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2010 (12) TMI 1063
Issues Involved:
1. Winding up of the company under section 45MC of the Reserve Bank of India Act, 1934 and related sections of the Companies Act.
2. Appointment of Official Liquidator.
3. Non-payment of deposits and dividends.
4. Violation of regulatory norms and prudential standards.
5. Financial insolvency and negative net worth.
6. Pending legal proceedings and appeals.
7. Revival schemes and their viability.
8. Public interest and depositor protection.
Detailed Analysis:
1. Winding up of the company under section 45MC of the Reserve Bank of India Act, 1934 and related sections of the Companies Act:
The Reserve Bank of India (RBI) filed Company Petition No. 2/2000 seeking the winding up of the company under section 45MC of the Reserve Bank of India Act, 1934, stating that the respondent-company had become unable to pay its debts and was disqualified to carry on the business of a non-banking financial institution. Several depositors also filed petitions under section 439 read with section 433(e) and (f) and section 434 of the Companies Act for winding up the company due to non-payment of deposits.
2. Appointment of Official Liquidator:
The RBI sought the appointment of an Official Liquidator to manage the winding-up process. The court appointed a Committee consisting of eminent persons to oversee the company's affairs and ensure the repayment of depositors on a pro-rata basis. The Committee submitted multiple reports, indicating the company's inability to revive and recommending winding up.
3. Non-payment of deposits and dividends:
Depositors claimed non-repayment of their deposits even after maturity, and holders of Redeemable Cumulative Preference Shares (RCPS) claimed non-payment of dividends since 1997. Despite statutory notices, the company failed to make payments, indicating its incapability to repay.
4. Violation of regulatory norms and prudential standards:
The RBI's inspection revealed several violations, including non-maintenance of liquid assets, acceptance of deposits beyond permissible limits, non-payment of interest on deposits, and failure to adhere to Accounting Standards and Prudential Norms Directions. The company also failed to provide for depreciation in investments and classify leased assets as per norms, leading to significant financial discrepancies.
5. Financial insolvency and negative net worth:
The company's financial position was dire, with realizable assets valued at Rs. 11,853.12 lakhs against liabilities of Rs. 17,404.21 lakhs, indicating insolvency. The company's net worth was negative, and it failed to maintain the minimum capital adequacy standards.
6. Pending legal proceedings and appeals:
The company argued that legal proceedings before the Company Law Board and the Appellate Authority for NBFCs were pending, and the winding-up petition would render these proceedings infructuous. However, the court found that the company's financial condition and regulatory violations justified the winding-up petition.
7. Revival schemes and their viability:
The company proposed a revival scheme, but the court found it lacked bona fide, did not ensure a source of income, and deviated from the main business. The Committee of Management and the Special Officer appointed by the RBI both opined that revival was not possible, and the company's attempts to revive would cause more loss than profit.
8. Public interest and depositor protection:
The court emphasized the need to protect the public interest and depositors' interests. Given the company's inability to repay deposits, regulatory violations, and financial insolvency, the court found it just and equitable to wind up the company.
Conclusion:
The court ordered the winding up of the company, appointed an Official Liquidator, directed the petitioner to serve a copy of the order to the Registrar of Companies, and mandated advertisements in newspapers. The Committee of Management was dissolved, and all connected company petitions were disposed of in view of the winding-up order. The court's decision aimed to protect the interests of depositors, creditors, and the public, given the company's financial and regulatory failures.
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2010 (12) TMI 1062
Offenses by companies - In the absence of any prescribed and validated method of analysis under section 23(1A)(hh) of the Prevention of Food Adulteration Act, 1954 (hereinafter referred to as "the 1954 Act"), could a prosecution have been launched against the appellants based on a report submitted by the public analyst using the method of the Directorate General of Health Services (D.G. H. S.)?
Could a prosecution have been launched against the appellants in the absence of any validated method of analysis to ascertain the percentage of pesticide residue present in a carbonated beverage, which renders the report of the public analyst unreliable, particularly when it does not indicate that such percentage of the pesticide residue is injurious to health and, therefore, adulterated within the meaning of section 2(ia)(h) of the aforesaid Act?
What is the effect of non-specification of the level of tolerance in respect of the presence of pesticide residue in sweetened carbonated water in the Table appended to rule 65(2) of the Prevention of Food Adulteration Rules, 1955 (hereinafter referred to as "the 1955 Rules")?
What is the liability of the directors of a company which is said to have committed defaults within the meaning of section 17 of the 1954 Act, in the light of the decision of this court in S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla [2005 (9) TMI 304 - SUPREME COURT OF INDIA], when they were neither in charge of nor responsible for the conduct of the business of the company?
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2010 (12) TMI 1061
Order dated October 3, 2008 of the learned single judge directing amount of ₹ 47,20,000 along with simple interest of 24 per cent. per annum be deposited within 30 days time challenged?
Held that:- As rule 7 specifically gives power to the court to extend the time, rule 9 is an inherent power before the company judge to pass order in order to meet the ends of justice. We find that the extension of time granted by the learned company judge was ultimately in the interest of justice and there was no anomaly in the same. As such, we find no merit in Company Appeal No. 1 of 2008 and the same is liable to be dismissed.
For the reasons already stated above, we see no relevance or justification for even entertaining any applications moved before this court by subsequent bidders. Firstly for the reasons that the interest of the secured creditor has been well taken care of by the order of the learned single judge, inasmuch as the amount has to be now given with an interest of 24 per cent. and secondly, since there was no challenge to the order of this court dated September 20, 2005, by any of the bidders. Appeal dismissed.
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2010 (12) TMI 1060
Whether article 157A is repugnant to section 81 of the Companies Act and therefore void?
Held that:- Any finding which is arrived in the course of interlocutory order can only be tentative and prima facie. We say this to allay the apprehension in the minds of the appellants that when the Company Law Board takes up the matter for final disposal the Company Law Board should not feel bound to follow the reasoning adopted in the interlocutory order. We are of the view that we need not interfere with the order vacating the injunction. We must notice in this regard that article 157A(e) which we have extracted actually prohibits rights issue in favour of Barings or its associates. There is no dispute that what is proposed is a rights issue under section 81(1)(a). We would think that in the facts of this case the appellants have not made out a case for interference with the exercise of discretion by the Company Law Board in vacating the interlocutory order
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2010 (12) TMI 1059
Whether any person in control of the company at the point of time of its winding up or in the past had caused any monetary loss to the company by misappropriation or misapplication of its funds or by not properly dealing with its properties or converting them to any use other than that which was beneficial to the company?
Held that:- If it is proved that a respondent former director or officer had left the company reasonably long before the company went into liquidation, the official liquidator making an allegation of misfeasance is fixed with the additional duty, to enquire in greater detail how this former director or officer was responsible for such loss and make more specific allegations of them with all relevant particulars. Otherwise such proceedings brought against him would be without disclosing a cause of action and an abuse of the process of law and of the court. Here the applicant having resigned more than seven years before the winding up order, the onus of the official liquidator was to furnish such details. He has not done so. Hence the judge’s summons and the points of claim do not disclose any cause of action against the applicant. Continuance of such proceeding would be an abuse of the process of law and court.
Therefore, on this solitary ground would allow this application. The above misfeasance proceedings are struck off against the applicant. Although refrain from making any comment regarding the pleadings concerning the other respondents, save and except what is made above direct the official liquidator to get the pleadings drafted in future proceedings in accordance with the observations above.
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2010 (12) TMI 1058
Winding up - Circumstances in which a company may be wound up - Held that:- A petition for winding up with an aim of coercing payment of a disputed debt is an abuse of the process of court. The defence raised in the present case is substantial. Thus the present petition for winding up is not admitted and is dismissed. The observations and findings made above are for the disposal of the present winding up petition and will not prejudice any litigation inter se parties.
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2010 (12) TMI 1057
Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal under section 260A of the Income Tax Act, 1961.
2. Whether grants received by the assessee constitute capital or revenue receipts.
Issue 1: Challenge to the Tribunal's Order
In this case, the appellant-revenue challenged the order of the Income Tax Appellate Tribunal (the Tribunal) which deleted an addition of Rs. 23,17,13,997 as income, contending that the grants received were capital receipts. The Assessing Officer treated these grants as income, leading to a dispute that was appealed before the Commissioner (Appeals) and then before the Tribunal. The Tribunal upheld the deletion of the addition, prompting the appellant to approach the High Court.
Issue 2: Nature of Grants Received
The main issue revolved around whether the grants received by the assessee were capital or revenue receipts. The assessee argued that the grants were meant for a specific project and were to be utilized as per the directions of the Government of India and the Government of Gujarat. The Commissioner (Appeals) and the Tribunal both found that the grants were capital receipts and did not form part of the income of the trust. The Tribunal relied on a Government Resolution confirming the nature of the grants and a previous High Court decision to support its conclusion.
The Tribunal's decision was based on the fact that the grants were provided for capital expenditure and development of a specific project, and were intended to contribute towards the corpus of the funds of the society. The Tribunal held that the grants were part of the corpus and not income of the assessee, entitling the assessee to exemption under section 11(1)(d) of the Income Tax Act.
The High Court concurred with the Tribunal's findings, emphasizing that the grants were specifically directed to form part of the corpus of the trust or institution, as per the Government Resolution. The High Court cited relevant provisions of the Income Tax Act and a previous judgment to support the conclusion that the grants were not income derived from property held under trust wholly for charitable or religious purposes.
In conclusion, the High Court upheld the Tribunal's decision, stating that there was no legal question arising from the case that warranted interference. The appeal was dismissed, affirming that the grants received by the assessee were capital receipts and not taxable income.
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2010 (12) TMI 1056
Scheme of arrangement under sections 391 to 394 - scheme is nothing but a composite agreement between concerned parties to transfer the passive infrastructure assets without consideration by the transferor company to the transferee company – Held that:- Transaction may be held to be void under section 281 of the Income-tax Act and if it is so, the court will not exercise its jurisdiction, if any, to sanction a transaction which is pointed out to be void under law – entire tax payable on the market value of the assets to be transferred to Indus is sought to be evaded by the present scheme - stamp duty is sought to be evaded - No VAT shall be payable on the movable assets transferred under the scheme if the same is sanctioned under section 391 which otherwise would have been payable – Scheme cannot be sanctioned
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2010 (12) TMI 1055
Addition - Unexplained income u/s 68 - Share capital money - As per the case of CIT vs. Victor Electrodes Ltd. [2010 -TMI - 76018 - DELHI HIGH COURT], it has been clearly laid down by the Hon'ble Delhi High Court that there is no legal obligation on the assessee to produce some director or representative of the applicant companies before the AO, and, therefore, failure of assessee to produce them could not, by itself, have justified the additions made by the AO, when the assessee had furnished documents, on the basis of which, the AO, if he so wanted, could have summoned them for verification - Similarly, merely because directors of share applicant companies were not found available at the addresses given, that by itself is not sufficient for the AO to reject assessee's case when the assessee has furnished all documents relating to share applicants, such as their PAN, details of income-tax assessment, registration of companies under Companies Act and bank details - Decided in favour of assessee.
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2010 (12) TMI 1054
Accounting Method - Completed contract method for accounting followed by the assessee for his construction business - The respondent/assessee was regularly following the completed contract method and had not given scope for any complaint in any of the earlier years, it was unnecessary for the Assessing Officer to invoke Section 145(3) of the Act - The Tribunal in regard to the decision of this Court in Commissioner of Income-tax vs. N.M.Associates, the assessee did not maintain proper accounts, which apparently persuaded the Assessing Authority to invoke Section 145(3) of the Act, by which, the calculation of annual profits on the basis of receipts was held to be justified - Hence, fully concur with the conclusion of the Tribunal - Thus, the appeal fails and the same is dismissed against of revenue.
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2010 (12) TMI 1053
Winding up - notice under section 434(1)(a) of the Act was not served at the registered office of the respondent - company and was returned back with the remark "closed office" - maintainability of the company petition on the ground that the statutory notice as required under the provisions of the Companies Act was not served on the respondent-company.
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2010 (12) TMI 1052
Winding up - liquidation - possession of land - held that:- The Official Liquidator was appointed as a provisional liquidator on 6-4-2004. At this stage, we have to keep in mind interest of the creditors and workmen. Interest of the promoters or members/ management of the company is relevant but not as important as interest of creditors and workmen. We have to also keep in mind the fact that 7 years have lapsed and unless immediate steps are taken, the value of the plant and equipments will depreciate.
Issue of fresh sale proclamation on the basis of the valuation report submitted by ITCOT is likely to take time. It will be open to the management of CBL to negotiate and submit a proposal/scheme from a third party in the integram. I am not inclined to adjourn the matter to enable the management of BIPL to find a third party and file an application propounding a scheme as this would cause delay. It will be open to the management or any third party associated with them to participate in the auction/bidding process. The primary concern of the Company Court at this stage as stated above is twofold; (i) to secure and ensure payment to the creditors on best possible terms and (ii) to get a fair deal for the workers both with regard to the past arrears and future employment. These aspects cannot be left to the management of the CBL alone. Attempts have to be made to get a best possible deal by tapping all sources and parties, who are interested.
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2010 (12) TMI 1051
Winding up – unable to discharge the admitted liability - held that:- it is not open to the Company at this stage to assert that the claim of the creditors is mala fide, vexatious and is not bona fide keeping in view the judicial propriety and the principle that there should not be multiple proceedings in respect of the same question. Though it is open to the Company to resist the order of winding up on other grounds such as that it will not be fair to wind up the Company for the reason that it is a running concern or that the interest of the workmen is involved, but the plea that the debt of the creditor is disputed, cannot be permitted to be raised again.
The defence of the Company is not bona fide. The amount is due and payable by the company. The Balance Sheets of the Company also reflects large sum of money as due and payable to the secured creditors. Therefore, it would be just and equitable to order winding up of the Company, which has failed to discharge its admitted liabilities.
Notice u/s 13(4) of the SARFAESI Act - held that:- It is not a case where the Company has approached this Court after the notice under section 13(2) was issued. The Company challenged the action under section 13(2) only after the notice under section 13(4) was issued and that too after reasons for raising demand were communicated. The Company cannot be permitted to challenge part of the action when the financial institutions have proceeded ahead to recover possession of the secured assets in terms of section 13(4) of the SARFAESI Act. In terms of the judgments aforesaid, the remedy of the Company is to approach DRT in terms of section 17 of the SARFAESI Act.
The Government of India has enacted “The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006” on June 16, 2006 which was notified on 2-10-2006. The MSMED Act, 2006 has modified the definition of micro, small and medium enterprises engaged in manufacturing or production and providing or rendering of services. As per the said Act, a small enterprise is an enterprise where the investment in plant and machinery is more than ₹ 25 lakhs but does not exceed ₹ 5 crore; and a medium enterprise is an enterprise where the investment in plant and machinery is more than ₹ 5 crore but does not exceed ₹ 10 crore. In fact, such was the conditions even prior to the enactment of the said Act. - The company has not produced any document to show that its investment in plant and machinery was less than ₹ 10 crores at the time of starting industry. It is asserted by the secured creditor that one time settlement guidelines are not applicable to the Company. Such stand of the secured creditors that the Company is not small and medium enterprise has not been controverted. - the company cannot avail the benefit of One Time Settlement Scheme notified and circulated on 3-9-2005 and 22-11-2005.
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2010 (12) TMI 1050
Penalty - NRE account - deposits were made by the persons other than the account holder, a show-cause notice was issued by the Directorate of Enforcement to the appellant – Held that:- deposits in foreign currency made by mandatee or any person other than account holder, in NRE account, prior to 31-7-1995 would not amount to infringement of provisions of sections 6(4), 6(5), 73(3), 49 and 9(1)(e), read with section 29B.8(c) of Exchange Control Manual, 1987. - prior to 31-7-1995, there had been no requirement clearly pointing out that deposits in NRI accounts could not be made by a person other than the NRI account holder themselves.
Show-cause notice was issued after more than 8 years. Bank was not obliged to maintain record beyond 8 years in view of The Banking Companies (Period of Preservation of Records) Rules, 1985, notified on 29-3-1985, wherein maximum period of maintenance of records of all kinds of registers etc. has been stipulated as 8 years. In view of issuance of show-cause notice after about nine years, appellant had been prejudiced
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2010 (12) TMI 1049
Revision application – condonattion of dealy - drawback claims - claims rejected on the ground that claim had not been filed within the stipulated time of 3 months from the date of Let Export orders as prescribed under the Board’s Circular No. 57/95-Cus., dated 30-5-1995 - Held that:- let export order was given on 24-8-07 and 29-8-07 whereas the claim was resubmitted on the advice of department on 12-12-07. Even if the date of filing drawback claim is considered on 12-12-07 as contended by department, the same is with 6 months from the date of let export order, Commissioner (Appeal) has rightly condoned the delay and allowed the drawback claim, revision application is rejected
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2010 (12) TMI 1048
Whether assessment of duty under Section 17(2) read with the rules or provisional assessment under Section 18 is permissible solely on the basis of norms fixed by the Commissioner of Customs, Nhava Sheva ignoring genuine transaction value or the provisions of the rules – Held that:- norms cannot be mechanically applied, irrespective of genuineness of transaction value or value as may be arrived at as per statutory requirements. Normally, it is not for this Court to lay down the valuation in individual cases or to interfere with an order of assessment or appellate order on the issue of assessment of value but when valuation has not been fixed as per statutory provisions, petition allowed, matter remanded to the Assessing Officer
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2010 (12) TMI 1047
Whether the option either to pay duty and avail exemption under Notification No. 53/88 or 14/92 is vested in the unit – Held that:- there is neither any specific, nor implied bar in the 1986 Notification from opting for exemption under the other notification. On the contrary, the explanation (ii) to the 1986 Notification suggests that in respect of packing materials, it is a kind of a residuary notification and is applicable in case an assessee is not taking advantage of any other exemption. It impliedly permits taking of advantage of any other exemption, decision in favour of the Assessee and against the Department
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2010 (12) TMI 1046
Import - import of specified goods at concessional rate of duty for manufacture of electronic connectors and harnesses, they imported various specified goods (inputs) - housings, terminals etc. were not specified as finished goods in the Notifications – allegation that appellant had misused the Notifications by availing the benefit of concessional rate of duty in respect of the imported goods and using these goods in the manufacture of “parts of connectors” which were cleared as finished goods, wilfully misstated/suppressed facts with intent to evade payment of appropriate Customs duty on the imported goods - appellant submitted that Rule 8 of the 1995 Rules did not confer jurisdiction on the Deputy/Assistant Commissioner of Central Excise to issue the demand notices; SCNs issued without obtaining prior approval of the Chief Commissioner of Customs or the Commissioner of Customs – Held that:- show-cause notices issued in the present case under Rule 8 ibid, by the Deputy/Assistant Commissioner of Central Excise for recovery of differential duty of customs from the appellant in respect of the goods imported by them and cleared on payment of duty at concessional rate in terms of the relevant Customs Notifications are without jurisdiction. The notices should have been issued under Section 28(1) of the Customs Act by the proper officer of Customs, show-cause notices were issued without jurisdiction, appeals stand allowed
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2010 (12) TMI 1045
Criminal Revision Applications - applicant submitted that the basis of conviction of the present applicant (A-2), is on the basis of the statement of the co-accused under Section 108 of the Customs Act also submitted that assuming that the statement of the present applicant is inculpatory, can conviction be based solely on such confessional statement – Held that:- statement recorded by Customs Officers under Section 108 of the Customs Act is admissible in evidence. The court has to test whether the inculpating portions were made voluntarily or whether it is vitiated on account of any of the premises envisaged under Section 24 of the Evidence Act, no reason to interfere with the concurrent findings arrived at by both the Courts below and the present Revision Applications deserve to be dismissed
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2010 (12) TMI 1043
Whether re-glass lining of old vessels amounts to manufacture or not - Tribunal has not appreciated the fact that the goods once returned to the respondent’s factory are subjected to glass lining and without this essential process, their commodity has no commercial/marketable value inasmuch as either the goods returned have to be scrapped or re-manufactured - in the case of Shriram Refrigeration Industries (2008 -TMI - 48413 - HIGH COURT OF JUDICATURE FOR ANDHRA PRADESH AT HYD) held that the question as to whether any process undertaken by a manufacturer amounts to manufacture or not, and if the goods produced during that process are excisable or not would fall within the meaning of the expression determination of rate of duty of excise or the value of the goods for the purposes of assessment of duty’ used in Section 35G(1) and Section 35L(b) of the Act, appeal involves determination of a question relating to the rate of duty of excise or value of goods for the purposes of assessment, would lie before the Supreme Court and not before this Court, appeal dismissed as not maintainable
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