AIR 2019 SC 5682

The appellant filed a suit claiming share in
the suit properties asserting them to be joint family properties. The trial
Court held that the suit property was the self-acquired property of the
deceased who died intestate and the genuineness of the Will had not been
established in accordance with the law, entitling the appellant to 1/5^th
share. The appeal was allowed holding that the signature of the testator was
not in dispute and the testator was of sound mind. The second appeal by the
appellant was dismissed.

The Hon’ble Supreme Court held that where
the signature of the testator on the Will is undisputed and the Succession Act
requires an acknowledgement of execution by the testator followed by the
attestation of the Will in his presence, and where a testator asks a person to
attest his Will, it is a reasonable inference that he was admitting that the
Will had been executed by him.

There is no express prescription in the
statute that the testator must necessarily sign the Will in the presence of the
attesting witnesses only, or that the two attesting witnesses must put their
signatures on the Will simultaneously at the same time in the presence of each
other and the testator.

Both the attesting witnesses deposed that
the testator came to them individually with his own signed Will and read it out
to them, after which they attested the Will. Therefore, the appeal was
dismissed.

23. Power of attorney holder – Cannot depose
for principal by entering in his shoes – His testimony cannot be treated as
that of principal [Civil Procedure Code, 1908, O. 3, Rr 1,2]

Narmada Prasad vs. Bedilal Burman; AIR 2019
MP 660

In the instant
civil suit, the petitioner filed a power of attorney in favour of his son and
apprised the Court below specifically that his son will enter the witness box
on his behalf. In turn, the son, Jitendra Burman, entered the witness box,
deposed his statement and was cross-examined. The petitioner introduced his son
as power of attorney holder on the ground that he is suffering from an aliment
of forgetfulness because of which his memory was not in order and, therefore,
his son will depose on his behalf.

The Court held
that the son cannot be permitted to depose on behalf of the principal for the
acts done by him. As a necessary corollary, the son cannot be cross-examined on
those aspects in respect of the principal. Thus, the right to adduce evidence
by the power of attorney holder is available to a limited extent. By no stretch
of the imagination can the son be treated to be a representative of the
principal in all aspects and, therefore, it cannot be said that the stand of
the petitioner will deprive him from entering the witness box. In other words,
it is trite that no estoppel operates against the law.

BCAJ Admin

CORPORATE LAW CORNER

14. Maharashtra
Seamless Ltd. vs. Padmanabhan Venkatesh [2020] 113
taxmann.com 421 (SC) Civil Appeal Nos.
4242, 4967, 4968 of 2019 Date of order: 22^nd
January, 2020

Insolvency
and Bankruptcy Code, 2016 – There is no provision in the Code which stipulates
that amount approved in the resolution plan should match the liquidation value
– Once approved, resolution plan cannot be withdrawn under provisions of
section 12A of the Code

FACTS

U
Co, the corporate debtor, had a total debt of Rs. 1,897 crores out of which Rs.
1,652 crores comprised of term loans from two entities of Deutsche Bank. There
was also debt on account of working capital borrowing of Rs. 245 crores from Indian
Bank. Indian Bank initiated the Corporate Insolvency Resolution Process (CIRP)
against U Co by filing an application u/s 7 of the Insolvency and Bankruptcy
Code, 2016 (the Code).

The
National Company Law Tribunal (NCLT), by an order passed on 21^st January,
2019, approved the resolution plan submitted by M Co in an application filed by
the Resolution Professional (RP). The resolution plan included an upfront
payment of Rs. 477 crores. Ancillary directions were issued by the NCLT while
giving approval to the said resolution plan with the finding that the said plan
met all the requirements of section 30(2) of the Code.

P,
who was one of the promoters of U Co, and Indian Bank filed an appeal with the
National Company Law Appellate Tribunal (NCLAT). M Co also filed an appeal
before NCLAT seeking directions upon U Co, as also the police and
administrative authorities, for effective implementation of the resolution
plan. The grievance of M Co in that proceeding was that they were not being
given access to the assets of U Co.

The
complaint of P, one of the original promoters, and the bank before the NCLAT
was primarily that the approval of the resolution plan amounting to Rs. 477
crores was giving the resolution applicant a windfall as they would get assets valued
at Rs. 597.54 crores at a much lower amount. The other ground urged by the bank
was that Area Projects Consultants Private Limited, one of the resolution
applicants, had made a revised offer of Rs. 490 crores which was more than the
amount offered by M Co.

The
application was disposed of with a direction to extend co-operation to M Co. In
the course of hearing, M Co agreed to pay operational creditors at the same
rate (25%) as financial creditors. NCLAT also ordered that the upfront payment
agreed to by M Co be increased from Rs. 477 crores to Rs. 597.54 crores (being
the average liquidation value) by paying an additional Rs. 120.54 crores.
Failure to make the payment would set aside the order of NCLT approving the
resolution plan. The plan could be implemented only when M Co made the revised
payment.

Aggrieved, M Co filed an appeal before the Supreme Court
seeking withdrawal of the resolution plan and a refund of the sum deposited in
terms of the resolution plan along with interest. M Co argued that in order to
take over the corporate debtor, they had availed of substantial term loan
facility and deposited the sum of Rs. 477 crores for resolution of U Co, but
because of delay in implementation of the resolution plan, they were compelled
to bear the interest burden. Further, the export orders that they had accepted
in anticipation of successful implementation of the resolution plan were
cancelled, as a result of which the takeover of U CO had become unworkable. It
was also argued that NCLAT had exceeded its jurisdiction in directing matching
of liquidation value in the resolution plan.

On
the other hand, the banks, while supporting the main appeal of M Co, resisted
the plea for withdrawal of the resolution plan and refund of the sum already
remitted by M Co. It was argued that the only route through which a resolution
applicant can travel back after admission of the resolution plan was under the
auspices of section 12A of the Code.

HELD

The
Supreme Court heard the arguments put forth by both the sides. The primary
issues before it were two-fold. The first one was whether or not the scheme of
the Code contemplates that the sum forming part of the resolution plan should
match the liquidation value. The second issue was whether section 12A is the
applicable route through which a successful resolution applicant can retreat.

The
Supreme Court observed that M Co in the appeal sought to sustain the resolution
plan but its prayer in the interlocutory application was refund of the amount
remitted, coupled with the plea for withdrawal of the resolution plan. Its main
case in the appeal was that the final decision on the resolution plan should be
left to the commercial wisdom of the Committee of Creditors and there was no
requirement that the resolution plan should match the maximised asset value of
the corporate debtors.

The
Court observed that substantial arguments were advanced before the NCLT over
its failure to maintain parity between the financial creditors and the
operational creditors on the aspect of clearing dues. It was also observed that
section 30(2)(b) of the Code specified the manner in which a resolution plan
shall provide for payment to the operational creditors. The Court relied on its
own decision in the case of Committee of Creditors of Essar Steel India
Limited vs. Satish Kumar Gupta [Civil Appeal Nos. 8766-8767 of 2019]
wherein it was concluded that section 30(2)(b) of the Code referred to section
53 not in the context of priority of payment of creditors, but only to provide
for a minimum payment to operational creditors. However, that did not in any
manner limit the Committee of Creditors (CoC) from classifying creditors as
financial or operational and as secured or unsecured. Since M Co had agreed
before NCLAT to clear the dues of operational creditors in percentage at par
with the financial creditors, the controversy on there being no provision in
the resolution plan for operational creditors was rendered only academic.

It
was observed that NCLT relied on section 31 of the Code in approving the
resolution plan. Indian Bank and P relied on Clause 35 of The Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016. The law did not prescribe any provision which stipulates
that the bid of a resolution applicant had to match the liquidation value
arrived at in the manner provided in clause 35. The object behind prescribing
the valuation process was to assist the CoC in taking a decision on a
resolution plan properly. Once a resolution plan was approved by the CoC, the
statutory mandate on the NCLT u/s 31(1) of the Code was to ascertain that the
resolution plan met the requirements of sections 30(3) and 30(4). The Supreme
Court held that it did not find any breach of the said provisions in the order
of the NCLT in approving the resolution plan.

The
Court held that NCLAT had proceeded on an equitable perception rather than
commercial wisdom. It ought to cede ground to the commercial wisdom of the
creditors rather than assess the resolution plan on the basis of quantitative
analysis. The case of M Co in their appeal was that they wanted to run the
company and infuse more funds. In such circumstances, the Court held that NCLAT
ought not to have interfered with the order of the NCLT and direct the successful
resolution applicant to enhance their fund inflow upfront.

As
regards withdrawal of plan by M Co, it was observed that the manner
contemplated by approaching the Supreme Court was incorrect. The exit route
prescribed in section 12A is not applicable to a resolution applicant. The
procedure envisaged in the said provision only applies to applicants invoking
sections 7, 9 and 10 of the Code. Having appealed against the NCLAT order with
the object of implementing the resolution plan, M Co could not be permitted to
take a contrary stand in an application filed in connection with the very same
appeal. The Supreme Court did not engage in the judicial exercise to determine
the question as to whether, after having been successful in a CIRP, an
applicant altogether forfeits its right to withdraw from such process.

The
appeal filed by M Co was allowed and the order passed by the NCLT on 21^st
January, 2019 was upheld. The Resolution Professional was directed to take
physical possession of the assets of the corporate debtor and hand these over
to M Co within a period of four weeks.

15. Icchapurti Global
Buildcon (P) Ltd. vs. Registrar of Companies, Mumbai [2020] 113
taxmann.com 481 (NCLT, Mum.) Date of order: 11^th
December, 2019

ROC struck off the name of petitioner company from
Register of Companies on account of its failure to furnish financial statements
– In view of fact that petitioner company was in operation, it had assets and
current liabilities and, moreover, in case relief sought was not granted, grave
hardship and irreparable loss and damage would be caused to it, application
filed by petitioner seeking to restore its name in Register of Companies is to
be allowed

FACTS

I
Pvt. Ltd. (the Company) was incorporated on 27^th September, 2012
under the Companies Act, 1956 as a private company limited by shares with the
Registrar of Companies, Mumbai. The name of the Company was struck off from the
Register of Companies maintained by the Registrar of Companies (ROC) due to
defaults in statutory compliances, namely, failure to file financial statements
and annual returns for three years from the financial year ended 31^st
March, 2015 to 31^stMarch, 2017.

The
Company filed an application before the Bench to restore its name in the
Register of Companies.

It
was brought to the notice of the Bench (by the Company) that:

(i) the Company has failed to file its financial statements and annual
returns for three years 2014-15 to 2016-2017;

(ii) the Company is a closely-held company and is a going concern and in
continuous operation;

(iii) it is evident from the audited financials for the defaulting
period that the Company was a going concern at the time when its name was
struck off by the ROC and that it was generating income. The Company had
current assets and liabilities.

The
Company also submitted copies of audited accounts for the financial years from
31^st March, 2015 to 31^stMarch, 2017, copies of
acknowledgement of Income-tax Returns filed for the assessment years 2015-16 to
2017-18, copies of bank statements to show that it is a going concern, actively
involved in business and is in continuous operation. The Company further
submitted that if its name was restored, it undertakes to file all the pending
statutory documents from the financial years 2014-15 till date along with the
filing fees and the additional fees, as applicable on the date of actual
filing.

From
the response filed by the ROC, the Bench gathered that the name of the company
was struck off for its failure to file statutory documents since 31^st
March, 2015, as mandatorily required under the statute.

The
Bench perused the financials filed during the course of the proceedings and
noted that the Company is in operation and has its assets and current
liabilities.

HELD

The
Bench came to the conclusion that unless the relief sought is granted to the
Company, grave hardship and irreparable loss and damage shall be caused to it.
Given the above set of facts, the Bench was satisfied that the prayer sought by
the Company deserves to be allowed.

The
Bench allowed the appeal of the Company on the following terms:

(a) The ROC was directed to restore the name of the
Company in the Register of Companies subject to payment of a sum of Rs. 1,00,000
as cost payable in the account of the ‘Prime Minister’s National Relief Fund’;
and

(b) The Company shall file all its pending financial statements and
annual returns with all the applicable fees and late fees with the ROC within
30 days from the date of receipt of a copy of the order, failing which the
order will stand vacated automatically.

BCAJ Admin

ALLIED LAWS

14. Covid-19 – Lockdown – Banks cannot
classify firms as NPAs – RBI guidelines

Anant Raj Ltd.
vs. Yes Bank Ltd.; W.P.(C) Urgent 5/2020; Date of order: 6^th April,
2020 (Delhi)(HC)(UR)

The petitioner had approached the Court
seeking a direction against Yes Bank from taking coercive / adverse steps
against it, including but not limited to declaring its account as a
Non-Performing Asset (NPA). The petitioner contended that it failed to pay the
instalment which fell due on 1^st January, 2020 (the subject matter
of the present petition) because of adverse economic conditions brought about
by the effects of the Covid-19 pandemic.

The High Court
held that classification of the account of the petitioner as an NPA cannot be
done in view of the RBI Circular related to moratorium of loan repayments. It
held that a prima facie reading of the Statement on Development and
Regulatory Policies issued by the RBI on 27^th March, 2020 along with
the Regulatory Package indicates the intention of RBI to maintain the status
quo as on 1^st March, 2020 for all accounts. The Court further
observed that before classification as NPA, an account has to be classified as
SMA-2 and any account which is classified as SMA-2 on 1^st March,
2020 cannot be further downgraded to an NPA after the issuance of the
Notification. The status has to be maintained as it was on 1^st
March, 2020.

Thus, the Court granted interim protection
from the account being declared as an NPA. However, it was clarified that the
stipulated interest and penal charges shall continue to accrue on the
outstanding payment even during the moratorium period.

15. Covid-19 –
Lockdown – Period of the moratorium – Will not include period of lockdown

Transcon Skycity Pvt. Ltd. and Ors. vs.
ICICI & Ors.; W.P. LD VC No. 28 of 2020; Date of order: 11^th
April, 2020 (SC)(UR)

A petition was filed before the Supreme
Court as to whether the moratorium period is excluded in the computation of the
90-day period for determining NPA for amounts that fell due prior to 1^stMarch,
2020 and which remain unpaid or in default. The Court at the outset observed
that its scope for adjudication, at that particular juncture, was restricted
only to the aspect of urgent ad interim relief and issues like
maintainability were kept open for adjudication at an appropriate time.

The Hon’ble Court held that the period
during which there is a lockdown will not be reckoned by ICICI Bank for the
purposes of computation of the 90-day NPA declaration period. If the lockdown
is lifted at an earlier date than 31^st May, 2020, then this
protection will cease on the date of lifting of the lockdown and the computing
and reckoning of the remainder of the 90-day period will start from that
earlier lifting of the lockdown-ending date. The moratorium period of 1^st
March, 2020 to 31^st May, 2020 under the RBI Covid-19 regulatory
package does not per se give the petitioners any additional benefits in
regard to the prior defaults, i.e. those that occurred before 1^st
March, 2020. Thus, the relief to the petitioners is co-terminus with the
lockdown period.

The Court also
opined that this order will not serve as a precedent for any other case in
regard to any other borrower who is in default or any other bank. Each of these
cases will have to be assessed on its own merits. The question as to whether
the petitioners are entitled to the benefit of the entire moratorium period in
respect of the prior defaults of January and February, 2020 was left open.

16. Employment – Ministry of Home Affairs Order – Payment of wages
during lockdown – Negotiable [Disaster Management Act, 2005, S.10; Constitution
of India, 1949, Art. 14, Art. 19, Art. 300A]

Ficus Pax Pvt. Ltd. vs. UOI; W.P.(C) Diary
No. 10983 of 2020; Date of order: 12^th June, 2020 (SC)(UR)

A petition was filed by an association of
employers and a private limited company challenging the validity of the Order
of the Ministry of Home Affairs dated 29^th March, 2020 stating that
all the employers, be they in the industry or in the shops and commercial
establishments, shall make payment of wages of their workers at their work
places on the due date, without any deduction for the period their
establishments are under closure during the lockdown.

The Hon’ble Supreme Court held that no
industry can survive without the workers. Thus, employers and employees need to
negotiate and settle among themselves. If they are not able to do so, they need
to approach the labour authorities concerned to sort out the issues.

17. Family Law –
Maintenance on divorce – Wife entitled to maintenance – Even if she runs a
business and earns income [Hindu Marriage Act, 1955, S.12, S.13; Code of
Criminal Procedure, 1973, S.125]

Sanjay Damodar Kale vs. Kalyani Sanjay Kale
(Ms); RA No. 164 of 2019; Date of order: 26^th May, 2020
(Bom)(HC)(UR)

The couple got
married on 12^th November, 1997 in accordance with Hindu religious
rites and ceremonies. According to the applicant, the wife, since the inception
of marital life the respondent husband treated her with extreme cruelty. She
was dropped at her parental home at Satara in the month of January, 1999 by her
husband. Despite repeated assurances, the respondent did not come to fetch her
back to her marital home. In April, 2007 the respondent expressed his desire to
obtain divorce from the applicant. Although the applicant claimed to have
resisted in the beginning, she signed the documents for a divorce petition by
mutual consent as the respondent assured the applicant that he would continue
to maintain the marital relationship with her despite a paper decree of
divorce.

Despite the decree of dissolution of
marriage, the respondent continued to visit the applicant at her apartment and
had marital relations as well. But from September, 2012 the respondent-husband
stopped visiting the applicant’s house. The applicant-wife claimed the
respondent made no provision for her maintenance and livelihood as she had no
source of income. Hence, the applicant filed an application u/s 125 of the
Criminal Procedure Code for award of maintenance at the rate of Rs. 50,000 per
month. The Family Court allowed the application holding that the respondent has
refused or neglected to maintain the applicant who is unable to maintain
herself, despite the respondent having sufficient means to maintain her.

The Bombay High Court held that the claim of
the applicant that she had no source of income ought to have been accepted by
the learned Judge, Family Court with a pinch of salt. The tenor of the evidence
and the material on the record suggests that the applicant was carrying on the
business of Kalyani Beauty Parlour and Training Institute to sustain her
livelihood. Further, in this inflationary economy, where the prices of
commodities and services are increasing day by day, the income from the
business of beauty parlour, which has an element of seasonality, may not be
sufficient to support the livelihood of the applicant and afford her to
maintain the same standard of living to which she was accustomed before the
decree of divorce. Thus, the Court concluded that Rs. 12,000 per month would be
a reasonable amount to support the applicant wife instead of Rs. 15,000 awarded
by the Family Court (against the original claim / prayer for Rs. 50,000) as the applicant’s source of income was not
adequately considered by the Family Court Judge.

18. Interpretation of terms and conditions
of document(s) – Constitutes substantial question of law – High Court required
to exercise power – Matter remanded to the High Court [Code of Civil Procedure,
1908, S.100]

Rajendra Lalit Kumar Agrawal vs. Ratna
Ashok Muranjan; (2019) 3 Supreme Court Cases 378

The appellant is the plaintiff whereas the
respondents are the defendants. The appellant filed a civil suit against the
respondents for specific performance of the contract in relation to the suit
property. The suit was based on an agreement dated 8^thAugust, 1984.
The trial Court passed an order dated 5^th July, 2004 favouring the
appellant and passed a decree for specific performance of the contract against
the respondents. On appeal by the respondents, the District Court vide
order dated 10^th November, 2016 allowed the prayer of the
respondents, thereby dismissing the suit. The appellant filed a second appeal
before the High Court. The High Court dismissed the second appeal, too, holding
that it did not involve any substantial question of law as is required to be
made out u/s 100 of the Code of Civil Procedure, 1908 (Code).

On an appeal before the Supreme Court, it
was held that interpretation of terms and conditions of document(s) constitutes
a substantial question of law within the meaning of section 100 of the Code,
especially when both parties admit to the document. The Apex Court also held
the High Court could have framed questions on the issues, which were material
for grant or refusal of specific performance keeping in view the requirements
of section 16 of the Specific Relief Act. Therefore, the order of the High
Court was set aside and the matter was remanded back to the High Court.

19. Will – Mutual Will – Effect from – Death
of either testator – The beneficiaries do not have to wait till the death of
both the executants to enforce their rights [Hindu Succession Act, 1956]

Vickram Bahl & Anr. vs. Siddhartha
Bahl; CS(OS) 78/2016 & IAs Nos. 2362/2016, 12095/2016, 15767/2018 and
15768/2018; Date of order: 25^th April, 2020 (Delhi)(HC)

Late Wing
Commander N.N. Bahl and his wife Mrs. Sundri Bahl executed a Joint Will dated
31^st March, 2006. As per the Will, after the demise of one spouse
the entire property will ‘rest’ in the other spouse and no one else shall have
any right or interest until the demise of both the testators. Further, as per
the Will after the demise of both the testators their eldest son,
grand-daughter (daughter of the eldest son) and younger son will have ownership
rights as per their respective shares. The eldest son along with his daughter
filed a suit seeking permanent injunction against his mother and brother from
dispossessing them from their respective share of the property under the Will.

The Court held that Mrs. Sundri N. Bahl
having accepted the said Will, is bound by it. Since the rights in favour of
the ultimate beneficiary under the mutual Will are crystallised on the demise
of either of the executants and during the lifetime of the executant of the
Will, i.e. Mrs. Sundri Bahl, the beneficiaries do not have to wait till the
death of both the executants to enforce their rights.

BCAJ Admin

CORPORATE LAW CORNER

8. Foseco India Limited vs. Om Boseco Rail Products Limited C.P. (IB) No. 1735/KB/ 2019 Date of order: 20^th May, 2020

Section 9 read with Notification dated 24^th
March, 2020 – The Notification raises the pecuniary limit of the Tribunal for
initiating CIRP from Rs. 1 lakh to Rs. 1 crore – The said Notification is
prospective in nature and does not apply to applications which have been filed
but are yet to be admitted

FACTS

F Co (the ‘Operational Creditor’) was a
company engaged in the business of manufacturing and supply of chemical and
allied products related to foundry and steel industries. OB Co (the ‘Corporate
Debtor’) regularly purchased foundry and other chemicals from F Co on credit
basis wherein the credit period was 30 days and which was relaxed for a further
15 days beyond the usual credit period mentioned in the invoices.

The corporate debtor failed to make payments
of several invoices raised by the operational creditor from 3^rd December, 2018 to 11^th July, 2019 for supply of
materials. The total outstanding debt receivable from the corporate debtor was
Rs. 90,00,919.10 (principal amount of Rs. 78,52,663 + interest Rs.
11,48,256.10) on the basis of which a demand notice was issued on 1^st
August, 2019. But the corporate debtor did not reply to the said notice. The
operational creditor therefore filed an application for initiating Corporate
Insolvency Resolution Process (CIRP) against the corporate debtor.

On two consecutive events (17^th
January, 2020 and 3^rdFebruary, 2020), the corporate debtor chose
not to file a reply without assigning any valid reason. The matter was then
posted for hearing on 13^th March, 2020. The corporate debtor then
requested for a period of seven days for settlement of the matter with the
operating creditor. The time was granted and the order was reserved. But owing
to the onset of the coronavirus pandemic, there was a delay in pronouncement of
an order.

The corporate debtor, citing the
Notification dated 24^th March, 2020 which introduced the proviso
to section 4 of the Insolvency and Bankruptcy Code, 2016, filed a submission
before the NCLT on 13^th May, 2020. The proviso enhanced the
minimum amount of default from Rs. 1 lakh to Rs. 1 crore for initiating CIRP
against corporate debtors from small and medium-scale industries. The issue
before the National Company Law Tribunal (NCLT) was whether the Notification
u/s 4 of the Code would apply to applications pending for admission.

HELD

NCLT heard both the parties. It observed
that the corporate debtor had always accepted and agreed to make payment of
outstanding debt without raising any dispute. The Tribunal observed that it was
a well-settled law that a statute is presumed to be prospective unless it is
held to be retrospective either expressly or by necessary implication. Further,
the Notification did not mention that its application would be retrospective.
The amendment was, therefore, held to be prospective.

It was submitted that the invoices did not
mention any terms stipulating the payment of interest. Accordingly, NCLT held
that since there was no objection raised by the corporate debtor, a sum for
supply of materials less any interest was due. The claim of the operational
creditor was found due and sustainable in law. The Tribunal passed an order
admitting the application and laid down necessary directions, including
declaration of moratorium and appointment of a resolution professional.

9. DLF Ltd. vs. Satya Bhushan Kaura [2020] 113 taxmann.com 363 (NCLAT) Date of order: 13^th January, 2020

It was found that company in their
correspondence with legal heirs had accepted to issue shares to them as per
their entitlement on production of court orders, affidavit and indemnity bond
and on payment of Rs. 1.20 lakhs being consideration amount of 60,000 shares –
Where Letter of Administration for succession was submitted by legal heirs,
insisting on affidavit and indemnity bond again and again was harassing poor
investors and therefore, penalty was imposed on company and they were directed
to register transfer of 60,000 shares to legal heirs which were due to them on
rights basis by appellant company

FACTS

The Late DNK, a deceased shareholder of ‘D
Ltd’, held 150 equity shares of Rs. 10 each of the company. The said 150 equity
shares of Rs. 10 each were subsequently converted into 6,000 equity shares of
Rs. 2 each after giving effect to split and bonus issues. DNK had expired on 27^th
August, 1987.

On 29^th December, 2005, D Ltd
came out with a Rights issue which remained open till 18^th January,
2006. The offer was available to all the existing shareholders as on 18^th
November, 2005.

The legal heirs of DNK did not approach D
Ltd for transmission / transfer of the original 150 shares (being 6,000 shares
of Rs. 2 each) held by DNK in their favour; neither did they claim to be his
legal heirs nor did they inform D Ltd about his demise for about 20 years. On
25^th May, 2007, for the first time the legal heirs informed that DNK
had expired on 27^th August, 1987. Thereafter, by their letter dated
1^st June, 2007, the legal heirs requested for transfer of 66,000
equity shares. In response to the said letter, D Ltd requested the legal heirs
to submit the requisite documents, including the succession certificate and
demand draft of Rs. 1.20 lakhs on or before 26^th September, 2007 in
order to be eligible for allotment of shares on Rights basis.

The legal heirs after the cut-off date (26^th
September, 2007) for the first time vide their letter dated 16^th
October, 2007 applied for Letter of Administration in respect of the will of
DNK and after the lapse of five years, vide their letter dated 1^st
June, 2012, enclosed the Letter of Administration granted by the District Court
(North) in respect of the Will of DNK.

On appeal, the NCLT vide its order
directed D Ltd to register the transfer and the legal heirs were directed to make payment for 60,000 shares at Rs. 2 per share to the promoters.
The legal heirs were also directed that on transfer of 60,000 shares in their name, they will execute the
transfer deed to the extent of entitlement of the legal heirs in accordance
with the terms of the Letter of Administration issued by the District judge.

The matter went in appeal before the
Appellate Tribunal.

HELD

D Ltd in its
correspondence with the legal heirs has already accepted to issue shares to the
legal heirs as per their entitlement on production of court orders, affidavit
and indemnity bond and on payment of Rs. 1.20 lakhs being the consideration
amount of 60,000 shares. During the course of arguments, D Ltd was asked why,
when the Letter of Administration had been submitted by the legal heirs, did it
insist on affidavit and indemnity bond? When the Letter of Administration has
been issued, it means that the legal heirs are discharged from their liability.
On this, D Ltd offered its apologies.

It is to be
noted that D Ltd is a listed company in real estate and is well aware of legal
formalities. By insisting on affidavit and indemnity bond again and again in
spite of the Letter of Administration, it was clear that D Ltd is harassing the
poor investors. The act of D Ltd deserves some penal action. It is also noted
that the legal heirs are entitled to 60,000 shares as per entitlement on
payment of consideration.

In view of the
foregoing discussions and observations, the following directions were issued:

The legal
heirs will make payment of consideration to D Ltd within 15 days from the date
of receipt of the order and they will be entitled to the benefit of the
membership from the date of payment.

D Ltd will
transfer / arrange for transfer of 60,000 shares to the legal heirs within 30
days from the date of receipt of payment.

A sum of Rs.
5 lakhs as costs is imposed on D Ltd to be deposited with the National Defence
Fund within 15 days from the date of the order. Proof of depositing the same
will be submitted to the Registrar of the Appellate Tribunal within a week
thereafter.

BCAJ Admin

ALLIED LAWS

11.
Arbitration – Challenging order passed by the arbitrator pending arbitration
proceedings ruling on its own jurisdiction – Not by writ petition – Arbitration
Act is a Code by itself [Arbitration and Conciliation Act, 1996; Code of Civil
Procedure, 1908; Constitution of India, 1949, Art. 226, Art. 227]

GTPL Hathway Ltd. vs. Strategic Marketing Pvt. Ltd.;
R/SCA No. 4524 of 2019; Date of order: 20^th April, 2020 (Guj.)(HC)

On a petition filed u/s 11 of the Arbitration and
Conciliation Act, 1996 (the Act), the High Court vide an order dated 9^th
February, 2018 appointed a sole arbitrator. Thereafter, the arbitral Tribunal vide
order dated 14^th February, 2019 dismissed the preliminary objection
application filed by the petitioner (of this writ petition) and held that it
has jurisdiction over the dispute between the parties. The petitioner filed a
writ petition before the Hon’ble High Court.

The Court held that section 16 of the Act empowers an
arbitral Tribunal to rule on its jurisdiction, section 34 of the Act pertains
to setting aside of an arbitral award and section 37 of the Act provides for an
appeal if the arbitral Tribunal declines jurisdiction. Therefore, these provisions
provide for a complete code for alternative dispute resolution as against the
Civil Procedure Code, 1908. Further, considering the policy, object and
provisions of the Act, the same appear to be a special act and a self-contained
code. Therefore, during pendency of arbitration proceedings, the impugned order
dismissing the preliminary objections cannot be challenged under Article
226/227 of the Constitution.

12.
Employment – Covid-19 – Deferral of payment of salary – Denial of property
[Constitution of India, 1949, Art. 300A]

Meena Sharma vs. Nand Lal W.P(C) TMP No.182 of 2020; Date
of order: 28^th April, 2020 (Ker.)(HC)

On financial difficulties arising out of the lockdown,
the Kerala government had issued an order dated 23^rd April, 2020
stating that the salaries of all government employees who are in receipt of a
gross salary of above Rs. 20,000 would be deferred to the extent of six days
every month from April to August. Individuals of different departments filed a
petition before the Hon’ble High Court challenging the order for being
unconstitutional and violative of Article 300A of the Constitution of India.

The Court held that payment of salary to an employee is
certainly not a matter of bounty. It is a right vested in every individual to
receive the salary. It is also a statutory right as it flows from the Service
Rules. The right to receive salary every month is part of the service
conditions emanating from Article 309 of the Constitution of India. Further,
neither the Epidemic Diseases Act, 1897 nor the Disaster Management Act, 2005
justify such an order and deferment of salary for whatever reason amounts to
denial of property.

13.
Labour law – Payment of wages – Covid-19 – Principle of ‘No work – No wages’
not applicable [Industrial Disputes Act, 1947]

Rashtriya Shramik Aghadi vs. The State of Maharashtra and
Others; WP No. 4013 of 2020; Date of order: 12^th May, 2020
(Bom.)(HC)(Aur.)

A workers’ union made a grievance before the Bombay High
Court that a lockdown has been effected but though the members of the Union are
willing to offer their services as security guards and health workers, they are
precluded from performing their duties on account of the clamping of the
lockdown for containment of the Covid-19 pandemic. Further, the payments made
by the contractors for the month of March, 2020 are slightly less than the
gross salary; and for the month of April, 2020 a paltry amount has been paid.

The Court held that these employees are unable to work
since the temples and places of worship in the entire nation have been closed
for securing the containment of the Covid-19 pandemic. Even the principal
employer is unable to allot the work to such employees. In such an
extraordinary situation, the principle of ‘No work — No wages’ cannot
be made applicable.

BCAJ Admin

CORPORATE LAW CORNER

2. Rajendra K. Bhutta vs. Maharashtra Housing and Area
Development Authority

[2020] 114 taxmann.com 655 (SC)

Civil Appeal No. 12248 of 2018

Date of order: 19^th February, 2020

Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016
– The word ‘occupied’ used in the section refers to actual physically occupied
property and not the rights or interest created in the property – Any
occupation handed to the developer (corporate debtor) in terms of a Joint
Development Agreement would stand ‘statutorily freezed’ in terms of section
14(1)(d)

FACTS

A joint development agreement (‘JDA’) was entered into
between a society representing persons occupying 672 tenements, the Maharashtra
Housing and Area Development Authority (‘MHADA’) and G Co (being the corporate
debtor) on 10^thApril, 2008.
G Co entered into a loan agreement with Union Bank of India on 25^th
March, 2011 for a sum of Rs. 200 crores. G Co defaulted on payment of the said
loan and consequently Union Bank of India filed an insolvency resolution
application u/s 7 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) on
15^th May, 2017 which was admitted on 24^th July, 2017. A
moratorium in terms of section 14 was also declared by this order.

On 12^th January, 2018, after the imposition of the
moratorium period u/s 14 of the Code, MHADA issued a termination notice to G Co
stating that upon expiry of 30 days from the date of receipt of the notice, the
JDA would stand terminated. It was further stated that G Co would have to hand
over possession to MHADA, which would then enter upon the plot and take
possession of the land, including all structures thereon.

One hundred and eighty days from the start of the Corporate
Insolvency Resolution Process (‘the CIRP’) ended on 19^th January,
2018. The NCLT, by its order dated 24^th January, 2018, extended the
CIRP period by 90 days as permissible under the Code. On 1^st
February, 2018, an application was filed before the NCLT to restrain MHADA from
taking over possession of the land till completion of the CIRP, contending that
such a recovery of possession was in derogation of the moratorium imposed u/s
14 of the Code. The NCLT, by an order dated 2^nd April, 2018,
dismissed the aforesaid application, stating that section 14(1)(d) of the Code
does not cover licenses to enter upon land in pursuance of JDAs and that such
licenses would only be ‘personal’ and not interests created in property. An
appeal against this order was preferred to the NCLAT.

Meanwhile, in a parallel proceeding the quantum of time being
taken by NCLT was sought to be omitted from the total number of days allowable
under the Code. While NCLT granted part relief, an appeal filed before NCLAT
proved successful. Pursuant to an order dated 9^th May, 2018 issued
by the NCLAT, the entire 55 days taken before the NCLT were excluded.

On 3^rd July, 2018, G Co filed a Resolution Plan
which was approved by 86.16% of the Committee of Creditors (‘COC’) before the
NCLT. Ultimately, the NCLAT, by the impugned order dated 14^th
December, 2018 (after omitting to refer to the order dated 9^th May,
2018), stated that 270 days had passed by, as a result of which the entire
discussion of section 14(1)(d) would now become academic. It also decided that
with the exception of ‘development work’, G Co did not have any right on the
land in question. The land belonged to MHADA and in the absence of any formal
transfer in favour of G Co, it could not be treated as an asset of G Co for
application of the provisions of section 14(1)(d).

An appeal against the aforesaid matter was filed before the
Supreme Court.

HELD

The Supreme Court heard the arguments put forth by all the
sides. It examined the provisions of sections 3(27), 14, 18, 31 and 36(4) of
the Code. It was observed that in terms of the JDA, a license was granted to
the developer (i.e. the Corporate Debtor / G Co) to enter upon the land,
demolish the existing structures and to construct and erect new structures and
allot tenements. At the very least a license has been granted in favour of the
developer to enter upon the land to demolish existing structures, construct and
erect new structures and allot to erstwhile tenants tenements in such
constructed structures in three categories, (1) the earlier tenants / licensees
of structures that were demolished; (2) tenements to be allotted free of cost
to MHADA; and (3) what is referred to as ‘free sale component’ which the
developers then sell and exploit to recover or recoup their cost and make profit.
It was observed that it was not necessary for the purpose of this case to state
as to whether an interest in the property is or is not created by the said JDA.

It was observed by the Supreme Court that section 14(1)(d)
did not deal with any of the assets or legal rights or beneficial interest in
such assets of the corporate debtor. Reference to sections 18 and 36 which was
made by the NCLT was, thus, wholly unnecessary to decide the scope of section
14(1)(d).

For the sake of reference, section 14(1)(d) reads as follows:

Subject to provisions of sub-sections (2) and (3), on the
insolvency commencement date, the Adjudicating Authority shall by order declare
moratorium for prohibiting all of the following, namely:

…

(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession of the corporate
debtor.

The Supreme Court observed
that as per section 14(1)(d) what is referred to is the ‘recovery of any
property’. The ‘property’ in this case consists of land admeasuring 47 acres
together with structures thereon that had to be demolished. ‘Recovery’ would
necessarily go with what was parted by the corporate debtor, and for this one
has to go to the next expression contained in the said sub-section.

Referring to the cases of The Member, Board of Revenue
vs. Arthur Paul Benthall [1955] 2 SCR 842; Koteswar Vittal Kamath vs. K.
Rangappa Baliga & Co. [1969] 1 SCC 255; and Kailash Nath
Agarwal and others vs. Pradeshiya Industrial & Investment Corporation of
U.P. Ltd. and another [2003] 4 SCC 305, the Supreme Court
held that when recovery of property is to be made by an owner u/s 14(1)(d),
such recovery would be of property that is ‘occupied by’ a corporate debtor.

Further, referring to the cases of Industrial Supplies
Pvt. Ltd. and another vs. Union of India and others [1980] 4 SCC 341; Dunlop
India Limited vs. A.A. Rahna and another [2011] 5 SCC 778; and
Ude Bhan and others vs. Kapoor Chand and others AIR 1967 P&H 53 (FB),
the Supreme Court held that the expression ‘occupied by’ would mean or be
synonymous with being in actual physical possession of, or being actually used
by, in contra-distinction to the expression ‘possession’, which would connote
possession being either constructive or actual and which, in turn, would
include legally being in possession, though factually not being in physical
possession. The JDA granted a license to the developer (Corporate Debtor) to
enter upon the property with a view to do all the things that are mentioned in
it. After such entry, the property would be ‘occupied by’ the developer /
corporate debtor.

In the context of the MHADA Act, it was held that when it
comes to any clash between the MHADA Act and the Insolvency Code, on the plain
terms of section 238 of the Insolvency Code, the Code must prevail. Further,
the Supreme Court in the context of a moratorium u/s 14 of the Code, observed
that the intention was to alleviate corporate sickness and, therefore, a
statutory status quo has been pronounced u/s 14 the moment a petition is
admitted u/s 7 of the Code, so that the insolvency resolution process may
proceed unhindered by any of the obstacles that would otherwise be caused and
that are dealt with by section 14. The statutory freeze that has thus been made
is, unlike its predecessor in the SICA, 1985 only a limited one, which is
expressly limited by section 31(3) of the Code, to the date of admission of an
insolvency petition up to the date that the adjudicating authority either
allows a resolution plan to come into effect or states that the corporate
debtor must go into liquidation. For this temporary period, at least, all the
things referred to u/s 14 must be strictly observed so that the corporate
debtor may finally be put back on its feet, albeit with a new
management.

In the facts of the case, the resolution plan had been
approved by the NCLT and the limited question before the Supreme Court was
whether section 14(1)(d) of the Code will apply to statutorily freeze
‘occupation’ that may have been handed over under a JDA. Section 14(1)(d) of
the Code speaks about recovery of property ‘occupied’. It does not refer to
rights or interests created in property but only actual physical occupation of
the property. Thus, the section would stand to cover the occupation which has
been so granted under the JDA.

The order passed by the NCLAT was thus set aside and the
appeal was allowed. NCLT was directed to dispose of the application of the
resolution professional within six weeks.

3. Vikramjit Singh Oberoi vs. Registrar of
Companies

[2020] 114 taxmann.com 512

(Madras High Court)

Date of order: 13^th January, 2020

Where company allotted shares on rights basis to its
existing shareholders, merely because many of them renounced their entitlement
in favour of more than 50 third parties it could not be said that rights issue
was converted into public issue

It is not necessary to register a pledge in respect of
fixed deposits as charge either under 1956 Act or under 2013 Act; once rights
issue-related expenditure is adjusted against security premium account, i.e.,
by way of adjustment in liability side of a balance sheet, same do not pass
through to assets side of balance sheet

Payment of royalty did not qualify as contract related to
sale, purchase or supply of goods, materials or services, thus not covered by
section 297 of 1956 Act

Where company had availed services such as car rentals,
laundry services, etc., from related party and it had not disclosed same in
Board of directors’ report, since these transactions were in ordinary course of
business on an arm’s length basis, section 134 would not apply

FACTS 1

A show cause notice was issued by the ROC in respect of the
alleged violation of sections 56 and 81(1A) of the Companies Act, 1956 (CA
1956). The company had allotted shares on rights basis to its existing
shareholders and many of the existing shareholders renounced their entitlement
in favour of others who were not shareholders. On that basis, the ROC alleged
that section 67 of CA 1956 is attracted because the renunciation is in favour
of more than 50 persons. In other words, the case of the ROC is that the
renunciation converts the rights issue into a public issue and, therefore,
section 56 of CA 1956 should have been adhered to.

Upon receipt of the show cause notice, it was explained that
section 81(1)(c) of CA 1956 mandates that the company should grant the right of
renunciation to all its existing shareholders while issuing the letter of offer
to such shareholders. Thereafter, such existing shareholders are statutorily
entitled to renounce their rights in favour of any person. It is to be noted
that in such cases the company does not have any control over the aforesaid
process and, consequently, cannot insist that such renunciation should be in
favour of existing shareholders of the company. Therefore, it cannot be said
that the company or its directors violated the relevant provisions of CA 1956.
In this connection, a letter bearing No. 8/81/56-PR dated 4^th
November, 1957 from the Ministry of Company Affairs was placed before the Court.
The said letter opined that the issue of further shares by a company to its own
members with the consequential statutory right to renounce their entitlement in
favour of a third party does not require the issuance of a prospectus.

HELD 1

The alleged offence is in
respect of non-compliance of public issue-related requirements. It is the
settled legal position that any public company should make a further issue of
shares only to existing shareholders, in the same proportion, unless a special
resolution is passed authorising the company concerned to issue shares to
others. Such an issue is referred to as a rights issue. It is also the settled
position that when a rights issue is made, the letter of offer is issued to all
existing shareholders and it is mandatory that each shareholder is given the
right to renounce such shares to any person. The relevant provision in this
regard is section 81(1) (a), (b) and (c) of CA 1956. Therefore, the company
does not have any control in respect of such renunciation which may be in
favour of any person, including third parties.

A letter dated 4^th November, 1957 from the
Ministry of Company Affairs has settled the issue beyond any doubt.
Consequently, it cannot be said that the rights issue was converted into or was
in fact a public issue merely because renunciations were made in favour of more
than 50 third parties. Therefore, it was held that the company and the
directors did not commit the alleged offence of violating sections 56 and 67 of
CA 1956. Consequently, relief u/s 463(2) of CA 2013 was granted.

FACTS 2

The alleged violation of section 129 read with schedule III
of CA 2013 is the subject matter. The ROC has alleged that the company had
deposits of Rs. 0.04 million with Axis Bank, Jaipur Branch and a further sum of
Rs. 0.07 million with Canara Bank, Chennai aggregating to Rs. 0.11 million. As
regards the aforesaid fixed deposits, Note 15 to the balance sheet for the
financial year ended 31^st March, 2015 reflected that the said fixed
deposits were pledged with the Sales Tax Department. However, no charge was
registered under the relevant provisions of CA 1956 or CA 2013 in respect of
the pledged fixed deposits. Therefore, a show cause notice was issued alleging
that section 211 of CA 1956 was violated.

In reply, it was explained that the original fixed deposit
receipts (F.D. Receipts) in respect of the aforesaid deposits with Axis Bank
and Canara Bank were pledged with the Sales Tax Department by handing over the
said F.D. Receipts and that such a pledge is not required to be registered as a
charge either under CA 1956 or CA 2013. It was also explained that CA 1956 and,
in particular, section 211 thereof, does not apply because it relates to the
financial year 2014-15 when CA 2013 was in force. In any event, it was submitted
that a pledge of movable assets is not required to be registered under CA 2013
by filing Form CHG-1, as would be evident on perusal of Form CHG-1. In spite of
this reply, another show cause notice was issued.

HELD 2

The Court observed that under both section 125 of CA 1956 and
section 77 of CA 2013, it is not necessary to register a pledge over movable
assets as a charge. This position became abundantly clear upon perusal of Form
CHG-1 under CA 2013 which excludes a pledge over movable assets. Therefore, it
is not necessary to register a pledge in respect of the fixed deposits as a
charge under the applicable provisions of either CA 1956 or CA 2013.
Consequently, the relief u/s 463(2) of CA 2013 was granted.

FACTS 3

The alleged violation of section 78(2)(c) of CA 1956 with
regard to the manner in which the rights issue-related expenses of Rs. 28.33
million were adjusted against the securities premium account of the company is
the subject matter. According to the ROC, such adjustment should have been
reflected in the Profit and Loss Account and, therefore, a show cause notice
was issued.

In reply it was explained that section 78(2)(c) permits the
utilisation of the securities premium account to write off expenses of any
issue of shares or debentures of the company. It was further submitted that the
company explained in the Note to the accounts of the balance sheet for the
financial year ended on 31^stMarch, 2013 that a sum of Rs. 979.34
million was received towards premium on rights issue of shares and a sum of Rs.
28.33 million was deducted as share issue expenses in connection with the said
rights issue. It was further submitted that the said expenditure is a capital
expenditure which was adjusted on the liability side of the balance sheet and,
therefore, was not carried into the asset side of the balance sheet.
Consequently, there was no question of reflecting it in the P&L account for
that year. It was further pointed out that AS 26 does not have any application
because it relates to intangible assets and has no connection whatsoever with
the issuance of shares on rights basis. In spite of this reply, a show cause
notice was issued by the ROC.

HELD 3

The alleged offence in this case is not reflecting the rights
issue expenses in the P&L account for the relevant financial year. The case
of the company was that the rights issue expenditure constituted capital
expenditure and that the company is entitled to adjust such expenditure against
the security premium account as per section 78(2)(c) of CA 1956. The said
contention is well founded based on section 78(2)(c) of CA 1956. Once the
rights issue-related expenditure is adjusted against the security premium
account, i.e., by way of an adjustment on the liability side of the balance
sheet, the amounts in question do not pass through to the assets side of the
balance sheet. Consequently, such amount cannot be reflected in the P&L
account and it would be an accounting impossibility to do so.

Therefore, it was concluded that the company was entitled to
treat the rights issue expenditure as a capital expenditure and set it off
against the security premium account in accordance with section 78(2)(c) of CA
1956. As a corollary, such expenditure could not have been reflected in the
P&L account for the relevant financial year. Notwithstanding the above
legal position and the explanation provided in that regard, the ROC continued
to allege that there is a violation of law. Consequently, the relief u/s 463(2)
of CA 2013 was granted.

FACTS 4

The payment of royalty during the financial years ended 31^st
March, 2013, 31^st March, 2014 and 31^st March, 2015 is the
subject matter. It was pointed out in this connection that a show cause notice
was issued to the company and a reply had been sent. With regard to the alleged
violation, it was pointed out that section 297 of CA 1956 only applies to
contracts for the sale, purchase or supply of goods, materials or services. In
this case, royalty was paid in connection with the license to use the brand /
trade name. Consequently, it is not a contract for the sale, purchase or supply
of goods, materials or services. It was further pointed out that this position
continues to remain the same u/s 188 of CA 2013 and that none of the
sub-clauses of section 188 relate to licensing of a brand / trade name. It was
further submitted that licensing does not entail sale or disposal or lease of
property and is merely the right to use the brand name.

HELD 4

It is alleged that section
297 of CA 1956 was violated in respect of the payment of royalty to a related
party. The Court observed that section 297 of CA 1956 and the corresponding
provision in CA 2013, section 188, do not deal with the payment of royalty and
instead only deal with contracts for the sale, purchase or supply of goods,
materials or services. In this connection, the judgment of the Hon’ble Supreme
Court in Tata Consulting Services is apposite and royalty does
not qualify as goods, materials or services. In any event, the company and its
officers acted honestly and reasonably and as such are entitled to the reliefs.

FACTS 5

The alleged non-disclosure
of related party transactions in Form AOC 2 in the Board of Directors’ report
is the issue. Accordingly, through a show cause notice the ROC alleged that the
company violated section 134 of CA 2013 read with Rule 8 of the Companies
(Accounts) Rules, 2014.

In reply, the company
pointed out that these transactions are in the ordinary course of business and
on an arm’s length basis. Accordingly, as per the proviso of section
188(1) of CA 2013, the section would not apply to arm’s length transactions in
the ordinary course of business. Consequently, section 134(3)(h) of CA 2013
does not apply. A separate note was also provided by the company in the
Director’s Report under the heading ‘contracts or arrangements’ mentioning that
filing of Form AOC 2 is not required. It was further pointed out that the
present contract is not a material contract; neither section 134 nor AOC 2 is
violated. Hence it was submitted that the petitioners did not violate any of
the provisions of CA 1956 or CA 2013 as alleged by the ROC. Even if there was a
technical breach, such breach was committed honestly and reasonably. Therefore,
a case is made out to grant relief u/s 463(2) of CA 2013.

HELD 5

This relates to the alleged violation of section
134 of CA 2013. Once again, the company replied to the show cause notice and
relied upon the proviso to section 188(1) of CA 2013 on the basis that
the transaction in question is in the ordinary course of business and on an arm’s
length basis. Thus it was held that the breach, if any, is purely technical and
a case is made out to be relieved of liability in this regard.

BCAJ Admin

ALLIED LAWS

6. Continuation
of interim orders – Covid-19
pandemic – Bombay High Court – Interim
orders continued

Writ Petition Urgent 2 of 2020
dated 26^th March, 2020 and 15^th April, 2020 (Bom.)(HC)

In view of
the lockdown due to the Covid-19 pandemic, the Bombay High Court held that all
interim orders operating till 26^th March, 2020 which are not already
continued by some other courts / authorities including this Court, shall remain
in force till 30^thApril, 2020 subject to liberty to parties to move
for vacation of interim orders only in extremely urgent cases. Thus, all
interim orders passed by this High Court at Mumbai, Aurangabad, Nagpur and
Panaji as also all courts / Tribunals and authorities subordinate over which it
has power of superintendence expiring before 30^th April, 2020, shall
continue to operate till then. It is further clarified that such interim orders
which are not granted for limited duration and therefore are to operate till
further orders, shall remain unaffected by this order. In view of the extension
of the lockdown, the interim orders are further extended up to 15^th
June, 2020.

7. Arbitration – Limitation – Delay in filing an appeal beyond 120
days cannot be condoned – Further clarified – 120 days include 30 days of grace
period as per Limitation Act [Arbitration and Conciliation Act, 1996, S. 34, S.
37; Limitation Act, 1963, S. 5]

N.V. International vs. State of
Assam & Ors.; 2019, SCC OnLine 1584

An arbitral
award was passed on 19^th December, 2006 which was challenged before
the District Judge in a petition u/s 34 of the Arbitration and Conciliation
Act, 1996 which ultimately was rejected on 30^th May, 2016. An appeal
was filed against this order in March, 2017 after a delay of 189 days. The
delay was not condoned as no sufficient cause was made out for the same. On an
SLP, the Supreme Court held that apart from sufficient cause, since a section
34 application has to be filed within a period of a maximum of 120 days
including the grace period of 30 days, any appeal u/s 37 should be covered by
the same drill. Allowing a delay beyond 120 days will defeat the overall
purpose of arbitration proceedings being decided with utmost dispatch.

8. Limitation
– Covid-19 pandemic – Supreme Court – Relief for litigants and lawyers
[Constitution of India, Articles 141, 142]

Suo motu Writ
petition (Civil) No. 3/2020 dated 23^rdMarch, 2020 (SC)

On account
of the situation posed by the Covid-19 pandemic, the Hon’ble Supreme Court has suo
motu held that to ease the difficulties faced by the litigants and their
lawyers across the country in filing their petitions / applications / suits /
appeals, irrespective of the limitation prescribed under the general law or
special laws whether condonable or not, shall stand extended w.e.f. 15^th
March, 2020 till further order/s passed by this Court in the present
proceedings.

9. Consumer Protection – Self-contribution scheme for benefit of
employees – Whether consumer-service provider relationship between employee and
employer [Consumer Protection Act, S. 2(1)(d), S. 2(1)(o)]

ONGC & Ors. vs. Consumer
Education Research Society & Ors.; 2019, SCC OnLine SC 1575

In this
case there was no dispute that the claimants were employees of ONGC which had
introduced a self-contribution scheme after obtaining the required permissions
from the government. The scheme was voluntary and optional and the employer was
making a token contribution of Rs. 100 p.a. There was a delay in sending the
claims of the employees to LIC on account of which the employees suffered a
loss. The employees filed a case against the employer (ONGC) for deficiency in
service. The Hon’ble Supreme Court held that there is virtually no privity of
contract for providing services between the employees and the employer.
Further, the scheme is managed and run by a trust and not by ONGC. Therefore,
the service, if any, is being rendered by the Trust and not by ONGC. Thus,
there is no consumer-service provider relationship between the employees and
the employer (ONGC).

10. Priority of employees’ dues over all dues – Not applicable to
co-operative societies [Companies Act, 1956, S. 529A; Maharashtra Co-operative
Societies Act, 1960, S. 167]

Maharashtra State Co-operative
Bank Limited vs. Babulal Lade & Ors.; 2019, SCC OnLine SC 1545

The Hon’ble Supreme Court inter alia held that
section 167 of the Companies Act, 1956 creates a bar on the applicability of
the Companies Act to societies registered under the Societies Act. Given that
the karkhana (factory) was a co-operative society registered under the
said Act, section 167 of the Societies Act, 1960 is applicable and the High
Court committed a grave error in relying upon section 529A of the Companies
Act, 1956. Thus, employees cannot make use of section 529A of the Companies Act
to claim priority over all the other debts of the karkhana.

BCAJ Admin

CORPORATE LAW CORNER

4. Eight Capital India (M) Ltd.
vs. Wellknit Apparels (P) Ltd. [2020] 115 taxmann.com 279 (NCLT-Chen.) IBA No.
312 of 2019 Date of order: 11^th December, 2019

Section 5(8) r/w/s 7 of Insolvency and
Bankruptcy Code, 2016 – A fully convertible debenture which has not been
converted into equity qualifies as a ‘Financial Debt’ – Application was
admitted when there was default in payment of such debentures

FACTS

E Co (the ‘financial creditor’) was a
private limited company incorporated in Mauritius which gave a loan of US$
37,15,000 (equivalent to Rs. 15 crores) as project finance and was issued fully
convertible debentures by W Co (the ‘corporate debtor’). The latter issued
40 debentures of Rs. 25 lakhs each for an amount of Rs. 10 crores on 20^th
August, 2007 and 20 debentures of Rs. 25 lakhs each totalling Rs. 5 crores on
20^th November, 2007; the total value of the debentures was Rs. 15
crores.

The financial creditor and the
corporate debtor entered into a Debenture Subscription Agreement dated 21^stMay, 2007 and a Master Facility Agreement also dated 21^st May,
2007. As per the terms of the agreement, the subscription to the debenture was
done for a period of 84 months and interest was to be paid at the rate of 12%
p.a. An additional interest of 6% p.a. was payable on default.

The corporate debtor made a repayment
only once during the period, for the quarter ended 30^th September,
2007 for an amount of Rs. 39,86,371. The corporate debtor was in default on all
other payments specified in the agreement till 20^th May, 2014. The
financial creditor alleged that the corporate debtor failed to convert the
debentures as agreed.

Article 8 of the agreement specified
that the financial creditor could initiate action against the corporate debtor
upon occurrence of an event of default which included appointment of receiver,
liquidator or making an application for winding up. The financial creditor had
moved the Madras High Court for recovery of interest and for restraining the
corporate debtor from alienating the assets. An application filed by the
corporate debtor opposing the suit had been dismissed by the Madras High Court
on the ground that the suit was a continuing breach of tort, with every act of
breach giving rise to fresh cause of action.

On 18^th April, 2017 a
Memorandum of Agreement (‘MOA’) was executed between the financial creditor and
the corporate debtor, which is stated to have been confirmed and made binding
by the Madras High Court on 14^th July, 2017. The corporate debtor
did not co-operate with the financial creditor to monetise the assets and to
make the payments to the financial creditor as was agreed in the MOA.

The corporate debtor admitted that the
MOA was entered into for a compromise which provided for resolving the disputes
amicably but not to admit or determine its quantum of liability. It was further
stated that the MOA was executed in a spirit of goodwill and compromise and to
put a quietus to the litigation whereby it agreed to share 50% of the
net assets after deducting / adjusting certain statutory dues, etc. which was
higher than the maximum of 37.5% equity entitlement of the financial creditor.
The corporate debtor stated that the claims were sought to be settled on the
basis of the assets available and not on the basis of any liability admitted or
otherwise.

The corporate debtor further contended
that the MOA constituted a separate contract distinguishable from the Master
Facility Agreement. The MOA superseded the earlier contract and clearly
explained the mode and the time of performance of the respective obligations.
The MOA was conditional upon the sale of the property by the authorised officer
of MEPZ.

The corporate debtor also contended
that the action of entering into an MOA which contemplated the sale of assets
and dividing the surplus in an agreed manner, only reinforced the proposition
that the applicant was a stakeholder in the equity and not a financial creditor
as there was no debt involved. The applicant claimed that he fell in the
definition of a financial creditor as he had all along been a debenture holder
and the debentures were never converted into equity at any point in time.
Besides, he corporate debtor in its
balance sheet for the year nding 2016-17
had shown the applicant as a ‘debenture holder’ establishing the fact that it
was a ‘financial debt’ that was due to the ‘financial creditor’.

HELD

The NCLT heard both the parties. It was
observed that the intention of both the parties was manifested in the Master
Facility Agreement and the Debenture Subscription Agreement. The investment was
sought to be made by the financial creditor by way of subscribing to the
debentures in consideration of the money brought in by him into the coffers of
the corporate debtor.

NCLT observed that fully convertible
debentures were a financial instrument within the meaning of section 5(8) of
the Insolvency and Bankruptcy Code, 2016. A convertible debenture which was in
the nature of financial debt (though hybrid in nature), could not be treated as
equity unless conversion was actually done. It could not take on the
characteristics of equity until it was converted.

It was further held that the financial
creditor had taken all precautions to safeguard its interest so long as the
convertible debenture remained a debenture. It was observed that a simple
mortgage was created in favour of the financial creditor which shows that there
was debt which is a financial debt based on the principle that ‘once a
mortgage; always a mortgage’. It postulates that unless and until a mortgage is
discharged it remains a mortgage and as such a financial debt.

The NCLT also
noted that apart from the payment of a sum of Rs. 39,86,371.36 for the quarter
ending September, 2007, interest amount was not paid for the remaining period
by the corporate debtor which constituted a clear default.

The application was thus admitted by
the NCLT and consequential orders including appointment of Interim Resolution
Professional and imposing of moratorium were passed.

5. Deorao Shriram Kalkar vs. Registrar of Companies [2020] 113
taxmann.com 292 (NCLAT) Date of order: 6^th December, 2019

Where company had fixed deposit
receipts (FDRs) with bank and was regularly receiving interest on the same and
TDS was being deducted by the bank on payment of interest and being deposited
with Income tax authorities, it could not be said that company was
non-operational – It would be just that the name of company be restored in the
Register of Companies

FACTS

T Private Ltd. (T Co) is a company
incorporated under the Companies Act, 1956 and having its registered office at
Pune. T Co and its directors were served STK 1, a notice u/s 248(1)(c)
of the Companies Act, 2013 on 11^th March, 2017. In its reply dated
29^th March, 2017, the company intimated the ROC that inadvertently
regulatory filings for the years ending 31^st March, 2015 and 2016
were not filed and it was in the process of completing the same at the
earliest. Thereafter, a public notice was issued on 7^th April, 27^th
April and 11^th July, 2017 and T Co’s name was struck off from the
register of companies.

This order was challenged by T Co
before the NCLT, Mumbai. However, NCLT dismissed the appeal on the ground that
the company did not generate any income / revenue from its operations since the
financial year ending 31^st March, 2014 and till 31^st
March, 2017; the company did not spend any amount towards employee benefit
expenses and the fixed assets of the company were Nil and its tangible assets
were also Nil; therefore the action taken by the ROC was justified and the
Bench did not find any ground to interfere with the action of striking off the
name by the ROC. Being aggrieved, T Co preferred this appeal before the
Appellate Tribunal (AT).

T Co submitted that it had a Fixed
Deposit Receipt (FDR) with the Bank of Maharashtra amounting to Rs. 1,50,00,000
(Rs. 1.50 crores) and a performance bank guarantee was issued in favour of one
of the vendors which was valid up to 11^th November, 2017; the same
was further extended up to 10^th November, 2018. T Co was regularly
receiving interest on the said FDR from the bank and TDS was being deducted by
the Bank on the interest and deposited with the Income tax authorities. T Co
further submitted that the company was regularly filing the Income tax returns.
In addition, T Co submitted that after the expiry of the term of the bank
guarantee, the funds of the company would be released and the Directors of the
company would be in a position to take necessary decisions about its working.

However, counsel for the ROC stated
that due to failure in filing of the statutory returns for a continuous period
of more than two years, the name of T Co was considered for striking off by the
ROC, Pune in a suo motu action under the provisions of section 248 of
the Companies Act, 2013. It was further argued that the STK 1 notice
dated 11^th March, 2017 was issued to T Co with the direction to
submit any representation against the proposed striking off of its name. It was
stated that the fact of non-filing of the statutory returns was admitted by T
Co. But the ROC counsel submitted that on an analysis of the balance sheet and
the Profit & Loss account of the appellant it was observed that the company
had not generated any income / revenue from its operations since the financial
year ending 31^stMarch, 2014 and till 31^st March, 2017.
Besides, the company did not spend any amount towards employee benefit expenses
for these financial years. At the same time, both the fixed assets and tangible
assets of the company were Nil. The counsel for ROC insisted that the ROC had
rightly taken the decision to strike off the name of T Co.

The matter was considered by the AT
which noted that during the course of arguments T Co had admitted that it had
not filed the statutory returns for more than two years as per the Companies
Act, 2013. On receipt of the STK 1 notice from the ROC, T Co vide
its reply had intimated the ROC that regulatory filings for the years ending 31^stMarch, 2015 and 2016 were not filed inadvertently. However, it also
stated that the annual returns and financial statements were ready and could be
filed immediately. The AT also observed that T Co had an FDR with the bank to
the tune of Rs. 1,50,00,000; interest was being received by the company and it
was duly making provision of income tax in its balance sheet. It was further
observed by the AT that T Co had also given a performance guarantee. This was
an attempt to secure business for the company.

The AT further observed that in such
cases the ROC has also to see that the compliance of section 248(6) of the
Companies Act, 2013 is met.

Section 248(6) of the Companies Act,
2013 reads as under:

‘The Registrar, before passing an order
under subsection (5), shall satisfy himself that sufficient provision has been
made for the realisation of all amounts due to the company and for the payment
or discharge of its liabilities and obligations within a reasonable time and,
if necessary, obtain necessary undertakings from the Managing Director,
Director or other persons in charge of the management. Provided that
notwithstanding the undertakings referred to in this sub-section, the assets of
the company shall be made available for the payment or discharge of all its
liabilities and obligations even after the date of the order removing the name
of the company from the Register of Companies.’

However, the ROC counsel in written
submissions stated that the ROC has not received any reply from the company and
its Directors. The AT noted that the appellant has replied vide its
letter dated 29^th March, 2017 and the said letter has the
acknowledgement of the ROC, Pune.

Therefore, the AT observed that it
cannot be said that T Co has not replied. Further there is nothing on record to
show that the compliance of section 248(6) of the Companies Act, 2013 has been
made by the ROC. his fact has also not
been noted in the NCLT order. Without
complying with this provision, the ROC vide Form STK 5 dated 7^th
April, 2017 has struck off the names of various companies including T Co. The
AT reiterated that the company is having an FDR with the bank and a performance
guarantee has been given and income tax is being deposited on the interest
received on fixed deposits.

From the above discussions and
observations, the AT came to the conclusion that it would be just that the
name of the company be restored.

HELD

The following order / directions were
passed:

The order of NCLT was quashed
and set aside.The name of T Co would be restored in the Register of
Companies subject to the following compliances:

T Co shall pay costs of Rs.
25,000 to the Registrar of Companies, Pune within 30 days.

Within 30 days of restoration of
the company’s name in the register maintained by the ROC, the company will
file all its annual returns and balance sheets due for the period ending
31^st March, 2015 onwards and till date. The company will also
pay requisite charges / fee as well as late fee / charges as applicable.

In spite of the present orders, the ROC will be free to take any
other steps, punitive or otherwise, under the Companies Act, 2013 for
non-filing / late filing of statutory returns / documents against the
company and its Directors

BCAJ Admin

RIGHT TO INFORMATION (r2i)

PART A | DECISION OF HIGH COURT

Disclosure of an interest in the information sought would be necessary to establish the bona fides of the applicant

Case name:

Har Kishan vs. President Secretariat through its
Secretary and Anr.

Citation:

Writ Petition (Civil) No.: 7976/2020

Court:

The High Court of Delhi

Bench:

Justice Prathiba M. Singh

Decided on:

12^th January, 2021

Relevant Act / Sections:

Section 8(1)(j) of Right to Information Act, 2005

Brief Facts and Procedural History:

The petitioner sought information on 6th August, 2018 under the Right to Information Act, 2005 (‘RTI Act’), in respect of certain appointments made for Multi-Tasking Staff at the Presidential Estate, Rashtrapati Bhawan.

In reply, the Public Information Officer gave partial information and did not provide information relating to Item Nos. 4, 5 and 6 – the total number of candidates as per every centre separately who appeared for the given examination; complete name and address of the examination centres of all the candidates who had been selected for appointment to the post of Multi-Tasking Staff, Notification Circular No. A35011/7/16-Admn.; and complete residential address and the father’s name of all selected candidates who had been appointed to the post.

Being aggrieved, the RTI applicant preferred an appeal before the First Appellate Authority, the response to which is not on record. Thereafter, a second appeal was preferred by the petitioner before the CIC, which was disposed of by the CIC vide the impugned decision dated 17th July, 2020, where the CIC had directed the respondent to provide the information under Item Nos. 4 and 5 of his application and rejected information under Item No. 6. The present writ petition is filed against the above CIC order.

On a query from the petitioner it is revealed that the petitioner’s daughter had also applied for appointment as Multi-Tasking Staff in the Presidential Estate, Rashtrapati Bhawan. However, this fact does not find any mention in the present writ petition.

Issues before the Court
Whether information sought under Item No. 6 is protected u/s 8(1)(j) of the RTI Act?

Whether disclosure of an interest in the information sought would be necessary to establish the bona fides of the applicant under the RTI Act?

Ratio Decidendi
Whenever information is sought under the RTI Act, disclosure of an interest in the information sought would be necessary to establish the bona fides of the applicant. Non-disclosure of the same could result in injustice to several other affected persons whose information is sought.

The information sought in respect of the names of the fathers and residential addresses of the candidates is completely invasive and would be a roving and fishing inquiry. The said information which is sought is clearly protected u/s 8(1)(j) of the RTI Act which provides that any such information shall not be provided which constitutes personal information and is invasive of the privacy of individuals.

Decision
The Court did not find any merit in the present writ petition which challenges the rejection of information sought under Item No. 6.

For the act of the petitioner having concealed the material facts, including that his daughter had applied for appointment to the post of Multi-Tasking Staff, the petition was dismissed with costs of Rs. 25,000 to be paid to the ‘High Court of Delhi (Middle Income Group) Legal Aid Society’. The said costs shall be paid within two weeks.

PART B | RIGHT TO INFORMATION

How to file RTI online
By now many of us are aware that an RTI application can be filed online without the hassle of printing, posting or even hand-delivering it. But only few of us use this tool effectively. As discussed in our earlier articles, RTI can assist in seeking information which would be necessary in our professional lives, for example, information from the Ministry of Corporate Affairs.

File your online application on: https://rtionline.gov.in

Steps for filing RTI online
1. For submitting an RTI application, click on ‘submit request’ option on the RTI online website. On clicking the ‘submit request’ option, the ‘Guidelines for use of RTI online portal’ screen will be displayed. This screen contains various guidelines for using the RTI online portal.

2. On accepting the ‘I have read and understood the above guidelines’ tab and clicking on ‘submit’, the online RTI request form screen will be displayed next for the user. The Ministry or Department for which the applicant wants to file an RTI can be selected from the ‘Select Ministry / Department / Apex body’. Personal details of the applicant need to be filled along with the information requested. After entering the security code and submitting the application, the portal will take you to a payment gateway.

3.    The applicant can pay the prescribed fee through the following modes:
   (a) Internet banking through SBI;
   (b) Using credit / debit card of Master / Visa;
   (c) Using RuPay Card.
   (Fee for making an application is as prescribed in the RTI Rules, 2012.)

4. No RTI fee is required to be paid by any citizen who is below poverty line as per RTI Rules, 2012. However, the applicant must attach a copy of the certificate issued by the appropriate government in this regard, along with the application.

5. On submission of an application, a unique registration number would be issued which may be referred to by the applicant for any references in future.

6. In case additional fee is required representing the cost for providing information, the CPIO would intimate the applicant through this portal. This intimation can be seen by the applicant through ‘Status Report’ or through his / her e-mail alert.
.

7. Status of the RTI application filed online can be seen by the applicant by clicking at ‘View Status’ and entering the required details.

In case any more information / assistance is required, one can connect with the BCAS RTI Clinic.

PART C | INFORMATION ON AND AROUND

(1) State Information Commission has no power to direct removal of encroachment under RTI ACT: Uttarakhand High Court

The Bench of Justice Manoj Kumar Tiwari hearing the plea of one Manju Agarwal who challenged the order dated 8th August, 2016 passed by the State Information Commission directing Nagar Palika Parishad, Kotdwar, to take necessary action with the help of the local administration to remove the encroachment, observed in its order that giving a direction for removal of encroachment is beyond the scope of the State Information Commission’s powers under the Right to Information Act.1

(2) ‘Beneficiaries of state largesse’: Karnataka High Court holds Bangalore Turf Club and Mysore Race Club as public authorities under the RTI Act

A single Bench of Justice P.B. Bajanthri, while refusing to interfere with the order passed by the Karnataka Information Commission against the companies, said ‘In the present case, state largesse has been extended to the petitioners under lease deeds. Therefore, they are holding lease lands on behalf of the people and are accountable to the people. If this material information is taken into consideration, one has to draw the inference that petitioners do fall under the definition of ‘public authority’ under the Act, 2005.’2

(3) ‘Issue of considerable public importance’: Delhi High Court seeks response from Central government on plea seeking RTI information about Aarogya Setu
A single-judge Bench of Justice Prathiba M. Singh issued notice to the Central Government and RTI authorities seeking their response to the plea (Saurav Das vs. CPIO, NeGD & Ors.) stating that issues raised in respect of supply of information regarding the Aarogya Setu App and its creation are of considerable public importance. The information sought was with respect to the origin of the app, the approval details, communications with private people involved in making / developing the app, internal notes, memos, file notings and minutes of the meetings held while creating the app, among other information.3

1 https://www.livelaw.in/rti/state-information-commission-has-no-power-to-direct-removal-of-encroachment-under-rti-act-uttarakhand-high-court-168102

2 https://www.livelaw.in/news-updates/karnataka-high-court-rti-bangalore-turf-club-mysore-race-club-168489

3 https://www.barandbench.com/news/litigation/delhi-high-court-issues-notice-challenge-cic-order-refusing-information-creation-aarogya-setu

The most valuable of all talents is that of never using two words when one will do
– Thomas Jefferson

If you want to determine the nature of anything,
entrust it to time: when the sea is stormy, you can see nothing clearly
– Seneca

BCAJ Admin

CORPORATE LAW CORNER

9. Man Industries (India) Ltd. vs. State of Maharashtra [2019] 106 taxmann.com 123 (Bom.) Date of order: 22nd April, 2019

Non-payment of dividend to a shareholder is an offence which invites penal action – However, such non-payment will not be called an offence if payment is not made because a dispute regarding entitlement to receive dividend exists between parties

FACTS

•   The complainant ‘S’ was a shareholder of the company ‘M’ Limited.
•   ‘M’ had declared a dividend in the AGM held on 12th December, 2015. All the shareholders were paid the dividend except ‘S’.
•   The dividend was not paid to ‘S’ on account of the pendency of a dispute between the parties and, therefore, taking protection u/s 127(c) of the Companies Act, 2013 (CA 2013), dividends were not distributed to ‘S’.
•   The Sessions Judge, Bombay, by an order dated 30th January, 2017 had issued process and summons against the accused ‘M’ and its directors for non-payment of dividends to ‘S’.
•   The accused (the applicants herein) filed an application u/s 482 of the CrPC praying that the notices which were issued in the company petition and the order of issuance of process dated 30th January, 2017 be quashed and set aside.

HELD

The Court observed / noted as under:
•   The provisions of section 127 of the CA 2013 at the relevant point in time read as under:
   Punishment for failure to distribute dividends – Where a dividend has been declared by a company but has not been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not be less than one thousand rupees for every day during which such default continues and the company shall be liable to pay simple interest at the rate of eighteen per cent per annum during the period for which such default continues:
   Provided that no offence under this section shall be deemed to have been committed:
   (a) to (b)**
   (c) where there is a dispute regarding the right to receive the dividend;
   (d) to (e)**

• Whenever there is an ambiguity in the section and the section is susceptible to different amendments, then the proviso controls the main section. How the proviso is worded and in what context the deeming provision is incorporated matters while giving weightage to the section as a whole. Due to the deeming provision, the Legislature wants the Court to believe the existence or non-existence of certain facts, then it undoubtedly forms a part of that section without which the section is incomplete.

• It is to be noted that though proviso and exception are not synonyms, they are usually taken alike. Both the proviso and exception are defences and both while interpreting the statute provide internal aid independently. The proviso carves out certain situation/s from the enacting clause and thus, proviso follows the enacting clause. Exception is an extended section. Exception is used to exempt something absolutely from the statute; otherwise it is a part of the statute. The proviso is subsidiary to the main section. It is not an addendum to the main provision.

• Thus, both the proviso and the exception help the reader to understand the enactment as a whole. Sub-section (c) of section 127 of the CA 2013 is a part of the proviso which further provides deeming provision. While interpreting deeming provision in the proviso, the Court cannot overlook the internal aids which are made available by the Legislature, i.e., the context and simple meaning of the word. Therefore, the completeness of the section is a decisive point while interpreting section 127 of the CA 2013 along with the proviso and deeming provision.

• In the instant case, there is a dispute regarding the right to receive dividend, as the matter was referred to the NCLAT, and if a dispute regarding the right to receive dividend exists then no offence under the section shall be deemed to have been committed. Thus, non-payment of dividend to the shareholder is an offence, which invites penal action. However, non-payment of dividend to the shareholder will not be called an offence if the payment is not made because there exists a dispute between the parties. A dispute regarding entitlement to receive the dividend exists. In other words, the act of non-payment of dividend by the directors of the company can be justified because, according to them, a particular shareholder is not entitled to receive dividend. Merely having an opinion or holding a view that a shareholder is not entitled to receive dividend is not sufficient but there should be the existence of a dispute as understood by law. Therefore, mere denial of the entitlement is not enough to get the benefit of section 127(c) of the CA 2013, but a real dispute between the parties should exist. Similarly, mere denial of the existence of a dispute by the shareholder after pursuing litigation against the company and its directors cannot render the dispute non-existent. Indeed, this can be ascertained on the basis of the facts and circumstances of each case.

• In the instant case, admittedly the dispute existed between the shareholder and the directors and it was pending in the NCLT and the NCLAT. It was also pending before the Arbitrator. In the absence of such litigations before the forums mentioned it would have been difficult to state that there was a dispute between the petitioner and ‘S’.

• The Court perused the order dated 30th January, 2017 passed by the Judge on the issuance of process u/s 127 of the CA 2013. The Court also perused the criminal complaint filed by ‘S’ before the City Civil & Sessions Court. In the said complaint, ‘S’ had made a mention against the present applicants. The order of issuance of the process passed by the Sessions Judge is a reasoned order wherein the Judge has referred to the defence of the applicant / accused as per proviso (c) of section 127 of the CA 2013. It is further mentioned that ‘on account of dispute pending, the dividend on disputed shares of “S” be kept in abeyance’ as alleged in the notice reply, which is a matter of evidence. Therefore, a prima facie case has been made against accused ‘M’ and its directors for commission of an offence.

• Thus, it is apparent from the order that the Judge was aware of the history of the dispute between the parties. The fact of the existence of the dispute is also known to the Judge and, therefore, he has mentioned the word ‘dispute’. Under the circumstances and in view of the deeming provision in the section the Judge should not have issued process when the proviso is attracted and, hence, the offence u/s 127 of the CA 2013 is not constituted.

• In the instant case, the facts are totally different. The record placed before the trial Judge itself discloses the proviso of section 127(c) and if the material placed before the Court clearly fulfils the requirement of the proviso or an exception, then it cannot be ignored and the trial Judge after taking into account the material placed before him and also the proviso, should have formed an opinion that an offence u/s 127 is not constituted.

• Thus, a dispute exists in the instant matter. The orders of issuance of process passed by the Sessions Court and the common notices issued in the company petition were quashed and set aside.

10. Real Time Interactive Media (P) Ltd. vs. Metro Mumbai Infradeveloper (P) Ltd. [2018] 90 taxmann.com 89 (Bom.) Date of order: 12th January, 2018

Nothing in section 248 shall affect the power of the Court to wind up a company the name of which has been struck off from the register of companies

FACTS
• R Pvt. Ltd. (‘R’), the petitioner, was engaged in the business of publishing and managing advertisements on BEST TV LED screens in the BEST buses (BEST TV) running in Mumbai.

• By an agreement entered into between ‘R’ and M Pvt. Ltd., the respondent company, ‘M’, engaged the services of ‘R’ for the purpose of displaying advertisements on BEST TV in 1,300 non-AC buses and 250 AC buses for a period of three months for a consideration of Rs. 15 lakhs plus taxes.

• In accordance with the agreement, ‘R’ displayed the advertisements on BEST TV and raised three invoices. ‘M’ paid in instalments an amount of Rs. 5 lakhs and thus there was a balance outstanding. As no payments came forth, ‘R’ caused statutory notice to be issued to ‘M’.

• ‘R’ filed a winding up petition against ‘M’ stating that the recent MCA website extract of the Company Master of ‘M’ indicated the status of the company as ‘Strike Off’.

HELD
The Court observed / noted as under:

• Though it is not clear why the name of ‘M’ was struck off, section 248(1) of the Companies Act, 2013 empowers the Registrar to remove the name of a company from the register of companies. However, before he does that he shall send a notice to the company and all its directors about his intention to remove the name of the company and requesting them to send their representations along with copies of the relevant documents, if any, within a period of 30 days from the date of the notice. At the expiry of that time, the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies and shall publish notice thereof in the Official Gazette; on the publication of the notice in the Official Gazette, the company shall stand dissolved. At the same time, nothing in section 248 shall affect the power of the Court to wind up a company the name of which has been struck off from the register of companies.

• The effect on the company notified as dissolved is that it shall, on and from the date mentioned in the notice under sub-section (5) of section 248, cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date, except for the purpose of realising the amounts due to the company and for the payment or discharge of the liabilities or obligations of the company. Thus, it is clear that just because the name of the company is struck off the register u/s 248 that will not come in the way of the Court to pass an order winding up the company.

• Similar provisions are also available in the Companies Act, 1956, viz., section 560 and section 560(5). Therefore, even under the Companies Act, 1956 if the Registrar of Companies was to strike off the name of a company from the register that would not affect the power of the Court to wind up a company whose name has been struck off the register.

• In the circumstances, there is no bar in winding up ‘M’. It should be noted that ‘M’ has not filed any affidavit in reply opposing the petition. Therefore, the averments in the petition are not controverted. No reply has been filed even to the statutory notice. It is settled law that where no response has been made to a statutory notice, the Court may pass a winding up order on the basis that the amount claimed has not been denied by ‘M’ and there is a presumption of inability to pay by ‘M’. Where no response has been made to the statutory notice, ‘M’ runs a risk of the winding up petition being allowed. By virtue of section 434 of the Companies Act, 1956 a presumption of the indebtedness can be legitimately drawn by the Court where no reply to the statutory notice is forthcoming.

• In the circumstances, having heard ‘R’ and having considered the petition along with the documents annexed to it, the Court held that ‘M’ is indebted to ‘R’ and is unable to discharge its debts, is commercially insolvent and requires to be wound up.

•   The Court accordingly directed that:
•    ‘M’ be wound up by and under the directions of the Court under the provisions of the Companies Act, 1956; and that
•   the Official Liquidator be appointed as the liquidator of ‘M’ to take charge of the assets, books of accounts and properties of ‘M’ with all powers under the provisions of the Companies Act, 1956.

Without ambition one starts nothing. Without work one finishes nothing. The prize will not be sent to you. You have to win it
– Ralph Waldo Emerson

BCAJ Admin

ALLIED LAWS

19. The Internet & Mobile Association of India vs. RBI WP(C) No. 528 of 2018 (SC) Date of order: 4th March, 2020 Bench: Rohinton Fali Nariman J., Aniruddha Bose J., V. Ramasubramanian J.

Cryptocurrencies – RBI – Circular imposing ban on trading in cryptocurrency – Subordinate legislation – Violation of Fundamental Rights [Constitution of India, Art. 19(1)(g), Art. 14; Banking Regulation Act, 1949, S. 35A, S. 36(1)(a), S. 56; RBI Act, 1934, S. 45JA, S. 45L; Payment and Settlement Systems Act, 2007, S. 10(2), S. 18]

FACTS

The Reserve Bank of India (RBI) issued a ‘Statement on Developmental and Regulatory Policies’ on 5th April, 2018 and a Circular dated 6th April, 2018 in exercise of the powers conferred on it by section 35A read with section 36(1)(a) and section 56 of the Banking Regulation Act, 1949; section 45JA and 45L of the RBI Act, 1934; and section 10(2) read with section 18 of the Payment and Settlement Systems Act, 2007, which directed the entities regulated by RBI (i) not to deal with or provide services to any individual or business entities dealing with or settling virtual currencies, and (ii) to exit the relationship, if they already have one, with such individuals / business entities, dealing with or settling virtual currencies (VC).

The petitioner challenged the said Statement and Circular and sought a direction to the respondents not to restrict or restrain banks and financial institutions regulated by RBI from providing access to the banking services to those engaged in transactions in crypto assets.

HELD

The measure taken by the RBI should pass the test of proportionality, since the impugned Circular has almost wiped the VC exchanges out of the industrial map of the country, thereby infringing Article 19(1)(g) of the Constitution.

While regulation of a trade or business through reasonable restrictions imposed under a law made in the interests of the general public is saved by Article 19(6) of the Constitution, a total prohibition, especially through a subordinate legislation such as a directive from RBI, of an activity not declared by law to be unlawful, is violative of Article 19(1)(g). The Circular dated 6th April, 2018 was set aside on the ground of proportionality.

20. Tarabai Wellinkar Charitable Trust & Anr. vs. The State of Maharashtra & Ors. WP No. 448 of 2020 Date of order: 12th February, 2020 Bench: Pradeep Nandrajog J., Bharati Dangre J.

Leave & Licence – No transfer of right, title or interest – Levy u/s 37A of Maharashtra Land Revenue Code is held to be not valid [Maharashtra Land Revenue Code, 1966, S. 37A]

FACTS

Petitioner No. 1, the trust, executed a Leave & Licence agreement with M/s Sheorey Digital Systems Private Limited demising to it, as a licensee, the ground floor of a building popularly known as ‘Tarabai Hall’ for three years commencing from 15th July, 2019 to 14th July, 2022 with licence fee of Rs. 4,00,000 per month plus GST and other taxes to be borne by the licensee.

Treating the Leave & Licence agreement to be a sale / transfer of interest, the Collector has by order dated 21st June, 2019 issued u/s 37A of the Maharashtra Land Revenue Code, 1996 demanded from the petitioner Rs. 41,27,427 towards unearned income.

HELD

A bare reading of the legislation in section 37A of the Maharashtra Land Revenue Code, 1966 makes it clear that the permission of the State Government, with right vested in the State Government under sub-section (2), is required when a sale, transfer, redevelopment, use of additional Floor Space Index, transfer of Transferable Development Rights or change of use is taking place under a document. The transfer referred to in the said section has to be a transfer of an interest in the corpus.

An Indenture of Leave & Licence does not create any right, title or interest in the corpus of the property in favour of the licensee. It only permits the licensee to enter upon the property and do such acts as are permitted and which in the absence of the licence would amount to a trespass.

The Indenture of Leave & Licence, be it for residential, commercial or industrial purpose, would not be subject to any levy u/s 37A of the Maharashtra Land Revenue Code.

21. Vidya Drolia & Ors. vs. Durga Trading Corporation Civil Appeal No. 2402 of 2019 (SC) Date of order: 14th December, 2020 Bench: Sanjiv Khanna J., N.V. Ramana J.

Arbitration – Landlord-Tenant disputes under Transfer of Property Act, 1882 – Arbitrable if Rent Control Laws are not applicable [Arbitration and Conciliation Act, 1996, S. 8, S. 11; Transfer of Property Act, 1882, S. 111, S. 114, S. 114A]

FACTS

A reference was made to a larger bench vide order dated 28th February, 2019 in Civil Appeal No. 2402 of 2019 titled Vidya Drolia and Others vs. Durga Trading Corporation, 2019 SCC OnLine SC 358 as it doubted the legal ratio expressed in Himangni Enterprises vs. Kamaljeet Singh Ahluwalia (2017) 10 SCC 706 that landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882 are not arbitrable as this would be contrary to public policy.

The issues that are required to be answered relate to two aspects that are distinct and yet interconnected, namely:

(i) meaning of non-arbitrability and when the subject matter of the dispute is not capable of being resolved through arbitration; and

(ii) the conundrum – ‘who decides’ – whether the Court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability.

HELD

The landlord-tenant disputes arising out of the Transfer of Property Act, 1882 are arbitrable as they are not action in rem but pertain to subordinate rights in personam that arise from rights in rem.

Further, the Transfer of Property Act, 1882 does not expressly bar arbitration and an arbitral award may be executed and enforced like a decree of a civil court.

The Arbitration and Conciliation Act, 1996 itself does not exclude any category of disputes as being non-arbitrable. However, post the 2015 amendment the structure of the Act was changed to bring it in tune with the pro-arbitration approach. Under the amended provision, the Court can only give a prima facie opinion on the existence of a valid arbitration agreement. In clear cases where the subject matter arbitrability is clearly barred, the Court can cut the deadwood to preserve the efficacy of the arbitral process.

However, where a dispute would be covered by State Rent Control Laws, then the said dispute is not arbitrable.

22. Rajesh Agarwal vs. RBI & Ors. WP 19102 of 2019 (Telangana)(HC) Date of order: 10th December, 2020 Bench: Raghvendra Singh Chauhan J., B. Vijaysen Reddy J.

RBI – Master Circular – Principles of Natural Justice to be read into the Circular

FACTS

The petitioner was the Chairman and Managing Director of the borrower company. In the course of its business, the company approached several banks, including the respondent banks, and availed a loan of Rs. 1,406.00 crores. The company defaulted in repayment of the loan amount.

As per the Circular Guidelines of the Reserve Bank of India, all lender banks, with the State Bank of India as the lead bank, formed the JLF (a Joint Lenders Forum). On 29th June, 2016 the JLF declared the company’s accounts as Non-Performing Assets.

Based on the Forensic Audit Report dated 29th August, 2016, on 31st August, 2016 the JLF closed the issue observing that ‘there were no irregularities, with regard to fraudulent transactions pointed out in the Forensic Audit Report’.

Thereafter, by invoking Clause 2.2.1(g) of the Master Circular, on 2nd February, 2019 the JLF & Fraud Identification Committee declared the account of the company as ‘fraud’. Hence the writ petition.

HELD

Fair play in governance is the gravitational force which binds the entire State. Therefore, before a person or entity is obliterated, or is subjected to civil and penal consequences, the person or entity must be given an opportunity of a hearing. Without giving such an opportunity, without giving the opportunity to explain the intricacies of the accounts, or of the business dealings, to denounce a person is to act unfairly, unjustly, unreasonably and arbitrarily. Even in an administrative action, justice should not only be done but must also appear to be done to the satisfaction of all the parties.

Considering the grave civil consequences and penal action which would follow as a result of classifying a borrower as ‘a fraudulent borrower’, or ‘a holder of a fraudulent account’, it is imperative that the principles of natural justice, especially the principles of audi alteram partem, must be read into Clauses 8.9.4 and 8.9.5 of the Master Circular.

23. Nautilus Metal Crafts (P) Ltd. vs. Joint Director-General of Foreign Trade WP(C) No. 5167 of 2020 (Del.)(HC) Date of order: 18th November, 2020 Bench: Navin Chawla J.

Foreign Trade (Development and Regulation) Act, 1992 – Suspension or cancellation – Licence, certificate, scrip or any instrument bestowing financial or fiscal benefits – Only with ‘for good and sufficient reasons’ – Mandatory requirement [Foreign Trade (Development and Regulation) Act, 1992, S. 9]

FACTS

The petitioner dealt with readymade garments. It procured orders from other countries and after procurement of an order directly approached the manufacturer in India who manufactured the same and thereafter these were supplied by the petitioner to the foreign buyers.

The respondent issued the impugned show cause notice dated 8th November, 2019 to the petitioner stating that the DRI had informed it that an investigation is being carried out against the petitioner ‘for gross overvaluation to fraudulently avail export benefits’ and it had been requested not to issue any export incentives to the petitioner. The petitioner was asked to show cause as to why it be not placed in DEL so that benefits under Foreign Trade Policy (FTP) are stopped, including future refusal of Authorisation / Scrips under Rule 7(c), 7(j) and 7(n) of the Foreign Trade (Regulation) Rules, 1993 (‘Rules’).

The petitioner has challenged the show cause notice dated 8th November, 2019 on the ground that it was vague as it did not spell out the exact nature of violation for which the petitioner is sought to be proceeded against and also the impugned order dated 10th January, 2020 on the ground that the same had been passed without supplying the petitioner the documents sought to be relied upon for proceeding against it.

The petitioner further claimed that pursuant to the Circular No. 16/2019-Customs dated 17th June, 2019 issued by the Director, Customs, Central Board of Indirect Taxes and Customs with regard to IGST refund, the exports made by the petitioner were subjected to 100% examination and no discrepancy was found in the same. It was further claimed that even the export proceeds against these exports and other exports had been realised by the petitioner.

HELD

The Court held that any refusal to grant, suspend or cancel any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits can only be ‘by an order in writing’. In fact, section 9(4) expressly mandates that suspension or cancellation of any licence, certificate, scrip or any instrument bestowing financial or fiscal benefits can only be ‘for good and sufficient reasons’. The requirement of giving reasons cannot, therefore, be dispensed with and is mandatory.

Further, in the order there is no reference to the show cause notices and to the replies submitted by the petitioner and how they have been dealt with and appreciated by the Authority. In fact, it gives no reason except stating that the ‘Firm is under DRI Ludhiana investigation’.

The impugned order dated 10th January, 2020 does not show any application of mind to these submissions as the order contains no reasons. The impugned order was set aside. Costs were imposed on the respondent.

BCAJ Admin

CORPORATE LAW CORNER

5. Hindustan Oil Ltd. vs. Erstwhile Committee of Creditors of JEKPL Pvt.
Ltd.Company Appeal (AT) (Insolvency) No. 969 of
2020 Date of order: 17^th November, 2020

Insolvency and Bankruptcy Code, 2016 – Implementation of a Resolution
Plan which was approved by Committee of Creditors could not be challenged by
the unsuccessful applicants

FACTS

H Co is an unsuccessful resolution applicant
whose Resolution Plan was rejected by the Committee of Creditors (‘CoC’). NCLT,
vide an order dated 9^th September, 2020, directed
implementation of the approved Resolution Plan on or before the extended due
date, 30^th September, 2020.

H Co urged that the Creditors of the Corporate Debtor, in connivance
with the Successful Resolution Applicant, accepted a re-negotiated fresh
Resolution Plan and the application of the CoC u/s 60(5) of the Insolvency and
Bankruptcy Code, 2016 (‘Code’) filed before the NCLT was not maintainable and
should not have been entertained by the NCLT as the CoC had become functus
officio after approval of the Resolution Plan.

It was further argued that NCLT had approved the Resolution Plan on 4^th
February, 2020 and in terms of the approved Resolution Plan the successful
resolution applicant had to bring in Rs. 123 crores for resolution within 30
days of approval of the plan which expired on 5^th March, 2020.
However, the successful resolution applicant did not implement the Resolution Plan
and the erstwhile CoC of the Corporate Debtor, in connivance with the
successful resolution applicant, accepted a fresh Resolution Plan to the
detriment of the legal rights of H Co whose Resolution Plan was rejected on the
ground that he could not provide for a lump sum time-bound payment within 30
days of the approval of its Resolution Plan.

HELD

NCLAT heard the appeal filed by H Co and observed that it had no locus
to question the implementation of the approved Resolution Plan of the
successful resolution applicant. Directions given in the context of the
application filed u/s 60(5) of the Code to the successful resolution applicant
follows as a necessary corollary to the dismissal of appeal filed against
approval of the Resolution Plan of the successful resolution applicant to
implement the approved Resolution Plan on or before the extended date of 30^th
September, 2020.

It was observed that once H Co was out of the fray, it had neither locus
to call in question any action of any of the stakeholders qua
implementation of the approved Resolution Plan, nor could it claim any
prejudice on the pretext that any of the actions post approval of the
Resolution Plan of the successful resolution applicant in regard to its
implementation had affected its prospects of being a successful resolution
applicant.

H Co would not have any right to object if the terms of the approved
Resolution Plan of the successful resolution applicant have been varied or the
time extended to facilitate its implementation and the creditors have not
claimed any prejudice on that count. In fact, the CoC comprising of the
creditors as stakeholders did not object to the same. It was rather privy to it
on account of hardship due to the prevailing circumstances.

It was further observed that this was not a case of alleged material
irregularity in the Corporate Insolvency Resolution Process which is in the
final stages with the approved Resolution Plan being under implementation. The
outbreak of the Covid-19 pandemic slowed down the economic activity and
operations were adversely impacted. NCLAT held that in the given context some
necessary changes in the agreed terms and extension of time for implementation
would not be uncalled for.

NCLAT thus held that H Co had no locus to maintain that the
change in terms of the approved Resolution Plan in regard to extension of time
for induction of upfront amount as also implementation of the Resolution Plan
has jeopardised its legal rights qua consideration of its Resolution
Plan.

The appeal of H Co was accordingly dismissed.

6. Ratna Singh vs. Theme Export Pvt. Ltd.Company Appeal (AT) (Insolvency) No. 917 of
2020 Date of order: 18^th November, 2020

Section 61 of Insolvency and Bankruptcy Code, 2016 – Appeal against a
liquidation order passed u/s 33 could only be made if there was a material
irregularity or fraud in relation to such an order – IBC is not meant for
initiating proceedings for prevention of oppression and mismanagement – It has
been armed with Chapters II and III for initiation of action against
wrongdoers, illegal transactions, etc.

FACTS

Mrs. R and Mr.
B (‘appellants’) were directors in T Co (‘Corporate Debtor’). Corporate
Insolvency Resolution Process was initiated against the Corporate Debtor by an
operation creditor Mr. R u/s 9 of the Insolvency and Bankruptcy Code, 2016
(‘the Code’). The National Company Law Tribunal (‘NCLT’) admitted the
application and appointed Mr. V as Insolvency Resolution Professional (‘IRP’).
The first meeting of the Committee of Creditors (‘CoC’) was held on 28^th
September, 2019 and the second on 4^th November, 2019 confirming IRP
as Resolution Professional (‘RP’) and also deciding to liquidate the Corporate
Debtor.

NCLT passed the
liquidation order primarily on the basis of the recommendation of the CoC which
had the strength of 98.5% voting shares. While passing the liquidation order,
NCLT took a conscious decision not to challenge the commercial wisdom of the
Financial Creditor.

Aggrieved by
the order, both ex-directors filed the present appeal for staying the
liquidation proceedings and quashing the impugned liquidation order. The
appellants submitted that Ms N, a director of the Corporate Debtor, siphoned
off money, evidence of some of which was submitted before the NCLAT.

It was further
submitted that the Corporate Debtor has availed financial credit facility from
Bank of Baroda to the tune of Rs. 25 crores, mortgaging its plant, machinery
and assets, including accessories, stock and fabric as primary security and the
factory at Okhla along with personal / corporate guarantees of the three
directors and the same was being renewed by the bank since 2005. The
performance of the Corporate Debtor started deteriorating from F.Y. 2015-16 –
from approximately Rs. 100 crores to about Rs. 30 crores in 2018-19 on account
of various frauds, leading to oppression and mismanagement by Mrs. N, director
of the Corporate Debtor, along with certain other related parties and employees.
Mr. Ravinder Rai, ex-accountant of the Corporate Debtor, even provided to the
IRP all the data of the illegal acts committed by Mrs. N on 18^th
November 2019 prior to filing of liquidation proceedings by the IRP.

The appellants
had also written to Mrs. N demanding explanation for the theft and criminal
breach of trust amounting to oppression and mismanagement, apart from visiting
Bank of Baroda and informing the Chief Manager, Mr. Lalit Kumar Luthra, about
theft, etc., and demanded the stock statements and the fixed assets register
along with the list of machinery pledged to the Bank on 31^stDecember,
2018.

The respondents
have not filed their counter objections. As per the written submission and also
the oral submission made by the respondent’s counsel, section 61(4) of the
I&B Code, 2016 clearly stated that an appeal against the liquidation order
could be challenged only on the ground of material irregularities or fraud
committed in relation to such liquidation order. It was also submitted that the
appellants did not challenge the liquidation order per se but their
grievance was against the act of oppression and mismanagement by the other
director of the Corporate Debtor.

It was further
submitted that the appellants failed to initiate the filing of a petition u/s
241-242 of the Companies Act, 2013 which deals with oppression and
mismanagement at the appropriate stage. Hence they cannot challenge the issue
of oppression and mismanagement u/s 61(4) of the Code and so the application
needs to be dismissed. The Liquidator further submitted that the documents are
being reviewed by the Forensic Auditor, M/s K.R.A. and Company, Chartered
Accountants, for certain transactions under sections 43, 45 and 66 of the Code
and an appropriate application shall be filed by the Liquidator based on its
findings. Further, the Liquidator argued that there were no chances of revival
of the Corporate Debtor and hence the CoC had passed a resolution liquidating
the Corporate Debtor. Thus, this application needs to be dismissed.

HELD

The NCLAT heard
the parties at length. It was observed that the Corporate Debtor had three
directors – the two appellants were directors and the other director was Ms N;
the shareholding of Ms N in the Corporate Debtor was 92% and of the appellants
8%.

NCLAT observed
that Chapter III of Part II of IBC, 2016 has a mechanism even during
liquidation process to initiate action for various wrongdoings from sections 43
to 51 and section 66, which are all related to undervalued transactions, avoidable
transactions, defrauding creditor, fraudulent trading or wrongful trading, etc.
It was observed that the Liquidator, who is also erstwhile IRP, was required to
take necessary action and the Bank of Baroda is to provide appropriate
assistance. Bank of Baroda was supposed to check the flow of inventory,
cash–to-cash cycle, etc., as they had lent Rs. 25 crores.

The NCLAT relied on judgments which had held that the commercial wisdom
of the CoC cannot be looked into by either the NCLT or the Appellate Authority.
It relied on section 61 of the Code and observed that an appeal against a
liquidation order passed u/s 33 may be filed on the grounds of material
irregularity or fraud committed in relation to the liquidation order. NCLAT did
not find any irregularity or fraud committed in relation to the impugned order.
It was observed that the Code is not meant for initiating proceedings for
prevention of oppression and mismanagement but is armed with provisions under
Part II Chapter – III for initiation of action against wrongdoers / illegal
transactions, etc. NCLAT upheld the order by passed by the NCLT and the appeal
was dismissed.

7. Jaideep Halwasiya vs. AA
Infraproperties (P.) Ltd. [2020] 121 taxmann.com 240 (NCLAT) Date of order: 4^th September, 2020

At the Annual
General Meeting (AGM) and Extra Ordinary General Meeting (EOGM), new directors
were appointed and existing director ‘J’ was removed from directorship – In
view of the fact that neither any resolution nor any minutes of board meetings
were in existence, nor any notice of agenda was circulated in the prescribed
manner, the appointment of new directors and removal of ‘J’ as director was to
be stayed

FACTS

This appeal was
filed by ‘J’, a minority shareholder of ‘AA’ against the order dated 21^st
February, 2020 passed by the National Company Law Tribunal, Kolkata Bench (‘the
Tribunal’) declining grant of interim relief requested by J. The Tribunal had
declined to record findings on the factual controversy as regards serving of
notices of AGM dated 24^th September, 2019 and EOGM dated 4^th
January, 2020. The Tribunal further observed that allowing interim relief as
claimed in the Company Petition would tantamount to deciding the main petition.

Admittedly,
there are two groups of shareholders in the company. The minority shareholders’
group comprises of J holding 12.5% shares, whereas the majority group holds
87.5% shares. Several allegations of oppression and mismanagement as regards
management and operations of the company were levelled by J which included not
being served notice of AGM dated 24^th September, 2019 and notice of
EOGM dated 4^th January, 2020 which was pending. It was during the
pendency of this petition that J sought interim relief alleging that the
respondents in collusion and connivance with each other illegally appointed new
directors in the AGM on 24^th September, 2019 and ousted J from
directorship in the EOGM on 4^th January, 2020. All these acts of
commission attributed to the respondents were alleged to have been done without
giving notice to J. Interim relief was sought on the strength of these
allegations claiming that the resolutions passed in such meetings were bad in
law and void ab initio. J further alleged that the acts of the
respondents, being oppressive in nature, are prejudicial to his interest in the
company.

The respondents
have refuted the allegations and pleaded that notice of the meetings in which
the resolutions inducting new directors in the company and removing J from the
post of director were passed, were given well in advance to J. It was further
pleaded that the majority shareholders were within their rights to pass such
resolutions appointing other persons as directors and removing the existing
directors, including J.

It was further
submitted that the respondents were illegally trying to usurp control over the
company by forcing the ouster of J from the Board and appointing new directors.
It was submitted that the Respondents adopted a modus operandi creating
an impression that new directors were appointed at the meeting held on 24^th
September, 2019 and subsequent to this alleged AGM, an EOGM was held on 4^th
January, 2020 wherein J was removed. It was pointed out that there was no
resolution nor any minutes of the alleged Board Meeting dated 22^nd June,
2019 to show that the two directors of the company had decided to hold the AGM
on 24^th September, 2019. No minutes as required u/s 118 of the Act
had been produced by the company to support its plea. It was further submitted
that as regards the alleged agenda and notice dated 6^th June, 2019,
no notice or agenda was ever circulated. The documents relied upon by the
respondents in this regard were fabricated as they did not bear the necessary
signatures and were not on the letterhead of the company. The notice of AGM was
never served on J or any other shareholder. Even service was not effected
through the prevalent mode of service. The annual returns were filed without
holding an AGM and on the date of the alleged meeting one of the shareholders
(a director) was not even in India.

It was
submitted that since J did not attend any meeting purportedly held on 24^th
September, 2019 the minimum required quorum for the General Meeting as
per section 103(1)(b) of the Act was not present. Such a meeting would therefore
have no meaning and cannot be said to exist in law. Thus, it was contended that
the AGM of 24^th September, 2019 is non est and the
resolutions passed on that date deserved to be stayed. Further, the purported
resolution of 4^th January, 2020 for removal of J as Director was
entirely illegal and void ab initio. There was no evidence to show that
notice of the Board Meeting to be convened on 26^th November, 2019
was served on J. The genuineness of the alleged notice for the EOGM of 12^thDecember, 2019 was disputed. The variation in addresses was also
highlighted. Thus, the very foundation of removal of J from the Board was
nothing but fraudulent and was sought to be supported by fabricated documents.

HELD

The Appellate
Tribunal observed / noted as under:

J is admittedly a minority shareholder whilst the respondents and
associates are the majority shareholders. With allegations of the respondents
making all efforts to usurp control over the company through all means, fair or
foul, emanating from J, it is demonstrated by J that no resolution or any
minutes of the Board Meeting of 22^nd June, 2019, stated to be the
edifice of the alleged AGM, was in existence to even suggest that the two
directors decided to hold the AGM on 24^th September, 2019. It was
contended on behalf of J that adherence to the statutory requirement u/s 118 of
the Companies Act has not been established by respondents which justifies
drawing of an inference that neither any such Board Meeting was conducted nor
any minutes of such Board Meeting recorded. It was also pointed out that no
notice or agenda was circulated in the prescribed manner and bearing the
signatures of J. As regards the notice said to have been issued on 5^th
August, 2019, similar contentions have been raised, it being further pointed
out that the prevalent modes of service have not been resorted to.

It has been
pointed out that although Form No. MGT 7 was filed even without holding the
AGM, the Annual Report falsely declared that the AGM had been attended by both
J as well as the directors. It has been pointed out that J never attended any
such meeting and one of the other directors was not in India on that date. It
was also pointed out that after the respondents realised that the fraud played
by them in this regard had been discovered, one of the respondents cooked up
another false story by setting up the plea that someone had attended the
meeting on his behalf and a clerical error had been made in the Annual Report.
No authorisation in this regard has been produced by the respondents to
demonstrate that someone else had attended as a representative in the alleged
AGM. It was submitted on behalf of J that since J did not attend any purported
meeting on 24^th September, 2019 the minimum required quorum
of the General Meeting not being present, any resolutions said to have been
passed on such date were required to be
stayed. On the strength of these relevant facts, it was contended on behalf of
J that the ouster of J as director was entirely illegal.

Since the foundation
was bad, it was contended that the entire superstructure was bound to collapse.
J has demonstrated all these circumstances to show that he has raised a fair
question which requires a probe in the Company Petition. The arguments raised
on this score cannot be dismissed off hand. Given the status of J, it can be
safely stated that with the existence of a prima facie case in his
favour, the balance of convenience lies to the side of J who is faced with the
prospect of his interests and legal rights being seriously jeopardised in the
wake of the Tribunal order.

For the
foregoing reasons, the Appellate Tribunal opined that the order of the Tribunal
suffered from grave legal infirmity besides factual frailty. Therefore, it cannot
be supported. The appeal was allowed and the order of the Tribunal was set
aside. The appointment of new directors and removal of J as director of the
company was stayed till the decision on the Company Petition.

8. Jaishree Dealcomm (P) Ltd. vs. Registrar of Companies [2020] 119 taxmann.com 418 (NCLAT) Date of order: 29^th November, 2019

Section 252
read with sections 164 and 248 of the Companies Act, 2013 – Name of the company
was struck off from the register of companies – Directors filed an application
for restoration of name which was dismissed on the ground that they being
disqualified could not maintain an appeal – But from share certificates and
annual returns of the company it was found that said directors were also
shareholders and thereby entitled to file an appeal as per section 252(3) –
Further, the company had not filed annual returns since F.Y. 2013-14 onwards
though it was regularly carrying on its business as evidenced by auditors’
reports and financial statements for years ended 31^stMarch, 2014 to
31^st March, 2017 – It was held that the order striking off the name
of the company from the register of companies was prejudicial to the
shareholders and was to be set aside and the name restored

FACTS

J Pvt. Ltd. is
a company incorporated under the Companies Act, 1956 and having its registered
office in Kolkata. It was served notice u/s 248(1)(c) of the Companies Act,
2013. Thereafter, a public notice was issued and the company’s name struck off
from the register of companies.

This order was
challenged before the NCLT, Kolkata. However, NCLT dismissed the appeal on the
ground of maintainability that u/s 252(3) of the Companies Act, 2013 a company
or any member or creditor or workman can file application for restoration of
the name of the company. NCLT had, while dismissing the appeal, also observed
that as per section 164(2)(a) of the Companies Act, 2013, directors being
disqualified cannot maintain the appeal. Being aggrieved, the directors
preferred the present appeal.

It was submitted
that the directors who had preferred this appeal were also shareholders of the
company. Further, J was regularly carrying on business as stated in the main
object clause of the Memorandum of Association of the company and was regularly
filing income-tax returns with the Income-tax Department. However, J had
inadvertently failed to file its audited financial statements and annual
returns from financial year 2013-14 onwards which were annexed with the Memo of
Appeal. It was apparent from the audited balance sheets that J had been
carrying on business.

The ROC, West
Bengal, submitted that J had been grossly negligent in not filing the annual
returns and financial statements since F.Y. 2013-14, thus the order of the NCLT
/ ROC be upheld.

HELD

The Appellate
Tribunal observed / noted as under:

The Memo of
Appeal was filed by shareholders of the company and it was considered on merit.
Clearly, the company had not filed annual returns since F.Y. 2013-2014.
However, it was regularly carrying on its business and filed the reports of the
auditors and financial statements for the years ended 31^st March,
2014 to 31^stMarch, 2017. The audited financials were perused and it
was apparent that J has been carrying on its business continuously. Therefore,
the order of striking off the name of the company from the register of
companies is prejudicial to the shareholders of the company. The order is
liable to be set aside and is hereby set aside.

It was further ordered that within 30 days of restoration of the company’s
name in the register maintained by the Registrar of Companies, the company will
file all its annual returns and balance sheets due for the period ending 31^st
March, 2014 to date. The company will also pay requisite charges / fee as well
as late fee / charges as applicable.

In spite of the
present orders, the ROC will be free to take any other steps, punitive or
otherwise, under the Companies Act, 2013 for non-filing / late filing of
statutory returns / documents against the company and directors.

The best daily investments of time:

1 hour writing

1 hour reading

1 hour of exercise

1 hour of investing / trading research

1 hour of fun

1 hour of research

1 hour maximum television

1 hour personal social media max

8 hours to make a living

8 hours of sleep

— Steve Burns

BCAJ Admin

ALLIED LAWS

15. Arnab Manoranjan
Goswami vs. The State of Maharashtra & Ors. Cr.
Appeal No. 742 of 2020 (SC) Date of order: 27^th November, 2020
Bench: Dr. Dhananjay Y. Chandrachud J., Indira Banerjee J.

Human liberty – Role of Courts – Misuse of the criminal law is a matter
to which the High Court and the lower Courts in the country must be alive
[CrPC, 1973, S. 482, Constitution of India, Art. 226, 227]

FACTS

The appellant
is the Editor-in-Chief of an English television news channel, Republic TV who
was arrested on 4^th November, 2020 in connection with FIR No. 59 of
2018 that was registered at Alibaug Police Station under sections 306 and 34 of
the IPC. It was registered on 5^th May, 2018 on the complaint of the
spouse of the deceased informant who is alleged to have committed suicide. The
deceased had not received payment for the work which was carried out by him, as
a result of which he was under mental pressure and committed suicide by hanging
on 5^th May, 2018; there is a suicide note holding the appellant and
others responsible.

HELD

Human liberty
is a precious constitutional value which is undoubtedly subject to regulation
by validly enacted legislation. As such, the citizen is subject to the edicts
of criminal law and procedure. Section 482 recognises the inherent power of the
High Court to make such orders as are necessary to give effect to the
provisions of the Code of Criminal Procedure – or prevent abuse of the process
of any Court or otherwise to secure the ends of justice. The recognition by
Parliament of the inherent power of the High Courts must be construed as an aid
to preserve the constitutional value of liberty. The writ of liberty runs
through the fabric of the Constitution. The need to ensure the fair
investigation of crime is undoubtedly important in itself, because it protects
at one level the rights of the victim and, at a more fundamental level, the
societal interest in ensuring that crime is investigated and dealt with in
accordance with law. On the other hand, the misuse of the criminal law is a
matter to which the High Courts and the lower Courts in the country must be
alive.

In the present
case, the High Court could not but have been cognizant of the specific ground
which was raised before it by the appellant that he was being made a target as
part of a series of occurrences which had been taking place since April, 2020.
The specific case of the appellant is that he has been targeted because his
opinions on his television channel are unpalatable to authority.

In failing to make even a prima facie evaluation of the FIR, the
High Court abdicated its constitutional duty and function as a protector of liberty.
Courts must be alive to the need to safeguard the public interest in ensuring
that the due enforcement of criminal law is not obstructed. The fair
investigation of crime is an aid to it. Equally, it is the duty of Courts
across the spectrum – the district judiciary, the High Courts and the Supreme
Court – to ensure that the criminal law does not become a weapon for the
selective harassment of citizens. Courts should be alive to both ends of the
spectrum – the need to ensure the proper enforcement of criminal law on the one
hand and the need, on the other, of ensuring that the law does not become a
ruse for targeted harassment. Liberty across human eras is as tenuous as
tenuous can be. Liberty survives by the vigilance of her citizens, on the
cacophony of the media and in the dusty corridors of courts alive to the rule
of (and not by) law. Yet, much too often, liberty is a casualty when one of
these components is found wanting.

16. Noy Vallesina Engineering SpA vs. Jindal Drugs Limited & Ors. Civil Appeal
No. 8607 of 2010 (SC) Date of order:
26^th November, 2020 Bench: S.
Ravindra Bhatt J., Indira Banerjee J.

Arbitration – Foreign award – Setting aside – Not maintainable
[Arbitration and Conciliation Act, 1996, S. 34]

FACTS

The appellant company (N.V. Engineering) was incorporated under Italian
law and was involved in the setting up and construction of plants for
production of synthetic fibres, polymers and ascorbic acid in India. The
respondent (Jindal Drugs) is a public limited company incorporated under the
Indian law. Disputes arose between the two in respect of an agreement between
them. The latter (N.V. Engineering) terminated the agreement and claimed
damages. Jindal Drugs filed a request for arbitration before the International
Court of Arbitration (ICC), Paris. But its claims were rejected by the Tribunal
via a partial award.

Jindal then filed a petition before the Bombay High Court u/s 34 of the
Act challenging the partial award which held that since the partial award was a
foreign award, a challenge through a petition was not maintainable u/s 34.
Jindal then preferred an appeal against this order before the Division Bench.
During the pendency of the appeal, N.V. Engineering applied for enforcement of
the two awards, i.e., the partial award and the final award under sections 47
and 48 of the Act, in the chapter relating to foreign awards. This petition was
allowed and Jindal’s objections against the two awards’ enforceability were
overruled. Jindal preferred an appeal and N.V. filed a cross-appeal

Pending these two appeals, the Division Bench decided Jindal’s first
appeal and held that proceedings u/s 34 could be validly maintained to
challenge a foreign award. Hence this appeal by N.V. Engineering.

HELD

The Court relied on the decision of
BALCO vs. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 wherein
it was held that the Arbitration Act, 1996 has accepted the territoriality
principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a
declaration that Part I of the Arbitration Act, 1996 shall apply to all
arbitrations which take place within India. Therefore, Part I of the
Arbitration Act, 1996 would have no application to international commercial
arbitration held outside India. Therefore, such awards would only be subject to
the jurisdiction of the Indian courts when the same are sought to be enforced
in India in accordance with the provisions contained in Part II of the
Arbitration Act, 1996. The provisions contained in the Arbitration Act, 1996
make it crystal clear that there can be no overlapping or intermingling of the
provisions contained in Part I with the provisions contained in Part II of the
Arbitration Act, 1996.

The appeal was allowed and costs imposed on Jindal.

17. Madras Bar Association vs. Union of India & Anr. Writ (C) No. 804 of 2020 (SC) Date of order: 27^th November, 2020 Bench: L. Nageswara Rao J., Hemant Gupta J., S. Ravindra Bhat J.

Judicial Member – Qualification and experience – Appellate Tribunal and
other Authorities Qualification, Experience and Other Conditions of Service of
Members Rules, 2020 [Finance Act, 2017, Administrative Tribunals Act, 1956]

FACTS

The petitioner filed a petition challenging the constitutional validity
of the Tribunal, Appellate Tribunal and other Authorities Qualification,
Experience and Other Conditions of Service of Members Rules, 2020 (Tribunal
Rules) on several grounds, viz., exclusion of advocates for being considered as
a judicial member in ten out of 19 Tribunals, a minimum of 25 years of
experience for an advocate to be eligible to become a member in seven tribunals
(Central Administrative Tribunal, Income-tax Appellate Tribunal, Customs Excise
and Sales Tax Appellate Tribunal, etc.) inter alia.

HELD

The Hon’ble Supreme Court held that the exclusion of advocates in ten
out of 19 Tribunals for being appointed as a judicial member is contrary to the
decision in the case of Union of India vs. R. Gandhi, President, Madras
Bar Association, (2010) 11 SCC 1 and the case of Madras Bar
Association vs. Union of India, (2014) 10 SCC 1.

It further held that the Tribunal Rules shall
be amended to make advocates with an experience of at least ten years eligible
for appointment as judicial members in the Tribunals. While considering
advocates for appointment as judicial members in the Tribunals, the
Search-cum-Selection Committee shall take into account the experience of the
Advocates at the bar and their specialisation in the relevant branches of law.
They shall be entitled for reappointment for at least one term by giving
preference to the services rendered by them for the Tribunals.

18. State of UP vs. Sudhir Kumar Singh & Ors. Civil Appeal No. 3498 of 2020 (SC) Date of order: 16^th October, 2020 Bench: R.F. Nariman J., Navin Sinha J., K.M. Joseph J.

Principle of natural justice – Arbitrary termination is held to be bad
in law [Constitution of India, Art 14, 226]

FACTS

The private respondents filed a case on account of illegal and arbitrary
termination of their tender upon completion of one year, whereas the term
stipulated in the tender was two years. It was prayed that the order
terminating the tender was bad in law due to violation of the principles of
natural justice, i.e., audi alteram partem.

HELD

The principles of natural justice have undergone a sea change. The
earlier view that even a small violation would result in the order being
rendered a nullity is not correct. Some real prejudice must be caused to the
complainant by the refusal to follow natural justice. The prejudice must not
merely be the apprehension of a litigant. No prejudice is caused to the person
complaining of the breach of natural justice where such person does not dispute
the case against him or it. There is a clear distinction between cases where
there was no hearing at all and the cases where there was mere technical
infringement of the principle. Since there was prejudice caused to the private
respondents and financial loss has occurred, the Court upheld the impugned
judgment of the High Court on the ground that natural justice has indeed been
breached.

BCAJ Admin

CORPORATE LAW CORNER

4. Economy Hotels India Services (P) Ltd. vs. Registrar of Companies
[2020] 119 taxmann.com 271 (NCLAT) Date of order: 24^th August, 2020

There was an ‘inadvertent typographical error’ figuring in extract of
‘Minutes of Meeting’ characterising ‘special resolution’ as ‘unanimous ordinary
resolution’. Appellant company had tacitly admitted typographical error in
extract of minutes. Registrar of Companies had noted that appellant / company
had filed special resolution with it which satisfied requirements of section 66
of the Companies Act, 2013. The petition, filed by company u/s 66(1)(b)
rejected by NCLT on ground that there was no special resolution for reduction
of share capital as prescribed u/s 66 and as required in article 9 of the
Articles of Association of company, was set aside

FACTS

E Private Limited (E) is a closely-held private company, limited by
shares, incorporated under the provisions of the Companies Act, 1956. In fact,
Article 9 of the ‘Articles of Association’ of the appellant company specifies
that the company may, from time to time by a special resolution, reduce its
share capital in any manner permitted by law.

E had filed a petition u/s 66(1)(b) of the Companies Act praying for
passing of an order for confirming the reduction of share capital wherein it
had averred as under:

‘That annual general meeting of E was held on 19^th August,
2019 and was attended by both the equity shareholders holding 100% of the issued,
subscribed and paid-up equity share capital of E. The said equity shareholders
present at the said meeting have cast their votes in favour of the aforesaid
resolution, etc.’

More specifically, E in the Company Petition had sought relief to
confirm the reduction of the issued, subscribed and paid-up equity share
capital of E as resolved by the members in the AGM held on 19^th
August, 2019 by passing the special resolution. Further in the said petition, E
had prayed to approve the form of minutes under sub-section 5 of section 66 of
the Act.

E contended that it had placed on record sufficient documents to prove
that ‘special resolution’ as required u/s 66 of the Companies Act, 2013 as well
as in terms of the requirements under Article 9 of the ‘Articles of
Association’ of E was passed.

The National Company Law Tribunal, New Delhi, Bench V while passing the
order on 27^th May, 2020 had observed as under:

‘We have perused the minutes of the Annual General Meeting of the
company held on 19^th August, 2019. On page 124 of the paper book, it
is recorded that the meeting has passed the resolution for reduction of capital
“as an ordinary resolution.” The minutes of the meeting have been
signed by the Chairman of the meeting.

Thus, we observe that the company has not met the specific requirement
of section 66 of the Companies Act by passing “Special Resolution” for
reduction of share capital. The company has also not complied with the
requirements of its own Articles of Association.

We are left with no choice but to reject the application in view of the
fact that there is no special resolution for reduction of share capital as
prescribed u/s 66 of the Companies Act, 2013 and as required in Article 9 of
the Articles of Association of the company. Section 66 of the Companies Act
also requires this Tribunal to approve the minutes of the resolution passed by
the Company which has been passed as ordinary resolution as against the
requirement of special resolution; the Tribunal is not in a position to
approve such minutes in this case.’

HELD

The Appellate Tribunal observed / noted as under:

E had made a plea that the National Company Law Tribunal had failed to
appreciate the creeping in of an ‘inadvertent typographical error’ figuring in
the extract of the ‘Minutes of the Meeting’ characterising the ‘special
resolution’ as ‘unanimous ordinary resolution’. Moreover, E had fulfilled all
the statutory requirements prescribed u/s 114 of the Companies Act and as such
the order of the Tribunal is liable to be set aside.

It transpires
that the ‘Special Resolution’ passed in the ‘Annual General Meeting’ as filed
with the e-form MGT-14 reflects that the resolution passed by the shareholders
u/s 67 of the Companies Act, 2013 on 19^th August, 2019 is a ‘Special
Resolution’ which is taken on record in the MCA21 Registry.

Further, the Resolution passed in the ‘Annual General Meeting’ of the
appellant’s company u/s 66 of the Companies Act was found to be in order by the
ROC. Even the report of the Registrar of Companies, Delhi found that E had
filed the said resolution keeping in tune with the ingredients of section 66 of
the Companies Act, 2013.

The Appellate
Tribunal noted that ‘Reduction of Capital’ is a ‘Domestic Affair’
of a particular company in which, ordinarily, a Tribunal will not interfere
because of the reason that it is a ‘majority decision’ which prevails. The term
‘Share Capital’ is a ‘genus’ of which ‘Equity and Preference share capital’ are
‘species’.

It is further
pointed out that section 114(2) of the Companies Act, 2013 enjoins that
‘Special Resolution’ means a resolution where a decision is reached by a
special majority of more than 75% of the members of a company voting in person
or proxy.

On a careful
consideration of the respective contentions, this Tribunal after subjectively
satisfying itself that E has tacitly admitted the creeping in of a
typographical error in the extract of the minutes and also taking into
consideration the stand of the ROC that E had filed the special resolution with
it, which satisfies the requirement of section 66 of the Companies Act, 2013,
allows the appeal by setting aside the order passed by the National Company Law
Tribunal, Bench V.

The Appellate
Tribunal thus confirmed the reduction of share capital of E as resolved by the
‘Members’ in their ‘Annual General Meeting’ that took place on 19^th
August, 2019 and the Tribunal further approved the form of minutes required to
be filed by E with the Registrar of Companies, Delhi u/s 66(5) of the Companies
Act, 2013.

BCAJ Admin

ALLIED LAWS

11. Ravi Dixit vs. State of U.P. and another Application u/s 482 No. 14068 of 2020
(All.)(HC) Date of order: 23^rd September,
2020 Bench: Dr. Kaushal Jayendra Thaker J.

Dishonour of cheque – Intention not to make
payment – Complainant need not wait 15 days [Negotiable Instruments Act, 1881,
S. 138]

FACTS

A cheque of Rs. 5,00,000 was issued on 1^stMarch, 2019 and another cheque of Rs. 5,98,000 on 2^ndMarch,
2019. Both were dishonoured on 28^th May, 2019 as the drawer (the
petitioner here) had directed the bank to stop the payments. The complainant
sent a notice to the petitioner on 11^th June, 2019. A response was
received on 25^th June, 2019. But the complainant did not receive any
money; therefore, on 29^th June, 2019, he filed a complaint u/s 138
of the Negotiable Instruments Act, 1881.

The Judge, after
referring to the dates, was satisfied that a prima facie case is made
out for issuance of notice and so on 3^rd September, 2019 passed the
summoning order.

The petitioner
approached the High Court stating that the complainant should have waited for a
period of 15 days and should not have filed the complaint on 29^th
June, 2019.

HELD

The provision of section 138 of the N.I. Act
cannot be interpreted to mean that even if the accused refuses to make the
payment the complainant cannot file a complaint. Proviso (c) of the said
section is to see the bona fides of the drawer of the cheque and is with
a view to grant him a chance to make the payment. The proviso does not
constitute ingredients of an offence punishable u/s 138. It simply postpones
the actual prosecution of the offender
till such time as he fails to pay the amount, then the statutory period
prescribed begins for lodgement of complaint.

The petitioner replied to the notice which
goes to show that the intention of the drawer is clear that he did not wish to
make the payment. Once this is clarified, the complainant need not wait for the
minimum period of 15 days. The petition was dismissed with cost.

12. High Court on its own motion vs. the State of Maharashtra Suo motu WP (ST) No. 93432 of 2020 (Bom.)(HC) Date of order: 29^th October, 2020 Bench: Hon’ble C.J., A.A. Sayed J., S.S. Shinde
J., K.K. Tated J.

Covid-19 – Extension of interim orders –
Eviction, demolition and dispossession – Passed by the Courts in Maharashtra
and Goa – Until 22^nd December, 2020

FACTS / HELD

Although the situation in the State of
Maharashtra because of the pandemic has improved over the last few days, access
to the Courts of law is not easy. To ensure that persons suffering orders of
dispossession, demolition, eviction, etc., passed by public authorities are not
inconvenienced by reason of inability to approach the Courts because of the
restrictions on movements imposed by the State Government, as well as the
requirement to maintain social distancing norms, the Court considered it just
and proper to extend the interim orders passed by it on this writ petition till
22^nd December, 2020 or until further orders, whichever is earlier.

13. Srei Equipment Finance Ltd. vs. Seirra Infraventure Pvt. Ltd. A.P. 185 of 2020 (Cal.)(HC) Date of order: 7^th October, 2020 Bench: Moushumi Bhattacharya J.

Arbitration – Interim relief – Jurisdiction
– Where a part of the cause of action has arisen – Valid [Arbitration and
Conciliation Act, 1996, S. 2(1)(e)(i), S. 9]

FACTS

The petitioner / finance company has sought
an injunction restraining the respondent / hirer from dealing with the assets
leased by it (the petitioner) to the respondent under a Master Lease Agreement
entered into between the parties on 15^th March, 2018. The petitioner
has alleged outstanding rental dues as on the date of termination of the agreement
and has sought for appointment of a receiver to take possession of the assets
together with an order directing the respondent to furnish security to the
extent of Rs. 75,19,388.

The respondent has raised a point of
maintainability of the application on the ground that this Court does not have
territorial jurisdiction to entertain the application as would be evident from
the pleadings and documents, as also the relevant provisions of the Arbitration
and Conciliation Act, 1996.

HELD

An application u/s 9 of the Arbitration and
Conciliation Act, 1996 can be filed where a part of the cause of action has
arisen or where the seat of arbitration has been chosen by the parties. It is
stated that part of the cause of action has arisen within the jurisdiction of this
court.

Further, it
must also be borne in mind that the parties have consented to the jurisdiction
in clause 18(k) as well as the seat of arbitration as provided in clause 18(l)
of the agreement. Both these clauses point to ‘Kolkata’. Section 2(1)(e)(i) of
the 1996 Act designates the principal Civil Court of original jurisdiction in a
district, including the High Court in exercise of its Ordinary Original Civil
Jurisdiction, having jurisdiction to decide the questions forming the subject
matter of the arbitration for the purpose of applications in matters of
domestic arbitration under Part I of the Act. Therefore, the preliminary
objection of the respondent with regard to the jurisdiction of this Court,
fails.

14.
Paramount Prop. Build. Pvt. Ltd. through its authorised signatory Mr. Anil
Kumar Gupta vs. State of U.P. and 118 others Writ (C)
No. 12573 of 2020 (All.)(HC) Date of
order: 4^th November, 2020 Bench:
Surya Prakash Kesarwani J., Dr. Yogendra Kumar Srivastava, J.

Promoters – Delay in handing over
possession of the flats – Contravention of obligation cast upon promoters –
Authority empowered to award interest [Real Estate (Regulation and Development)
Act, 2016, S. 18, S. 38]

FACTS

The petitioner is a promoter and the
respondent Nos. 3 to 119 are allottees. The petitioner could not deliver
possession of the flats to the allottees in time and there occurred a delay.
The allottees filed separate complaints before the Uttar Pradesh Real Estate
Regulatory Authority, Gautam Buddh Nagar, who passed the impugned orders
awarding interest.

A writ petition was filed on the ground that
the impugned orders are without jurisdiction inasmuch as the power to grant
interest does not vest with the Authority.

HELD

Section 18 of the RERA Act, 2016 is in
respect of return of amount and compensation in case the promoter fails to
complete or is unable to give possession of an apartment, plot or building.
Sub-section (1) of section 18 provides for two different contingencies. In case
the allottee wishes to withdraw from the project, the promoter shall be liable
on demand to return the amount received by him to the allottees in respect of
the apartment, plot or building as the case may be, with interest at such rate
as may be prescribed, including compensation in the manner as provided under
the Act.

Alternatively, where the allottee does not
intend to withdraw from the project, the promoter shall, as per the proviso
to section 18(1) of the Act, be liable to pay interest for every month of delay
till the handing over of the possession, at such rate as may be prescribed.

Further, section 38(1) of the Act confers
powers upon the Authority to impose penalty or interest in regard to any
contravention of obligations cast upon the promoters, the allottees and the
real estate agents, under the Act or the Rules or the Regulations made
thereunder.

The promoter having contravened the
aforesaid obligation with regard to giving possession of the apartment by the
specified date, and complaints in this regard having been filed by the
allottees, the Authority exercising powers u/s 38(1) of the Act is fully
empowered to impose interest in regard to contravention of the obligation cast
upon the promoter.

BCAJ Admin

CORPORATE LAW CORNER

2. R. Ajayender vs. Karvy Computershare (P)
Ltd. [2020] 119 taxmann.com 412 (NCLT – Hyd.) Date of order: 21^st
October, 2019

Section 58 of the
Companies Act, 2013 – Transfer of shares – Refusal of registration and appeal
against this

Petitioner’s father
had purchased 100 shares of respondent company paying full sale consideration
(through a share broker from its first registered joint holders ‘M’ and ‘D’).
However, petitioner’s father being ignorant of the procedure, kept shares with
him on as-is-where-is basis. Petitioner later approached respondent company
requesting for transfer of physical shares into petitioner’s name. Respondent
company returned original transfer form and original shares stating shares as
bad delivery on account of signature mismatch and directed petitioner to
re-lodge shares with transferor’s attestation. Petitioner stated that
whereabouts of transferor were not known and so he could not submit required
documents. Petitioner filed petition u/s 58 seeking directions to respondents
to transfer share certificate from its first registered holder to him and
further to allot bonus shares and all other benefits in his favour

Whereas
since notice was sent to original transferor / shareholders, ‘M’ and ‘D’, but
notices could not be served and further no complaint was lodged regarding theft
/ loss of share certificate/s, respondent was directed to register transfer of
shares in favour of petitioner provided petitioner furnished indemnity for
amount to be fixed by the respondent

FACTS

One RM, the father of the petitioner
(P), had purchased 100 shares of HF Limited (HF) by paying full sale
consideration through a share broker from its first registered joint holders
‘M’ and ‘D’.

RM being ignorant of the procedure, kept
the shares with him on as-is-where-is basis. P later approached HF and the
transfer agent of HF requesting for transfer of physical shares into P’s name
along with original transfer form and physical share certificates.

HF returned the original transfer form
and original shares stating ‘the shares as bad delivery on account of signature
of transferor mismatch’ and directed P to re-lodge the shares with transferor
attestation, transferor bank attestation on savings bank account, transferor
PAN, address proof of transferor, etc. P requested for transferor attestation
and no objection letter to transfer the shares in favour of P but there was no
response from the transferor which was also informed to HF.

P submitted that the whereabouts of the
transferor were not known, as such he was not in a position to submit / enclose
documents for transferring the shares.

The Registrar and transfer agent (RT)
contended as under:

P has lodged for transfer of shares in
his name after a lapse of 20 years.

RT contended that upon verification it
was found that there was a signature mismatch of the original transferor and
that as requested by HF the petitioner has not complied with the bank
attestation of the signatures of ‘M’ and ‘D’ on the transfer deed, attested
copy of PAN Card and address proof of transferor.

RT relied on section 108(e) of
the Companies Act, 1956 r/w/s 56 of the Companies Act, 2013 which deals with
transfer of shares not to be registered except on production of the instrument
of transfer. The requirement is that the transferee should have presented the
documents for share transfer duly stamped within 60 days from the date of
execution and accompanied by proper instrument of transfer.

Upon verification of share transfer
instrument and accompanying documents which were filed after 20 years, there is
a signature mismatch. In the absence of proper documents, P has no right to
claim for registration of shares. Hence, Tribunal urged to dismiss the
petition.

HELD

The Tribunal observed as under:

i) The shares in question were lodged for
transfer and HF had raised an objection regarding mismatch of signature of the
transferor (‘M’ and ‘D’).

ii) P is not able to contact the original
transferors and they are not residing in the address available as per the
records of HF.

iii) The Tribunal noted that nobody lodged any
complaint with HF or RT for loss of original share certificate. It goes to
establish that there was transfer of shares and therefore original transferors
have not lodged any complaint. Had there been any complaint about loss of
original share certificate at the instance of the transferors, then there is a
reasonable ground for HF to refuse to transfer the shares in the name of the
petitioner. Till date there has been no complaint by the original shareholders
about loss of the share certificate. When such is the case and to avoid future
disputes if any, HF can direct P to give an indemnity in respect of the shares
to be transferred in his name. Therefore, the Tribunal directed P to furnish an
indemnity bond of an amount which can be fixed by HF for effecting transfer.

iv) The Tribunal relied on the decisions of
the Company Law Board, Eastern Region Bench, Kolkata, in the matter of SMC
Global Securities Ltd. vs. ITC Ltd. [2007] 75 SCL 509. Similarly,
counsel for petitioner further relied on the decision of the Company Law Board,
Southern Region Bench, Chennai, in the matter of Altina Securities (P)
Ltd. vs. Satyam Computer Services Ltd. [2007] 75 SCL 56. The Company
Law Board held that since the transferor has not shown any interest in spite of
notices, the company was directed to register the impugned shares in favour of
the petitioner on the authority of the order. The CLB observed that since the original transferor has not raised
any objection, the Company Law Tribunal be directed to register the shares in
the name of the purchaser. Thus, when the transferor has not raised any
objection, the Company Law Board directed the company to register the shares,
including the bonus shares, if any.

v) In the light
of the decisions cited and in the circumstances of the case, NCLT allowed the
petition filed by the petitioner and directed HF to transfer 100 shares in
favour of P subject to P giving requisite indemnity bond within a period of 30
days from the date of the order.

3. Arenja Enterprise Pvt. Ltd. vs. Edward
Keventer (Successors) Pvt. Ltd. Company Appeal (AT)(Insolvency) No. 528 of 2020 Date of order: 16^th October,
2020

Section 5(8)(f) of the
Insolvency and Bankruptcy Code, 2016 – Allotment of built-up area under a
settlement decree did not constitute a financial debt – No sum was raised for
allotment of such area from the allottee under the real estate project – There
was no financial debt due and such an allottee could not be regarded as a
financial creditor

FACTS

A Co and E Co signed a Memorandum of
Understanding (‘MOU’) dated 22^nd June 1989 over a parcel of land,
followed by two other supplementary MOU’s dated 20^th November, 1989
and 22^nd November, 1989. During the year 1992, some dispute arose
between the parties. In accordance with the terms of the MOU, A Co paid a sum
of Rs. 2 crores in September, 1989. As per one of the MoUs signed in November,
1989, the amount of Rs. 2 crores was to be refunded to A Co and its associates
by 28^th February, 1990.

As the MOU dated 22^nd June,
1989 was not re-instated by E Co, it became void.

A Co filed a suit for specific
performance along with other reliefs against E Co in the year 1992. The parties
reached a settlement on 10^th April, 1996 pursuant to which E Co
agreed to develop a group housing complex on a plot of land measuring 22.95
acres. Out of this, A Co was entitled to 34,000 square feet residential covered
/ built-up area along with proportionate super area. As per the terms of the
settlement, if the sanction of plans is not obtained within a period of three
years from the date of signing of the settlement, E Co would give further
built-up area of 1,700 square feet for each delayed year for a maximum period
of three years. On 10^th April, 2002, 5,100 square feet of additional
land was added as per the settlement decree on account of the delay.

Separately, E Co did not refund the
amount of Rs. 2 crores by 28^th February, 1990. A Co filed a suit in
Delhi High Court in the year 1992 and in line with the decision of the Court, E
Co returned the said amount in the month of January, 1995.

A Co filed an execution application in
the year 2008 before the District Court and the same was rejected. Subsequently,
A Co challenged the rejection before the High Court of Delhi. The High Court vide
order dated 6^th August, 2019 stayed the execution proceedings on the
grounds that they were premature in nature.

A change of land use took place in the
year 2018 and A Co alleged that there was a default. By not allotting the
39,100 square feet of built-up area of the land, E Co had committed a default.
A Co claimed that it was a financial creditor as the receivable area from E Co
constituted a financial debt in terms of section 5(8)(f) of the Code.

A Co filed an application before the
NCLT u/s 7 of the Code, instituting insolvency proceedings against E Co, the
financial creditor. NCLT dismissed the application on the grounds that A Co was
not a financial creditor and there was no existence of a ‘financial debt’. A Co
filed an appeal with the NCLAT.

Before the NCLAT, it was argued by A Co
that the amount of Rs. 2 Crores which had been given to the corporate debtor
had the commercial effect of borrowing after the due date, i.e., from 28^th
February, 1990 till its refund in 1995. Further, default occurred on 9^th
August, 2018 when the change of land use happened and three years was granted
as per the settlement decree for approval of building plans and further three
years with delay penalty.

E Co, the corporate debtor, claimed that
the debt, as alleged by the appellant, is not a ‘financial debt’ as defined u/s
5(8)(f) of the Code as no sums were raised from / paid by A Co. Financial debt
can only be money raised and paid and not for any other claims. Further,
allotment as per the settlement agreement to the financial creditor was in
lieu of the claim of the financial creditor against the corporate debtor
for utilisation of Rs. 2 crores beyond the due date. The allotment was therefore
made in lieu of monetary compensation for interest-free utilisation of
Rs. 2 crores for five years beyond the due date of 28^th February,
1990.

HELD

NCLAT heard both the
parties at length. It was observed that the Explanation attached to section 5(8)(f)
of the Code provided that any amount raised from an allottee under a real
estate project shall be deemed to be an amount having the commercial effect of
borrowing. Explanation (ii) to section 5(8)(f) provides that the expressions
‘allottee’ and ‘real estate’ project shall have the meanings respectively
assigned to them in the Real Estate (Regulation & Development) Act, 2016.

NCLAT held that A Co
was not an ‘allottee’ under a real estate project. The allotment of additional
area was made as monetary compensation for interest-free utilisation of Rs. 2
crores for five years beyond the due date, i.e., 28^th February,
1990. Further, A Co could have claimed a financial debt as an ‘allottee’ only
when the amount raised from it as an ‘allottee’ would have been used for a real
estate project. In the facts and circumstances of the case, A Co is neither an
‘allottee’ nor is any amount ‘being raised’ or ‘raised’ from it, that may be
construed to have the effect of borrowing. Thus, there was no ‘financial debt’
in favour of A Co.

The fact that
execution of the decree was determined by the High Court to be premature meant
that it could not be said that there was a ‘default’ in terms of the Code.

The appeal was, thus,
set aside and dismissed. The order passed by NCLT was upheld by the NCLAT.

Money is a bubble that never pops. It’s a consensus
hallucination

— Naval
Ravikant

Misfortune finds the weak spot

— Kalidasa,
AbhiGyaanShakuntalam

BCAJ Admin

ALLIED LAWS

6. Abetment – Denial of loan on loan – Prudent banking – Not abetment to
suicide [Indian Penal Code, 1850, S. 306, S. 107; Code of Criminal Procedure,
1973, S. 482]

Santosh Kumar
vs. State of Maharashtra & Anr. Cr.A.
(APL) No. 63 of 2016 (Bom)(HC) (Nag. Bench) Date of order: 9^th
September, 2020 Bench: V.M. Deshpande J. and Anil S. Kilor J.

FACTS

The applicant was Branch Manager, Bank of Maharashtra, Morshi Branch,
District Amravati. The complainant had a loan account with the Bank. So did his
father Wamanrao. Sudhir Gawande, the brother of the complainant, committed
suicide on 12^th June, 2015 by hanging himself in his house. The
complainant approached Morshi Police Station and lodged a report against the
present applicant. As per the FIR, the bank manager had said no to Sudhir
Gawande for a fresh restructuring of a loan, which led to his suicide.

After
registration of the offence, since the applicant apprehended arrest, he moved
an application, vide Misc. Criminal Bail Application No. 529 of 2015,
for grant of pre-arrest bail. The Sessions Judge at Amravati on 26^th
June, 2015 granted him pre-arrest bail in the event of arrest. Thereafter, the
applicant filed the present proceedings for quashing of the FIR.

HELD

The Court
relied on the decision of the Supreme Court in the case of Dilip s/o
Ramrao Shirasrao and Ors. vs. State of Maharashtra and Anr. 2016 ALL MR (Cri)
4328 wherein it was held that it is incumbent upon the prosecution to
show at least prima facie that the accused had an intention to aid,
instigate or abet the deceased to commit suicide. In the absence of such
material, the accused cannot be compelled to face trial for the offence
punishable u/s 306 of the IPC.

The loan account of the complainant was showing outstandings to the tune
of Rs. 2,32,689. The deceased was not having any loan outstanding in his name.
If a previous loan amount is outstanding and if the applicant, who is the
Branch Manager of the said Bank, refuses to grant any further loan, it can be
said to be an act of a vigilant and prudent banker, and it cannot be said that
by such act he instigated and / or abetted the person to commit suicide. The
criminal application is allowed.

7. Arbitration – Place of Arbitration – Only the High Court named in the
Arbitration agreement has territorial jurisdiction – Only such Court can
appoint an Arbitrator [Arbitration & Conciliation Act, 1996, S. 11(6)]

SJ Biz Solution
Pvt. Ltd. vs. M/s Sany Heavy Industry India Pvt. Ltd. ARBP No. 56 of
2018 (Orissa)(HC) Date of order:
1^st October, 2020 Bench: Mohammad Rafiq CJ

FACTS

An issue arose
between the manufacturer of heavy construction equipment and its dealer in
Orissa. The petitioner filed an application u/s 11(6) of the Arbitration and
Conciliation Act, 1996 (the Act) seeking appointment of an independent
Arbitrator to arbitrate the disputes between the petitioner and the respondent.

The petitioner contended that although as per clause 15 of the
dealership agreement it was agreed that the place of arbitration shall be Pune,
the jurisdiction of this Court to entertain the present application filed u/s
11(6) of the Act is not excluded as the cause of action, wholly or at least in
part, has arisen in the territory of Orissa. The petitioner further contended
that in view of the definition of the Court given in section 2(1)(e) of the
Act, the Courts at Bhubaneswar would have jurisdiction to entertain the
petition u/s 9 and for the same reason the Court would also have the
territorial jurisdiction, especially in view of section 11(11).

HELD

It was held
that in an identical issue before the Supreme Court in the case of Swastik
Gases Private Limited vs. Indian Oil Corporation Limited (2013) 9 SCC 32,
it was held that the territorial jurisdiction to appoint an Arbitrator lies as
per the jurisdiction agreed upon in the agreement.

The Court
considered the decision of the Supreme Court in the case of Duro
Felguera, S.A. vs. Gangavaram Port Limited (2017) 9 SCC 729 which held
that all that the Court at the stage of section 11 of the Act needs to see is
whether an Arbitration agreement exists, nothing more and nothing less. It was
held that legislative policy and purpose is essentially to minimise the Court’s
intervention at the stage of appointing the Arbitrator. Therefore, all other
questions, including the question of territorial jurisdiction, are not open for
consideration.

After analysing
various decisions, the Court held that the argument of the petitioner that
while considering the petition u/s 11(6) of the Act this Court ought to only
examine the existence of the Arbitration agreement and should leave all other
questions, including that of territorial jurisdiction, open for consideration
by the Arbitrator in the scope of section 16 of the Act, cannot be
countenanced.

It held that the Court did not have the territorial jurisdiction to
entertain the present petition filed u/s 11(6) and accordingly dismissed the
petition as not maintainable.

8. Civil dispute – Legal representative – Maintainability of
applications – Inheritance of shares – NCLT has no jurisdiction [Companies Act,
2013, S. 241, S. 242, S. 244]

Aruna Oswal vs.
Pankaj Oswal & Ors. CA Nos. 9340,
9399 and 9401 of 2019 (SC) Date of order:
6^th July, 2020 Bench: Arun Mishra J. and S. Abdul Nazeer J.

FACTS

These appeals
have been preferred against the judgment of the NCLAT concerning
maintainability of applications filed under sections 241 and 242 of the
Companies Act, 2013.

The case is the
outcome of a family tussle. The Late Abhey Kumar Oswal, during his lifetime,
held a large amount of shares in M/s Oswal Agro Mills Ltd., a listed company.
He passed away in Russia on 29^th March, 2016. Prior to that, he
filed a nomination as per section 72 in favour of Mrs. Aruna Oswal, his wife.
Two witnesses duly attested the nomination in the prescribed manner. As per the
appellant, it was explicitly provided therein that this nomination shall
supersede any prior nomination made by him.

Mr. Pankaj
Oswal (son of the deceased) and Respondent No. 1, filed a partition suit,
claiming entitlement to one-fourth of the estate of Abhey Oswal. He also filed a company petition
alleging oppression and mismanagement in the affairs of the Respondent No. 2
company.

HELD

The Supreme
Court, relying on the case of World Wide Agencies (1990) 1 SCC 536
held that a legal representative has a right to maintain an application for
oppression and mismanagement without being registered as a member against the
securities of a company. Further, the Court, relying on the case of Sangramsinh
P. Gaekwad (2005) 11 SCC 314 held that a dispute as to inheritance of
shares is a civil dispute and does not attract the Company Court’s jurisdiction
and held that the matter was not maintainable before the NCLT.

9. Dishonour of Cheque – Post-retirement – Director – Not responsible
for daily affairs – Proceedings including the summons quashed [Negotiable
Instruments Act, 1881, S. 138, S. 141; Code of Criminal Procedure, 1973, S.
482]

Alibaba
Nabibasha vs. Small Farmers Agri-Business Consortium & Ors. CRL. M.C.
1602/2020, CRL. M.A. 9935/2020 (Del)(HC) Date of order:
23^rdSeptember, 2020 Bench: V. Kameswar Rao J.

FACTS

Proceedings
have been initiated by the Respondent No.1 against the petitioner before the
Metropolitan Magistrate, Saket Courts, u/s 138 of the Negotiable Instruments
Act, 1881 (N.I. Act) purportedly on the ground that the petitioner was a
director of the Respondent No. 2. According to the petitioner, the cheques in
question, all dated 31^st December, 2018 were issued by the
Respondent No. 2 for a total amount of Rs. 45 lakhs and the same were
dishonoured due to insufficient funds vide memo dated 11^th
January, 2019.

The petitioner
ceased to be a director of the Respondent No. 2 w.e.f. 27^th October,
2010, at least eight years prior to the issuance of the cheques in question.
The petitioner was a non-executive director of the Respondent No. 2 for a brief
period between 7^th October, 2009 and 27^thOctober, 2010.
The resignation of the petitioner was also notified to the Registrar of
Companies / Ministry of Company Affairs by the Respondent No. 2 by filing Form
32 dated 4^th January, 2011 which is a public document.

However, the
Court, in a mechanical manner, considering only the Company Master Data of the
period when the Petitioner was director, has entertained the complaint u/s 138
of the N.I. Act and without applying any judicial mind and without recording
any satisfactory reasons as to whether the offence is made out against the
petitioner, has issued the summons.

The petitioner
filed a petition u/s 482 of the Code of Criminal Procedure, 1973 (CrPC) to
quash the proceedings initiated by the Respondent No. 1.

HELD

The case of the
Respondent No. 1 is primarily that the petitioner was involved in the
discussion before an agreement was executed between the Respondent No. 1 and
the Respondent No. 2. However, Form 32, i.e. the petitioner ceasing to be a
director, is not disputed. This factum surely suggests that the
petitioner having resigned on 27^th October, 2010 from the Respondent
No. 2 was not the director when the agreement dated 3^rd March, 2011
was executed. Even the cheques dated 31^st December, 2018 were issued
much after the petitioner’s resignation as director of the Respondent No. 2.

It is settled
law that mere repetition of the phraseology of section 141 of the Act that the
accused is in charge and responsible for the conduct of the day-to-day affairs
of the company may not be sufficient and facts stating as to how the accused
was responsible must be averred.

Further, is is a settled position of law that the High Court while
entertaining a petition of this nature shall not consider the defence of the
accused or conduct a roving inquiry in respect of the merits of the
accusation/s but if the documents filed by the accused / petitioner are beyond
suspicion or doubt and upon consideration demolish the very foundation of the
accusation/s levelled against the accused, then in such a matter it is incumbent
for the Court to look into the said document/s which are germane even at the
initial stage and grant relief to the person concerned u/s 482 CrPC in order to
prevent injustice or abuse of the process of law. The petition was allowed and
the proceedings including the summons were quashed.

10. Maintenance – Death of Husband – Wife has right to claim maintenance
– From estate inherited by father-in-law [Hindu Adoptions and Maintenance Act,
1956, S. 19, S. 22]

Sardool Singh
Sucha Singh Matharoo vs. Harneet Kaur widow of Bhupinder Singh Matharoo &
Anr. WP (ST.) No.
4054 of 2020 (Bom)(HC) Date of order:
7^th September, 2020 Bench: Nitin W. Sambre J.

FACTS

The petitioner
had two sons. One of them, Late Bhupinder, was married to Respondent No. 1 on
12^th December, 2004 and died on 21^st May, 2015. The
mother of Respondent No. 1 died in the year 2016, whereas her father died in
February, 2017. It is her case that she has no independent source of income and
she and her son are completely dependent on the earnings of the petitioner.

Respondent No.
1 preferred the proceedings u/s 19 and 22 of the Hindu Adoption and Maintenance
Act, 1956 (Act) before the Family Court with a prayer for grant of maintenance
of Rs. 1,50,000 per month to her and Rs. 50,000 to her son. The claim was
resisted by the present petitioner. Vide impugned order dated 28^th
January, 2020 the Family Court has allowed the prayer partly and granted
maintenance of Rs. 40,000 per month towards the widow and Rs. 30,000 per month
to her son.

It is the case
of the petitioner that he is already incurring expenses of about Rs. 95,000 per
month on the respondents. Further, he has to maintain himself (he is a cancer
patient), his aged wife, his other son and his family, and also to repay bank
loans. Therefore, he filed a Writ Petition to quash and set aside the order.

HELD

A plain reading of section 19 of the Act contemplates that the
respondents have every right to claim maintenance after the death of the
husband from the estate inherited by her father-in-law, i.e., the present
petitioner. As per section 19(1) the respondent has to demonstrate that she is
unable to maintain herself. It is in this eventuality that she can claim
maintenance from the estate of her husband, but still the fact remains that the
said burden can be discharged by Respondent No. 1 at an appropriate stage. The
object with which the provision is made in the statute book for grant of
interim maintenance cannot be ignored.

Further, the income of the petitioner for A.Y.
2018-2019 as reflected in the income-tax returns was Rs. 74,87,007. Therefore,
the maintenance awarded to the respondent appears to be justified. The petition
is dismissed.

BCAJ Admin

CORPORATE LAW CORNER

1. P. Parameswaram vs. Union of India [2020] 118 taxmann.com 113 (Delhi) Date of order: 23^rd July, 2020

Section 164 read with section 167 of the
Companies Act, 2013 and Rule 11 of the Companies Act (Appointment and
Qualification of Director) Rules, 2014 – Disqualifications for appointment of
Director. Director had defaulted in filing annual returns for three consecutive
years. Another company, in which also he was a Director, had been struck off by
the Registrar of Companies on account of its defaults in filing requisite
returns. Thus, the Director was disqualified as a Director and his DIN was
de-activated. Since he had not filed necessary Form with Registrar of Companies
at the material time, his prayer of not treating him as disqualified Director
was rejected. However, since he had been disqualified as a Director, he could
not access the website of the Ministry of Corporate Affairs to file returns or
forms as a Director of any other company and further, since his DIN was not
de-activated in terms of Rule 11 of Appointment and Qualification of Director
Rules, the ROC was directed to activate his DIN

FACTS

PP was appointed as an Independent Director
of KHF Limited (KHF) but had resigned on 22^nd May, 2016. He was not
only a Director in KHF Limited but also in another company, SLD Company Private
Limited (SLD). The name of SLD had also been struck off from the Register of
Companies as it had defaulted in filing annual returns as required under the
Companies Act, 2013. In view of the defaults committed by KHF and SLD, PP was
disqualified as a Director in terms of sections 164(2) and 167(1) of the
Companies Act, 2013.

HELD

The limited
questions that were to be considered by the Court were whether the decision of
the ROC in disqualifying PP was illegal? And whether the other decision of the
ROC to deactivate his DIN was sustainable?

The Court held
as under: There is no dispute that KHF had defaulted in filing its annual
returns for three consecutive years. Similarly, SLD had also been struck off
from the Register of Companies on account of its defaults in filing the
requisite returns under the Companies Act, 2013.

PP claimed
that he had resigned from the Board of Directors of KHF with effect from 26^th
May, 2016. However, he had not filed the necessary form with the Registrar of
Companies at the material time.

The question
whether a Director would be disqualified to act as a Director by virtue of
provisions of sections 164(2)(a) and 167(1)(a) of the Companies
Act is covered by the decision of the Delhi High Court in Mukut Pathak
& Ors. vs. Union of India and Ors. [W.P. (C) 9088/2018 decided on 4^th
November, 2019].

Insofar as the
prayer that his DIN be directed to be activated is concerned, the said issue is
also covered by the decision of the Delhi High Court in Mukut Pathak
& Ors. (Supra). It is not disputed that the DIN of PP
had been deactivated only on account of his being disqualified to act as a
Director. As held in Mukut Pathak’s case, the said action is not sustainable.
The DIN could be deactivated in terms of Rule 11 of the Companies Act
(Appointment and Qualification of Director) Rules, 2014. But admittedly, the
DIN of PP has not been deactivated in terms of the said Rules.

In view of the
above, the prayer that the ROC be restrained from treating PP as a disqualified
Director was rejected. However, the ROC was directed to activate PP’s DIN.

PP had further
prayed that he be permitted to access the website of the Ministry of Corporate
Affairs, Government of India, but it cannot be acceded to. PP has been
disqualified as a Director; therefore, he cannot access the said website to
file returns or forms as a Director of KHF or any other company.

BCAJ Admin

ALLIED LAWS

1. Home-buyer –
Cannot invoke IBC – Recovery of RERA award [Insolvency and Bankruptcy Code,
2016, S. 3(10), S. 5(7) S. 7, S. 65; Real Estate (Regulation and Development)
Act, 2016, S. 40]

Sh. Sushil Ansal vs. Ashok Tripathi &
Ors. Company Appeal (AT) (Insolvency) No. 452 of
2020 (NCLAT) Date of order: 14^th August, 2020

Bench:
Bansi Lal Bhat J. (Acting Chairperson), Anant Bijay Singh J. and Dr. Ashok
Kumar Mishra

FACTS

The respondents are two house allottees who
booked flats with the appellant (Ansal Builders). As per the agreements, the
appellant had undertaken to complete the project within a period of two years
from the initiation of construction in 2015. However, on account of not
fulfilling the terms as per the agreement, the respondents approached the Uttar
Pradesh RERA where they were awarded a decree of Rs. 73 lakhs. Further, RERA
also issued recovery certificates against the builders. The respondent
allottees sought recourse under IBC for the recovery of their dues.

HELD

The three-member Bench held that as per
section 7 of the IBC as amended by the 2020 Amending Act, to make an
application under IBC it requires a minimum of 100 buyers or 10% of all
home-buyers, whichever is lower.

Further, the respondents have not approached
the Adjudicating Authority in the capacity of ‘allottees of a real estate
project’, therefore they cannot be brought within the meaning of ‘financial
creditors’. They can only be construed to be decree-holders on account of
non-payment of principal amount along with penalty as decreed by UP RERA.
Therefore, a decree-holder, though covered by the definition of ‘creditor’ u/s
3(10) of IBC, does fall within the definition of a ‘financial creditor’ across
the ambit of section 5(7) of the IBC and should have taken steps for filing an
execution case in the Civil Court.

2. Co-operative
Societies – Part of Constitutional Scheme – Unnecessary interference to be
avoided [Maharashtra Co-operative Societies Act, 1961, S. 77, S. 80, S. 152;
Constitution of India]

Rambujarat
Ramraj Chaurasia vs. State of Maharashtra WP-ASDB-LD-VC 220 of 2020 (Bom) (HC) Date of order: 2^nd September,
2020 Bench: Ujjal Bhuyan J. and Abhay Ahuja J.

FACTS

The petitioner is the Chairman of Vidhisha
Shantiniketan CHS Ltd. and the petition has been filed challenging the order of the Dy. Registrar, Thane (Respondent No. 2) directing a bank to
not allow the petitioner to operate the Society’s bank account and to allow another member, as assigned by the
Respondent No. 2, to operate the same.

The Society had imposed a penalty on one Mr.
Ramesh Mankar. Aggrieved by the penalty, he had approached the Respondent No. 2
who had given certain directions to the petitioner, failing which the
Respondent No. 2 would appoint an Administrator. Pursuant thereto, and on
account of inaction, Respondent No. 2 dissolved the Managing Committee of the
Society and appointed an Administrator.

The Society appealed before the Divisional
Joint Registrar, Co-operatives, Respondent No. 3, who quashed and set aside the
order of the Respondent No. 2 on 20^th May, 2020. However, Respondent
No. 2, via a communication dated 14^th July, 2020 directed the bank
to allow the Administrator, as appointed by him, to operate the accounts.

HELD

The Court held that the Society shall be
jointly managed under the Chairmanship of the petitioner and the Respondent No.
6 Administrator only for day-to-day affairs till the disposal of the appeal
before the Respondent No. 3. Further, that co-operative societies are now part
of the Constitutional scheme as co-operative societies have been inserted in
the Constitution of India as Part IX B by way of the Constitution (97^th
Amendment) Act, 2011 w.e.f. 15^th February, 2012. Therefore,
co-operative societies should have the necessary space and autonomy to function
and develop to their full potential. Interference in the affairs of
co-operative societies should be avoided unless there is serious statutory
breach or compelling necessity.

3. Unpaid
instalment – As per agreement – Not an operational debt [Insolvency and
Bankruptcy Code, 2016, S. 5(21), S. 9]

Brand Realty Services Ltd. vs. Sir John
Bakeries India Pvt. Ltd. (IB) 1677(ND) of 2019 (NCLT) (Del.) Date of order: 22^nd July, 2020 Bench: Mr. K.K. Vohra and Mr. Abni Sinha

FACTS

Sir John Bakeries India Pvt. Ltd. (the
corporate debtor) approached Brand Realty Services Ltd. (the operational
creditor) for investment and consultancy services vide an agreement in
November, 2014. The agreement was further ratified in 2018. As per the new
agreement, the corporate debtor agreed to pay the outstanding sum of Rs. 33
lakhs via post-dated cheques. However, the corporate debtor then requested the
operational creditor to hold on and not deposit the cheques and that the
payment would be met via RTGS. However, that never happened either.

A legal notice and a demand notice were
issued under the IBC. The corporate debtor denied any liability in the absence
of any document and said that there exists a dispute between the parties with
respect to the debt.

HELD

In order to trigger section 9 of the IBC,
i.e., application for initiation of Corporate Insolvency Resolution Process by
the operational creditor, an operational creditor is required to establish a
default for non-payment of operational debt as defined in section 5(21) of the
IBC. The application u/s 9 of the IBC was filed for the breach of the terms and
conditions of the settlement agreement between the parties and not against the
invoices raised in terms of the original agreement between them. Therefore, a
default on an instalment of the settlement agreement doesn’t come within the
purview of operational debtors.

The application was dismissed.

4. Dishonour of
cheque – Not offence against society – Can be compounded – Sentence reduced
[Negotiable Instruments Act, 1881, S. 138; Code of Criminal Procedure, 1973, S.
147, S. 386, S. 401]

Rakesh Kumar vs. Jasbir Singh and another Crl. Rev. No. 3004 of 2019 (P&H)(HC) Date of order: 11^th August, 2020 Bench: Sudhir Mittal J.

FACTS

The revision petitioner is the accused. He
issued a cheque dated 22^nd April, 2006 to the complainant-respondent
No. 1, which was dishonoured. Vide a judgment dated 8^th July,
2016, the petitioner was convicted and sentenced to undergo rigorous
imprisonment for two years. He was also directed to pay compensation equal to
the cheque amount along with interest at the rate of 9% per annum from the date
of the cheque till the date of the judgment. An appeal against the judgment of
conviction was dismissed, leading to the present revision petition.

HELD

Sentencing is
primarily a matter of discretion as there are no statutory provisions governing
the same. Even guidelines have not been laid down to assist the courts in this
matter. Further, provisions inserted in the Negotiable Instruments Act are for
inculcating greater faith in banking transactions as the same needed more teeth
so that cases involving dishonour of cheques are reduced. Therefore, deterrence
and restoration are the principles to be kept in mind for sentencing. At the
same time, the Court cannot lose sight of the fact that the offence u/s 138 of
the Act is quasi criminal in nature. Section 147 of the Act makes the
offence compoundable notwithstanding anything contained in the Code of Criminal
Procedure, 1973. It is not an offence against society and an accused can escape
punishment by settling with the complainant. It was further held that the
cheque amount is only Rs. 4 lakhs, and the award of maximum sentence is
arbitrary. On the facts of the case, the sentence is reduced to one year and
six months.

5.
Disqualification of Director – Companies Fresh Start Scheme, 2020 –
Disqualification to be set aside [Companies Act, 2013, S. 164(2)(a)]

Sandeep Agarwal & Ors. vs. UOI &
Anr. WP No. 5490 of 2020 (Delhi) (HC) Date of order: 2^nd September,
2020 Bench: Prathiba M. Singh J.

FACTS

The petition has been filed by the
petitioners, Mr. Sandeep Agarwal and Ms Kokila Agarwal, both of whom are
directors in two companies, namely, Koksun Papers Private Limited and Kushal
Power Projects Private Limited. The name of Kushal Power was struck off from
the Register of Companies on 30^th June, 2017 due to non-filing of
financial statements and annual returns. The petitioners, being directors of
Kushal Power, were also disqualified with effect from 1^st November,
2016 for a period of five years till 31^st October, 2021 u/s
164(2)(a) of the Companies Act, 2013. Pursuant to the disqualification, their
Director Identification Numbers (DIN) and Digital Signature Certificates (DSC)
have also been cancelled. In view thereof, they are unable to carry on the
business and file returns, etc. in the active company Koksun Papers. By the
present petition, the disqualification is challenged and quashing is sought of
the impugned list of disqualified directors.

HELD

Companies
Fresh Start Scheme (CFSS) is a new scheme which has been notified on 30^th
March, 2020. This Scheme was not invoked before the learned Division Bench. The
Scheme is obviously launched by the Government in order to give a reprieve to
such companies who have defaulted in filing documents; they have been allowed
to file the requisite documents and to regularise their operations, so as to
not face disqualification. The Scheme also envisages non-imposition of penalty
or any other charges for belated filing of documents.

This Scheme
provides an opportunity for active companies who may have defaulted in filing
of documents, to put their affairs in order. It thus provides the directors of
such companies a fresh cause of action to also challenge their disqualification
qua the active companies.

In view of the
fact that in the present case the petitioners are directors of an active
company Koksun Papers in respect of which certain documents are to be filed and
the said company is entitled to avail of the Scheme, the suspension of the DINs
would not only affect the petitioners qua the company, whose name has
been struck off, but also qua the company which is active.

Further,
considering the Covid-19 pandemic, the MCA has launched the Fresh Start
Scheme-2020, which ought to be given full effect. It is not uncommon to see
directors of one company being directors in another company. Under such
circumstances, to disqualify directors permanently and not allow them to avail
their DINs and DSCs could render the Scheme itself nugatory; therefore, the disqualification of the petitioners as directors is set aside.
The DINs and DSCs of the petitioners are directed to be reactivated within a
period of three working days.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

Part
A I Decisions of Supreme Court

The information to be
gained access to / certified copies on the judicial side to be acquired through
the machinery provided under the High Court Rules, the requirements of the RTI
Act shall not be available¹

Case name:

Chief Information Commissioner vs. High Court of
Gujarat and another

Citation:

Civil Appeal No(s). 1966-1967 of 2020 [Arising out of
SLP(C) No. 5840 of 2015]

Court:

The Supreme Court of India

Bench:

Justice R. Banumathi

Decided on:

4^th March, 2020

Relevant Act/ Sections:

Gujarat High Court Rules, 1993 – Rule 149 – 154

Right to Information Act, 2005 – Sections 2(f), 2(h),
2(i), 2(j), 4(2), 6(2), 8(1), 19, 22, 28

Articles 124, 145, 216, 225 of Indian Constitution

Brief facts
and procedural history

An RTI application dated 5^th
April, 2010 was filed seeking information pertaining to certain civil
applications made along with all relevant documents and certified copies. In
reply, the Public Information Officer, Gujarat High Court, informed that for
obtaining required copies one should make an application personally or through
one’s advocate by affixing court stamp fees of Rs. 3 with the requisite fee to
the ‘Deputy Registrar’; since the applicant was not a party to the said
proceedings, as per Rule 151 of the Gujarat High Court Rules, 1993 the
application should be accompanied by an affidavit stating the grounds for which
the certified copies are required and on making such application, one will be
supplied the certified copies of the documents as per Rules 149 to 154 of the
Gujarat High Court Rules, 1993.

Being aggrieved, the RTI
applicant preferred an appeal before the Appellate Authority-Registrar
Administration. The appeal was dismissed on the ground that for obtaining
certified copies the alternative effectual remedy is already available under
the Gujarat High Court Rules, 1993.

A second appeal was filed
before the Appellant-Chief Information Commissioner. The respondent reiterated
the position on the High Court Rules but was ordered to provide the information
within 20 days.

Challenging the order of
the Chief Information Commissioner, a special civil application was filed
before the High Court by the respondent. The learned Single Judge, while
admitting the petition, passed an interim order directing the respondent to provide
the information sought within four weeks.

Being aggrieved by the
interim order, the High Court preferred Letters Patent Appeal before the
Division Bench. This Bench set aside the order of the Chief Information
Commissioner by observing that when a copy is demanded by any person, the same
has to be in accordance with the Rules of the High Court on the subject.

The Chief Information
Commissioner, aggrieved by the order of the Division Bench, preferred an appeal
to the Hon’ble Supreme Court of India.

Issues before
the Court

Whether Rule 151 of the
Gujarat High Court Rules, 1993 stipulating that for providing a copy of
documents to third parties they are required to file an affidavit stating the
reasons for seeking certified copies, suffers from any inconsistency with the
provisions of the RTI Act?

When there are two types
of machinery to provide information / certified copies – one under the High
Court Rules and another under the RTI Act – in the absence of any inconsistency
in the High Court Rules, whether the provisions of the RTI Act can be resorted
to for obtaining certified copies / information?

Ratio Decidendi

(i) Grant of certified
copies to parties to the litigation and third parties are governed by Rules 149
to 154 of the Gujarat High Court Rules, 1993. As per these Rules, on filing of
an application with prescribed court fees, stamps, litigants / parties to the
proceedings are entitled to receive the copies of documents / orders /
judgments, etc. The third parties who are not parties in any of the
proceedings, shall not be given the copies of judgments and other documents
without the order of the Assistant Registrar. As per Rule 151 of the Gujarat
High Court Rules, the applications requesting for copies of documents /
judgments made by third parties shall be accompanied by an affidavit stating
the grounds for which they are required. Therefore, the access to the
information or certified copies of the documents / judgments / orders / court
proceedings are not denied to the third parties but a procedure needs to be
followed by the applicant. Hence, the Rules framed by the Gujarat High Court
are in consonance with the provisions of the RTI Act. There is no inconsistency
between the provisions of the RTI Act and the Rules framed by the High Court in
exercise of the object of the RTI Act which itself recognises the powers under
Article 225 of the Constitution of India.

(ii) There is a need to
protect the institutional interest and also to make optimum use of limited
fiscal resources and preservation of confidentiality of sensitive information.
The procedure to obtain certified copies under the High Court Rules is not
cumbersome and is very simple. The information held by the High Court on the
judicial side is the ‘personal information’ of the litigants like title cases
and family court matters, etc. Under the guise of seeking information under the
RTI Act, the process of the Court is not to be abused and information not to be
misused.

(iii) If any information
can be accessed through the mechanism provided under another statute, then the
provisions of the RTI Act cannot be resorted to as there is absence of the very
basis for invoking the provisions of the RTI Act, namely, lack of transparency.
In other words, the provisions of the RTI Act are not to be resorted to if the
same are not actuated to achieve transparency.

(iv) The non-obstante clause of the RTI Act does
not mean an implied repeal of the High Court Rules and Orders framed under
Article 225 of the Constitution of India, but only has an overriding effect in
case of inconsistency. A special enactment or rule cannot be held to be
overridden by a later general enactment simply because the latter opens up with
a non-obstante clause, unless there is clear inconsistency between the
two legislations.

Part
B I Right to Information

PM CARES Fund – The ‘gorilla’ in the
room

By now we are
aware that the Appellate Authority of the Prime Minister’s Office (PMO) has
held that the Prime Minister’s Citizen Assistance and Relief in Emergency Situations
Fund (PM CARES Fund) is not a public authority under the Right to Information
Act, 2005 (RTI Act). Moreover, the funds from the trust will not be transferred
to the National Disaster Response Fund (NDRF) and the fund will not be audited
by the Comptroller and Auditor-General of India, as ruled by the Supreme Court
of India. Yet, there are many questions raised and striving for answers.

To start with, the Prime Minister of India
is the Chairman ex-officio of the Prime Minister National Relief Fund
(PMNRF) as well as the PM CARES Fund, constituted to already have the trappings
of a public trust, the NDRF established thereunder, occupying the arena to deal
with disaster situations, then what was the need to constitute the new PM-CARES
Fund?

Given the federal ideologies of our
Constitution, in case of predicaments like these the amounts collected should
be deposited in the PMNRF and from there transferred to the state governments
for meeting the challenges of the pandemic and saving people’s lives.

A sum of Rs. 6,500 crores was collected by
the PM CARES Fund in just one week and Rs. 3,076.62 crores in four days from
the registration of the trust. This was donated by renowned philanthropists of
our country, well-known tycoons and others. Mr. Mukesh Ambani donated Rs. 500
crores and many others like Mr. Aamir Khan, Mr. Shah Rukh Khan and many more
celebrities came forward and donated to the fund.

The PM CARES
Fund was integrated as a ‘public charitable trust’ with the specified objective
of ‘dealing with any kind of public health crisis or other distress
circumstances, like the Covid-19 pandemic’, ‘to provide financial aid to those
affected by it’ and ‘to perform any other activity not varying with the above
two objectives’. The official website of PM CARES² provides the
following details:

(a) The PM is the ex-officio Chairman
and the Minister of Home Affairs, Minister of Finance and the Minister of
Defence are its ex-officio trustees and the PM would nominate three
eminent persons to the Board.

(b) It receives voluntary contributions,
with Rs. 10 being the least allowable amount of support, with no budgetary
outlay.

(c) Foreign individuals and organisations
can contribute to a separate account exempt from the application of the Foreign
Contribution (Regulation) Act, 2010.

(d) Contributions made can be apportioned
towards the mandatory 2% Corporate Social Responsibility (‘CSR’) expenditure
and shall be allowed as 100% deduction to calculate taxable income for the year
2019-2020, provided that the contribution is made before 30^th
June, 2020³. However, contributions flowing out of budgetary sources
of the PSUs are not accepted.

(e) The Fund is administered on an honorary
basis by a Joint Secretary (Administration) in the PMO as Secretary to the Fund
who is assisted on an honorary basis by an Officer of the rank of Director /
Deputy Secretary (Administration) in the PMO. The Prime Minister’s Office
provides such administrative and secretarial support to the trustees for the
management and administration of the Trust as may be required by them.

(f) The Fund is exempted from paying
income tax as per section 10(23)(c) of the Income-tax Act, 1961.

(g) The PM CARES Fund has been allotted a
Permanent Account Number (PAN) AAETP3993P.

(h) The Fund is audited by an independent
auditor. The trustees of the Fund, during the second meeting held on 23^rd
April, 2020 decided to appoint M/s SARC & Associates, Chartered
Accountants, New Delhi as the auditors of the PM CARES Fund for three years.

(i) There is no statutory period
prescribed for audit of the PM CARES Fund under the Income-tax Act.
However, audit will be conducted at the end of the financial year.

Keeping in mind the larger picture of
transparency, the PM CARES Fund should come under the purview of the Right to
Information Act, 2005. Likewise, technical reasons like the fund being set up
by the government by using government machinery to promote it and usage of
gov.in as domain name, providing tax reliefs, etc. needs to be considered.
There are multiple pleas in the High Courts and the Supreme Court of India
requesting to bring the PM CARES Fund under the purview of the RTI Act, 2005
and also asking to transfer the funds from the Trust to the NDRF, which have
been dismissed by the respective courts.

Part
C I Information on and Around

(1)
Appointment of architect for Balasaheb Thackeray Memorial not made by MMRDA but
a trust

In reply to
the RTI application filed by a Mumbai-based RTI activist, Mr. Anil Galgali, the
Mumbai Metropolitan Region Development Authority (MMRDA), the nodal agency for
the construction of the memorial of the late Balasaheb Thackeray which will be
built at Shivaji Park in Dadar, mentioned the procedure of selection of the
architect. The Thackeray Memorial had issued a tender notice directing MMRDA to
appoint a distinguished architect. But the Chairman of the Memorial held a
meeting on 14^th May, 2020 wherein architects and project advisers
were selected. MMRDA being the nodal agency for the project and also because of
the taxpayer’s money being involved, should have appointed the consultant and
the architect. But in this case a private trust did it all without inviting any
tender.⁴

(2) Only 44% State Information
Commissions conduct hearings in July, 2020

The functioning of the State Information
Commissions (SICs) has fallen from 80% in June to 44% in July. This was
observed in a study conducted by the Commonwealth Human Rights Initiative
(CHRI). The study was carried out by contacting each of the 28 SICs across the
country by phone and emails and by following their websites. The first survey
(in April) found that none of the SICs was working, but during the second
survey (in May) 12 SICs had opened their offices. However, only eight were
conducting hearings. According to its third rapid telephonic survey, the
organisation found the SICs that had started attending to litigants in June had
stopped by July.⁵

(3) Bank of Maharashtra writes off Rs.
7,400 crores in the last four years owed by loan defaulters

The Bank of Maharashtra, a public
sector bank, has ‘technically written off’ an astounding Rs. 7,400 crores
unsettled by loan defaulters in the last four years. The bank has said that it
would recover the amount at a later stage and that it has not been waived
permanently. The recovery rate of such defaults is low and it takes a huge
amount of time. According to information provided by the bank, from 2011 to 2020 it
has written off a total of Rs. 7,400 crores⁶.

______________________________________________________________________________________________

1 Chief Information Commissioner vs. High
Court of Gujarat and another available at
https://main.sci.gov.in/supremecourt/2015/4228/4228_2015_5_1501_21164_Judgement_04-Mar-2020.pdf
visited on 18.08.2020

2 https://www.pmindia.gov.in/en/about-pm-cares-fund/

3 http://egazette.nic.in/WriteReadData/2020/218979.pdf

4 https://www.timesnownews.com/mumbai/article/who-appointed-architect-for-balasaheb-thackeray-memorial-mmrda-or-trust/638697

5 https://www.hindustantimes.com/india-news/only-44-state-information-commissions-conduct-hearings-chri-survey/story-tMT6otWRcVxyeC0nM7jCNN.html

6 https://indianexpress.com/article/cities/mumbai/bank-of-maharashtra-writes-off-rs-7000-cr-owed-by-loan-defaulters-6557765/

We live in a country where:

Driving without a license = fine of Rs. 2000,

Not having a PUC = fine of Rs. 1000,

Not wearing a mask outside = fine of Rs. 1000,

Insulting the Supreme Court = fine Rs. 1

— social media post on the recent decision by
the SC

BCAJ Admin

CORPORATE LAW CORNER

10. P. Suresh vs. Super Foodis Pvt. Ltd. IBA/541/2019 – NCLT Chennai Date of order: 20^th December,
2019

Section 7 read with section 1(d) of the
Insolvency and Bankruptcy Code, 2016 – A franchise agreement that is disputed
before a High Court could not be regarded as a financial contract – Any claim
for insolvency on account on unpaid royalty under such a contract could not be
proceeded with

FACTS

Mr. P (‘Financial Creditor’) entered into a
franchise agreement with S Co (‘Corporate Debtor’) to run a vegetarian
restaurant for a period of three years from 12^th August, 2016 to 11^th
August, 2019. The agreement stipulated the use of brand name, quality standards
for the operations of the restaurant and 5% running royalty on the gross sale
value to the financial creditor. In the meantime, in January, 2018, the
management of the corporate debtor was changed and it was alleged that the
financial creditor was promised by the new management that they will discharge
the loan liability, if any, due from the corporate debtor and subsequently the
new management took over on 1^st March, 2019. It was submitted that
there was a loan liability of Rs. 29,95,461 due to the corporate debtor on 31^st
March, 2018.

With regard to the provisions of the
franchise agreement, the financial creditor alleged that there was a sum of Rs.
33,24,962 which was payable to him. On 19^thDecember, 2018 the
financial creditor terminated the franchise agreement and sought for removal of
the sign board and surrender of all articles bearing the trademark ‘Sangeethas
Desi Mane’; but in spite of the said notice the corporate debtor continued to
use the trademark. The financial creditor filed a suit for infringement of
registered trademark which was pending before the High Court of Madras.

The entire claim of the financial creditor
was based on the alleged entry in the financial statements of the corporate
debtor which is also a subject matter of dispute in the case referred to above.

It was submitted by the corporate debtor
that the validity of the franchise agreement and entries in the balance sheet
were all a subject matter of dispute before the High Court. The High Court vide
order dated 18^th July, 2018 had held that issues under dispute are
questions of fact which will have to be proved on trial. The corporate debtor
thus submitted that the subject issue as regards the payment of the unsecured
loan and the default was in itself an issue before the High Court.

HELD

The Tribunal
heard both the parties at length. It examined the provisions of sections 7 and
1(d) of the Code read with Rule 4 of IBBI (Application to Adjudicating
Authority) Rules, 2016 and Regulation 8 of IBBI (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016. It was observed that the financial
creditor had to demonstrate before the Tribunal that there was a ‘financial
contract’, the amount disbursed as per the loan / debt, the tenure of the loan
/ debt, interest payable and conditions of repayment.

Relying on the
decision in the matter of Prayag Polytech Pvt. Ltd. vs. Sivalik
Enterprises Pvt. Ltd. IB-312/(ND)/2019, it was observed that in order
to invoke provisions of section 7 of the Code and for initiation of CIRP
against the corporate debtor, the following conditions were required to be
satisfied: (i) there must be a disbursal of loan; (ii) disbursal should be made
against consideration for time value of money; and (iii) default should have
arisen in payment of interest or in payment of principal, or both, on part of
the corporate debtor. All the above conditions were required to be satisfied by
the financial creditor.

The Tribunal observed that in the absence
of a ‘financial contract’ it was not possible to ascertain the actual amount of
disbursal. There was no financial contract except the franchise agreement which
did not state the consideration for time value of money being granted to the
corporate debtor. Assuming there was a disbursal, the default had arisen in
absence of a financial instrument specifying unambiguously the term of the
financial debt within which it is repayable. In any case, the entire agreement
was in dispute before the High Court.

Thus, the Tribunal held
that default could not be ascertained in the absence of a requisite document
and the application was dismissed.

11. Tony Joseph vs. Union of India [2020] 117 taxmann.com 948 (Kerala) Date of order: 10^th July, 2020

The disqualified directors
of the company did not intend to continue – Since the directors were
disqualified, their DIN and DSC were deactivated – Directors urged that their
DIN and DSC be activated so as to enable them to file returns and make
statutory uploadings of form STK-2 so as to enable a ‘strike off’ of name of
company – It was held that directors should approach ROC for activation of DIN
and DSC and ROC should pass appropriate orders

FACTS

The directors of the
company were disqualified for the reason that the company did not file annual
returns in time. Accordingly, their DIN and DSC have been deactivated taking
recourse to the provisions u/s 164(2) of the Companies Act, 2013.

The directors submitted
that they do not intend to continue with the company. However, it was urged
that they seek to file the returns and make statutory uploadings so as to
enable a ‘strike off’ of the company. They therefore sought to upload form
STK-2 to enable ‘strike off’ of the company from the Registrar of Companies.

HELD

It was
noticed by the Court that the directors have not produced any request made by
them before the ROC in this behalf. In case the directors approach ROC seeking
an activation of the DIN and DSC for the purpose of uploading form STK-2, the
ROC shall take up the application and pass appropriate orders in accordance
with the law on the same within a period of two weeks from its receipt.

BCAJ Admin

ALLIED LAWS

25. Hindu
Succession Act, 1956, section 6 – Hindu Succession (Amendment) Act, 2005 –
Equal right of a daughter in HUF – Devolution of interest in coparcenary property
– Confers status of coparcener on daughters, even if born prior to the
amendment, with effect from 9^th September, 2005 – And it is not
necessary that the father should be living as on 9^th September, 2005
– Amendment is retrospective

Vineeta Sharma vs. Rakesh Sharma & Ors. Diary No. 32601 of 2018 (SC) Date of order: 11^th August, 2020 Bench: Arun Mishra J., S. Abdul Naseer J.,
M.R. Shah J.

FACTS

Several appeals on the issue of
retrospective effect of section 6 of the Hindu Succession Act were filed before
the Supreme Court. In one of the cases, Vineeta Sharma (appellant) filed a case
against her two brothers, viz., Rakesh Sharma and Satyendra Sharma, and her
mother (respondents). The father, Dev Dutt Sharma, had three sons, one daughter
and a wife. He expired on 11^th December, 1999. One of his sons
(unmarried) expired on 1^st July, 2001. The appellant claimed that
being the daughter she was entitled to 1/4^th share in the property
of her father. The case of the respondents was that after her marriage she
ceased to be a member of the joint family. The High Court disposed of the
appeal as the amendments of 2005 did not benefit the appellant because her
father had passed away on 11^th December, 1999.

HELD

The Supreme Court held that the provisions
contained in substituted section 6 of the Hindu Succession Act, 1956 confer the
status of coparcener on the daughter born before or after the amendment, in the
same manner as a son, with the same rights and liabilities. Since the right in
coparcenary is by birth, it is not necessary that the father should be living
as on 9^th September, 2005 (the date of the amendment).

26. Indian
Evidence Act, 1872, section 65B – Evidence – Electronic record – Certificate
u/s 65B(4) – Not necessary that original document itself is produced

Arjun Panditrao Khotkar vs. Kailash
Kushanrao Gorantyal and Ors. CA No. 20825-20826 of 2017 (SC) Date of order: 14^th July, 2020 Bench: V. Ramasubramanian J., R.F. Nariman
J., S. Ravindra Bhat J.

FACTS

Two election petitions were filed by the present
respondents before the Bombay High Court challenging the election of the
present appellant, Arjun Panditrao Khotkar, to the Maharashtra State
Legislative Assembly for the term commencing November, 2014. The case revolved
around the four sets of nomination papers filed by the appellant. It was the
case of the present respondents that each set of nomination papers suffered
from defects of a substantial nature and, therefore, all four sets of
nomination papers having been improperly accepted by the Returning Officer of
the Election Commission, the election of the appellant be declared void. In
particular, the respondents contended that the late presentation of nomination
forms (filed by the RC after the stipulated time of 3.00 p.m. on 27^th
September, 2014), meant that such nomination forms were not filed in accordance
with the law and ought to have been rejected.

The respondents sought to rely upon the
video camera arrangements that were made both inside and outside the office of
the Returning Officer (RO). According to the respondents, the nomination papers
were only offered at 3.53 p.m. (i.e. beyond 3.00 p.m.), as a result of which it
was clear that they had been filed after time. A specific complaint making this
objection was submitted by Kailash Kushanrao Gorantyal before the RO at 11 am
on 28^th September, 2014 in which it was requested that the RO reject
the nomination forms that had been improperly accepted. This request was
rejected by the RO on the same day, stating that the nomination forms had, in
fact, been filed within time. The High Court, by its order dated 16^th March, 2016, ordered the Election Commission and the
officers concerned to produce the entire record of the election of the constituency, including the original video
recordings. A specific order was made that the electronic record needs to be produced along with the ‘necessary
certificates’. The Court held that the CDs that were produced by the Election Commission could not be
treated as an original record and would, therefore, have to be proved by means
of secondary evidence. It was also found that no written certificate as
required by section 65B(4) of the Evidence Act was furnished by any of the
election officials.

HELD

The Supreme Court held that a certificate
u/s 65B(4) is unnecessary if the original document itself is produced. This can
be done by the owner of a laptop computer, computer tablet or even a mobile
phone, by stepping into the witness box and proving that the device concerned,
on which the original information is first stored, is owned and / or operated
by him.

27. Foreign
Exchange Regulation Act (FERA), 1973, sections 8, 51, 68 — Liability for
offence — Role played in company affairs — Not designation or status

Shailendra
Swarup vs. The Deputy Director, Enforcement CA No. 2463 of 2014 (SC) Date of order: 27^th July, 2020 Bench: Ashok Bhushan J., R. Subhash Reddy
J., M.R. Shah J.

FACTS

Modi Xerox Ltd. (MXL) was a company
registered under the Companies Act, 1956 in 1983. Between 12^th June,
1985 and 21^st November, 1985, 20 remittances were made by the
company through its banker Standard Chartered Bank. The Reserve Bank of India
issued a letter stating that despite reminders issued by the authorised dealer,
MXL had not submitted the Exchange Control copy of the customs bills of Entry /
Postal Wrappers as evidence of import of goods into India. The Enforcement
Directorate wrote to MXL in 1991-1993 for supplying invoices as well as
purchase orders. MXL on
9^th July, 1993 provided the documents for four transactions and
Chartered Accountant’s Certificates for balance 16 amounts for which MXL’s
bankers were unable to trace old records dating back to 1985. MXL amalgamated
and merged into Xerox Modicorp Ltd. (hereinafter referred to as “XMC”) on 10^th
January, 2000. A show cause notice dated 19^th February, 2001 was issued by the Deputy Director, Enforcement Directorate to MXL and its
directors, including the appellant. The notice required to show cause in
writing as to why adjudication proceedings as contemplated in section 51 of
FERA should not be held against them. The Directorate of Enforcement decided to
hold proceedings as contemplated in section 51 of the FERA, 1973 read with
sub-sections 3 and 4 of section 49 of FEMA and fixed 22^nd October,
2003 for personal hearing. A notice dated 8^th October, 2003 was sent
to MXL and its directors.

In reply the appellant stated that he is a
practising advocate of the Supreme Court and was only a part-time,
non-executive director of MXL and he was never in the employment of the company
nor had any executive role in its functions. It was further stated that the
appellant was never in charge of, nor ever responsible for, the conduct of the
business of the company. The Deputy Director, Enforcement Directorate, after
hearing the appellant and other directors of the company, passed an order dated
31^st March, 2004 imposing a penalty of Rs. 1,00,000 on the appellant
for contravention of section 8(3) read with 8(4) and section 68 of FERA, 1973.

The appellant approached the Appellate
Tribunal for foreign exchange but his appeal was dismissed on 26^th March, 2008. A criminal appeal was filed by the appellant in
the Delhi High Court but by the impugned judgment dated 18^th
October, 2009 it dismissed the appeal of the appellant.

HELD

The Supreme Court held that for proceeding
against a director of a company for contravention of provisions of FERA, 1973
the necessary ingredient for proceeding shall be that at the time the offence
was committed, the director was in charge of and was responsible to the company
for the conduct of its business. The liability to be proceeded with for an
offence u/s 68 of FERA, 1973 depends on the role one plays in the affairs of
the company and not on mere designation or status.

Editor’s Note: FERA, 1973 has been substituted with FEMA, 1999. Section 51 of
FERA, 1973 is similar to section 13(1) of FEMA, 1999.

28. Constitution
of India, Articles 226, 300A – High Courts bound to issue Writ of Mandamus –
For enforcement of public duties – Right to property is a fundamental right and
human right

Hare Krishna Mandir Trust vs. State of Maharashtra
& Ors. CA No. 6156 of 2013 (SC) Date of order: 7^th August, 2020 Bench: Indu Malhotra J., Indira Banerjee J.

FACTS

The Thorat family was the owner of a plot at
Bhamburda in Pune. By a registered deed of conveyance dated 21^st
December, 1956, one Krishnabai Gopal Rao Thorat sold the northern part of the
plot jointly to Swami Dilip Kumar Roy, one of the most eminent disciples of Sri
Aurobindo, and Indira Devi, daughter-disciple of Swami Dilip Kumar Roy. Swami
Dilip Kumar Roy had moved to Pune to propagate the philosophy of Sri Aurobindo
and established the Hare Krishna Mandir with his daughter disciple, Indira
Devi, on the land purchased from Krishnabai Gopal Rao Thorat.

According to the appellants, the Pune
Municipal Corporation, by an order dated 20^th August, 1970, divided
Plot No. 473 which was originally numbered Survey No. 1092. The final plot No.
473 B was sub-divided into four plots. On 20^th August, 1970 the City
Survey Officer directed issuance of separate property cards in view of a
proposed Development Scheme under the Regional and Town Planning Act which
included Final Plot No. 473, and an Arbitrator was appointed. The Arbitrator
made an award dated 16^th May, 1972 directing that the area and
ownership of the plots were to be as per entries in the property register. The
appellant contended that the Pune Municipal Corporation by its letters dated 29^th
June, 1996, 4^th January, 1997 and 18^th January, 1997
admitted that the internal road had never been acquired by the Pune Municipal
Corporation. The Town and Planning Department also admitted that the Pune
Municipal Corporation had wrongly been shown to be the owner of the said road.

The Urban Development Department rejected
the proposal of the appellant and held that the Pune Municipal Corporation is
the owner of the land. The Hon’ble High Court dismissed the Writ Petition
challenging the said order and refused to issue a Writ of Mandamus.

HELD

The Supreme
Court held that the right to property may not be a fundamental right any
longer, but it is still a Constitutional right under Article 300A and a human
right. In view of the mandate of Article 300A of the Constitution of India, no
person is to be deprived of his property save by the authority of law. The High
Courts, exercising their jurisdiction under Article 226 of the Constitution,
not only have the power to issue a Writ of Mandamus or in the nature of
Mandamus, but they are duty-bound to exercise such power where the Government
or a public authority has failed to exercise or has wrongly exercised
discretion conferred upon it by a statute, or a rule, or a policy decision of
the Government, or has exercised such discretion mala fide or on
irrelevant consideration. The High Court is not deprived of its jurisdiction to
entertain a petition under Article 226 merely because in considering the
petitioner’s right to relief questions of fact may fall to be determined.
Exercise of the jurisdiction is discretionary, but the discretion must be
exercised on sound judicial principles.

We must never ever give up, or give in or throw in the
towel. We must continue to press on! And be prepared to do what we can to help
educate people, to motivate people, to inspire people to stay engaged, to stay
involved and to not lose their sense of hope. We must continue to say we’re one
people. We’re one family. We all live in the same house. Not just an American
house but the world house. As Dr. King said over and over again, ‘We must learn
to live together as brothers and sisters.
If not, we will perish as fools.

— John
Lewis, 8^th June, 2020, New York Interview (civil rights giant,
17-term Congressman, an ally of MLK. He passed away in July, 2020)

BCAJ Admin

CORPORATE LAW CORNER

2 Indus Biotech Private Limited vs. Kotak India Venture (Offshore) Fund (earlier known as Kotak India Venture Limited) & Ors. Arbitration Petition (Civil) No. 48/2019 with Civil Appeal No. 1070 / 2021 @ SLP (C) No. 8120 of 2020 Date of order: 26th March, 2021

Section 7 of the Code and Arbitration Act – NCLT is duty-bound to examine the claim of insolvency on the grounds whether debt is due and there is a default even if the application of arbitration is filed simultaneously – Dispute before NCLT becomes matter in rem only after application is admitted by NCLT and not before that

FACTS
Kotak India Venture Fund (‘Kotak’) had subscribed to Optionally Convertible Redeemable Preference Shares (‘OCRPS’) issued by I Co (the ‘Corporate Debtor’) in the year 2007. Subsequently, the Corporate Debtor had entered into a share subscription and shareholder agreement (‘SSSA’). In pursuance of regulation 5(2) of the Securities Exchange Board of India (Issue of Capital & Disclosure Requirement) Regulations, 2018 (‘SEBI ICDR Regulations’), Kotak chose to convert the OCRPS into equity shares to make a Qualified Initial Public Offering (‘QIPO’).

During the conversion process, the parties had a dispute over the computation of the exchange ratio, the formula to be used and the valuation of the shares to be issued. The formula, which was sought to be applied by Kotak, would have yielded approximately 30% of the paid-up share capital of the Corporate Debtor. On the other hand, the formula that was sought to be applied by the Corporate Debtor (which was in line with the reports of auditors, independent valuers and the agreed formula), would have given Kotak 10% of the total paid-up share capital of the Corporate Debtor.

At the same time, the Corporate Debtor invoked the arbitration clause provided under the SSSA and requested the National Company Law Tribunal (‘NCLT’) to refer the parties to arbitration u/s 8 of the Arbitration & Conciliation Act, 1996.

The Corporate Debtor failed to redeem the debt on the redemption date. Kotak then filed an application for initiating corporate insolvency resolution process (‘CIRP’) against the Corporate Debtor under the Insolvency and Bankruptcy Code, 2016 (‘the Code’).

The NCLT observed that in a section 7 petition there has to be a judicial determination as to whether there has been a default within the meaning of section 3(12) of the Code. It was held that a default had not occurred in the instant case. The NCLT also noted that the Corporate Debtor was a solvent, debt-free and profitable company. Considering that the dispute was purely contractual in nature, the NCLT directed the parties to resolve their dispute by arbitration, thereby dismissing the application filed by Kotak under the Code.

Kotak filed a special leave petition before the Supreme Court. The primary contention raised in it was that the dispute, being a matter in rem, belongs to that class of litigation which falls out of the scope and ambit of arbitration.

HELD
The Supreme Court heard the arguments of both sides at length. It also relied on the decision laid down in Vidya Drolia vs. Durga Trading Corporation (2021 2 SCC 1) to hold that a dispute is non-arbitrable when a proceeding is in rem and IB proceedings are considered to be in rem only after being admitted.

The Court held that insolvency proceedings become in rem only after they are admitted. On admission, third-party right is created in all the creditors of the corporate debtors and will have an erga omnes effect. The mere filing of the petition and its pendency before admission, therefore, cannot be construed as the triggering off of a proceeding in rem. Hence, the admission of the petition for consideration of the CIRP is the relevant stage which would decide the status and the nature of the pendency of the proceedings and the mere filing cannot be taken as the triggering off of the insolvency process.

Further, the Supreme Court observed that the position of law that the provisions of the Code shall override all other laws as provided u/s 238 needs no elaboration. It was observed that in any proceeding which is pending before the NCLT u/s 7 of the IB Code, if such petition is admitted upon the NCLT recording the satisfaction with regard to the default and the debt being due from the corporate debtor, any application u/s 8 of the Act, 1996 made thereafter will not be maintainable.

The Court held that the NCLT is duty-bound to deal with the inquiry u/s 7 of the IBC by examining the material placed before it and record a satisfaction as to whether or not there is a default, even if an application u/s 8 of the Arbitration Act has been filed simultaneously.

It was also held that it would be premature to arrive at a conclusion that there was default in payment of any debt until the said issue is resolved and the amount repayable by the Corporate Debtor to Kotak with reference to equity shares being issued is determined. In the process, if such determined amount is not paid it will amount to default at that stage. The Court proceeded to appoint the arbitration tribunal in accordance with the provisions of the agreement.

The appeal was thus dismissed and the arbitration petition was allowed.

3 Anuj Mittal vs. Union of India 125 taxmann.com 10 (Delhi) Date of order: 15th January, 2021

Petitioners were directors who had been disqualified prior to 7th May, 2018, qua other companies in addition to the defaulting company – In such cases, proviso to section 167(1)(a) of the Companies Act, 2013 would not apply and petitioners would continue to be directors in companies other than defaulting companies and, therefore, DINs and DSCs of petitioners would be reactivated

FACTS
The petitioners were directors in ‘N’ Private Limited (hereinafter ‘N’). Due to alleged non-compliance / default by ‘N’ u/s 164(2)(a) of the Companies Act, 2013, i.e., non-filing of financial statements or annual returns for any continuous period of three financial years, the said petitioners were disqualified as directors from 1st November, 2017 to 31st October, 2022. Their DINs and DSCs were deactivated. ‘N’ had also been struck off from the Register of Companies. The petitioners were directors in other active companies and also wished to start a fresh business.

The Court, after considering the facts, analysed a few judgments and came to the conclusion that the following facts have emerged from the previous judgments. The same are tabulated for ease of reference:

Category	Situation	Decision
A	Directors who have been disqualified prior to 7^th May, 2018 qua other companies in addition to the defaulting company	Since there is no stay on the judgment in *Mukut Pathak, it continues to hold the field. Thus, in cases where directors have been disqualified prior to 7^th May, 2018, the proviso* to section 167(1)(a) of the Companies Act, 2013 would not apply and the directors would continue to be directors in companies other than the defaulting company. The disqualification of such directors qua active companies would therefore be liable to be set aside and their DINs and DSCs reactivated
B	Directors who have been disqualified post 7^th May, 2018 qua other ‘active’ companies	As held in *Mukut Pathak, in all cases where the directors have been disqualified on or after 7^th May, 2018, the proviso* to section 167(1)(a) would apply and such directors would cease to be directors in all the companies, including the defaulting company. In March, 2020, in light of the Covid-19 pandemic, the Ministry of Corporate Affairs vide General Circular No. 12/2020 introduced CFSS-2020 to allow a fresh start for defaulting companies and directors of such companies. The Court, in Sandeep Agarwal, has analysed CFSS-2020 to conclude that the purpose of the scheme is to provide an opportunity for ‘active’ companies, i.e., companies whose names have not been struck off, who may have defaulted in filing of documents, to put their affairs in order
B (continued)	Directors who have been disqualified post 7^th May, 2018 qua other ‘active’ companies	Thus, the DINs and DSCs of disqualified directors of struck-off companies, who are also directors in active companies, may be reactivated qua the active companies in line with the spirit of the CFSS-2020
C	Directors of ‘active’ companies who have been disqualified	In cases where directors of ‘active’ companies have been disqualified, CFSS-2020 would squarely apply. Such directors would be entitled to avail of CFSS-2020 and file documents of the defaulting company
D	Disqualified directors of struck-off companies seeking appointment as directors in other / new companies	In furtherance of the purpose of the scheme, directors of struck-off companies who seek to be appointed as directors of other / new companies ought to be provided an opportunity to avail of the scheme, provided that they have undergone (completed) a substantial period of their disqualification. The scheme clearly seeks to provide a fresh start for directors of defaulting companies who seek appointment in other companies or wish to start new businesses. Therefore, if a substantial period has passed since the disqualification of such directors, they ought to be
D (continued)	Disqualified directors of struck-off companies seeking appointment as directors in other / new companies	given an opportunity to avail of the scheme

Category

Situation

Decision

Directors who have been disqualified prior to 7^th
May, 2018 qua
other companies in addition to the defaulting company

Since there is no stay on the judgment in Mukut Pathak,
it continues to hold the field. Thus, in cases where directors have been
disqualified prior to 7^th May, 2018, the proviso to section
167(1)(a) of the Companies Act, 2013 would not apply and the directors would
continue to be directors in companies other than the defaulting company. The disqualification of such directors qua
active companies would therefore be liable to be set aside and their
DINs and DSCs reactivated

Directors who have been disqualified post 7^th May,
2018 qua other ‘active’
companies

As held in Mukut Pathak, in all cases where the
directors have been disqualified on or after 7^th May, 2018, the proviso
to section 167(1)(a) would apply and such directors would cease to be
directors in all the companies, including the defaulting company. In March,
2020, in light of the Covid-19 pandemic, the Ministry of Corporate Affairs vide
General Circular No. 12/2020 introduced CFSS-2020 to allow a fresh start for
defaulting companies and directors of such companies. The Court, in Sandeep
Agarwal, has analysed CFSS-2020 to conclude that the purpose of the
scheme is to provide an opportunity for ‘active’ companies, i.e., companies
whose names have not been struck off, who may have defaulted in filing of
documents, to put their affairs in order

B
(continued)

Directors who have been disqualified post 7^th May,
2018 qua other ‘active’
companies

Thus, the DINs and DSCs of disqualified directors of struck-off
companies, who are also directors in active companies, may be reactivated qua
the active companies in line with the spirit of the CFSS-2020

Directors of ‘active’ companies who have been disqualified

In cases where directors of ‘active’ companies have been
disqualified, CFSS-2020 would squarely apply. Such directors would be
entitled to avail of CFSS-2020 and file documents of the defaulting company

Disqualified directors of struck-off companies seeking
appointment as directors in other / new companies

In furtherance of the purpose of the scheme, directors of
struck-off companies who seek to be appointed as directors of other / new
companies ought to be provided an opportunity to avail of the scheme,
provided that they have undergone (completed) a substantial period of their
disqualification. The scheme clearly seeks to provide a fresh start for
directors of defaulting companies who seek appointment in other companies or
wish to start new businesses. Therefore, if a substantial period has passed
since the disqualification of such directors, they ought to be

D
(continued)

Disqualified directors of struck-off companies seeking
appointment as directors in other / new companies

given an opportunity to avail of the scheme

At this stage, the Registrar of Companies, Delhi was requested to join the proceedings. On a specific query from the Court, he informed that the Companies Fresh Start Scheme-2020 has expired as on 31st December, 2020. However, he submitted that in case struck-off companies are willing to file their annual returns and balance sheets, the restoration of these companies is being considered by the ROC. He further informed the Court that in the case of more than 2,000 struck-off companies, their restoration has been permitted by the NCLT as the jurisdiction for restoring the struck-off companies rests with the NCLT.

After deliberations, the High Court held as under:

In terms of the judgment in Anjali Bhargava, the petitioners would fall in category ‘D’. Further, since the disqualification of the petitioners is prior to 7th May, 2018, they would also fall in category ‘A’. In terms of the judgment in Mukut Pathak vs. Union of India [2019] 111 taxmann.com 41 (Delhi) and Anjali Bhargava vs. UOI [W.P. (C) No. 11264 of 2020 dated 6th January, 2021] (Unreported), the DINs and DSCs of the petitioners shall be reactivated within a period of ten days. If, in addition, the petitioners wish to seek restoration of the struck-off company, they are permitted to seek remedies in accordance with law before the NCLT.

BCAJ Admin

ALLIED LAWS

5 Sobha Hibiscus Condominium vs. Managing Director, M/s Sobha Developers Ltd. & Anr. AIR 2020 Supreme Court 1163 Date of order: 14th February, 2020 Bench: Mohan M. Shantanagoudar J., R. Subhash Reddy J.

Condominium – Maintainability – Complainant – Condominium is neither ‘consumer’ nor ‘recognised voluntary association’ but group of individual consumers [S. 2(1)(d), S. 12(1)(b) Consumer Protection Act]

FACTS
The appellant / complainant is a statutory body. It consists of members who are the owners of the apartments in a multi-storey building, namely, ‘Sobha Hibiscus’, situated in South Bangalore Taluk in Karnataka.

The National Consumer Disputes Redressal Commission (NCDRC) rejected the complaint filed by the appellant on the ground that the appellant condominium has no locus standi to file the complaint since neither is it a ‘consumer’ nor a ‘recognised consumer association’ within the meaning of section 12 of the Consumer Protection Act, 1986.

HELD
The Court held that the finding of the NCDRC that a recognised consumer association can file a complaint on behalf of a single consumer but cannot file a complaint on behalf of several consumers in one complaint is erroneous and there is no legal basis for it. From a reading of section 12(1)(b) of the Act read with Explanation to section 12 it is clear that a voluntary registered association can file a complaint on behalf of its members to espouse their grievances. There is nothing in the aforesaid provision of the Act which would restrict its application to the complaint pertaining to an individual complainant. If a recognised consumer association is made to file multiple complaints in respect of several consumers having a similar cause of action, that would defeat the very purpose of registration of a society or association and it would result only in multiplicity of proceedings without serving any useful purpose.

The matter is remitted back to the NCDRC with a direction to consider the complaints on merits and pass appropriate orders.

6 Shaik Janimiya vs. State Bank of India AIR 2020 Telangana 126 Date of order: 27th April, 2020 Bench: M.S. Ramachandra Rao J., T. Amarnath Goud J.

Registration – Transfer of prohibited property – Impossible – Highest bidder cannot wait until bank gets clear title – Bidder entitled to relief [Registration Act, 1908]

FACTS
The petitioner is the Managing Director of M/s Crescent Formulations Pvt. Ltd. which is engaged in the manufacture and marketing of pharmaceutical formulations. The respondent bank issued an e-auction notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act proposing to conduct an e-auction of several properties on 29th February, 2017 [sic]. The petitioner deposited Rs. 21,80,000 as EMD and later became the highest bidder after quoting Rs. 2,19,00,000. On 30th November, 2017 the respondent addressed a letter to the petitioner declaring him as the highest bidder and directed him to deposit the balance EMD amount of 25% (Rs. 32,75,000) immediately. The petitioner complied and another letter dated 30th November, 2017 was issued by the respondent directing him to deposit Rs. 1,61,81,000 being 75% of the sale consideration within 15 days from the date of the auction. The petitioner was also asked to make arrangements for registration of the sale certificate with the Sub-Registrar concerned.

When the petitioner approached the Sub-Registrar, the latter informed him that the properties in Sy. No. 11 of Khanamet village were in the prohibitory list notified under section 22-A of the Registration Act, 1908 by the State of Telangana and that he would not register the certificate of sale issued by the respondent in favour of the petitioner.

The petitioner contends that he demanded the respondent to refund the sum of Rs. 2,19,00,000 deposited by him with interest at 12% per annum.

HELD
It is not disputed that before the sale certificate could be registered the State Government had imposed a prohibition on the registration of plots in Sy. No. 11 of Khanamet village, in which the above property is located. Hence it became impossible for the title to the property to be conveyed to the petitioner by registering the sale certificate. The petitioner cannot be compelled to wait till the bank litigates with the State and resolves the issue.

This Court has repeatedly expressed the view that Governments and statutory authorities should be model or ideal litigants and should not put forth false, frivolous, vexatious, technical (but unjust) contentions to obstruct the path of justice.

The bona fide claims of the petitioner cannot be defeated by the respondent by raising hyper-technical pleas. The petitioner was entitled to the prayed relief. The writ petition was allowed.

7 Surender Kumar Singhal & Ors. vs. Arun Kumar Bhalotia & Ors. CM(M) 1272 of 2019 dated 25th March, 2021 Date of order: 25th March, 2021 Bench: Prathiba M. Singh J.

Arbitration – Tribunal can decide objections on its jurisdiction – High Courts have limited interference – Jurisdiction should be adjudicated first [Arbitration and Conciliation Act, 1996]

FACTS
Disputes arose between two branches of one family. The Delhi High Court referred the matter to arbitration by a sole arbitrator.

The petitioners herein then filed an application before the arbitrator u/s 16 of the Arbitration and Conciliation Act, 1996 (Act) and raised the objection that the Tribunal does not have any jurisdiction to adjudicate the claims against the petitioners. The arbitrator held that the issue of jurisdiction would be dealt with along with the final order. An application was made for recall of the said order. The said application was rejected by the arbitrator. The orders rejecting the applications were challenged in the present proceedings.

HELD
The Court observed that the arbitrator was of the opinion that a final decision on the application of the petitioners u/s 16 of the Act cannot be taken without further evidence in the matter. The property which the petitioners have purchased as per the arbitrator is clearly the subject matter of the arbitral proceedings and thus the arbitrator, after evidence being recorded, may be required to mould relief in the same manner. The Court did not deem it appropriate to interfere under Article 227. However,
the Court held that the arbitrator’s observation that the said objection shall be decided ‘while passing the award’ may also not be fully in line with the legal position as held in McDermott International Inc. vs. Burn Standard Co. Ltd. and Ors. (2006) 11 SCC 181. Thus, the question of jurisdiction raised by the petitioners would have to be adjudicated first, prior to the passing of the final award.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

PART A | DECISION OF HIGH COURT

Cogent reasons have to be given by the public authority as to how and why the investigation or prosecution will get impaired or hampered by giving the information in question

Case name:

Amit Kumar Shrivastava vs. Central Information
Commission, New Delhi

Citation:

Writ Petition (Civil) No.: 3701/2018

Court:

The High Court of Delhi

Bench:

Justice Jayant Nath

Decided on:

5^th February, 2021

Relevant Act / Sections:

Section 8 of Right to Information Act, 2005

Brief facts and procedural history:

The petitioner filed an RTI application on 5th September, 2016 under Rule 6 of the Right to Information Act, 2005 (‘the RTI Act’) seeking disclosure of point-wise information which was mentioned at serial Nos. 5(i) to 5(xxv) of the said application.

The CPIO did not provide correct information in respect of point 5(i) of the RTI application. The CPIO hid the cases registered under IPC / PC Act. Information was not disclosed u/s 8(1)(h) of the RTI Act.

The petitioner filed a first appeal on 10th October, 2016 before the First Appellate Authority. The Appellate Authority did not decide the appeal of the petitioner in the defined period. The petitioner then filed a second appeal before the Second Appellate Authority CIC. It is the grievance of the petitioner that during the hearing the respondent believed the verbal submissions of the CPIO instead of the written submissions of the petitioner and allowed them to sustain their stand for non-disclosure of the information in respect of all the points by claiming exemption u/s 8(1)(h) of the RTI Act.

Court’s observation and judgment
The Court was of the view that the facts, including details regarding the grave allegations against the petitioner and the pending criminal and departmental proceedings against him, were not disclosed. However, the CIC dismissed his appeal holding that the proceedings initiated by the CBI are pending and exemption can be claimed u/s 8 of the RTI Act that lays down certain conditions when exemptions are allowed.

Section 8(1)(h) of the Act provides that information which ‘would impede the process of investigation or apprehension or prosecution of offenders’ need not be disclosed to citizens. On examination, the High Court observed that what follows from the legal position is that where a public authority takes recourse to this section to withhold information, the burden is on the public authority to show in what manner disclosure of such information could impede the investigation. The word ‘impede’ would mean anything that would hamper or interfere with the investigation or prosecution of the offender.

Further, the word ‘investigation’ used in section 8(1)(h) of the Act should be construed rather broadly and include all inquiries, verification of records and assessments. ‘In all such cases, the inquiry or the investigation should be taken as completed only after the competent authority makes a prima facie determination about the presence or absence of guilt on receipt of the investigation / inquiry report from the investigating / inquiry officer’, said the Single Bench.

Since the CIC in its order made no attempt whatsoever to show how giving the information sought would hamper the investigation and the on-going disciplinary proceedings, the Court decided to quash its order. The Court also remanded the matter back to the CIC for consideration afresh in terms of the legal position held by the High Court in the present matter.

Justice Jayant Nath also referred to the case of Union of India vs. Manjit Singh Bali (2018) where the High Court of Delhi had held that the exclusion u/s 8(1)(h) of the RTI Act (information which would impede the process of investigation or apprehension or prosecution of the offenders) has to be read in conjunction with Article 19(2) of the Constitution of India. Such denial must be reasonable and in the interest of public order1.

PART B | DECISION OF SIC

Private medical colleges within RTI Act’s purview: Rajasthan SIC

The private medical colleges in Rajasthan have been brought within the purview of the Right to Information (RTI) Act, 2005, following an order of the State Information Commission which has imposed a fine of Rs. 25,000 on the Principal of Geetanjali Medical College in Udaipur for flouting the transparency law and refusing to provide information.

Allowing an appeal against the college, the Information Commission held in its recent order that the State Government had allotted land to the institution at concessional rates and the college was established under a law passed by the State Legislature.

‘Based on these facts, the college falls within the purview of the RTI Act. The college is governed by the rules and regulations framed by the State government’, said Information Commissioner Narayan Bareth.

He imposed the fine on the Principal for refusing to provide information sought by an applicant2.

PART C IINFORMATION ON AND AROUND

Vaishno Devi temple got 1,800 kg. of gold in 20 years

The Vaishno Devi Temple in Jammu received over 1,800 kg. of gold and over 4,700 kg. of silver, besides Rs. 2,000 crores in cash, in the past 20 years (2000-2020) as donation3.

Supreme Court refuses to disclose Justice Patnaik’s probe report on ‘Larger Conspiracy’ against judiciary under RTI

The Public Information Officer of the Supreme Court has refused to disclose the details of a report submitted by the former Supreme Court Judge, Mr. Justice A.K. Patnaik, on the probe into the ‘larger conspiracy’ behind the sexual harassment allegations levelled against the then Chief Justice of India, Mr. Ranjan Gogoi4.

Who writes PM Modi’s speeches?

‘Depending upon the nature of event, various individuals, officials, departments, entities, organisations, etc., provide inputs for the PM’s speech and the speech is given final shape by the PM himself,’ the PMO said in its reply to an RTI query5.

SBI refuses data under RTI on interest waiver claims it received

In October, 2020 the Government had appointed SBI as the nodal agency and said it will receive funds for settlement of such (interest waiver) claims. Other lenders were told to submit their claims by 15th December to India’s largest lender. The State Bank of India, in charge of collating and settling compound interest waiver reimbursement claims by lenders for the last round of the interest waiver scheme during the moratorium, has declined to provide information on the quantum of claims it received6.

Centre paid Rs. 4.10 crores as commission to SBI for sale of electoral bonds

The Department of Economic Affairs, Ministry of Finance, in its reply dated 19th March, 2021 to an RTI application stated that an amount of over Rs. 4.35 crores (Rs. 4,35,39,140.86), inclusive of GST, has been charged to the Government as commission consequent to the sale of electoral bonds in 15 phases.

An aggregated amount of Rs. 4.10 crores (Rs. 4,10,16,764.60) has been paid by the Government as commission, consequent to the sale of electoral bonds in 13 phases. Commission for the 14th and 15th phases of electoral bond issuance has not been paid till date7.

1 https://www.latestlaws.com/latest-news/public-authority-to-give-cogent-reasons-for-claiming-exemption-from-disclosure-of-information-sought-under-the-rti-act-read-order/

2 https://www.thehindu.com/news/national/other-states/rajasthan-brings-private-medical-colleges-within-rti-acts-purview/article34135979.ece

3 https://timesofindia.indiatimes.com/city/dehradun/vaishno-devi-temple-received-over-rs-2000-crore-cash-1800-kilos-of-gold-and-4700-kilos-of-silver-in-last-20-years-rti/articleshow/81638135.cms

4 https://www.livelaw.in/top-stories/supreme-court-refuses-disclose-justice-patnaiks-probe-report-larger-conspiracy-rti-171351

5 https://www.indiatoday.in/india/story/who-writes-pm-modi-speeches-pmo-reply-to-rti-1774874-2021-03-02

6 https://www.livemint.com/companies/news/sbi-refuses-data-under-rti-on-interest-waiver-claims-it-received-11616563915641.html

7 https://www.theweek.in/news/india/2021/03/22/centre-paid-rs-4-10-crore-as-commission-to-sbi-for-sale-of-electoral-bonds.html

BCAJ Admin

CORPORATE LAW CORNER

1. Puthenpurakal Properties Private Ltd. vs. UOI, Delhi and Others LSI-128-HC-2021 (Ker) Date of order: 2nd March, 2021

Kerala High Court grants liberty to the Government to proceed against petitioner companies for violating section 203 of the Companies Act, 2013 which inter alia mandates appointment of a whole-time Company Secretary where a company’s paid-up capital exceeds Rs. 5 crores

FACTS
Company P, the petitioner, is a company incorporated with the Registrar of Companies, Kerala. P has filed these writ petitions seeking to direct the respondents to permit it to file E-form ACTIVE, INC-22A without insisting on appointment of a whole-time Company Secretary (CS). P has also sought to declare that the restrictions imposed in filing E-form ACTIVE, INC-22A with regard to non-compliance of section 203 of the Companies Act, 2013 in appointment of a whole-time Company Secretary, or Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is arbitrary and illegal.

P contended that pursuant to the powers vested u/s 469 of the Companies Act, 2013 the Union of India amended the Companies (Incorporation) Rules, 2014. As per the newly-added Rule 25A, every company incorporated on or before 31st December, 2017 was required to file the particulars of the company and its registered office in E-form ACTIVE (Active Company Tagging Identities and Verification) on or before 25th April, 2019. P further contended that the website of the Ministry of Corporate Affairs was not accepting the E-form ACTIVE submitted by it for the reason that its paid-up capital is more than Rs. 5 crores and yet the petitioners have not appointed a whole-time CS.

It was the case of the petitioners that as per section 203(5) if any company makes any default in complying with the provisions, such company shall be liable for a penalty of Rs. 5 lakhs and Directors and Key Managerial Personnel are personally liable for a penalty of Rs. 50,000, and if the default is a continuing one, with a further penalty of Rs. 1,000 for each day.

The petitioners contended that they have part-time Company Secretaries and Auditors to properly look after the affairs of their companies and for the last several years they have been functioning well within the provisions of the Act without giving any room for initiating any penal proceedings. On these premises, the petitioners contended that they should not be forced to appoint a whole-time Company Secretary and should be permitted to file E-form ACTIVE, INC-22A without insisting on the appointment of a whole-time Company Secretary.

When these writ petitions came up for admission, interim orders were passed by the Court permitting the petitioners to file E-form ACTIVE, INC-22A, Form PAS-03 (change in paid-up capital) and Form DIR-12 (change in Director, except cessation) without insisting on appointment of a whole-time Company Secretary provisionally, pending further orders in these writ petitions.

When the petitions came up for final hearing, the Counsel for the respondents urged as under:

The Central Government counsel representing the respondents argued that as per the existing rules the petitioners are bound to appoint a whole-time Company Secretary as their paid-up capital is more than Rs. 5 crores. The petitioners cannot be granted any exemption from the Rules.

The Counsel further argued that non-appointment of Company Secretary by the petitioners is an offence u/s 383A of the Companies Act, 1956 with effect from 1st December, 1988. If a company fails to comply with this requirement, the Company and every one of its officers who is in default shall be punishable with a fine which may extend to Rs. 500 per day during which the default continues.

HELD
After deliberations, the Kerala High Court held as under:

As things stand now, the petitioners have been permitted to file E-form ACTIVE, INC-22A without insisting on the appointment of a whole-time Company Secretary on a provisional basis. Section 203(5) of the Companies Act, 2013 provides that if any company makes any default in complying with the provisions of section 203 relating to appointment of a Key Managerial Personnel, such company shall be liable to a penalty of Rs. 5 lakhs and every Director and Key Managerial Personnel of the company who is in default shall be liable to a penalty of Rs. 50,000, and where the default is a continuing one, with further penalty of Rs. 1,000 for each day after the first during which such default continues, but not exceeding Rs. 5 lakhs.

It is evident that the petitioner has not adhered to the provisions of the Companies Act, especially section 203 thereof. In such circumstances, the respondents are empowered to proceed against the petitioner companies in accordance with the law.

In the circumstances, the writ petitions were disposed of granting liberty to the respondents to proceed against the petitioners for violating section 203 of the Companies Act, 2013 if they are so advised. It is made clear that the interim orders passed in these writ petitions shall not be taken as pronouncements on merits on the legality of section 203 of the Companies Act, 2013 or Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

BCAJ Admin

ALLIED LAWS

1. Uma Mittal & Ors. vs. UOI & Ors. AIR 2020 Allahabad 202 Date of order: 15th June, 2020 Bench: Shashi Kant Gupta J., Saurabh Shyam Shamshery J.

Guardian – Comatose state – No remedy under law – Wife appointed as guardian – Central Government directed to consider enacting an appropriate legislation [Constitution of India, Art. 21, Art. 226; Guardians and Wards Act, 1890, S. 7]

FACTS
Petitioner No. 1 is the wife of Sunil Kumar Mittal (SKM). The couple has four children (petitioner Nos. 2 to 5), three daughters and a son Raghav Mittal; petitioner No. 2 is a married daughter. However, petitioner Nos. 3 and 4 are unmarried daughters and petitioner No. 5 is the son.

SKM had a fall and suffered a severe head injury. After a series of medical procedures, Doctors opined that till his eventual demise SKM would remain in comatose condition.

SKM was carrying on business as a sole proprietor till December, 2018. He also had a few real estate properties and bank accounts.

Writ Petition was filed to appoint the petitioner No. 1 as the guardian of her husband to protect his interest, administer bank accounts, investments, proprietorship business, etc., and in the event of necessity, to sell the immovable property standing in the name of her husband and to use the proceeds towards medical treatment of her husband and family welfare expenses.

HELD
There appears to be no dispute that any of legislative enactments are applicable qua SKM, a person lying in a comatose state. Further, the petitioners are in dire need of money towards medical treatment of SKM and for the welfare of the family as they have exhausted their financial resources in the past one and a half years.

Further, since the petition has been filed jointly, there is no dispute amongst the legal heirs of SKM.

Petitioner No. 1, Uma Mittal, wife of SKM as the guardian of her husband who is in a comatose condition, is vested with the property of her husband to do all acts, deeds and things for the proper medical treatment, nursing care, welfare and benefit of SKM and his children and with power to do all acts, deeds and things with respect to his assets and properties.

Further, the Central Government to consider enacting an appropriate legislation pertaining to appointment of guardians qua persons lying in a comatose state, as no remedy is provided in any statute to persons in comatose / vegetative state.

2. N. Mani and Ors. vs. Babyammal AIR 2020 (NOC) 511 (Mad) Date of order: 19th September, 2019 Bench: T. Ravindran J.

Registration – Alleged relinquishment of property – Family arrangement – Instrument not registered – Agreement not sustainable [Hindu Succession Act, S. 14(1)]

FACTS
The properties in the plaint belonged to one Natesa Naicker and when it is admitted that the plaintiff and the defendants are the legal heirs of Natesa Naicker, it is found that on the demise of Natesa Naicker, the plaintiff and the defendants would be each entitled to equal share in the schedule properties.

However, the defendants have put forth the case that the defendants had effected a partition amongst the family members by a partition deed and further also put forth the case that in the family arrangement jewels and cash were given to the daughters including the plaintiff and thereby the daughters had relinquished their right in the family properties and accordingly the plaintiff is not entitled to claim any share in the family properties.

HELD
The family arrangement and the alleged relinquishment said to have been made by the plaintiff in respect of her share in the family properties has been stoutly challenged by the plaintiff and despite the same the defendants have not placed any acceptable and reliable materials to establish that the so-called family arrangement said to have been effected between the family members is true and validly effected. When the defendants are unable to put forth the clear case that the daughters had been given jewels and cash in lieu of their shares in the family properties and when the defendants have not tendered clear evidence as to when actually the jewels and cash were given to the daughters, we cannot safely accept the case of the defendants that a valid family arrangement had been effected and the daughters had been given jewels and cash in lieu of their shares and that the daughters had thereby relinquished their right in respect of their family properties.

On a perusal, when such instruments are required by law to be compulsorily registered and when it is found that they are not registered, no safe reliance could be made on the abovesaid documents for sustaining the defence version and the Courts below had rightly rejected the said documents.

3. Food Corporation of India & Anr. vs. V.K. Traders & Anr. (2020) 4 SCC 60 Date of order: 6th March, 2020 Bench: S.A. Bobde C.J., B.R. Gavai J. and Surya Kant J.

Lease deeds – Unregistered lease deeds – Not admissible as evidence – No right in lease [Registration Act, 1908, S. 17; Transfer of Property Act, 1882, S. 107]

FACTS
It was common practice in Punjab for different government agencies to allocate paddy for custom milling to hundreds of rice mills, which in turn would supply the rice, post-milling as per approved specifications, to the appellant FCI. Such allocation would take place through terms of a bipartite agreement and the same took place for the kharif marketing season (KMS) of 2004-05.

A dispute arose as to the quality of the milled rice stock for the aforementioned KMS, leading to an investigation by the Central Bureau of Investigation (CBI). Finding the quality to be defective, the CBI initiated prosecution against numerous rice millers and additionally recommended blacklisting of a total of 182 millers. Such ban was effected by the FCI vide a Circular dated 10th October, 2012.

The blacklisted rice mills, thus, were not allocated any paddy for purposes of custom milling in 2011-12. Allegedly with a view to wriggle out of the ban period, the mill owners leased out their rice mills to other similar partnership / proprietorship firms. Notably, all such lease deeds were unregistered.

These new lessees subsequently applied to the appellant FCI for allocation of paddy and asserted that none of them had committed any default or been blacklisted and that the disqualification attached to their lessors could not traverse onto their lawful entitlements. The FCI, on the other hand, declined to entertain such requests on the ground that the new lessees had simply stepped into the shoes of the earlier blacklisted lessors as the lease deeds were nothing but sham transactions to circumvent the ban.

HELD
No reliance can be placed upon the lease deeds allegedly executed between the defaulting rice miller(s) and the respondent(s), as they do not satisfy the statutory requirements of section 17(1)(d) of the Registration Act, 1908. These lease deeds thus cannot be accepted as evidence of valid transfer of possessory rights. The plea taken by the appellant FCI, that such documentation was made only to escape the liability fastened on the defaulting rice millers, carries some weight, though it is a pure question of fact. The appeal is allowed.

4. Apurva Jagdishbhai Dave vs. Prapti Apurva Dave AIR 2020 Gujarat 124 Date of order: 25th October 2020 Bench: A.P. Thaker J.

Electronic evidence – CD recording – Application dismissed – Certificate u/s 65B filed later – Admitted as primary evidence u/s 62 [Evidence Act, 1872; S. 62, S. 65B]

FACTS

The petitioner wanted to play a CD in the Court proceedings and asked a question to the respondent either to controvert or to admit the incident of a particular date and also asked the respondent whether or not it was her voice. It was contended that the petitioner had made an application for playing the CD.

The respondent raised an objection with regard to playing of the CD in the Family Court and filed a reply wherein she disputed the contents of the recording and stated that no such incident had occurred; after hearing both the parties, the trial Court rejected the application.

HELD

The trial Court dismissed the application on the ground that the certificate under section 65B of the Evidence Act has been produced at a later stage and not at the time when the original document was produced. Now, it is an admitted fact that u/s 65B of the Evidence Act, the electronic document can be produced along with the certificate which is prescribed under the Act.

In view of the provisions of section 65B of the Evidence Act, the Supreme Court in the case of Anwar P.V. vs. P.V. Basheer, reported in (2014) 10 SCC 473 has held that an electronic record by way of secondary evidence shall not be admitted in evidence unless the requirements u/s 65B are satisfied. Thus, in the case of CD, VCD, chip, etc., the same shall be accompanied by the certificate in terms of section 65B obtained at the time of taking the document, without which the secondary evidence pertaining to that electronic record is inadmissible. Although the aforesaid case clarified the position relating to certification to a large extent, it did not specify as to whether the certificate can be supplied at a later stage.

There are two decisions of the Delhi High Court and the Rajasthan High Court, i.e., Kundan Singh vs. State, 2015 SCC Online Delhi 13647 and Paras Jain vs. State of Rajasthan (2015) SCC Online Rajasthan 8331, respectively. Both the Courts have taken the view that section 65B certificate can be provided at a later stage and it is not an illegality going to the root of the matter.

Therefore, the impugned order of the Family Court regarding non-submission of the certificate at the time of production of electronic record is not legally sustainable. The document ought to have been permitted to be produced in the matter and after proper verification it could have been exhibited. Therefore, the impugned order of the trial Court is set aside and the electronic record is liable to be taken on record.

BCAJ Admin

CORPORATE LAW CORNER

11. Dr. Venkadasamy Venkataramanujan vs. Securities and Exchange Board of India, Mumbai [2021] 123 taxmann.com 126 (SAT-Mum.) Date of order: 7th February, 2020

Independent Director – Where appellant was inducted as an Independent Director of company and there was no finding that act of company in collection of funds under collective investment scheme without obtaining certificate of registration occurred with appellant’s knowledge or consent, order of SEBI prohibiting appellant from accessing securities market for four years could not be sustained and same was to be quashed

FACTS

The present appeal has been filed against the order of the whole-time member (‘WTM’) of the Securities and Exchange Board of India (‘SEBI’) who held that the scheme floated by the company was nothing but a collective investment scheme (‘CIS’) in terms of section 11AA of the SEBI Act, 1992 and that this was done without obtaining a certificate of registration as required u/s 12(1B) of the SEBI Act and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999. The WTM had directed the company and its directors, including the appellant, to abstain from collecting any money from investors or to carry out any CIS, including the present scheme, and further to return the money so collected. The WTM further restrained the appellant and others from accessing the securities market and prohibited them from buying, selling or otherwise dealing in the securities market for a period of four years.

The appellant ‘V’, being one of the directors and being aggrieved by the order, has filed the present appeal.

‘V’ was appointed as an Independent Director on 26th February, 2015 and resigned on 21st July, 2015. His resignation was accepted by the company on 31st August, 2015 and intimated to the Registrar of Companies on 5th October, 2015.

‘V’ contended before the WTM and SAT that he was appointed in view of the requirement under the CIS Regulations for appointment of a professional as an Independent Director. ‘V’ was not a shareholder in the company, he was not directly associated with the persons who were running it, nor was he involved in its day-to-day running. He also urged that in view of section 149(12) of the Companies Act, 2013 an Independent Director cannot be held liable for such misfeasance which occurred without his knowledge.

It was also noted from the WTM order that ‘V’ has been held responsible only on the ground that part of the mobilisation of the fund was done during the period when he was appointed as a director.

HELD

The Tribunal came to the conclusion that the order insofar as it relates to ‘V’ cannot be sustained. There is no dispute about the fact that he was appointed as an Independent Director by the company in order to comply with the eligibility criteria for CIS application under the relevant Regulations. The Tribunal further noted that a specific assertion was made that ‘V’ did not attend any Board meeting which fact has not been disputed by the respondent. It also noted that ‘V’ was not directly associated with the persons having control over the affairs of the company, nor was he involved in the running of the company and this fact has been stated by the company itself. It was also emphasised that ‘V’ was not holding any shares in the company.

The mere fact that the company had mobilised certain funds under the CIS during the short period when ‘V’ was an Independent Director would not by itself make him liable for the misfeasance committed by the company unless it is shown that he was also involved in the decision-making process or in the collection of the funds. Neither of the two elements was present in the instant case.

The Tribunal further noted the provisions of section 149(12) of the Companies Act, 2013 and observed that a perusal of the same makes it clear that an Independent Director shall be held liable only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through a Board process, and with his consent or connivance, or where he had not acted diligently.

In the instant case, there is no finding by the WTM that the acts of the company in the collection of the funds had occurred with the knowledge of ‘V’ or that he was part of the decision-making processes through Board’s resolution, or that the activities of the company were being done with his consent or connivance.

The Tribunal observed that there is no finding that ‘V’ had not acted diligently. In fact, the record indicates that he was only appointed for a period of five months and had not attended any meeting of the Board.

Hence, the Tribunal held that the order insofar as ‘V’ is concerned cannot be sustained and quashed the order passed by the WTM.

12. Union of India, Ministry of Corporate Affairs vs. Mukesh Maneklal Choksi [2019] 101 taxmann.com 98 (NCLT-Mum.) Date of order: 3rd January, 2019

Where family members of statutory auditor were shareholders of the company and statutory auditor had issued audit report without examining books of accounts of company, provisions of section 143(3)(d) of the Companies Act, 2013 had been violated and statutory auditor would cease to function as statutory auditor of the company

FACTS

A complaint was filed alleging that shares of the respondent company were not listed on the Pune Stock Exchange. There was siphoning of investors’ money and the company had not issued financial statements after 1995.

The Inspecting Officer u/s 207(3) of the Companies Act, 2013 issued summons to all the directors of the respondent company in addition to R1, who were the Statutory Auditors of the respondent company for the financial years 2014-15 and 2015-16.

The Statutory Auditor in his statements stated that he had not audited the books of accounts of the company. However, he had signed the Audit Report of the company for the relevant period.

The petitioner Ministry of Corporate Affairs (MCA) filed a petition u/s 140(5) of the Companies Act, 2013 for direction that R1 should immediately cease to function as Statutory Auditor of the respondent company. It was also prayed that MCA be permitted to appoint an independent auditor to replace R1 in terms of the first proviso to section 140(5) of the Companies Act, 2013 read with Explanation 1 thereto.

HELD

The Tribunal on perusal of the application noted that the respondent company is not listed on any stock exchange despite the assurances given in the prospectus dated 10th October, 1996 and its present directors are apparently dummy / shadow directors of the company. The Chairman had dodged his responsibilities to assist in the inspection and it was further noted that all the commonly-known attributes of a shell company were in existence in the case of the company under inspection.

Relying on the statement on the oath of R1, it was clear that R1, i.e., the statutory auditor, has failed to exercise his duty and has further stated that he has issued the Audit Report even without examining any of the records / books of accounts of the company.

It is recorded that family members of R1 are shareholders of the respondent company, whereas section 141(3)(d) of the Companies Act, 2013 specifically prohibits a statutory auditor being appointed as such if his relative or partner is holding any security or interest in the company.

The Tribunal further noted that issuing the audit report of the company even without examining any books of accounts is a clear-cut violation of the statutory provision of section 141(3)(d) of the Companies Act, 2013.

Under the circumstances, the Tribunal ordered that R1 shall immediately cease to function as statutory auditor of the company. The MCA is permitted to appoint an independent auditor for the respondent company to replace R1 in terms of the first proviso to section 140(5) of the Companies Act, 2013 read with Explanation 1 thereto.

13. Phoenix Arc Pvt. Ltd. vs. Spade Financial Services Ltd. Civil Appeal No. 2842 of 2020 (SC) Date of order: 1st February, 2021

Sections 5(7), 5(8) and first proviso to section 21(2) of Insolvency and Bankruptcy Code, 2016 – Parties would not be regarded as Financial Creditors if they entered into collusive or sham transaction with Corporate Debtor – The transaction could not be regarded as financial debt – Parties would qualify as related party and excluded from COC if they were related at the time of creation of debt but ceased to be related parties when CIRP was initiated for the purpose of gaining a backdoor entry to the COC

FACTS

Corporate Insolvency Resolution Process (‘CIRP’) was initiated against P Co (‘Corporate Debtor’) on 18th April, 2018 by an operational creditor, Mr. H. During the process of CIRP, the Resolution Professional (‘RP’) invited claims. S Co filed its claim as a financial creditor in Form C for a sum of Rs. 52.96 crores on 10th May, 2018. S Co later revised its form to submit a claim of Rs. 109.11 crores. The basis for filing these claims was an MOU dated 12th August, 2011 which stated that inter-corporate deposits (‘ICDs’) of Rs. 26.55 crores were granted to the Corporate Debtor by S Co bearing an interest rate of 24%. Subsequently, it was submitted that ICDs worth Rs. 66 crores were granted to the Corporate Debtor between June, 2009 and January, 2013.

AAA filed its claim before the IRP in form F as a creditor other than financial or operational creditor for a sum of Rs. 109.72 crores on 23rd May, 2018. It had entered into a Development Agreement dated 1st March, 2012 with the Corporate Debtor to purchase development rights in a project. On 25th October, 2012 the Development Agreement was terminated and an agreement to sell, along with a side letter, was executed between AAA and the Corporate Debtor for purchase of flats. The sale consideration for the agreement to sell was enhanced to Rs. 86,01,00,000 from Rs. 32,80,00,000 under the Development Agreement. AAA paid a sum of Rs. 43.06 crores which along with interest at the rate of 18% increased to Rs. 109.72 crores.

The Committee of creditors (‘COC’) was established on 22nd May, 2018. On 25th May, 2018 the IRP rejected the claim of Spade inter alia on the ground that the claim was not in the nature of a financial debt in terms of section 5(8) of IBC since there was an absence of consideration for the time value of money, i.e., the period of repayment of the claimed ICDs was not stipulated. The IRP also rejected the claim of AAA on the ground that its claim as a financial creditor in Form C was filed after the expiry of the period for filing such a claim.

Phoenix was a part of the COC on the basis of its claim arising from a registered Deed of Assignment in its favour dated 28th December, 2015 pursuant to which Karnataka Bank Limited had assigned the non-performing assets relating to the credit facilities granted to the Corporate Debtor.

AAA and Spade filed an application before the National Company Law Tribunal (‘NCLT’) to be included in the COC. The NCLT on 30th May, 2018 allowed these applications where none of the other creditors such as Yes Bank or Phoenix were present. As a result of the inclusion of AAA and Spade, the voting share of Phoenix in the COC was reduced to 4.28%.

Yes Bank and Phoenix filed an application before the NCLT to exclude AAA and Spade from the COC on the ground that they were related parties. Upon hearing the submissions, NCLT held that the transactions between the Corporate Debtor and both SPADE and AAA were collusive in nature. Accordingly, they did not qualify to be considered as financial creditors. NCLT took note of the first proviso to section 21(2) of the IBC, which stated that a financial creditor who is a related party of the Corporate Debtor shall not have the right of representation, participation or voting in the COC. Therefore, the application of Yes Bank and Phoenix for exclusion of Spade and AAA was upheld by the Court.

NCLAT upheld the view taken by the NCLT to exclude Spade and AAA from the COC. However, there was an inadvertent observation that ‘admittedly’ Spade and AAA were financial creditors of the Corporate Debtor. Mr. Anil Nanda, in concert with Mr. Arun Anand and his family, had created a web of companies which were related parties to the Corporate Debtor and was now trying to gain a backdoor entry into the COC through them. Phoenix and Yes Bank thus filed an appeal before the Supreme Court challenging the observation of NCLAT that Spade and AAA were financial creditors to the Corporate Debtor.

HELD

The Supreme Court examined in detail the transactions between the Corporate Debtor, Spade and AAA which gave rise to their claims as Financial Creditors.

In the case of Spade, it was observed that the MOU dated 12th August, 2011 which provided ICDs to the Corporate Debtor charged interest at the rate of 24%. However, Spade has stated that actually only 12% interest was charged and hence its claim is on that basis. The Corporate Debtor through this MOU provided security for the ICDs through 37 flats worth Rs. 39.825 crores in their real estate project, AKME RAAGA. Further, additional security was provided through 11 plots worth Rs. 3 crores in another project. The charge was not registered. Out of the ICDs provided to the Corporate Debtor by Spade, Rs. 43.06 crores’ worth were credited to the account of Mr. Arun Anand by consent. However, this has been disputed by Spade.

As for AAA, the Supreme Court noted that the Development Agreement dated 1st March, 2012 was superseded by an agreement to sell dated 25th October, 2012 through which AAA bought a saleable area of 313,928 sq. ft. in AKME RAAGA at a price of Rs. 43.06 crores. A side letter executed on the same day noted that the area bought by AAA was 38.3% of AKME RAAGA and AAA would provide for the cost of its development accordingly.

The Supreme Court also observed that there was a close relationship between the key managerial personnel of the Corporate Debtor, Mr. Anil Nanda, and the director of Spade and AAA, Mr. Arun Anand.

The Court heard the parties at length and also their submissions on the issues.

The submission of the Corporate Debtor that the order of the NCLT dated 31st May, 2018 where it admitted AAA and Spade as financial creditors operated as res judicata was rejected by the Supreme Court on the grounds that other creditors were not heard. The order was passed without giving them an opportunity of being heard.

The next submission of the Corporate Debtor that the issue of the eligibility of Spade and AAA as financial creditors was never raised before the NCLT was found to be contrary to the material produced on record.

The next issue raised by the Corporate Debtor was that NCLAT acted beyond jurisdiction in the appeal filed by AAA and Spade in inquiring into whether they are related parties. This submission was also not accepted by the Supreme Court.

The primary contention of Phoenix and Yes Bank before the Supreme Court was to challenge the observation of the NCLAT that it was an admitted position that AAA and Spade are financial creditors. The Supreme Court examined the provisions of sections 5(7) and 5(8) of the Code which define the terms financial creditor and financial debt, respectively.

The Supreme Court observed that money advanced as debt should be in the receipt of the borrower. The borrower is obligated to return the money or its equivalent along with the consideration for a time value of money, which is the compensation or price payable for the period of time for which the money is lent. A transaction which is sham or collusive would only create an illusion that money has been disbursed to a borrower with the object of receiving consideration in the form of time value of money, when in fact the parties have entered into the transaction with a different or an ulterior motive.

Further, the Court observed that for the success of an insolvency regime the real nature of the transactions has to be unearthed in order to prevent any person from taking undue benefit of its provisions to the detriment of the rights of legitimate creditors.

Relying on the observations of the NCLT and the submissions made by Yes Bank, Phoenix and the Corporate Debtor, the Court held that the MOU entered between Spade and the Corporate Debtor was an eye-wash and collusive in nature. Similarly, the Corporate Debtor and AAA converted the Development Agreement into an agreement to sell executed along with a side letter to circumvent the legal prohibition on splitting a development license in two parts. The transaction between AAA and the Corporate Debtor was also held to be collusive in nature.

Since the commercial arrangements between Spade and AAA and the Corporate Debtor were collusive in nature, they would not constitute a ‘financial debt’. Hence, Spade and AAA are not financial creditors of the Corporate Debtor.

The Supreme Court took note of section 5(24) of the Code which defines the term ‘related party’ along with the detailed submissions of the parties on the relationship of key managerial personnel. It was observed that the definition of ‘related party’ under the Code was significantly broad. The intention of the Legislature in adopting such a broad definition was to capture all kinds of inter-relationships between the financial creditor and the Corporate Debtor.

It was observed that Mr. Arun Anand has held multiple positions in companies which form part of the Anil Nanda Group of Companies. Further, Mr. Anil Nanda has himself invested in companies owned by Mr. Arun Anand and had commercial transactions with them. Through Spade and AAA’s own admission, Mr. Arun Anand was appointed as the Group CEO of the Anil Nanda Group of Companies (for however short a period) on circular approval by Mr. Anil Nanda himself. Finally, Mr. Arun Anand’s brother in-law, Mr. Sonal Anand, has also been consistently associated with companies in the Anil Nanda Group of Companies, including the Corporate Debtor.

It was observed that there was a deep entanglement between the entities of Mr. Arun Anand and Mr. Anil Nanda, and Mr. Arun Anand did hold positions during this period which could have been used by him to guide the affairs of the Corporate Debtor. Based on this, the Supreme Court upheld the conclusion of the NCLAT that Mr. Arun Anand would be a related party of the Corporate Debtor in accordance with section 5(24)(h) and section 5(24)(m)(i). Mr. Arun Anand, Spade and AAA were related parties of the Corporate Debtor during the relevant period when the transactions on the basis of which Spade and AAA claimed their status as financial creditors took place.

The Supreme Court further noted that the COC is comprised of financial creditors, under loan and debt contracts, who have the right to vote on decisions, and operational creditors such as employees, rental obligations, utilities payments and trade credit, who can participate in the COC but do not have the right to vote. The aim of the COC is to enable coordination between various creditors so as to ensure that the interests of all stakeholders are balanced and the value of the assets of the entity in financial distress is maximised.

In the context of the first proviso to section 21(2), the issue before the Supreme Court was whether the disqualification under the proviso would attach to a financial creditor only in praesenti, or whether the disqualification also extends to those financial creditors who were related to the corporate debtor at the time of acquiring the debt.

The Court held that where a financial creditor seeks a position on the COC on the basis of a debt which was created when it was a related party of the corporate debtor, the exclusion which is created by the first proviso to section 21(2) must apply. If the definition of the expression ‘related party’ u/s 5(24) applies at the time when the debt was created, the exclusion in the first proviso to section 21(2) would stand attracted.

The Supreme Court further clarified that the exclusion under the first proviso to section 21(2) is related not to the debt itself but to the relationship existing between a related party financial creditor and the corporate debtor.

Thus, the default rule under the first proviso to section 21(2) is that only those financial creditors that are related parties in praesenti would be debarred from the COC, those related party financial creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to section 21(2), should also be considered as being covered by the exclusion thereunder.

The Supreme Court concluded that Spade and AAA were not financial creditors of the Corporate Debtor and accordingly the NCLAT observation to that extent was set aside. The exclusion of Spade and AAA from the COC was upheld for the reasons stated above.

BCAJ Admin

ALLIED LAWS

24. Jayanta Ghosh & Ors. vs. Ajit Ghoshb AIR 2020 Calcutta 196 Date of order: 25th February, 2020 Bench: Shampa Sarkar J.

Gift deed – Unconditional registered gift deed cannot be revoked – No conditions of maintenance of parents are referred in the gift deed hence no duty cast upon son to maintain the parents [Maintenance and Welfare of Parents and Senior Citizens Act, 2007, S. 10, S. 23; Transfer of Property Act, 1882, S. 122]

FACTS

By a registered deed of gift dated 18th July, 2018, Ajit Ghosh (the respondent), transferred a two-storied building together with the appurtenant land to his son Jayanta Ghosh (petitioner No. 1). Thereafter, by a registered deed of gift dated 14th November, 2018, the petitioner No. 1 transferred the suit property to his wife and son (petitioners Nos. 2 and 3). The petitioners reside on the first floor and the parents on the ground floor.

The petitioners have alleged that the married daughters of the respondent and their husbands with ulterior motive tried to grab the said property, conspired with a few developers and created a cloud over the petitioners’ title over the suit property. Under such circumstances, being left with no other alternative, the petitioners Nos. 2 and 3 were constrained to institute a civil suit seeking a decree for declaration of title and injunction against the daughters and sons-in-law of the opposite party. The Court of the Learned Civil Judge (Jr. Division) directed the parties to maintain status quo in respect of the nature, character and possession of the suit property.

The respondent filed an application seeking maintenance under the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 (the Act). The Tribunal directed the petitioner No. 1 to pay maintenance of a sum of Rs. 10,000 per month. The respondents filed an application before the Tribunal seeking cancellation of the said deed of gift.

The Tribunal allowed the maintenance case, thereby cancelling the two registered deeds of gift dated 18th July, 2018 and 14th November, 2018 and further directing the petitioners to vacate the said property within six months from the said order. Aggrieved, this revisional application has been filed before the High Court.

HELD

From the recitals in the deed of gift, it appears that the respondent being pleased and satisfied with the love and respect shown by the petitioners, considered it his fatherly duty to secure his son in the future and thus had gifted the said property to the petitioner No. 1. The deed of gift was unconditional. No condition was attached with regard to the duty upon the petitioner No. 1 to provide basic maintenance and basic physical needs to the respondents. Therefore, section 23 of the said Act does not have any manner of application in this case. The revisional application is allowed.

25. Ashwin Kumar Ramanathan & Anr. vs. Inspector-General of Registration, Chief Controlling Revenue Authority AIR 2020 Madras 246 Date of order: 27th May, 2020 Bench: M. Govindaraj J.

Family arrangement – Stamp duty is not leviable – Transfer of property between family members [Stamp Act, 1899, Sch. 1 Art. 45(a)]

FACTS

One Mr. K. Ganesan by a Will dated 12th April, 1990 bequeathed life interest in favour of his wife and absolute interest in favour of his grandson (the appellant). On 18th October, 2002 the said Ganesan died. Since the Will was not probated, the family members have entered into a family arrangement. As per this, the wife and daughters of the deceased Ganesan have given the property to the grandchild as intended by the testator in his Will. However, the conveyance by the daughters of Ganesan was considered as settlement by non-family members as they do not fall within the definition of ‘family’. Therefore, stamp duty was imposed in respect of the shares of the daughters of Ganesan settled in favour of their brother’s son under the Indian Stamp Act.

HELD

It is pertinent to note that the Government in Notification No. 5450/C2/05 has clarified the definition of family for the purpose of Article 45(a) of Schedule I of the Indian Stamp Act. The clarification is given by the Government to the effect that even though the parent has died, the sisters and brother shall be construed as sons and daughters and they will fall within the definition of family. This will also apply to the children of the predeceased sons and daughters. As per the clarification, the daughters of Ganesan shall also fall under the definition of family. The conveyance or settlement made by them in favour of the children of the predeceased sons shall be considered as a transaction between the family members. They cannot be treated as members outside the family but included within the meaning of the family. The appeal is allowed.

26. Branch Manager, Indigo Airlines vs. Kalpana Rani Debbarma AIR 2020 Supreme Court 678 Date of order: 28th January, 2020 Bench: A.M. Khanwilkar J., Dinesh Maheshwari J.

Deficiency in service – Failure of passenger to reach the boarding gate after issuance of boarding pass – Airlines not duty-bound to escort every passenger [Consumer Protection Act, 1986, S. 2(1)(g), S. 21]

FACTS

The respondents had booked air ticket(s) for the flight from Kolkata to Agartala operated by the appellant airlines. According to them, they had reported well in time at the check-in counter and after completing the necessary formalities, they were issued boarding passes. However, they were left behind by the ground staff of the airlines and the flight departed without any information about its departure being given to the respondents. The respondents then requested the ground staff of the airlines to accommodate them in the next available flight for Agartala. Even this request was turned down.

As a result, the respondents had to incur expenditure for staying back at a hotel in Kolkata for two nights. They also had to incur loss of salary, mental agony, harassment, etc. Initially, the respondents sent a legal notice through their advocate on 28th January, 2017 demanding compensation of Rs. 3,32,754. As no response thereto was received, the respondents filed a complaint before the District Forum reiterating the grievance made in the legal notice and prayed for direction to the appellants for damages along with interest at the rate of 12% per annum.

HELD

The District Forum, the State Commission and the National Commission ruled in favour of the respondents but granted compensation of varying amounts. The matter was carried to the Apex Court.

The Supreme Court noted that while dealing with such a complaint, the jurisdiction or the nature of inquiry to be undertaken by the consumer fora is limited to the factum of deficiency in service and to award compensation only if that fact is substantiated by the party alleging the same. The expression ‘deficiency in service’ has been defined in section 2(1)(g) of the Consumer Protection Act, 1986 to mean any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

Further, the approach of the consumer fora is in complete disregard of the principles of pleadings and burden of proof. First, the material facts constituting deficiency in service are blissfully absent in the complaint as filed. Second, the initial onus to substantiate the factum of deficiency in service committed by the ground staff of the airlines at the airport after issuing boarding passes was primarily on the respondents. That has not been discharged by them. The consumer fora, however, went on to unjustly shift the onus on the appellants because of their failure to produce any evidence. In law, the burden of proof would shift on the appellants only after the respondents / complainants had discharged their initial burden in establishing the factum of deficiency in service.

Further, after the boarding pass is issued, the passenger is expected to proceed towards the security channel area and head towards the specified boarding gate on his own. There is no contractual obligation on the airlines to escort every passenger, after the boarding pass is issued at the check-in counter, up to the boarding gate. Further, the airlines issuing boarding passes cannot be made liable for the misdeeds, inaction or so to say misunderstanding caused to the passengers, until assistance is sought from the ground staff of the airlines at the airport well in time. It is not the case of the respondents that the boarding gate was changed at the last minute or there was any reason which created confusion attributable to airport / airlines officials, so as to invoke an expansive meaning of ‘denied boarding’. The factual situation in the present case is clearly one of ‘Gate No Show’ and the making of the respondents and not that of ‘denied boarding’ as such.

The appellant airlines cannot be blamed for the non-reporting of the respondents at the boarding gate. The appeal is allowed.

27. Seelam Pra vs. Ganta Mani Kumar AIR 2020 Telangana 189 Date of order: 19th July, 2019 Bench: M.S. Ramachandra Rao J.

Recording evidence through video conferencing – Wife working in USA – Unable to come to India – Cannot be compelled to give up her job to appear in Court – Evidence can be led through video conferencing [Hindu Marriage Act, 1955, S. 13, S. 21; Evidence Act, 1872, S. 65-B]

FACTS

The petitioner is employed in the USA and lives there along with a son born to the parties. The petitioner is represented by her father / G.P.A. holder. She sought recording of evidence by video conference from her residence in the US on the ground that she was living there and it was not possible for her to appear before the Family Court, Hyderabad on the several dates of adjournment. But the trial Court declined to give such permission observing that in the premises of the City Civil Court, Hyderabad where the Family Court was located, infrastructure / facility for video conferencing has not been provided.

HELD

In a situation where one or both of the parties to a matrimonial proceeding is living abroad and is unable to come to India to give evidence on account of his / her employment there, and there is a risk of the party losing his / her employment if he / she were to return to India, it would be unjust to compel the said party to give up her job there so that she can appear on every date of adjournment in the Family Court in India where her case is pending. It is common knowledge that pendency in some of the Family Courts is very high and there is every possibility of the matter getting dragged on indefinitely.

Further, that the petitioner cannot be penalised if her evidence could not be recorded when she was in India in the year 2018 because she admittedly attempted to file her documents through her G.P.A. which was rejected and permitted only much later.

The Principal Judge, Family Court, was directed to record the chief-examination / cross-examination of the petitioner through video conferencing at the video conferencing facility available in City Civil Court, Hyderabad after fixing an appropriate time with the consent of both parties and their counsel.

28. Abhilasha vs. Parkash & Ors. AIR 2020 Supreme Court 4355 Date of order: 15th September, 2020 Bench: Ashok Bhushan J., R. Subhash Reddy J., M.R. Shah J.

Maintenance – Unmarried daughter unable to maintain herself even after attaining majority – The obligation which is cast on the father to maintain his unmarried daughter can be enforced by her against her father [The Hindu Adoptions and Maintenance Act, 1956, S. 20(3); The Code of Criminal Procedure, 1973, S. 125]

FACTS

The respondent No. 2, mother of the appellant, on her behalf as well as on behalf of her two sons and the appellant daughter, filed an application u/s 125 CrPC against her husband, the respondent No. 1, Parkash, claiming maintenance for herself and her three children. The Judicial Magistrate dismissed the application u/s 125 CrPC of the applicants and allowed the same for respondent No. 1 (appellant before us) for grant of maintenance till she attains majority.

Two questions arise for consideration in this appeal:

(i) Whether the appellant, who although she had attained majority but is still unmarried, is entitled to claim maintenance from her father in proceedings u/s 125 CrPC although she is not suffering from any physical or mental abnormality / injury?

(ii) Whether the orders passed by the Judicial Magistrate as well as the Revisional Court limiting the claim of the appellant to claim maintenance till she attains majority on 26th April, 2005 deserves to be set aside with a direction to the respondent No. 1 to continue to give maintenance even after 26th April, 2005 till the appellant remains unmarried?

HELD

Section 20(3) of the Hindu Adoptions and Maintenance Act, 1956 (Act) is nothing but recognition of the principles of Hindu Law regarding maintenance of children and aged parents. Section 20 of this Act casts a statutory obligation on a Hindu to maintain his daughter who is unmarried and unable to maintain herself out of her own earnings or other property. Hindu Law prior to the enactment of the Act of 1956 always obliged a Hindu to maintain an unmarried daughter who is unable to maintain herself. The obligation, which is cast on the father to maintain his unmarried daughter, can be enforced by her against her father if she is unable to maintain herself by enforcing her right u/s 20.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

Supreme Court refuses to recall 2015 verdict directing RBI to divulge information about banks under RTI1

Case name:

Reserve Bank of India vs. Jayantilal N.
Mistry & Anr.

Citation:

M.A. No. 2342 of 2019, M.A. No. 805/2020,
M.A. No. 1870/2020, M.A. No. 534/2020, M.A. No. 1046/2020, M.A. No.
1129/2020, M.A. No. 1646/2020, M.A. No. 1647/2020, M.A. No. 1648/2020, M.A.
No. 2008/2020, M.A. No. 560/2021, M.A. No. 573/2021 in transferred case
(Civil) No. 91 of 2015

Court:

The Supreme Court of India

Bench:

Justice L. Nageswara Rao and Justice Vineet Saran

Decided on:

28^th April, 2021

Relevant Act / sections:

Sections 8(1)(a)(d) and (e) and 2(f) of Right to
Information Act, 2005

Brief facts and procedural history:

An RTI activist named Jayantilal Mistry from Gujarat way back in 2010 had sought information under the RTI Act, 2005 from the RBI about a Gujarat-based co-operative bank.

The information pertained to the annual inspection reports prepared by the RBI which had not been put into the public domain. Mistry filed an application under the RTI Act in October, 2010 before the Central Public Information Officer (CPIO) of the RBI.

The RBI, however, did not provide the requested details. The information seeker then filed an appeal before the designated First Appellate Authority (FAA) of the RBI.

On 30th March, 2011, the FAA disposed of the appeal by upholding the order of the CPIO. The aggrieved Mistry filed a second appeal before the Central Information Commission (CIC), New Delhi.

The CIC in its judgment dated 1st November, 2011 directed the RBI to provide information before 30th November, 2011.

Aggrieved by the decision of the CIC, the RBI filed a writ petition before the Delhi High Court for quashing of the CIC’s judgment. The High Court, while issuing notice, stayed the operation of the CIC’s order.

The matter was finally challenged before the Supreme Court of India.

The Supreme Court in its 2015 judgment on the applicability of RTI has made a detailed reference to section 2(f) of the RTI Act, 2005 which defines ‘information’. The RBI collects inspection reports from various banks. Since these reports fall within the definition of ‘information’, the same must be provided to citizens. Ideally, the RBI should make these reports public through its website.

A joint plea / recall petition was filed by the Central Government and ten banks seeking a recall of the 2015 judgment.

Issues before the Court:

Whether an application can be filed to recall the judgment of the Hon’ble Supreme Court?

Ratio decidendi:

The dispute relates to information to be provided by the RBI under the RTI Act. Though the information pertained to banks, it was the decision of the RBI which was in challenge and decided by this Court.

No effort was made by any of the applicants in the Miscellaneous Applications to get themselves impleaded when the transferred cases were being heard by this Court. The applications styled as recall are essentially applications for review.

The nomenclature given to an application is of absolutely no consequence; what is of importance is the substance of the application – M.C. Mehta vs. Union of India.

A close scrutiny of the applications for recall makes it clear that in substance the applicants are seeking a review of the judgment in Jayantilal N. Mistry (2015).

Decision:

The Court was of the opinion that these applications were not maintainable. It made it clear that it is not dealing with any of the submissions made on the correctness of the judgment of this Court in Jayantilal N. Mistry (2015).

The dismissal of the applications shall not prevent the applicants from pursuing other remedies available to them in law. All the Miscellaneous Applications were dismissed.

PART B | HIGHLIGHTS OF CIC ANNUAL REPORT, 2019-20

Total number of Public Authorities: 2,193

Total number of Public Authorities who have submitted all the four quarterly returns: 2,131

Total number of Public Authorities who have not submitted all the four quarterly returns: 62 (the defaulters include public authorities of four Union Territories and 21 Ministries)

Opening balance of RTI requests received by Public Authorities (as on 1st April of the reporting year): 3,10,110

Total number of RTI requests received during the reporting year: 13,74,315

Total number of RTI requests including opening balance: 16,84,425

Total number of RTI requests transferred to other Public Authorities u/s 6(3): 1,82,988

Total number of first appeals received: 1,52,354

Total number of first appeals disposed: 96,812

Total number of RTI requests rejected by Public Authorities: 58,634

Total number of cases where disciplinary action has been initiated against an officer in respect of administration of the RTI Act: 23

Total amount collected by Public Authorities (in INR): 93,08,534

Total number of designated CAPIOs: 60,432

Total number of designated CPIOs: 21,756

Total number of designated FAAs: 8,923

Number of second appeals / complaints registered during reporting year: 22,243

Number of second appeals / complaints disposed during reporting year: 16,720

Number of second appeals / complaints pending for disposal as on 1st April of reporting year: 35,178

One out of every three RTIs is rejected using section 8 (1)2.

PART C | INFORMATION ON AND AROUND

Two bribery and disproportionate assets complaints had been received against Sachin Waze but no inquiry was going on against him till March, 2021

The Anti-Corruption Bureau of Maharashtra Police has sent a proposal to the Home Department for an open inquiry against allegations of corruption and disproportionate assets against suspended and jailed Assistant Police Inspector Sachin Waze. A Right to Information (RTI) query has separately revealed that the ACB ignored a complaint alleging bribery and disproportionate assets against Waze last year, soon after he was reinstated in the police force3.

Orissa High Court refuses to grant interim stay on OIC order

OIC had issued the order on 9th July 9, 2020 on a complaint for bringing OOA under the ambit of RTI to ensure greater transparency and accountability in its operations. While issuing the order, OIC had directed OOA to comply with the provisions of the Act within 30 days from the date of receipt of the order. The OOA operates and maintains the Barabati Stadium in Cuttack which had come up on land given by the Government under a long-term lease for development of sports in Odisha. OOA is affiliated to the Indian Olympic Association (IOA) which has already subjected itself to the provisions of RTI in compliance with the order passed by the High Court of Delhi in some writ petitions in 20104.

28,000 cases lodged under section 188 of IPC pending with Pune Police

Section 188 of the IPC states that any person who disobeys an order given by a public servant can be imprisoned for up to one month. Even though in 2020 the then State Home Minister Anil Deshmukh had announced that the Government would withdraw cases against people booked for violating Covid lockdown norms, yet the pending cases are in huge numbers5.

_______________________________________________________
1   https://www.livelaw.in/pdf_upload/rbi-v-jayantilal-n-mistry-2021-392582.pdf
2   https://cic.gov.in/sites/default/files/Reports/CIC%20Annual%20Report%202019-20%20-%20English.pdf
3   https://indianexpress.com/article/cities/mumbai/anti-corruption-bureau-sends-proposal-to-home-dept-for-open-inquiry-against-waze-7295985/
4   https://www.newindianexpress.com/states/odisha/2021/may/22/orissa-high-court-refuses-to-grant-interim-stay-on-oic-order-2306012.html
5   https://www.hindustantimes.com/cities/others/28000-cases-lodged-under-section-188-of-ipc-pending-with-pune-police-101621605589107.html

BCAJ Admin

CORPORATE LAW CORNER

4 JCT Limited vs. BSE Limited Before Securities Appellate Tribunal, Mumbai Date of order: 12th November, 2020 Appeal No. 553 of 2019 (Unreported)

If company issues shares against waiver of interest of 3%, said issue is to be considered as for ‘consideration other than cash’

FACTS

The appellant company JCT Limited is listed on the Bombay Stock Exchange (BSE). It availed several credit facilities from a consortium of banks and also issued Foreign Currency Convertible Bonds which were due for redemption. But the FCCBs could not be redeemed due to its unsound financial condition and the bond-holders initiated winding-up proceedings in the Punjab and Haryana High Court.

Even a settlement agreement in terms of the direction of the High Court could not be honoured because the appellant company defaulted in paying the instalments. The company then approached Phoenix ARC Private Limited (‘Phoenix’) which agreed to a one-time settlement of the obligations of FCCBs for a total consideration of Rs. 100 crores as well as for a need-based working capital loan to the company up to Rs. 20 crores. Therefore, the said agreement was for a total loan of Rs. 120 crores with a tenure / maturity of five years to be repaid with interest @ 19% per annum.

But the company contended that the interest rate of 19% was on the high side. The two (the appellant and Phoenix) agreed to revise the interest rate to 16% p.a., with interest payable on a monthly basis and 3% to be paid upfront at the time of assigning / first draw-down of the loan.

It was also agreed that equity shares would be allotted to Phoenix in lieu of the 3% interest component and in September, 2018, Phoenix conveyed its final sanction of the loan on the above terms.

In December, 2018 the company’s Board of Directors approved the issue of fresh equity shares in lieu of the 3% interest which came to Rs. 9.16 crores on discounted value basis; therefore, 3,64,72,067 equity shares of a face value of Rs. 2.50 had to be issued.

In January, 2019 the company submitted an application to the BSE for in-principle approval of the said issue and allotment. Various clarifications were sought by BSE which were replied to.

Next, in February, 2019 at an extraordinary general body meeting of the company, a special resolution was passed empowering the Board of Directors to issue the said shares.

In July, 2019 the company submitted a representation to SEBI seeking in-principle approval for the said issue and allotment.

And in August, 2019 a personal hearing was held before SEBI in which officials from BSE were also present. At this meeting, SEBI endorsed the view taken by the BSE officials and informed the company that approval could not be granted to the proposed issue and allotment in terms of Regulation 169(1) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

In the same month, the company received an e-mail communication from BSE stating that if as part of an agreement of liquidating a future obligation / liability an issue and allotment is made, it shall be treated as for ‘other than cash consideration’.

An appeal was filed by JCT Limited against BSE and SEBI wherein the proposal to issue 3,64,72,067 equity shares to a lender on preferential basis was rejected.

Interpretation by Department of Company Affairs (‘DCA’)

The DCA had issued a Circular and stated that if the consideration for the allotment of shares is actual cash, only then the allotment would be for cash. It stated that ‘cash’ is actual money or instruments, e.g., cheques which are generally used and accepted as money. If the consideration for allotment is not flow of cash but some other mode of payment, such as cancellation of a genuine debt or outstanding bills, for goods sold and delivered, marketable securities, time deposits in banks, etc., then the allotment cannot be treated as for cash. However, the DCA issued a clarification, re-examined the earlier Circular and stated that allotment of shares by a company to a person in lieu of a genuine debt due is in compliance with the provisions of section 75(1) of the Companies Act, 1956. The DCA clarified that ‘the act of handing over cash to the allottee of shares by a company in payment of the debt and the allottee in turn returning the same cash as payment for the shares allotted to him is not necessary for treating the shares as having been allotted for cash. What is required is to ensure that the genuine debt payable by a company is liquidated to the extent of the value of the shares.’

HELD

SAT opined that if, as part of an agreement of liquidating a future obligation / liability an issue and allotment is made, it shall be treated as for ‘other than cash consideration’. SAT rejected the respondents’ (i.e., BSE and SEBI) contention that it has to be an existing debt obligation. It observed that ‘it is a very tight and narrow interpretation, particularly in the context of a beneficial economic legislation where some degree of freedom of doing business is to be granted while interpreting provisions of such law in the absence of any allegation of violation, manipulation or other offences.’

SAT noted that the appellant company was on the brink of liquidation, trying to pay up its past obligations to the financial institutions by availing a term-loan from an ARC who, for its own business considerations, is ready to give such a term loan though at an exorbitant rate of interest of 19%. While noting that 19% was too high (which might again make the company non-viable), SAT appreciated that the company had entered into an agreement with an ARC for a reduction in the interest liability in terms of giving some shares of the company, which the ARC was willing to accept and for which NPV calculation was also agreed to by the parties.

By the NPV method, a potential liability of Rs. 21.55 crores was converted into Rs. 9.16 crores. SAT stated that ‘There are lots of genuine business decisions in terms of this agreement. Even if it is possible to read such an interest adjustment for shares as for cash consideration, it is also possible to read the same futuristic NPV-based consideration as not for cash’. In such a context of ‘right versus right’ and that, too, in the case of business decisions, ‘we need to read it with a positive spirit’ for enabling business and genuine business decisions.

SAT held that the said issue by the company to issue and allot shares in lieu of 3% reduction in interest is clearly ‘other than cash’. It observed that ‘These words are clear, plain and unambiguous and need no further interpretation, and therefore use of any additional words to give a purposeful meaning to the provision is not required, especially when clarifications, as quoted above, have been made.’

BCAJ Admin

ALLIED LAWS

8 Chief Information Commissioner vs. High Court of Gujarat AIR (2020) SC 4333
Date of order: 4th March, 2020 Bench: R. Banumathi J., A.S. Bopanna J., Hrishikesh Roy J.

Right to Information – Certified copies to third parties – Only on affidavit – Not inconsistent with RTI Act – RTI Act will not override High Court Rules [Right to Information Act, 2005, S. 6(2), S. 11, S. 12; Gujarat High Court Rules, R. 151]

FACTS

An RTI application dated 5th April, 2010 was filed by respondent No. 2 seeking information pertaining to certain cases along with all relevant documents and certified copies. In reply, by a letter dated 29th April, 2010, the Public Information Officer, Gujarat High Court, informed respondent No. 2 that for obtaining the required copies he should make an application personally or through his advocate by affixing a court fee stamp of Rs. 3 along with the requisite fees to the ‘Deputy Registrar’. It was further stated that as respondent No. 2 is not a party to the said proceedings, as per Rule 151 of the Gujarat High Court Rules, 1993 his application should be accompanied by an affidavit stating the grounds on which the certified copies are required and on making such application he will be supplied with the certified copies of the documents as per Rules 149 to 154 of the Gujarat High Court Rules, 1993.

HELD

Rule 151 of the Gujarat High Court Rules stipulates that a third party to have access to the information / obtaining the certified copies of the documents or orders is required to file an application / affidavit stating the reasons for seeking the information, and this is not inconsistent with the provisions of the RTI Act but merely lays down a different procedure from the practice of payment of fees, etc., for obtaining information. In the absence of any inherent inconsistency between the provisions of the RTI Act and other laws, the overriding effect of the RTI Act would not apply.

For information to be accessed / certified copies on the judicial side to be obtained through the mechanism provided under the High Court Rules, the provisions of the RTI Act shall not be resorted to.

9 In Re: Expeditious trial of cases u/s 138 of the Negotiable Instruments, Act, 1881 Suo motu W.P. (Crl) No. 2 of 2020 Date of order: 17th April, 2021 Bench: A.S. Bopanna J., B.R. Gavai J., L. Nageswara Rao J., Ravindra Bhat J., S.A. Bobde CJI

Dishonour of cheques – Long pendency of disputes – Guidelines issued [S. 138, Negotiable Instruments Act, 1881]

FACTS

Special Leave Petition (Criminal) No. 5464 of 2016 pertains to dishonour of two cheques on 27th January, 2005 for an amount of Rs. 1,70,000. The dispute has remained pending for the past 16 years. Concerned with the large number of cases filed u/s 138 of the Negotiable Instruments Act, 1881 (the 1881 Act) pending at various levels, a Division Bench of this Court decided to examine the reasons for the delay in disposal of these cases. The Registry was directed to register a suo motu Writ Petition (Criminal).

HELD

Courts are inundated with complaints filed u/s 138 of the 1881 Act. The cases are not being decided within a reasonable period and remain pending for a number of years. This gargantuan pendency of complaints has had an adverse effect on disposal of other criminal cases. Concerned with the large number of cases pending at various levels, a larger bench of the Supreme Court has examined the reasons for the delay in disposal of cases. The following conclusions were arrived at:

1) The High Courts are requested to issue practice directions to the Magistrates to record reasons before converting trial of complaints u/s 138 from summary trial to summons trial.
2) Inquiry shall be conducted on receipt of complaints u/s 138 to arrive at sufficient grounds to proceed against the accused when such accused resides beyond the territorial jurisdiction of the court.
3) For the conduct of inquiry u/s 202 of the Code, evidence of witnesses on behalf of the complainant shall be permitted to be taken on affidavit. In suitable cases, the Magistrate can restrict the inquiry to examination of documents without insisting on examination of witnesses.
4) We recommend that suitable amendments be made to the Act for provision of one trial against a person for multiple offences u/s 138 committed within a period of 12 months, notwithstanding the restriction in section 219 of the Code.
5) The High Courts are requested to issue practice directions to the Trial Courts to treat service of summons in one complaint u/s 138 forming part of a transaction, as deemed service in respect of all the complaints filed before the same court relating to dishonour of cheques issued as part of the said transaction.
6) Judgments of this Court in Adalat Prasad [(2004) 7 SCC 338] and Subramanium Sethuraman [(2004) 13 SCC 324] have interpreted the law correctly and we reiterate that there is no inherent power of Trial Courts to review or recall the issue of summons. This does not affect the power of the Trial Court u/s 322 of the Code to revisit the order of issue of process in case it is brought to the court’s notice that it lacks jurisdiction to try the complaint.
7) Section 258 of the Code is not applicable to complaints u/s 138 and findings to the contrary in Meters and Instruments [(2004) 13 SCC 324] do not lay down the correct law. To conclusively deal with this aspect, amendment to the Act empowering the Trial Courts to reconsider / recall summons in respect of complaints u/s 138 shall be considered by the committee constituted by an order of this Court dated 10th March, 2021.
8) All other points, which have been raised by the Amici Curiae in their preliminary report and written submissions and not considered herein, shall be the subject matter of deliberation by the aforementioned committee. Any other issue relating to expeditious disposal of complaints u/s 138 shall also be considered by the committee.

10 Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal & Anr. CA No. 323 of 2021 Date of order: 15th April, 2021 Bench: Rohinton Fali Nariman J., B.R. Gavai J., Hrishikesh Roy J.

Period of Limitation – Balance Sheet entries – Acknowledgement of debt [S. 18, Limitation Act, 1963]

FACTS

In 2009, Corporate Power Ltd. (corporate debtor) set up a thermal power project in Jharkhand and availed of loan facilities from various lenders, including the State Bank of India (SBI). The account of the corporate debtor was declared as a non-performing asset by SBI on 31st July, 2013. On 27th March, 2015, SBI issued a loan-recall notice to the corporate debtor in its capacity as the lenders’ agent. On 20th June, 2015, the appellant issued a notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) on behalf of itself and other consortium lenders to the corporate debtor.

On 1st June, 2016, the appellant took actual physical possession of the project assets of the corporate debtor under the SARFAESI Act. On 26th December, 2018, the appellant filed an application u/s 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal, Calcutta (NCLT) for a default amounting to Rs. 59,97,80,02,973 from the corporate debtor. As the relevant form indicating the date of default did not indicate any such date, this was made up by the appellant on 8th November, 2019 by filing a supplementary affidavit before the NCLT, specifically mentioning the date of default and annexing copies of balance sheets of the corporate debtor which, according to the appellant, acknowledged periodically the debt that was due.

On 19th February, 2020, the section 7 application was admitted by the NCLT, observing that the balance sheets of the corporate debtor, wherein it acknowledged its liability, were signed before the expiry of three years from the date of default and entries in such balance sheets being acknowledgements of the debt due for the purposes of section 18 of the Limitation Act, 1963 (Limitation Act), the section 7 application is not barred by limitation. The corporate debtor filed an appeal before the National Company Law Appellate Tribunal (NCLAT), which held that entries in balance sheets would not amount to acknowledgement of debt for the purpose of extending limitation u/s 18 of the Limitation Act on account of a NCLAT Full Bench decision in the case of V. Padmakumar vs. Stressed Assets Stabilisation Fund, Company Appeal (AT) (Insolvency) No. 57 of 2020 (decided on 12th March, 2020).

HELD

The default had been admitted by the corporate debtor and the signed balance sheet of the corporate debtor for the year 2016-17 was not disputed by it. As a result, the NCLT held that the section 7 application was not barred by limitation and therefore admitted the same. It further held that the majority decision of the Full Bench in V. Padmakumar (Supra) is contrary to a catena of judgments and hence set aside.

11 In Re: Cognizance for Extension of Limitation Suo motu W.P. (C) No. 3 of 2020 Date of order: 27th April, 2021 Bench: S.A. Bobde CJI, Surya Kant J., A.S. Bopanna J.

Covid-19 – Supreme Court – Relief for litigants and lawyers [Constitution of India, Articles 141, 142]

FACTS

Due to the onset of the Covid-19 pandemic, this Court took suo motu cognizance of the situation arising from difficulties that might be faced by the litigants across the country in filing petitions / applications / suits / appeals / all other proceedings within the period of limitation prescribed under the general law of limitation or under any special laws (both Central or State).

The Supreme Court in the same case vide order dated 23rd March, 2020 had extended the due date till further orders. The said order was extended from time to time.

Thereafter, on 8th March, 2021, it was noticed that the country is returning to normalcy and since all the Courts and Tribunals have started functioning either physically or by virtual mode, extension of limitation was regulated and brought to an end. The period between 15th March, 2020 and 14th March, 2021 stood excluded.

The Supreme Court Advocates on Record Association (SCAORA) has now, through this Interlocutory Application, highlighted the daily surge in Covid cases in Delhi and stated how difficult it has become for the Advocates-on-Record and the litigants to institute cases in the Supreme Court and other courts in Delhi. Consequently, restoration of the order dated 23rd March, 2020 has been prayed for.

HELD

The period from 14th March, 2021 till further orders shall also stand excluded in computing the periods prescribed under sections 23(4) and 29A of the Arbitration and Conciliation Act, 1996, section 12A of the Commercial Courts Act, 2015, and provisos (b) and (c) of section 138 of the Negotiable Instruments Act, 1881 and any other laws which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.

12 The Chief Election Commissioner of India vs. M.R. Vijayabhaskar & Ors. CA 1767 of 2021 Date of order: 6th May, 2021 Bench: Dr. D.Y. Chandrachud J., M.R. Shah J.

Oral comments – reported by media – Sanctity and validity [Article 19, 226, Constitution of India]

FACTS

The Madras High Court entertained a Writ Petition under Article 226 of the Constitution to ensure that Covid-related protocols are followed in the polling booths at the 135-Karur Legislative Assembly Constituency in Tamil Nadu. During the hearings, the Division Bench is alleged to have made certain remarks, attributing responsibility to the Election Commission (EC) for the present surge in the number of cases of Covid-19, due to its failure to implement appropriate safety measures and protocol during the elections. The Court observed, ‘the institution that is singularly responsible for the second wave of Covid-19…’ and that the EC ‘should be put up for murder charges’. These remarks, though not part of the order of the High Court, were reported in the print, electronic and tele-media.

The issue is that these oral remarks made by the High Court, which the EC alleges are baseless, tarnished the image of the EC which is an independent constitutional authority.

HELD

Courts must be open both in the physical and metaphorical sense. Our legal system is founded on the principle that open access to courts is essential to safeguard valuable constitutional freedoms. The concept of an open court requires that information relating to a court proceeding must be available in the public domain. Citizens have a right to know about what transpires in the course of judicial proceedings. The dialogue in a court indicates the manner in which a judicial proceeding is structured. Oral arguments are postulated on an open exchange of ideas.

Article 19(1)(a) of the Constitution guarantees every citizen the right to freedom of speech and expression. The Constitution guarantees the media the freedom to inform, to distil and convey information and to express ideas and opinions on all matters of interest. Freedom of speech and expression extends to reporting the proceedings of judicial institutions as well. Courts are entrusted to perform crucial functions under the law. Their work has a direct impact not only on the rights of citizens but also the extent to which the citizens can exact accountability from the executive whose duty it is to enforce the law.

The independence of the judiciary from the executive and the legislature is the cornerstone of our Republic. Independence translates to being impartial, free from bias and uninfluenced by the actions of those in power, but also recognises the freedom to judges to conduct court proceedings within the contours of the well-established principles of natural justice. Judges in the performance of their duty must remain faithful to the oath of the office they hold which requires them to bear allegiance to the Constitution. An independent judiciary must also be one which is accountable to the public in its actions (and omissions).

BCAJ Admin

CORPORATE LAW CORNER

7. Karn Gupta vs. Union of India & Anr. Delhi High Court W.P.(C) 5009/2018 and CM No. 19290/2018 Date of order: 23rd May, 2018

The Director of a company who has resigned from the Directorship would not incur disqualification u/s 164 of the Companies Act, 2013

FACTS
• Mr. KG in his writ petition complained that he had been appointed as a Director in a company registered under the name of M/s EWC Pvt. Ltd. on 11th July, 2012. He resigned on 5th December, 2012.

• The company failed to submit Form 32 regarding his resignation in accordance with the provisions of the erstwhile Companies Act, 1956 with the Registrar of Companies.

• On 6th September, 2017 and 12th September, 2017, MCA notified a list of Directors who had been disqualified u/s 164(2)(a) of the Companies Act, 2013 as Directors with effect from 1st November, 2016.

• Mr. KG’s name featured in this list, despite his resignation. As a result, he was prohibited from being appointed or re-appointed as a Director in any other company for a period of five years.

• It was submitted before the Delhi High Court that Mr. KG had resigned from the Directorship of the company a long time back. Therefore, he would not incur disqualification u/s 164 of the Companies Act, 2013.

• Consequently, he pleaded that the disqualification as notified in the lists dated 6th September, 2017 and 12th September, 2017 by the Registrar of Companies was incorrect and illegal.

HELD
• The Delhi High Court held that the disqualification of Mr. KG as notified in the impugned list as disqualified
Director of the company and the resultant prohibition u/s 164(2)(a) of the Companies Act, 2013 by virtue of his name featuring in the lists dated 6th September, 2017 and 12th September, 2017 was incorrect, set aside and quashed.

• The Court further directed the Registrar of Companies to ensure that its records are properly rectified to delete the name of Mr. KG from the lists.

8. The Registrar of Companies West Bengal vs. Sabyasachi Bagchi National Company Law Appellate Tribunal, New Delhi Company Appeal (AT) No. 12 of 2019 Date of order: 24th June, 2020

NCLT cannot ignore the provisions relating to minimum penalty for compounding of offence as per sub-section (6) of section 165 of Companies Act, 2013

FACTS
• Mr. SB was holding Directorship in 17 companies as on 1st April, 2014 when section 165(1) of the Act came into force. However, he vacated Directorship of three companies during the period from 1st April, 2014 to 31st March, 2015.

• Later, he received a show cause notice from the Registrar of Companies, West Bengal, (ROC). After receipt of the said notice, Mr. SB resigned from the Directorship of four companies on 22nd February, 2016; thus, he had contravened the provisions of section 165(1) of the Companies Act, 2013 for the period from 01st April, 2015 to 21st February, 2016 – i.e., for 326 days.

• The reply to the show cause notice of Mr. SB was found unsatisfactory; therefore, the ROC filed a complaint u/s 165 (6) against him before the Chief Metropolitan Magistrate, Kolkata. During the pendency of the prosecution, Mr. SB filed an application u/s 441(1) of the Act before the National Company Law Tribunal, Kolkata (NCLT) for compounding the offence.

• The ROC filed his report on the compounding application before the NCLT. After hearing the parties, NCLT allowed the application subject to payment of the compounding fees of Rs. 25,000 within 15 days from the date of the order.

• But the ROC being aggrieved with the NCLT order, preferred to file an appeal against this before the National Company Law Appellant Tribunal (NCLAT) along with an application for condonation of delay in filing the appeal. After hearing the parties and being satisfied, NCLAT, in exercise of its powers condoned the delay of 41 days in filing the appeal.

HELD
NCLAT observed and held that:
• Mr. SB had violated the provisions u/s 165(1) read with section 165(3) of the Act for the period from 1st April, 2015 to 21st February, 2016 which was punishable u/s 165(6) of the Act before amendment.

• Further, NCLAT noted that the Tribunal had failed to notice the minimum fine prescribed under sub-section 6 of section 165, which was applicable at the relevant time, i.e., before the amendment.

• Hence, taking into consideration the facts and circumstances of the case, NCLAT set aside the NCLT order and imposed a minimum fine at the rate of Rs. 5,000 for every day for the period from 1st April, 2015 to 21st February, 2016, i.e., 326 days, adding up to a total of Rs. 16,30,000. Thus, the appeal of the ROC was allowed.

9. In the Supreme Court of India, Civil Appellate Jurisdiction Civil Appeal No. 1650 of 2020 Dena Bank (now Bank of Baroda) vs. C. Shivakumar Reddy & Anr.

FACTUAL BACKGROUND
The instant appeal was filed u/s 62 of the Insolvency and Bankruptcy Code, 2016. It was filed against the judgment passed by the National Company Law Appellate Tribunal (NCLAT) which had held that the petition of the appellant bank u/s 7 of the IBC was barred by limitation. The verdict passed by the Supreme Court goes on to resolve issues regarding what can and what cannot be accepted as an acknowledgment of debt by the corporate debtor, the period of limitation, and whether belated filing of additional documents can be done at a later stage under the IBC.

HELD BY NCLT & NCLAT
In October, 2018, the appellant bank filed the petition before the NCLT u/s 7 of the IBC. Further, in 2019, it filed an application under Rule 11 of the NCLT Rules, 2016 read along with Rule 4 for permission to place on record the final judgment of the DRT and the Recovery Certificate that was issued; this application was allowed by the Adjudicating Authority. In March, 2019, a similar application was filed once again, this time to take permission to place on record additional documents, including the letter dated 3rd March, 2017 of the corporate debtor (CD) to the said bank proposing a one-time settlement; the annual report of the CD for the years 2016-2017; the financial statement of the CD for the period from 1st April, 2016 to 31st March, 2017; and also for the period from 1st April, 2017 to 31st March, 2018 – and this application, too, was allowed.

Further, in February, 2019, the CD filed its preliminary objections to the petition filed by the bank u/s 7 of the IBC, inter alia contending that the said petition was barred by limitation. This objection was rejected by the Adjudicating Authority, the petition filed by the bank was allowed and an Interim Resolution Professional was appointed in March, 2019. The CD filed an appeal against this order before the NCLAT u/s 61 of the IBC. The NCLAT allowed the appeal and set aside the earlier judgment passed by the NCLT, stating that the petition filed by the appellant bank u/s 7 of the IBC was barred by limitation.

ISSUES INVOLVED
Whether a petition u/s 7 of the IBC would be barred by limitation on the sole ground that it had been filed beyond three years from the declaration of the loan account as an NPA, even though the corporate debtor may have subsequently acknowledged the liability?

Whether a final judgment and decree of the DRT in favour of the financial creditor, or a Recovery Certificate, would give rise to a fresh cause of action to initiate proceedings u/s 7 of the IBC?

Whether there is any bar in law to the amendment of pleadings to include additional documents under a section 7 petition?

APPELLANT’S CONTENTIONS
(1) It was contended that the corporate debtor had, in its annual reports for the financial years 2016-2017 and 2017-2018, acknowledged its liability in respect of the loan taken by it from the appellant bank.

(2) That NCLAT reversed the initial judgment of the Adjudicating Authority and held that the petition was barred by limitation on the basis of the fact that there was nothing on record that suggested that the CD had acknowledged its debt to the appellant bank, thereby ignoring the documents filed by the bank which were allowed by the Adjudicating Authority. The petition u/s 7 of the IBC was filed well within three years from the date of such acknowledgment.

(3) Further, placing reliance on Sesh Nath Singh and Anr. vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. and Ors.; Laxmi Pat Surana vs. Union Bank of India and Ors.; and Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Ors., it was argued that section 18 of the Limitation Act applied to proceedings under the IBC.

RESPONDENT’S CONTENTIONS
(A) Under the scheme of the IBC, NCLAT is the final forum for determination of facts and the factual determination by the NCLAT is that the records reveal no acknowledgment of debt for the purpose of extending limitation. Since this appeal has been filed on the basis of documents that were brought on record before the Adjudicating Authority (NCLT) at a belated stage, it was contrary to the provisions of IBC and the law laid down by this Court.

(B) The appellant bank filed its petition u/s 7 of the IBC on 12th October, 2018, about five years after the date of default, and was thus well beyond the period of limitation of three years under Article 137 of the Schedule to the Limitation Act.

(C) That u/s 7(3) of the IBC, a financial creditor is required to furnish ‘record of the default recorded with the information utility or record of evidence of default as may be specified’ and ‘any other information as may be specified by the Board’.

(D) Section 62 of the IBC, under which the instant appeal has been filed, is restricted to questions of law, unlike an appeal to the NCLAT from an order of the Adjudicating Authority (NCLT), which is an appeal both on facts and in law. Further, it was contended that the foundation for a plea of extension of limitation by virtue of acknowledgment of debt should be in the pleadings and cannot be developed at a later stage.

(E) Lastly, that the petition u/s 7 of the IBC was not based on the Recovery Certificate issued by the DRT or the judgment and order of the DRT. Therefore, there could be no question of reckoning limitation from the date of failure to make payment in terms of the Recovery Certificate.

COURT’S OBSERVATIONS
(i) An application to the Adjudicating Authority (NCLT) u/s 7 of the IBC in the prescribed form cannot be compared with the plaint in a suit.

(ii) The application does not lapse for non-compliance of the time schedule. Nor is the Adjudicating Authority obliged to dismiss the application. On the other hand, the application cannot be dismissed without compliance with the requisites of the proviso to section 7(5) of the IBC.

(iii) As per the provisions of the IBC, and in particular the provisions of section 7(2) to (5) of the IBC read
with the 2016 Adjudicating Authority Rules, there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed.

(iv) There is no penalty prescribed for inability to cure the defects in an application within seven days from the date of receipt of notice, and in an appropriate case the Adjudicating Authority may accept the cured application, even after expiry of seven days for the ends of justice.

HELD BY SUPREME COURT
The Supreme Court has inter alia held that a final judgment, decree and / or a recovery certificate passed / issued by a court or tribunal would give rise to a fresh cause of action for a financial creditor to initiate proceedings u/s 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The Court, while placing reliance on Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal and Anr.; Bengal Silk Mills Co. vs. Ismail Golam Hossain Ariff; and Re Pandem Tea Co. Ltd., held that an acknowledgment of liability that is made in a balance sheet can amount to an acknowledgment of debt. Thus, entries in books of accounts and / or balance sheets of a corporate debtor would amount to an acknowledgment u/s 18 of the Limitation Act.

Further, referring to the observations made in Ferro Alloys Corporation Limited vs. Rajhans Steel Limited, the Court held that the order / decree of the DRT and the Recovery Certificate gave a fresh cause of action to the appellant bank to initiate a petition u/s 7 of the IBC and the Court also held that an offer of one-time settlement of a live claim, made within the period of limitation, can be construed as an acknowledgment to attract section 18 of the Limitation Act.

BCAJ Admin

ALLIED LAWS

9 Rohit Nath vs. KEB Hana Bank Ltd. AIR 2021 Madras 241 Date of order: 28th July, 2021 Bench: Sanjib Banerjee CJ

Guarantor’s liability – Insolvency proceedings can be initiated before appropriate Debts Recovery Tribunal [Insolvency and Bankruptcy Code, 2016 (Code), S. 95, S. 79, S. 60; Companies Act, 2013, S. 408; Recovery of Debts and Bankruptcy Act, 1993, S. 3; Contract Act, 1872, S. 128]

FACTS
An individual (petitioner) had stood as a guarantor to a credit facility taken by a corporate entity. On non-payment of the credit facility the bank (respondent) proceeded against the petitioner by serving a notice as per Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019. Pursuant thereto, the bank initiated proceedings before the Debts Recovery Tribunal. It is the case of the petitioner that insolvency proceedings cannot be initiated against an individual u/s 95 of the Insolvency and Bankruptcy Code, 2016 (the Code).

HELD
Section 95(1) of the Code read with section 79(1) thereof permits a creditor to apply to any Debts Recovery Tribunal for initiating an insolvency resolution process under such provision.

Section 95(1) of the Code, in its ordinary form, allows a creditor to initiate an insolvency resolution process. It does not specify as to who the debtor may be. Further, the enactment is a complete code in itself and the three classes of persons indicated to be governed by the Code are corporate persons, partnership firms and individuals. The Debt Recovery Tribunal having jurisdiction over such firms and individuals is the adjudicating authority in matters related to insolvency.

Further, in view of section 128 of the Contract Act, 1872, the liability of a guarantor is co-extensive with that of the principal-debtor, unless it is otherwise provided by the contract. Therefore, the petitioner can be held liable as a guarantor to the credit facility taken by the company. The petition was dismissed with Rs. 50,000 costs.

10 R. Selvam vs. R. Mani C.M.P. No. 8020 of 2016 (Mad)(HC) Date of order: 22nd July, 2021 Bench: G.K. Ilanthiraiyan J

Gift Deed – Unilateral cancellation by the donor – Invalid [Transfer of Property Act, 1882, S. 123, S. 126]

FACTS
The suit is filed for declaration and permanent injunction in respect of the suit property. The case of the plaintiff is that the suit property belonged to the first defendant as per the preliminary decree passed in O.S. No. 18 of 2010 dated 8th December, 2011 on the file of the Fast-Track Court No. 2, Salem. The first defendant filed a suit against her brothers and the suit property was allotted in her favour. Thereafter, the first defendant had executed a registered gift settlement deed in favour of the plaintiff on 8th March, 2012. From the date of the gift settlement deed, the plaintiff had taken possession of the suit property and he is in possession and enjoyment of the same.

According to the plaintiff, in the meanwhile, under the influence of defendants 2 to 4, the first defendant unilaterally executed a registered cancellation deed dated 3rd July, 2012.On the same day, the first defendant executed another gift settlement deed in favour of the plaintiff and defendants 2 to 4. The said cancellation deed and the subsequent gift settlement deed executed by the first defendant are void ab initio. The plaintiff’s case is that once the first defendant had lost her title to the suit property, after execution of the registered settlement deed in favour of the plaintiff, she has no title over the property. On the strength of the settlement deed executed in favour of defendants 2 to 4, they created encumbrance by execution of an agreement for sale with defendant 5 and hence, the suit for declaration and permanent injunction.

According to the second defendant, the registered gift settlement deed in favour of the plaintiff was obtained by the plaintiff by misrepresentation or undue influence and he played fraud without knowledge of the first defendant. This was not acted upon and the first defendant rightly cancelled the gift deed by cancellation.

HELD
The Court noted that the entire issue was revolving around the first defendant. Even then, the other defendants failed to examine the first defendant to support their case whether the gift settlement deed in favour of the plaintiff was obtained on compulsion, misrepresentation or by fraud or undue influence.

The Court held that there is a specific recital that the first defendant has no power to revoke the gift deed and even if she cancelled the deed, the said cancellation would not be valid. When no right has been reserved by the first defendant to cancel the settlement deed, the Court below rightly declared the title in respect of the suit property in favour of the plaintiff. It is settled law that in settlement, once the ‘settlee’ accepts the transfer, it is presumed that the said document has been acted upon irrespective of the fact whether the ‘settlee’ has obtained possession immediately or not. Referring to the judgment of the Supreme Court of India in the case of Jamil Begum vs. Shami Mohd. [(2019) 2 SCC 727], the Court held that there is a presumption that a registered document is validly executed. The appeal suit was dismissed.

11 Davesh Nagalya (D) vs. Pradeep Kumar (D) AIR 2021 Supreme Court 2717 Date of order: 10th August, 2021 Bench: Hemant Gupta J, A.S. Bopanna J

Tenant – Partners – Business in suit premises – Death of partners – Results in dissolution of partnership – Property will be vacant [Urban Buildings Act, 1972, S. 12, S. 25, S. 41; Indian Partnership Act, 1932, S. 42]

FACTS
An application was filed by one Pradeep Kumar in July, 1982 before the Court of the Rent Control and Eviction Officer in terms of the Urban Buildings Act (Act) stating that after the death of the tenant partner, he inducted the legal heir of the deceased, one Subhash Chand, and continued the business in the same premises. The application was, however, opposed by the landlord. The District Magistrate permitted Subhash Chand to be inducted as a partner on 15th November, 1982. The landlord challenged the order passed by the District Magistrate before the District Judge. The revision petition was dismissed on 12th December, 1983. A further challenge before the High Court through a writ petition also remained unsuccessful vide order dated 10th October, 2007. The appellant challenged the said order by way of a Special Leave Petition before this Court but the same was dismissed on 10th January, 2008.

The appellant filed an application for review before the High Court inter alia on the ground that pursuant to the death of the tenant, Pradeep Kumar, i.e., one of the partners of the firm, the partnership does not survive in view of section 42(c) of the Partnership Act.

The review was dismissed vide order impugned in the present appeal on the ground that the petitioners have entirely set up a new case and the grounds urged are different from those of the writ petition. As on record, both the partners, i.e., Pradeep Kumar and Subhash Chand, had died on 21st May, 2004 and 25th June, 2014, respectively. Hence, now the argument is that in terms of section 42(c) the partnership stands dissolved by law. There is no clause in the partnership deed which permits the legal heirs of the deceased partners to continue with the partnership firm. Therefore, by operation of law, the partnership has come to an end.

HELD
The order of permitting Subhash Chand as partner with Pradeep Kumar has come to an end by efflux of time and operation of law. In terms of section 42(c) of the Partnership Act, the partnership stands dissolved by death of a partner. One of the partners, i.e., Pradeep Kumar, died on 21st May, 2004. The High Court has not taken note of such fact in the review petition and failed to take into consideration the subsequent events which were germane to the controversy. Subhash Chand, the other partner, also died during the pendency of the appeal on 25th June, 2014. It was represented to the District Magistrate by Pradeep Kumar that Subhash Chand is a divorcee and has no children but such assertion was not found to be correct as he had two children, a son and a daughter, who were impleaded as his legal heirs.

Therefore, with the death of both the partners and not having any clause permitting continuation of the partnership by the legal heirs, the non-residential tenanted premises is deemed to be vacant in law as the tenant is deemed to have ceased to occupy the building. In view thereof, the order passed by the High Court in the Review Application dated 23rd April, 2008 is set aside. Therefore, the tenant is deemed to cease to occupy the premises in question. Consequently, the tenanted property has fallen vacant as well. The appellants may take recourse to remedy as may be available to them and may proceed in accordance with law and the provisions of the Act.

12 Hemraj Ratnakar Salian vs. HDFC Bank Ltd. and Ors. AIR 2021 Supreme Court 507 Date of order: 17th August, 2021 Bench: S. Abdul Nazeer J, Krishna Murari J

Registration – Tenancy – Claim of tenancy not supported by a registered document – Claim of tenant as ‘tenant in sufferance’ – No protection under the Rent Act [Maharashtra Rent Control Act, 2000, S. 3(2)]

FACTS
HDFC Bank had granted financial facility to the respondent Nos. 2 and 3 (the borrowers). They had mortgaged a property in favour of the bank with an intention to secure the said credit facility.

The accounts of the borrowers were declared as non-performing assets (NPA) on 31st October, 2013. On 25th January, 2014, the bank issued a notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) to the borrowers. It is the case of the appellant that he is a tenant of the secured asset on a monthly rent since 12th June, 2012. And he has been paying rent regularly to his landlord since the inception of his tenancy.

The appellant filed an application before the Magistrate seeking protection of his possession of the secured asset as the Magistrate was seized with the petition u/s 14 of SARFAESI filed by the respondent No. 1 Bank. The intervention application of the appellant was dismissed by the Magistrate holding that there was no registered tenancy agreement placed on record by the appellant.

HELD
There is a serious doubt as to the bona fides of the tenant, as there is no good or sufficient evidence to establish his tenancy. According to the appellant, he is a tenant of the secured asset from 12th June, 2012. However, the documents produced in support of his claim are photocopies of the rent receipts and the first copy of the rent receipt is of 12th May, 2013 which is after the date of creation of the mortgage. The borrowers have not claimed that any tenant is staying at the secured asset. The appellant has pleaded tenancy from 12th June, 2012 to 17th December, 2018. This is not supported by any registered instrument. Further, even according to the appellant, he is a ‘tenant in sufferance’, therefore, he is not entitled to any protection of the Rent Act. Secondly, even if the tenancy has been claimed to be renewed in terms of section 13(13) of SARFAESI, the borrower would be required to seek consent of the secured creditor for transfer of the secured asset by way of sale, lease or otherwise, after issuance of the notice u/s 13(2) of SARFAESI and, admittedly, no such consent has been sought by the borrower in the present case. The appeal was dismissed.

BCAJ Admin

CORPORATE LAW CORNER

3 CADS Software India Pvt. Ltd. and Ors. vs. K.K. Jagadish & Ors. National Company Law Appellate Tribunal Company Appeal (AT) No. 320 of 2018 Date of order: 7th May, 2019

Removal of a Director due to loss of confidence not covered under provisions of the Companies Act, 2013 hence the Managing Director who was removed was eligible for compensation for loss of office

FACTS
KKJ was functioning as Managing Director of M/s CADS since its incorporation in 1996. He was not appointed for a fixed tenure and was removed from the company w.e.f. 7th August, 2015 at an EGM of M/s CADS held pursuant to section 169 of Companies Act, 2013 through a special notice.

Upon his removal, KKJ filed a petition before the NCLT, Chennai Bench for relief against oppression and mismanagement under sections 241 and 242 of the Companies Act, 2013 and that he was entitled to compensation for loss of office of Rs. 10 crores as per section 202 of the said Act.

CADS argued that KKJ was removed due to loss of confidence and that he was not legally entitled to any compensation for the loss of office as Managing Director. It further contended that KKJ was not entitled to claim any exemplary damages and his exit package would come to around Rs. 1 crore, including his terminal benefits on the basis of last salary drawn in the F.Y. 2013-14, which was Rs. 33.79 lakhs.

NCLT held that the action of removal of the KKJ from the post of MD by the majority shareholders cannot be questioned. Hence, his removal from the office would remain valid.

It was further held that with regard to the claim for damages, in terms of section 202(3) of the Companies Act, 2013 upon removal the MD would be entitled to receive remuneration which he would have earned if he had been in office for the remainder of his term or for three years, whichever is shorter. Accordingly, NCLT deemed it fit to order a compensation of Rs. 105 lakhs (calculated at the rate of Rs. 35 lakhs p.a. for three years) together with interest @ 10% from the date of removal of the petitioner, plus other benefits as already offered till the date of payment to him by M/s CADS.

Aggrieved by the order, M/s CADS preferred an appeal before NCLAT u/s 421 of the Companies Act, 2013, contending that KKJ was not legally entitled to any compensation for the loss of office since his appointment as MD was not for any fixed period.

HELD
NCLAT held that loss of confidence as argued by M/s CADS was not covered in the Companies Act, 2013 and accordingly NCLT had rightly given its findings and arrived at a compensation. NCLAT did not find any merit in the appeal and hence dismissed the same.

4 Sabse Technologies Private Limited vs. Registrar of Companies, Mumbai National Company Law Tribunal, Mumbai Bench-IV Compounding application CP No. 1740/441/NCLT/MB/MAH/2019 Date of order: 18th December, 2019

Where the compounding application was filed before NCLT, Mumbai Bench by the company for violating the provisions of section 96 of the Companies Act, 2013 as it was not able to conduct its Annual General Meeting within the permissible time, such compounding application was maintainable

FACTS
M/s STPL had appointed M/s B & Co., Chartered Accountants, as the statutory auditors to conduct statutory audit for the financial year ended 31st March, 2018. However, M/s. B & Co. resigned on 24th September, 2018, thereby causing a vacancy in the office of auditors of the company. M/s STPL then appointed M/s S & Associates, Chartered Accountants, at an EGM held on 24th October, 2018 to conduct the statutory audit for the financial year ended 31st March, 2018.

The said AGM for the F.Y. 2017-2018 was held on 3rd November, 2018 where no shareholders were present and therefore the meeting was adjourned to the following week at the same time and place, i.e., on 10th November, 2018. (The company should have conducted the AGM for the financial year ended 31st March, 2018 on or before 30th September, 2018.) Since the meeting was held on 10th November, 2018 after a delay of 41 days beyond the prescribed limit specified in the Act, there was a violation of the provisions of section 96 of the Companies Act, 2013.

The compounding application was filed before the NCLT, Mumbai Bench by M/s STPL for non-compliance with the provisions of section 96 of the Companies Act, 2013 as it had failed to conduct its AGM within the permissible time. It was averred in the compounding application that the default was not intentional and the circumstances were beyond the control of the management. It was further averred that M/s STPL had not deliberately conducted the said offence and had subsequently made good the committed default.

HELD
NCLT held that the company had violated the provisions of section 96 of the Companies Act, 2013 and that the said violation was punishable as per section 99 of the Act. The compounding fee of Rs. 25,000 by the company and Rs. 25,000 each by the two Directors was levied as a deterrent for not repeating the default in future. The offence stood compounded subject to the remittance of the compounding fee.

5 M/s K.C. Agro Private Limited vs. Registrar of Companies, Mumbai National Company Law Tribunal, Mumbai Bench-IV Compounding application CP No. 332/44 /NCLT/MB/MAH/2017 Date of order: 6th November, 2019

Where the compounding application was filed before NCLT, Mumbai Bench by the company for violating the provisions of section 137(1) of the Companies Act, 2013, since company was not able to file financial statements within the permissible time, such compounding application was maintainable

FACTS
During the F.Y. ended 31st March, 2014, a member of M/s KCPL had filed a petition with the Company Law Board (CLB), Mumbai Bench against its Directors and members. On 29th April, 2015, the CLB passed an order against M/s KCPL. Thereafter, the latter preferred an appeal before the Bombay High Court which stayed the judgment pronounced by the CLB.

M/s KCPL was continuously involved in the litigations pending before the High Court and the necessary compliances in respect of convening and holding the Annual General Meeting could not be observed.

Due to the deadlock, M/s KCPL held the Annual General Meeting and thereafter the financial statements were filed. The financial statements for the F.Y. ended 31st March, 2014 needed to be filed within 30 days of the AGM but the financial statements in e-Form 23AC and e-Form 23ACA were filed only on 1st April, 2017. Thus, the default period in respect of non-compliance of filing the financial statements was 885 days.

M/s KCPL had not deliberately committed the said offence and subsequently, after ascertaining the correct position, made good the committed default.

The compounding application was filed before the Registrar of Companies, Mumbai (hereinafter ‘ROC’) and the same was forwarded to the NCLT, Mumbai along with the ROC report. The application was filed because M/s KCPL had violated the provisions of section 137(1) of the Companies Act, 2013 and had failed to give an explanation for the non-filing of financial statements within the permissible time.

HELD
NCLT held that the company had violated the provisions of section 137(1) and the said violation was punishable u/s 137(3) of the Companies Act, 2013. A compounding fee of Rs. 10,000 by the company and Rs. 5,000 each by three Directors totalling Rs. 25,000 (Rupees twenty five thousand only) was levied as a deterrent for not repeating the default in future. NCLT further held that the offence stood compounded subject to the remittance of the compounding fee.

6. Pratap Technocrats (P) Ltd. & Ors. vs. Monitoring Committee of Reliance Infratel Limited & Anr. Civil Appellate Jurisdiction, Civil Appeal No. 676 of 2021 (SC)

FACTS
The CIRP was commenced against Reliance Infratel Limited (‘RIL’) vide order dated 15th May, 2018 by the NCLT.

Pursuant to such order, an Interim Resolution Professional (‘IRP’) was appointed and the CoC was formed on 24th May, 2019. The IRP was replaced with Mr. Anish Niranjan as the resolution professional (‘RP’). The process for inviting resolution plans ensued and subsequently four prospective resolution applicants submitted plans. After due deliberations between the CoC and the prospective resolution applicants, the plan submitted by Reliance Digital Platform and Project Services Limited (‘Successful Resolution Applicant / SRA’) was approved by the CoC with 100% vote on 2nd March, 2020, on the basis of its feasibility, viability and implementability’. An application u/s 30(6) of the IBC was submitted for approval of the resolution plan, which was approved by the NCLT vide order dated 3rd December, 2020.

QUESTION OF LAW
Whether once a resolution plan in respect of the corporate debtor is approved by 100% voting share of the Committee of Creditors (CoC), exclusion of certain financial debts and hence, exclusion of certain financial creditors from CoC, will be of no consequence; resolution plan continues to be approved with 100% majority even after their exclusion.

RULING IN CASE
Once the resolution plan is approved by 100% voting share of the CoC, exclusion of certain financial debts and hence exclusion of certain financial creditors from the CoC will be of no consequence; the resolution plan continues to be approved with 100% majority even after their exclusion.

HELD
In the present case, the resolution plan has been duly approved by a requisite majority of the CoC in conformity with section 30(4). Whether or not some of the financial creditors were required to be excluded from the CoC is of no consequence, once the plan is approved by a 100% voting share of the CoC. The jurisdiction of the Adjudicating Authority was confined by the provisions of section 31(1) to determining whether the requirements of section 30(2) have been fulfilled in the plan as approved by the CoC. As such, once the requirements of the statute have been duly fulfilled, the decisions of the Adjudicating Authority and the Appellate Authority are in conformity with law.

BCAJ Admin

ALLIED LAWS

5 Korukonda Chalapathi Rao & Ors. vs. Korukonda Annapurna Sampath Kumar CA (No.) 6141 of 2021 (SC) Date of order: 1st October, 2021 Bench: K.M. Joseph J, S. Ravindra Bhat J

Deed of family settlement – Merely recording of past transaction – Registration not mandatory – It may not require to be stamped [Registration Act, 1908., S. 17, S. 49; Code of Civil Procedure, 1908, Ord. 13, R. 3]

FACTS

An issue regarding partition of property arose between the plaintiff and the respondents. The High Court did not admit the Kharurunama (family settlement) as the same was not registered or stamped.

The contention of the appellants was that the Kharurunama dated 15th April, 1986 merely sets out the arrangement arrived at between the brothers which is the family arrangement and it was a mere record of the past transaction and therefore by itself it did not create or extinguish any right over immovable property. As a result, the document did not attract section 17(1)(b) of the Registration Act.

HELD

As per section 49(1)(a) of the Registration Act, a document which it is compulsory to register but which is not registered, cannot have any effect on the rights in immovable property by way of creation, declaration, assignment, limitation or extinguishment. Thus, it prevents an unregistered document being used ‘as’ evidence of the transaction, which ‘affects’ immovable property.

If the Kharurunama by itself does not ‘affect’ immovable property, there would be no breach of section 49(1)(c) of the Registration Act, as it is not being used as evidence of a transaction affecting such property. The transaction or the past transactions cannot be proved by using the Kharurunama as evidence of the transaction. Merely by admitting the Kharurunama containing a record of the alleged past transaction, it is not to be understood as if those past transactions require registration or that it would have any legal effect on the immovable properties in question.

It is further held that the Kharurunama being a record of the alleged transactions, it may not require to be stamped. The appeal is allowed.

6 Asha John Divianathan vs. Vikram Malhotra AIR 2021 Supreme Court 2932 Date of order: 26th February, 2021 Bench: A.M. Khanwilkar J, Indu Malhotra J, Ajay Rastogi J

Foreign Citizen – Transfer of immovable property – Without taking mandatory prior approval from RBI – Transfer unenforceable [Foreign Exchange Regulation Act, 1973 (FERA), S. 31]

FACTS

Mrs. F.L. Raitt, widow of the late Mr. Charles Raitt, is a foreigner and the owner of the immovable property. The property was gifted to respondent No. 1 (Vikram Malhotra) without obtaining previous permission of the Reserve Bank of India u/s 31 of FERA. Before executing the gift deed, she had executed an agreement of sale in favour of one Mr. R.P. David, father of the appellant (Asha John Divianathan).

The appellant filed a suit against the respondent No. 1 to declare the gift deed and the supplementary as null and void.

The Karnataka High Court held that lack of permission u/s 31 of FERA does not render the subject gift deeds as void much less illegal and unenforceable. An appeal was filed against this order of the Karnataka High Court.

HELD

A contract is void if prohibited by a statute under a penalty, even without express declaration that the contract is void, because such a penalty implies a prohibition. The condition predicated in section 31 of FERA of obtaining ‘previous’ general or special permission of the RBI for transfer or disposal of immovable property situated in India by sale or mortgage by a person, who is not a citizen of India, is mandatory.

Until such permission is accorded, in law, the transfer cannot be given effect to; and for contravening that requirement, the person concerned may be visited with penalty u/s 50 FERA and other consequences provided for in the 1973 Act.

The decision of the High Court taking the view that section 31 of the 1973 Act is not mandatory and the transaction in contravention thereof is not void or unenforceable, is not a good law. The Appeal was allowed.

7 Jagannath & Ors. vs. Radheshyam and Ors. AIR 2021 (NOC) 645 (Chh) Date of order: 19th August, 2020 Bench: Sanjay K. Agarwal J

Deeds – Unregistered gift deed – Immovable property – Not admissible [Transfer of Property Act, 1882, S. 123; Registration Act, 1908, S. 17]

FACTS

The dispute relates to the property left by Parau and his wife Sumrit Bai. They had four daughters, namely, Samundra Kunwar (defendant No. 1 is her son), Badki Kani (defendant No. 2), Majhali Kani (defendant No. 3) and Nanki Kani (defendant No. 4). The plaintiff, Radheshyam, is the son of defendant No. 4. The plaintiff filed a suit for permanent injunction and, in the alternative, restoration of possession pleading inter alia that the suit property was originally held by Parau and he was in possession of the suit property during his life time.

The defendants filed their joint written statement stating inter alia that they have never surrendered their share by way of gift deeds in favour of the plaintiff and that they are in possession of the suit property jointly and, as such, the suit deserves to be dismissed.

The trial court upon appreciation of oral and documentary evidence available on record, by its judgment and decree dated 7th April, 2007, dismissed the suit holding that the alleged gift deeds are inadmissible in evidence for want of registration, therefore, no title has been conveyed in favour of the plaintiff and the plaintiff is not in exclusive possession of the suit land.

The first Appellate Authority held that the plaintiff cannot be dispossessed from the suit land without following the due procedure of law and accordingly granted decree for permanent injunction in favour of the plaintiff restraining the defendants from interfering with his possession.

The defendants are in appeal against the said order.

HELD

The gift deeds by which the defendants have allegedly gifted the property to the plaintiff are unregistered gift deeds and by virtue of the provisions contained in section 123 of the Transfer of Property Act, 1882 gift deeds are required to be registered. In view of the matter, they are inadmissible in evidence for want of registration and thereby no title was conveyed to the plaintiff.

As the gift deeds have been held to be inadmissible by two Courts and affirmed by this Court, the first appellate Court could not have restrained the defendants from using the joint property by decree of permanent injunction.

The appeal was allowed.

8 High Court of Judicature at Madras Rep. by its Registrar-General vs. M.C Subramaniam and Others AIR 2021 Supreme Court 2662 Date of order: 17th February, 2021 Bench: Mohan M. Shantanagoudar J, Vineet Saran J

Court fee – Refund of Court fee – To be granted even in case of private settlement of dispute outside court [Court Fees Act, 1870, S. 16; Civil Procedure Code, 1908, S. 89; Tamil Nadu Court Fees and Suit Valuation Act, 1955, S. 69A]

FACTS

The respondent No. 1 purchased two vehicles from respondent No. 2. As per the terms of the agreements, respondent No. 1 was to pay sums in instalments to the respondent No. 2 as per the stipulated terms. On account of non-payment, the respondent No. 2 filed suits and sought recovery of the balance amounts along with interest thereon. Both the suits were partly decreed by the Courts.

The respondent No. 1 preferred an appeal before the High Court. While the appeal was still pending consideration, the parties entered into a private out-of-court settlement, thus resolving the dispute between them. The respondent No. 1 sought withdrawal of the appeal and refund of the court fee. Despite the order of the High Court, the Registry orally refused respondent No. 1’s request for refund of court fees on the ground that such refund is not authorised by the relevant rules.

The respondent No. 1 filed a Miscellaneous Application before the High Court which was allowed. The Registry is in appeal against the said order.

HELD

The provisions of section 89 of CPC must be understood in the backdrop of the long-standing proliferation of litigation in the civil courts, which has placed undue burden on the judicial system, forcing speedy justice to become a casualty. As the Law Commission has observed in its 238th Report on Amendment of section 89 of the Code of Civil Procedure, 1908 and Allied Provisions, section 89 of the CPC has now made it incumbent on civil courts to strive towards diverting civil disputes towards alternative dispute resolution processes and encourage their settlement outside of court. These observations make the object and purpose of section 89 crystal-clear – to facilitate private settlements and enable lightening of the overcrowded docket of the Indian judiciary. This purpose is sacrosanct and imperative for effecting timely justice in Indian courts. Section 69A of the Tamil Nadu Court Fees and Suit Valuation Act, 1955 also encourages settlements by providing for refund of court fees.

Further, the Court observed that the Court Fees Act is a taxing statute and has to be construed strictly and the benefit of any ambiguity has to go in favour of the party and not to the State. The High Court’s order was upheld.

BCAJ Admin

CORPORATE LAW CORNER

1 Achintya Kumar Barua alias Manju Baruah & Ors. vs. Ranjit Barthakur & Ors. Company Appeal (AT) No. 17 of 2018 National Company Law Appellate Tribunal [2018] 143 CLA 233 Date of order: 8th February, 2018

Section 173(2) which gives right to the Directors to participate in the Board meetings through video conferencing / other audio-visual means (VC/OAVM), is mandatory and companies need to provide the facilities as per section 173(2) of the Companies Act, 2013 subject to fulfilling the requirements of Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014

FACTS
The petition was filed by Mr. R.B. and Others before the NCLT seeking the facility of attending Board meetings through video conferencing u/s 173(2) of the Companies Act, 2013.

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 High Court found that the appeal did not raise any question of law and sent the matter back to the the National Company Law Tribunal (NCLT), Guwahati Bench which allowed the application and directed that the facility should be made available u/s 173(2).

An appeal was filed before the National Company Law Appellant Tribunal (‘NCLAT’) against the order passed by the NCLT, Guwahati Bench where it was submitted that when the Director participates in the meetings through video-conferencing, it would not be possible to ensure that nobody else is present at the place from which the Director would be participating.

It was averred that the Secretarial Standards on Meetings of the Board of Directors have also considered this aspect and have prescribed that such option under the provisions of the Companies Act, 2013 and Rules should be resorted to only when the facilities are provided by the company to its Directors.

It was further submitted that sub-section (2) of section 173 of the Act was not a mandatory provision and it was not compulsory for the company to provide such facility. The counsel during the course of the hearing submitted that the responsibility had been put on the Chairperson to ensure that no person other than the Director concerned was attending or having access to the proceedings of the meeting through video-conferencing mode or other audio-visual means. It was also stated that when a Director resorts to availing the facility of video conferencing, it would not be possible for the Chairperson to ensure that the Director was alone while participating from wherever the video call was made as the Chairperson would have no means to know as to who else was sitting in the room or place concerned.

HELD
The NCLAT held that section 173 of the Companies Act, 2013, as well as the Rules referred to, were introduced under the 2013 Act and, following these provisions, it would be in the interest of the companies as well as the directors. It would not be appropriate to shut out these provisions on mere apprehensions.

The word ‘may’ which has been used in sub-section (2) of section 173 only gives an option to the Director to choose whether he would be participating in person or through video-conferencing or other audio-visual means. This word ‘may’ does 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 desire to do so. In this regard, the provisions of Rule 3 are material.

The NCLAT further referred to the order of NCLT, Guwahati Bench and noted that it had taken note of the fact that the company had all the necessary infrastructure available and had no reason not to provide the facility. Hence, NCLT had come to the conclusion that the provisions of section 173(2) of the Companies Act, 2013 are mandatory and the companies cannot be permitted to make any deviations therefrom.

An important observation made by the NCLAT was that the rules require that the company shall comply with the procedure prescribed for convening and conducting the Board meetings through video-conferencing or other audio-visual means. The Chairperson and Company Secretary, if any, have to take due and reasonable care as specified in Rule 3(2). The argument of the counsel for the appellant is that sub-Rule (2)(e) puts the burden on the Chairperson to ensure that no person other than the Director concerned is attending and this would not be possible for the Chairperson to ensure in video-conferencing.

NCLAT did not find force in the submission as the Rules, read as a whole, were a complete scheme. Sub-clause (4)(d) of Rule 3 also puts responsibility on the participating Director. The Chairperson was required to ensure compliance of sub-clause (e) or clause (2), and the Director would need to satisfy the Chairperson that sub-clause (d) of Clause 4 was being complied with.

The NCLAT noted that counsel for the appellants tried to rely on the Secretarial Standard on Meetings of the Board of Directors, that such participation could be done ‘if the company provides such facility’. NCLAT observed that such guidelines cannot override the provisions under the Rules. The mandate of section 173(2) read with the Rules mentioned above cannot be avoided by the companies.

The NCLT thus directed the company to provide the facilities as per section 173(2) of the Companies Act, 2013 subject to fulfilling the requirements of Rule 3(3)(e) of the Rules.

Thus, NCLAT did not find any reason to interfere with the NCLT order and observed that the order was progressive and in the right direction and therefore the admission of the appeal was denied.

2 CGI Information Systems and Management Consultants Private Limited Compounding Application CP No.: 55/2017 National Company Law Tribunal, Bengaluru Bench Source: NCLT Official Website Date of order: 27th April, 2018

If the company did not have adequate surplus in the profit and loss account but had declared interim dividend based on the belief that it indeed did have adequate profits and surplus in its profit and loss account, a compounding application on suo motu basis can be entertained even though the company had contravened the provisions of section 123(3) of the Companies Act, 2013

FACTS
The compounding application was filed by M/s CISMCPL (‘the company’) u/s 441 of the Companies Act, 2013 before the NCLT, Bengaluru Bench with a prayer for compounding of the violation committed under the provisions of section 123(3) of the Companies Act, 2013.

The submissions of the company were as follows:

The company, based on its estimates and belief that it had adequate profits and surplus in its profit and loss account, had declared an interim dividend of Rs. 96,14,14,080 pursuant to the Resolution of the Board of Directors dated 25th September, 2014 and accordingly paid the same to the eligible shareholders.

However, at the time of declaration of interim dividend the company had not finalised any method of accounting and believed that the method of accounting would not result in any deficit in the profits or in the surplus in the profit and loss account.

However, later on the company adopted the Pooling of Interest Method for accounting its amalgamation.

While declaring dividend, it had inadvertently not considered the fact that by adopting the pooling of interest method of accounting, there would be a deficit in the surplus in the profit and loss account, as a result of which the company had contravened the provisions of section 123(3) of the Companies Act, 2013.

Hence, the company and its Directors suo motu filed the application for admitting violation and had prayed for compounding.

HELD
NCLT held that the company had violated the provisions of section 123(3) of the Companies Act, 2013 and shall be punishable u/s 450 of the said Act. The company and every officer of the company who was in default, or such other person, shall be punishable with fine which may extend to Rs. 10,000, and where the contravention was a continuing one, with a further fine which may extend to Rs. 1,000 for every day after the first day during which the contravention continued.

Therefore, the compounding fee of Rs. 94,200 on the company and Rs. 94,200 on each of the Directors was levied considering the delay of 932 days.

BCAJ Admin

ALLIED LAWS

1 Ramesh and Others vs. Laxmi Bai AIR 2021, Madhya Pradesh 56 Date of order: 1st March, 2021 Bench: Vivek Rusia J

Condonation of delay – Appeal cannot be decided without deciding on the application for condonation of delay in favour of the appellant [Civil Procedure Code, 1908, Ord. 41, R. 3A; Limitation Act, 1963, S. 5]

FACTS
The plaintiffs had filed a civil suit for declaration of title and partition of joint family property. By the judgment dated 24th January, 2009 it was held that they were entitled to partition through the Court. Defendant No. 1 was restrained from getting a mutation in his name. Being aggrieved by the aforesaid judgment and decree, the Defendants filed an appeal in the year 2013 along with an application for condonation of delay u/s 5 of the Limitation Act.

On 24th February, 2019, it came to the notice of the Additional District Judge that the application u/s 5 of the Limitation Act had not been decided so far. Both the parties agreed to first argue on the aforesaid application. The arguments were heard and kept for order on 27th April, 2019. By an order dated 27th April, 2019, the Additional District Judge decided that the application u/s 5 of the Limitation Act would be decided along with the first appeal on merit.

The plaintiffs filed a petition challenging this order of 27th April, 2019 on the ground that the Additional District Judge had committed an error of law while keeping the application u/s 5 for consideration along with the appeal while finally hearing the appeal on merit.

HELD
The Court referred to the decision in the case of State of M.P. vs. Pradeep Kumar 2000 (7) SCC 372. In that the Supreme Court held that the object of enacting Rule 3-A of Order 41 of the Civil Procedure Code seems to be two-fold. The first is to inform the appellant himself that appeal is time-barred and it would not be entertained unless it is accompanied by an application explaining the delay. The second is to communicate to the respondent a message that it may not be necessary for him to get ready to meet the grounds taken up in the memorandum of appeal because the Court has to deal with the application for condonation of delay as a condition precedent.

The Court also referred to the decision in S.V. Matha Prasad vs. Lalchand Meghraj and Others (2007) 14 SCC 772 wherein the Supreme Court had held that the Division Bench of the High Court had not only condoned the delay but took a decision on the merit as well and such exercise was not justified as the only issue before the Division Bench was the question of limitation; accordingly, the judgment of the High Court was set aside to the extent that it went on to the merits of the controversy but maintained it insofar as it dealt with the question of limitation.

In view of the above, the Court held that the Additional District Judge was required to decide first the application u/s 5 of the Limitation Act and if it condoned the delay then there would not be any impediment to deciding the appeal on merit. Further, the Court held that although there is no specific bar which restrains the appellate Court from hearing and deciding the appeal along with the application for condonation of delay, the provisions put a bar on the appellate Court on deciding the appeal unless the application for condonation of delay is decided in favour of the appellant. The petition was allowed.

2 Amola Saikia and Others vs. Pankajit Narayan Konwar AIR 2021, Gauhati 50 Date of order: 23rd January, 2021 Bench: Anchintya Malla Bujor Barua J

Intestate succession – Property of Hindu female – Grant of succession certificate to husband held to be proper [Indian Succession Act, 1925, S. 372; Hindu Succession Act, 1956, S. 15]

FACTS
The respondent-husband filed an application u/s 372 of the Indian Succession Act for grant of succession certificate. The respondent had succeeded in the said application vide order dated 10th June, 2015.The appellants, viz., the mother, sisters and brother of the deceased, challenged the said order of 10th June, 2015.

HELD
As per section 15(1) of the Hindu Succession Act, 1956 it is clearly provided that the property of a female Hindu dying intestate shall devolve firstly upon the sons and daughters and the husband. Thereafter, it would devolve upon the mother and father and then upon the heirs of the father, and finally upon the heirs of the mother. Hence, the grant of succession certificate was in accordance with law.

The appeals were dismissed.

3 Sozin Flora Pharma LLP vs. State of Himachal Pradesh and another AIR 2021, Himachal Pradesh 44 Date of order: 7th January, 2021 Bench: Tarlok Singh Chauhan J and Jyotsna Rewal Dua J

Stamp Duty – Conversion of partnership firm to limited liability partnership – No stamp duty or registration fee [Limited Liability Partnership Act, 2008, S. 58(1), 58(4)(b); Himachal Pradesh Tenancy and Land Reforms Act, 1974, S. 118]

FACTS
The petitioner was registered as a partnership firm on 14th December, 2005 in the office of the Deputy Registrar of Firms. With the intention of availing of the benefits of the Limited Liability Partnership Act, 2008, the petitioner firm converted itself from ‘Firm’ to ‘Limited Liability Partnership’ (LLP). The conversion was as per section 55 of the LLP Act.

The petitioner applied to the Deputy Commissioner for changing its name in the revenue record from ‘M/s Sozin Flora Pharma’ to ‘M/s Sozin Flora Pharma LLP’. The permission to change the name in the revenue record was granted on the condition that stamp duty and registration fee shall be chargeable. The petitioner submitted a representation to the respondent on 25th June, 2019 against the imposition which was rejected on 23rd August, 2019. Hence the writ petition.

HELD
Upon conversion of a registered partnership firm to an LLP under the provisions of the Limited Liability Partnership Act, all movable and immovable properties of the erstwhile registered partnership firm automatically vest in the converted LLP by operation of section 58(4)(b) of the Limited Liability Partnership Act.

The transfer of assets of the firm to the LLP is by operation of law. Being a statutory transfer, no separate conveyance / instrument is required to be executed for transfer of assets.

Since there is no instrument of transfer of assets of the erstwhile partnership firm to the limited liability partnership, the question of payment of stamp duty and registration charges does not arise as these are chargeable only on the instruments indicated in section 3 of the Indian Stamp Act and section 17 of the Indian Registration Act.

The partnership firm’s legal entity after conversion to limited liability partnership does not change. Only the identity of the firm as a legal entity changes. Such a conversion or change in the name does not amount to a change in the constitution of the partnership firm.

Therefore, stamp duty and registration fee cannot be levied upon conversion of a partnership firm to an LLP.

4 Kiran Gupta vs. State Bank of India and another AIR 2021, Gauhati 50 Date of order: 2nd November, 2020 Bench: Hima Kohli J and Subramonium Prasad J

Recovery of dues – Pendency of IRP proceeding against principal borrower – Bank can proceed against guarantor under SARFAESI Act [SARFAESI Act, 2002, S. 13; Insolvency and Bankruptcy Code, 2016, S. 14, S. 31; Contract Act, 1872, S. 128]

FACTS
The short question that arises for consideration in this writ petition is whether a bank / financial institution can institute or continue with proceedings against a guarantor under the SARFAESI Act when proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) have been initiated against the principal borrower and the same are pending adjudication.

HELD
The view expressed by the Supreme Court in the case of State Bank of India vs. V. Ramakrishan and Another, (2018) 17 SCC 394 amply demonstrates that neither section 14 nor section 31 of the IBC place any fetters on banks / financial institutions from initiation and continuation of the proceedings against the guarantor for recovering their dues. That being the position, the plea taken by the counsel for the petitioner that all proceedings against the petitioner, who is only a guarantor, ought to be stayed under the SARFAESI Act during the continuation of the Insolvency Resolution process qua the principal borrower, is rejected as meritless. The petitioner cannot escape her liability qua the respondent / bank in such a manner. The liability of the principal borrower and the guarantor remain co-extensive and the respondent / bank is well entitled to initiate proceedings against the petitioner under the SARFAESI Act during the continuation of the Insolvency Resolution process against the principal borrower. The petition is dismissed.

Editor’s Note: The Supreme Court in the case of Lalit Kumar Jain vs. Union of India [2021] 167 SCL 1 had held that a personal guarantor is also liable under the Insolvency and Bankruptcy Code, 2016.

BCAJ Admin

CORPORATE LAW CORNER

9 Registrar of Companies, West Bengal vs. Goouksheer Farm Fresh (P) Ltd. and Another Company Appeal (AT) No. 127 of 2020 National Company Law Appellate Tribunal [(2021) 160 CLA 317 (NCLAT)] Date of order: 19th November, 2020

There is no provision under the Companies Act, 2013 that permits the Registrar of Companies to take on record the documents sought to be registered / filed without payment of requisite filing fee and / or payment of additional fees even if company is in ‘Corporate Insolvency Resolution Process’

FACTS

The Registrar of Companies, West Bengal (ROC), had struck off the name of the company, M/s G Private Limited, after complying with all the requirements of section 248 of the Companies Act, 2013 and the Companies (Removal of Names of Companies from Register of Companies) Rules, 2016.

The ‘Financial Creditor’ (M/s P Pvt. Ltd.) had filed an application u/s 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, M/s G Pvt. Ltd. The application to initiate Corporate Insolvency Resolution Process against the Corporate Debtor was admitted on 13th December, 2019.

The NCLT, Kolkata Bench, through its order dated 22nd January, 2020, allowed restoration of the company with a direction to the ROC not to levy any fee / penalty on the company because of the fact that the company was in Corporate Insolvency Resolution Process.

The ROC preferred an instant appeal against the NCLT order contending that pursuant to section 403 (1) of the Companies Act, 2013, any document required to be filed under the Act shall be filed within the time prescribed in the relevant provisions on payment of such fee as may be prescribed. Further, it was contended that in view of the first proviso to section 403(1) of the Act, if any document, fact or information required to be submitted, filed, registered or recorded under sections 92 or 137 is not submitted, filed, registered or recorded within the period provided in those sections, without prejudice to any other legal action or liability under this Act, it may be submitted, filed, registered or recorded after the expiry of the period so provided in those sections on payment of such additional fee as may be prescribed, which shall not be less than Rs. 100 per day and different amounts may be prescribed for different classes of companies.

HELD

The NCLAT stated in its order that the Tribunal was empowered by Rule 11 of the National Company Law Tribunal Rules, 2016 to make such orders as may be necessary for meeting the ends of justice. However, it was to be pointed out that the same cannot be pressed into service when section 403(1) of the Companies Act, 2013 deals expressly with the fee for filing, etc., coupled with Rule 12 of the Companies (Registration Offices and Fees) Rules, 2014. These provisions were regarded as in-built, self-contained and exhaustive ones, and viewed in that perspective, the invocation of Rule 11 of the NCLT Rules, 2016 was not needed.

Further, NCLAT observed that the direction issued by the NCLT to the ROC ‘not to levy any fee / penalty’ to the company because it was in Corporate Insolvency Resolution Process was legally untenable, especially in the absence of any express provisions under the Companies Act, 2013 and the relevant Rules for waiver of fees / penalty in respect of filing of documents required to be registered / filed under the Companies Act. Hence, the said direction was set aside to secure the ends of substantial justice.

10 Sandeep Agarwal and Another vs. Union of India and Another W.P. (C) 5490/2020 Source: Delhi High Court Official Website Date of order: 2nd September, 2020

The purpose and intent of the Companies Fresh Start Scheme, 2020 is to allow a fresh start for companies which have defaulted. For the Scheme to be effective, directors of these defaulting companies must be given an opportunity to avail the Scheme

FACTS

The petition was filed by Sandeep Agarwal and Muskoka Agarwal (collectively referred to as P), both of whom were directors in two companies, namely M/s KP Private Limited and M/s KPP Private Limited. The name of M/s KPP Private Limited was struck off from the Register of Companies on 30th June, 2017 due to non-filing of financial statements and annual returns. P, being directors of M/s KPP Private Limited, were also disqualified with effect from 1st November, 2016 for a period of five years till 31st October, 2021 u/s 164(2)(a) of the Companies Act, 2013. In view of their disqualification, their Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) were also cancelled. Consequently, they were unable to carry on the business and file returns, etc., in the active company, M/s KP Private Limited.

Through the present petition, the disqualification was challenged and quashing was sought of the order disqualifying the directors.

HELD

The Delhi High Court observed that the Scheme provides an opportunity to put their affairs in order for active companies that may have defaulted in filing of documents. It thus provides directors of such companies a fresh cause of action to challenge their disqualification qua the active companies. In the present case, the relief was sought by the directors of two companies, one whose name was struck off and one which was still active. In such a situation, the disqualification and cancellation of DINs was a severe impediment for them in availing remedies under the Scheme in respect of the active company. The purpose and intent of the Scheme was to allow a fresh start for companies which have defaulted. The Scheme can be effective if its directors are given an opportunity to avail of it.

It is not uncommon to see directors of one company being directors in another company. Under such circumstances, to disqualify directors permanently and not allowing them to avail their DINs and DSCs could render the Scheme itself nugatory as its launch constitutes a fresh and continuing cause of action.

Thus, in order to enable P to continue the business of the active company, M/s KP Private Limited, the Court directed MCA to set aside the disqualification of P as directors. The DINs and DSCs of P were also directed to be re-activated within a period of three working days from the date of the order.

11 Medeor Hospitals Ltd. vs. Registrar of Companies, Delhi Company Appeal No. 394 of 2018 National Company Law Appellate Tribunal [(2020) 156 CLA 129 (NCLAT)]
Date of order: 29th January, 2020

Where application for conversion of public limited company into a private limited company has complied with the requisite conditions for conversion, the application has to be approved

FACTS

M/s M Limited was incorporated on 4th August, 2004 under the Companies Act, 1956 as a public limited company and was a wholly-owned subsidiary of M/s V Private Limited, having eight equity shareholders. While the holding company M/s. V Private Limited was holding almost 100 % of the issued share capital, seven other shareholders were holding one share each on behalf of M/s V Private Limited.

A petition was filed before the NCLT for conversion of the company into a private limited company. The Delhi Bench of the NCLT by its order of 28th August, 2018, observed that the petition was filed three months after the date of passing of the Special Resolution. In the notice for the EGM, no reasons had been assigned for giving a shorter notice. It was further observed by the NCLT that on 17th October, 2016, the statutory auditor had resigned and on the same day, a new auditor M/s DY & Co. was appointed. It was noticed that the new auditor signed the balance sheet on the same day. This raised a doubt as to how the new auditor could have conducted the audit in one day. Further, two independent directors resigned after the passing of the resolution for conversion and this fact was not mentioned in the petition. It was also found that the claims of two objectors, namely, Mr. PS and Mr. RS and E&Y LLP were pending before the Arbitral Tribunal. During such pendency it would not be appropriate to permit conversion of the company from public to private limited. In view of these shortcomings, the NCLT rejected the petition. M/s M Limited, being aggrieved with this order of the NCLT, filed the present appeal.

HELD

* NCLAT considered the issue of limitation referring to Rule 68(1) of the NCLT Rules, 2016 which provide that a petition u/s 14(1) of the Companies Act, 2013 for conversion of a public company into a private company shall, not less than three months from the date of the passing of the special resolution, be filed with the Tribunal in Form No. NCLT-1. This means that such petition shall be filed after three months from the date of passing of the special resolution. Thus, the petition was well within the limitation.

* The board resolution of the holding company dated 17th June, 2017 mentioned that written consent of shareholders was obtained for shorter notice for the resolution dated 14th August, 2017. No illegality or irregularity in passing the resolution dated 14th August, 2017 was found by the NCLAT.

* M/s M Limited, vide its appointment letter dated 2nd September, 2016, appointed M/s DY & Co. tax auditor and, after the appointment, M/s DY & Co had reviewed and signed the financial statements for the F.Y. 2015-16. In such circumstances the explanation given by M/s M Limited was satisfactory as to how M/s DY & Co. had signed the financial statements for the year
2015-16.

* NCLAT further considered the submission of M/s M Limited that it was a wholly-owned subsidiary and unlisted public company. Therefore, in view of sub-rule (1) of Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, appointment of at least two independent directors was not applicable. Hence, non-disclosure of the resignation of two independent directors would not affect the merit of the petition in any manner.

* M/s M Limited also placed on record the ‘No dues certificates’ obtained from all creditors (except the dispute between E&Y and M/s M Limited as it was pending before the Arbitral Tribunal), hence, the conversion of M/s M Limited shall not affect the responsibility and liabilities of M/s M Limited.

The NCLAT thus noted that M/s M Limited had fulfilled all the conditions for conversion and the shortcomings pointed out by the NCLT were inconsequential. Therefore, the NCLAT set aside the order and approved the special resolution dated 14th August, 2017 for conversion of M/s M Limited from public to private company.

12 R. Narayanasamy vs. The Registrar of Companies, Tamil Nadu Company Appeal (AT) No. 171 of 2020 Source: NCLAT Official Website Date of order: 19th January, 2021

Divergent views on disposal of the appeal pertaining to striking off of the name of company after following necessary procedure u/s 248 of the Companies Act, 2013

FACTS

This appeal was filed against the order dated 5th May, 2020 passed by the NCLT, Chennai dismissing the appeal u/s 252(3) of the Companies Act, 2013 for restoration of the name of the company ‘M/s Shri L S Pvt. Ltd.’ which was struck off by the ROC after following the necessary procedure u/s 248 of the Companies Act, 2013. R N, who was the Managing Director of the company, claimed that non-filing of annual returns and filing statements was due to absence of expert professional guidance. Further, the striking off was prejudicial to the interest of the company and that returns were not filed out of ignorance and inadvertence.

HELD

The members of the NCLAT Bench delivered divergent judgments on analysing the law as it was existing, on the basis of what is ‘just’ u/s 252(3) of the Companies Act. Thereafter, it was placed before a third member. This third member of the NCLAT observed that section 252 provides for relief to aggrieved parties when the Registrar notifies a company as dissolved u/s 248 of the Companies Act, 2013.

The name of the company was required to be restored if the NCLT
* was satisfied that the company, at the time of its name being struck off, carried out any business or operation,
OR
* otherwise it was ‘just’ that the name of the company be restored to the register of companies.

In the present matter, the admitted fact was that when the name of the company was struck off, it was not functional and was not carrying on business or operations for more than two years immediately preceding the financial year and thus attracted section 248(1)(c) of the Companies Act, 2013. When the question of law has neither been framed nor referred, and it appeared from the judgments that the two Hon’ble Members had divergent views, on the basis of facts the appeal should be dismissed by not interfering with the dismissal order passed by the NCLT.

13 The Canning Industries Cochin Ltd. vs. Securities and Exchange Board of India (SEBI) Company Appeal (AT) No. 115 of 2019 Source: The Securities Appellate Tribunal Official Website Date of order: 28th January, 2020

Whether the issue of unsecured fully convertible debentures (‘FCDs’) by an unlisted public company is rights offer or public offer, or an offer that violates the provisions of private placement of securities under the Companies Act, 2013

FACTS

M/s CIC Ltd., an unlisted public company, passed a special resolution under sections 62(3) and 71 of the Companies Act, 2013 to issue 1,92,900 unsecured fully convertible debentures (FCDs) to its 1,929 shareholders, with a condition that there would exist no right to renounce the offer to any other person. However, only 335 shareholders subscribed to the offering. Consequently, one disgruntled shareholder filed a complaint before SEBI and the NCLT alleging that the company had made a public issue of securities without complying with the applicable provisions of the Companies Act, 2013.

On 18th March, 2019, SEBI passed an order which held that the offer of FCDs made by the company was a ‘deemed public issue’ u/s 42(4) of the Companies Act, 2013 read with Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, as the offer was made to more than 200 shareholders and, hence, directed the company to comply with the prescribed provisions of ‘public issue’ in the Act.

Aggrieved by the order, M/s CIC Ltd. appealed before the Securities Appellate Tribunal (SAT) and contended that the issuance of FCDs was neither a rights issue (as the issue was not made on a proportionate basis), nor was it a private placement and that the issue falls u/s 62(3) of the Companies Act, 2013 which had not been considered by SEBI.

HELD

SAT held that a rights issue of FCDs was not a ‘private placement’ of securities as the offer of shares to the company’s shareholders cannot be termed as an offer to a ‘select group of persons’. The expression ‘select group of persons’ means ‘an offer made privately such as to friends and relatives or a selected set of customers distinguished from approaching the general public or to a section of the public by advertisement, circular or prospectus addressed to the public’. Hence, the restriction of subscription of shares to 200 persons or more in the case of private placement of securities envisaged u/s 42 of the Companies Act, 2013 was not applicable in the instant case.

Further, section 62(3) was fully applicable as M/s CIC Ltd. had duly complied with it by passing the special resolution; thus, issuance of FCDs by M/s CIC Ltd. cannot be termed as a public issue or a private placement. Hence, a company issuing FCDs is not mandated to comply with any additional requirement of public issue or private placement specified under sections 23 and 42 of the Companies Act, 2013, respectively.

In light of the aforesaid, the order passed by the whole-time Member cannot be sustained. The interim order as well as the order and the directions so issued were all quashed and thus the appeal was allowed.

14 Hytone Merchants Pvt. Ltd. vs. Satabadi Investment Consultants Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 258 of 2021

CASE NOTE
1. NCLAT confirmed rejection of the insolvency application even when the same was complete in all respects on the ground of collusion between the applicant creditor and the respondent corporate debtor.
2. Quantum of default was very meagre in comparison to the net worth of the corporate debtor.
3. The corporate debtor had made substantial investments in companies which were under insolvency and also extended corporate guarantee.

The brief facts of the case are as follows:

(a) Corporate debtor (‘company’) had accepted loan of Rs. 3 lakhs from the financial creditor @ 15% pa.
b) The company accepted the loan default and also acknowledged the debt.
c) The company was also the guarantor for two other companies which were under insolvency and liquidation.
The application u/s 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filed by the financial creditor. NCLT rejected the application even after concluding that the application was complete in all respects and the default and debt existed.

The creditor argued that the NCLT has no jurisdiction to go beyond the completeness of the application. It only has to see the completeness of the application along with the existence of debt and default.

NCLAT, after going through the submissions, confirmed the NCLT order. It observed that NCLT has rightly rejected the application and is correct in lifting the corporate veil.

The corporate debtor had stood as corporate guarantor for two companies which were under insolvency and one had even gone under liquidation. The value of the corporate guarantee given by the corporate debtor amounted to Rs. 482 crores while the net worth of the company was Rs. 15 crores. It appeared to the Tribunal that the acknowledgement of debt and acceptance of default was collusive. The defaulted debt of Rs. 3 lakhs was a meagre amount in comparison to the net worth of the company.

The Tribunal also observed that the Court has to see the persons behind the company to come to a conclusion whether the insolvency is proposed to be initiated in a collusive manner. It relied on the Supreme Court judgment in Swiss Ribbons vs. Union of India wherein the Court had held that the insolvency application can be rejected and also cost can be imposed u/s 65 of the IBC. This is a safeguard against fraudulent or malicious initiation of insolvency proceedings.

This judgment has clarified that the insolvency proceedings are not mere compliance proceedings. The Tribunal has seen the real intent of the parties and the IB Code. The object of the Code is to resolve the insolvent companies and in the interest of all stakeholders.

BCAJ Admin

ALLIED LAWS

18 Arun Kedia (HUF) vs. Runwal Homes (P) Ltd. Consumer Case No. 1115 of 2017 (NCDRC)(Del) Date of order: 24th June, 2021 Bench: Ram Surat Ram Maurya J. and Mr. C. Vishwanath

Consumer Protection – Builder cancels sale agreement – Without consent – Not handing over timely possession – Interest levied [Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963, S. 8]

FACTS

A registered agreement for sale was executed between the complainant and the builders on 5th June, 2013. Clause 17 of the agreement provided that the builder would give possession of the premises to the purchasers by March, 2016.

The complainants received a demand letter dated 12th September, 2016 on 13th September, 2016 but as no date of delivery of possession was mentioned, they did not deposit the amount demanded in it, rather, they requested for handing over of possession of the flat allotted to them. They were not allowed to go to the site to verify the progress under construction, although 85% of the sale consideration was paid. The directors and officers of the builder assured that they need not worry and that the possession would be given to them within a short time.

When the builder neglected to give possession of the flat allotted to them, they served a registered notice on the builders on 15th March, 2017 for handing over the possession of the flat. The builders, through a letter dated 15th March, 2017 (served on 20th March, 2017) unilaterally cancelled the agreement dated 5th June, 2013, mentioning therein that in spite of the demand letter dated 12th September, 2016, they had not deposited the instalment as stated in the agreement. The complainants gave registered notices dated 23rd March, 2017 and 4th April, 2017 to the builders, asking them to withdraw their letter dated 15th March, 2017 cancelling the agreement dated 5th June, 2013, and to hand over possession of the flat allotted to them. Since the notices have not been complied with, the present complaint was filed on 18th April, 2017 by the complainants.

HELD

It is admitted by the builders and also mentioned in the agreement that the Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 is applicable. According to section 8 of the said Act, if the builder is not able to hand over the possession of the building / flat within the time specified in the agreement, then the builder is liable to pay interest for the period for which the possession has not been handed over. The builders had failed to complete the construction and hand over possession of the flat in March, 2016 as agreed. Due to the latches on the part of the builders, the complainants are suffering loss. The agreement for sale has been cancelled illegally and the complainants are forced to opt for litigation. The Builders shall pay simple interest at 6% p.a. to the complainants on the amount deposited by them from the due date of possession to the offer of possession after obtaining the occupancy certificate.

19 Compack Enterprises India (P) Ltd. vs. Beant Singh (2021) 3 SCC 702 (SC) Date of order: 17th February, 2021 Bench: Mohan M. Shantanagoudar J. and Vineet Saran J.

Consent decree – No estoppel – Compromise arrived by fraud, misrepresentation or mistake [Code of Civil Procedure, 1908, Or. XII, R. 6]

FACTS
On a dispute arising on account of mesne profits, the Court had passed a consent decree directing that the petitioner shall pay to the respondent (owner of the property), by way of mesne profits, an enhanced sum of Rs.1,00,000 p.m., with a 10% increase every 12 months, i.e., from 1st October, 2009, 1st October, 2011 and so on, till the date the petitioner hands over actual possession of the suit property measuring 5,472 sq. ft. to the respondent.

The petitioner filed a review petition against the consent terms, contending that the High Court had erred in recording the terms of the consent decree agreed to by the petitioner. It contended that the judgment records that the mesne profits be increased by 10% every 12 months, instead of recording a 10% increase every 24 months and that the petitioner was in possession of only 2,200 sq. ft. The review petition was rejected.

HELD
The Court, inter alia, relied on the decision in the case of Byram Pestonji Gariwala vs. Union Bank of India & Ors., (1992) 1 SCC 31, wherein it was held that a consent decree would not serve as an estoppel where the compromise was vitiated by fraud, misrepresentation or mistake. In the exercise of its inherent powers, the Court may also unilaterally rectify a consent decree suffering from clerical or arithmetical errors, so as to make it conform to the terms of the compromise.

The Court observed that the learned Judge of the High Court, in noting that the figure of mesne profits of Rs. 1 lakh will be increased by 10% after every 12 months, i.e., from 1st October, 2009, 1st October, 2011 and so on, (emphasis supplied), has confused not only himself but also the parties to the litigation. Referring to the final decree by the Trial Court awarding a 10% increase only every alternate year and the original terms of the license agreement between the parties, the period of 12 months in the consent decree was rectified to 24 months by the Court. The plea of the petitioner that he was in possession of only 2,200 sq. ft. and not 5,472 sq. ft. was rejected.

20 Trustees of H.C. Dhanda Trust vs. State of M.P. (2020) 9 SCC 510 (SC) Date of order: 17th September, 2020 Bench: Ashok Bhushan J., R. Subhash Reddy J. and M.R. Shah J.

Stamp Act – Imposition of penalty – Ten times of duty deficit – Exercise of discretion – Cannot be imposed normally [Indian Stamp Act, 1899, Ss. 33, 35, 38, 39 and 40]

FACTS
A resolution was passed by the executors / trustees under the will of Late Shri Harish Chand Dhanda to transfer and vest the area to the beneficiaries. On 21st April, 2005, a Deed of Assent was executed between M/s H.C. Dhanda Trust, a private trust, as one part and Jogesh Dhanda and others as the other part. By this Deed of Assent, the trustees / executors gave assent to complete the title of the legatees and vest two properties absolutely and forever in their favour.

A notice was issued by the Collector of Stamps, District Indore, stating that proper stamp duty has not been paid on the Deed of Assent dated 21st April, 2005. The notice further stated that there was a deficit stamp duty on the said document and asked why ten times penalty should not be imposed. The Trust appeared before the Collector of Stamps and filed its objection. The Collector holding the Deed of Assent as a gift deed held that the deficit duty was Rs. 1,28,09,700. He imposed penalty ten times the deficit duty. The Trustees challenged the order of the Collector imposing the penalty.

HELD
The legislative intent is clear from a reading of sections 33, 35, 38 and 39 of the Indian Stamp Act, 1899. It indicates that with respect to the instrument not duly stamped, ten times penalty is not always retained and the power can be exercised u/s 39 to reduce penalty and in regard to that there is a statutory discretion with the Collector to refund the penalty.

The purpose of penalty generally is a deterrence and not retribution. When a discretion is given to a public authority, such public authority should exercise such discretion reasonably and not in an oppressive manner. The responsibility to exercise the discretion in a reasonable manner lies more in cases where discretion vested by the statute is unfettered. Imposition of the extreme penalty, i.e., ten times the duty or deficient portion thereof, cannot be based on the mere factum of evasion of duty. Reasons such as fraud or deceit in order to deprive the Revenue or undue enrichment are relevant factors to arrive at a decision as to what should be the extent of penalty u/s 40(1)(b). The penalty was reduced to five times the duty deficit.

21 Daulat Singh (D) Thr. LRS. vs. The State of Rajasthan (2021) 3 SCC 459 (SC) Date of order: 21st May, 2021 Bench: N.V. Ramana J., S. Abdul Nazeer J. and Surya Kant J.

Gift – Immovable property – Acceptance criterion [Transfer of Property Act, 1882, Ss. 122 and 123]

FACTS

The appellant was the owner of 254.2 bighas of land. On 19th December, 1963, he gifted away 127.1 bighas to his son. After the said transfer, the appellant was left with 17.25 standard acres of land, which was below the prescribed limit under the Ceiling Act.

Although proceedings were initiated under the Ceiling Act, the same were dropped on 15th April, 1972 by the Court of the Deputy Sub-Divisional Officer, Pali, Rajasthan. However, by a notice dated 15th March, 1982, the Revenue Ceiling Department reopened the case of the appellant.

The Court of the Additional District Collector, Pali vide order dated 28th October, 1988, declared that the mutation of the land done in favour of the son of the appellant was invalid as there was no acceptance of the gift. It was declared therein that the appellant was holding 11 standard acres of extra land over and above the ceiling limit. The Collector, therefore, directed the appellant to hand over vacant possession of the aforesaid 11 standard acres of extra land to the Tahsildar, Pali.

HELD

The Court, inter alia, on the issue of validity of the gift deed held that section 122 of the Transfer of Property Act, 1882 (TOPA) neither defines acceptance, nor does it prescribe any particular mode for accepting the gift. The word acceptance is defined as ‘is the receipt of a thing offered by another with an intention to retain it, as acceptance of a gift.’ The only requirement stipulated under TOPA is that the acceptance of the gift must be effected during the lifetime of the donor.

Gifts do not contemplate payment of any consideration or compensation. It is, however, beyond any doubt or dispute that in order to constitute a valid gift, acceptance thereof is essential. The document may be handed over to a donee, which in a given situation may also amount to a valid acceptance. The Court held that the fact that possession had been given to the donee also raises a presumption of acceptance. The Court referred to the statement made by the son – the donee – before the Court of the Additional District Magistrate stating that the land transferred to him by virtue of the gift deed was under his possession and he was cultivating the same. The gift was held to be a valid gift.

22 UOI & Ors. vs. Vishnu Aroma Pouching Pvt. Ltd. & Anr. SLP (C) Diary No. 1434 of 2021 (SC) Date of order: 29th June, 2021 Bench: Sanjay Kishan Kaul J. and Krishna Murari J.

Delay in filing appeal – Not justified – Cost imposed – SLP dismissed

FACTS

The Department filed an application for condonation of delay. It was stated in the application that the judgment was pronounced on 14th November, 2019. But the proposal for filing the Special Leave Petition was sent after almost six months, on 20th May, 2020, and it took another three months to decide whether or not to file the Special Leave Petition.

HELD

Such lethargy on the part of the Revenue Department with so much computerisation having been achieved is no longer acceptable. The application shows the casual manner in which the petitioner has approached this Court without any cogent or plausible ground for condonation of delay. In fact, other than the lethargy and incompetence of the petitioner, there is nothing which has been put on record. The leeway which was given to the Government / public authorities on account of innate inefficiencies was the result of certain orders of this Court that came at a time when technology had not advanced and, thus, greater indulgence was shown.

Cases of this kind were ‘certificate cases’ filed only with the objective to obtain a quietus from the Supreme Court on the ground that nothing could be done because the highest Court had dismissed the appeal. The objective was to complete a mere formality and save the skin of the officers who may be in default in following the due process, or may have done it deliberately. Looking to the period of delay and the casual manner in which the application had been worded, the Court considered it appropriate to impose costs on the petitioner(s) of Rs. 25,000 for wastage of judicial time which has its own value. The Special Leave Petition was dismissed as time-barred. A copy of the order was ordered to be placed before the Secretary, Ministry of Finance, Department of Revenue.

BCAJ Admin

ALLIED LAWS

13 Dhanjibhai Hirjibhai Nasit vs. State of Gujarat & Ors. AIR (2020) Gujarat 70 Date of order: 20th February, 2020 Bench: Vikram Nath CJ, Vipul M. Pancholi J. and Ashutosh J. Shastri J.

Co-operative society – Tenure of members appointed by State Government [Gujarat Co-operative Societies Act, 1962, S. 80]

FACTS

The petitioner is a member of the Una Taluka Khand Vechan Sangh Ltd. (union). The union is a specified co-operative society as defined u/s 74C of the Gujarat Co-operative Societies Act, 1961 (Act). The elections of specified co-operative societies are required to be held and conducted as provided u/s 74C read with Chapter XI-A of the Act as well as the Rules framed thereunder. It is further stated that the respondent State Government, in purported exercise of the powers conferred upon it u/s 80(2) of the Act, on 4th January, 1999 appointed three government nominees on the Board of Directors of the Union.

The grievance of the petitioner is that the nominee directors, for reasons best known to them, insisted on continuing on the Board of Directors of the Union. The petitioner had, therefore, prayed that the nominee directors be restrained from taking part in the meeting of the Board of Directors which was scheduled to be held on 10th May, 2007.

HELD

The Committee means ‘Managing Committee’ or other governing body of a society to which the direction and control of the management of the affairs of a society are entrusted. The term of the elected members of the Managing Committee shall be five years from the date of election as provided in section 74C(2) of the Act. It is further clear that where the State Government has subscribed to the share capital of the society directly or through another society, or as per the circumstances enumerated in section 80(1) of the Act, the State Government is empowered to nominate three prescribed representatives on the Committee of the society and such members so nominated shall hold office during the pleasure of the State Government, or for such period as may be specified in the order by which they are appointed. Similarly, section 80(2) of the Act empowers the State to appoint the representatives having regard to the public interest involved in the operation of a society as if the State Government had subscribed to the share capital of the society and the provisions contained in section 80(1) of the Act will be applicable to such nomination.

The petition was disposed of accordingly.

14 Benedict Denis Kinny vs. Tulip Brian Miranda & Ors. AIR 2020 Supreme Court 3050 Date of order: 19th March, 2020 Bench: Ashok Bhushan J. and Navin Sinha J.

Right to judicial review – Citizen has the right against any order of a statutory authority [Constitution of India, Art. 226]

FACTS
The respondent as well as the appellant contested the election for the seat of Councillor in the Mumbai Municipal Corporation reserved for backward class citizens. On 23rd February, 2017, the respondent No. 1 was declared elected. Section 5B of the Mumbai Municipal Corporation Act, 1888 (Act) requires the candidate to submit his caste validity certificate on the date of filing the nomination papers. A candidate who has applied to the Scrutiny Committee for the verification of his caste certificate before the date of filing of nomination but who has not received the said certificate on the date of filing the nomination, has to submit an undertaking that he shall submit within a period of six months from the date of election the validity certificate issued by the Scrutiny Committee.

It is further provided that if a person fails to produce the validity certificate within the period of six months from the date of election, that election shall be deemed to have been terminated retrospectively and he shall be disqualified from being a Councillor. The period of six months was amended to 12 months by the Amendment Act, 2018.

The Scrutiny Committee, vide its order dated 14th August, 2017, held that respondent No. 1 does not belong to the East Indian category. Therefore, it refused to grant caste validity certificate in favour of the respondent. Writ Petition No. 2269 of 2017 was filed by the respondent challenging the above order of the Caste Scrutiny Committee.

The High Court, vide order dated 18th August, 2017, passed an interim order in favour of respondent No. 1. The High Court, vide its judgment and order dated 2nd April, 2019, allowed the writ petition filed by respondent No. 1 and quashed the order of the Scrutiny Committee dated 14th August, 2017 and remanded the matter to the Scrutiny Committee for fresh consideration.

By the judgment dated 2nd April, 2019, the High Court also directed that the respondent No. 1 is entitled to continue in her seat, since the effect of disqualification was postponed by the interim order and the impugned order of the Caste Scrutiny Committee had been set aside.

Aggrieved by the judgment and order dated 2nd April, 2019, Review Petition (L) No. 20 of 2019 was filed by the appellant which, too, was rejected by the High Court by an order dated 2nd May, 2019. Both the orders, dated 2nd April and 2nd May, 2019, have been challenged by the appellant in this appeal.

HELD
The Court, inter alia, on the question of whether the High Court in exercise of jurisdiction under Article 226 can interdict the above consequences envisaged by section 5B of the Act by passing an interim or final judgment, held as under:

An interim direction can be passed by the High Court under Article 226, which could have helped or aided the Court in granting the main relief sought in the writ petition. In the present case, the decision of the Caste Scrutiny Committee having been challenged by the writ petitioners and the High Court finding prima facie substance in the submissions, granted interim order which ultimately fructified in the final order setting aside the decision of the Caste Scrutiny Committee. Thus, the interim order passed by the High Court was in aid of the main relief, which was granted by the High Court.

The interim order passed by the High Court was in exercise of judicial review by the High Court to protect the rights of the respondents. The appeal was dismissed.

15 Suo motu Public Interest Litigation No. 01 of 2021 Date of order: 11th June, 2021 Bench: Dipankar Datta CJI, A.A. Sayed J., S.S. Shinde J. and Prasanna B. Varale J.

Covid-19 – Extension of interim orders

FACTS
The Court On its Own Motion addressed matters wherein interim orders have been passed by the High Court of Bombay at its Principal Seat, and the Benches at Nagpur and Aurangabad, the High Court of Bombay at Goa, and the Courts / Tribunals subordinate to it, including the Courts / Tribunals in the Union Territory of Dadra and Nagar Haveli, and Daman and Diu, during the second wave of the Covid pandemic and for extending protection to those who are unable to access justice because of the restricted functioning of Courts / Tribunals.

HELD
Taking an overall view of the matter, which tends to suggest that resumption of physical hearings in all the Courts across Maharashtra is still at some distance, the protection granted by the interim orders passed on this PIL stand extended till 9th July, 2021 or until further orders, whichever is earlier, on the same terms.

Further, the Court held that the media has reported incidents of building collapses leading to loss of precious lives. Therefore, if indeed there are buildings / structures which are either dilapidated or dangerous / unsafe requiring immediate demolition and vacation thereof by their inhabitants, the particular Municipal Corporation / Municipal Council / Panchayat / Local Body within whose territorial limits such buildings / structures are located, may, considering the imminent need to have such buildings / structures vacated and demolished, bring the particular instance to the notice of the relevant Division Bench in seisin of suo motu Public Interest Litigation No. 1 of 2020 (High Court On its Own Motion vs. Bhiwandi Nizampur Municipal Corporation & Ors.) and seek appropriate orders for proceeding with the demolition process to take it to its logical conclusion.

16 Lalit Kumar Jain vs. UOI & Ors. Transferred case (Civil) No. 245 of 2020 Date of order: 21st May, 2021 Bench: L. Nageswara Rao J. and S. Ravindra Bhat J.

Personal guarantor – Liable under IBC Code [Constitution of India, Article 32; Insolvency and Bankruptcy Code, 2016, S. 2(e), 31, 60, 78, 79, 239, 240, 249]

FACTS
The petition was preferred under Article 32 as well as transferred cases under Article 139A of the Constitution of India. The common question which arises in all these cases concerns the vires and validity of a Notification dated 15th November, 2019 issued by the Central Government (impugned notification). The petitioners contend that the power conferred upon the Union u/s 1(3) of the Insolvency and Bankruptcy Code, 2016 (Code) could not have been resorted to in a manner so as to extend the provisions of the Code only as far as they relate to personal guarantors of corporate debtors.

HELD
It is quite evident that the method adopted by the Central Government to bring into force different provisions of the Act had a specific design: to fulfil the objectives underlying the Code.

The Amendment of 2018 also altered section 60 of the Code in that insolvency and bankruptcy processes relating to liquidation and bankruptcy in respect of three categories, i.e., corporate debtors, corporate guarantors of corporate debtors and personal guarantors to corporate debtors, were to be considered by the same forum, i.e., the NCLT.

It is, therefore, clear that the sanction of a resolution plan and finality imparted to it by section 31 of the Code does not per se operate as a discharge of the guarantor’s liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself.

Therefore, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee.

The writ petitions were dismissed.

17 Urmila Devi & Ors. vs. Branch Manager, National Insurance Company Limited & Anr. (2020) 11 SCC 316 Date of order: 30th January, 2020 Bench: S.A. Bobde CJI, B.R. Gavai J. and Surya Kant J.

Scope of cross-objection – Even if appeal is withdrawn or dismissed – Cross-objection would survive [Civil Procedure Code, 1908, Or. 41. R. 22]

FACTS
On 2nd May, 2008, Sanjay Tanti, husband of appellant No. 1, father of appellant Nos. 2 to 4 and son of appellant No. 5, met with an accident while he was travelling from Ladma to Goradih by a Tata Maxi vehicle. The appellants filed a claim petition u/s 166 of the Motor Vehicles Act, 1988 (the M.V. Act). The owner of the vehicle was joined as Opponent No. 1; the driver of the vehicle was joined as Opponent No. 2; whereas, the National Insurance Company Limited (hereinafter referred to as ‘the Insurance Company’) was joined as Opponent.

The claim of the Insurance Company was that the driver and the owner of the vehicle had breached the terms and conditions of the insurance policy and, as such, they are not liable for payment of compensation.

The Motor Vehicle Accidental Claim Tribunal (Tribunal) vide judgment and order dated 29th January, 2011, rejected the contention of the Insurance Company that the driver and owner of the vehicle had breached the terms and conditions, and while allowing the claim petition directed the Insurance Company to pay compensation of Rs. 2,47,500 to the claimants.

Being aggrieved by the judgment and award passed by the Tribunal, the Insurance Company preferred Misc. Appeal No. 521 of 2011 before the High Court at Patna contending that the Tribunal had erroneously fastened the liability on it. In the said appeal, a cross-objection came to be filed by the appellants.

When the appeal came up for hearing, it was noticed that the appeal was dismissed for want of office objections and the counsel for the appellants (the Insurance Company) stated that they were not interested in reviving the appeal. The appeal was, as such, disposed of by the High Court. Insofar as the cross-objection of the appellants (the claimants) was concerned, the High Court held that when the appeal filed by the Insurance Company is only restricted to denial of its liability to make the payment of compensation, then in such case the cross-objection at the behest of the claimants in the shape of appeal would not be tenable. It, however, held that if the Insurance Company in the appeal challenges the quantum of compensation, in such a case the claimant(s) will have a right to file an objection.

Being aggrieved, the appellants filed the present appeal by special leave.

HELD

A conjoint reading of the provisions of section 173 of the M.V. Act; Rule 249 of the Bihar Motor Vehicle Rules, 1992; and Order XLI Rule 22 of the CPC, would reveal that there is no restriction on the right to appeal of any of the parties. It is clear that any party aggrieved by any part of the award would be entitled to prefer an appeal. It is also clear that any respondent, though he may not have appealed from any part of the decree, apart from supporting the finding in his favour, is also entitled to take any cross-objection to the decree which he could have taken by way of appeal. When in an appeal the appellant could have raised any of the grounds against which he is aggrieved, a respondent cannot be denied the right to file cross-objection in an appeal filed by the other side challenging that part of the award with which he was aggrieved. The said distinction as sought to be drawn by the High Court is not in tune with a conjoint reading of the provisions of section 173 of the M.V. Act; Rule 249 of the Bihar Motor Vehicle Rules, 1992; and Order XLI Rule 22 of the CPC.

Therefore, even if the appeal of the Insurance Company was dismissed in default and the Insurance Company had submitted that it was not interested to revive the appeal, still the High Court was required to decide the cross-objection of the appellants herein on merits and in accordance with law.

BCAJ Admin

CORPORATE LAW CORNER

5 Muthu Kumar G. vs. Registrar of Companies [127 taxmann.com 550 (Mad)] Date of order: 2nd March, 2021

Where no notice was given to the director before disqualifying him as director of company, order passed by Registrar of Companies disqualifying such individual u/s 164(2)(a) of the Companies Act, 2013 was illegal and was to be set aside

FACTS

This writ petition has been filed challenging the disqualification of the petitioner as director u/s 164(2)(a) of the Companies Act, 2013 on the ground that he has not submitted financial statements for three consecutive financial years. The petitioner has challenged the order dated 17th December, 2018 passed by the Registrar of Companies on the ground that it was passed without affording him an opportunity of a hearing.

HELD

The High Court observed that the ratio laid down by the Division Bench of the Court in the matter of Meethelaveetil Kaitheri Muralidharan vs. Union of India [2020] 120 Taxmann 152 applies to the facts of the instant case also. In the instant case, too, no notice was given to the petitioner director before disqualifying him.

The Court held that since no notice was given to the petitioner director, the order passed by the Registrar of Companies disqualifying him u/s 164(2)(a) was illegal and was to be set aside.

6 Regional Director, Southern Region, MCA and Registrar of Companies, Chennai vs. Real Image LLP (NCLAT) [Company Appeal (at) No. 352 of 2018; Source: NCLAT Official Website] Date of order: 4th December, 2019

If an Indian Limited Liability Partnership (‘LLP’) is proposed to be merged into an Indian Company u/s 232 of the Companies Act, 2013 then the LLP has first to apply for registration / conversion u/s 366 of the Companies Act, 2013

FACTS

The National Company Law Tribunal (NCLT), Chennai Bench vide its order dated 11th June, 2018 allowed the amalgamation of an LLP into a private limited company.

M/s Real Image LLP (referred to as transferor LLP) with M/s Qube Cinema Technologies Private Limited (referred to as transferee company) and their respective partners, shareholders and creditors moved a joint company petition under sections 230 to 232 of the Companies Act, 2013 before the NCLT, Chennai. The NCLT, after considering the scheme, found that all the statutory compliances have been made under sections 230 to 232 of the Companies Act, 2013.

NCLT further found that as per the earlier section 394(4)(b) of the Companies Act, 1956, an LLP could be merged into a company but there is no such provision in the Companies Act, 2013. However, an explanation to sub-section (2) of section 234 of the Act, 2013 permits a foreign LLP to merge with an Indian company; hence it would be wrong to presume that the Companies Act, 2013 prohibits the merger of an Indian LLP with an Indian company.

The NCLT observed that there was no legal bar to allow the merger of an Indian LLP with an Indian company. Therefore, applying the principle of casus omissus (a situation not provided by statute and hence governed by common law), NCLT by an order allowed the amalgamation of the transferor LLP with the transferee company.

The appellants preferred an appeal u/s 421 of the Companies Act, 2013 with a question for consideration before the National Company Law Appellant Tribunal (NCLAT) whether by applying the principle of casus omissus an Indian LLP incorporated under the LLP Act, 2008 can be allowed to merge into an Indian company incorporated under the Companies Act, 2013?

HELD

The NCLAT in its order stated that it is undisputed that the transferor LLP is incorporated under the provisions of the LLP Act, 2008 and the transferee company is incorporated under the Companies Act, 2013. Thus, these corporate bodies were governed by the respective Acts and not by the earlier Companies Act, 1956.

As per section 232 of the Companies Act, 2013 a company or companies can be merged or amalgamated into another company or companies.

It was observed that the Companies Act, 2013 has taken care of the merger of an LLP into a company. In this regard section 366 of the Companies Act, 2013 for Companies Capable of Being Registered provides that for the purpose of Part I of Chapter XXI (for Companies Authorised to Register Under this Act) the word company includes any partnership firm, limited liability partnership, co-operative society, society or any other business entity which can apply for registration under this part.

It means that under this part LLP will be treated as a company and it can apply for registration, and once the LLP is registered as a company, then the company can be merged in another company as per section 232 of the Companies Act, 2013.

The NCLAT concluded in its order that on reading the provisions of the Companies Act, 2013 as a whole in reference to the conversion of an Indian LLP into an Indian company, there is no ambiguity or anomalous results which could not have been intended by the Legislature. The principle of casus omissus cannot be supplied by the Court except in the case of clear necessity, and when a reason for it is found within the four corners of the statute itself, then there is no need to apply the principle of casus omissus.

The NCLAT held that the order passed by the NCLT, Chennai Bench is not sustainable in law, hence it set aside the order which sought to allow the merger of an Indian LLP with an Indian Company without registration / conversion of the LLP into a company u/s 366 of the Companies Act, 2013.

7 Joint Commissioner of Income Tax (OSD), Circle (3)(3)-1, Mumbai and Income Tax Officer, Ward 3(3)-1, Mumbai vs. Reliance Jio Infocomm Ltd. and M/s Reliance Jio Infratel Pvt. Ltd. Company Appeal (at) No. 113 of 2019 [National Company Law Appellate Tribunal (NCLAT), New Delhi; Source: NCLAT Official Website] Date of order: 20th December, 2019

Mere fact that a Scheme of Compromise or Arrangement may result in reduction of tax liability does not furnish a basis for challenging the validity of the same

FACTS

A joint petition under sections 230 to 232 of the Companies Act, 2013 was filed seeking sanction of the Composite Scheme of Arrangement amongst Reliance Jio Infocomm Limited, Jio Digital Fibre Private Limited and Reliance Jio Infratel Private Limited and their respective shareholders and creditors before the National Company Law Tribunal (NCLT), Ahmedabad Bench.

The NCLT, Ahmedabad Bench, by its order dated 11th January, 2019 directed the Regional Director, North-Western Region to make a representation u/s 230(5) of the Companies Act, 2013 and the Income-tax Department to file a representation.

According to the appellants, the NCLT has not adjudicated upon the objections raised by the appellants that the NCLT has not dealt with the specific objection that conversion of preference shares by cancelling them and converting them into loan would substantially reduce the profitability of the de-merged company / Reliance Jio Infocomm Limited which would act as a tool to avoid and evade taxes.

Under the Scheme of Arrangement, the transferor company has sought to convert the redeemable preference shares into loans, i.e., conversion of equity into debt which would reduce the profitability or the net total income of the transferor company causing a huge loss of revenue to the Income-tax Department.

According to the appellants, the scheme seeks to do indirectly what it could not have done directly under the law. By way of the composite scheme, there is an indirect release of assets by the de-merged company to its shareholders which is used to avoid dividend distribution tax which would have otherwise been attracted in the light of section 2(22)(a) of the Income-tax Act.

Further, when preference shares are converted into loan, the shareholders turn into creditors of the company. There are two consequences of this. Firstly, the shareholders who are now creditors can seek payment of the loan irrespective of whether or not there are accumulated profits, and secondly, the company would be liable to pay interest on the loans to its creditors, which it otherwise would not have had to do to its shareholders. Payment of interest on such huge amounts of loans would lead to reducing the total income of the company in an artificial manner which is not permissible in law.

It was also alleged that the proposed scheme does not identify the interest rate payable on the loan which will be a charge on the profits of the company. Even if 10% interest rate is considered as per section 186 of the Companies Act, 2013, this would amount to interest of approximately Rs. 782 crores per annum which would reduce the profitability of the company as this interest would reduce tax by Rs. 258 crores (approximately) each year. The reduction in the profitability is clearly resulting in tax evasion.

HELD
The NCLAT held that it was not open to the Income-tax Department to hold that the Composite Scheme of Arrangement amongst the petitioner companies and their respective shareholders and creditors is giving undue favour to the shareholders of the company and also the overall Scheme of Arrangement results in tax avoidance. The mere fact that a scheme may result in reduction of tax liability does not furnish a basis for challenging the validity of the same.

The NCLT, Ahmedabad bench, while approving the Composite Scheme of Arrangement, has granted liberty to the Income-tax Department to inquire into the matter, whether any part of the Composite Scheme of Arrangement amounts to tax avoidance or is against the provisions of the Income Tax, and to let it take appropriate steps if so required.

Thus, NCLAT upheld the decision of the NCLT, Ahmedabad bench and in view of the liberty given to the Income-tax Department, decided not to interfere with the Scheme of Arrangement as approved by the Tribunal and dismissed the appeals filed.

8 Lalit Kumar Jain vs. Union of India & Ors. Transferred Civil case No. 245 of 2020 [2021 127 Taxmann.com 368 (SC)] Date of order: 21st May, 2021

CASE NOTE
1. Central Government has power to notify different sections on different dates and also to special species of individuals, i.e., personal guarantors
2. Approval of resolution plan of the corporate debtor shall not ipso facto absolve the personal guarantors of their liability

FACTS OF CASE
The case deals with various writ petitions which challenged the constitutional validity of Part III of the IBC, which deals with insolvency resolution for individuals and partnership firms. The Supreme Court transferred all writ petitions from the High Courts to itself to take up interpretation of the impugned provisions of the IBC.

QUESTIONS OF LAW INVOLVED IN THE CASE
(1) Whether executive government could have selectively brought into force the Code, and applied some of its provisions to one sub-category of individuals, i.e., personal guarantors to corporate creditors?

HELD BY THE SUPREME COURT
• The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant uncertain outcomes, led to carving out personal guarantors as a separate species of individuals for whom the Adjudicating Authority was common with the corporate debtor to whom they had stood guarantee.

• The Court held that there is no compulsion in the Code that it should, at the same time, be made applicable to all individuals (including personal guarantors), or not at all. There is sufficient indication in the Code, by section 2(e), section 5(22), section 60 and section 179, indicating that personal guarantors, though forming part of the larger grouping of individuals, were to be, in view of their intrinsic connection with corporate debtors, dealt with differently through the same adjudicatory process and by the same forum (though not insolvency provisions) as such corporate debtors. The notifications under section 1(3), (issued before the impugned notification was issued) disclose that the Code was brought into force in stages, regard being given to the categories of persons to whom its provisions were to be applied. The exercise of power in issuing the impugned notification under section 1(3), therefore, is held not ultra vires and the notification valid.

(2) Whether the impugned notification, by applying the Code to personal guarantors only, takes away the protection afforded by law as once a resolution plan is accepted, the corporate debtor is discharged of liability?

• Approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of his or her liabilities under the contract of guarantee. As held by this Court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e., by operation of law, or due to liquidation or insolvency proceedings, does not absolve the surety / guarantor of his or her liability, which arises out of an independent contract.

• The Court referred to provisions of sections 128, 133, 134 and 140 of the Contract Act, 1872 and rejected the argument of extinguishment of liability on the ground of variance of contract and held that the operation of law shall not be at variance. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realise the same from the guarantor in view of section 128 of the Contract Act as there is no discharge u/s 134 of that Act.

• It held that the impugned notification is legal and valid. It also held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors (to corporate debtors).

BCAJ Admin

CORPORATE LAW CORNER

15 Chandrasekar Muruga vs. Registrar of Companies (TN) Company Appeal (AT) No. 76 of 2019 (NCLAT) [2019] 151 CLA 366 Date of order: 29th May, 2019

Where name of the Company is struck off due to non-filing of financial documents but it is found that significant accounting transactions were undertaken during the relevant period and the Company being in operation was carrying on business, the name of the Company is to be restored in the Register

FACTS
The shareholders and directors of M/s MPC India Private Limited (‘M/s MPC’) had filed an instant appeal against the order dated 20th February, 2019 by which the National Company Law Tribunal at Chennai (‘NCLT’) declined to restore the name of M/s MPC in the Register of Companies as maintained by the Office of the Registrar of Companies (‘ROC’) on the ground of failure to file its financial statements and annual returns with the ROC from the financial years 2009-10 to 2017-18.

The NCLT observed that since M/s MPC had not filed financial statements and annual returns for the F.Ys. 2009-10 to 2017-18, there was no adequate reason to restore the company’s name. Therefore, there was no scope to grant an order for restoration of the name in the Register of Companies.

However, the NCLT noted the submission made by M/s MPC that the balance sheet was prepared and Annual General Meetings were held on time and duly signed by the respective directors but for reasons unknown the officials concerned failed to upload the same. NCLT also admitted that the Income-tax Returns and bank statements submitted by M/s MPC show that there have been significant accounting transactions during the aforesaid period.

The order was challenged primarily on the ground that the ROC had improperly exercised jurisdiction u/s 248 of the Companies Act, 2013 and the NCLT failed to notice that the parameters as set out in section 252(3) of the Companies Act, 2013 had been satisfied by M/s MPC.

HELD
The NCLAT observed that M/s MPC was struck off by the ROC on the ground of non-filing of financial statements and annual returns for the financial years 2009-10 to 2017-18, though it was not disputed that it had filed Income-tax Returns and bank statements for the A.Ys. 2008-09 to 2017-18, which demonstrated significant accounting transactions during the aforesaid period.

NCLAT further observed that it was futile to address the issue of non-adherence to the procedural requirements on the part of the ROC in striking off the name of the company within the ambit of section 248 of the Companies Act, 2013 and the fact was observed in the order that the NCLT had overlooked the factum of the significant accounting transactions admittedly undertaken by M/s MPC during the relevant period justifying no conclusion other than that M/s MPC was in operation and carrying on business.

Accordingly, the NCLAT held that the findings recorded by the NCLT being erroneous cannot be supported and the same were liable to be reversed and a just ground existed for restoration of the name of the company. The appeal was accordingly allowed, the order set aside and the ROC directed to restore the name of M/s MPC subject to statutory compliances being filed together with the prescribed fees and penalties leviable thereon as mandated by law.

16 M/s Vintage Hotels Private Limited & Ors. vs. Mr. Ahamed Nizar Moideen Kunhi Kunhimahin Company Appeal (AT) No. 408 of 2018 (NCLAT) Source: NCLAT Official Website Date of order: 12th November, 2020

The discretionary power of directors to refuse ‘Transfer of Shares’ is not to be resorted to in a deliberate or arbitrary fashion but in good faith – The directors are to give due weightage to shareholder’s right to transfer his share

FACTS
Mr. K was an existing shareholder and also one of the Directors of M/s Vintage Hotels Private Limited (‘VHPL Company’). It was learnt from the contents of the affidavit of Mr. TH dated 10th April, 2015 that he was holding 20,000 equity shares of Rs. 100 each of the company and that he had transferred the aforesaid shares to Mr. K and further that the share certificates were lost and were not in his possession. The deponent (Mr. TH) had averred that he had made a request to VHPL Company to issue duplicate share certificates in lieu of the original share certificates in the name of Mr. K.

The VHPL Company, through its communication dated 30th October, 2015, had rejected the request for transfer of shares in the name of Mr. K. The company submitted that in the share transfer form SH-4 furnished by Mr. K the distinctive numbers of the shares were not mentioned, the corresponding share certificate numbers were not mentioned, the witness’s signature and name was not found and the transferee’s details were not mentioned. Further, the allotment letter or the ‘Original Share Certificate’ was not enclosed with the share transfer form.

Mr. K also contended that the board of directors had not issued the duplicate share certificates even though a request was made by him.

The NCLT Bengaluru bench via an order dated 16th October, 2018 after considering the facts and circumstances of the case and also taking into consideration the existing law, came to the conclusion that the action of VHPL Company in refusing to transfer the shares in favour of Mr. K was an arbitrary and unjustifiable one and consequently issued a direction to VHPL Company to rectify the register of shareholders by incorporating the name of Mr. K in place of Mr. T.H in respect of the 20,000 equity shares under transfer.

The VHPL Company was aggrieved by the order passed by the NCLT which directed it to register the transfer of shares in favour of Mr. K.

HELD
The NCLAT observed that the discretionary power to refuse ‘Transfer of Shares’ was not to be resorted to in a deliberate, arbitrary, fraudulent, ingenious or capricious fashion. As a matter of fact, the directors were to exercise their discretion in good faith and to act in the interest of the company. The directors were to give due weightage to the shareholder’s right to transfer his shares. When the original share certificates are lost, it is not prudent for VHPL Company to insist upon the production of the original share certificates in question to give effect to the transfer of shares. Thus, NCLAT upheld the order passed by the NCLT, Bengaluru bench and dismissed the appeal.

17 Ghanashyam Mishra & Sons (P) Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd. Supreme Court of India [2021] 126 Taxmann.com 132 (SC)

CASE NOTE
Amendment to section 31 by IBC (Amendment) Act, 2019 is declaratory and clarificatory in nature Central Government, any State Government or any local authority to whom an operational debt is owed would come within ambit of ‘operational creditor’ as defined under sub-section (20) of section 5

FACTS
Insolvency proceedings were initiated by State Bank of India u/s 7 of the Insolvency and Bankruptcy Code (IBC) before the National Company Law Tribunal, Kolkata bench.

In response to the invitation made by the resolution professional for a resolution plan, three resolution plans were received, one each from Edelweiss Asset Reconstruction Company Limited (EARC), Orissa Mining Private Limited (OMPL) and Ghanashyam Mishra & Sons Private Limited (GMSPL).

The GMSL resolution plan was duly approved with the voting share right of more than 89.23%.

QUESTIONS OF LAW INVOLVED
Whether after approval of the resolution plan by the Adjudicating Authority a creditor including the Central Government, State Government or any local authority is entitled to initiate any proceedings for recovery of any of the dues from the corporate debtor which are not part of the resolution plan approved by the Adjudicating Authority.

Whether any creditor, including the Central Government, State Government or any local authority is bound by the resolution plan once it is approved by the Adjudicating Authority u/s 31(1) of the Code.

Whether the amendment to section 31 is clarificatory / declaratory or substantive in nature.

HELD BY THE SUPREME COURT
The Government is covered under the definition of creditor under the IBC. The Court, through a harmonious construction of the definition of operational creditor, operational debt and creditor, observed that even a claim in respect of the dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority would come within the ambit of operational debt.

The operational debt owed to the Central Government, any State Government or any local authority would come within the ambit of operational creditor. Similarly, a person to whom a debt is owed would be covered by the definition of creditor.

The Supreme Court further observed that the claims as mentioned in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders, once a resolution plan is duly approved by the NCLT u/s 31(1) of the IBC.

Consequently, all the dues, including the statutory dues owed to the Central Government, State Government or any local authority if not part of the resolution plan, shall stand extinguished and proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval u/s 31 cannot be continued.

The Court further observed that the section 31 amendment of the IBC is clarificatory in nature and therefore will come into effect from the date on which the IB Code came into effect.

BCAJ Admin

ALLIED LAWS

23 Laureate Buildwell (P) Ltd. vs. Charanjeet Singh 2021 SCC OnLine SC 479 (SC) Date of order: 22nd July, 2021 Bench: U.U. Lalit J, Hemant Gupta J and S. Ravindra Bhat J

Consumer protection – Consumer – Real estate – Subsequent purchaser from original allottee – Same rights against builder [Consumer Protection Act, 1986, S. 2]

FACTS
One Ms Madhabi Venkatraman, the original allottee, applied for allotment of a residential flat. According to the allotment letter, the possession of the flat was to be handed over within 36 months. Upon noticing the slow construction, the original allottee decided to sell the flat. The purchaser (respondent) who was in search of a residential flat was approached by the original allottee through a broker. He was assured that the possession of the flat would be delivered on time and he agreed to purchase the flat. The purchaser alleged that possession was not delivered as promised in the allotment letter. The original allottee requested the builder (appellant) to transfer the flat in favour of the respondent.

The respondent was informed that possession of the said flat could not be delivered till the end of year 2017. After this, the purchaser sought for refund of the amount paid from the builder. On refusal of the payment of instalment, the officials of the builder threatened the purchaser with cancellation and forfeiture of the amounts paid. In these circumstances, the appellant approached the National Consumer Disputes Redressal Commission (NCDRC).

The NCDRC allowed a refund with 10% interest and imposed cost on the respondent. The respondent is in appeal against the said order.

HELD
The original allottee had approached the builder, informing him that the purchaser had stepped into her shoes and would continue with the obligations and was therefore entitled to possession. Subsequently, the builder endorsed and even required the purchaser to execute the letter of undertaking, which he did. Thereby, the builder acknowledged that the rights and entitlements of the original allottee were assumed by the purchaser and also confirmed his own obligations to the new purchaser (the consumer).

The definition of ‘consumer’ under the Act is very wide and it includes beneficiaries who can take benefit of the insurance availed by the insured. If one also considers the broad objective of the Consumer Protection Act, it is to provide for better protection of the interests of consumers. Therefore, a subsequent purchaser of a flat has the same rights as the original allottee.

24 Dena Bank vs. C. Shivakumar Reddy Civil Appeal No. 1650 of 2020 (SC) Date of order: 4th August, 2021 Bench: Indira Banerjee J and V. Ramasubramanian J

Additional documents – Insolvency application – Can be admitted later [Insolvency and Bankruptcy Code, 2016, S. 7]

FACTS
The bank sanctioned a term loan to the Corporate Debtor which was to be repaid in 24 quarterly instalments. Upon failure on the part of the Corporate Debtor to repay, the Bank initiated proceedings under Insolvency and Bankruptcy Code (IBC) before the National Company Law Tribunal (NCLT).

During the IBC proceedings, on two occasions the bank filed applications to place new documents on record. Both the applications were allowed. Pursuant thereto, the NCLT passed an order admitting the application of the bank.

The Corporate Debtor challenged the order before the NCLAT and succeeded. Aggrieved by the order of the NCLAT, the bank approached the Supreme Court.

HELD
The Supreme Court, inter alia, held that on a careful reading of the provisions of the IBC, and in particular the provisions of section 7(2) to (5) read with the 2016 Adjudicating Authority Rules, there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed. The time stipulation of 14 days in section 7(4) to ascertain the existence of a default is apparently directory and not mandatory. The proviso inserted by an amendment with effect from 28th December, 2019 provides that if the Adjudicating Authority has not ascertained the default and passed an order under sub-section (5) of section 7 of the IBC within the aforesaid time, it shall record its reasons in writing for the same. No other penalty is stipulated.

Furthermore, the proviso to section 7(5)(b) of the IBC obliges the Adjudicating Authority to give notice to an applicant to rectify the defect in its application within seven days of receipt of such notice from the Adjudicating Authority, before rejecting its application under Clause (b) of sub-section (5) of section 7 of the IBC. When the Adjudicating Authority calls upon the applicant to cure some defect, that defect has to be rectified within seven days. There is no penalty prescribed for inability to cure the defects in an application within seven days from the date of receipt of notice, and in an appropriate case the Adjudicating Authority may accept the cured application even after the expiry of seven days to meet the ends of justice.

Therefore, there is no bar in law to the amendment of pleadings in an application u/s 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with the application u/s 7 of the IBC in Form-1. In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the appellant bank to file additional documents.

25 South Eastern Coalfields Ltd. vs. S. Kumar’s Associates AKM (JV) 2021 SCC OnLine SC 486 Date of order: 23rd July, 2021 Bench: Sanjay Kishan Kaul J and Hemant Gupta J

Letter of intent – No binding relation – Forfeit the bid security amount [Indian Contract Act, 1872, S. 3, S. 7]

FACTS
In June, 2009, South Eastern Coalfields Ltd. (the appellant) floated a tender. The respondent was the successful bidder amongst others. A Letter of Intent (LOI) was issued by the appellant awarding the contract for a total work of Rs. 387.4 lakhs.

The respondent, in pursuance of the LOI, mobilised resources at the site. The respondent apparently faced difficulties soon thereafter as the truck-mounted drill machine employed by it suffered a major breakdown. The work, thus, had to be suspended for reasons beyond the control of the respondent. The endeavour to rectify the position or arrange alternative machinery did not work out and the purchase of new machines was expected only after about three months.

The contractual relationship apparently deteriorated. The appellants issued a letter alleging breach of terms of contract and the applicable rules and regulations by the respondent. The appellant further asked the respondent to show cause as to why penal action be not initiated for – (a) termination of work; (b) blacklisting of the respondent company; and (c) award of execution of work to another contractor at the cost and risk of the respondent. Subsequently, the final termination of work was carried out vide letter dated 15th April, 2010.

The respondent filed a writ petition under Articles 226 and 227 of the Constitution of India seeking quashing of the termination letter dated 15th April, 2010. The Division Bench of the Chhattisgarh High Court opined that there was no subsisting contract inter se the parties to attract the general terms and conditions as applicable to the contract.

The appellant filed a Special Leave Petition against the said order.

HELD
None of the mandates was fulfilled except that the respondent mobilised the equipment at the site; the handing over of the site and the date of commencement of the work was also fixed. The respondent, thus, neither submitted the Performance Security Deposit nor signed the Integrity Pact. Consequently, the work order was also not issued nor was the contract executed. Thus, the moot point would be whether mobilisation at the site by the respondent would amount to a concluding contract inter se the parties. The answer to the same would be in the negative. Therefore, all that the appellants can do is to forfeit the bid security amount.

26 Edelweiss Asset Reconstruction Co. Ltd. vs. TRO and Ors. WP(L) No. 7964 of 2021 Date of order: 28th July, 2021 Bench: S.P. Deshmukh J and Abhay Ahuja J

Recovery of dues – Priority of debtor – Secured creditor would have priority over Government dues [SARFAESI Act, 2002, S. 13(2)]

FACTS
The petitioner, as assignee of right, title and interest of the credit facilities to one Classic Diamonds (India) Ltd. (the borrower, now in liquidation) purporting to have a superior secured and prior charge in time over the attached properties, having commenced proceedings under the SARFAESI / Securitisation Act by issue of notices under sections 13(2) and 13(4) and having taken possession of one of the attached properties (as will be described hereinafter), is aggrieved by the order of attachment dated 17th January, 2013 passed by the respondent, i.e., the Tax Recovery Officer (TRO), seeking recovery of income tax dues of the borrower.

The moot issue arising herein is whether the secured debt assigned in favour of the petitioner has a priority over Government dues / tax dues.

HELD
Relying on the decision of the Supreme Court in the case of Bombay Stock Exchange vs. V.S. Kandalagaokar (2015) 2 SCC 1 and the decision in the case of State Bank of India vs. State of Maharashtra and Ors. (2020) SCC OnLine Bom 4190, the Court held that the charge of the secured creditor would have priority over the Government dues under the Income-tax Act. There is no provision in the IT Act which provides for any paramountcy of the dues of the IT Department over secured debt.

BCAJ Admin

Corporate Law Corner Part B: Insolvency and Bankruptcy Law

7. Rajratan Babulal Agarwal vs. Solartex India Pvt. Ltd. & Ors.
Supreme Court of India Civil Appellate Jurisdiction
Civil Appeal No. 2199 of 2021

The standard i.e., the reference to which a case of a pre-existing dispute under IBC must be employed, cannot be equated with even the principle of preponderance of probability.

FACTS

The Operational Creditor (“OC”) and Corporate Debtor (“CD”) entered into an agreement for supply of 500 MT of Indonesian coal. The purchase order was dated 27th October, 2016 and the OC supplied 412 MT of coal between 28th October, 2016 to 2nd November, 2016. The CD sent a demand notice on 3rd February, 2018 to the OC for debt due of Rs. 21,57,700 against which the CD sent a reply notice holding the OC liable for an amount of Rs. 4,44,17,608 for its losses.

The OC filed a Section 9 application against the CD in the National Company Law Tribunal, Ahmedabad Bench (“NCLT”). Before NCLT, the OC stated that the CD’s reply notice has been done to create a spurious dispute that was not in existence before receiving of the notice, and that the claim raised by the CD concerns an associate company of the OC, and not the OC itself. The CD submitted that Section 9 petition should be rejected since there existed a pre-existing dispute in response to the demand notice dated 13th April, 2018. The CD stated that civil suits are pending that seek damages for loss suffered, and that disputes between the parties existed from the very beginning. The CD also resisted the application saying that the inferior quality of the coal could be tested only upon its receipt. The NCLT, in its order, recorded that no pre-existing disputes were observed and passed an order in favour of the OC.

An ex-director of the CD appealed before the National Company Law Appellate Tribunal (“NCLAT”) stating that emails were sent by the CD on 30th October, 2016 and 3rd November, 2016 informing the OC of the inferior quality of coal and similarly vide an email dated 4th November, 2016 which stated that moisture content in the coal is not as per specifications and thus, it suffered losses. It filed a suit on 26th March, 2018 seeking damages against the losses caused. The OC stated that a suit seeking damages Rs. 3 crores was filed after receiving the statutory notice, and hence as per Section 8(2)(a) of the Insolvency and Bankruptcy Code (“IBC), the suit was not pending before the receipt of the statutory notice, and hence is not a pre-existing dispute. Reliance was further placed on the judgement of Hon’ble Supreme Court in the case of Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 (“Mobilox judgement”) wherein it was held that dispute should not be a patently feeble legal argument or an assertion of fact unsupported by evidence. The NCLAT relied on the emails dated 30th October, 2016, 3rd November, 2016 and 4th November, 2016 along with a lab analysis report of raw material, the reply to statutory notice and civil suit for damages filed by the OC. The NCLAT held that the 30th October, 2016 email is not related to the transaction in question. After perusal of the other two emails, it was said that the CD consumed the coal after the 4th November, 2016 email, and filed a civil suit against the OC only upon receipt of statutory notice. That civil suit for damages was filed on 26th March, 2018 post receiving the notice on 8th February, 2018 and therefore should not be treated as existence of dispute. Therefore, the appeal was dismissed. The ex-director of the CD filed an application for appeal against the NCLAT order, and hence this appeal.

Question of law

Whether existence of the civil suit as raised by the CD be classified as ‘pre-existing dispute’ as understood by Hon’ble SC in the Mobilox judgement?

Ruling

Before the SC, the Appellant submitted that the 30th October, 2016 email contained reference of not just the purchase order of 27th October, 2016 but also with regard to supply of coal to the CD, and the 3rd November, 2016 email mentioned the inferior quality of supplied coal. He contended that as per Section 12 of the Sales of Goods Act, 1930 (“Act”), in a contract of sale of goods, a term may be a condition or a warranty, and that he treated the condition relating to quality of goods as a warranty, as per Section 59 of the Act which declares remedies open for such buyer.

A perusal of the section reveals that a stipulation in a contract of sale can be a condition or a warranty depending upon construction of the contract. Section 59 of the Act, on the other hand, contemplates a suit for damages as well as setting up the extinction of the price. It provides for the remedy for breach of warranty, and that the buyer can set up a breach of warranty in diminution or extinction of the price which further does not prevent him from suing for the same breach of warranty if he has suffered further damage. The context for further damage in this case can be seen from the 3rd November, 2016 email which stated that in case of any further damage, the same would be debited to the account of the OC, while the CD continued using the coal until that very day as per the OC.

The Supreme Court (“SC”) perused Section 13 of the Act that deals with when the conditions can be treated as warranty. Further emphasis was laid on Section 15 of the Act which provides for ‘sale of specific goods by description’ and that in case of sale of goods by description, there is an implied condition for the goods to correspond with the description.

The SC perused the purchase order, which mentioned that the coal must be of a certain quality in terms of its characteristics. It was stated that the transaction could be treated as a ‘sale of goods by description’ as a contract for the sale of 500 metric tonnes of Indonesian coal. The SC said that there indeed was an email dispatched to the OC on 30th October, 2016 which was wrongly brushed aside by the NCLAT.

The SC referred to the Mobilox judgement that essentially provided the non-requirement of the dispute being ‘bona fide’ to decide if a dispute exists or not, that the adjudicating authority only needs to see is if there is a plausible contention which requires further investigation, and that the ‘dispute’ is not a feeble legal argument or assertion of fact unsupported by evidence.

The SC stated that the transaction should be treated as a sale of goods as the contract gleaned from purchase order that related to goods sold by description, i.e., Indonesian coal (as also mentioned in email of 3rd November, 2016 about poor quality of ‘Indonesian coal’). The Court supported the Appellant’s argument that the specific objective criteria of quality of coal was not taken care of by the OC, thereby attracting Section 59 of the Act, hence permitting the CD to treat the breach of the condition (of specific coal quality) when there is acceptance of goods as only a breach of a warranty. It was provided that the CD has right to seek damages on the same breach.

SC considered the case of Mobilox judgement where it was held that,

“one of the objects of IBC in regard to operational debts is to ensure that the amount of such debts which is usually smaller than the financial debts does not enable the operational creditor to put the Corporate Debtor into insolvency resolution process prematurely, the same being enough to state that dispute exists between the parties. The Mobilox judgement also provided that Section 5(6) of IBC excludes the expression ‘bona fide’, and that the only requirement is existence of a plausible contention, which must be investigated.”

HELD

Holding that the standard i.e., the reference to which a case of a pre-existing dispute under IBC must be employed, cannot be equated with even the principle of preponderance of probability which guides a Civil Court at the stage of finally decreeing a suit, the SC decided that the NCLAT had erred in holding that there was no dispute within the meaning of IBC.

The SC held that, to determine a pre-existing dispute, the impact of Section 13(2) r.w.s. 59 cannot be ignored. It clarified that Section 13 of the Act permits the buyer to waive a condition, and therefore the OC persuaded the Court that the CD has waived the alleged condition as regards the coal’s quality.

The Appellant’s appeal was allowed on the basis that pre-existing dispute existed under IBC, and Section 9 application filed by the OC against the CD rejected.

BCAJ Admin

Corporate Law Corner Part A : Company Law

12. Economy Hotels India Services Pvt. Ltd.
vs. Registrar of Companies & Anr.
Company Appeal (AT) No. 97 of 2020
Date of order: 24th August, 2020

A ‘typographical error’ in the extract of ‘Minutes’, does not alter the fact that the resolution passed by the shareholders is a ‘special resolution’.

FACTS

The National Company Law Tribunal (NCLT) observed the following:

Section 66 of the Companies Act, 2013 (CA 2013) states that subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner.

Article 9 of the Articles of Association of EHISPL allowed it to reduce its share capital by passing a special resolution. The Board of Directors, vide their resolution dated 29th July, 2019 recommended a reduction in the capital. Article 9 further provided that the said resolution was subject to the consent of members by a special resolution.

The NCLT perused the minutes of the Annual General Meeting (AGM) of the company held on 19th August, 2019. The minutes stated that Mr. BS was elected to chair the meeting. The minutes recorded that in the said AGM, members had passed the resolution for reducing capital “as an ordinary resolution”. The Minutes of the said AGM were signed by the Chairman of the meeting.

The NCLT observed that EHISPL had not met the specific requirement of Section 66 of CA 2013 by passing a ‘Special Resolution’ for reduction of share capital. EHISPL had also not complied with the requirements of its Articles of Association.

The NCLT rejected the application in view of the fact that there was no special resolution for reduction of share capital as prescribed u/s 66 of CA 2013 and as required in Article 9 of the company’s Articles of Association. Section 66 of CA 2013 also requires the Tribunal to approve the minutes of the resolution passed by the company, which had been passed as ordinary resolution as against the requirement of special resolution. NCLT was not in a position to approve such minutes and, consequently, rejected the petition by granting liberty to the Appellant/Petitioner to file a fresh application after complying with all the requirements of Section 66 of CA 2013.

EHISPL, dissatisfied with the order dated 27th May, 2020 passed by NCLT, Bench V in Company Petition No. 149/66/ND/2019, which rejected the petition filed u/s 66(1)(b) of CA 2013, thereafter filed an appeal through Mr. RR, Authorised representative of EHISPL.

Mr. RR submitted the following:

EHISPL is a wholly owned subsidiary of a company incorporated under the laws of Singapore.

As of 30th June, 2019, the issued, subscribed and paid-up share capital of EHISPL was increased from Rs. 30 lakhs divided into 3 lakhs equity shares of Rs. 10 each to Rs. 67,47,90,000 divided into 6,74,79,000 equity shares of Rs. 10 each.

The AGM of EHISPL was held on 19th August 2019, and was attended by both the equity shareholders holding 100 per cent of the issued, subscribed and paid-up equity share capital of EHISPL. The said equity shareholders present at the said meeting had cast their votes in favour of the aforesaid resolution etc.

Sufficient documents were present to prove that the special resolution as required u/s 66 of CA 2013 and in terms of the requirement under Article 9 of the ‘Articles of Association’ of EHISPL was passed in the AGM conducted.

Mr. RR pointed out that the Tribunal failed to appreciate that the unanimous resolution was passed on 19th August, 2019, which was in fact, a ‘Special Resolution’ passed unanimously by the shareholders of EHISPL.

The resolution passed on 19th August, 2019 was in complete compliance with all the three requisites of Section 114(2) of CA 2013, and since the Tribunal treated the aforesaid ‘resolution’ as an ‘ordinary’ resolution, the impugned order is liable to be set aside in the interests of justice.

Mr. RR lent support to his contention that the resolution passed on 19th August, 2019 by EHISPL was a ‘special resolution’ that adverts to the ingredients of Section 114 of CA 2013.

The pre-mordial plea of EHISPL was that the NCLT had failed to appreciate the creeping in of an ‘inadvertent typographical error’ figuring in the extract of the ‘Minutes of the Meeting’ characterising the ‘special resolution’ as ‘unanimous ordinary resolution’. Moreover, EHISPL had fulfilled all the statutory requirements prescribed u/s 114 of CA 2013 and as such the impugned order of the Tribunal was liable to be set aside.

It transpired that the ‘Special Resolution’ passed in the ‘Annual General Meeting’ as filed with the e-form MGT-14 reflects that the resolution passed by the shareholders on 19th August, 2019 was a ‘Special Resolution’ which was taken on record in MCA21 Registry.

HELD

The NCLAT observed that ‘Reduction of Capital’ u/s 66 of CA 2013 is a ‘Domestic Affair’ of a particular Company in which, ordinarily, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails.

EHISPL had admitted its typographical error in the extract of the Minutes of the Meeting characterising the ‘special resolution’ as an ‘unanimous ordinary resolution’ and also taking into consideration of the fact that EHISPL had filed the special resolution with ROC, which satisfied the requirement of Section 66 of CA 2013.

On a careful consideration of respective contentions, the NCLAT, after subjectively satisfying itself that EHISPL has tacitly admitted its creeping in of typographical error in the extract of the minutes and also taking into consideration that EHISPL had filed the special resolution with it, which satisfied the requirement of Section 66 of CA 2013, allowed the Appeal. NCLAT further confirmed the reduction of share capital of EHISPL as resolved by the ‘Members’ in their ‘Annual General Meeting’ that took place on 19th August, 2019. NCLAT further approved the form of Minutes required to be filed with Registrar of Companies, Delhi u/s 66(5) of CA 2013, by EHISPL.

BCAJ Admin

Allied Laws

38. M Baburaj vs. State of Kerala
AIR 2022 Kerala 148
Date of order: 15th July, 2022
Bench: A. Badharudeen J.

Succession certificate – not mandatory – for claim of award under land acquisition cases [S.214(1)(b), Succession Act, 1925; S.31, Land Acquisition, 1894]

FACTS

In a land acquisition case, the Hon’ble Supreme Court granted enhanced compensation. The Respondent deposited the same in court after the death of the claimant. The claimant was succeeded by her son, who is the Petitioner. The Sub Court insisted that the Petitioner produce a copy of the succession certificate. The Petitioner preferred a Writ Petition against this insistence.

HELD

The law emerges is that production of succession certificate is mandatory as per Section 214(1)(b) of the Succession Act when the decree-holder dies in cases where the decree amount comes under the category ‘debts’ or ‘securities’. The compensation arising out of motor accidents or from land acquisition proceedings or cases involving grants of compensation under the Electricity Act, etc., would not come under the purview of `debts’ or `securities’. Therefore, in such cases, the production of a succession certificate is not mandatory. Therefore, the surviving decree holder can execute the decree on his own behalf and on behalf of the legal representative of the deceased decree holder and in such case, the succession certificate as per Section 214(1)(b) of the Succession Act is not necessary.

The petition is allowed.

39. Ram Karan vs. Gugan
AIR 2022 Punjab and Haryana 152
Date of order: 9th August, 2022
Bench: Dinesh Maheshwari and
Krishna Murari JJ.

Registration of Documents – Consensual decree – Does not require registration [S. 17, Registration Act, 1908; Or 23 R. 3 Civil Procedure Code, 1908]

FACTS

An issue regarding property arose between members of a family, wherein inter alia, an issue arose in an appeal as to whether a decree obtained by the consent of both parties have to be mandatorily registered. The lower appellate court had set aside on the ground of non-registration.

On Appeal.

HELD

It was held that a decree based on the admission of a party does not require any registration, and also, a family settlement did not require compulsory registration. Therefore, the finding recorded by the lower appellate court that the impugned decree is liable to be set aside on account of non-registration or account of no pre-existing right is apparently erroneous.

The appeal is allowed.

40. Kantaben Parsottamdas vs. Ganshyambhai Ramkrishan Purohit (Dead) by LRs
AIR 2022 Gujarat 146
Date of order: 9th June, 2022
Bench: A. P. Thaker J.

Judgements – Judges required to give citation or reference of cases being relied on in their decision [Or. 20, R 1, Civil Procedure Code, 1908]

FACTS

Being aggrieved and dissatisfied with the judgment and decree passed by the District Judge in appeal, the original defendant has preferred the present Second Appeal.

On appeal, inter alia, it was challenged that the impugned judgment of the First Appellate Court had relied upon some decision without giving any name or citation thereof and merely upon memory.

HELD

The reliance on a decision without any name or citation number and merely on the basis of memory is not proper on the part of the learned District Judge. The judgment of the court has to be based only upon the facts proved. If there is any precedent applicable in the given facts, then, the particular precedent has to be referred to by name as well as where such a decision is reported. A Judge cannot pass any order or make any observation merely on his own memory without referring names of the parties or the numbers of proceedings and where such a decision is reported. The First Appellate Court Judge has committed a serious error of facts and law in creating a new case in favour of the plaintiff of natural rights.

The appeal is allowed.

41. A. Narahari and Anr. vs. Suman Chit Fund Pvt. Ltd.
AIR 2022 Telangana 158
Date of order: 4th July, 2022
Bench: G Anupama Chakravarthy J.

Attachment – Recovery from properties of Guarantor – Legal [Or.21 Rr 43, 54 of Civil Procedure Code, 1908; S. 128, Indian Contract Act, 1872]

FACTS

The trial court passed an order directing the petitioners to deposit a sum with the court. Pursuant to the said decree, the plaintiff filed the execution petition under Order 21 Rules 43, 64 and 66 of CPC to attach and sell the petition schedule properties of judgment, for realization of the decretal amount. The revision petitioners, i.e., judgment debtors filed their detailed counters before the trial court, contending that they were not aware of the decree till they received notices in the execution petition and that the decree-holder obtained ex parte decree behind their back. Ultimately, the execution petition was allowed by the trial court ordering attachment against the revision petitioners.

HELD

The principal borrower, i.e., the prized subscriber, was also made as a party along with the guarantors. In the law of indemnity, it is a tri-party agreement, and the law permits the decree holder to proceed with the execution either against the principal borrower or against the guarantors. Further, the decree-holder can proceed against any one of the judgment-debtors, and he is not required to proceed against the principal borrower at the first instance.

The revision petition is rejected.

BCAJ Admin

Corporate Law Corner Part A : Company Law

11. M/s Magma Cellular Systems Marketing Pvt. Ltd. vs. The Registrar of Companies, Bihar
National Company Law Tribunal
Kolkata Bench, Kolkata
Appeal No. 12/KB/2022
Date of order: 10th May, 2022

Inadvertent removal of the name of the Company from the Register of Companies while charges are pending for satisfaction and remedial measures.

FACTS

The Registrar of Companies (RoC), Bihar had filed this appeal u/s 252(1) of the Companies Act, 2013, praying that an order be passed for restoring the name of the respondent company namely M/s Magma Cellular Systems Marketing Pvt. Ltd. (MCSMPL) in the register of companies maintained by the RoC.

It was submitted that Rule 3(1)(ix) of the Companies (Removal of name of companies) Rules, 2016 provides that companies having charges pending for satisfaction cannot be struck off by the RoC.

It was further submitted that the name of MCSMPL was inadvertently struck off from the register of companies by the office of RoC due to the voluminous task and mechanical process being followed in the generation of the list of companies from the MCA-21 portal and lack of manual verification and internal check thereof.

It was stated that the Ministry, on analysis of the list taken from MCA-21 records centrally on a pan-India basis, found that there are various companies which have been struck off but still have open charges as per back office master data. In this regard, the Ministry has directed vide letter dated 10th December, 2021 to the RoC to file an application before the Tribunal seeking restoration of the name of MCSMPL.

HELD

In view of the aforesaid pleadings in the petition and the submissions made in the Court on behalf of the RoC, NCLT directed the restoration of the name of MCSMPL in the register of companies maintained by RoC, Bihar along with other consequential orders to give effect to MCSMPL and its officers and the stakeholders, the same status as if the company had never been struck off.

BCAJ Admin

Allied Laws

34 State of HP vs. Bmd Pvt. Ltd.
AIR 2022 Himachal Pradesh 134
Date of order: 2nd June, 2022
Bench: Sandeep Sharma J.

Arbitration clause – Appointment of Arbitrator – Not open for one of the parties to file an application for the appointment of Arbitrator when both the parties have subjected to its jurisdiction [S. 11(6), 13, Arbitration and Conciliation Act of 1996]

FACTS

A dispute arose between the parties and the Respondent served a Notice requesting for a refund of the upfront premium, and in the event the same is not responded, the notice to be treated as an invocation of the arbitration clause as per the agreement between the parties. The Petitioner did not respond to the said notice. Therefore, the Respondent sent a request to the Arbitrator to proceed with the Arbitration. However, pursuant to the Arbitrator taking cognizance of the proceedings, the Petitioner filed this application before the Court for the appointment of the Arbitrator.

HELD

The Petitioner admitted to receiving the Notice which invoked the Arbitration and not objected to the same. Therefore, as the Arbitrator was appointed as per the arbitration clause contained in the agreement between the parties, and the Petitioner had subjected itself to the jurisdiction, it was not open for the Petitioner to challenge the mandate by filing an application before the Court for appointment of Arbitrator.

Petition is not maintainable.

35 Vijayalaxmi Chandrashekara Gowda vs. Chandrashekara Gowda
AIR 2022 Karnataka 182
Date of order: 20th April, 2022
Bench: Sreenivas Harish Kumar J.

Benami – Alienation of suit properties – Temporary injunction – Properties purchased by husband – in the name of the wife – Wife restrained to sell the said properties [Or 39, R 1, 2, Civil Procedure Code, 1908]

FACTS

The respondent is the husband of the appellant, and it is his case that he purchased the schedule properties in the name of his wife when he was serving in the Indian Army as a Subedar. He borrowed money from a bank for purchasing one of the properties and that he himself is repaying the loan though the loan was obtained in the name of his wife. When he learnt that the appellant was about to sell away the properties, he brought the suit claiming declaration of title over the properties and ancillary relief of permanent injunction. Along with the plaint, he made an application for temporary injunction to restrain the appellant from alienating the properties, and as it stood allowed by the impugned order, this appeal has been preferred by the defendant.

The appellant does not dispute that she is the wife of the respondent, what she has contended is that she purchased the properties from her money without the aid of the respondent. She admits that the respondent made some payments towards loan installments and submits that over time, he stopped making payments. The loan has not been cleared yet and that she has school going children. She has found it difficult to maintain the family without any help from the plaintiff and in this view, she has got every right to dispose of the properties for the benefit of the family.

HELD

The Trial Court has not committed any error in exercising discretion to grant temporary injunction in favour of the respondent-plaintiff. Though the appellant has contended that she purchased the suit properties from her own income, there is no material to substantiate her contention. Rather, she has admitted that the loan was raised in their joint names for purchasing the property and that the respondent repaid the loan. The appellant is a housewife and for this reason, it is difficult to believe that she could purchase the suit properties. It is the clear case of the respondent that he was working as a Subedar in the Indian Army and till 2015, the appellant and the children were living with him. In this view, it may not be possible to hold at this stage that she had independent source of income. Moreover, purchase of a property by husband in the name of the wife cannot be called a benami transaction.

Appeal is dismissed.

36 Mahettar Sidar Singh Kanwar vs. Karmihin Hariram Kanwar and others
AIR 2022 (NOC) 715 (CHH.)
Date of order: 22nd July, 2022
Bench: Deepak Kumar Tiwari J.

Succession – Taking care of deceased and performing last rights – Cannot override succession [S. 8, Hindu Succession Act, 1956, S. 372, Indian Succession Act, 1925]

FACTS

The petitioner filed an application u/s 372 of the Indian Succession Act, 1925 before the Civil Judge. As per the pedigree, petitioner’s grandfather Awadhram was the cousin brother of the deceased Mangluram who died on 2nd May, 2014, and was unmarried. The deceased was working at Nagar Palika, Kharsiya and also opened an account with the SBI, Kharsiya in which salary of the deceased was being deposited. At the time of death, Rs. 96,622 was deposited in the said account. As the petitioner had taken care of the deceased during his lifetime and also performed last rituals, he preferred a petition for grant of succession certificate in his favor to obtain the said amount.

HELD

The property of a male Hindu dying intestate is governed by Section 8 of the Hindu Succession Act, 1956. It is apparent that the petitioner’s grandfather is the cousin brother of the deceased, and as per the Schedule, only the father’s brother and father’s sister have been stipulated as heirs. Therefore, the property devolves to the mother’s side.

The petitioner fails to demonstrate that the petitioner covers under any of the category. The Revision Petition fails.

37 Seepathi Keshavalu vs. Pogaku Sharadha and others
AIR 2022 Telangana 134
Date of order: 27th April, 2022
Bench: K. Lakshman J.

Court Procedure – Application for copies of certified copies is rejected – Copy should be made from original as per definition of ‘certified copies’ [S. 126, Civil Procedure Code, 1908; R. 188, 199, Civil Rules of Practice and Circular Orders]

FACTS

The petitioner herein, third party to the suit, had filed an application under Rule 188 (2) of the Civil Rules of Practice, 1990 (CRP) seeking copies of certified copies of certain exhibits, which was rejected by the lower court.

On Revision.

HELD
A ‘copy’ means a document prepared from the original which is an accurate or ‘true copy’ of the original. The originals were returned to the Plaintiff on filing of an application after substituting by its certified copies on record. Therefore, a copy made from the certified copies will not come within the definition of “certified copies”.

Revision Application is rejected.

BCAJ Admin

Corporate Law Corner Part A : Company Law

10 Onn Chits Private Ltd.
Roc/2021/Onn Chits/Penalty Order/6324-6327
Office of the Registrar of Companies, NCT of Delhi & Haryana
Adjudication order
Date of order: 2nd November, 2021

Order for Penalty u/s 454 for violation of section 12(1) r.w.s. 12(4) of the Companies Act, 2013

FACTS

M/s OCPL has its registered address at Faridabad, Haryana.

RoC had received a letter from the Registrar of Chit Fund, New Delhi (RCF) dated 10th June, 2020 as a complaint received from Sajneev Hinanandani against M/s OCPL stating that M/s OCPL was not maintaining its registered office. The Complaint Cell referred the matter to Adjudication Cell for initiation of action u/s 12 of the Companies Act, 2013, against M/s OCPL and its officers in default, which attracted the violation of section 12(1) and the provision of section 12(8) of the Companies Act, 2013.

Thereafter, RCF issued a Show Cause Notice u/s 12(8) dated 10th December, 2020 to M/s OCPL and its officers in default. No reply was received from M/s OCPL or its representative against the SCN issued by RCF on 10th December, 2020. Notice of Inquiry was sent vide notice dated 31st August, 2021 fixing date of hearing on 20th September, 2021 before the Adjudicating Officer.

An e-mail was received on 20th September, 2021 from FCA Anurag Kapoor requesting for grant of some time. An e-mail was sent to M/s OCPL wherein the date of hearing was fixed on 29th September, 2021 by the Adjudicating Officer.

On 29th September, 2021, Navneet Bhutan (Mr. NB), authorized representative, appeared before the Adjudicating Officer and period of default was fixed i.e., from 24th July, 2019 to 4th September, 2019, and was directed to bring the relevant
documents on next date of hearing i.e., on 13th October, 2021.

Extracts of sections 12(1), 12(4) And 12(8)
Section 12(1) – A company shall, on and from the fifteenth day of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notice as may be addressed to it.

Section 12(4) – Notice of every change of the situation of the registered office, verified in the manner prescribed, after the date of incorporation of the company, shall be given to the Registrar within fifteen days of the change, who shall record the same.

Section 12(8) – If any default is made in complying with the requirements of this section, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every day during which the default continues but not exceeding one lakh rupees.

Factors to be taken into account by the Adjudicating Officer

While adjudging quantum of penalty u/s 12(8) of the Act, the Adjudicating Officer shall have due regard to the following factors, namely:

a. The amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of default.

b. The amount of loss caused to an investor or group of investors as a result of the default.

c. The repetitive nature of default.

With regard to the above factors to be considered while determining the quantum of penalty, it was noted that the disproportionate gain or unfair advantage made by M/s OCPL and its officers in default or loss caused to the investor as a result of the delay on the part of M/s OCPL and its officers in default to redress the investor grievance were not available on record. Further, it was difficult to quantify the unfair advantage made by M/s OCPL and its officers in default or the loss caused to the investors in a default of this nature.

HELD

Having considered the facts and circumstances of the case and after taking into account the factors and as per documents submitted by Mr. NB, penalty amount of Rs. 43,000 each on M/s OCPL and its officers in default was imposed by the Adjudicating Officer, and thus a total penalty of Rs. 1,39,000 was levied for the period of default from 24th July, 2019 to 4th September, 2019 (default of non-maintenance of registered office admitted before the Adjudicating Officer on date of hearing).

BCAJ Admin

Allied Laws

30 Anurag Padmesh Gupta vs. Bank of India
AIR 2022 Bombay 3751
Date of order: 7th June, 2022
Bench: A.S. Chandurkarand & Amit Borkar JJ.

Fundamental Rights – Powers to Debt Recovery Tribunal – No power to restrain individual from travelling abroad [Art. 19, 21, Constitution of India; S. 19, 22, 25, Recovery of Debts due to Banks and Financial Institutions Act, 1993]

FACTS

The petition raised an important issue regarding the interpretation of Article 21 of the Constitution of India as to whether the expression “personal liberty” occurring in the said Article includes the right to travel abroad. Second important question that arose was whether the order passed by the Debt Recovery Tribunal refusing to grant permission to travel abroad results in the infringement of Article 21 of the Constitution of India?

HELD

If the right to travel is a part of the personal liberty of a person, he cannot be deprived of his right except according to the procedure established by law. The right to travel abroad is a right distinct and separate from the right of freedom of movement in a foreign country. The right to travel abroad by its necessary implications means the right to leave the home country and visit a foreign country. The right to travel abroad has been spelt out from the expression “personal liberty” in Article 21 of the Constitution.

Further held, the Tribunal, while exercising the powers of a Civil Court adjudicating money suit, is limited to the extent of passing interim order by way of injunction or stay which are expressly conferred on it. The Tribunal can travel beyond the powers conferred by the Code of Civil Procedure with a view to observe the principle of natural justice. In our view, Section 22 of the Act confers the procedural right to regulate proceedings before it. In the absence of a specific provision conferred on the Debt Recovery Tribunal by statute, the Debt Recovery Tribunal does not have power to restrain a citizen from travelling abroad, particularly when the said right has been recognized as a facet of Article 21 of the Constitution of India.

Petition is allowed.

31 Ayan Kumar Das and another vs. UOI & others
AIR 2022 Gauhati 120
Date of order: 6th April, 2022
Bench: Devashis Baruah JJ.

Appointment of Guardian – Mother of the Petitioner in comatose state – Petitioner appointed as a guardian to deal with the properties of his mother. [Art. 226, Constitution of India]

FACTS

The question that arose for consideration was as to whether in law and on facts the petitioner could be appointed as the guardian of the mother who is in ‘persistent vegetative state’ and ‘coma’ for managing her properties so as to meet medical expenses.

HELD

Article 226 of the Constitution empowers this Court to pass suitable orders on an application being filed to appoint a guardian or a next friend to an incompetent person like the petitioners’ mother who is in persistent vegetative state. In absence of any appropriate legislation, the High Court in exercise of the jurisdiction under Article 226 of the Constitution, can issue guidelines as temporary measures till the field is taken over by a proper legislation for appointment of guardian to a person lying in a comatose state or a vegetative state. Accordingly, on the basis of the materials on record, the Court was of the view that the reliefs sought for by the petitioners were reasonable and may be granted considering the peculiar facts and circumstances of the case. However, to ensure that the order of this Court is followed in letter and spirit and there is no breach thereof, it is also essential that there should be some kind of monitoring of the functioning of the guardian though for a limited duration to ensure that guardianship is being used for the benefit of the person who is in a vegetative state and such monitoring be carried out through the forum of the Assam State Legal Services Authority constituted under the Legal Services Authority Act, 1987.

Petition was allowed.

32 State of Himachal Pradesh vs. Sita Ram Sharma
AIR 2022 Himachal Pradesh 120
Date of order: 30th March, 2022
Bench: Mohammad Rafiq CJ & Ajay Mohan Goel & Sandeep Sharma JJ.

Constitutional Rights – Right to property – Unless land is voluntarily surrendered – the landowner is entitled to compensation [Art. 300A, Constitution of India]

FACTS

The matter has been referred to a larger bench on account of conflict of opinion between judgements. The question before the larger bench is whether a person(s) whose land(s) has been utilised for construction of road under ‘PMGSY’ is entitled to compensation?

HELD

Even after the right of property enshrined under Article 19(I)(f) was deleted by the 44th amendment to the Constitution, Article 300A still retains the right to property as the constitutional as well as legal right, and mandates that no person can be deprived of his property except by authority in law. The action of the State in dispossessing a citizen of his private property, without following the due process of law, would be violative of Article 300A of the Constitution of India, as also negate his human right. Thus, the right to property has been acknowledged, not only constitutional as well as statutory, but also human right, to be construed in the realm of individual rights, such as right to health, livelihood, shelter, employment etc. in a Welfare State. The State Authorities cannot dispossess any citizen of his property except in accordance with the procedure established by law, that too by due process of law and by acquiring land and paying adequate compensation.

33 Sudipta Banerjee vs. L.S. Davar and Company and others
AIR 2022 Calcutta 261
Date of order: 5th April, 2022
Bench: Soumen Sen and Ajoy Kumar Mukherjee, JJ.

No specific legislation – Trade secret – Factors for determining whether information is confidential. [O. 39 R. 1, Civil Procedure Code, 1908]

FACTS

Dr. Sudipta Banerjee and Dr. Indira Banerjee are well qualified patent professionals. They were working in L.S. Davar and Company, a reputed Intellectual property firm since 1st June, 1994 and 1st September, 1994 respectively until their resignations in June 2020. Arpita Ghosh was working as an office assistant of L.S. Davar & Company since 2010 until she resigned on 22nd January, 2021. All of them joined another firm by the name of P.S. Davar and Company, after their resignations were accepted by their erstwhile employer.

On the allegation that the appellants are divulging the confidential information and trade secrets acquired during their course of employment in L.S. Davar and Company, in clear breach of the confidentiality agreement, L.S. Davar and Company filed a suit.

In the suit the plaintiff filed an application for injunction in which the ad interim order of injunction was passed and subsequently extended from time to time.

HELD

There is no specific legislation in India to protect trade secrets and confidential information. Nevertheless, Indian Courts have upheld trade secret protection on basis of principles of equity, and at times, upon a common law action of breach of confidence, which in effect amounts to a breach of contractual obligation. The remedies available to the owner of trade secrets is to obtain an injunction preventing the licensee from disclosing the trade secret, return of all confidential and proprietary information, and compensation for any losses suffered due to disclosure of such trade secrets.

In India, a person can be contractually bound not to disclose any information that is revealed to him/her in confidence. The Indian courts have upheld a restrictive clause in a technology transfer agreement, which imposes negative covenants on the licensee to not disclose or use the information received under the agreement for any purpose other than that agreed to in the said agreement.

The court, while assessing an ad interim order of injunction is required to assess if the plaintiff was able to make out a prima facie case and thereafter consider the other two factors namely; balance of convenience and irreparable loss that might result in the event the ex parte ad interim order of injunction not being passed. In fact, an ad interim order of injunction should be of limited duration, which the learned Trial Court granted; however, we find that extension of the said ad interim order was made mechanically and could be prejudicial to the appellant. The non-compete clause in the instant case may be prejudicial to the appellants, but no order has been passed restraining them from carrying on their profession.

The plaintiff as a professional body may not have any trade secrets per se, but the persons who were/are in the employment of the plaintiff would certainly be privy to privileged information, and any sharing of such information and communication would not only be unethical but also a breach of the confidentiality clause resulting in serious prejudice and harm to the clients of the plaintiff firm. It may also expose the plaintiff firm to civil and criminal consequences. The nature of the complaints, on which the plaintiff relies, is to be assessed at the final disposal of the injunction application. However, at this stage, it cannot be said that the trial court has overstepped its limit or did not follow the accepted guidelines in passing the ad interim order of injunction. However, there is a possibility of the ad interim order being misconstrued as it appears to be widely worded to cover issues beyond the scope of the confidentiality and non-compete clauses, and not intended by the impugned order. Accordingly, the ad interim order is modified by restraining the appellants from disclosing, divulging or sharing confidential information gathered during the course of their employment in any manner whatsoever till the disposal of the injunction application on merits.

The order of injunction passed by the trial court is modified and clarified to the aforesaid extent.

BCAJ Admin

Corporate Law Corner Part B: Insolvency and Bankruptcy Law

6 Vallal RCK vs. M/s Siva Industries and Holdings Ltd. and Ors.
Civil Appeal Nos. 18111812 of 2022

Supreme Court Of India Civil Appellate Jurisdiction

FACTS

IDBI Bank filed an application u/s 7 of the IBC for initiation of CIRP. The NCLT admitted the application, and CIRP was initiated. The RP had presented a Resolution Plan before the CoC. The Plan could not meet the requirement of receiving 66% votes. Later, the RP filed an application seeking initiation of the liquidation process. The appellant, the promoter, filed a settlement application before the NCLT u/s 60(5) of the IBC, showing his willingness to offer a one-time settlement plan.

The appellant sought necessary directions to the CoC to consider the terms of the Settlement Plan as proposed by him. Deliberations took place in the COC meetings with regard to the said Settlement Plan. Initially, the Plan received only 70.63% votes. Subsequently, one of the financial creditor having a voting share of 23.60%, decided to approve the Settlement Plan. The Plan stood approved by more than 90% voting share; the RP filed an application seeking necessary directions. The NCLT ordered the RP to reconvene a meeting of the CoC and place the e-mail of financial creditor before it. Accordingly, in the 17th CoC meeting, the Settlement Plan was approved with a voting majority of 94.23%. Accordingly, the RP filed an application before the ld. NCLT seeking withdrawal of CIRP in view of the approval of the said Settlement Plan by CoC.

The NCLT, while rejecting the application for withdrawal, held the Settlement Plan was not a settlement simpliciter u/s 12A of the IBC but a “Business Restructuring Plan”, and initiated liquidation process. The appellant preferred two appeals before the learned NCLAT, and the same came to be dismissed. Hence, the present appeals.

QUESTION OF LAW

Whether the Adjudicating Authority can adjudicate over the commercial wisdom of CoC considering the minimum requirement to meet 90% voting share for approval of withdrawal of CIRP u/s 12A of the Insolvency and Bankruptcy Code, 2016 read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ?

RULING

Adjudication over commercial wisdom of CoC

The commercial wisdom of the CoC has been given paramount status without any judicial intervention to ensure the completion of the stated processes within the timelines prescribed by the IBC. It has been held that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and the feasibility of the proposed resolution plan. They act based on thorough examination of the proposed resolution plan and assessment made by their team of experts.

Requirement to meet 90% voting share for approval of withdrawal of CIRP qua allowing for commercial wisdom to prevail

The provisions u/s 12A of the IBC have been made more stringent compared to Section 30(4) of the IBC. Whereas u/s 30(4) of the IBC, the voting share of CoC for approving the Resolution Plan is 66%, the requirement u/s 12A of the IBC for withdrawal of CIRP is 90%.

A perusal of the said Regulation would reveal that where an application for withdrawal u/s 12A of the IBC is made after the constitution of the Committee, the same has to be made through the interim resolution professional or the resolution professional, as the case may be. The application has to be made in Form FA. It further provides that when an application is made after the issue of invitation for expression of interest under Regulation 36A, the applicant is required to state the reasons justifying withdrawal of the same. The RP is required to place such an application for consideration before the Committee. Only after such an application is approved by the Committee with 90% voting share, the RP shall submit the same along with the approval of the Committee to the Adjudicating Authority. It could thus be seen that a detailed procedure is prescribed under Regulation 30A of the 2016 Regulations as well.

When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, the Adjudicating Authority or the Appellate Authority cannot sit in an appeal over the commercial wisdom of the CoC. The interference would be warranted only when the Adjudicating Authority or the Appellate Authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules.

Considering the case of Swiss Ribbons Private Limited and Another vs. Union of India and Others, it was held that:

Main thrust against the provision of Section 12A is the fact that ninety per cent of the Committee of Creditors has to allow withdrawal. This high threshold has been explained in the ILC Report as all financial creditors have to put their heads together to allow such withdrawal as, ordinarily, an omnibus settlement involving all creditors ought, ideally, to be entered into. This explains why ninety per cent, which is substantially all the financial creditors, have to grant their approval to an individual withdrawal or settlement. In any case, the figure of ninety per cent, in the absence of anything further to show that it is arbitrary, must pertain to the domain of legislative policy, which has been explained by the Report.

HELD

The decision of the CoC is taken after the members of the CoC have done due deliberations to consider the pros and cons of the Settlement Plan and exercising their commercial wisdom. Therefore, neither the ld. NCLT nor the ld. NCLAT were justified in not giving due weightage to the commercial wisdom of the CoC.

If the CoC arbitrarily rejects a just settlement and/or withdrawal claim, the ld. NCLT, and thereafter the ld. NCLAT can always set aside such decision under the provisions of the IBC. There must be the need for minimal judicial interference by the NCLAT and NCLT in the framework of IBC.

The appeals are allowed.

BCAJ Admin

Corporate Law Corner Part A : Company Law

9 Kejriwal Casting Limited
RoC Adjudication Order
ROC/ADJ/2022
Registrar of Companies, West Bengal
Date of order: 27th April, 2022

Order of Adjudicating Authority for violation of section 134 of the Companies Act, 2013.

FACTS
M/s KCL had contravened provisions of section 134 of the Companies Act, 2013 in as much as it had not prepared the report of the Board of Directors for the financial year ended 31st March, 2019 and 31st March, 2020.

M/s KCL and its Managing Director had filed suo moto application for adjudication of offence u/s 454 of the Companies Act, 2013 for violation of section 134 of Companies Act, 2013 and the penalty for such default prescribed under sub-section 8 of section 134 is as follows:

“If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.”

Thereafter, in response to the application, the office of RoC, West Bengal, issued a Notice of Inquiry vide no. ROC/ADJ/2022/2482 and 2483 dated 15th March, 2022 to M/s KCL and its Managing Director to appear personally or through a representative before the adjudicating authority as per Rule 3(5) of Companies (Adjudication of Penalties) Rule, 2014 on the specified date mentioned in the said notice.

Mr. MRG, practising Company Secretary, who appeared on behalf of M/s KCL and its Managing Director, had submitted the reasons for default for such delay:

i. For the Financial Year ended on 31st March, 2019– Board’s Report was not prepared timely due to the non-availability of financial data due to migration of accounting data into ERP from Tally operating software and malfunctioning of the new ERP accounting software.

ii. For the Financial Year ended on 31st March, 2020– Board’s Report was not ready due to a delay in obtaining accounting data due to the spread of novel coronavirus and medical issues of persons managing accounts.

M/s KCL further submitted the details of delays (in the number of days) u/s 129 of Companies Act, 2013 as under:

F.Y. ended	Date of Board Meeting	Date of AGM	Due date of AGM	Delays (in days)
31^st March, 2019	7^thNovember, 2019	18^th November, 2019	30^thSeptember, 2019	48
31^st March, 2020	28^th May, 2021	29^th May, 2021	31^stDecember, 2020	149

F.Y. ended

Date of Board Meeting

Date of AGM

Due date of AGM

Delays (in days)

31^st
March, 2019

7^thNovember, 2019

18^th
November, 2019

30^thSeptember, 2019

31^st
March, 2020

28^th
May, 2021

29^th
May, 2021

31^stDecember, 2020

149

Further, according to Mr. MRG, practising Company Secretary, the following was the probable penalty to be levied on the Company and its Managing Director for the following Financial Years:

F.Y. ended	Penalty as per Companies Act, 2013	Total (in Rs.)
31^st March, 2019	Rs. 3,00,000	Rs. 50,000	Rs. 3,50,000
31^st March, 2020	Rs. 3,00,000	Rs. 50,000	Rs. 3,50,000

F.Y. ended

Penalty as per
Companies Act, 2013

Total (in Rs.)

On Company
(M/s KCL)

On Managing Director

31^st March, 2019

Rs.
3,00,000

Rs.
50,000

Rs.
3,50,000

31^st March, 2020

Rs.
3,00,000

Rs.
50,000

Rs.
3,50,000

ORDER/HELD

The Office of RoC, West Bengal, after considering the facts and circumstances of the case and taking into account the factors imposed a penalty of Rs. 6,00,000 on M/s KCL and Rs. 1,00,000 each on the Managing Director/Officer in default u/s 134(8) for failure to comply with sections 134(1) and 134(3) for F.Y. ended on 31st March, 2019 and 31st March, 2020.

It was further directed to pay the amount of penalty individually for M/s KCL and its Managing Director (out of own pocket) by way of e-payment mode within 90 days of receipt of the order and that the generated challan of payment of penalty be forwarded to the Office of RoC, West Bengal.

BCAJ Admin

Allied Laws

26 Rajesh Panditrao Pawar and others vs. Parwatibai Bhimrao Bende and another.
AIR 2022 Bombay 172
Date of order: 7th April, 2022
Bench: Shrikant D. Kulkarni, J.

Hindu Succession Act – Adopted son – Adopted by widow – No rights in deceased husband’s property. [Ss. 8, 14, 15, Hindu Succession Act, 1956; S. 12, Hindu Adoption and Maintenance Act, 1956]

FACTS

Mr. Rajesh Pawar (Original defendant) is the adopted son of Kausalyabai (Original Plaintiff No. 1). The defendant was adopted by Kausalyabai in 1973 after the death of her husband, Sopanrao, in 1965. Parwatibai Bende (Original Plaintiff No. 2) is the daughter of Plaintiff No. 1 from her marriage to Sopanrao.

The defendant sought ½ share in the property of his mother’s deceased husband, Sopanrao.

HELD

The Court referred to section 12 of the Hindu Adoption and Maintenance Act, 1956, which provides that the adoption takes effect from the date of adoption and not prior to adoption. It also referred to clause (c) of the proviso to section 12 of the Hindu Adoption and Maintenance Act, 1956, which provides that the adopted child shall not divest any person of any estate vested in him or her before the adoption. It was held that as per section 8 of the Hindu Succession Act, 1956, there was an intestate succession in 1965 on the demise of Sopanrao. Soapanrao’s widow and daughter took one-half share each in the property left by Sopanrao. The defendant was not in the picture at the time of the intestate succession and thus will not be entitled to any share in the widow’s husband’s property. The property will be divided equally amongst the deceased’s daughter and widow.

After the death of the widow, the share of the widow (½ property) will be divided equally amongst her daughter (Plaintiff No. 1) and adopted son (defendant).

The appeal is dismissed.

27 Somakka (dead) by LRs vs. K.P. Basavaraj (dead) by LRs
AIR 2022 Supreme Court 2853
Date of order: 13th June, 2022
Bench: S. Abdul Nazeer & Vikram Nath, JJ.

Hindu Succession – Father in possession of tenanted property – later gets occupancy rights – Such rights are heritable – Will be divided amongst the legal heirs. [Mysore (Religious and Charitable) Inams Abolition Act, 1955]

FACTS

The appellant is the own sister of the sole respondent. Their father, Puttanna, had inherited certain properties from his father, which were ancestral properties. Amongst other properties, at the time of death, the father was pursuing occupancy rights in respect of a property under the Inam Act.

An issue arose on the partition of the father’s estate. The respondent claimed that after the demise of the father, he got himself impleaded as the legal representative of late Puttanna, and he was, thereafter, granted occupancy rights by the Land Tribunal, and it became his self-acquired property.

HELD

The Court held that the father had applied for occupancy rights under the Inam Act, which were heritable in nature. For this reason, it would be inherited by both his children, i.e., the appellant and the respondent and under the law, both of them would be entitled to ½ (half) share each.

The appeal was allowed.

28 Santosh Kumar Sahoo vs. Secretary, the Urban Co-operative Bank Ltd. and others
AIR 2022 (NOC) 512 (ORI)
Date of order: 2nd November, 2021
Bench: D. Dash, J.

Guarantor & Borrower – Liability is same – No need to exhaust all remedies before approaching the guarantor [S. 128, Indian Contract Act, 1872]

FACTS

The plaintiff stood as a guarantor for a loan availed by defendant Nos. 3 to 5 from the Urban Co-operative Bank Ltd., Rourkela (defendant No.1). The loan was advanced by defendant No. 1 to defendant Nos. 3 to 5 for purchase of an old bus and the plaintiff had stood as a guarantor for smooth payment of the loan by those defendants. In course of time, defendant Nos. 3 to 5 when defaulted in payment of the loan dues, defendant No. 1- Bank straightway started deducting a sum every month from the savings account maintained by the plaintiff with the said Bank.

HELD

The liability of the guarantor is co-extensive with the principal borrower and the option lies with the banker to proceed for recovery of the loan dues either against both or one of the two. It is not the position of law that the action by the banker against the guarantor is permissible only after exhausting all the remedies against the borrower and in the event of failure of recovery of dues from the borrower. It is settled law that even after a decree making borrower and guarantor jointly pay the loan dues is passed, the decree-holder – banker may proceed to recover the amount from the guarantor only without proceeding against the borrower. The guarantor has the eventual remedy to recover the amount from the borrower which has been recovered from him by the banker towards the loan dues of the borrower. The principle is that the guarantor would pay the banker; the same is recoverable by him from the borrower.

The appeal was dismissed.

29 Ragya Bee (dead) and another vs. P. S. R. Constructions and another
AIR 2022 Telangana 105
Date of order: 27th January, 2022
Bench: P Naveen Rao and G. Radha Rani JJ.

Arbitration – Scope of section 34 – Only to set aside the award – cannot modify the award. [S. 34, Arbitration & Conciliation Act, 1996]

FACTS

A dispute arose between the owners of the property (appellant) and the developer (respondent). The issue was referred to arbitration. The Arbitrator rejected the claim of the appellants. Aggrieved by the award, the appellants filed an application for setting aside the award. The lower Court modified the award while exercising the powers u/s 34 of the Arbitration & Conciliation Act, 1996 (Act). The said decision was challenged by the applicants before the High Court.

HELD

The Court referred to the decision of the Hon’ble Supreme Court in the case of McDermott International Inc vs. Burn Standard Company Limited (2006) 11 SCC 181 and National Highways Authority of India vs. M. Hakeem 2021 SCC Online SC 473, and held that the issue is beyond pale of doubt. It noted that the Supreme Court has held that Section 34 of the Act cannot be held to include within it a power to modify the award. Therefore, the Civil Court is not competent to alter or modify the award of Arbitrator in a petition filed u/s 34 of the Act

The petition was allowed.

BCAJ Admin

ALLIED LAWS

21 Papiya Mukherjee vs. Aruna Banerjea and another
AIR 2022 Calcutta 201
Date of order: 30th March, 2022
Bench: Prakash Shrivastava, J.

Partnership Deed – Arbitration clause – Valid after the partner’s death – Enforceable against the legal heirs of the deceased partner. [S. 11, Arbitration and Conciliation Act of 1996; S. 46, Partnership Act, 1932]

FACTS
Application under Section 11 of the Arbitration and Conciliation Act, 1996 was filed by the applicant for the appointment of an arbitrator to resolve dispute between the parties. One Dr. Dhrubajyoti Banerjea and the applicant had entered into a partnership deed for running the laboratory business. Dr. Dhrubajyoti Banerjea being of old age, had executed a power of attorney in favour of his wife, respondent No.1 herein. Dr. Dhrubajyoti Banerjea passed away on 9th April, 2015. The respondent denied the arbitration by taking the stand that there was no valid arbitration agreement between the parties.

HELD
It was held that respondents are the legal heirs/successors of Dr. Dhrubajyoti Banerjea. Section 40 of the Arbitration Act clearly provides that an arbitration agreement will not be discharged by the death of a party thereto and will be enforceable by or against the legal representatives of the deceased. Section 42 of the Partnership Act, 1932 provides for the dissolution of partnership firms by the death of a partner. In terms of Section 46 of the Partnership Act, on the dissolution of the firm every partner or his legal representative is entitled to, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed amongst the partners or their representatives according to their rights.

The application was allowed.

22 Jayasudha vs. Karpagam and others
AIR 2022 (NOC) 373 (MAD.)
Date of order: 4th March, 2021
Bench: T. Ravindran, J.

Hindu Undivided Family – Family Manager – Alienation of property – No immoral purpose – Binding on the family [S. 6, Hindu Succession Act, 1956; S. 92, Indian Evidence Act, 1872]

FACTS
The plaint was filed by the daughters of the family manager as the ancestral properties of the family had been sold by the family manager to his son and daughter-in-law. The plaintiffs claimed a share in the suit property on account of the amendment in the Hindu Succession Act. Further, the plaintiffs submitted that their signatures had been taken as attestors on the sale deed without disclosing the contents of the sale deed.

HELD
As the plaintiffs have admitted to signing the deed, their defence is found to be not in consonance with the provisions of Section 92 of the Indian Evidence Act. Further, the father of the Hindu Joint Family is entitled to alienate the joint family property, and the transfer made by the father need not be for legal necessity, and the same is binding on all the members of the family. When the sale deed executed by the father is not tainted with illegality or immorality, the daughters being the coparceners as per the amended Hindu Succession Act, would be bound by the sale deed executed by their father. Accordingly, the suit filed by the daughter claiming share in the alienated property was dismissed, and the appeal was allowed.

23 Dilip Hariramani vs. Bank of Baroda
AIR 2022 SUPREME COURT 2258
Date of order: 9th May, 2022
Bench: Ajay Rastogi, Sanjiv Khanna, JJ.

Dishonour of Cheque – Proceedings against Partner of Firm – No proceedings against the Firm – Firm not made accused or summoned – Conviction set aside. [Ss. 138, 141, Negotiable Instruments Act, 1881; Partnership Act, 1932]

FACTS
The appellant is challenging his conviction for the dishonour of cheques. The respondent had granted term loans and a cash credit facility to a partnership firm – Global Packaging. It is alleged that in part repayment of the loan, the firm, through its authorised signatory, had issued three cheques. However, the cheques were dishonoured on presentation due to insufficient funds. The bank, through its branch manager, issued a demand notice to the appellant u/s 138 of the Negotiable Instrument Act, 1881 (Act). The respondent bank, through its branch manager, filed a complaint before the Court of Judicial Magistrate, and subsequently, the appellant was convicted.

HELD
It is an admitted case of the respondent bank that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise than as a partner. The provisions of Section 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offense as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. Section 141 of the Act extends the vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of Section 141 of the Act has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commits the offence as the primary offender.

Conviction set aside. The appeal was allowed.

24 Namdeo Babuji Bangde vs. State of Maharashtra & Ors.
AIR 2022 MAHARASHTRA 151
Date of order: 4th April, 2022
Bench: Rohit B. Deo, J.

Maintenance of senior citizen – harassed by son & daughter-in-law – Eviction of son & daughter-in-law by Tribunal – Proper [Ss. 4, 7, 23, 32, Maintenance and Welfare of Parents and Senior Citizens Act (56 of 2007)]

FACTS
The petitioners are the son and daughter-in-law respectively of respondents 2 and 3, and are assailing the order dated 21st January, 2020 rendered by the Tribunal constituted u/s 7 of the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 (Act) whereby the petitioners were directed to vacate the self-acquired residential house of the respondents 2 and 3. Respondent 2, who was then aged 78 years and respondent 3, who was then aged 67 years, preferred an application dated 21st August, 2018 contending that respondent 2 has constructed the residential house from self-earning in Nagpur, and that the petitioner 1 has illegally and forcibly taken possession of part of the said house and is conducting himself in a manner as would pose a serious threat to the safety and security of the respondents 2 and 3.

The Tribunal found from the material on record that there is a real possibility of the safety and security of the aged petitioners being jeopardised, and therefore, directed eviction by the order impugned. The petitioners have challenged the said order.

HELD
The petitioners claimed that the aged parents have lost their mental balance and are therefore, levelling false allegations. In the conservative Indian society, a son is not expected to brand his aged father a ‘swindler’ or then allege that the aged parents have lost mental balance. The Courts have repeatedly acknowledged the right of senior citizens or parents to live peacefully and with dignity. Therefore, an order of eviction is absolutely necessary in order to ensure the physical and emotional health and safety of the parents.

25 Indian Overseas Bank vs. RCM Infrastructure Limited & Another
2022 LiveLaw (SC) 496
Date of order: 18th May, 2022
Bench: L. Nageswara Rao & B.R. Gavai, JJ.

Recovery of Dues – After appointment of CIRP – All actions to foreclose – Insolvency and Bankruptcy Code, 2016 – Complete Code – Overrides any anything contained in other law. [Ss. 13, 14, 238, Insolvency and Bankruptcy Code, 2016; R. 8, 9, Security Interest (Enforcement Rules, 2002)]

FACTS
The appellant bank had extended certain credit facilities to the Corporate Debtor. However, the Corporate Debtor failed to repay the dues, and the loan account of the Corporate Debtor became irregular and came to be classified as a ‘NonPerforming Asset’ (NPA).

The appellant bank issued a demand notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESIA), calling upon the Corporate Debtor and its guarantors to repay the outstanding amount due to the appellant bank. Since the Corporate Debtor failed to comply with the demand notice and repay the outstanding dues, the appellant bank took symbolic possession of the two secured assets mortgaged exclusively with it. The same was done by the appellant bank in exercise of the powers conferred on it u/s 13(4) of the SARFAESIA read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 (Rules). One of the said properties stood in the name of Corporate Debtor and the other in the name of Corporate Guarantor. An E-auction notice came to be issued by the appellant bank to recover the public money availed by the Corporate Debtor. In the meantime, the Corporate Debtor filed a petition u/s 10 of the Code before the learned NCLT.

HELD
After the CIRP is initiated, there is a moratorium for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESIA. It is clear that once the CIRP is commenced, there is complete prohibition for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property. It could thus be seen that the provisions of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. This Court has consistently held that the IBC is a complete Code in itself and in view of the provisions of Section 238 of the Code, the provisions of the Code would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

BCAJ Admin

ALLIED LAWS

16 Kanhu Pradhan alias Pradhan alias Kanhu Charan Pradhan and others vs. Pitambara Padhan alias Pradhan AIR 2022 Orissa 67 Date of order: 25th January, 2022 Bench: Arindam Sinha, J.

Adverse possession – Unregistered document – Cannot be relied on as evidence. [S. 17; Registration Act (16 of 1908)]

FACTS
Plaintiffs filed suit for declaration of right, title, interest and injunction in respect of the suit property. The trial Court dismissed the suit on the ground that the defendants had adverse possession on the basis of an unregistered sale document dated 29th September, 1960. They had tendered the document as an ancient document and accordingly the trial Court found in favour of the defendants, to have perfected their title by adverse possession. The first appellate Court relied on Section 17 of the Registration Act, 1908, to hold that a document of sale of immovable property valued at more than Rs. 100 was compulsorily registerable. A compulsorily registerable document, not registered, could not be relied upon in evidence.

HELD
It was held by the High Court that finding by the Trial Court on adverse possession was clearly wrong. Adverse possession can be claimed only on the evidence adduced of possession, openly and hostile to the real owner. There cannot be a finding on adverse possession, when the claim is based on a document, inadmissible in evidence.

17 Mrs. Umadevi Nambiar vs. Thamarsseri AIR 2022 SUPREME COURT 1640 Date of order: 1st April, 2022 Bench: Hemant Gupta and V. Ramasubramanian, JJ.

Transfer of Property – Power of Attorney – No clause empowering to sell property – The title cannot be transferred.

FACTS
The suit property originally belonged to one Ullattukandiyil Sankunni. After his death, the property devolved upon his two daughters. One of the daughters i.e., Umadevi Nambiar (appellant) executed a general Power of Attorney on 21.07.1971 in favour of her sister Smt. Ranee Sidhan and registered it. The said power was cancelled on 31.01.1985. But in the meantime, the sister was found to have executed four different documents in favour of certain third parties, assigning/releasing some properties. The assignees/releasees had further sold the property. The purchaser of the property from the assignees/releasees is the Respondents herein. The appellant filed a suit for partition of her share in the property. The trial Court granted a preliminary decree in favour of the appellant. However, the regular appeal filed by the Respondent was allowed by a Division Bench of the High Court holding that though the power of attorney did not contain power to sell but the Respondent was a bona fide purchaser as the appellant had constructive notice of sale through Power of Attorney. Therefore, the appellant has come up with the above appeal.

HELD
The Supreme Court, held that there remains a plain and simple fact that the deed of Power of Attorney executed by the appellant on 21.07.1971 in favour of her sister contained provisions empowering the agent: (i) to grant leases under Clause 15; (ii) to make borrowals if and when necessary with or without security, and to execute and if necessary, register all documents in connection therewith under Clause 20; and (iii) to sign in her own name, documents for and on behalf of the appellant and present them for registration, under Clause 22. But there was no Clause in the deed authorizing and empowering the agent to sell the property. Thus, the draftsman has chosen to include, (i) an express power to lease out the property; and (ii) an express power to execute any document offering the property as security for any borrowal, but not an express power to sell the property. Therefore, the draftsman appears to have had clear instructions and he carried out those instructions faithfully. The power to sell is not to be inferred from a document of Power of Attorney. Unfortunately, after finding (i) that the Power of Attorney did not contain authorization to sell; and (ii) that the Respondent cannot claim the benefit of Section 41 of the Transfer of Property Act, 1882 (Bonafide Purchase), the High Court fell into an error in attributing constructive notice to the appellant in terms of Section 3 of the Transfer of Property Act, 1882. The High Court failed to appreciate that the possession of an agent under a deed of Power of Attorney is also the possession of the principal and that any unauthorized sale made by the agent will not tantamount to the principal parting with the possession. It is not always necessary for a Plaintiff in a suit for partition to seek the cancellation of the alienations. It is a fundamental principle of the law of transfer of property that “no one can confer a better title than what he himself has” (Nemo dat quod non habet). The appellant’s sister did not have the power to sell the property to the vendors of the Respondent. Therefore, the vendors of the Respondent could not have derived any valid title to the property. If the vendors of the Respondent themselves did not have any title, they had nothing to convey to the Respondent, except perhaps the litigation.

18 Abhimanyu Jayesh Jhaveri vs. Nirmala Dharmadas Jhaveri and another AIR 2022 Bombay 132 Date of order: 17th December, 2021 G.S. Kulkarni, J.

Maintenance of senior citizen – harassed by son & grandson for property – Will of Husband not probated – property with grandmother – son and grandson to be vacated [Ss. 4, 5, 23, Maintenance and Welfare of Parents and Senior Citizens Act (56 of 2007)]

FACTS
Claim of eviction from flat in question was made by Nirmala Dharmadas Jhaveri who was 89 years of age, against her son and her grandson, before the Senior Citizen’s Tribunal, Mumbai under the Maintenance and Welfare of Parents and Senior Citizens Act (56 of 2007). The son and grandson were financially well off and well placed but were torturing grandmother with greedy and acquisitive intention to grab here flat. The grandson on the basis of the will in his favour by his grandfather was claiming right over the flat. The grandmother denied the claim of the grandson based on the will as said will was not probated and contended that she was the sole owner of the flat.

HELD
It was held that both the son and the grandson have not only failed to maintain their grandmother, but also have caused mental and physical harassment and depravement to her material needs to extreme extent that she was thrown out of her own house, only with intention to grab said flat. Further, the share certificate with respect to the flat was in the name of the grandmother and the flat was shown in her Income tax returns. As the will under which grandson was claiming the rights was not probated, his claim to the flat could not be entertained. Hence, the son and the grandson were directed to vacate the flat in question.

19 U.P.S.E.B. Hathras vs. Hindustan Metal Works Hathras AIR 2022 ALLAHABAD 132 Date of order: 11th February, 2022 Bench: Sunita Agarwal and Krishan Pahal, JJ.

Appointment of arbitrator – Death of sole arbitrator initially appointed–case of appointment of new arbitrator and not of supply of vacancy. [Ss. 8, 9(b); Arbitration Act, 1940 (10 of 1940)]

FACTS
An agreement was entered into between the appellant and the respondent no. 2 on 9th May, 1964, whereby the appellant had agreed to supply power to the Mill. Pursuant to a dispute, the respondent no. 2 served the notice dated 9.9.1970 upon the appellant asking to agree for appointment of a sole arbitrator in terms of the first part of the arbitration clause 18 in the agreement. The appellant agreed to the said proposal and on 29.9.1970, Mr. Justice T.P. Mukherji, a retired Judge of the Allahabad High Court was appointed as the sole arbitrator. However, before the arbitrator could enter upon the reference, unfortunately, he died. A notice dated 6.7.1982/3.8.1982 under Section 8 of the Arbitration Act, 1940 (the Act) was then served upon the appellant proposing Shri A.C. Bansal, a retired District & Sessions Judge to be the sole arbitrator. This Notice was not objected to by the appellant. On 10th February, 1983, the arbitrator put both the parties to notice intimating that he had entered into the reference and that 7th March,1983 was the date fixed for striking of issues and preliminary hearing. The appellant did not participate in the Arbitral Proceedings on the ground that the appointment was illegal and the proceedings were void ab initio. To challenge the validity of the arbitral award, it was submitted that it was a case of supplying the vacancy on account of death of the appointed arbitrator which would fall within the scope of Section 8(1)(b) of the Arbitration Act, 1940. In that case, in the event of failure of the appellant to appoint the arbitrator by supplying the vacancy after service of notice, only option before the respondent no. 2 was to approach the Court by moving the application seeking for appointment of arbitrator.

HELD
In the instant case, the sole arbitrator who was appointed in accordance with the arbitration clause 18 of the agreement with the consent of the parties could not even enter into the reference. The proceedings of arbitration had not begun. It, therefore, became a case of appointment of a new arbitrator and not of supplying the vacancy. A new arbitrator was to be appointed by the parties in terms of the arbitration clause 18, which contained two options; firstly, that a single arbitrator could be appointed by agreement between the parties or else the dispute could be referred to two arbitrators, one appointed by each party.

The failure on the part of the appellant to appoint one more arbitrator for 15 clear days after the notice had given right to the respondent to invoke Section 9(b) to appoint arbitrator nominated by it to act as sole arbitrator in the reference. It cannot be successfully argued that since the appellant had kept silent, it should be presumed as its non-concurrence to the proposal for the appointment of the sole arbitrator and the respondent had the only option to approach the Court under Section 8 of the Act, 1940. The option available to the appellant to appoint its own arbitrator, as per clause 18 of the arbitration agreement, in case of disagreement to the proposal of sole arbitrator was never exercised. In case argument of the appellant is accepted, the provision of Section 9(b) giving power to the party to appoint sole arbitrator would become redundant. The present is a case which would fall within the scope of Section 9(b) where the award passed by the sole arbitrator on account of failure on the part of one of the parties to appoint another arbitrator, was binding on both the parties as if the sole arbitrator had been appointed by consent. The silence on the part of the appellant in such a case would be treated as its consent.

20 B.V. Subbaiah vs. Andhra Bank, Hyderabad and others AIR 2022 Telangana 78 Date of order: 31st January, 2022 Bench: P. Naveen Rao and G. Radha Rani, JJ.

Money suit – Limitation – Plaintiff practicing advocate handling several matters of defendant Bank before various Courts, Tribunals, Forums etc. – Bank failed to pay his fees and expenses – Payment to professional person like Advocate and CA is described as “fee” and not “price – ‘Price of work done’ cannot be made applicable to professions where professionals merely provide services for fee – Article 18 of Limitation Act not applicable to claim of plaintiff – Article 113 would be applicable. [Article 18, Limitation Act, 1963]

FACTS
Appellant/plaintiff filed a suit for recovery of amount of Rs. 19,46,701.31 with subsequent interest at the rate of 18% p.a. against the defendant bank for recovery of his legal fees. The defendant bank, though a nationalized bank, had not chosen to pay his fees, not even the expenses incurred, in spite of several requests made by him. The defendants contended that the suit is barred by limitation as it was instituted nearly eight years after the judgment in O.S. No. 1211 of 1991 and nearly 10 or more years after the results of other cases. The fee was claimed beyond three years after the result of the cases. Further, the suit was not filed within three years of the termination of his services in the respective cases and thus as per Article 18 of the Limitation Act, suit has to be instituted within three years on completion of work and when payment was due. The trial court dismissed the suit without costs holding that the suit was barred by time and that the plaintiff was not entitled for recovery of suit amount.

HELD
It is apparent from the reading of both Articles 18 and 113 of the Limitation Act that though the period of limitation is three years, but under Article 18 it begins to run when the “work is done” and under Article 113 it begins to run when the “right to sue” accrues. A professional activity cannot be considered as a commercial activity and the term ‘price’ is not synonymous with the term ‘fee’. In M.P. Electricity Board and others vs. Shiv Narayan and others (2005) 7 SCC 283, the Hon’ble Apex Court held that there is a fundamental distinction, therefore, between a professional activity and an activity of a commercial character. In Dharmarth Trust, Jammu and Kashmir, Jammu and others vs. Dinesh Chander Nanda 2010 (10) SCC 331, the Hon’ble Apex Court held that the term ‘Price’ does not cover the services provided by the professionals such as Architect, Lawyer, Doctor, etc., as professionals charge a ‘fee’. Also, the term ‘work done’ will not be applicable to professionals such as Architect, Lawyer, Doctor, etc. as these professionals render services to their clients. The remuneration of a professional is in the form of a ‘fee’ and therefore, it cannot be said that the professional earns a ‘price’.

It was thus held that the price of work done is not applicable to professionals and therefore Article 18 of the Limitation Act is not attracted to the claim of the plaintiff.

It was further held that an advocate was entitled to be paid his full fee and a change of advocate could not be made without the permission of the court and the right to fee of a counsel was not dependent on the quantum of work that he actually did in the court. It was also held that the conduct of the defendants, a Nationalized Bank, towards their standing counsels of adopting dilatory tactics and raising technical pleas to avoid payments and making him to take recourse to prolonged litigation by wasting the time not only in terms of money but also the valuable time of the counsel and the court is highly reprehensible. The Trial Court order was set aside.

BCAJ Admin

ALLIED LAWS

13 Sant Shri Gajanan Maharaj Sansthan vs. United India Insurance Company Limited AIR 2021 Bombay 177 (Nag)(HC) Date of order: 29th January, 2021 Bench: A.S. Chandurkar J, N.B. Suryawanshi J

Insurance claim – Insurance agreement entered into at Khamgaon – Property situated at Pandharpur – Property destroyed – Part of cause of action at Khamgaon – Court at Khamgaon has jurisdiction [Insurance Act, 1938, S. 20]

FACTS
The plaintiff is a public trust registered under the provisions of the Bombay Public Trust Act, 1950 and the Societies Registration Act, 1860. It runs various educational institutions and charity hospitals at various places in the State of Maharashtra. The Trust on 4th August, 1977 purchased a non-agricultural property at Pandharpur for construction of the Sant Gajanan Maharaj Temple. With a view to safeguard the said property, it entered into an agreement of insurance with the defendant.

The structure was damaged on account of floods during 2001-2003. The trust pleaded that it was required to bear substantial costs and therefore there was a cause of action for recovering money from the defendants.

The insurance company raised an objection to the territorial jurisdiction of the Civil Court at Khamgaon. The property insured was situated at Pandharpur in Solapur District which was beyond the territorial jurisdiction of the Khamgaon Court. The claim for insurance was based on the damage caused to the insured property on account of the occurrence of the events also at Pandharpur. Merely because the insurance policy was entered into at Khamgaon the same could not be a reason to confer jurisdiction on the Court at Khamgaon.

HELD
The contract between the parties was entered into at Khamgaon and the amount of premium was paid by the plaintiff and received by the defendant at Khamgaon. This indicates that as the contract of insurance between the parties was executed at Khamgaon and the policy of insurance was also issued by the office of the defendant at Khamgaon, part of the cause of action arose at Khamgaon. On acceptance of premium by the defendant at Khamgaon, the policy of insurance commenced and though the property insured was located at Pandharpur, District Solapur, the Court at Khamgaon had jurisdiction to entertain the suit based on the insurance policies as the part of the cause of action had arisen at Khamgaon. The Trial Court has rightly held that the Court had territorial jurisdiction to entertain the suit.

14 Collector of Stamps vs. Tulsi Rice and Pulse Mills AIR 2021 Gujarat 72 Date of order: 22nd March, 2021 Bench: Vineet Kothari J, Biren Vaishnav J

Stamp Duty – Retiring partner – Assigning his interest in land to partnership firm – No transfer of assets – No stamp duty [Stamp Act, 1899, S. 48]

FACTS
One of the seven partners of a partnership firm, viz. Tulsi Rice and Pulse Mills, assigned his interest in the leasehold land leased for 99 years by GIDC to the partnership firm.

It is the case of the Stamp Duty Authorities that the assignment amounted to ‘transfer’ as defined in the Stamp Law and the Stamp Authority was justified in levying Stamp Duty vide order dated 16th April, 2008.

The case of the partnership firm was allowed by the Single Judge of the Gujarat High Court. The State of Gujarat filed an appeal against the judgment and order dated 18th October, 2016 allowing the writ petition filed by the respondent and holding that on the deed of assignment dated 5th August, 2000, stamp duty could not be demanded by the Stamp Authorities.

HELD
Even though the said document was titled as ‘Deed of Assignment’, it could not be an assignment or transfer of asset or property by one of the partners of the partnership firm as he had no exclusive right, title or interest in the said leasehold land which was on 99 years’ lease given by GIDC to the said firm. The Court held that the document in question executed in the present case is, in effect, a retirement of one of the partners of the firm who, upon his retirement from the said firm, released his right in the leasehold land in question in favour of the continuing six partners.

The case under this document would squarely fall within the ambit and scope of section 48 of the Indian Partnership Act, 1932 which provides for the mode of settlement of accounts between the partners. It appears that the Stamp Authority in the present case was misled by the title of the document ignoring the actual event or intention of the document by which seven continuing partners assigned the right, title or interest in favour of the six continuing partners, except the seventh and the outgoing retiring partner and the same was construed as a ‘transfer’ or ‘assignment’ by the outgoing partner in favour of the six continuing partners.

The appeal was dismissed.

15 Alka Khandu Avhad vs. Amar Syamprasad Mishra and Anr. AIR 2021 Supreme Court 1616 Date of order: 8th March, 2021 Bench: Dr. D.Y. Chandrachud J, M.R. Shah J

Dishonour of cheque – Proceedings against husband and wife – Wife neither signatory – No joint bank account – No joint liability u/s 138 of the Negotiable Instrument Act, 1881

FACTS
The respondent No. 1 (Amar Syamprasad Mishra) had filed a criminal complaint against the appellant and her husband for the dishonour of a cheque in the Court of the Metropolitan Magistrate, Mumbai. That the original complainant raised a professional bill for the legal work done by him to represent accused Nos. 1 and 2 in the legal proceedings. That, thereafter, original accused No. 1, husband of the appellant herein, handed over to the complainant a post-dated cheque of 15th March, 2016. The said cheque was presented for encashment and the same came to be returned unpaid with the endorsement ‘funds insufficient’. The Respondent No. 1 filed a complaint against both the accused (husband and wife) for the offence punishable u/s 138 of the Negotiable Instrument Act, 1881 (NI Act). The Metropolitan Magistrate directed to issue process against both the accused.

HELD
On a fair reading of section 138 of the NI Act, before a person can be prosecuted the following conditions are required to be satisfied:

i) that the cheque is drawn by a person on an account maintained by him with a banker;

ii) the cheque is for the payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability; and

iii) the said cheque is returned by the bank unpaid, either because the amount of money standing to the credit of that account is insufficient to honour the cheque, or that it exceeds the amount arranged to be paid from that account.

Section 138 of the NI Act does not speak about joint liability. Even in case of a joint liability, in case of individual persons a person other than a person who has drawn the cheque on an account maintained by him cannot be prosecuted for the offence u/s 138. A person might have been jointly liable to pay the debt but such a person cannot be prosecuted unless the bank account is jointly maintained and she / he was a signatory to the cheque.

The appeal was allowed.

16 Prabhat General Agencies and Ors. vs. Jammu Kashmir Bank Ltd. and Ors. AIR 2021 Supreme Court 3469 Date of order: 9th July, 2021 Bench: A.M. Khanwilkar J, Sanjiv Khanna J

Sale of mortgaged property – Challenge on portion of land sold – Challenge on private sale by bank – No violation as sufficient opportunity given to the debtor – Only portion of land which is mortgaged can be sold [Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, S. 38, R.8, R.9]

FACTS
The appellants herein have questioned the auction process inter alia on the ground that the land mortgaged to the respondent bank was only 550 marlas, but possession of 784.5 marlas is being handed over to the respondent Nos. 3 and 4 (private parties) who have purchased the same in the sale by the bank. Further, the reserve price was fixed at Rs. 5.50 crores but the same was sold for Rs. 4.50 crores.

HELD
The appellants have not made the payments in spite of several opportunities. Further, with respect to the sale price the respondents resorted to private sale only when the auction proceedings did not fructify. The appellants were duly informed by the bank and were given sufficient opportunity to deposit the dues. However, the bank must ensure handing over only 550 marlas of land to the private parties from the larger property.

The appeal was dismissed.

17 Ankit Vijaykumar Khandelwal vs. Aarti Rajkumar Khandelwal AIR 2021 Bombay 151 Date of order: 28th April, 2021 Bench: Anuja Prabhudessai J

Arbitration – Partnership deed – Arbitration clause to resolve all disputes through arbitration – Post dissolution of firm – Arbitration clause would not cease to exist [Arbitration and Conciliation Act, 1996, S. 8; Indian Partnership Act, 1932, S. 43]

FACTS
The plaintiff (Aarti Rajkumar Khandelwal) filed a suit for dissolution of partnership firm and rendition of accounts against the respondent (Ankit Vijaykumar Khandelwal). The defendant filed a notice of motion to refer the dispute to arbitration in terms of clause 19 of the Partnership Deed.

HELD
The arbitration clause is widely worded and is not restricted or limited to disputes arising prior to dissolution of partnership firm. The partnership deed does not indicate that the parties intended to exclude post-dissolution disputes from arbitral reference. Consequently, there is no embargo to refer such disputes to arbitration. The enforcement of clause 18 and provisions under sections 46 and 48 of the Arbitration Act, 1996 come into operation post dissolution of partnership. In the absence of any embargo to refer a post-dissolution dispute to the arbitrator, it is not possible to accept that the arbitration clause would cease to exist with dissolution of the partnership firm. Thus, there is a valid arbitration agreement between the parties. The dispute raised in the suit has its genesis in the arbitration clause.

The revision application is allowed.

BCAJ Admin

CORPORATE LAW CORNER

PART A | COMPANY LAW

4 M/s Technicolor India Private Limited vs. The Registrar of Companies, Karnataka The National Company Law Tribunal, Bengaluru Bench C.P. No. 124/BB/2019 Date of order: 20th January, 2020

Voluntary revision of Board’s report by the Company. The Company filed a petition u/s 131 r.w.s. 134 of the Companies Act, 2013 and Rule 77 of the NCLT Rules, 2016 to permit the Company to revise the Board’s report due to some mismatch in the amount spent on CSR. The Company was permitted to revise the Board’s report without prejudice to the rights of the statutory authorities to initiate any proceedings against the Company, for violation of any provisions of the Companies Act.

FACTS
The petition was filed by M/s TIPL before the NCLT u/s 131 r.w.s. 134 of the Companies Act, 2013 and Rule 77 of the NCLT Rules, 2016 seeking to permit the Company to revise the Board’s report and in specific, the annexure to the report related to Corporate Social Responsibility (CSR).

Following are the brief facts of the case, as mentioned in the Company Petition, which are relevant to the issue in question:

a) The Company met the net profit criteria u/s 135 of the Companies Act, 2013, and had a CSR committee. The Company had spent some amount as per the CSR Policy of the Company during the fiscal year 2017-18, which was below the threshold mentioned in section 135 (5) of the Companies Act.

b) Due to human lapse, the concerned department misreported the amounts spent on CSR and mentioned it in the CSR annexure to the Board’s report for the fiscal year ended 31st March, 2018 as against the amount reported in the audited financials.

c) The Board of Directors of M/s TIPL, in their meeting dated 21st September, 2018 approved the draft Board’s report for the year ended 31st March, 2018, which mentioned the amount spent on CSR and associated details incorrectly.

d) Subsequently, in the AGM held on 28th September, 2018, the shareholders had adopted the audited financial statement for the year ended 31st March, 2018, including the audited balance sheet as on 31st March, 2018, the statement of profit and loss account with the report of the Board of Directors and the Auditors.

e) The error was discovered during the pre-scrutiny stage of filing of the audited financials. Thereafter, the Board of Directors had taken a call to set things right with the suo moto intent to make an application u/s 131 (1) (b) of the Companies Act to rectify the error.

Following were the submissions of the Regional Director, RoC, Karnataka (RD), who had filed an affidavit dated 3rd December, 2019:

a) It was observed that M/s TIPL had only one member in the CSR Committee in 2017-18, which was below the statutory requirement.

b) M/s TIPL had spent “some amount” as per the CSR policy of the M/s TIPL during the fiscal year 2017-18, which remained below the threshold mentioned u/s 135(5) of the Companies Act.

c) M/s TIPL did not specifically state in the annexure attached to the Board’s report for 2017-18 the reasons for non-spending of due CSR amount.

d) Since M/s TIPL had violated Section 135 of the Companies Act, 2013, RD urged that TIPL may be directed to make good the offence and get the offence compounded u/s 441 of the Companies Act, 2013 w.r.t the above-mentioned points. Further, as per the new amendment to the Companies Act, 2013, the unspent amount under CSR Policy was required to be kept in a separate account. Hence, M/s TIPL needed to follow the procedure accordingly. Therefore, it urged the NCLT to dismiss the Petition.

Following were the submissions of M/s TIPL, who had filed an affidavit dated 1st January, 2020:

a) M/s TIPL had mentioned in the CSR annexure to the Board’s report that after the end of the fiscal year, they had taken steps to co-opt two Board members to be part of the CSR Committee. Further, it had specifically stated the reasons for not spending the stipulated amount on CSR activities.

b) M/s TIPL had sought permission for revision of the annexure to the Board’s report relating to CSR only. The Petition was filed only for correction in annexure and not for making the offence good, as alleged by the RD.

c) The sole purpose of the petition was to seek approval for revision of the CSR annexure to the Board’s report to ensure that the CSR expense report in the CSR annexure matches with the amount disclosed as CSR expenses in the financial statement in order to comply with the provision of Section 134 (3) (o) of the Act read with Rule 9 of the Companies Rules, 2014 and second proviso to section 135 (5) of the Act read with rule 8 of the Companies Rules, 2014.

The Office of the Deputy Commissioner of Income-Tax, Bangalore, vide its letter dated 19th September, 2019, had inter alia stated that the Department did not have any objection to the appeal filed by M/s TIPL.

Section 131 of the Companies Act, 2013, empowers the Company to seek to revise financial statements or revise a report in respect of any of the three preceding financial years after obtaining the approval of the Tribunal by filing an appropriate application in a prescribed form. Therefore, the issue was only to seek approval of the Tribunal to revise the Board’s report and not for seeking any compounding of offence as contended. Moreover, examination of an issue raised before it of any other issues, if any, such as a violation of any provisions of the Act, was beyond the scope of the Tribunal in the present Petition.

HELD
The NCLT was convinced with the reasons furnished by M/s TIPL to seek the relief sought. Therefore, the NCLT was inclined to allow the application as sought in the interest of justice, and on the principle of ease of doing business, however, without prejudice to the right(s) of the Registrar of Companies to initiate appropriate proceedings, if the Company violated any provision of Companies Act, 2013 and the Rules made thereunder. Further, M/s. TIPL was also at liberty to file an application suo moto to seek compounding of any violation if it thinks so.

The NCLT disposed of the application with the following directions:

a) M/s TIPL was permitted to revise the Board’s report, as sought for, with a direction to follow all the extant provisions of Section 135 of the Companies Act, 2013, the Company (CSR) Rules, 2014 amended from time to time, and also Rule 77 of NCLT Rules, 2016.

b) This order was passed without prejudice to the rights of the statutory authorities to initiate any proceedings against M/s TIPL, for violation of any provisions of the Companies Act, 2013.

c) There was no order as to costs.

PART B | INSOLVENCY AND BANKRUPTCY LAW

3 Potens Transmissions & Power Pvt. Ltd vs. Gian Chand Narang NCLAT, Delhi Company Appeal (AT) (Insolvency) No. 532 of 2022 Date of judgement/order: 12th May, 2022

Cancellation of E-auction because of non-compliance of time limit of 90 days payment. The provision is mandatory, and the auction has to be cancelled in case of default.

FACTS
In 2018, ICICI Bank Ltd. filed a petition u/s 7 of the Insolvency and Bankruptcy Code, 2016 before NCLT New Delhi, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Apex Buildsys Ltd. (“Corporate Debtor”). The CIRP was initiated by the NCLT, (“Adjudicating Authority”) vide an order dated 20th September, 2018 and subsequently, an order for liquidation of the Corporate Debtor was passed on 9th January, 2020.

Further, the Liquidator had invited bids for the E-auction of the Corporate Debtor as a going concern. Potens Transmissions & Power Pvt. Ltd. (“Appellant /Successful Bidder”) became the successful bidder in the E-auction of the Corporate Debtor conducted on 3rd June, 2021. The bid amount was Rs. 73.01 crore and earnest money amounting to Rs. 7.3 crore was paid by the Appellant on 31st May, 2021.

The Liquidator asked the Appellant to deposit the sale consideration by 10th June, 2021, i.e. within 30 days from 31st May, 2021. The Appellant had deposited Rs 10,95,25,000 till 10th/11th June, 2021. A term sheet was executed between the Appellant and the Liquidator, as per which 3rd July, 2021 was fixed as the timeline for payment of the balance amount of Rs. 54,75,75,000, on failure of which an interest at 12% would be applicable from 3rd July, 2021 onwards. The total payment was to be made on or before 1st September, 2021, i.e. within 90 days. Further, the Appellant filed an application before the adjudicating authority seeking the prayer to:

“(a) allow the Applicant to pay/adjust the sale consideration in the following matter (i) R50 crore by way of investment into the equity shares of the Corporate Debtor; and (ii) the balance amount of R23 crore in the form of Optionally Convertible Debentures;”

And another application was filed to seek an extension of time to pay the balance consideration amount. While these applications were pending for adjudication, the Liquidator moved an application seeking permission to cancel the sale of the Corporate Debtor as a going concern to the Appellant, in view of the latter’s failure to make payment in terms of the provisions of law and grant of further time to conduct a fresh E-Auction of the Corporate Debtor as a going concern.

PROVISION OF LAW
Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“Regulations”) – Clause 1(12) of Schedule I.

“1 Auction.

(12) On the close of the auction, the highest bidder shall be invited to provide balance sale consideration within ninety days of the date of such demand: Provided that payments made after thirty days shall attract interest at the rate of 12%:

Provided further that the sale shall be cancelled if the payment is not received within ninety days.”

RULING IN THE MATTER
Failure to pay consideration in 90 Days, NCLAT Delhi cancels the sale of Corporate Debtor to the Auction Purchaser in liquidation proceedings. The NCLAT, while adjudicating an appeal in Potens Transmissions & Power Pvt. Ltd vs. Gian Chand Narang, has upheld the cancellation of sale of Apex Buildsys Ltd. as a going concern to Potens Transmissions & Power Pvt. Ltd. (Auction Purchaser), over the latter’s failure to pay the sale consideration amount within 90 days, as stipulated under IBBI (Liquidation Process) Regulations 2016.

HELD
The NCLAT Bench observed that 90 days period provided in the Liquidation Process Regulation is the maximum period for the Auction Purchaser to deposit the consideration amount, failing which the regulation expressly mentions that the sale shall be cancelled. It was held that “when the Consequence of non-compliance of the provision is provided in the statute itself, the provision is necessary to be held to be mandatory.” The NCLAT opined that the Adjudicating Authority had no option except to allow the Application filed by the Liquidator for cancellation of the sale, and such action is in accordance with the statutory provisions. Further, the prayer made by the Appellant in I.A. No. 3153 of 2021, that Appellant was never interested in making the payment and wanted to prolong the proceedings. The NCLAT Bench upheld the order of the Adjudicating Authority and cancelled the sale of the Corporate Debtor to the Appellant, and also upheld the conducting of a fresh E-auction of the CD.

BCAJ Admin

ALLIED LAWS

11 Narinder Garg & Ors. vs. Kotak Mahindra Bank Ltd. & Ors. WP(C) No. 93 of 2022 (SC) Date of order: 28th March, 2022 Bench: Uday Umesh Lalit; J., S. Ravindra Bhat; J. Pamidighantam and Sri Narasimha, J.

Insolvency & Bankruptcy – Liability of a Director – Negotiable Instruments – Would be statutorily liable under the Negotiable Instruments Act [Insolvency & Bankruptcy Code, 2016 (Code), S. 14, Negotiable Instruments Act, 1881, S. 138, S. 141]

FACTS
The Petitioner filed a writ petition seeking to quash the criminal complaints filed against the corporate debtor and its directors u/s 138 of the Negotiable Instruments Act, 1881 (Act) pending before concerned Judicial Magistrate/Chief Metropolitan Magistrate/Judicial Magistrate of 1st Class in view of the order dated 18th March, 2020 passed by the National Company Law Tribunal, Chandigarh, by which the Resolution Plan was approved by the CoC u/s 30(4) of the Code and as the Respondent Complainants have accepted the approved Resolution Plan.

HELD
Relying on the decision in the case of P. Mohanraj & Others vs. Shah Brothers Ispat Private Limited, (2021) 6 SCC 258, it was held that the moratorium provisions contained in Section 14 of the Insolvency and Bankruptcy Code, 2016 would apply only to the corporate debtor and that the natural persons mentioned in Section 141 of the Act would continue to be statutorily liable under the provisions of the Act.

The writ petition was dismissed.

12 K. C. Laxmana vs. K.C. Chandrappa Gowda & Anr. Civil Appeal No. 2582 of 2010 (SC) Date of order: 19th April, 2022 Bench: S. Abdul Nazeer J, and Krishna Murari J.

Gift – Hindu Undivided Family – Karta cannot gift ancestral property for other than ‘pious purpose’ – Property can be alienated only for legal necessity, the benefit of estate, or with the consent of all coparceners – Term ‘alienation’ includes gift.

FACTS
K.C. Chandrappa Gowda (Plaintiff) filed a suit against his father K.S. Chinne Gowda and one K.C. Laxmana (Defendants) for partition and separate possession of his one-third share in the suit property and a declaration that the gift/settlement deed dated 22nd March, 1980 executed by the first Defendant K.S. Chinne Gowda in favour of the second Defendant K.C. Laxmana as null and void.

According to Plaintiff, the schedule property belongs to the joint family consisting of himself, the first Defendant and one K.C. Subraya Gowda. It was further contended that the first Defendant had no right to transfer the schedule property in favour of the second Defendant as he is not a coparcener or a member of their family. Consequently, it was contended that the alienation made without the Plaintiff’s consent is null and void and thus not binding on him.

HELD
It is trite law that Karta/Manager of joint family property may alienate joint family property only in three situations, namely, (i) legal necessity, (ii) for the benefit of the estate, and (iii) with the consent of all the coparceners of the family. In the instant case, the alienation of the joint family property was not with the consent of all the coparceners. It is settled law that where alienation is not made with the consent of all the coparceners, it is voidable at the instance of the coparceners whose consent has not been obtained. Therefore, the alienation of the joint family property in favour of the second Defendant was voidable at the instance of the Plaintiff whose consent had not been obtained as a coparcener before the said alienation.

Further held, the settlement deed is, in fact, a gift deed which was executed by the first Defendant in favour of the second Defendant ‘out of love and affection’ and by virtue of which the second Defendant was given a portion of the joint family property. It is well settled that a Hindu father or any other managing member of a HUF has the power to make a gift of the ancestral property only for a ‘pious purpose’, and what is understood by the term ‘pious purpose’ is a gift for charitable and/or religious purpose. Therefore, a deed of gift in regard to the ancestral property executed ‘out of love and affection’ does not come within the scope of the term ‘pious purpose’.

It was also held that the word ‘alienation’ in Article 109 of the Second Schedule to the Limitation Act, 1963 includes ‘gift’.

13 Asha Joseph vs. Babu C. George & Ors. RFA No. 543 of 2012 (Ker) Date of order: 8th April, 2022 Bench: P.B. Suresh Kumar J. and C.S. Sudha, J.

Sale Deed – Immovable Property – Specific performance – Demonstration of funds for purchasing property – Not necessary. [Specific Relief Act, 1963, S. 16(c)]

FACTS
The Plaintiff had entered into a sale agreement by which Defendants 1 to 3 agreed to sell their property for a total sale consideration of Rs. 55,44,000. On the date of the agreement, an amount of Rs. 10,00,000 was paid as advance. The agreement was to execute the sale deed within a period of three months from the date of the agreement.

The Plaintiff was always ready and willing to perform her part of the contract. However, the Defendants were never ready to perform their part of the contract. So, the Plaintiff issued a lawyer’s notice calling upon the Defendants to execute the deed, to which they sent a reply notice raising false and untenable contentions. Hence the suit.

The Defendants filed a written statement contending that there was never any sale agreement as alleged in the plaint. According to the Defendants, the agreement was executed as security when the first Defendant borrowed an amount of Rs. 10,00,000 from the Plaintiff.

The Court below disbelieved Plaintiff’s case and disallowed the prayer for specific performance. Aggrieved, the Plaintiff preferred an appeal.

The Defendants raised a contention that the pleadings in the plaint are totally insufficient and that do not satisfy the requirements u/s 16(c) of the Specific Relief Act, 1963 (Act). The Defendants contended that plaint does not give the details of the funds in possession of the Plaintiff or how she intended to raise the necessary funds to pay the balance sale consideration. As there is non-compliance of Section 16(c) of the Act, the Plaintiff is not entitled to the relief of specific performance.

HELD
The Court noted that the Hon’ble Supreme Court in Nathulal vs. Phoolchand, AIR 1970 SC 546 has held that, to prove himself ready and willing, a purchaser does not have to necessarily produce the money or to vouch for a concluded scheme for financing the transaction.

Further, in the case of Ganesh Prasad vs. Saraswati Devi, AIR 1982 All 47, it has been held that it is not necessary for the plaintiff to work out actual figures and satisfy the Court what specific amount a bank would have advanced to him.

The Plaintiff does not have in such a case to go about jingling money to demonstrate his capacity to pay the purchase price. All that the Plaintiff has to do in such a situation is to be really willing to purchase the property when the time for doing so comes and have the means to arrange for payment of the consideration payable by him. There could, therefore, be no objection if the owner raises the money for payment when the time for doing so comes as Clause (1) of the Explanation to Section 16(c) of the Act clearly enacts that money need be produced only when directed by the Court.

Therefore, the Plaintiff need only establish that she had the capacity to raise the necessary funds, which she has done in this case through the testimony.

Application is allowed.

14 Rajesh Kasera vs. Bank of India & Anr. AIR 2022 (NOC) 272 (Jha.) Date of order: 18th November, 2021 Bench: Rajesh Shankar J.

Succession Certificate – Deceased mother having three children – No nominees to the bank account – Release of bank account in favour of one child cannot be done unless there is a succession certificate. [Banking Regulation Act, 1949, S. 45ZA]

FACTS
The present writ petition has been filed for issuance of direction to the Respondents to release the entire amount of Late Urmila Devi favouring the Petitioner, who claims to be her only son and heir/legal representative.

The Petitioner’s mother, Urmila Devi, died on 14th January, 2019, leaving behind two sons, i.e. the Petitioner and Ramesh Kasera. Ramesh Kasera, Petitioner’s brother, also died on 28th June, 2019 and as such, the Petitioner is the only surviving heir/legal representative of Late Urmila Devi. The father of the Petitioner had already died on 9th June, 1993. The Petitioner obtained a family relation certificate from the Circle Officer, which discloses that the Petitioner is the only son, and his two married sisters live separately in their matrimonial houses. Under the aforesaid circumstance, the Petitioner submitted that the Petitioner being the only surviving son of late Urmila Devi, is entitled to receive the amount lying in the aforesaid bank account.

HELD
The Petitioner is not the only heir/legal representative of the late Urmila Devi, as his two married sisters are alive. Moreover, the concerned bank account of late Urmila Devi did not mention any nominee to operate the same after her death. Though the Respondents have stated in the counter affidavit that two daughters of Late Urmila Devi (sisters of the Petitioner) have raised oral objection against release of the amount lying in the concerned bank account in favour of the Petitioner, this Court does not wish to comment on the same, as no such written objection has been brought on record by the Respondents. However, the substance in the stand taken by the Respondents in the counter affidavit is that since the name of nominee has not been mentioned in the concerned bank account, if the Petitioner claims the amount lying in the said account, he should produce a succession certificate issued by a competent Court of law before the bank.

Hence, no writ of mandamus, as prayed for by the Petitioner in the present writ petition, can be issued.

15 S. Murugesan vs. District Registrar, Madurai. AIR 2022 Madras 296 Date of order: 28th January, 2022 Bench: C. V. Karthujeyan J.

Gift – Cancellation – Deed expressly mentions about no power to cancel – Plea of ignorance is not valid. [Transfer of Property Act, 1882, S. 122]

FACTS
A writ petition has been filed in the nature of Mandamus seeking a direction to the sub-registrar to permit the Petitioner to cancel a gift deed executed and registered by the Petitioner in the office of the Respondent.

HELD
The Petitioner was around 39 years of age when he had executed the gift deed. Plea of lack of knowledge or ignorance or innocence and, therefore, seeking indulgence cannot be pleaded by the Petitioner as he had voluntarily executed the gift deed.

A ‘gift’ is defined u/s 122 of the Transfer of Property Act. The definition is very clear and straightforward. Section 122 of the said Act also deals with accepting a particular gift. It is stated that if the donee accepts the gift or it is accepted on behalf of the donee, then the act of gift becomes complete.

A perusal of the gift deed shows that the Petitioner had very clearly stated that he has no right to cancel and frustrate the gift deed and that, even if he takes any steps to frustrate the gift deed, such steps would be void. There is no condition attached to the gift, as seen from reading that document.

The Writ Petition is dismissed.

BCAJ Admin

CORPORATE LAW CORNER

PART A | COMPANY LAW

3 Neera Saggi vs. Union of India & Ors. with Renu Chattu vs. Union of India & Ors. Supreme Court of India [2021] 164 CLA 370 (SC) Civil Appeal Nos. 2841 of 2020 & 3531 of 2020 Date of Order: 15th February, 2021

While Independent Directors have a vital role, they are intended to be independent, and where they have resigned from directorship and still impleaded in a case of fraudulent lending without hearing and considering facts relating to ex-independent directors, the order impleading them is liable to be set aside.

FACTS
The National Company Law Tribunal (‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’), in the course of their proceedings relating to M/s IL&FS and M/s IFIN have impleaded Independent Directors (IDs) of Companies, among other Directors based on Serious Fraud Investigation Office (‘SFIO’) Report submitted before both NCLT and NCLAT.

The NCLT, while dealing with the question as to whether they should be impleaded observed that:-

a. SFIO had stated in its complaint before the Special Court at Mumbai that the IDs and CFO of the company ignored all alarming indicators and failed to save the interest of the company and its stakeholders by not raising these issues in the Board Meetings and remained mute spectators.

b. Further, it is revealed that in connivance with each other, the IDs, Directors, CFO of M/s IFIN, group CFO and Audit Committee members abused their positions. They used various modus operandi to continue lending from M/s IFIN to group entities by causing wrongful loss to M/s IFIN and its stakeholders. An investigation revealed that they were aware of the stressed asset portfolio and the modus operandi used for granting loans to group companies of existing defaulting borrowers to prevent their being classified as NPA.

c. The NCLT observed that in the 2nd SFIO Report, no role of IDs was specified; however, NCLT directed the impleadment of the two more IDs, i.e. Mr. SK and Ms. SP, in addition to the two appellants Ms. NS and Ms. RC.

Thereafter, NCLT, by its order dated 18th July, 2019, has directed that several persons be impleaded. Among them were both the executive and non-executive directors and the auditors of M/s IL&FS.

Both Ms. NS and Ms. RC were appointed as IDs of M/s IL&FS. Ms. NS was appointed as an ID on 18th March, 2015. She resigned from the position on 25th July, 2016. Ms. RC (in the companion appeal) was appointed as an ID on 27th September, 2017. She resigned on 17th September, 2018.

Further, NCLAT vide order dated 4th March, 2020 had disposed of the appeal filed against NCLT order on the ground that a similar question of law is involved and upheld the NCLT order.

Ms. NS and Ms. RC, both being aggrieved parties, filed separate appeals before Hon’ble Supreme Court of India (‘Supreme Court’) on the ground that by both NCLT and NCLAT, there was no application of mind as to the role of Ms. NS and Ms. RC regarding their position as IDs.

Union of India (‘UOI’) had made its submission before the Supreme Court that the provisions of sub-sections (8) and (12) of section 149 of the Companies Act, 2013 read with Schedule IV specifies the Code for IDs. Section 149(12) provides as follows:

‘(12) Notwithstanding anything contained in this Act,

i. an independent director; and

ii. a non-executive director not being promoter or key managerial personnel, shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.’

Hence, it was urged that an ID can be held liable in respect of such acts of omission or commission by a company that had occurred with their knowledge attributable through Board processes and with his consent or connivance or where he had not acted diligently.

HELD
Supreme Court, after considering submissions, observed that neither before the NCLT nor before the NCLAT, there was an appropriate and due application of mind to the facts pertaining to Ms. NS and Ms. RC before an order impleading them was passed.

The Supreme Court further observed that the ends of justice would be met if an order of remand is passed, requiring the NCLT to apply its mind to the issue as to whether Ms. NS and Ms. RC should be impleaded. Undoubtedly, ID has a vital role, as is indicated by the provisions of the Companies Act, 2013.

The Supreme Court further stated that IDs are intended to be independent; they cannot remain indifferent to the company’s position.

Since the NCLT and NCLAT have not devoted due consideration to the role, position and allegations against Ms. NS and Ms. RC, the Supreme Court held to remand the proceedings only in relation to Ms. NS and Ms. RC, which will not affect the impleading of other directors and auditors. The Supreme Court clarified that it had not expressed any opinion on the merits of the rival submissions wherein it emphasised the necessity of impleading Ms. NS and Ms. RC.

Hence, SC allowed the appeals and set aside the impugned judgment and order of the NCLAT and the proceedings, in consequence, were remitted back to the NCLT, in relation to Ms. NS and Ms. RC in this case, for a fresh decision on the issue of their being impleaded.

The NCLT was requested to pass fresh orders within one month from the date of receipt of a certified copy of this order.

PART B | INSOLVENCY AND BANKRUPTCY LAW

2 Subhankar Bhowmik vs. Union of India [WP(C)(PIL) No. 04/2022] Tripura High Court Confirmed by SC in SLA [6104/2022]

Decree holders cannot be at par with Financial Creditors Under IBC: Tripura HC, and confirmed by SC.

FACTS
The petitioner filed a writ petition for declaring Section 3(10) of the Insolvency and Bankruptcy Code, 2016 r/w Regulations 9A of IBBI(CIRP) Regulations, 2016 as ultra vires in as much as it failed to define the terms ‘other creditors’ and for striking them down.

Relief was also sought for including the words ‘decree-holder’ existing in Section 3(10) to be at par with ‘financial creditors’ under Regulation 9(a).

SUBMISSIONS
Petitioner submitted that the decree-holder has a better right and should be treated as a secured creditor who is a financial creditor, since his rights are crystallised.

The Court discussed the rights of decree holders; it said that the same is having the right to execute the decree. The provisions under The Civil Procedure Code, 1908 give the right for execution. However, the same may be the subject matter of appeal till the Apex Court. Further, assuming it has attained finality, the same shall lead to giving an adversarial litigant the right to obstruct the non-adversarial process.

The petitioner’s contention was that there is an omission by the legislature for non-incorporation of decree-holder in the statute, and the same shall be categorized as financial creditors.

HELD
The rights of the decree holders are protected as a class of creditors, and therefore the legislature has not overlapped the classification with operational and financial creditors. It further observed that the Code rightly recognises the decree-holder as creditor and, at best, an admitted claim against the corporate debtor.

The Court did not find favour with the arguments of the petitioner and upheld the provisions of decree-holder as a creditor. Hence, no priority is given to the decree-holder as a financial creditor in classification and distribution.

BCAJ Admin

ALLIED LAWS

6 Sri Subhankar Bhowmik vs. Union of India and Anr. WP(C)(PIL) No. 04 of 2022 (Tri.)(HC) Date of order: 14th March, 2022 Bench: S G Chattopadhyay J. and Indrajit Mahanty J.

Insolvency & Bankruptcy – ‘Decree-holders’ cannot be treated at par with Financial Creditors. [Insolvency & Bankruptcy Code, 2016 (Code), S.3(10), S. 14]

FACTS
The Petitioner, a shareholder of the company, sought for declaration of section 3(10) of the Insolvency & Bankruptcy Code (IBC) read with regulation 9A as ultra vires, for failing to define the term ‘other creditor’ and also to include a decree-holder at par with ‘financial creditors’.

HELD
The right of a decree-holder, in the context of a decree, is at best a right to execute the decree in accordance with the law. Even in a case where the decree passed in a suit is subject to the appellate process and attains finality, the only recourse available to the decree-holder is to execute the decree in accordance with the relevant provisions of the Civil Procedure Code, 1908. Suffice it to say that the provisions contained in Order 21 provide for the manner of execution of decrees in various situations. The said provisions also provide the rights available to judgement debtors, claimant objectors, third parties etc., to ensure that all stakeholders are protected.

The rights of a decree-holder, subject to execution in accordance with the law, remain inchoate in the context of the IBC. This is principally because the IBC, by express mandate of the moratorium envisaged by Section 14(1) of the Code, puts a fetter on the execution of the decree itself.

Therefore, in terms of Section 14(l)(a) of the Code, the right of a decree-holder to execute the decree in civil law freezes by virtue of the mandatory and judicially recognized moratorium that commences on the insolvency commencement date. This is because a decree, in a given case, may be amenable to challenge by way of an appellate process and/or by way of objections in the execution process.

Therefore, the IBC rightly categorizes a decree holder as a creditor in terms of the definition contained in Section 3(10) of the Code. Execution of such a decree, is however subject to the fetters expressly imposed by the IBC, which cannot be wished away.

Editor’s Note: SLP dismissed in Sri Subhankar Bhowmik vs. Union of India and Anr SLP (C) No. 6104 of 2022 dated April 11, 2022 (SC).

7 Experion Developers Pvt. Ltd vs. Sushma Ashok Shiroor Civil Appeal No. 6044 of 2019 (SC) Date of order: 7th April, 2022 Bench: Uday Umesh Lalit J., S. Ravindra Bhat J. and Pamidighantam Sri Narasimha J.

Consumer Protection Act, 1986 – Real Estate (Regulation and Development) Act, 2016 – Interpretation of Statute – Where there are more than two judicial fora – choice offered for effective access to justice – Statutes must be harmoniously construed. [Consumer Protection Act, 1986, S. 14, 2(g), 23; Real Estate (Regulation and Development) Act, 2016, S. 18]

FACTS
Experion Developers Private Ltd. is the promoter of apartment units. The Consumer booked an apartment and agreed to construction linked payment plan, which led to the execution of the Apartment Buyer’s Agreement dated 26th December, 2012. As per Clause 10.1 of the Agreement, possession was to be given within 42 months from the date of approval of the building plan or the date of receipt of the approval of the Ministry of Environment and Forests (Government of India) or date of the execution of the agreement whichever is later. Clause 13 of the agreement provided for Delay Compensation. Under this clause, if the Developer did not offer possession within the period stipulated in the agreement, it was obliged to pay liquidated damages till the possession was offered to the Consumer.

The Consumer approached the National Disputes Redressal Commission by filing an original complaint alleging that he had paid a total consideration and the possession was not granted even till the filing of the complaint. He, therefore, sought a refund of his consideration along with interest.

The Commission, in its judgment dated 19th June, 2019, allowed the complaint. Thus, the Developer filed the present Civil Appeal.

HELD
A consumer invoking the jurisdiction of the Commission can seek such reliefs as they consider appropriate. A consumer can pray for a refund of the money with interest and compensation. The consumer could also ask for possession of the apartment with compensation. The consumer can also make a prayer for both in the alternative. If a consumer prays for a refund of the amount without an alternative prayer, the Commission will recognize such a right and grant it, of course, subject to the merits of the case. If a consumer seeks alternative reliefs, the Commission will consider the matter in the facts and circumstances of the case and will pass appropriate orders as justice demands. This position is similar to the mandate under Section 18 of the RERA Act.

It is crystal clear that the Consumer Protection Act and the RERA Act neither exclude nor contradict each other. When Statutes provisioning judicial remedies fall for construction, the choice of the interpretative outcomes should also depend on the constitutional duty to create effective judicial remedies in furtherance of access to justice. A meaningful interpretation that effectuates access to justice is a constitutional imperative, and it is this duty that must inform the interpretative criterion.

When Statutes provide more than one judicial forum for effectuating a right or to enforce a duty obligation, it is a feature of remedial choices offered by the State for effective access to justice. Therefore, while interpreting statutes provisioning plurality of remedies, it is necessary for Courts to harmonise the provisions constructively.

8 Swarnalatha & Ors. vs. Kalavathy & Ors. Civil Appeal No.1565 of 2022 (SC) Date of order: 30th March, 2022 Bench: Hemant Gupta J. and V. Ramasubramanian, J.

Will – Suspicious Circumstances – Exclusion of one natural heirs name – Not a ground for suspicion – Article 14 not applicable to Wills. [Indian Succession Act, 1925, S. 384, Indian Evidence Act, 1872, S. 68]

FACTS
The mother Adhilakshmiammal died on 14th August, 1995. She left behind a Will dated 30th January, 1995, bequeathing the properties purchased by her and the properties which she got from her maternal uncle, in favour of her two sons. The daughter Kalavathy was not given any share on the ground that she had already been provided sufficiently. The father Mannar Reddiar died on 8th August, 2000. He left behind a Will dated 10th December, 1998, bequeathing his properties favouring his two sons and grandchildren. The daughter Kalavathy was not allotted any property even under this Will, but the Will contained reasons for the same.

The eldest son V.M. Chandrasekaran died subsequently in October, 1999, leaving behind him surviving his wife Swarnalatha and two sons, who are the appellants in the present appeal. Thereafter, the daughter Kalavathy and the surviving son V.M. Sivakumar (of the testators) filed a suit for partition before the District Munsiff Court. Upon coming to know of the same, the appellants filed a petition in probate before the Principal District Judge for the grant of probate of the Wills of Mannar Reddiar and Adhilakshmiammal.

By a judgment dated 7th June, 2010, the District Court granted probate of both the Wills. Challenging the judgment of the Probate Court, the daughter Kalavathy and the other son of the testators (respondents 1 and 2 herein) filed an appeal before the High Court of Judicature at Madras. The High Court allowed the said appeal by the impugned judgment on the ground that there were suspicious circumstances surrounding the execution of both the Wills. Therefore, aggrieved by the said judgment, the legatees filed an appeal.

HELD
When it was not even the respondents’ case that the testators were not in a sound and disposing state of mind, the High Court found fault with the appellants for not disclosing the nature of the ailments suffered by them. The exclusion of one of the natural heirs from the bequest cannot by itself be a ground to hold that there are suspicious circumstances. The reasons given are more than convincing to show that the exclusion of the daughter has happened in a very natural way. If the Will had been fabricated on blank papers containing the mother’s signature, there would have been no occasion for the father to make a mention in his own Will about the execution of the Will by the mother.

The law relating to suspicious circumstances surrounding the execution of a Will is already well settled, and it needs no reiteration. But cases in which suspicion is created are essentially those where either the testator’s signature is disputed or the mental capacity of the testator is questioned. In the matter of appreciating the genuineness of execution of a Will, there is no place for the Court to see whether the distribution made by the testator was fair and equitable to all of his children. Further, Article 14 does not apply to dispositions under a Will.

9 CA. Manisha Mehta and Ors. vs. The Board of Directors Represented by its Managing Director of ICICI Bank and Ors. Writ Petition (L) No. 8418 of 2022 (Bom.) (HC) Date of order: 23rd March, 2022 Bench: Dipankar Datta CJ. and M. S. Karnik, J.

SARFAESI – Debtors of Banks – Natural Justice to be not read into section 14 of SARFAESI Act. [Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, S. 14]

FACTS
This writ petition is at the instance of multiple petitioners who are all debtors of different banks/financial institutions (secured creditors). They are aggrieved by the orders passed by District Magistrates/Chief Metropolitan Magistrate under section 14 of the SARFAESI Act. Some petitioners have approached the jurisdictional Debts Recovery Tribunal under section 17 of the SARFAESI Act, and proceedings are pending.

It is prayed, inter alia, for a declaration that natural justice should be read into section 14 of the SARFAESI Act.

HELD
Section 14 of the SARFAESI Act was amended twice, in 2013 and then again in 2016. If it were the legislature’s intention to extend the opportunity of hearing to a borrower before the District Magistrate/Chief Metropolitan Magistrate, as the case may be, it was free to do so. Advisedly, the legislature did not do so, for it would have militated against the scheme of the SARFAESI Act and, more particularly, section 13 thereof. It is implicit in the scheme of the SARFAESI Act that natural justice, only to a limited extent, is available and not beyond what is expressly provided. The language of section 14 is too clear and unambiguous, and does not admit to any requirement of complying with natural justice by putting the borrower on notice while an application thereunder is under consideration.

10 Mohinder Singh (D) Thr. Lrs. & Ors. vs. Mal Singh (D) Thr. Lrs. & Ors. Civil Appeal No.1731 of 2009 9 (SC) Date of order: 9th March, 2022 Bench: Sanjay Kishan Kaul J. and M.M. Sundresh, J.

Gift – out of his own free will and volition – Exclusive owner of the properties – nobody’s concern – to whom properties are given – when document is executed validly. [Transfer of Property Act, 1882, S. 122]

FACTS
The suit was filed on 19th October, 1971 by Mohinder Singh and Gurnam Singh, who are represented by their legal heirs as appellants before us for declaring that a gift deed executed by their brother, Gian Singh, in favour of Pritam Kaur is null and void. It was the appellants’ case that Gian Singh was governed by general customary law till the enforcement of the Hindu Succession Act and Hindu Adoption and Maintenance Act, and the appellants were the nearest best legal heirs of Gian Singh. It was alleged that Gian Singh was issueless, without a wife, had no relationship with Pritam Kaur, the beneficiary of the gift deed and that Pritam Kaur was not the wife of Gian Singh. The appellants alleged later, as per facts set out hereinafter that Gian Singh was married to one Pritam Kaur daughter of Inder Singh who had pre-deceased him.

HELD
It is in these circumstances that one of the issues framed originally was also whether Pritam Kaur enjoyed the status of a wife or not. In our view, if the donor is making a gift out of his own free will and volition and is the exclusive owner of the properties, it is nobody’s concern as to whom he gives the properties. What is most material is that all the Courts have found (i.e. three concurrent findings) that they are not ancestral properties.

The gift deed is a registered gift deed. The Court mentioned that it was really not concerned with the moralistic issue of whether Pritam Kaur was actually married to Gian Singh or she was living with him. There was undoubtedly companionship, and Gian Singh, in his wisdom, deemed it appropriate to hand over the properties through a registered gift deed to Pritam Kaur.

The Court observed that it was time that the Courts get out of this mindset, or possibly may have got out of this mindset by now on passing value judgments on relationships between parties in determining either a testamentary or non-testamentary disposition so long as the document executed is found to be validly executed. Some male chauvinistic approach appears to have coloured judgments passed by the trial Court and the First Appellate Court, which is of course, a reflection of the mindset of the appellants before us. The appeal was dismissed.

BCAJ Admin

CORPORATE LAW CORNER

PART A | COMPANY LAW

1 Usha Martin Telematics Ltd. & Anr. vs. Registrar of Companies, West Bengal
High Court of Calcutta
[2021] 165 CLA 133 (Cal.)
CRR No. 494 of 2019 with CRAN Nos. 1, 2 & 5 of 2019
Date of Order: 27th January, 2021

Typographical/inadvertent error in recording of minutes of meeting of the Board of Directors is rectified subsequently, that cannot be termed as an offence under the provisions of Sections 447 and 448 of the Companies Act, 2013, until there was any intent to deceive, gain undue advantage or injure the Company’s interest or any person connected.

FACTS
• M/s UMT had applied to the Reserve Bank of India vide application dated 28th March, 2014 for being registered as a Core Investment Company (‘CIC’) pursuant to the Core Investment Companies (Reserve Bank) Directions, 2011.

• Thereafter, the meeting of the Board of Directors of the company was held on 11th June, 2014 and in the course of preparing the minutes of the said meeting in compliance with section 118(1) of the Companies Act, 2013, it was erroneously recorded in item No. 12 of the minutes that the company had submitted an application to the Reserve Bank of India (‘RBI’) for its de-registration as an NBFC and registration as a CIC. Such recording was an inadvertent/typographical error as the company was not a registered non-banking financial company (‘NBFC’) at the relevant time, and the question of de-registration as NBFC did not arise. The said error was detected by the company subsequently and was rectified in a meeting of its Board of directors held on 9th September, 2015.

• In February 2016, the Registrar of Companies, West Bengal (‘RoC’) inspected the books of account and other relevant records of the company u/s 206(5) of the Act of 2013 and detected the erroneous recording in the minutes of the meeting dated 11th June, 2014 and the company was asked to show cause as to why prosecution should not be initiated against it under the provisions of sections 118(2) and (7) r.w.s. 447/448 of the Act for violation of the said provisions of law by the company, in a notice issued on 24th August, 2018.

• M/s UMT, in reply to the said notice, explained that it was an inadvertent mistake, and was rectified vide letter dated 20th September, 2018. However, RoC did not find the said explanation satisfactory and lodged a complaint against M/s UMT before the learned 2nd Special Court, Calcutta.

• Being aggrieved, M/s UMT moved the High Court under article 227 of the Constitution of India r.w.s. 401/482 of the Code of Criminal Procedure and prayed for quashing the entire proceedings pending before the learned 2nd Special Court, Calcutta, being Complaint Case No. 15 of 2018.

HELD
• The High Court of Calcutta observed that the key ingredient of an offence was the intent to deceive, gain undue advantage or injure the company’s interest or any person connected thereto. In the case in hand, the complaint lodged by the RoC did not prima facie reflect such intent on the part of the company and its manager.

• It was also inconceivable that the inspection by RoC was held sometime in 2018 and the notice to show cause signed on 24th August, 2018 whereas the instruction of the Ministry of Corporate Affairs (‘MCA’) to launch prosecution for such violation was issued on 7th December, 2017, i.e., preceding the inspection. The complaint did not prima facie make out an offence u/s 118(2) and (7) r.w.s. 447/448 of the Act.

• Further, it was held that typographical/inadvertent error in the recording of minutes rectified subsequently can under no stretch of imagination be termed as an offence, far less an offence under the provisions of the Act as alleged. That the company and its manager had acted with a mala fide intention to deceive, gain undue advantage or injure the company’s interest or any person connected thereto does not reflect in the four corners of the complaint.

• The High Court of Calcutta also observed that by allowing the proceeding before the learned 2nd Special Court, Calcutta would have been a futile exercise and abuse of the process of law in view of the fact that the inadvertent error had been sufficiently and adequately explained and it did not call for any prosecution.

• Upon consideration of the entire facts and circumstances of the case, the High Court of Calcutta held that the contents of the complaint itself as well as the law on the point, the court had no hesitation to hold that the proceeding in respect of the Complaint Case No. 15 of 2018 was liable to be quashed. Hence, the application and the proceedings in respect of the complaint pending before the learned 2nd Special Court, Calcutta were quashed.

2 Alice P M and Ors. vs. Vyapar Mandir Palarivattom (P.) Ltd. and Ors.
National Company Law Tribunal, Kochi Bench, Kerala
[2020] 158 CLA 276 (NCLT)
CA/35/KOB/2019
Date of Order: 5th March, 2020

A company has no right to exercise lien on shares for recovery of dues and cannot auction and allot shares to third parties ignoring the right of fully paid-up shareholders.

FACTS
• Mrs. Alice P M (Mrs. APM), Ms. Neethu Joy (Ms. Neethu) and Mr. Nithin Joy (Mr. NJ) were the legal heirs, i.e., wife, daughter and son respectively (collectively referred to as ‘legal heirs’) of late Mr. Antony Joy (Mr. AJ), the original shareholder holding 100 shares of Rs. 100 each of M/s VMPPL under Folio No. 50.

• The company’s paid-up capital was Rs.3,90,000 divided into 3,900 equity shares of Rs. 100 each. The company’s object was to carry on the business of acquiring land by purchase, lease or otherwise and constructing structures such as shopping complexes, hotel complexes or housing complexes to let out, lease or sell.

• The legal heirs were in possession of Shop Nos. 13 and 44, for which the rent was in arrears.

• The legal heirs had filed the above-said petition u/s 59(1) of the Companies Act, 2013 for seeking interim relief to restrain the respondent-company from holding the annual general meeting or extraordinary general meeting along with the main relief, i.e., the rectification of the register of members of the respondent-company.

The following was submitted by the legal heirs before NCLT, Kochi Bench:

• The legal heirs were entitled to be shareholders of the company by virtue of transmission of shares held by late Mr. AJ to the extent of 100 equity shares since Ms. Neethu and Mr. NJ have relinquished their rights over the shares, which belonged to their late father Mr. AJ. Mrs. APM had requested for transmission of shares in her favour on 27th April, 2018. On the company’s requisition dated 15th May, 2018, Mrs. APM had submitted necessary documents for transmission of shares of late Mr. AJ vide letter dated 26th June, 2018. But till that point in time, no transmission had been effected by M/s VMPP. On 28th June, 2019, M/s VMPPL issued a letter to all shareholders through Mr. KMB stating that out of the total 3,900 equity shares of Rs. 100 each, 1,650 equity shares constituting 34.61 per cent stand vested in the company on account of rental arrears and the same is offered for sale.

• The original share certificate was still with the legal heirs, and they had not executed any share transfer instrument for the purpose of transferring of shares to any third parties.

• The counsel further stated that the M/s VMPPL is governed by clause 6(2) and (3) of the articles of association where the lien can be exercised only on the dividends payable on the shares and cannot be extended or stretched beyond the scope of clauses 6(2) and (3).

• The legal heirs were in occupation of shop room Nos. 13 and 44 for the last 22 years and no lease agreement existed between the applicants and the respondent-company in respect of these shop rooms and no quantum of monthly or yearly rent has ever been fixed between the parties by any contract.

The following was submitted by M/s VMPPL, Mr. KMB and RoC before NCLT, Kochi Bench:

• The legal heirs are in default of arrears of rent for shop Nos. 13 and 44, which are in their possession. They were asked to pay arrears of rent by letter dated 23rd January, 2019, and the company had warned that the shares would have a first and paramount lien under clause 6(2) of the articles of association of M/s VMPPL.

• There is no fraud in the procedure adopted by M/s VMPPL as alleged, as the sale was affected after due deliberations in a Board meeting in the interest of M/s VMPPL.

HELD

1. The legal heirs were declared as the legitimate equity shareholders under Folio No. 50.

2. The Tribunal directed rectification of the register of members of M/s VMPPL by re-entering the total number of 100 equity shares belonging to legal heirs in the share register of the company and further ordering to restore the total shareholding of
the applicants as it existed prior to 8th February, 2019 forthwith.

3. M/s VMPPL was restrained from conducting a tender for the sale of 100 shares by allotting or effecting transfer of any shares to any members or non-members till the rectification of share register belonging to the legal heirs without their express consent.

4. M/s VMPPL was directed to file the register of members after carrying out the rectifications as per this order, with the Registrar of Companies within one month.

5. M/s VMPPL was directed to pay Rs. 25,000 to the petitioner towards the costs and damages sustained by the petitioner in this regard.

PART B | INSOLVENCY AND BANKRUPTCY LAW

1 63 Moons Technologies Limited vs. The Administrator of Dewan Housing Finance Corporation Limited
Company Appeal (AT) (Insolvency) No. 454, 455, 750 of 2021

Treatment of avoidance transaction application upon approval of resolution plan-Whether Commercial wisdom is above legal wisdom-NCLAT observed that Adjudicating Authority must decide whether the recoveries vested with the Corporate Debtor should be applied for the benefit of creditors of the corporate debtor, the successful resolution applicant or other stakeholders and remanded matter back to CoC for reconsideration on treatment of avoidance transactions.

FACTS
In accordance with the report submitted by M/s Grant Thornton, nine applications were filed before Hon’ble Adjudicating Authority under Sections 43 to 51 and 66 of the Insolvency and Bankruptcy Code, 2016 (‘IB Code’) for adjudication. The recovery estimated from such avoidance applications amounted to Rs. 45,050 Crores. As per the resolution plan submitted by Piramal Enterprises, any benefit arising from such avoidance transaction application shall go to Resolution Applicant as the amount recoverable from such applications is appropriated by the Resolution Applicant to stakeholders of the Corporate Debtor while considering Resolution Plan. In the Resolution Plan, CoC consciously decided that money realised through these avoidance transactions would accrue to the members of the CoC and at the same time, they have also consciously decided after a lot of deliberations, negotiations that the monies realised, if any, u/s 66 of IBC i.e. Fraudulent Transactions, CoC has ascribed the value of Rs. 1 and if any positive money recovery the same would go to the Resolution Applicant.

ISSUES
• Whether the stipulation in DHFL’s Resolution Plan of recoveries from various transactions in ensuring to the benefit of Resolution Applicant amounted to illegality or whether a Successful Resolution Applicant can appropriate recoveries from avoidance applications filed u/s 66 of the Code?

• Whether the same was within the commercial domain of the COC?

• Further, if there was illegality, could it be saved by any majority strength within the CoC voting in favour of the Resolution Plan or is it the domain of the Adjudicating Authority?

HELD
The Hon’ble Appellate Tribunal relied on the judgment of Venus Recruiters Private Limited vs. Union of India and Ors. (W.P.(C) 8705/2019 & CM Appl. 36026/2019), which states that an outcome of an avoidance application was meant to give benefit to the creditors of the Corporate Debtor, not for the Corporate Debtor in its new avatar. The judgment observed that the benefit of avoidance transactions is neither in favour of Resolution Applicant nor Corporate Debtor and further held that DHFL depositors who are also creditors are rightful beneficiaries of all the monies that have been siphoned off by the promoter/directors of the Corporate Debtor. Adjudicating Authorities are empowered to decide to whom the recoveries should go being Resolution Applicant, creditors or other stakeholders and therefore, any decision taken by CoC that strikes at the very heart of the Code cannot simply be upheld under the garb of commercial wisdom. However, with all such observations, Hon’ble NCLAT remanded back the matter to CoC after giving analysis of commercial wisdom as well treatment of avoidance transactions under the IB Code.

BCAJ Admin

CORPORATE LAW CORNER

16 Bank of Baroda vs. Aban Offshore Limited National Company Law Appellate Tribunal Company Appeal (AT) No. 35 of 2019 Date of Order: 29th January, 2020

Preference shareholders have locus standi for filing class action suit u/s 245 and application u/s 55(3) of Companies Act, 2013 in relation to the redemption of preference shares

FACTS
• M/s BOB had subscribed to Cumulative Redeemable Non-Convertible Preference Shares of M/s AOL aggregating to Rs. 30,00,00,000 at a varying coupon rate of 8% and 9% p.a. and had consented for its extension/roll over for three years from the original redemption date.

• However, M/s AOL did not redeem any preference shares and instead, they paid a 180% dividend to equity shareholders in the F.Y. ended 31st March, 2015. M/s AOL had defaulted on the redemption and payment of dividends to preference shareholders for the F.Y. ended 31st March, 2016 onwards. The said defaults continued till the date of the petition filed before National Company Law Tribunal (“NCLT”), Chennai Bench.

• NCLT, in its order, stated that the procedure laid down u/s 55(3) of the Companies Act, 2013 clearly provides a mandate to the Company to file the petition with the consent of the shareholders having 3/4th in value in relation to the preference shares. NCLT further stated that section 245 deals with Class Action Suit for seeking different remedies against the Company and its Directors. The same is not dealing with preference shareholders; hence, the holder of the preference shares has no locus standi to file such application. Therefore, NCLT held that the application was not maintainable and dismissed it.

Being aggrieved by NCLT order, M/s BOB preferred an appeal against it before the National Company Law Appellant Tribunal (NCLAT).

HELD
• The NCLAT had examined the legislature’s intention while promulgating Section 55 of the Companies Act, 2013 which was to compulsorily provide for the redemption of preference shares by doing away with the issue of irredeemable preference shares. Therefore, even though there was no specific provision stipulated under the said Act through which relief can be sought by preference shareholders in case of non-redemption by the company or consequent to non-filing of the petition u/s 55, the intention of the legislature being clear and absolute, Tribunal’s inherent power can be invoked to get an appropriate relief by an aggrieved preference shareholder(s).

• NCLAT observed that alternatively, preference shareholders coming within the definition of ‘member(s)’ under Section 2(55) r.w.s. 88 of the Companies Act, 2013, may file a petition u/s 245 of the Act, as a Class Action Suit, being aggrieved by the conduct of affairs of the company.

• NCLAT held that the preference shareholders were not without a remedy and for the redemption of preference shares, they can file an application u/s 55(3), or alternatively they may also file an application u/s 245 as a Class Action Suit and the NCLT while exercising the inherent power namely Rule 11 of NCLT Rules, 2016 can pass appropriate order.

• Hence, the NCLAT observed that M/s. BOB being a preference shareholder has no locus standi to file an application of Class Action Suit for the redemption of preference shares does not hold good. Thus, NCLT’s order was set aside, and the matter was remitted back to NCLT, Chennai Bench.

17 Universal Heat Exchangers Limited vs. K. Ramakrishnan National Company Law Appellate Tribunal, New Delhi Company Appeal (AT) No. 343 of 2018 Date of Order: 8th January, 2020

In a case where the minority shareholders of the company had the intent to exit from the company, the same would not provide any ground to deny them their right to subscribe to additional shares in proportion to their shareholding

FACTS
• Mr. K. Ramakrishnan (Mr. KR) and Others were residents of Singapore and Malaysia and had invested Rs.1,40,00,000 in M/s UHEL in a single tranche. They were allotted 4,00,000 equity shares of Rs.10 each at a premium of Rs. 25.

• Subsequently, M/s UHEL had made two allotments on a right-issue basis to existing shareholders, excluding Mr. KR and Others, i.e. the first allotment was of 20 Lakhs shares on 9th April, 2007 (at Rs.10 per share) and the second allotment was of 5,55,555 shares on 27th September, 2010 (at Rs.18 per share, including a premium of Rs.8 per share). It resulted in the dilution of shareholding of Mr. KR and Others from existing 27% to 9.86%.

• Thereafter Mr. KR and Others had filed an application before National Company Law Tribunal, Chennai Bench (NCLT) against the said right issue allotments made by M/s UHEL.

The following was submitted by Mr. KR and Others before NCLT, Chennai Bench:

• That the two allotments made in the year 2007 and 2010, where M/s UHEL being closely held Company had made right issue to existing shareholders but Mr. KR and Others were not offered the right issue nor they have received notices for the EGM.

• Further, they also submitted various oppression and mismanagement issues like:
a) In the year 2009-10, the Company had taken unsecured loans from Directors and Shareholders to the tune of Rs.8.96 Crores, but in the same year, the Company had granted loans to parties covered under Register maintained under Section 301 of the Act to the extent of Rs.4 Crores.

b) Similarly, in the year 2010-11, the Company had taken loans from interested parties to the tune of Rs.16.20 Crores and had diverted these funds. Mr. KR & Others alleged that the funds were siphoned by the Company and the Directors.

M/s UHEL submitted before NCLT, Chennai Bench that:

Mr. KR & Others were aware of the Extraordinary General Meeting (‘EGM’) and were also aware of valuation done by the M/s UHEL including Annual Returns filed in 2007 and 2010.

Further, the said application was filed before the Company Law Board, Chennai on 17th April, 2012 only, in spite of being aware of all the material facts. Mr. KR and Others had challenged the allotment made on 9th April, 2007.

NCLT after hearing:

• HELD that M/s UHEL had dispatched the notice but did not submit any proof that Mr. KR & Others have received such EGM notice. Hence, the notice in respect of the right issue needed to be annulled.

• Further, set aside the two allotments of shares made on 9th April, 2007 and 27th September, 2010 on right-basis and ordered to refund to the concerned allottees the amount received by M/s UHEL on account of the allotments that have been set aside and was further ordered to rectify the Register of Members after making refund of the amount received against the allotment.

M/s UHEL being aggrieved by NCLT order preferred an appeal before National Company Law Appellant Tribunal (NCLAT) u/s 421 of the Companies Act, 2013 against such impugned order passed by NCLT.

HELD
• NCLAT observed that the minority shareholders were requiring exit from the Company but that cannot provide a ground for denying their right to subscribe additional shares in proportion to their shareholding vis-à-vis that of the total paid-up capital of the Company as required under Section 81 of the Companies Act, 1956.

• NCLAT further observed that there were certain oppression and mismanagement and the relationship between the majority shareholders and minority shareholders were strained. Hence, there was a need for valuation report to be done by a Registered Valuer and the majority shareholders were free to buy the shares of the minority shareholders or otherwise.

• In view of the aforesaid findings, NCLAT upheld the impugned order dated 10th July, 2018 passed by the NCLT, Chennai Bench and M/s UHEL were directed to comply with the order of the NCLT as stated therein. Accordingly, the Appeal was dismissed.

18 Dheeraj Wadhawan vs. Administrator of DHFL & Ors. Company Appeal No. 785 of 2020 and 647 of 2021 NCLAT, Delhi Bench Date of Order: 27th January, 2022

Whether the Resolution plan can be given only to suspended directors and not superseded directors?

FACTS
The Appeal was filed by the erstwhile directors of the DHFL against the Administrator for not calling them to the Committee of Creditors (COC) meeting and providing the copy of resolution plan. The Corporate debtor was an NBFC and went under Insolvency of Financial Service Provider by an application made by RBI.

The company is a Housing Finance Company regulated by National Housing Bank Act,1987 and RBI Act, 1934. RBI superseded the company’s board on 20th November, 2019 in exercise of powers under Section 45-IE of the RBI Act by appointing Mr. R Subramniakumar as the Administrator. Further, RBI moved an application before the Adjudicating Authority (AA) and appointed the same Administrator under Financial Service Provider Rules, 2019.

The erstwhile directors wrote letters to the Administrator to invite them for COC meetings from time to time and also asked for a copy of the resolution plan. The request was not adhered to, and therefore the erstwhile directors moved an application before AA/NCLT, which came to be rejected. The reason which was given by Administrator and accepted by AA/NCLT was that RBI already superseded the directors and therefore they were not directors on the date of insolvency commencement. The rights of the suspended directors are recognized and not the superseded ones under law.

The issue came before NCLAT, wherein the appellants raised an important question of law that the superseded directors are akin to suspended directors. They emphasized that the law should be read as a whole and harmoniously. The appellants referred to Arcelor Mittal vs. Satish Gupta1 – interpretation of words should be based on the object, text, and context of the provision.

Further, it was also submitted that the RBI has only chosen to come under IBC and therefore the doctrine of election should be applied, and the words should be given logical meaning by allowing the appellants to participate and also get a copy of the resolution plan.

HELD
It was held that the superseded directors are not akin to suspended directors as the two are different. The superseded directors are those who are removed or deemed to be demitted office and who are not holding the office on the date of commencement of the Insolvency process. Therefore, the erstwhile directors are not entitled to documents/meetings which otherwise are available to suspended directors who are always on the board and continue to assist the IRP/RP. Further, it was clarified that once the plan is approved, it is not a confidential document and, therefore the same be provided to the appellants.

______________________________
1 (2019) 2 SCC 1

BCAJ Admin

ALLIED LAWS

22 Shiv Developers through its partner Sunil bhai Somabhai Ajmer vs. Aksharay Developers & Ors. Civil Appeal No. 785 of 2022 (SC) Date of order: 31st January, 2022 Bench: Dinesh Maheshwari J. and Vikram Nath J.

Partnership Firm – Unregistered Firm – Not barred to file a suit – Where contract in question is not related to business. [Indian Partnership Act, 1932, S. 69(2)]

FACTS
The Appellants, an unregistered partnership firm instituted a suit seeking perpetual injunction and declaration of a sale deed as null and void. The Trial Court rejected the application of the defendants which stated that the suit filed by and on behalf of an unregistered partnership firm which was barred by law.

On appeal, the High Court held that the plaintiff, being an unregistered firm, would be barred to enforce a right arising out of the contract in terms of Section 69(2) of the Partnership Act, 1932 (Act).

HELD
It was held that to attract the bar of Section 69(2) of the Act, the contract in question must be the one entered into by the unregistered partnership firm with a third party and must also be in the course of its business dealings.

Section 69(2) of the Act is not attracted to each and every contract. The sale transaction in question is not arising out of the business of the appellant firm.

The subject suit is one where the plaintiff seeks common law remedies with the allegations of fraud and misrepresentation as also of the statutory rights of injunction and declaration in terms of the provisions of the Specific Relief Act, 1963 as also the Transfer of Property Act, 1882 (while alleging want of the sale consideration). Therefore, the bar of Section 69(2) of the Act of 1932 does not apply to the present case.

The appeal was allowed.

23 V. Anantha Raju and another vs. T.M. Narasimhan and Ors. AIR 2021 Supreme Court 5342 Date of order: 26th October, 2021 Bench: L. Nageswara Rao J., Sanjiv Khanna J. and B. R. Gavai J.

Partnership Firm – Share of Profits – Disputed – Evidentiary value of Deed is above an oral testimony – Nothing precluded the Defendants from rectifying the deed between 1995 – 2004 – Clauses of Deed would prevail. [Indian Partnership Act, 1932, India Evidence Act, 1872, S. 17, 91 and 92]

FACTS
A Partnership Firm was constituted in the year 1986 vide Partnership Deed dated 30th October, 1992. According to the said deed, the Plaintiff No. 1 was entitled to 50 per cent of the profits provided he introduces a sum of Rs. 50 lakhs as his capital contribution on or before 31st March, 1993 otherwise the same would be only 10 per cent.

Subsequently, the deed was amended in 1995, where the Plaintiff No.1 and his son (Plaintiff No. 2) were both entitled to 25 per cent of the profits, inter alia. The Plaintiffs also filed their Income-tax returns wherein their share is shown as 25 per cent.

In 2004, a dispute arose between the Plaintiffs and the Defendants (Other partners of the Firm). It is the case of the Defendants that the Plaintiff did not bring the said amount of Rs. 50,00,000 on or before 31st March, 1993 and the deed of 1995 has mistakenly mentioned the share of the plaintiffs as 25 per cent each and they rely on their statement made under oath in the affidavit.

The Trial Court had held that the plaintiffs together were entitled to only 10 per cent share in the profits up to 2004, as subsequently they were expelled from the Firm. The appeal against the impugned order of the Trial Court was dismissed by the Hon’ble High Court of Karnataka.

HELD
It was held that the Defendants have not disputed about the reconstitution of the partnership firm by the 1995 Deed. They have also not disputed that in the 1995 Deed, the share of plaintiff Nos. 1 and 2 in the profits and losses of the partnership firm is mentioned as 25% each. The Defendants denying that they had received the requisite sum would have lesser evidentiary value than the Deed of 1995. The contention that the deed of 1995 has mistakenly mentioned the share of the Plaintiffs at 25 per cent each (Total of 50 per cent) cannot be accepted as nothing precluded the Defendants from rectifying the deed between 1995 to 2004.

The appeal was allowed on this point.

24 Ripudaman Singh vs. Tikka Maheshwar Chand (2021) 7 SCC 446 Date of order: 26th July, 2021 Bench: Sanjay Kishan Kaul J. and Hemant Gupta J.

Family Settlement – Exempt from compulsory registration – Where the same to pre-existing rights and no new right is created. [Registration Act, 1908. S. 17]

FACTS
The Plaintiff and Respondent were sons of one late Vijendra Singh. The Appellant-Plaintiff filed a suit for possession in the year 1978 disputing the Will dated 4th December, 1958 executed by Vijendra Singh in favour of the Defendant. The Appellant claimed half share of the land as described in the plaint. During the pendency of suit, a decree was passed on the basis of compromise arrived at between the parties.

In pursuance of the decree so passed, the Plaintiff sought mutation of the half share of the land vesting to him which was allowed by Tehsildar. However, an appeal against the said mutation was disposed of for fresh consideration without granting any opportunity of being heard to the Respondent

The Appellant-Plaintiff thereafter filed an appeal before the Divisional Commissioner. The appeal was dismissed on the ground that the compromise decree in the absence of registration was against the provisions of the Registration Act, 1908. The Appellant-Plaintiff subsequently filed a suit for declaration challenging such order passed by the Commissioner. The suit was dismissed by the Ld. Sub Judge. But the appeal preferred by the appellant was allowed by the Ld. District Judge.

This order was challenged before the High Court. The High Court set aside the judgment and decree passed by the first appellate court and the suit was dismissed on the ground that the land even though being subject-matter of compromise, was not the subject-matter of the suit and therefore the decree required registration under Section 17(2)(vi) of the Registration Act, 1908.

HELD
In the judgment in the case of Bhoop Singh vs. Ram Singh Major (1995) 5 SCC 709 it was held that a decree or order including compromise decree creating new right, title or interest in praesenti in immovable property of value of Rs.100 or above is compulsory for registration. It was also held that where the decree holder has a pre-existing right in the property, that decree does not require registration.

Therefore, the judgment and decree of the High Court holding that the decree requires compulsory registration is erroneous in law. The compromise was between the two brothers consequent to death of their father and no right was being created in praesenti for the first time, thus not requiring compulsory registration. Consequently, the appeal is allowed and the suit is decreed.

25 Moutushi Chakraborty vs. Manju Deb (Chakraborty) AIR 2021 Tripura 40 Date of order: 23rd April, 2021 Bench: S. Talapatra J. and S. G. Chattopadhay J.

Hindu Law – Maintenance – Daughter from second marriage entitled to share in pension of her deceased Father – ‘Estate’ includes pension. [Hindu Adoption and Maintenance Act, 1956, S. 22, 23]

FACTS
The Appellant is the daughter of Mr. Narayan Chakraborty from his second marriage with Smt. Karuna Chakraborty. The Respondent is the first wife of Mr. Narayan Chakraborty. The lower Court had held that Smt. Karuna Chakraborty cannot claim any maintenance as she was not legally married to Mr. Narayan Chakraborty. However, there cannot be any dispute that the appellant has a right over the property/estate of the deceased for all purposes.

The Appellant and her mother filed a petition seeking maintenance from the respondent who is in receipt of family pension for the death of Mr. Narayan Chakraborty.

HELD
The word ‘estate’ cannot be given a narrow definition for purpose of Hindu Adoption and Maintenance Act. The family pension is no doubt an ‘estate’, which has been acquired through the deceased as pension is an estate secured on putting the definite period of service. Thus, the dependents have the right to claim maintenance from the heirs of the deceased. The discretion to deny the maintenance under Section 23 of the Hindu Adoption and Maintenance Act, 1956 is confined to determining the quantum of the maintenance, not to whether the maintenance should be granted or not.

The appeal was allowed

26 Master M. Yashas (Minor) vs. Nil AIR 2021 Karnataka 198 Date of order: 23rd April, 2021 Bench: B. V. Nagarthna J. and J. M. Khazi J.

Property of Minor – Parents seeking permission to sell – Not for the minor’s necessity – Parents can’t dispose minor’s property to overcome their financial problems. [Hindu Minority and Guardianship Act, 1956, S. 8]

FACTS
The petition was filed by the appellant, mother of the minor child aged about twelve years under Section 8(2)(a) of the Hindu Minority and Guardian ship Act, 1956 (Act), seeking permission to sell the property standing in the name of her minor son and to use a portion of the sale proceeds to the tune of Rs. 15,00,000 for use of the minor son for the purpose of meeting his day-to-day expenses, school expenses, to tide over the financial crisis of the parents etc., and to deposit the balance sale proceeds in the name of her minor son. The trial Court by impugned order dated 28th January, 2021 has dismissed the petition.

HELD
As per Section 8(4) of the Act, the Court may grant permission to alienate the minor’s property only for his legal necessity or benefit to the estate.

In the present case, petitioner/appellant is seeking permission to sell the petition schedule property belonging to minor child not for his legal necessity or benefit to the estate, but to tide over the financial crisis faced by her and her husband.

Being the parents and natural guardians of the minor child, it is the duty and responsibility of petitioner/appellant and her husband to take care of him including his education and other expenses. In order to overcome their financial crisis, they cannot dispose of the minor’s property. The legal necessity of the minor does not include the necessity of the guardian or any other person even in the face of a pandemic like Covid-19. Certainly, the intended alienation of the property is not for the benefit to the estate of the minor.

The appeal was dismissed.

BCAJ Admin

CORPORATE LAW CORNER

13 Ateet Bansal vs. Unitech Ltd National Company Law Appellate Tribunal Company Appeal (AT) No. 216 of 2019 Date of order: 25th February, 2020

There should be no sympathy with the defaulting company and its directors. The National Company Law Appellate Tribunal (NCLAT) directed the Company to repay the amount to its Deposit Holders along with Interest pursuant to the provisions of Section 73(4) of Companies Act, 2013 read with Section 45Q of the Reserve Bank of India Act, 1934

FACTS
• Mr. AB was a depositor who had placed an amount of Rs. 1,00,000 as a Fixed Deposit with M/s. UL for three years and an amount of Rs. 1,45,217 was payable to the depositor (Mr. AB) upon maturity on 1st June, 2016.

• Through an application under Section 74(2) of the Companies Act, 2013, M/s. UL proposed to make payment to its depositors of matured amounts along with interest from the date of maturity till the date of payment through a rescheduled plan.

• Mr. AB approached M/s. UL several times since his Fixed Deposit got matured with them, but on all such occasions, the Company did not pay any attention to Mr. AB’s demand and never replied regarding the outstanding payment.

• Mr. AB filed a Company Petition in March, 2019 before Hon’ble NCLT, Delhi Bench under Section 73(4) of Companies Act, 2013 read with Section 45Q of the Reserve Bank of India Act, 1934 for repayment of maturity amount of the aforesaid deposit with 12.5% interest p.a. due thereon as per the terms and conditions of the deposit. The said petition was admitted by the Hon’ble NCLT, New Delhi Bench. Thereafter, no reply was filed by M/s UL and the order dated 30th May, 2019 was passed directing the Company to pay Rs. 1,45,217 to Mr. AB with pendent lite ( while the suit continues) and future interest @ 10% from the date of filing till the date of receipt.

• Mr. AB argued that NCLT, New Delhi Bench had erred in giving pendent lite and future interest @ 10% p.a. from the date of filing till receipt thereof instead of 12.5% p.a. as per the terms and conditions of the deposit and has also failed to appreciate that the interest should have been awarded from the date of maturity.

• Mr. AB further argued that National Company Law Tribunal, New Delhi Bench, has failed to award the interest amounting to Rs. 60,507, which was calculated at 12.5% p.a. from the maturity date on the matured amount for the delayed period till September 2019.

• Mr. AB stated that the NCLT order has failed to appreciate that Section 76A of the Companies Act, 2013 provides punishment for contravention of Section 73 or Section 76 of Companies Act 2013.

• Mr. AB, being aggrieved party, preferred an appeal before the National Company Law Appellant Tribunal (NCLAT) against the order passed by NCLT, Delhi Bench.

• Before NCLAT, M/s UL had submitted that with respect to certain ongoing disputes against the Respondents, the Managing Directors of the Respondent Company filed Special Leave Petitions under Article 136 of the Constitution of India where the Hon’ble Supreme Court has directed that no coercive steps should be taken against the company or directors, and Mr. AB has taken no coercive steps against M/s UL and its directors.

• Also, the Supreme Court further directed for the appointment of Amicus Curie (Friend of a Court) to create a portal where the persons who have invested with the Company by way of fixed deposits shall give the requisite information.

HELD
• NCLAT observed that M/s UL taking the shelter of Supreme Court order was creating hurdles in the process of law such as accepting notice and then not appearing/ postponing the hearing.

• NCLAT also observed that we should have no sympathy with the defaulting company and its directors. NCLT has reduced the rate of interest for which no justification has been given and also for not awarding interest from the maturity date to filing of the petition.

• NCLAT further noted that the NCLT order was a reward to the defaulting company and punishment to the honest depositor running from pillar to post to get his amount back with interest.

• NCLAT further observed that if M/s UL tries to get fresh deposits from the Public, the company will not get at cheaper rate but at a higher rate since the depositor will place fresh deposit seeing the risk factor of the deposit.

In view of the above observations the order of NCLT was set aside and the following order was passed:
• Mr. AB was entitled to a decree under his respective matured FDR. The amount was decreed in favour of the respective appellant together with pendent lite and future interest @ 12.5% p.a. from the date of maturity of the respective FDR until receipt thereof.

• M/s. UL was liable to pay Rs.50,000 towards cost of litigation, costs etc.

14 Brillio Technologies (P.) Ltd. vs. Registrar of Companies, Karnataka and Regional Director South Eastern Region, MCA [2021] 163 CLA 449 (NCLAT) National Company Law Appellate Tribunal Company Appeal (AT) No. 293 of 2019 Date of order: 19th April, 2021

Section 66 of the Companies Act, 2013 provides for the reduction of the share capital simpliciter without it being a part of any scheme of compromise and arrangement under Section 230-232 of the Companies Act, 2013 and Security Premium Account can be utilized for making payment to shareholders in respect of reduction in capital

FACTS
• The Board of Directors of M/s BTPL received a request from non-promoter shareholders to provide them with an opportunity to dispose of their shareholding in the Company. Board of M/s BTPL resolved on 24th January, 2019 to reduce the equity share capital from the existing Rs. 21,72,50,000 to Rs. 20,82,97,363 by reducing Rs. 89,52,637 equity shares from non-promoter equity shareholders. It proposed that the premium be paid out of the Securities Premium Account (SPA). Further, an Extraordinary General Meeting (EGM) was held on 4th February, 2019 wherein by special resolution duly passed by 100% members present, voted in favour of the resolution for the reduction of the Company’s share capital.

• M/s BTPL, thereafter filed a petition before National Company Law Tribunal (NCLT), Bengaluru bench in accordance with Section 66 (1) of the Companies Act, 2013 and NCLT directed M/s BTPL to issue notices to the Regional Director, Registrar of Companies and Creditors of the Company.

• Thereafter, the Regional Director, Ministry of Corporate Affairs, South-East Region, Hyderabad represented by Registrar of Companies, filed their observations before NCLT with respect to the proposed Scheme of Reduction of the capital of M/s BTPL.

• NCLT, based on the objections/observations submitted by the Office of Regional Director, held that as per Section 52 (2) of the Companies Act, 2013, SPA may be used only for the purpose specifically provided thereunder. Selective reduction in equity share capital to a particular group involving non-promoter shareholders, making the company as a wholly-owned subsidiary of its current holding company (M/s GCI Global Ventures), and also returning the excess of capital to them would tantamount to an arrangement between the company and shareholders or a class of them and hence, it is not covered under Section 66 of the Companies Act, 2013.

• NCLT further held that the case may be covered under Sections 230-232 of the Companies Act, 2013 wherein compromise or arrangement between the Company and its creditors or any class of them or its members or any class of them is permissible. Therefore, M/s BTPL failed to make out any case under Section 66, and thus, the petition was dismissed with the liberty to file an appropriate application in accordance with the law.

• M/s BTPL being aggrieved with NCLT order preferred an appeal against the said order before National Company Law Appellant Tribunal (NCLAT).

HELD
• NCLAT after hearing both the parties passed an order with following reasons as listed below:

Sr. No.

Objections raised by Regional
Director, Ministry of Corporate Affairs, South-East Region, Hyderabad before
NCLT

Responses to the objections and
Reasoning given by NCLAT

(i)

No proper genuine reason has been given for the reduction of
share capital.

NCLAT held that it cannot be said that M/s BTPL has not given any
genuine reasons for reduction of share capital as M/s BTPL had filed certain
emails received from the non-promoter shareholders with the request to provide
them with an opportunity to dispose of their shareholding in the petitioner
company.

(ii)

Consent affidavit from creditors has
not been obtained.

NCLAT held that NCLT had
erroneously stated that no consent affidavits from creditors have been
produced with regard to the reduction of share capital. M/s BTPL had provided
sufficient proof with respect to the delivery of notice to the unsecured
creditors. No representation was received from the creditors within three
months. Therefore, as per proviso to Section 66(2) of the Act, it shall be
presumed that they have no objection to the reduction.

(iii)

Security Premium Account cannot be utilized for making payment
to the non-promoter shareholders.

NCLAT was of the view that SPA can be
utilized for making payment to non-promoter shareholders, by taking into
consideration various Judgements and responses from M/s BTPL that SPA is
quasi-capital and section 52(1) specifically provides that SPA has to be
treated as if it was the paid-up share capital of the Company. Such Account
can be statutorily utilized for the purposes set out in Section 52(2) and (3)
of the Act and hence reduced without Tribunal’s approval, but for other
purposes, it can be utilized by resorting to the reduction of share capital.

(iv)

Consent from 171 non-promoter
shareholders who were not traceable has not been obtained, and the claim of
such shareholders has not been secured or determined.

NCLAT found no force in the argument
of the Regional Director as M/s BTPL had specifically mentioned that the
amount to be paid to the untraceable non-promoter shareholders would be kept
in an Escrow Account, and thereafter it would be transferred to Investor
Education and Protection Fund.

(v)

Selective reduction of shareholders is not permissible.

As per Section 66 of the Act, reduction of
share capital can be made in ‘any manner’. The proposed reduction is for the
whole non-promoter shareholders of the company. NCLAT held that
selective reduction is permissible if the non-promoter shareholders are being
paid the fair value of their shares. In the present case, none of the
non-promoter shareholders of the company have raised objection about the
valuation of their shares.

(vi)

The Petition for reduction of capital
under Section 66 of the Act, is not maintainable. However, it may be filed
under Section 230-232 of the Act.

NCLAT held
that Section 66 of the Companies Act, 2013 makes provision for the reduction
of share capital simpliciter without it being part of any scheme of
compromise and arrangement. The option of buyback of shares as provided in
Section 68 of the Companies Act, 2013 is less beneficial for the shareholders
who have requested the exit opportunity.

Therefore, NCLAT had set aside the order passed by the NCLT. Thus, the reduction of equity share capital resolved on 4th February, 2019 by the special resolution was confirmed.

15 Bank of Maharashtra vs. Videocon Ltd. & Ors Company Appeal (Ins.) No. 503, 505, 545, 529, 650 of 2021 National Company Law Appellate Tribunal Date of order: 5th January, 2022

FACTS
1. Videocon were repaying the agreed instalments to the consortium of lenders led by SBI till 2015. The VIL, along with 13 other companies of Videocon groups, were classified as ‘SMA – 2’ in the year 2016 onwards. Entities of Videocon group (along with its 12 Domestic subsidiaries) were under CIRP due action taken by SBI under Section 7 of the Code.

2. The Adjudicating Authority vide its order dated 8th August, 2019 passed the consolidation order and partially allowed SBI’s Application and directed the consolidation of the CDs out of the 15 Videocon Group companies.

3. Total claims of Rs. 72,078.5 crore has been filed, out of which claims of Rs. 64,637.6 crore had been verified and accepted for CIRP by the RP.

4. The plan provides a meagre amount of Rs. 2,962.02 crore against an admitted liability of approx. Rs.65,000 crore.
RULING IN CA NO. 545 OF 2021
1. This case is related to Trademark License Agreement (TLA) dated 7th July, 2005 between Electrolux Home products and Electrolux Kelvitor Limited, which got merged to the CD. The Appellant was entitled to terminate the
TLA if the CD underwent any event that resulted in the Dhoot family no longer being in control. The Appellants were entitled to terminate the TLA once CD is admitted to CIRP.

2. The Adjudicating Authority in IA 527 of 2019 held that the Agreement should continue for at least a year from the date of approval of the plan as per the existing Terms and Conditions as a transitional arrangement.

3. The NCLAT observed that: The Adjudicating Authority in IA No. 527/2019 has adjudged the agreement dispute. The Adjudicating Authority has made an error of judgment by permitting Agreement during transitional arrangement for a year or so and thereafter parties to decide as per their mutual understanding. Hence, it is prudent to remand the matter back to CoC for a review in accordance with the law.

RULING IN CA (INS.) NO. 650 OF 2021
1. It was filed to include all assets owned by Videocon group, particularly, foreign oil and gas assets are not included in the information memorandum as also no valuation thereof has been considered while the claim of lenders of foreign oil and gas assets of Rs. 23,120.90 crore being considered as claims without considering the corresponding assets – foreign oil and gas assets for which the borrowings were used.

2. The RP is submitted that explanation – b to Section 18 of the Code specifically excludes the assets of any Indian and foreign subsidiary of the CD from the purview of the terms Assets.

3. The NCLAT observed that: in ‘finance and accounts’ there is a matching concept of liability and its corresponding assets wherever liability is considered, the corresponding assets is supposed to exist in the form of the assets or the liability / borrowings which have been used to finance the losses. In any case, the commercial wisdom of CoC is non-justifiable as already laid down by multiple judgments of the Hon’ble Supreme Court. Hence, this appeal deserves to be dismissed and
is dismissed.

RULING IN CA (INS.) NO. 503, 505 AND 529 OF 2021
1. Resolution Plan does not provide ‘upfront’ payment in priority to the DFC as provided in Section 30 of the Code R/w IBBI Regulation 38. The plan proposes that NCD will be issued to the DFC redeemable after a significant period of around five years which does not qualify as ‘payment’ in terms of Section 30 (2)(b) of the Code.

2. NCLAT observed following:
a. Direction by the Adjudicating Authority to the SRA to pay the DFC by cash instead of NCD amounts to modification of the Resolution Plan. This is a domain of the CoC & not the Adjudicating Authority.

b. It is the CoC that has got the final decision-making authority. The Hon’ble Apex Court has already held in CoC of Essar Steel (supra) that the commercial wisdom of the CoC cannot be adjudicated by the Adjudicating Authority. As far as commercial decisions are concerned, they are the supreme authority. They have the full power to decide one way or other any resolution based on input provided to them or otherwise.

c. In the judicial forum, once an order is passed by a particular authority for, an example, by the Adjudicating Authority, it cannot review its order or judgment except as permitted under Section 420(2) of the Companies Act, 2013 r/w Rule 154 of the NCLT, Rules 2016. The same judicial authority can only rectify any mistake apparent from record, either on its own motion or brought to its notice by the parties. So, the power of review under the judicial arena lies with the higher judiciary.

d. The CoCs are the best judge to analyze, pick up and take prudent commercial decisions for the business, but they are also subjected to test of prudence to ensure fairness and transparency.

e. The Adjudicating Authority does not have the power to modify and change the plan as held by Hon’ble Apex Court in the case of K. Shasidhar and CoC of Essar Steel.

f. The CoC is not functus – officio on the approval of the Resolution plan, and accordingly, the judicial precedents clearly established that the Adjudicating Authority and this Tribunal is competent to send back the Resolution plan to the CoC for reconsideration

HELD
• Section 30 (2)(b) of the Code has not been complied with, and hence, the approval of the Resolution Plan is not as per Section 31 of the Code. Accordingly, the approval of Resolution Plan by the CoC as well as Adjudicating Authority is set aside, and the matter is remitted back to CoC for completion of the process relating to CIRP in accordance with the provisions of the Code.

BCAJ Admin

ALLIED LAWS

1 V. Prabhakrara vs. Basavaraj K. (Dead) by Lr. and another AIR 2021 Supreme Court 4830 Date of order: 7th October, 2021 Bench: Sanjay Kishan Kaul J. and M.M. Sundresh J.

Suit Property – Doubting genuineness of a registered will – factors such as existence of a forged unregistered will and severance of relationships to be kept in mind before raising suspicion on the registered will – Registered will is held to be valid. [Indian Evidence Act, 1872, S. 63, S.68]

FACTS
The Suit Property originally belonged to one Ms. Jessie Jayalakshmi (since deceased). The deceased Ms. Jessie Jayalakshmi, a spinster, was the maternal aunt of the Appellant/Plaintiff. Mr. Vijay Kumar and Ms. Kantha Lakshmi were his brother and sister, respectively. It is the case of the Appellant that the deceased, Ms. Jessie Jayalakshmi adopted him as her son and that he took care of her when she suffered an attack of paralysis.

A registered Will was executed by Ms. Jessie Jayalakshmi on signature in favour of the Appellant. The said Will was attested by Mr. Vijay Kumar, brother of the Appellant. Ms. Jessie Jayalakshmi was also brought to the office of the Sub-Registrar by none other than Ms. Kantha Lakshmi.

The relationship between Ms. Kantha Lakshmi and her husband (Respondent No. 1) got strained. She obtained a divorce decree on 26th March, 1988. It is the further case of the Appellant that Respondent No. 1 was permitted to reside in the Suit Property. The Respondent No. 1 refused to vacate the Suit Property, which is a residential house.

The Defendants/Respondents while acknowledging the factum of execution of the registered Will, introduced an unregistered Will, allegedly executed by Ms. Jessie Jayalakshmi in favour of the Respondent No. 2 (minor son of Respondent No.1).

The trial court held in favour of the Petitioner holding that the registered will had been proved. It gave exhaustive reasoning for doubting the genuineness of the unregistered will.

The High Court reaffirmed the findings of the Trial Court. However, the High Court did an exercise by entertaining a suspicion about the genuineness of the registered will and accordingly found that it has not been dispelled by the Appellant. On that basis, the suit was dismissed by allowing the appeal. The Appellant filed an appeal against the order of the High Court

HELD
A testamentary court is not a court of suspicion but that of conscience. It has to consider the relevant materials instead of adopting an ethical reasoning. A mere exclusion of either brother or sister per se would not create a suspicion unless it is surrounded by other circumstances creating an inference. In a case where a testatrix is accompanied by the sister of the beneficiary of the Will and the said document is attested by the brother, there is no room for any suspicion.

Both the Courts found that the unregistered will is a forged and fabricated document. The Appellate Court, in our considered view, has unnecessarily created a suspicion when there is none. That too, when the Trial Court did not find any. The factors such as the fabrication and severance of relationship between himself and his wife in pursuance of the decree for divorce, coupled with the status while squatting over the Suit Property being the relevant materials, ought to have weighed in its mind instead of questioning the registered Will.

Appeal was allowed.

2 Samruddhi Co-operative Housing Society Ltd. vs. Mumbai Mahalaxmi Construction Pvt. Ltd. Civil Appeal No. 4000 of 2019 (SC) Date of order: 11th January, 2022 Bench: Dr. D. Y. Chandrachud J. and A. S. Bopanna J.

Consumer – Deficiency in services – Real Estate – Not obtaining Occupation Certificate amounts to deficiency in services. [Consumer Protection Act, 1986, S. 2(1)(d), S. 2(1)(g)]

FACTS
The appellant is a co-operative housing society. The respondent constructed Wings ‘A’ and ‘B’ and entered into agreements to sell flats with individual purchasers in accordance with the Maharashtra Ownership Flats, 1963. The members of the appellant booked the flats in 1993 and were granted possession in 1997. According to the appellant, the respondent failed to take steps to obtain the occupation certificate from the municipal authorities. In the absence of the occupation certificate, individual flat owners were not eligible for electricity and water connections. Due to the efforts of the appellant, temporary water and electricity connections were granted by the authorities. However, the members of the appellant had to pay property tax at a rate 25 per cent higher than the normal rate and water charges at a rate which was 50 per cent higher than the normal charge.

HELD
The respondent was responsible for transferring the title to the flats to the society along with the occupancy certificate. The failure of the respondent to obtain the occupation certificate is a deficiency in service for which the respondent is liable. Thus, the members of the appellant society are well within their rights as ‘consumers’ to pray for compensation as a recompense for the consequent liability (such as payment of higher taxes and water charges by the owners) arising from the lack of an occupancy certificate.

Appeal is allowed.

3 Murthy & Ors vs. C. Saradambal & Ors Civil Appeal No. 4270 of 2010 (SC) Date of order: 10th December, 2021 Bench: L. Nageswara Rao J. and B.V. Nagarathna J.

Will – Sound and disposing state of mind – Onus on the propounder to discharge the suspicion pertaining to the execution – Letters of administration was not granted. [Indian Evidence Act, 1872, S. 68, Indian Succession Act, 1925, S. 63]

FACTS
E. Srinivasa Pillai, father-in-law of the 1st plaintiff, died on 19th January, 1978 leaving behind his last will and testament dated 4th January, 1978. The said will was said to be executed in the presence of two attestors. The testator E. Srinivasa Pillai had a son, named S. Damodaran, who died intestate on 3rd June, 1989 at Madras, leaving behind the plaintiff-wife C. Saradambal and his two daughters.

The testator, apart from his son, S. Damodaran, left behind two daughters.

The bequest was made in the name of testator’s son namely S. Damo viz., S. Damodaran to the exclusion of the testator’s daughters in respect of the house in which the testator and his family were residing. The daughters of the testator filed a suit in the City Civil Judge Court, Madras seeking partition of the said property and regarding the genuineness of the Will. Therefore, it had become necessary for the plaintiffs to file the petition seeking Letters of Administration. This was converted into suit.

The Trial court dismissed the suit. On appeal, the High Court allowed the appeal. Hence the present appeal.

HELD
On reading Section 63 of the Indian Succession Act, 1925 and Section 68 of the Evidence Act, 1872 it is clear that the propounder of the will must examine one or more attesting witnesses and the onus is placed on the propounder to remove all suspicious circumstances with regard to the execution of the will.

The respondents-plaintiffs have failed to prove the will in accordance with law inasmuch as they have not removed the suspicious circumstances, surrounding the execution of the will. Hence, not being a valid document in the eye of law, no Letters of Administration can be granted to the respondents-plaintiffs.

Appeal is allowed.

4 Beereddy Dasaratharami Reddy vs. V. Manjunath and another Civil Appeal No. 7037 of 2021 Date of order: 23rd December, 2021 Bench: M R Shah J. and Sanjiv Khanna J.

Hindu Undivided Family – Rights of Karta – Karta can sell HUF property – Signature of coparcener is not mandatory [Hindu Succession Act, 1956]

FACTS
Veluswamy, the Karta of the joint Hindu family executed an agreement to sell of the suit property and received advance from one Beereddy Dasaratharami Reddy (the Appellant). On 26th November, 2007, the Appellant instituted the suit for specific performance of the agreement to sell, impleading both Veluswamy, the Karta and his son V Manjunath (coparcener).

The Trial Court held that the Karta of the joint Hindu family property was entitled to execute the agreement to sell.

His son preferred the regular first appeal before the High Court of Karnataka wherein it was held that the agreement to sell is unenforceable as the suit property belonged to the joint Hindu family consisting of three persons, K. Veluswamy, his wife V. Manimegala and his son V. Manjunath and, therefore, could not have been executed without the signatures of V. Manjunath.

On appeal to the Supreme Court.

HELD
Right of the Karta to execute agreement to sell or sale deed of a joint Hindu family property is settled and is beyond cavil. Signatures of V. Manjunath, son of Karta – K. Veluswamy, on the agreement to sell were not required. K. Veluswamy being the Karta was entitled to execute the agreement to sell and even alienate the suit property. Absence of signatures of V. Manjunath would not matter and is inconsequential.

Appeal was allowed.

BCAJ Admin

CORPORATE LAW CORNER

10 Akhil R. Kothakota and Anr. vs. Tierra Farm Assets Co. (P) Ltd. [2021] 162 CLA 249 (NCLAT) Date of order: 9th November, 2021

Section 71(10) of the Companies Act, 2013 specifically empowers the Tribunal to direct, by order, a company to redeem the debentures forthwith on payment of principal and interest due thereon where a company has failed to pay interest on debentures when it was due

FACTS
* M/s TFA issued secured ‘non-convertible debentures’ on 17th December, 2015 and a debenture trust deed was executed between it and M/s VITCL, which was the debenture trustee to issue debentures against certain properties listed in Schedule II of the deed. M/s TFA was supposed to make interest payments to the debenture holders in March 2018, June 2018, September 2018, and December 2018. However, it failed and neglected to make such payments. Thereafter, the debenture holders kept diligently following up with M/s TFA and the various other entities involved regarding interest payments which had been defaulted on.

* The debenture holders had also been consistent in their demand for redemption of the debentures as stipulated under the terms of the trust deed and preferred to file a petition u/s 71(10) of the Companies Act, 2013 before the NCLT, Bengaluru Bench which sought the following directions:
(a) M/s TFA to make repayment of the aforesaid debenture(s) along with interest due thereon in accordance with the terms and conditions w.r.t. debenture amounts, which included the default of interest payable as well as the prepayment penalty which aggregated to Rs. 74,99,280 as on the date of filing the application.
(b) M/s TFA to be injuncted from dealing with the mortgaged properties as specified in the debenture trust deed dated 17th December, 2015 and a direction issued to the debenture trustee to enter into / take possession of the mortgaged properties as specified in the debenture trust deed, etc.

After hearing the case, NCLT passed an order dated 17th December, 2019 in exercise of the powers conferred on it u/s 71(10) of the Companies Act, 2013 read with rule 73 of the NCLT Rules, 2016. NCLT in its order disposed of the petition by granting six months’ time, provisionally from the date of the order, so as to explore all possibilities of settlement of claims of the debenture holders along with other similarly situated claimants.

However, the debenture holders being aggrieved by the NCLT order preferred an appeal before the National Company Law Appellate Tribunal (NCLAT) on the following grounds:

(a) NCLT did not specifically address ‘the prayer for repayment’ but rather gave a direction to explore all possibilities of settlement of claims of the petitioners and granted six months’ time, which is ultra vires of sections 71(8) and 71(10) of the Companies Act, 2013.

(b) NCLT had not focused on the reply submitted by M/s TFA which did show that there was a clear admission of default of payment of interest on the ‘non-convertible debentures’ and M/s TFA proposed to settle the dues and that the matter was under due process and averred that there was an arbitration proposal pending between the parties. However, the material on record did not give evidence of any such initiation of ‘arbitration proceedings’.

HELD
NCLAT observed that the NCLT Bengaluru Bench had taken into consideration the ‘financial status of the company’, the interest of all stake holders and had given a direction for settlement. However, the fact remained that M/s TFA did not make any effort to settle the matter nor was there any representation on its behalf before the NCLAT.

It further observed that section 71(10) of the Companies Act, 2013 provides a clear mechanism for issue and repayment of debentures, including the enforcement of repayment obligations and section 71(10) of the Companies Act, 2013 does not empower the Tribunal to ascertain the financial condition of the defaulting party or grant any other relief than the relief provided for under the said section.

NCLAT also noted that there was no arbitration clause in the debenture trust deed and ‘no consent’ was given by the debenture holders for initiation of any ‘arbitration proceedings’ till date.

NCLAT disposed of the appeal with a specific direction to M/s TFA to repay the amounts ‘due and payable’ to the debenture holders within a period of two months from the date of the order, failing which it was open to the debenture holders to take steps as deemed fit in accordance with the law.

11 M/s Mohindera Chemicals Private Limited vs. Registrar of Companies, NCT of Delhi & Haryana & Ors. National Company Law Appellate Tribunal, New Delhi Company Appeal (AT) No. 9 of 2020 Date of order: 9th September, 2020

In a case where company was functional, and the same can be seen from the content of the balance sheets, the name of the company needs to be restored in the Register of Companies

FACTS
M/s MCPL submitted that merely because the balance sheet remained to be filed the Registrar of Companies (RoC) presumed that it was not functional and its name was struck off with effect from 8th August, 2018.

It further submitted that if the reply of the Income-tax Department, Diary No. 19303 is pursued, the Department has also stated that the assessment for the year ended as on 31st March, 2012 was completed on 29th December, 2018 and there was an outstanding demand of Rs. 7,79,74,290 that was still pending for recovery.

If the name was not restored, M/s MCPL stated, it would seriously suffer as there were huge outstanding dues which the company had to receive; the debtors were ready to pay but were unable to do so because the name was struck off.

M/s MCPL was ready to go in for settlement in the case of the IT dues also and for all such reasons it was necessary to restore its name in the Register of Companies as maintained by the RoC.

But the RoC submitted that there was a lapse on the part of M/s MCPL and that the RoC had followed due procedure and the name was struck off as M/s MCPL did not respond to the Public Notice.

HELD
NCLAT held that M/s MCPL had been functional as could be seen from the content of the submitted balance sheets and directed the RoC to restore its name, subject to the conditions that M/s MCPL will pay the costs of Rs. 1,00,000 to the RoC and the company will file all the outstanding documents / balance sheets and returns within two months along with penalties and late payment charges, etc., as may be due and payable under Law.

12 In the High Court of Delhi at New Delhi W.P.(C) 3261/2021, CM Appls. 32220/2021, 41811/2021, 43360/2021, 43380/2021

Nitin Jain, Liquidator PSL Limited vs. Enforcement Directorate, through Raju Prasad Mahawar, Assistant Director, PMLA

FACTS OF THE CASE
Liquidation of the corporate debtor (CD) was commenced by the adjudicating authority vide order dated 11th September, 2020, with Nitin Jain being appointed as the Liquidator. On 15th January, 2021, the Liquidator received summons from the Enforcement Directorate (ED). The petitioner moved CM Application No. 32220/2021 before this Court disclosing that the sale of the CD as a going concern was conducted on 9th April, 2021, a bid of Rs. 425.50 crores was received from M/s Lucky Holdings Private Limited and a Letter of Intent came to be issued in favour of M/s Lucky Holdings Private Limited on 19th April, 2021. The sale as conducted by the Liquidator was approved by the adjudicating authority in terms of its order of 8th September, 2021. It has accordingly been prayed that the Liquidator be permitted to distribute the proceeds as received out of the liquidation sale and at present placed in an escrow in terms of the order of this Court of 17th March, 2021.

QUESTIONS OF LAW
Whether the authorities under the Prevention of Money Laundering Act, 2002, would retain the jurisdiction or authority to proceed against the properties of a corporate debtor once a liquidation measure has come to be approved in accordance with the provisions made in the Insolvency and Bankruptcy Code, 2016?

Whether there is in fact an element of irreconcilability and incompatibility in the operation of the two statutes which cannot be harmonised?

Whether the liquidation process is liable to proceed further during the pendency of proceedings under the PMLA and notwithstanding the issuance of an order of attachment?

RULING IN CASE
Irreconcilability and incompatibility in the operation of the two statutes
Viewed in that backdrop, it is evident that the two statutes essentially operate over distinct subjects and subserve separate legislative aims and policies. While the authorities under the IBC are concerned with timely resolution of the debts of a corporate debtor, those under the PMLA are concerned with the criminality attached to the offence of money laundering and to move towards confiscation of properties that may be acquired by commission of offences specified therein. The authorities under the aforementioned two statutes consequently must be accorded adequate and sufficient leeway to discharge their obligations and duties within the demarcated spheres of the two statutes.

Liquidation process is liable to proceed further during the pendency of proceedings under the PMLA
Section 32A legislatively places vital import upon the decision of the adjudicating authority when it approves the measure to be implemented in order to take the process of liquidation or resolution to its culmination. It is this momentous point in the statutory process that must be recognised as the defining moment for the bar created by section 32A coming into effect. If it were held to be otherwise, it would place the entire process of resolution and liquidation in jeopardy. Holding to the contrary would result in a right being recognised as inhering in the respondent to move against the properties of the CD even after their sale or transfer has been approved by the adjudicating authority. This would clearly militate against the very purpose and intent of section 32A.

Section 32A in unambiguous terms specifies the approval of the resolution plan in accordance with the procedure laid down in Chapter II as the seminal event for the bar created therein coming into effect. Drawing sustenance from the same, this Court comes to the conclusion that the approval of the measure to be implemented in the liquidation process by the adjudicating authority must be held to constitute the trigger event for the statutory bar enshrined in section 32A coming into effect. It must consequently be held that the power to attach as conferred by section 5 of the PMLA would cease to be exercisable once any one of the measures specified in Regulation 32 of the Liquidation Regulations, 2016 comes to be adopted and approved by the adjudicating authority.

PMLA jurisdiction or authority to proceed against the properties of a corporate debtor
The expression, sale of liquidation assets, must be construed accordingly. The power otherwise vested in the respondent under the PMLA to provisionally attach or move against the properties of the CD would stand foreclosed once the adjudicating authority comes to approve the mode selected in the course of liquidation. To this extent and upon the adjudicating authority approving the particular measure to be implemented, the PMLA must yield.

HELD
In any event, this Court is of the firm view that the issue of reconciliation between the IBC and the PMLA insofar as the present petition is concerned needs to be answered solely on the anvil of section 32A. Once the Legislature has chosen to step in and introduce a specific provision for cessation of liabilities and prosecution, it is that alone which must govern, resolve and determine the extent to which powers under the PMLA can be permitted in law to be exercised while a resolution or liquidation process is on-going.

From the date when the adjudicating authority came to approve the sale of the CD as a going concern, the cessation as contemplated u/s 32A did and would be deemed to have come into effect.

BCAJ Admin

Allied Laws

15 Rasool Mohammed (Dead) Thru. LRs. vs. Anees Khan and others
AIR 2023 (NOC) 315 (MP)
Date of order: 24th March, 2023

Power of Attorney – Legal Heir appointed – Permission to lead evidence – [Code of Civil Procedure, 1908, Order 3, Rule 2]

FACTS

The original Plaintiff filed a civil suit for declaration and permanent injunction before the Trial Court. During the pendency of the civil suit, the original Plaintiff Rasool Mohammad expired, and a legal representative, i.e., wife, was added as the legal heir. The Plaintiff petitioner executed a Power of Attorney on 1st September, 2016 and authorised Zaheer Qureshi to proceed on behalf of her in the said civil suit. The Trial Court allowed the objection of the Respondents that the Power of Attorney holder was not competent to exhibit the documents on his behalf and therefore was not allowed to lead evidence.

Hence, the appeal.

HELD

The Court held that after perusal of the provisions of Order 3 Rule 2 of the Code of Civil Procedure, it is evident that there is no provision for permitting the Power of Attorney holder to depose in place of the original plaintiff. The Petitioner being a lady aged about 55 years is duly competent to appear before the Court for deposition. In such circumstances, it is clear that the Power of Attorney holder cannot be permitted to depose if the Plaintiff is in a position to appear before the Court for deposition.

Even if it is ascertained that the Power of Attorney holder is aware of the facts and circumstances of the case, even then the Power of Attorney holder can only be permitted in exceptional circumstances.

The appeal was dismissed.

16 Shrimati Geeta Bai and Others vs. Ramavatar Agrawal
AIR 2023 (NOC) 325 (CHH)
Date of order: 3rd August, 2022

Gift – Gift deed – Unilateral cancellation deed by the donor is void and non-est. [Transfer of Property Act, 1882, S. 122]

FACTS

The Defendant is the original Plaintiff. It was the case of the Defendant that the property had been transferred by way of gift and possession had been handed over by the appellant. After the execution of the gift deed, the name of the donee was recorded in the revenue records. Thereafter, it was found that a cancellation deed had been unilaterally effected without notifying the donee. Therefore, an injunction was sought, praying that the defendant be declared the owner of the land and that his peaceful possession and enjoyment of the property shall not be disturbed. The trial Court decreed the suit.

Hence, the present appeal.

HELD

The Court held that the gift was valid in accordance with section 122 of the Transfer of Property Act, 1882. The gift was accepted by the donee, and after the execution of the gift, the name of the donee was recorded in the revenue records. The documents having been registered will have a presumptive value of correctness unless proven otherwise. Once the gift deed is executed in terms of Sections 122 and 123 of the Transfer of Property Act, then the unilateral cancellation of the deed by the donor is void and non-est. Such a cancellation deed could be ignored as invalid.

The Appeal was dismissed.

17 V. R. S. V. N. Sambasiva Rao vs. V. Rama Krishna
AIR 2023 (NOC) 259 (AP)
Date of order: 18th January, 2023

Civil Contempt – Wilful Disobedience of order – Regularisation – Tactics by Authorities – Action would amount to contempt of Court [Contempt of Courts Act, 1971, Ss. 2(b), 10, 12]

FACTS

The petitioner had filed a writ petition against the action of the respondents in not regularising his services, and the Court has passed an order directing the respondents to regularise the services. Despite the petitioner submitting several representations before the respondents seeking regularisation, the respondents neither passed any orders nor complied with the Orders of the Court in true spirit.

Hence, the present case.

HELD

The order of the Court is not complied with on the grounds that the writ appeal and review petition is pending. The Court held that this type of tactic by the respondents to avoid implementing the orders of the Court cannot be tolerated and that the action of the respondents would amount to contempt of court. Under these circumstances, the apology tendered by the respondents was found unacceptable and in the opinion of the court it was not bonafide.

Non-compliance with the Court’s order would amount to contempt of Court. The respondents in the present appeal had sought adjournments several times for compliance, and taking advantage of adjourning the cases, they preferred appeal and, after the dismissal of the appeal by the Division Bench, again sought time for compliance and again filed a review petition.

The Contempt Case is allowed, and the Contemnors are sentenced.

18 Amrik Singh (Dead) Through L.Rs. and another vs. Charan Singh (Dead) Through L.Rs. and others
AIR Online 2023 P&H 140
Date of order: 2nd February, 2023

Wills – Attesting witnesses – Ancestral and self-acquired land – Suspicious circumstances [Specific Relief Act, 1963, S.34; Indian Succession Act, 1925, S. 63]

FACTS

The first Will was executed by Kishan Singh on 18th July, 1980. This registered Will was in favor of the defendant-appellants (Amrik Singh and Mewa Singh). This was proved in Court by the attesting witnesses. The second Will was allegedly executed by Kishan Singh on 20th February, 1981. This Will is in favor of all the four sons of Kishan Singh, and they were to inherit in equal shares. The Trial Court dismissed the suit of the plaintiff-respondents and disbelieved the will dated 18th July, 1980. The lower Appellate Court declared that both the wills stood rejected and hence property would devolve by way of natural succession; therefore, partly decreed the suit for joint possession to the extent of 1/7th share each in the suit land as well as the compensation.

Hence the present appeal.

HELD

The Court held that it had no doubt that the Will executed by Kishan Singh, which is a duly registered document, is not surrounded by any suspicious circumstances of any kind and is proved to have been duly and properly executed. Mere deprivation of some of the natural heirs by itself is not a suspicious circumstance to discard a Will. Divesting of close relations being the purpose of execution of a Will, this is normally not a suspicious circumstance.

A Will has to be proved like any other document except as to the special requirements of attestation prescribed by Section 63 of the Indian Succession Act. The test to be applied would be the usual test of the satisfaction of the prudent mind in such matters.

The appeal is allowed.

19 Adityaraj Builders vs. State of Maharashtra
WP Nos. 4575 of 2022 dated 17th February, 2023 (Bom)(HC)

Stamp Duty – Redevelopment – Endorsement of instruments on which duty has been paid – Reference to re-development and homes are to be read to include garages, galas, commercial and industrial use and every form of society re-development – No stamp duty on permanent alternate accommodation agreement. [Maharashtra Stamp Act, 1958, Section 4]

FACTS

The petitioners raised a common question of law under the Maharashtra Stamp Act, 1958. It relates to Stamp Duty sought to be levied on what is called Permanent Alternate Accommodation Agreements (“PAAA”). The challenge was against two circulars issued by the Inspector General of Registration & Controller of Stamps, Maharashtra under the authority of the Chief Controlling Revenue Authority and the State Government of Maharashtra, dated 23rd June, 2015 and 30th March, 2017.

The first circular directed that any PAAAs between the society members and the developer is different from the (DA) between the society and the developer. The second circular which came out as a clarificatory circular specifies compliance and the criteria for such compliance to the PAAAs with individual society members. The Stamp authorities contended that on contentions of the payment of stamp duty in incidents where there is an increase of additional area or square footage after redevelopment and the question of members having to pay stamp duty on the acquisition of additional built-up area or carpet area derived from fungible FSI.

The question before the High Court was whether the demand by the Stamp Authority that the individual PAAAs for members must be stamped on a value reckoned at the cost of construction and a question of validity regarding the two circulars dated 23rd June, 2015 and 30th March, 2017?

HELD

Impugned Circulars dated 23rd June, 2015 and 30th March, 2017 were held to be beyond the jurisdictional remit of revenue authorities to dictate instruments what form the instruments should take. The court held as under:

a) A Development Agreement between a cooperative housing society and a developer for the development of the society’s property (land, building, apartments, flats, garages, godowns, galas) requires to be stamped.

b) The Development Agreement need not be signed by individual members of the society. That is optional Even if individual members do not sign, the DA controls the re-development and the rights of society members.

(c) A Permanent Alternative Accommodation Agreement between a developer and an individual society member does not require to be signed on behalf of the society. That, too, is optional, with the society as a confirming party.

d) Once the Development Agreement is stamped, the PAAA cannot be separately assessed to stamp beyond the Rs. 100 requirement of Section 4(1) if it relates to and only to rebuilt or reconstructed premises in lieu of the old premises used/occupied by the member, and even if the PAAA includes additional area available free to the member because it is not a purchase or a transfer but is in lieu of the member’s old premises. The stamp on the Development Agreement includes the reconstruction of every unit in the society building. The stamp cannot be levied twice.

e) To the extent that the PAAA is limited to the rebuilt premises without the actual purchase for consideration of any additional area, the PAAA is an incidental document within the meaning of Section 4(1) of the Stamp Act.

f) A PAAA between a developer and a society member is to be additionally stamped only to the extent that it provides for the purchase by the member for actually stated consideration and a purchase price of an additional area over and above any area that is made available to the member in lieu of the earlier premises.

g) The provision or stipulation for assessing stamp on the PAAA on the cost of construction of the new premises in lieu of the old premises cannot be sustained. Further, held that reference to re-development and homes is to be read to include garages, galas, commercial and industrial use and every form of society re-development.

The Court also held that these findings are not limited to the facts of the present cases before the court.

BCAJ Admin

Allied Laws

10 Indian Oil Corporation Ltd vs.

Sudera Realty Pvt Ltd

AIR 2023 SUPREME COURT 5077

Date of order: 6th September, 2022Lease – Tenancy after the expiry of lease – liable to Mesne profits [Code of Civil Procedure, 1908, S 2(12), O. 20, R. 12; Transfer of Property Act, 1882, Section 111(a)]

FACTS

The Defendant is the original Plaintiff. It was the case of the Defendant that the current Appellant was in wrongful possession of its property and thus claimed mesne profits. The Appellants on their reading of the lease agreements found that they were not illegally occupying the said property. The Ld. Single judge found the appellant entitled to pay mesne profits.Hence, the present appeal.

HELD

A tenant continuing in possession after the expiry of the lease may be treated as a tenant at sufferance, which status is a shade higher than that of a mere trespasser, as in the case of a tenant continuing after the expiry of the lease, his original entry was lawful. But a tenant at sufferance is not a tenant by holding over. While a tenant at sufferance cannot be forcibly dispossessed, that does not detract from the possession of the erstwhile tenant turning unlawful on the expiry of the lease. Thus, the appellant while continuing in possession after the expiry of the lease became liable to pay mesne profits.The appeal was dismissed.

11 Chhanda Choudhury and another vs.

Bimalendu Chakraborty and another

AIR 2023 TRIPURA 01

Date of order: 12th September, 2022Partnership – Dissolution of the firm – Dispute regarding the determination of shares – Chartered Accountant appointed by the Court – Report of the Chartered Accountant upheld. [Indian Partnership Act, 1932, Sections 43, 48]

FACTS

The Original plaintiff, a partner, sought for dissolution of the firm and rendering of accounts and approached the Civil Judge for the same. The Trial Court appointed a Chartered Accountancy firm for the determination of the shares and accordingly passed an order.The plaintiff preferred an appeal before the District Judge. The District Judge quashed the order of the trial court with respect to the determination of shares.

Hence, the present Appeal by the Original Respondents.

HELD

Section 48 of the Indian Partnership Act, 1932 prescribes the mode for settlement of accounts after the dissolution of the partnership and the same has to be followed. The order of the District Court is modified upholding the report filed by the Chartered Accountant.The Appeal was allowed.

12 Sasikala vs. Sub Collector and another

AIR 2022 MADRAS 323

Date of order: 2nd September, 2022

Sale Deed – Unilateral cancellation by the Registrar – Illegal [Constitution of India, Art. 226; Registration of Act, 1908, Section 22A]

FACTS

The Petitioner’s father settled some of his immovable property to his son and daughter. It is stated that the same was unconditional and out of love & affection. Later, he cancelled the settlement deed. The cancellation deed was registered unilaterally and not mutually agreed upon by the parties.A Writ Petition was filed challenging the cancellation.

HELD

After the insertion of section 22A of the Registration Act, 1908, in the State of Tamil Nadu, every sale deed and cancellation of the same has to be mutually entered into by the parties. Therefore, the registrar was not correct in unilaterally cancelling a transfer deed. A unilateral cancellation is only possible in cases of conditional gifts which was not the case in the present petition. The deed of cancellation was quashed.The Writ Petition was allowed.

13 Leelamma Eapen vs. Dist. Magistrate and others

AIR 2022 KERALA 151

Date of order: 28th March, 2022Maintenance – includes ensuring a life of dignity – not merely a monthly allowance. [Maintenance and Welfare of Parents and Senior Citizens Act, 2007, Sections 7, 9, 2(b), 5]

FACTS

The Petitioner’s husband executed a will whereby life interest in the properties was created in her favor and after her death, the property was to devolve absolutely in favor of her son.

The Petitioner filed an application before the Maintenance Tribunal complaining that her son and daughter-in-law were not permitting her to stay in the house or collect usufructs (benefits) from the property. The Tribunal passed an order in favor of the petitioner. However, the Petitioner again approached the Tribunal stating that the directions of the Tribunal were not enforced.

The enforceability of the order of the Tribunal is the issue in the Writ Petition.

HELD

A senior citizen including a parent who is unable to maintain himself from his own earning or out of the property owned by him alone is entitled to be maintained. When a Senior Citizen or parent who has earnings makes an application to the Maintenance Tribunal contending that her right to earning is obstructed by the son who has a statutory obligation to maintain the parent, the Maintenance Tribunal has to ensure that the Senior Citizen or parent is able to maintain herself from her earnings. The object of the Act is not only to provide financial support but also to prevent the financial exploitation of senior citizens and parents by relatives or children.It was further observed that technicalities should not be given importance in such cases.

The Writ petition was allowed.

14 Bondada Purushotham vs.

Satta Dandasi and others

AIR 2022 (NOC) 854 (AP)

Date of order: 27th January, 2022Registration – Validity of unregistered sale deed – No perpetual injunction. [Specific Relief Act, 1963, Section 38; Registration Act, 1908, Section 17]

FACTS

The appellant/original plaintiff filed a suit for perpetual injunction restraining the defendant from interfering and enjoying the property of the plaintiff. The claim is based on two unregistered sale deeds. On the other hand, the case of the defendant is that the said property belonged to his grandfather and he had only one child i.e., his mother. On the death of the grandfather, his mother being only daughter got the same. Upon her death, he, being the only son and legal heir continued to enjoy this land.

The trial court dismissed the suit for injunction. The Appeal Court confirmed the findings of the trial court and dismissed the appeal.

On the second appeal

HELD

The possession of these lands was claimed under documents which were unregistered sale deeds. There is no explanation offered by the plaintiffs as to why the same are unregistered. Being an integral part of the transaction whereby the appellant claimed the sale of these lands in their favor, it cannot be dissected and considered dehors right and interest to this property. Therefore, possession claimed under the said unregistered deeds cannot be deemed as a collateral factor which shields these transactions from the application of bar under Section 49 of the Indian Registration Act. Therefore, the documents are clearly inadmissible in evidence in terms of Section 17(1) of the Indian Registration Act.The Appeal was dismissed.

BCAJ Admin

Corporate Law Corner Part A : Company Law

3 Case law no. 01/May 2023
Shri Narayani Nidhi Ltd
ADJ/07/RD (SR)/2022-23
Office of the Regional Director
Appeal against Adjudication order
Date of Order: 19th January, 2023

Appeal against Adjudication order: Not furnishing the Director Identification Number and violating Section 158 of the Companies Act, 2013.

FACTS

SNNL had filed an application for seeking the status of Nidhi before the Ministry of Corporate Affairs (‘MCA’). However, while scrutinising the said form, the MCA had observed that the Directors signing the financial statements had not mentioned their Director Identification Number (‘DIN’) in the documents attached with the Form AOC-4 for the F.Ys.2014-15, 2016-17 and 2017-18 respectively. Thus, the provisions of Section 158(1) of the Companies Act, 2013 were violated.

Sec. 158(1) of the Companies Act, 2013 provides that: Every person or company, while furnishing any return, information or particulars as are required to be furnished under this Act shall mention the Director Identification Number in such return, information or particulars in case such return, information or particulars relate to the director or contain any reference of any director.

The Registrar of Companies, Chennai, Tamil Nadu examined the said default and passed the Adjudication Order (impugned order) under section 454(3) and (4) of the Companies Act, 2013 for default in compliance with the requirements of Section 158 of the Companies Act, 2013 and imposed a penalty of Rs. 1,50,000 on SNNL and Rs. 1,50,000 on SK, Managing Director of SNNL for the above default.

SNNL filed an appeal under section 454(5) of the Companies Act, 2013 against the Adjudication Order passed by the Registrar of Companies, Chennai, Tamil Nadu for default committed under section 158 of the Companies Act, 2013.

SNNL had contended the impugned order and pleaded that the non-compliance had occurred due to unavoidable circumstances, and the default was unintentional.

An opportunity of being heard was given to SNNL. The Authorised Representative PS, Practicing Company Secretary had appeared for SNNL and while reiterating the grounds taken in the appeal, stated that M/s SNNL had inadvertently omitted to mention the DIN of the signing directors in the financial statements for the F.Ys. 2014-15, 2016-17, and 2017-18. It was further submitted that the inadvertent omission to mention the DIN of signing directors was neither deliberate nor intentional and it was an unintentional clerical error that went unnoticed and hence prayed for a lenient view.

HELD

The Regional Director (‘RD’) stated that though there was a default committed, there was a ground for interfering with the impugned adjudication order of the Registrar of Companies to the extent of reducing the quantum of penalty. Accordingly, the penalties imposed were reduced as per the below-mentioned table:

Penalty as per Section	Penalty imposed on	No. of Years of Default	Penalty imposed by RoC	Penalty imposed by RD
Section 158(1) of the Companies Act, 2013	SNNL	2014-15, 2015-2016 and 2016-2017	Rs. 50,000 * 3 years = Rs. 1,50,000	Rs. 20,000 * 3 years = Rs. 60,000
Section 158(1) of the Companies Act, 2013	SK, Managing Director of SNNL	2014-15, 2015-2016 and 2016-2017	Rs. 50,000 * 3 years = Rs. 1,50,000	Rs. 20,000 * 3 years = Rs. 60,000

4 Case law no. 02/May 2023
Kudos Finance And Investments Pvt Ltd Ro CP/ADJ/ order/ 118/22-23/KUDOS/2418 to 2423
Office of Registrar of Companies Maharashtra, Pune
Adjudication order
Date of Order: 10th March, 2023

Adjudication order passed by the Registrar of Companies, Pune for default under Sub-section (10) and (11) of Section 118 of the Companies Act, 2013.

FACTS

Adjudicating Officer noticed that KFIPL had defaulted in observing the provisions of section 118(10) of the Companies Act, 2013 by not numbering its Board Meetings and the pages in the minute book of KFIPL. Further, the Minutes book was not signed by the Chairman and not numbered at all.

Section 118(10) of the Companies Act, 2013 provides that: “Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government”.

Further, as per Section 118(11) of the Act provides that if any default is made in complying with the provisions of this section in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees.

Adjudicating Officer had issued an adjudication notice dated 10th February, 2023 under section 454(4) read with section 118 of the Companies Act, 2013 read with Rule 3(2) Of Companies (Adjudication of Penalties Rules), 2014 to KFIPL, PW, SJ, NV and AR, directors of KFIPL.

KFIPL in its reply to the adjudication notice submitted that owing to lack of knowledge on the part of KFIPL and lack of necessary professional guidance on the part of PW, SJ, NV and AR, the non-compliance of Section 118(10) of the Companies Act, 2013 read with Clause 7.1.4 of the Secretarial Standard-1 (SS-I) had occurred.

HELD

Adjudication Officer, after taking into account the various factors of the case mentioned above, imposed a penalty on KFIPL and its officers in default as per the below-mentioned table:

Sr. No.	Penalty imposed on:	Penalty Imposed (In Rs.)
1.	KFIPL	Rs. 25,000
2.	PW, Director	Rs. 5,000
3.	SJ, Director	Rs. 5,000
4.	NV, Director	Rs. 5,000
5.	AR, Director	Rs. 5,000

BCAJ Admin

Allied Laws

5. Jagadeesan and others vs. A. Logesh
AIR 2023 MADRAS 94
Date of order: 11th November, 2022

Registration – Unregistered agreement to sell – Non-registration is not a bar from specific performance [Registration Act, 1908, Section 17(1)(g), 49; Specific Relief Act, 1963, S. 20]

FACTS

The Plaintiff/Respondent filed a suit for the specific performance of a contract based on an unregistered agreement of sale before the District Court.

The Defendants/Petitioners challenged the maintainability of the said suit since the same was based on an unregistered sale agreement.

Hence the present petition.

HELD

In view of the express provision contained in section 49 of the Registration Act, the suit cannot be rejected on the grounds that the agreement is unregistered as per section 17 (1)(g) of the Registration Act and section 2(g) of the Contract Act. The Court referred to the decision in the case of D. Devarajan vs. Alphonse Marry & another reported in 2019 (2) CTC 290 in which it was held that the consequence of non-registration does not operate as a total bar to look into the contract. The Proviso to Section 49 of the Registration Act itself carves out two exceptions: (i) it can be used for any collateral purposes, and (ii) it can be used as an evidence in a suit for specific performance”.

In view of the above the petition was dismissed.

6. Parish Priest, Kanyakumari vs. State of Tamil Nadu
AIR 2023 MADRAS 70
Date of order: 3rd January, 2023

Gift deed – Absolute gift – failure to fulfil the purpose – In absence of revocation clause – Gift cannot return to the donor. [Transfer of Property Act, 1882, Section 126]

FACTS

The Petitioner-Church established a cooperative society in 1981 for the economic and social development of poor and gifted a piece of land to the Society. The State Government put up a shed on the said land with their own funds. The land continued to be in the possession of the church. However, with technical advancement in the field of textiles, society became redundant and was wound up in 2006.

After several requests to the State Government to reconvey the land, the Church filed a Writ in 2014. The Court directed the Respondents to consider the representation and pass orders. The Respondent rejected the application of the Church.

Hence the present Petition.

HELD

The Gift deed of 1981 was an absolute gift deed i.e., without any conditions. Therefore, the gift cannot be revoked on the objects becoming redundant. Further, the donor will not have any right to make a claim for the return of the gifted land on the failure of the purpose for which it was gifted.

The Petition was dismissed.

7. Union of India vs. Maheswari Builders, Rajasthan
AIR 2023 MADRAS 73
Date of order: 3rd January, 2022

Arbitration – Setting aside arbitral award – Award passed after considering all the facts – No interference required. [Arbitration and Conciliation Act, 1996, Section 34; Contract Act, 1872, 63]

FACTS

The Respondent was engaged by the Petitioner to carry out civil construction work. The Respondent requested an extension of time for completing certain phases of the project as per their contract and the same would be granted. An issue arose between them with respect to the claims made by the Respondent and the Respondent invoked the arbitration clause.

Before the Arbitration Tribunal, after making its claims, the Respondent vide an affidavit withdrew from the arbitration and submitted before the Arbitration Tribunal that the affidavit was submitted under the pressure of the Petitioner on a promise for an extension of time. The Tribunal on considering all the facts passed an order allowing some of the claims of the Respondent.

The award was challenged.

HELD

The award was challenged on the grounds that the Arbitration proceedings should not have proceeded when both the parties had withdrawn from the Arbitration. It was held that the Arbitrator was economical with reasons in support of the order. As the affidavit was not given under free consent, the same cannot be considered as it amounts to coercion. The award was passed after considering all the facts of the case.

The Application is dismissed.

8. Shri Ram Shridhar Chimurkar vs. Union of India and another
AIR 2023 SUPREME COURT 618
Date of order: 17th January, 2023

Succession – Pension – Government employee – Adoption after death by the spouse – Not a family member [Central Civil Services (Pension) Rules, 1972, R. 54, Constitution of India]

FACTS

In the instant case after the death of a retired government employee, his widow adopted a son. The adopted son claimed that they were entitled to family pension payable to the family of the deceased government employee. On the rejection of his plea, the appellant filed an application before the Central Appellate Tribunal. The Tribunal allowed the application and directed the Respondents to consider the Appellant’s claim for family pension by treating him as the adopted son of the deceased government employee directing the Respondents to consider the plea of the appellant.

On a Writ Petition, the Hon’ble High Court reversed the order of the Tribunal. Hence the present appeal.

HELD

The Supreme Court considered provisions of the Hindu Adoptions and Maintenance Act, 1956 (HAMA Act). It highlighted that the provisions of the HAMA Act determine the rights of a son adopted by a Hindu widow only vis-à-vis his adoptive family. Rights and entitlements of an adopted son of a Hindu widow, as available in Hindu Law, as against his adoptive family, cannot axiomatically be held to be available to such adopted son, as against the government, in a case specifically governed by extant pension rules. It held that Rule 54 (15)(b) of the Central Civil Services (Pension) Rules, 1972 states that a legally adopted son or daughter by a government servant would be entitled to a family pension. The phrase “in relation to” would be vis-à-vis the Government servant and not his widow.

The appeal is dismissed.

9 GM Heights LLP vs. Municipal Corporation of Greater Mumbai and Ors
WP No. 5303 of 2022 (Bom)(HC) (UR)
Date of order: 29th March, 2023

Tenancy – Tenants – limited rights – Cannot dictate the terms of redevelopment. [Mumbai Municipal Corporation Act, 1888, Section 354, Development Control and Promotion Regulations for Greater Mumbai, R. 33(19), 33(7)(A) ]

FACTS

The Petitioner is an LLP and the owner of the land. There was a building standing on the land, which had 21 tenants. The building had some commercial tenements and some residential tenements. The building had become dilapidated. A notice was issued by the respondent-Municipal Corporation of Greater Mumbai to the owners/occupants under Section 354 of the Mumbai Municipal Corporation Act, 1888. The building ultimately was demolished in August 2021.

The petitioner, in these circumstances, proposed to undertake redevelopment so as to construct a commercial building, which according to the petitioner was permissible as per the rules.

Out of 21 tenants, one tenant (respondent no. 3) objected to the permanent alternate accommodation. The petitioner approached the Court primarily on the grounds that respondent no.3 who is only one tenant out of the majority of the 21 tenants, cannot obstruct the redevelopment in such condition as inserted in the Intimation of Disapproval (IOD) by the Municipal Corporation.

HELD

Respondent no.3 is not entering into an agreement for an alternate accommodation with the petitioner and thereby is stalling the entire redevelopment. The approach of respondent no.3 in the present case is most unreasonable and adamant. Respondent no.3, in fact, by his obstinate conduct is stalling the entire redevelopment, which he certainly cannot do. Respondent no.3 in his capacity as a tenant has limited rights. Respondent No.3 within the ambit of such rights cannot dictate to the petitioner-owner, as to the nature of redevelopment. Recognising such rights would, in fact, take away and/or obliterate the legal rights of the owners of property to undertake redevelopment in a manner as may be permissible in law, including under the Development Control and Promotion Regulations. Thus, tenants cannot take a position to foist, dominate and/or dictate to the owner the nature and the course of redevelopment the owner desires to have. The rights of the owners of the property to undertake redevelopment of the manner and type they intend, cannot be taken away by the tenants, minority or majority. Tenancy rights cannot be stretched to such an extent that the course of redevelopment can be taken over by the tenants, so as to take away the basic corporeal rights of the owner of the property, to undertake redevelopment of the owner’s choice. The only rights the tenants have would be to be provided with an alternate accommodation of an equivalent area occupied by them before the building was demolished.

The Petition was allowed.

BCAJ Admin

Corporate Law Corner Part A : Company Law

1 Case law no. 01/April 2023

Sonasuman Constech Engineers Pvt Ltd

ROC/PAT/SCN/143/36124

Office of the Registrar of Companies, Bihar-Cum-Official Liquidator, High Court, Patna

Adjudication order

Date of order: 04th January, 2023

Adjudication order for penalty for violation of section 143 of the Companies Act, 2013 on Auditors for non-reporting of non-compliance by SCEPL in the Audit report.

FACTS

SCEPL was incorporated on 30th October, 2017 having its registered office at Patna.

RK – KV and Associates were the Auditors for the financial years ending 31st March, 2018, 31st March 2019 and BKJ – BJ and Associates for financial year ending 31st March, 2020 as per the MCA Portal and AOC-4 filed by SCEPL.

The Registrar of Companies, Bihar-Cum-Official Liquidator, High Court, Patna (‘RoC’) had issued a show cause notice to the abovementioned Auditors for default under section 143 of the Companies Act, 2013 for which no reply was received.

As per Section 129(1) of the Companies Act, 2013, the financial statements shall give a true and fair view of the state of affairs of the Company, comply with the accounting standards notified under section 133 and be in the form as provided in Schedule III.

The Auditors failed to comment on the following:

As per Schedule III of the Companies Act, 2013 for each class of share capital the number and amount of shares authorised; the number of shares issued, subscribed and fully paid, and subscribed but not fully paid; par value per share; a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period in the notes to the accounts of the Company. However, the same was not disclosed by SCEPL.
SCEPL did not classify the loans and advances in F.Ys. 2017-2018, 2018-2019 and 2019-2020 as Secured / Unsecured as per Schedule III.
SCEPL in the balance sheet for F.Ys. 2017-2018 and 2018-2019 showed long term borrowings of Rs. 51,80,000 and Rs. 1,13,79,970, respectively, but failed to sub-classify them as Secured / Unsecured long-term borrowings.
SCEPL had shown advances from relatives and customers in F.Y. 2019-2020 but did not classify them separately as loans from relatives and others.
Disclosure is required as per AS-18 of transactions between related parties during the existence of a related party relationship, such as the following: the name of the transacting related party; description of the relationship between the parties; description of the nature of transactions; volume of the transactions either as an amount or as an appropriate proportion; any other elements of the related party transactions necessary for an understanding of the financial statements; the amounts or appropriate proportions of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date; and amounts written off or written back in the period in respect of debts due from or to related parties. SCEPL did not disclose the name and nature of the Related Party Transactions as per AS-18.

Section 450 of the Companies Act, 2013 is a penal provision for any default/violation where no specific penalty is provided in the relevant section/rules;

Further SCEPL being a small company, applicability of Section 446B of the Companies Act, 2013 provides for lesser penalties for certain companies

HELD

The Adjudication Officer held that RK – KV and Associates and BK – JBJ and Associates were liable under section 450 for violation of section 143 of Companies Act, 2013. The penalty was levied as mentioned below:

Violation of section	Penalty imposed on Company / directors	Penalty specified under section 450 of the Companies Act, 2013	Penalty imposed by the Adjudicating Officer under section 454 read with section 446B of the Companies Act, 2013
Section 143 of Companies Act, 2013	RK – KV and Associates (F.Y. 2017-2018 and F.Y. 2018-2019)	Rs. 10,000*2 no. of years Rs. 20,000	Rs. 10,000
Section 143 of Companies Act, 2013	BK – JBJ and Associates (F.Y. 2019-2020)	Rs. 10,000	Rs. 5,000

Violation of section

Penalty imposed on Company
/ directors

Penalty specified under
section 450 of the Companies Act, 2013

Penalty imposed by the
Adjudicating Officer under section 454 read with section 446B of the
Companies Act, 2013

Section
143 of Companies Act, 2013

RK – KV
and Associates (F.Y. 2017-2018 and F.Y. 2018-2019)

Rs. 10,000*2

no. of years

Rs. 20,000

Rs. 10,000

Section
143 of Companies Act, 2013

BK – JBJ
and Associates (F.Y. 2019-2020)

Rs. 10,000

Rs. 5,000

2 Case law no. 02/April, 2023

Adani Transmission Step-One Ltd

ROC-Guj/Adj. Order/Adani/Section 117/7359 to 7363

Registrar of Companies, Gujarat, Dadra & Nagar Haveli

Adjudication order

Date of order: 09th February, 2023

Adjudication order for penalty under section 454 of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014 for violation of Section 117(1) r.w.s 14(1) of the Companies Act, 2013.

FACTS

ATSOL was incorporated on 23rd September, 2020 having its registered office at Ahmedabad.

ATSOL had filed the E-Form MGT-14 for passing a Special Resolution relating to the issue and allotment of 25 crore Compulsorily Convertible Debentures of Rs. 100/- each to ATL which was approved by the meeting of members held on 27th September, 2022.

ATSOL should have filed the E-Form MGT-14 within 30 days from the date of passing such a resolution. However, the said resolution was filed with the office of the Registrar of Companies on 05th January, 2023 i.e. with a delay of 71 Days. Thus, the company and its director have committed default and violation of Section with 117(1) of the Companies Act, 2013.

Section 117(1) of the Companies Act, 2013 provides as under,

(1) Where…….

(a) a copy of every resolution or any agreement in respect of matters specified in sub-section (3) together with explanatory statement as per section 102 shall be filed with the Registrar within 30 days of the passing or making thereof.

As per section 117 (3) (a), section (3) shall apply to all the special resolutions to be filed by the company.

Further, as per provisions of Section 117(2) of the Companies Act, 2013, where any company fails to file the resolution or the agreement of sub-section (1), such a company and every officer who is in default shall be liable to a penalty of Rs. 10,000 and in case of continuing failure, with a further penalty of Rs. 100 for each day after the first during which such failure continues, subject to a maximum of Rs. 200,000 and every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of Rs. 10,000 who is in default and in case of continuing failure with a further penalty of Rs. 100 for each day after the first during which such failure continues, subject to a maximum of Rs. 50,000.

Whereas, RoC, Gujarat had a reasonable cause to believe that the provisions of section 117 of the Companies Act, 2013 had not been complied with within the time frame as prescribed under the provisions of section 117(1) of the Companies Act, 2013. Therefore, ATSOL and AKG, RS and RK, its officers in default had violated the provisions of section 117(1) of the Companies Act, 2013 which were under the purview of section 454(3) of the Companies Act, 2013 and were liable to be penalized under section 446 B of the Companies Act, 2013.

Further, the office of RoC, Gujarat, Dadra & Nagar Haveli had issued a show cause notice for default under section 117(1) of the Companies Act, 2013 dated 10th January, 2023 for which the practicing Company Secretary (CS) of ATSOL submitted that inadvertently the E-Form MGT-14 could not be filed within the time frame as prescribed under the provisions of section 117(1) of the Companies Act, 2013. CS further submitted that the penalty may not be imposed on the company and its officers in default.

HELD

While adjudging the quantum of penalty under section 117(3) of the Companies Act, 2013, the Adjudication Officer shall have due regard to the following factors, namely:

(a) The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as result of default.

(b) The amount of loss caused to an investor or group of investors as a result of the default.

The adjudication officer based on the above-mentioned factors noted that the details of disproportionate gain or unfair advantage or loss caused to the investor, as a result of the delay to redress the investor grievance are not available on the record. Also, it was stated that it was difficult to quantify the unfair advantage or the loss caused to the investors in a default of this nature.

Hence, penalty was imposed on ATSOL and every officer in default as given in the below mentioned table:

Violation of section	Penalty imposed on Company / directors	Penalty calculated as per Section 117(2) of the Companies Act, 2013	Total Penalty (Rs)
Violation of Section 117(1)	On ATSOL	Rs. 10,000+71*100 = Rs. 17,100	Rs. 17,100
	AKG, Director	Rs. 10,000+71*100 = Rs. 17,100	Rs. 17,100
	RS, Director	Rs. 10,000+71*100 = Rs. 17,100	Rs. 17,100
	RK, Director	Rs. 10,000+71*100 = Rs. 17,100	Rs. 17,100

BCAJ Admin

Allied Laws

1 Senior Superintendent, Deptt. of Post and others vs. Bundu and Another
AIR 2023 Allahabad 33
Date of order: 30th November, 2022

Speed post – Lost articles – Department does not have immunity – Order of Lok Adalat awarding cost – valid. [Legal Services Authorities Act, 1987; Post Office Act, 1898, Section 6]

FACTS

The Department of Post preferred a Writ Petition against an order of the Lok Adalat where compensation of Rs. 4,500 was awarded on account of the loss of articles through speed post.

HELD

It was held that speed post services were introduced 88 years after the enactment of the Post Office Act, 1898 and hence weren’t covered within the ambit of immunity under section 6 of the Post Office Act, 1898.

It was also held that the Lok Adalat had valid jurisdiction to award such compensation. Further, it was remarked that the Department should refrain from litigating such small issues where the cost of litigation is higher than the amount involved.

2 Sridhar Balkrishna and others vs. Evaristo Pinto and others
AIR 2023 (NOC) 75 (BOM)
Date of order: 4th January, 2022

Registration – Compulsory registration – Non-mentioning of composition deed – Not exempted from registration. [Registration Act, 1908. Section 17 (1), 49]

FACTS

The Respondents/Original Plaintiffs, filed the suit in 1983 for partition of the suit property and praying for allotment of 1/3rd share in an immovable property. The Plaintiff had purchased an undivided 1/3rd share of the property from his vendor by a registered sale deed. In the plaint itself, it was stated that the Plaintiff,Original Defendant No.1 and his wife the Original Defendant No. 2, had agreed on the division of the property, but the said agreement was signed only by Original Defendant No 1, while his wife did not sign the same. It was also stated in the plaint that the said agreement was never presented for registration before the office of the Sub-Registrar. The said agreement was entered into on 17th July, 1980, but according to Plaintiff, it was never acted upon. On this basis, the Plaintiff sought the decree of partition and allotment of 1/3rd share in the property, which would include the residential house occupied by him.

The trial court allowed the decree to the plaintiffs. The appellate court dismissed the appeal of the appellants. On the second appeal.

HELD

A perusal of the agreement dated 17th July, 1980 shows that there is a reference made to the property in question and it is specifically recorded that from the date of the agreement, a specific division of the property shall stand exclusively allotted to the Original Plaintiffs and they shall be entitled to possession of the same. The said document did not reduce in writing any settlement or an arrangement arrived at in the past, to exempt it from the mandatory requirement of registration under the provisions of the Registration Act.

Once it is found that the said document was compulsorily registrable under section 17(1)(b) of the Registration Act, the effect of non-registration under section 49 of the said Act must follow. In this regard, the attempt made on behalf of the Appellants to wriggle out of the mandatory requirement of section 17(1)(b) of the Registration Act, by claiming that the agreement dated 17th July, 1980, was a composition deed, cannot be accepted. A perusal of the agreement dated 17th July, 1980, does not give any indication that it was a composition deed and that under section 17(2)(i) of the Registration Act, it could be said to be exempt from the applicability of section 17(1)(b) of the said Act.

The Appeal was dismissed.

3 D. T. Rajkapoor Sah thru LRs. and others vs. Kamakshi Bai and others
AIR 2023 (NOC) 78 (MAD)
Date of order: 30th November, 2022

Succession – Hindu Undivided Family – Daughters and sisters are coparceners – Entitled to an equal share in property and profits [Hindu Succession Act, 1956, Section 6A]

FACTS

The grandfather of the Plaintiffs and Defendants purchased the suit property. The father of the Plaintiffs and Defendants received the said property vide partition deed dated 7th March, 1964. The father died intestate on 30th May, 2000.. The four sisters (Plaintiffs) filed the present suit for partition for partitioning the suit property and allotment of 4/7th (1/7th each) shares to them against their three brothers (Defendants).

The trial court allowed the partition in favour of the sisters. On appeal.

HELD

The separate property once thrown into the coparcenary stock, then by virtue of Doctrine of Blending, it also becomes the coparcenary property. If self-acquired property was made available for partition along with joint family property, that itself is a proof of blending. By the doctrine of blending the suit property loses its characteristic as separate property and the coparcener loses his/her claim against it. In light of the amendment in the amendment in the Hindu Succession Act in 2005 and the decision of the Hon’ble Supreme Court in the case of Vineeta Sharma vs. Rakesh Sharma 19 (2020) 9 SCC 1, the rights of the daughters are made equivalent to that of the son. The amendment is held to be retroactive and by their birth, the Plaintiffs also got the same rights in the coparcenary property and since the property of the father was not partitioned until the suit was filed in 2013, the property will be available to all seven coparceners.

The appeal was dismissed.

4 Kavita Kanwar vs. Pamela Mehta and Others
(2021) 11 SCC 209
Date of order: 19th May, 2020

Will – Legitimate suspicion – Several instances of suspicion – Probate was denied. [Indian Succession Act, 1925, Sections 61, 62, 63, 73, 111; Evidence Act, 1872, S. 68]

FACTS

The Will of Amarjeet Mamik (mother) was dated 20th May, 2006, and she expired on 21st May, 2006, leaving behind two daughters and one son. The properties in question were received by her from her father vide Will dated 14th February, 2001.

The father during his lifetime on 25th January, 2001, gifted the ground floor of the property to Kavita Kanwar (The appellant) whereas the first floor and other portions came to the testatrix. Pamela Mehta (Respondent No. 1) was the elder and widowed daughter of the testatrix who was living with her unmarried daughter on the first floor and also taking care of the testatrix. The son of the testatrix, Col. (Retd.) Prithviraj Mamik (Respondent No. 2) was bequeathed the ‘credit balance’ lying in the bank accounts with a clarification that he shall not inherit any portion of the immovable assets of the testatrix.

The appellant being the executor, filed for probate which was challenged. The Trial Court declined to grant probate on the grounds of suspicion. The High Court upheld the views of the Trial Court.

HELD

The Supreme Court took into consideration facts such as the executor being a major beneficiary, the son and another widowed daughter not included in the execution of the will, only the presence of the appellant executor at the time of the execution of the will, unexplained unequal distribution of property, manner and language of the will, unreliable witnesses, etc..

Held that, before entering into the provisions of law and judgements it is important to understand the facts surrounding the will. Therefore, taking into consideration all the circumstances surrounding the Will, the order of the High Court refusing the probate was upheld.

The appeal was dismissed.

BCAJ Admin

Corporate Law Corner Part A : Company Law

17 Case Law no. 1/ March 2023

Raj Hospitality Pvt Ltd

RD(WR)/Sec. 454(5)/ Raj Hospitality /T35477447/2021/3397

Regional Director Western Region, Mumbai Date of Order: 26th November, 2021

Appeal order against Adjudication Order for delayed filing of Annual Returns and Financial Statements and violating Section 92(5) and 137(3) of the Companies Act, 2013

FACTS

Registrar of Companies, Goa (‘RoC’) had observed from the master data, that M/s RHPL had filed its financial statements and annual returns on 1st April, 2019 for the financial year ending 31st February, 2017 But returns for the financial year ending 31st March, 2018 were not filed and default continued. The RoC had issued a show cause notice to M/s RHPL and its directors seeking information and reply from M/s RHPL.

As per records maintained by the RoC, Mr. RM director was disqualified under section 164(2)(a) of the Companies Act, 2013 for the period 01st November, 2016 to 31st October, 2021. Therefore, penalty was not imposed on him.

An adjudication order was passed by the Registrar of Companies, Goa on 09th May, 2019 wherein the penalty was imposed as per table below:

Document required to be filed	No. of days of default	Penalty imposed on Company/ Director	First Default (In Rs.)	Continued Default (In Rs.)	Total (In Rs.)
Financial Statements under section 137(3) of the Companies Act, 2013	189 days	On M/s RHPL	1000X189 = 1,89,000		1,89,000
		Mr. ATM	1,00,000	100X189=18,900	1,18,900
		Mrs. JM	1,00,000	100X189= 18,900	1,18,900
		Mr. AM	1,00,000	100X189= 18,900	1,18,900
Annual Returns u/s 92(5) of the Companies Act, 2013	160 days	On M/s RHPL	50,000	100X160=16,000	66,000
		Mr. ATM	50,000	100X160= 16,000	66,000
		Mrs. JM	50,000	100X160= 16,000	66,000
		Mr. AM	50,000	.100X160= 16,000	66,000
			Total		8,09,700

*No. of days were calculated from November, 2018 and December 2018 for Financial Statement and Annual Return respectively till the date of order.

An appeal in Form ADJ (SRN T35477447) was filed on 13th August, 2021. On examination of the application/appeal it was observed that the said appeal was not filed within sixty days (60) from the date of passing of adjudication order by the RoC (i.e. 09th May, 2019). Hence, M/s RHPL filed an application for condonation of delay vide form CG-1 and order was received by M/s RHPL in this regard. Accordingly, the appeal was considered for further processing.

In Appeal, M/s RHPL had stated as under:

M/s RHPL had held its Annual General Meetings for the year ended 31st March, 2017 on 30th May, 2017 and for the year ended 31st March, 2018 on 29th September, 2018. Accordingly, the company was required to file Financial Statements and Annual Returns for the financial year ended 31st March, 2017 on or before 27th October, 2017 and 28th November, 2017 and for the year ended 31st March, 2018 on or before 27th October, 2018 and 27th November, 2018 respectively (extended up to 31st December, 2018 vide General Circular No. 10/2018 dated 29th October, 2018). M/s RHPL submitted that the financial statements for financial year ended 31st March, 2017 and 31st March, 2018 were filed on 1st April, 2019, 5th December, 2019 and 06th December, 2019 respectively.

M/s RHPL also submitted that M/s RHPL is a small company having paid-up share capital of Rs. 2,00,000. M/s RHPL admitted that the filing of the Annual Return was delayed due to reasons beyond the control of M/s RHPL. M/s RHPL prayed that the financial statements and annual returns filed be requested to be approved and taken on record and the delay be condoned and to withdraw the order of Adjudication of Penalty dated 09th May, 2019 as the amount of penalty awarded would put further financial burden on Mr. ATM, Mrs. JM, Mr. AM who are already facing financial problems due to the ongoing pandemic. Further, M/s RHPL had already filed delayed documents with the RoC by paying additional fees.

Appellate authorities provided hearing to M/s RHPL through Video Conference.

HELD

The appeal was allowed and directed to the representative of M/s RHPL that the revised penalty to be paid as under:

Sr. No.	Document required to be filed	No. of days of default	Penalty to be paid by Company/Director (Officer in default)	Penalty (Rs.)
1	Financial Statement under section 137(1) of the Companies Act, 2013	189 days	On M/s RHPL	47,250
			Mr. ATM	29,725
			Mrs. JM	29,725
			Mr. AM	29,725
2	Annual Returns under section 92(4) of the Companies Act, 2013	160 days	On M/s RHPL	16,500
			Mr. ATM	16,500
			Mrs. JM	16,500
			Mr. AM	16,500
Total Penalty Amount				2,02,425

M/s RHPL submitted the copies of challan/payment receipt for penalties paid to the MCA as directed in virtual hearing. On payment of the Penalty amount of Rs. 2,02,425 for the violation of Section 92(5) and 137(3) of the Companies Act, 2013, the Appeal was disposed of.

BCAJ Admin

Allied Laws

51 Mandira Paul and another vs.

Maya Rani Dev and another

AIR 2023 GAUHATI 4

Date of order: 11th November, 2022

Wills – Suspicious circumstances surrounding the Will – Propounder failed to establish the genuineness – Probate rejected. [S. 273, 270, 63, Indian Succession Act, 1925; S. 68 of Indian Evidence Act, 1872]

FACTS

The Plaintiff instituted a suit seeking probate of her mother’s will where she was appointed as the executor. A deity was impleaded as the Petitioner No. 2. Her two sisters were impleaded as opposite parties. According to the will, the three daughters and the deity were each entitled to 1/4th share in the property.

The District Court dismissed the suit on several grounds such as non-mentioning the date of death, tampering with the will and lack of confirmation if it was the last will.

On appeal to the High Court

HELD

The onus to prove the due execution of the will is on the propounder. The evidence brought on record must be credible and inspire confidence and the same cannot be assumed to be satisfied by mere mechanical compliance.

As there are several instances which bring doubt on the genuineness of the will, the same cannot be ignored by the Court. As the testatrix has failed to discharge the onus of proof regarding the genuineness of the will, the decision of the lower Court is upheld.

The appeal was dismissed.

52 Neeraj Garg vs. Sarita Rani and others

(2021) 9 SCC 92

Date of order: 2nd August, 2021

Judiciary – Cannot pass remarks on the counsel – The same has no bearing on the process of adjudication – Can affect the career and repute of counsels.

FACTS

The Appellant is a practicing lawyer before the High Court of Uttarakhand with around 17 years of experience. The High Court in its order passed certain remarks on the lawyer regarding his conduct without giving him an opportunity of being heard.

On an appeal to the Supreme Court on this limited issue.

HELD

The conduct of an advocate has no bearing on the process of adjudication. Further, no opportunity was given to the counsel for his explanation. Such remarks cast an apprehension on the professional integrity of the advocate and it will adversely impact his professional career. The offending remarks are to be recalled to avoid future harm.

The appeal was accordingly disposed of.

53 UOI vs. Manraj Enterprises

(2022) 2 SCC 331

Date of order: 18th November, 2021

Arbitrator – Creation of a contract – Powers – Cannot award interest which is contrary to the contract. [S. 31, 28, 34, Arbitration and Conciliation Act, 1996]

Appearing Counsels – Cannot provide concession which is contrary to law – No estoppel against the Law.

FACTS

On account of a dispute between the Union of India and a contractor, the issue was referred to Arbitration. The Sole Arbitrator passed an award wherein, pendente lite and future interest was also prescribed.

The Union of India preferred an appeal before the High Court (Single Bench) on the issue of interest. The Single judge of the High Court dismissed the appeal. The Division Bench also dismissed the appeal of the Union of India.

On an appeal to the Supreme Court.

HELD

The Arbitrator is a creation of a contract. The Arbitrator cannot award interest if the same is contrary to the terms of the contract between the parties.

Further, if any concession is proposed by the Counsel and the same is contrary to the law, it cannot bind the parties. There can be no estoppel against the law.

The appeal was accordingly allowed.

54 Sri Ganesh Sai Granites and Minerals vs. Commissioner and Inspector General

AIR 2023 (NOC) 14 (AP)

Date of order: 25th August, 2022

Partnership – Issue raised before the Registrar of Firms – Registrar is duty-bound to look into the complaint and act on it. [S. 64, Partnership Act, 1932]

FACTS

A dispute arose between the partners of a partnership firm. It was claimed that one of the partners had forged the signatures of the other partners and created a deed of reconstitution of the Firm. The said deed was registered before the Registrar of the Firms.

One of the partners filed a complaint before the Registrar of Firms explaining the details, requesting the registrar not to act on the reconstitution deed filed before it and to rectify the same.

There was no enquiry or rectification done by the Registrar of Firms.

On a Writ Petition.

HELD

As per section 64 of the Indian Contract Act, 1932 and State Rules thereof, the partners are entitled to approach the Registrar of Firms to ascertain the correct facts. The Registrar is duty-bound to conduct an enquiry and pass necessary orders. Refusal or inaction by the Registrar is not proper. The Registrar of Firms is directed to conduct an enquiry as per the complaint.

The petition was accordingly allowed.

55 Jagdish Gotam vs. State of Madhya Pradesh and others

AIR 2023 (NOC) 19 (MP)

Date of order: 22nd July, 2022

Senior Citizen – Seeking urgent relief – Right to live with dignity – Alternate Remedy not to be applied strictly – Writ Petition allowed. [Article 21, 226, Constitution of India]

FACTS

The Petitioner claimed to be the owner of a house situated at Jabalpur based on a registered sale deed. He was living with his wife. He allowed his son and daughter-in-law to live with him.

On account of matrimonial disputes between his son and his daughter-in-law, his son left the house. The daughter-in-law ousted the petitioner and his wife from the house.

On a Writ Petition for recovery of vacant possession of his self-acquired property.

HELD

The objections raised by the daughter-in-law (Respondent No. 4) are that there is an alternative remedy available under the provision of the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 and she denied any harassment.

As per Article 21 of the Constitution, every citizen has the right to live with dignity. In such a case it would not be appropriate for a senior citizen to go through the statutorily prescribed alternate remedy. The rule of alternate remedies should not be strictly applied.

The daughter-in-law and her children are to be evicted from the premises and a vacant possession is to be handed over to the Petitioner.

The petition was accordingly allowed.

BCAJ Admin

Corporate Law Corner : Part A | Company Law

9 M/s. Bock Compressors India Pvt Ltd
ROC-Guj/Adj. Order/Bock Compressors/ Sec 134/ 3323-3326
Office of Registrar of Companies,
Gujarat Dadra & Nagar Haveli
Adjudication Order
Date of Order: 08th July, 2022

Order for penalty under section 454 of the Companies Act, 2013 read with Rule 5 of Companies (Adjudication of Penalties) Rule, 2014 for Violation of Section 134 of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014.

FACTS

M/s BCIPL is registered under the provisions of the Companies Act, 1956 in the state of Gujarat.

M/s BCIPL had filed a suo-moto application through e-form GNL-1 for adjudicating the penalty for violation of Section 134 of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 towards non-disclosure related to the conservation of energy, technology absorption, foreign exchange earnings and outgo in the manner as prescribed under Rule 8 of the Companies (Accounts) Rules, 2014.

As per suo-moto application, the Board of Directors had at its meeting approved Board’s Report for the Financial Year ended on 31st March, 2015 under the provisions of section 134 of the Companies Act, 2013. Further, as per the requirements of the above provisions, M/s BCIPL was required to make disclosure in the said Board’s Report relating to the conservation of energy, technology absorption, foreign exchange earnings and outgo in the manner as prescribed under Rule 8 of the Companies (Accounts) Rules, 2014.

However, it was stated in the Board’s Report that due to the non-coverage of activities, disclosure is not required. Thus, M/s BCIPL had defaulted to comply with the requirement of the above provisions due to wrong interpretation while approving Board’s Report.

As per section 134(3)(m) of the Companies Act, 2013, the Board’s Report shall include, the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed.

Whereas, as per section 134(8) of the Companies Act, 2013, if a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of Rs.3,00,000 and every officer of the company who is in default shall be liable to a penalty of Rs.50,000.

In view of the above facts, there was a reasonable cause to believe that the provision of Section 134 of the Companies Act, 2013 had not been complied with by M/s BCIPL and Mr DRS, Ms BMBB, directors of M/s BCIPL. Thus, M/s BCIPL, Mr DRS and Ms BMBB had rendered themselves liable for penal action as provided in sub-section (8) of section 134 of the Companies Act, 2013. As per section 134(8), there is a provision for penalty for which the ROC is empowered to adjudicate under section 454(3) of the Companies Act, 2013.

In response to the application dated 25th May, 2022, a notice dated 14th June, 2022 was issued to M/s BCIPL and its directors in default by giving an opportunity to be heard in the matter on 21st June, 2022. A meeting for adjudicating the penalty for the violations of section 134 of the Companies Act, 2013 was held on 21st June, 2022. During the meeting, Mr. DRS and Ms. BMBB, Mr. KS (PCS) were present and admitted to committing the above default and requested that a minimum penalty may be levied.

HELD

There was a reasonable cause to believe that M/s BCIPL had failed to comply with the provisions of section 134 of the Companies Act, 2013. Hence, penalty as stated below was levied and the matter was disposed of.

Penalty levied on M/s BCIPL: Rs.3,00,000 Penalty for officers in default: Mr DRS, Director: Rs.50,000 and Ms BMBB, Director: Rs.50,000.

10 Strong Infracon Pvt Ltd (now amalgamated with Elite Realcon Pvt Ltd)
No. ROC/LEGAL/ADJ/2023/138312/penalty order/2191-2195
Office of Registrar of Companies (West Bengal)
Adjudication Order
Date of order: 29th May, 2023

Adjudication order for violation of provisions of the Section 143 r.w.s 129 of the Companies Act, 2013 by the Auditors of the Companies in relation to various non-disclosures in the financial statements of the Company.

FACTS

During the inspection conducted under section 206(5) of the Companies Act, 2013 in the matter of merger of M/s SIPL (Transferor Company) with M/s. ERPL (Transferee Company) following violations were observed:

Non-disclosure of key management personnel, related parties, and related party transactions in the financial statements for the years 2010-11 to 2015-16.
Non-disclosure of details of investments in the financial statements for the years 2010-11 to 2015-16.
Non-disclosure of details of short-term loans and advances in the financial statements for the years 2011-12 to 2015-16.
Non-disclosure of details of shareholders holding more than 5 per cent shares in the financial statements for the years 2009-10 to 2015-16.
Non-disclosure of details of sundry creditors in the financial statements for the year 2015-16.

Adjudication notice was issued under section 454(4) read with Rule 3(2) of the Companies (Adjudication of Penalties), 2014 as amended by Amendment Rules, 2019, to M/s AU & Co and M/s AK & Co, Auditors of M/s SIPL for the violation of the provisions of the section 143 and section 129 of the Companies Act, 2013 and given an opportunity to submit their reply as to why the penalty should not be imposed under the provisions of section 450 of the Companies Act, 2013.

Thereafter a notice of hearing was issued scheduling a physical hearing.

“Section 143(3) states that, the auditor’s report shall also state—

(a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit;

(b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;

(c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;

(d) whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;

(e) whether, in his opinion, the financial statements comply with the accounting standards;

(f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;

(g) whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;

(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;

(i) whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;

(j) such other matters as may be prescribed.”

In reply to the adjudication notice submitted by M/s ERLP it was stated that:

M/s SIPL was non-existent as the same had been merged with ERLP w.e.f 1st April, 2015 by the order of the Hon’ble High Court, Calcutta dated 06th January, 2017 [CP No. 768 of 2016].

Ms CKJ, Advocate, being the Authorised Representative of Auditors attended the hearing physically and submitted that the enactment of Section 134 shall have prospective effect from the date of notification, relying upon the judgment of the apex court [SLP 459/2004] and not retrospective effect.

Further, it was stated that the Ld CJM, Special Court had also disposed of the cases directing the accused to take plea before the appropriate forum as the offence has been decriminalised.

Ms CKJ requested to drop the adjudication proceedings on the grounds that M/s SIPL was already amalgamated by virtue of the Hon’ble High Court, Calcutta in the year 2017 w.e.f. 1st April, 2015.

HELD

The auditors are liable to penalty under section 450 of the Companies Act, 2013 for their non-compliance with the provisions of section 143. Accordingly, a penalty of Rs.90,000 was imposed on the Auditors of the Company.

M/s AU & Co and M/s AK & Co, Auditors of M/s SIPL were required to comply with the order of adjudication within the prescribed time, and failure to do so may result in penal action without further intimation.

BCAJ Admin

Allied Laws

20 Jagrutiben Dharmeshbhai Suhagiya – Appellant
AIR 2023 Gujarat 86
Date of order: 13th January, 2023

Succession – Natural Guardian – to sell the property of minor – Property in question is an undivided share in the joint family property – Out of the purview – No permission of the Court required to sell. [S. 8, Hindu Minority and Guardianship Act, 1956 (Act)]

FACTS

The appellant (Jagrutiben Suhagiya) lost her husband. The appellant, being in dire need of the funds for the education of her children wished to sell the undivided share of the property of the minors. For this purpose, the appellant filed an application before the Additional Sessions Judge, wherein the appellant’s application was partly allowed, granting guardianship and rejecting the permission to sell the share in the joint family property. Aggrieved by the same, the appellant filed appeal before the Hon’ble Gujarat High Court. The fundamental question before the Bench was whether the restriction in section 8 of the Act, i.e., requirement of approval of the Court for alienating immovable property is applicable to a minor’s undivided share in a joint family property or not.

HELD

Relying on the case of Krishnakant Maganbhai vs. State of Gujarat (1961 FLR 108), the Court held that the requirement of obtaining permission before alienating the property of a minor would not apply in respect of an undivided interest in the joint family property. The Hon’ble Court further held that the concept of guardian is out of the purview of section 8 of the Act with respect to an undivided interest in a joint family property. The Manager or the Karta of the joint family could also alienate the property without acquiring any permission.

The appeal was allowed.

21 A. Wilson Prince v. Nazar and others
AIR 2023 Supreme Court 2384
Date of order: 15th May, 2023

Will – Probate granted on 29th July, 1972 – Application by an alleged beneficiary for the supply of a copy of the will in 2016 – Records either destroyed under the Destruction of Records Act, 1917 or returned to the executor – No dispute regarding bequeathment of the deceased’s property till date from anyone – Person allegedly claiming to be the beneficiary never saw the will – High Court justified in refusing to grant any relief. [Indian Succession Act, 1925]

FACTS

Rev. Salusbury Fynes Davenport (testator) executed a will in the year 1969. The executor had applied for probate which was granted in the year 1972. In 2016, Mary Brigit (original petitioner) allegedly claiming to be a beneficiary, applied for a copy of the probate. The District Court filed a counter affidavit in the High Court of Madras stating that it was an old matter and the record may have been destroyed under the Destruction of Records Act, 1917 or returned to the executor. The executor claimed to have not found any trace of the document. Subsequently, the petitioner Wilson Prince (successor of the original petitioner) filed an SLP in the Supreme Court.

HELD

The Hon’ble Supreme Court held that since the original writ petitioner had never seen the copy of the will and was not aware of the contents of the same, on mere guesswork, the Court could not grant any relief to the petitioner. Subsequently, the Hon’ble Court dismissed the Special Leave Petition with no costs.

22 Canara Bank, Mullakkal v. Sachin Shyam
2022 SCC OnLine Ker 6934
Date of order: 19th December, 2022

Possession of Secured Assets – The right of possession of the Tenant with respect to Secured Assets – Creditor entitled to possession. [Section 14, Section 17, and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI); Section 107, Transfer of Property Act, 1882]

FACTS

The petitioner, a secured creditor in respect of a loan availed by the 1st respondent, brought to sale an item of property in which the 3rd respondent claims to be a tenant under the provisions of the SARFAESI Act. The 4th respondent had purchased the property. The application filed by the petitioner under section 14 of the SARFAESI Act for obtaining vacant possession of the property was rejected by the learned Magistrate, finding inter alia that the provisions in the SARFAESI Act cannot defeat the rights of the tenant. The learned Magistrate had concluded that the tenancy had been created much before the creation of the mortgage, and therefore, such tenants cannot be evicted by resorting to proceedings under Section 14 of the SARFAESI Act.

Hence, the present appeal.

HELD

In light of the judgement of the Supreme Court in the case of Balkrishna Rama Tarle vs. Phoenix ARC Pvt. Ltd. [(2023) 1 SCC 662] the Court held that the order of the learned Magistrate cannot be sustained. The 3rd respondent has no case that any proceeding initiated by the petitioner under section 14 of the SARFAESI Act had been challenged by the 3rd respondent in proceedings before the Debts Recovery Tribunal under section 17 of the SARFAESI Act.

Court further held that in the absence of a registered document the tenant was not entitled to possession of secured assets for a period exceeding the limit prescribed under section 107 of the Transfer Property Act. The creditor had the right to take actual possession of the secured asset even after the transfer of title to an auction purchaser.

Order of the Chief Judicial Magistrate was quashed.

BCAJ Admin

Corporate Law Corner : Part A | Company Law

11. Case Law No. 01/September /2023
M/s. Port City Nidhi Limited
ROC-ROC/CHN/ADJ Order/PORT CITY/S. 118 (1) /2023
Office of Registrar of Companies,
TAMIL NADU
Adjudication Order
Date of Order: 15th June, 2023

Order for penalty under Section 454 of the Companies Act, 2013 read with Rule 3 of Companies (Adjudication of Penalties) Rule, 2014 for Violation of Section 118(1) of the Companies Act, 2013

FACTS
PCNL is registered under the provisions of the Companies Act, 1956 under the jurisdiction of ROC, Chennai. The company was taken up for inspection by an Officer authorized by the Central Government and Show Cause Notice was issued for violation of Section 118(1) of the Companies Act, 2013.

Section 118(1) reads as under: –

“Every company shall cause minutes of the proceedings of every general meeting of any class of shareholders or creditors, and every resolution passed by postal ballot and every meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in such manner as may be prescribed and kept within thirty days of the conclusion of every such meeting concerned, or passing of resolution by postal ballot in books kept for that purpose with their pages consecutively numbered.

It was observed that:

“the minutes Book maintained by the Company was not paginated1 properly and some entries were without the signature of the chairman.

Thus, it was further observed that it is in violation of Section 118(1) of the Companies Act which mandates every company to maintain the minutes of meeting of all the General Meetings in a properly paginated2 manner. Hence the company and every officer of the company who is in default are liable for penal action for violating section 118 (11) of the Companies Act, 2013″.

However, the inspecting officer reported that while replying when the query was raised, company has admitted the same. It has rectified the mistakes and submitted the copies of the updated minutes book, and further sought for lenient view to be taken. However, the inspecting officer recommended to initiate penal action against the company and the officers in default to make sure that such defaults shall not be repeated in the future.

Based on the report of the inspecting officer, RD authorised issuance of adjudication notice to the company and its officers. Managing Director of the company appeared on behalf of Company and himself and accepted the violation subsequent to the Inspecting Officer’s observation that they have filed the updated Minutes Book.

HELD
In view of the above, upon examination and hearing arguments, the company has not complied with Section 118 (1) of the Companies Act, 2013. Hence, penalty was imposed as per Section 118(11) of the Companies Act, 2013.

Section 118(11) of the Companies Act, 2013 reads as under:
“If any default is made in complying with the provisions of this section in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees.”

Therefore, in view of the above said violation of Section 118 of the Companies Act, 2013, the adjudicating officer in exercise of the powers vested to him under Section 454(1) & (3) of the Companies Act, 2013, imposed a penalty of R25,000/- on the company and R5,000/- each on the officers in default.

12. Case Law No._02_/___2023
M/S. AT & T COMMUNICATION SERVICES INDIA PRIVATE LIMITED
ROC/D/ADJ/ORDER/AT&T/ 2924-2927
Registrar of Companies, NCT of Delhi & Haryana
Adjudication Order
Date of Order: 27th July, 2023

Adjudication Order for non-compliance of the provision of Rule 8(3) of the Companies (Registration Offices and Fees) Rules, 2014 with respect to incorrect certification of e-form by Authorized Signatory and Professional.

FACTS:
M/s AT & T CSIPL, had filed suo-moto application vide e-form GNL-1 dated 25th January, 2023 for the defect in filing of e-form AOC-4 XBRL dated 28th October, 2021. It was inter alia stated that M/s AT & T CSIPL had erroneously reported the total amount of turnover, from its principal product or services under the code 8517 (i.e. current line system), which came into the attention of the M/s AT &T CSIPL when it had received a Show Cause Notice (SCN) from the Cost Audit Branch of Ministry of Corporate Affairs (MCA) on 09th May, 2021.

Thereafter, in reply to the SCN received from MCA from M/s AT & T CSIPL including a certificate from CA Shri ABG who had certified HSN code-wise break up of Annual Turnover for the F.Y. 2020-21, it was observed that M/s AT & T CSIPL had erroneously reported the total amount of turnover from its principal product or services under the code 8517 in the said AOC-4 XBRL for F.Y. 2020-21, instead of reporting the same in the following manner:

SI No

HSN Codes/ ITC Codes

Description

9985

Support services

9973,9983,9984, 9985, 9987, 4907, 8302

Managed Network Services

On the basis of above observations Adjudicating Officer (AO) i.e. Registrar of Companies, NCT of Delhi & Haryana had issued a SCN to M/s AT & T CSIPL and Mr. AD, signatory i.e. signing director and CA SKK, the professional who had certified the e-form AOC-4 XBRL dated 31st May, 2023. The reply from M/s AT & T CSIPL to the SCN reiterated that M/s AT & T CSIPL had erroneously reported the total amount of turnover from its principal product or services (i.e. support services and managed network services) under the code 8517 in e-form AOC-4 XBRL for F.Y. 2020-21.

Rules 8(3) of the Companies (Registration Offices and Fees) Rules, 2014, stated that:-

“The authorised signatory and the professional, if any, who certify e-form shall be responsible for the correctness of the contents of e-form and correctness of the enclosures attached with the electronic form.”

Section 450 of the Companies Act, 2013 (Punishment where no specific penalty or punishment is provided), stated that:-

“If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.”

HELD:
AO after considering the facts of the case and submissions made, noted that Mr.AD (Director) and CA SKK (certifying professional) had filed e-form AOC-4 XBRL dated 28th October, 2021 with incorrect information. Further noted that Pursuant to Rule 8 of the Companies (Registration Offices and Fees) Rules, 2014 read with Section 450 of the Companies Act, 2013, signatories of E-form AOC-4 XBRL are liable for the correctness of the content of e-form AOC-4 XBRL.

Thereafter, AO imposed penalty as follows:

Violation of Section
and Rules

Penalty imposed on
Signatory(s)

Penalty specified under
section 450 of the Companies Act,2013

Rule 8(3) of the Companies (Registration Offices and Fees)
Rules, 2014

Mr.AD, Director (signatory of e-form AOC-4 XBRL.

Rs.10,000

Rule 8(3) of the Companies (Registration Offices and Fees)
Rules, 2014

CA SKK, signatory / Certifying Professional of e-form AOC4
XBRL.

Rs.10,000

Further, it was directed that the said amount of penalty shall be paid online through the website www.mca.gov.in (Misc. head) in favour of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimation filed with proof of penalty paid.

BCAJ Admin

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