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1998 (7) TMI 559
Issues Involved:
1. Petition for writ of mandamus to direct the Central Government to decide on a representation.
2. Viability and potential takeover of Calico Polyester Fibre Division.
3. Jurisdiction and applicability of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) versus the Industries (Development and Regulation) Act, 1951.
Issue-wise Detailed Analysis:
1. Petition for writ of mandamus to direct the Central Government to decide on a representation:
The petitioner, a union representing workmen at the Calico Polyester Fibre Division, sought a writ of mandamus to compel the Central Government (respondent No. 1) to decide on a representation made on October 9, 1997. The representation requested the Central Government to take necessary steps under sections 15A and 18FA of the Industries (Development and Regulation) Act, 1951, to ensure the continuation of the viable and profit-making Calico Polyester Fibre Division amidst the winding-up proceedings of its parent company.
2. Viability and potential takeover of Calico Polyester Fibre Division:
The petitioner argued that the Calico Polyester Fibre Division, a unit of the financially distressed Ahmedabad Manufacturing and Calico Printing Company Ltd. (the principal company), was always viable and profit-making. The petitioner claimed that respondent No. 2 was initially interested in taking over this unit. However, respondent No. 2 later stated in an affidavit that they were not interested in the takeover due to economic non-viability under current competitive conditions. The court noted that the Central Government should explore the possibility of other agencies being interested in the takeover if respondent No. 2 was not interested.
3. Jurisdiction and applicability of SICA versus the Industries (Development and Regulation) Act, 1951:
The core legal issue was whether the Central Government could act under the Industries (Development and Regulation) Act, 1951, given that the BIFR had already taken action under SICA. Respondent No. 1 contended that once BIFR had taken action under SICA, neither the Central Government nor any other agency could act under the Industries (Development and Regulation) Act, 1951. The court clarified that SICA and the Industries (Development and Regulation) Act, 1951, are distinct enactments with different objectives. SICA aims to revive sick industrial companies as a whole, while the Industries (Development and Regulation) Act, 1951, aims to protect individual industrial undertakings in the larger economic interest. The court held that once BIFR submits a report to the High Court recommending winding up, its role under SICA ends, and the Central Government can then act under the Industries (Development and Regulation) Act, 1951.
The court directed the Central Government to reconsider the petitioner's representation in light of the judgment's observations, particularly noting that the Central Government's stance of inaction due to SICA proceedings was incorrect. The court emphasized the need for the Central Government to explore all possibilities to ensure the survival of the Calico Polyester Fibre Division.
Conclusion:
The court allowed the petition, directing the Central Government to reconsider the representation made by the petitioner on October 9, 1997, and to take a decision accordingly. The rule was made absolute, and no order as to costs was issued.
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1998 (7) TMI 556
The High Court of Bombay set aside an ex parte order dated 4-4-1997 in a company petition where the petitioner claimed Rs. 2,50,000 from the respondent company. The court granted the application filed by the respondent company as it had deposited Rs. 1,50,000 showing the ability to pay debts, leading to the petition being admitted and not winding up the company under section 433 of the Companies Act. The application was granted with costs. (Case Citation: 1998 (7) TMI 556 - HIGH COURT OF BOMBAY)
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1998 (7) TMI 555
The High Court of Bombay issued an order in a petition seeking winding up of a company due to unpaid consultancy charges. The respondent disputed the liability but the court found in favor of the petitioner. The court directed the respondent to deposit Rs. 1 crore in court within a month for possible recovery by the petitioner through a civil suit. If the amount is not deposited, the petition will be admitted. If the petitioner fails to file a civil suit within eight weeks, the deposited amount will be refunded to the respondent. The deposited amount will be invested in a nationalized bank for six months if deposited. (Case citation: 1998 (7) TMI 555 - HIGH COURT OF BOMBAY)
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1998 (7) TMI 553
Issues Involved:
1. Overdraft facility of Rs. 16 lakh granted to Sea Transportation Enterprises (P.) Ltd.
2. Execution of hypothecation deed dated 21-9-1984 by the company.
3. Execution of guarantee dated 21-9-1984 by defendant No. 2.
4. Execution of hypothecation of book debts dated 23-4-1987 by the company.
5. Execution of promissory note dated 23-4-1987 by the company for Rs. 16 lakh with interest.
6. Joint and several liability of defendants to pay Rs. 22,41,426.02 and interest at 18.5% from the date of filing of the suit until payment.
Detailed Analysis:
1. Overdraft Facility of Rs. 16 Lakh:
The plaintiff-bank granted an overdraft facility of Rs. 16 lakh to Sea Transportation Enterprises (P.) Ltd. on 23-4-1987. The company executed a promissory note and a deed of hypothecation of book debts as security for repayment. However, the hypothecation agreement was not registered with the Registrar of Companies (ROC) within the stipulated time, rendering the charge void and unsecured against the official liquidator. The plaintiff-bank's assistant manager, K. Balakrishna, erroneously affirmed the registration of the charge, which was later corrected with an apology.
2. Hypothecation Deed Dated 21-9-1984:
The company executed a hypothecation deed on 21-9-1984, creating a first charge on its products, movable property, and book debts. This deed was part of the security for the credit facilities provided by the plaintiff-bank.
3. Guarantee Dated 21-9-1984 by Defendant No. 2:
Defendant No. 2, in his personal capacity, executed a letter of guarantee on 21-9-1984, guaranteeing payment of all amounts due by the company to the plaintiff-bank up to Rs. 12 lakh plus interest. The court found this guarantee valid and enforceable against defendant No. 2.
4. Hypothecation of Book Debts Dated 23-4-1987:
The company executed another hypothecation deed on 23-4-1987, hypothecating its present and future book debts as security for the overdraft facility. However, due to the failure to register this charge with the ROC, it was deemed void and unsecured against the official liquidator.
5. Promissory Note Dated 23-4-1987:
The company executed a promissory note on 23-4-1987, promising to pay Rs. 16 lakh with interest to the plaintiff-bank. This note was part of the security for the overdraft facility.
6. Joint and Several Liability of Defendants:
The court held that the plaintiff-bank established the liability of the company and defendant No. 2 for the sum of Rs. 22,41,426.02 with further interest of Rs. 11,66,178.74 at 18.5% per annum from the date of filing the suit until realization. However, the official liquidator was not liable for the unsecured charge of Rs. 16 lakh due to non-registration. The plaintiff-bank was allowed to enforce the personal guarantee of defendant No. 2 up to Rs. 12 lakh plus interest and to realize the secured amount of Rs. 15.50 lakh from the company's book debts.
Conclusion:
The court decreed the suit partly, granting the plaintiff-bank the right to enforce the personal guarantee and realize the secured amount from the company's book debts. The bank was instructed to take disciplinary action against negligent officials and to update the confidential dossier of K. Balakrishna. The judgment was also forwarded to the RBI for further action.
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1998 (7) TMI 551
Issues: Challenge to detention order under COFEPOSA based on delay in disposal of representations and additional grounds raised.
In this case, the petitioner, the wife of the detenu, challenged the detention order under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA) on the grounds of delay in disposing of representations. The petitioner contended that the representation made to the Joint Secretary to the Government, Ministry of Finance, was disposed of after abnormal delay, and the detenu's representation to the Government through prison was decided merely on a forwarding note, indicating a lack of application of mind. The petitioner also sought to raise additional grounds, alleging abnormal delay in deciding the representation. The respondent, on the other hand, denied the allegations, asserting the detenu's involvement in foreign exchange transactions and the legality of the detention order.
The court analyzed the legal position regarding the right of a detenu to make representations and the obligation to consider them independently. The court noted that the concerned Minister had considered and rejected the representation independently, after due application of mind, dismissing the petitioner's argument of non-application of mind. The court also addressed the issue of delay in deciding the representation, emphasizing that the representation was considered and rejected in a reasonable time, thus rejecting the petitioner's contention of abnormal delay.
Regarding the additional grounds raised by the petitioner, the court allowed the petitioner to raise them and considered the explanations offered by the learned Additional Central Government standing counsel. The court found that the representations were considered within a reasonable time, and the Minister had already rejected the representation before the additional grounds were raised. Therefore, the court concluded that there was no basis to quash the detention order, especially considering that the one-year period of detention had already expired. Consequently, the High Court dismissed the petition challenging the detention order under COFEPOSA.
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1998 (7) TMI 516
Whether a director of a limited company can be considered as a principal employer liable to pay contributions under section 40?
Held that:- Appeal dismissed. In the absence of any express provision in the Indian Penal Code incorporating the definition of "principal employer" in Explanation 2 to section 405, this definition cannot be held to apply to the term "employer" in Explanation 2. As the High Court has observed, the term "employer" in Explanation 2 must be understood as in ordinary parlance. In ordinary parlance it is the company which is the employer and not its directors either singly or collectively.
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1998 (7) TMI 514
Issues:
1. Violation of natural justice in the order of refund.
2. Alleged forged signature on the agreement leading to oversubscription.
3. Mechanical dismissal of appeal by the appellate authority.
4. Non-listing of shares by the Bombay Stock Exchange.
5. Diversion of funds by the petitioner.
6. Challenge against SEBI's order and order of non-listing by the stock exchange.
7. Directions for the petitioner to refund the amount and create a charge on purchased properties.
Analysis:
1. The petitioner raised concerns about the violation of natural justice in the order of refund issued by the appellate authority. The petitioner's advocate was unavailable during the initial hearing, leading to a subsequent appeal dismissal. The court highlighted the importance of a fair hearing but emphasized that the petitioner should not misuse procedural delays to the detriment of other parties involved.
2. Allegations of a forged signature on the agreement between the petitioner and another individual were brought up. The petitioner claimed that the signature in question was forged, questioning the basis of the action taken against them. The court noted the significance of authentic documentation in legal proceedings and the need for clarity regarding the financial transactions involved.
3. The petitioner criticized the appellate order for being mechanical, merely dismissing the appeal due to a prior dismissal. This raised concerns about the thoroughness and fairness of the appellate process. The court acknowledged the need for a comprehensive review of appeals to ensure justice is served.
4. The Bombay Stock Exchange's decision to decline listing the petitioner's shares was challenged. The petitioner argued that the non-listing decision was not final as an appeal was pending. The court considered the implications of non-listing on the validity of the share allotment, citing relevant legal precedents.
5. The court addressed the issue of fund diversion by the petitioner, which was contrary to SEBI's directive to refund the amounts received from the public issue. The petitioner had utilized the funds to purchase properties, raising questions about compliance with regulatory orders and the preservation of financial assets.
6. Challenges against SEBI's order and the stock exchange's non-listing decision were discussed. The court outlined conditions for the petitioner to revive the appeals, emphasizing the importance of adhering to regulatory directives and restoring the financial status quo.
7. The court issued directions for the petitioner to refund the entire amount and create a charge on the purchased properties. Stringent terms were set, including a deposit requirement and restrictions on property dealings to ensure compliance with regulatory orders and the restoration of financial integrity. The court emphasized the need for accountability and adherence to legal obligations in financial matters.
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1998 (7) TMI 511
Company Petition No. 82 of 1998 filed by Bansal Trading Company against Chhattar Industries Limited for winding up was disposed of as Chhattar Industries Limited was unable to pay its debts. Company Petition No. 145 of 1998, based on the recommendation of the Board for Industrial and Financial Reconstruction, was allowed, and Chhattar Industries Limited was ordered to be wound up under the Companies Act, 1956.
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1998 (7) TMI 509
Issues Involved:
1. Territorial jurisdiction of the Special Court for Economic Offences in Bangalore.
2. Applicability of the Supreme Court decision in Hanuman Prasad Gupta v. Hiralal.
3. Question of limitation and absence of mens rea.
4. Procedure to be followed by a Magistrate not competent to take cognizance of the case.
Detailed Analysis:
1. Territorial Jurisdiction of the Special Court for Economic Offences in Bangalore:
The primary issue was whether the Special Court for Economic Offences in Bangalore had territorial jurisdiction to try cases against companies whose registered offices are situated outside Karnataka. The petitioners argued that the offences were committed at the location of the companies' registered offices, which were outside Karnataka. The respondent contended that the jurisdiction lay in Bangalore, where he, a permanent resident, did not receive the required documents.
The court concluded that the offences were committed at the registered offices of the companies, as that is where the failure to comply with the statutory requirements occurred. This conclusion was based on the principle that the obligation to perform certain acts, such as sending share certificates or balance sheets, arises at the registered office of the company.
2. Applicability of the Supreme Court Decision in Hanuman Prasad Gupta v. Hiralal:
The petitioners relied on the Supreme Court decision in Hanuman Prasad Gupta v. Hiralal, which held that the place of performance and payment is where the company's registered office is located. The court below had distinguished this case on the grounds that it dealt with section 205(5) of the Companies Act, while the present case involved sections 39(2), 219(4), and 113(2).
However, the High Court found that the principle enunciated by the Supreme Court was applicable to all cases where the company is expected to comply with statutory provisions. The court emphasized that the obligation to perform certain acts arises at the registered office, and thus, the offence is deemed to have been committed there.
3. Question of Limitation and Absence of Mens Rea:
The petitioners also raised issues regarding the limitation period and the absence of mens rea. However, the court deemed these questions secondary to the issue of territorial jurisdiction. Since the court found that it lacked territorial jurisdiction, these questions were left open for the court with proper jurisdiction to decide.
4. Procedure to be Followed by a Magistrate Not Competent to Take Cognizance of the Case:
The court referred to section 201 of the Code of Criminal Procedure, which outlines the procedure for a Magistrate who is not competent to take cognizance of a case. The Magistrate is required to return the complaint to the complainant for presentation to the proper court.
Conclusion:
The High Court allowed the petitions, set aside the impugned orders, and directed the Magistrate to return the complaints to the complainant with necessary endorsements for presentation to the proper court. This decision was based on the finding that the Special Court for Economic Offences in Bangalore did not have territorial jurisdiction to try the cases against the companies whose registered offices were situated outside Karnataka.
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1998 (7) TMI 505
Refusal to register the transfer of shares in favour of Bajaj Auto Ltd. which had been purchased by the appellants - Held that:- Appeal allowed. The exercise of discretion by the board of directors in refusing to register the shares in the name of the appellants was not bona fide or in the interest of the company or general body of shareholders. Accordingly, its decision not to register the transfer of shares was not correct.
The impugned order dated 28-7-1986 of the CLB is set aside and the Resolutions dated 29-8-1983,27-9-1983 and 19-11-1983 of Bajaj Tempo Ltd. are set aside and as a consequence thereof, direction is given to respondent No. 2 to register the shares in question within four weeks from the date of this judgment.
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1998 (7) TMI 503
Issues Involved:
1. Transfer of shares and validity of board resolutions.
2. Non-payment of dividends during the period of transfer dispute.
3. Liability for interest on unpaid dividends.
4. Relief from prosecution under Section 207 of the Companies Act, 1956.
Detailed Analysis:
1. Transfer of Shares and Validity of Board Resolutions:
The respondents applied for the transfer of shares from Deccan Enterprises Private Limited to their names. The company initially refused the transfer, citing that the board resolution dated 15-3-1986 did not authorize the transfer. Subsequent attempts by the respondents included presenting a resolution dated 5-5-1989, which the company also found inadequate under Section 297 of the Companies Act, 1956. The company sought legal advice and ultimately refused the transfer multiple times, citing invalid transfer deeds under Section 108(1A) of the Act. The respondents then appealed to the Company Law Board (CLB), which directed the company to register the shares. This decision was upheld by the High Court, and the shares were registered in February 1998.
2. Non-Payment of Dividends During the Period of Transfer Dispute:
The company did not pay dividends on the disputed shares from March 1990 to February 1998, holding the amounts in abeyance as per Section 205A of the Act. Upon registration of the shares, the dividends were paid to the respondents. The respondents later claimed interest on the unpaid dividends, alleging deliberate withholding by the company.
3. Liability for Interest on Unpaid Dividends:
The respondents demanded compound interest at 2% per month for the unpaid dividends. They threatened prosecution under Section 207 of the Act if the amount was not paid within seven days. The petitioners sought relief from this liability, arguing that they acted reasonably and in good faith based on legal advice.
4. Relief from Prosecution Under Section 207 of the Companies Act, 1956:
The respondents filed a counterclaim, alleging personal animosity and a conspiracy to harass them. They argued that the company's refusal to transfer shares was mala fide and that the legal opinions obtained lacked credibility. The court, however, found no substance in the allegations of personal animosity affecting the company's decisions. It noted that the company had acted on the advice of a Senior Counsel and a Firm of Solicitors, which, although later found incorrect, indicated a lack of mala fides.
The court also addressed the applicability of Section 206A, which mandates holding dividends in abeyance pending share transfer registration. The respondents argued that this section did not apply as the company had rejected the transfer applications. The court, however, found that the company's actions were based on legal advice and thus lacked mala fides.
Conclusion:
The court concluded that while the company's non-payment of dividends to the transferors was unjustified, the respondents could not claim dividends until the shares were registered in their names. The company's reliance on legal advice demonstrated bona fides, and thus, the petitioners were entitled to relief under Section 633 of the Act. However, the court conditioned this relief on the payment of 12% simple interest on the unpaid dividends from 1990 to 1998, along with Rs. 10,000 in costs to the respondents. If these payments were made within one month, the petitioners would be relieved of liability under Section 207.
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1998 (7) TMI 501
Issues Involved:
1. Approval of lease agreement under Section 536(2) of the Companies Act, 1956.
2. Viability and benefit of the lease proposal for the company, its creditors, and the public.
3. Opposition from secured creditors and other respondents.
4. Financial status and dues of the respondent company.
5. Interests of the workmen and their livelihood.
Issue-Wise Detailed Analysis:
1. Approval of Lease Agreement under Section 536(2) of the Companies Act, 1956:
The applicant, Bengani Food Products Private Limited, sought court approval for a lease agreement with Indian Maize and Chemicals Limited under Section 536(2) of the Companies Act, 1956. The court acknowledged its jurisdiction to approve such dispositions before a winding-up order, provided the scheme is viable and beneficial for creditors and the public.
2. Viability and Benefit of the Lease Proposal:
The applicant proposed to pay Rs. 60 lakhs per annum as lease rent, suggesting part of this amount could be used to pay workers and clear old dues. The court examined whether this proposal was viable and in the interest of the company and its creditors. The BIFR had previously determined that the company was not likely to become viable and recommended winding up. The court found that the lease amount offered was insufficient compared to the company's outstanding dues of Rs. 47 crores, and thus, the proposal was not viable or beneficial.
3. Opposition from Secured Creditors and Other Respondents:
Respondent No. 4, a secured creditor, opposed the lease agreement, stating that prior approval was not obtained as per the terms of their agreement with the company. They argued that the proposal would not benefit creditors and was collusive. Respondent No. 9 highlighted substantial electricity dues and the disconnection of supply, asserting that reconnection was not possible without clearing dues. Respondent No. 10 also objected, noting the company's default on lease rentals and financial obligations.
4. Financial Status and Dues of the Respondent Company:
The court noted the company's weak financial position, with total dues around Rs. 50 crores and assets valued significantly lower. The BIFR had exhausted all rehabilitation possibilities and recommended winding up due to the company's inability to become viable. The court emphasized that the company's financial state and the substantial dues made the lease proposal unviable.
5. Interests of the Workmen and Their Livelihood:
The workmen supported the lease proposal, hoping it would secure their livelihood. However, the court considered the broader interest of the company, creditors, and public. It concluded that the lease amount was too low to make a significant impact and that the proposal was not in the overall interest. The court also noted that previous similar proposals had failed to yield positive results.
Conclusion:
The court rejected the application for approval of the lease agreement, citing the non-viability of the proposal given the company's substantial dues and the recommendation for winding up by the BIFR and the Appellate Authority. The court emphasized that the interests of all stakeholders, including creditors and the public, outweighed the temporary benefit to workmen.
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1998 (7) TMI 500
Issues:
1. Whether the impugned order lacks statutory safeguards against admission, advertisement, and publication of winding-up petitions?
2. Whether a winding-up petition is a recognized mode for debt recovery?
3. Whether the court has the discretion to order advertisement immediately after admission of a winding-up petition?
4. Whether the court can suspend advertisement pending the application for revoking the admission of the petition?
Analysis:
1. The appeals involved private limited companies challenging an order under company jurisdiction regarding winding-up petitions. The main issue was whether the impugned order lacked statutory safeguards against admission, advertisement, and publication of the petitions. The respondent, an advertising agent, filed two company petitions for winding up the companies due to unpaid bills. The appellants contended that the amount claimed was disputed, and admission of the petitions could lead to harassment and business loss. The court examined relevant provisions of the Companies Act, 1956, and the Rules governing winding-up petitions to determine the legality of the order.
2. The court addressed whether a winding-up petition is a recognized mode for debt recovery. The senior counsel argued that presenting a petition for winding-up should not be an alternative to a debt recovery suit, especially when the debt is genuinely disputed. The court emphasized that a winding-up petition is not a legitimate method for debt recovery, especially if the company is solvent and the debt is disputed in good faith. The judge's discretion to issue pre-admission notices to companies serves as a safeguard against malicious petitions that could harm the company.
3. The court deliberated on whether the judge can order advertisement immediately after admitting a winding-up petition. It was noted that while rule 24 of the Rules requires advertisement of the petition, the court has the authority, under rule 96, to dispense with such advertisement if deemed fit. The court cited precedents to support the view that ordering immediate advertisement after admission could lead to harassment and injustice, contrary to the rules and principles of justice.
4. Additionally, the court examined whether the court can suspend advertisement pending the application to revoke the admission of the petition. Precedents were cited to show that companies have the right to request a stay of proceedings or seek to revoke the admission if the petitioner's motives are questioned. The court highlighted that suspending advertisement in such cases aligns with the principles of justice and prevents abuse of the court's process. The judgment ultimately allowed the appeals, setting aside the order for advertisement and instructing the judge to consider the necessity of advertisement impartially and in accordance with the law.
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1998 (7) TMI 499
Issues Involved:
1. Whether the complaints against the petitioner were barred by limitation.
2. Whether the offences under sections 159 and 220 of the Companies Act, 1956 are continuing offences.
3. Whether the petitioner could be convicted of the offences under sections 159 and 220 after her resignation as a director.
Detailed Analysis:
1. Limitation of Complaints:
The petitioner contended that the complaints were barred by limitation as she had resigned as a director on 12-12-1990, while the complaints were filed on 11-6-1992. It was argued that the offences under sections 159 and 220, being punishable with fine, should be subject to the six-month limitation period provided in section 468 of the Code of Criminal Procedure, 1898. However, this contention was challenged by the respondent, who argued that the offences were continuing in nature, thus making section 468 inapplicable.
2. Continuing Offences:
The court examined whether the offences under sections 159 and 220 are continuing offences. Section 159 mandates that every company with a share capital must file an annual return within 60 days of the annual general meeting. Section 220 requires the company to file three copies of the balance sheet and profit and loss account within 30 days of the AGM. Section 162 stipulates penalties for non-compliance, which may extend to Rs. 50 for every day of default. The court referred to the precedent set in Kuldip Singh v. State, where it was held that non-filing of annual returns and balance sheets are continuing offences. The court also considered Supreme Court decisions in State of Bihar v. Deokaran Nenshi, Bagirath Kanoria v. State of Madhya Pradesh, and Maya Rani Punj v. CIT, which distinguished between ordinary offences and continuing offences based on the language of the statute and the nature of the offence. The court concluded that sections 162 and 220(3) indicate that the Legislature intended these defaults to be continuing offences, thereby making section 468 inapplicable.
3. Conviction Post-Resignation:
The petitioner argued that after her resignation on 12-12-1990, she could not be held liable as an "officer in default" under sections 5, 159, and 220. The court interpreted section 5 to mean that even after resignation, the petitioner would still be considered an officer in default. This interpretation prevents directors from evading liability by simply resigning. The court noted that the petitioner did not argue before the trial court or the first appellate court that she lacked access to company records necessary for filing returns. Consequently, this point could not be raised at this stage.
Conclusion:
The court dismissed the revisions, holding that the offences under sections 159 and 220 read with section 162 are continuing offences, and the complaints were not barred by limitation. Furthermore, the petitioner remained liable as an officer in default even after her resignation, given the absence of any argument regarding the unavailability of company records. The court upheld the fines imposed by the lower courts, reinforcing the legislative intent to ensure compliance with statutory requirements.
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1998 (7) TMI 498
High Court of Bombay appointed Sales Committee for property disposal to pay creditors. Most properties sold, balance deposited in court. New India Assurance Co. Ltd. unsecured creditor seeking payment of Rs. 22,30,000. Ordered to pay from deposited amount with interest. Withdrawal subject to future claims, indemnity bond required. Sales Committee discharged but may be called back if more claims arise. Claimants to notify New India Assurance Co. Ltd. Judgement dated November 20, 1998.
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1998 (7) TMI 496
Issues Involved:
1. Whether Hindustan Lever Ltd. (HLL) purchased/dealt in the securities of Brook Bond Lipton India Ltd. (BBLIL).
2. Whether HLL could be considered an insider as defined under regulation 2(e) of the SEBI (Insider Trading) Regulations, 1992.
3. Whether HLL dealt in or purchased the shares on the basis of unpublished price-sensitive information.
4. Whether the dealings in or purchase of the shares of BBLIL by HLL was in the nature of insider trading based on unpublished price-sensitive information and as such violative of the regulations and the SEBI Act, 1992.
5. The power of SEBI to award compensation to Unit Trust of India (UTI).
6. Whether SEBI was justified in ordering prosecution under section 24 of the SEBI Act.
Detailed Analysis:
1. Whether Hindustan Lever Ltd. (HLL) purchased/dealt in the securities of Brook Bond Lipton India Ltd. (BBLIL):
The facts are undisputed as HLL admitted to carrying out the transaction in March 1996, purchasing eight lakh shares of BBLIL from UTI.
2. Whether HLL could be considered an insider as defined under regulation 2(e) of the SEBI (Insider Trading) Regulations, 1992:
Regulation 2(e) defines an insider as any person who is or was connected with the company and is reasonably expected to have access to unpublished price-sensitive information. HLL, as a legal entity and a deemed connected person, was expected to receive information by virtue of its connection and had actually received information about the merger. The dominant position of Unilever as a controlling shareholder in both companies suggests that HLL was privy to decision-making on the merger issue in BBLIL, thus meeting the definition of an insider.
3. Whether HLL dealt in or purchased the shares on the basis of unpublished price-sensitive information:
Regulation 2(k) defines unpublished price-sensitive information as information that is not generally known or published by the company but is likely to materially affect the price of securities if known. The information about the merger was considered price-sensitive. Although the appellants cited numerous press reports to establish that the information about the intended merger was widely reported and generally known, SEBI relied on the testimony of UTI's Chief General Manager, who claimed ignorance of the merger proposal. However, the market speculation and widespread reports created a presumption that the impending merger was generally known.
4. Whether the dealings in or purchase of the shares of BBLIL by HLL was in the nature of insider trading based on unpublished price-sensitive information and as such violative of the regulations and the SEBI Act, 1992:
Despite the market speculation, there was circumstantial evidence indicating that the transaction of acquiring eight lakh shares of BBLIL by HLL from UTI was motivated by knowledge of the impending merger. This was to ensure that Unilever's share in the merged company did not fall below 51%. SEBI's conclusion that the information of the merger was price-sensitive was justified.
5. The power of SEBI to award compensation to Unit Trust of India (UTI):
SEBI's order to award compensation to UTI was found to lack jurisdiction. The SEBI Act and regulations do not contain provisions empowering SEBI to adjudicate disputes and award compensation. SEBI initiated investigations under the Insider Trading Regulations but chose to pass an order under section 11 of the SEBI Act without giving a notice to the appellants regarding the quantum of compensation. The specific provisions in the regulations override the general powers under the Act, and imposing a pecuniary burden requires specific legal provisions.
6. Whether SEBI was justified in ordering prosecution under section 24 of the SEBI Act:
SEBI's order to prosecute the members of the Core Committee under section 24 was not justified. An order of prosecution should be based on a conclusive determination of all aspects of insider trading and specific justification in terms of the gravity of the offense. Given the persuasive evidence of market knowledge and speculation about the merger, SEBI's conclusions on some crucial aspects were not fully supported. SEBI can consider invoking the adjudication mechanism under section 15G for imposing a penalty after following the prescribed procedure.
Conclusion:
The appeals are decided with the finding that SEBI's order to award compensation to UTI lacks jurisdiction and procedural validity. SEBI's order for prosecution under section 24 is also not justified. SEBI may consider using the adjudication mechanism under section 15G for imposing penalties. The appeal filed by UTI on the quantum of compensation is not separately addressed due to the jurisdictional finding.
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1998 (7) TMI 493
Who is to be deemed "occupier" of a factory of a Government company incorporated under the Indian Companies Act?
Held that:- Appeal allowed. As the factories run by the appellant-Corporation are effectively and really owned and controlled by the Central Government they fall within the purview of clause (iii) and not clause (ii) of the first proviso to section 2(n). Thus the High Court was wrong in taking a contrary view. Thus direct respondents Nos. 1 and 2 to accept the persons appointed by the Central Government to manage the affairs of the factories at Namkum as the occupiers of those factories for the purposes of section 2(n) of the Factories Act
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1998 (7) TMI 491
The High Court of Bombay directed issuance of show-cause notice to Mr. Arun Pasari regarding recovery of advertisement charges for sale of company flats. The Court found that the cancellation of the advertisement was a result of its own order in a company application, so Mr. Arun Pasari cannot be held liable for the charges. The proceedings were disposed of. (Case citation: 1998 (7) TMI 491 - HIGH COURT OF BOMBAY)
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1998 (7) TMI 469
The issue was whether scrap copper classified as utensil scrap qualifies for deemed Modvat credit. The Tribunal ruled that since the scrap was unconditionally exempted under Notification No. 177/88, no Modvat credit is available. The appeal was rejected based on the precedent set by the Larger Bench in Machine Builders v. CCE - 1996 (83) E.L.T. 576.
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1998 (7) TMI 461
Issues:
1. Inclusion of cost of secondary packing in the assessable value of torches for duty calculation.
2. Dispute regarding inclusion of actual cost of packing in the assessable value.
3. Interpretation of Section 4(4)(d)(i) of the Central Excise Act, 1944.
Analysis:
1. The appellant, engaged in torch manufacturing, included the cost of secondary packing in the assessable value of torches for duty calculation. The dispute arose when it was found that the appellant had collected less from buyers for packing than the actual cost incurred. The Department issued show cause notices proposing demand of differential duty and penalty. Despite resistance, the demands were confirmed, leading to the present appeals challenging the decision.
2. The Department took a different stand for the period under consideration, arguing that the actual cost of packing, not the amount collected from buyers, should be included in the assessable value. Reference was made to a prior period dispute where excess charges collected for packing were the basis for demanding differential duty. The question at hand was whether this stand was justifiable, with both sides citing the decision in Hindustan Polymers v. Collector of Central Excise.
3. In the Hindustan Polymers case, the Supreme Court held that the cost of durable and returnable packing supplied free of cost by the buyer should not be included in the assessable value of excisable goods. The Court distinguished between "cost" and "value," emphasizing that only the cost of packing incurred by the manufacturer and recovered from the buyer should be included. The judgments by various Justices further clarified that the cost of packing to the buyer, i.e., the charges collected, should be added to the price, even if it is less than the actual cost of packing. Consequently, the Tribunal found the confirmation of demand and penalty unsustainable in law, setting aside the impugned orders and allowing the appeals.
This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's decision based on legal interpretations and precedents cited during the proceedings.
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