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Showing 361 to 380 of 589 Records
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2004 (4) TMI 305
Issues Involved:
1. Whether the learned Single Judge erred in proceeding with the suit against the Appellant/Guarantor when the industrial company was before the BIFR.
2. Whether the lease finance granted by the Respondent to the industrial company was in fact a loan or advance, thus requiring the suit to be suspended under section 22(1) of SICA.
Detailed Analysis:
Issue 1: Suit Against the Guarantor and BIFR Proceedings
The first point of contention was whether the suit against the Appellant/Guarantor should be automatically suspended because the industrial company was under BIFR proceedings. The relevant provision is section 22(1) of SICA, which states:
>"no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advances granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority."
The court noted that this section was amended in 1994 to include the phrase "and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advances granted to the industrial company." The Appellant argued that this amendment meant that no suit for recovery of money could proceed against the guarantor once the industrial company was before the BIFR.
However, the court referred to several judgments, including Patheja Bros. v. ICICI and Kailash Nath Agarwal v. PICUP, to clarify that the protection under section 22(1) is limited. Specifically, while suits for the enforcement of guarantees related to loans or advances granted to an industrial company are stayed, this does not extend to all types of suits against guarantors. The court concluded that the learned Single Judge was correct in proceeding with the suit against the guarantor, as the protection under section 22(1) did not automatically apply to all suits against guarantors.
Issue 2: Nature of Lease Finance - Loan or Advance
The second issue was whether the lease finance provided by the Respondent to the industrial company was actually a loan or advance, which would invoke the protection of section 22(1) of SICA. The court examined the Lease Agreement and the guarantee given by the Appellant. The Appellant argued that the agreement, though styled as a Lease Agreement, was essentially a financial transaction akin to a loan or advance. They cited the judgment in Sundaram Finance Ltd. v. State of Kerala, which allows courts to look beyond the form of a document to its substance.
However, the court found that the Lease Agreement explicitly stated that the property in the equipment remained with the Respondent and did not pass to the industrial company. The agreement contained several clauses that reinforced this, such as clauses on ownership, maintenance, loss and damage, and return of equipment upon default. The court also noted that the industrial company had always treated the transaction as a lease, not as a loan or advance.
Furthermore, the court referred to previous judgments, including an unreported order by S.H. Kapadia, J., and another by S.N. Variava and S.H. Kapadia, JJ., which had similarly concluded that such lease agreements were not financial agreements. The court emphasized that the text of the guarantee given by the Appellant was clear and that it was not a guarantee for the repayment of a loan but for fulfilling the obligations under a lease.
In conclusion, the court held that the lease finance provided by the Respondent was not a loan or advance and, therefore, the suit did not need to be suspended under section 22(1) of SICA. Consequently, the appeal was dismissed with costs.
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2004 (4) TMI 304
Issues Involved:
1. Non-compliance with the notice issued by the Official Liquidator to file the statement of affairs under Section 454 of the Companies Act, 1956.
2. Examination of whether accused Nos. 2 and 3 had reasonable excuses for not filing the statement of affairs.
3. Determination of the liability of accused Nos. 2 and 3 for penal consequences under Section 454(5) and (5A) of the Companies Act, 1956.
Issue-wise Detailed Analysis:
1. Non-compliance with the Notice Issued by the Official Liquidator:
The Official Liquidator, representing M/s. Sunrise Oleo Chemicals Ltd., filed a complaint under Section 454(5) and (5A) of the Companies Act, 1956. The complaint alleged that the ex-directors of the company, including accused Nos. 2 and 3, failed to file the statement of affairs within the prescribed time after the company was ordered to be wound up on March 29, 2001. Notices were sent to the ex-directors, but they did not comply, leading to the complaint.
2. Examination of Reasonable Excuses for Non-compliance:
Accused No. 2 responded to the notice, stating that he had resigned from the directorship effective October 2, 1998. Accused No. 3 also replied, indicating he was a professional director who resigned by filing Form No. 32 with the Registrar of Companies. Both accused argued that they were not in a position to provide the necessary information as they had resigned long before the winding-up order.
3. Determination of Liability for Penal Consequences:
The court examined the evidence, including the resignation letters and Form No. 32, which showed that accused No. 2 resigned on October 1, 1998, and accused No. 3 resigned on April 15, 1995. The court referred to Section 454 of the Companies Act, which mandates the filing of a statement of affairs by directors or other officers of the company within 21 days from the relevant date, or within an extended time not exceeding three months. The court noted that the accused could show a "reasonable excuse" for non-compliance.
Analysis of Legal Provisions and Judicial Precedents:
The court referred to the judgment in Official Liquidator, High Court, Andhra Pradesh v. Koganti Krishna Kumar, which held that the Official Liquidator must prove the accused's ability to file the statement of affairs. The court emphasized that the ability to produce the statement, not just the position held, is crucial. The evidence showed that accused No. 2 and accused No. 3 had resigned well before the relevant date, and thus, they were not in a position to comply with the notice.
Conclusion:
The court concluded that the Official Liquidator failed to establish that accused Nos. 2 and 3 were capable of filing the statement of affairs. The resignation of accused No. 2 was effective from October 1, 1998, and accused No. 3 had resigned on April 15, 1995. Therefore, both accused had reasonable excuses for not complying with the notice.
Judgment:
The complaint against accused Nos. 2 and 3 failed, and they were acquitted of the offence punishable under Section 454(5) and (5A) of the Companies Act, 1956. The court found both accused not guilty of the alleged contraventions.
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2004 (4) TMI 303
Whether the Commission can at all exercise jurisdiction in respect of the complaint of unfair trade practice made by the respondent No. 1 before it ?
Held that:- Merely because the effect of an unfair trade practice is felt in India, this would not clothe the Commission with jurisdiction unless the ‘effect’ is itself an ‘unfair trade practice’ within India. This follows from the nature of the powers conferred on the Commission under section 36D read with section 14. The Commission, therefore, erred in holding that it would have jurisdiction only because the effect of the trade practice was felt in India.
Therefore, dispose of the appeal by directing the Commission to deal with the second aspect of the preliminary objection on evidence which may be adduced by either party and in the light of the legal issues determined by us. It is clarified that in the event the Commission finds on the evidence that the appellant does not carry on business in India through the respondent No. 2 and that the alleged unfair trade practice did not take place in India, the Commission will dismiss the respondent No. 1’s complaint without deciding the matter on merits.
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2004 (4) TMI 302
Issues:
Petition filed for winding-up of respondent company due to inability to pay debts.
Analysis:
The petitioner, a former promoter Director of the respondent company, filed a petition for winding-up due to unpaid debts. The petitioner held 3333 equity shares and advanced a significant amount at the time of incorporation. Allegations of differences with other Directors led to the petitioner's resignation, followed by a request for refund of the unsecured loan amount. Despite partial repayment, a substantial balance remained unpaid. The petitioner issued a legal notice for the outstanding amount, which led to a reply from the respondent company admitting the loans but claiming a dispute over the repayment terms. The respondent company argued that the balance amount was adjusted against depreciation and losses, and a portion was already repaid to the petitioner. The court noted a bona fide dispute raised by the respondent company regarding the alleged balance amount, concluding that the winding-up petition was not filed in good faith but as a threat for debt recovery. Consequently, the court dismissed the winding-up petition, emphasizing the lack of merit in the petitioner's claim.
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2004 (4) TMI 301
Issues Involved:
1. Jurisdiction of the arbitrator and legality of the interim award.
2. Justification and legality of the Civil Court's order.
3. Status of impleading applicants as necessary parties.
Issue-wise Detailed Analysis:
1. Jurisdiction of the Arbitrator and Legality of the Interim Award:
The appellant contended that the interim award dated 10-10-1995 was beyond the jurisdiction of the arbitrator and outside the scope of arbitration. The agreement dated 27-9-1982 required the builder to complete the construction and deliver 34% of the built-up area, along with car parking spaces and fixtures, to the appellant. The arbitrator directed the appellant to execute and register six sale deeds in favor of the builder or its nominees, which was beyond the scope of the agreement and the disputes referred to arbitration. The court found that the arbitrator ignored Clause 11 of the agreement, which stipulated that the appellant was bound to execute the sale deeds only after his share of apartments were completed and delivered. The arbitrator's actions were deemed to exceed his jurisdiction and constituted a jurisdictional error. The court referenced the Supreme Court's rulings in Rajasthan State Mines & Minerals Ltd. v. Eastern Engineering Enterprises and Tarapore & Co. v. State of Madhya Pradesh, emphasizing that an arbitrator must act within the limits of the agreement.
2. Justification and Legality of the Civil Court's Order:
The Civil Court had dismissed AC No. 48/1995 filed by the appellant and allowed AC No. 50/1995, making the interim award the rule of the court. The High Court found that the Civil Court's order was unjust and illegal, as it failed to recognize that the interim award was beyond the arbitrator's jurisdiction. The court emphasized that the arbitrator's interim award was contrary to the terms of the agreement, specifically Clause 11, which required the builder to fulfill certain conditions before the appellant could be compelled to execute the sale deeds. The court concluded that the Civil Court's order could not be sustained.
3. Status of Impleading Applicants as Necessary Parties:
The impleading applicants, who claimed to be purchasers of the apartments falling to the builder's share, sought to be made party respondents in the appeals. The court found that the impleading applicants were not parties to the arbitration proceedings or the Civil Court proceedings. The court held that merely because the interim award was in favor of the impleading applicants did not grant them the right to be heard in the appeals. The disputes in the appeals were between the appellant and the builder, and the issues did not concern the agreements between the builder and the impleading applicants. Consequently, the court dismissed the impleading application.
Conclusion:
The High Court allowed the appeals, set aside the Civil Court's order dated 28-6-2001, and the interim award dated 10-10-1995. The court appointed a new arbitrator, Mr. Justice Kedambady Jaganath Shetty, to adjudicate the issues framed in the arbitration proceedings and pass an award within six months. The parties were directed to bear their respective costs.
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2004 (4) TMI 300
Issues Involved:
1. Implementation of the Order dated 3rd September 1986.
2. Transfer of membership in the Respondent No. 4 Society.
3. Limitation and maintainability of the application.
4. Compliance with the Maharashtra Co-operative Societies Act.
5. Authority and directions of the two experts.
6. Interim relief and injunction.
Issue-wise Detailed Analysis:
1. Implementation of the Order dated 3rd September 1986:
The applicants sought the court's direction to implement the order dated 3rd September 1986, which sanctioned a Scheme of Arrangement under section 391 of the Companies Act, 1956. This scheme involved the transfer of all assets, including ownership flats/buildings and other assets of the Kanjur Division, from Respondent No. 1 Company to the Applicant Company. The court noted that the scheme provided for the automatic transfer and vesting of the said property with effect from 1st January 1983.
2. Transfer of Membership in the Respondent No. 4 Society:
The applicants requested the transfer of membership in the Respondent No. 4 Society concerning Flat No. 9 and the basement. The Deputy Registrar of Co-operative Societies had allowed this transfer, but the decision was reversed by the Division Joint Registrar, citing the need for the parties to first approach two experts as per the court-sanctioned scheme. The court clarified that the property had already vested in the Applicant Company under the scheme, making the transfer of membership a necessary compliance.
3. Limitation and Maintainability of the Application:
The respondents argued that the application was barred by limitation, as it was filed 12 years after the order dated 3rd September 1986. The court held that the application was not barred by limitation, as the right to apply accrued only after the revisional authority's order dated 9th March 2001. The application was filed within three years of this date, making it timely under Article 137 of the Limitation Act.
4. Compliance with the Maharashtra Co-operative Societies Act:
The court emphasized that the reliefs granted would be subject to the Applicant Company's compliance with the provisions of the Maharashtra Co-operative Societies Act and the rules framed thereunder. The revisional authority had expressed doubts regarding the applicability of the Companies Act to the Co-operative Societies, which the court clarified.
5. Authority and Directions of the Two Experts:
The respondents contended that the directions of the two experts appointed by a Family Arrangement were binding and precluded the applicants from seeking the reliefs. The court rejected this argument, noting that the directions were issued before the scheme was sanctioned and were not the basis for the scheme. The court held that the scheme itself provided for the automatic transfer and vesting of the property, making the experts' directions irrelevant.
6. Interim Relief and Injunction:
The applicants sought interim relief to prevent the respondents from interfering with their use and occupation of the property. The court granted the application in terms of prayer clauses (a) and (b), subject to compliance with the Maharashtra Co-operative Societies Act. The interim arrangement was continued until 19th June 2004 to allow the respondents to appeal.
Conclusion:
The court allowed the application, directing the respondents to implement the order dated 3rd September 1986 and transfer the membership in the Respondent No. 4 Society to the Applicant Company. The reliefs were granted subject to compliance with the Maharashtra Co-operative Societies Act and the rules framed thereunder. The court also continued the interim arrangement to enable the respondents to appeal.
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2004 (4) TMI 299
Issues Involved:
1. Establishment of right, interest, and title to reside in the property.
2. Declaration of respondents as trespassers and encroachers.
3. Eviction and recovery of possession of the property.
4. Jurisdiction of the High Court under Section 446 of the Companies Act.
5. Limitation period for filing the application.
6. Compliance with the decree dated 18-12-1978 and subsequent court orders.
7. Payment of compensation and municipal taxes.
8. Validity of sub-letting and unauthorized occupation.
Issue-wise Detailed Analysis:
1. Establishment of Right, Interest, and Title to Reside in the Property:
The Liquidator sought directions for the respondents to establish their right to reside in the property known as Dhupsingh Chali. The court found that the respondents, including the heirs of Dhupsingh Charansingh, failed to prove any legal right or title to the property. The respondents' claim of tenancy was based on an expired lease and subsequent unauthorized occupation.
2. Declaration of Respondents as Trespassers and Encroachers:
The court declared the respondents as trespassers and encroachers. The respondents, including the heirs of Dhupsingh Charansingh, were found to be in illegal occupation of the premises without any legal right, title, or interest. The court held that the respondents had no lawful claim to the property and were occupying it without authorization.
3. Eviction and Recovery of Possession of the Property:
The court directed the respondents to hand over vacant and peaceful possession of the premises to the Official Liquidator. If the respondents failed to comply, the Official Liquidator was authorized to take possession with police protection. The court emphasized that the respondents' failure to pay compensation and comply with court orders entitled the Liquidator to seek eviction.
4. Jurisdiction of the High Court under Section 446 of the Companies Act:
The court affirmed its jurisdiction under Section 446 of the Companies Act to entertain and dispose of the application. It held that the provision was intended to avoid unnecessary litigation and expedite the winding-up process. The court stated that it had the authority to deal with claims and questions arising during the winding-up of the company.
5. Limitation Period for Filing the Application:
The court addressed the issue of limitation, stating that the application was not barred by limitation. It referred to Section 458-A of the Companies Act, which excludes the period from the commencement of winding-up to the date of the winding-up order and an additional year. The court calculated the limitation period and concluded that the application was filed within the permissible time frame.
6. Compliance with the Decree Dated 18-12-1978 and Subsequent Court Orders:
The court found that the respondents failed to comply with the decree dated 18-12-1978, which required them to pay compensation and hand over possession in case of default. The respondents also did not comply with the court's order dated 3-12-2003, directing them to deposit amounts regularly. The court held that the respondents' non-compliance justified their eviction.
7. Payment of Compensation and Municipal Taxes:
The court noted that the respondents had defaulted in paying compensation since 1986 (or 1987). The respondents' claim that the amounts were payable annually was rejected as a dishonest attempt to avoid compliance. The court also stated that paying municipal taxes did not confer any legal title or right to occupy the property.
8. Validity of Sub-letting and Unauthorized Occupation:
The court held that sub-letting by the respondents was illegal and violated the terms of the decree. The respondents had sub-let the property to 61 persons without any legal right, making them unauthorized occupants. The court emphasized that the respondents' actions were collusive and lacked bona fides.
Conclusion:
The court allowed the application and directed the Official Liquidator to take possession of the property with police protection if necessary. The respondents were declared trespassers and encroachers, and their occupation was deemed illegal. The court's orders dated 17-1-2002 and 3-12-2003 were revived, and the respondents were ordered to vacate the premises. The rule was made absolute in Misc. Civil Application No. 5 of 2002 and Misc. Civil Application No. 6 of 2002 for the limited purpose of recalling the order dated 17-1-2002 for granting a hearing to the applicants.
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2004 (4) TMI 298
Issues Involved:
1. Whether the Court is bound to accept the award of the arbitrators in a pending suit if one of the parties is not willing to accept the same as a compromise under Order 23 Rule 3 of the Code of Civil Procedure (CPC).
2. The effect of an arbitration award obtained without the intervention of the Court in a pending suit.
3. The requirements for a compromise or adjustment of a suit under Order 23 Rule 3 of CPC.
4. The applicability of Section 47 of the Arbitration Act, 1940 in relation to arbitration awards in pending suits.
Issue-wise Detailed Analysis:
1. Whether the Court is bound to accept the award of the arbitrators in a pending suit if one of the parties is not willing to accept the same as a compromise under Order 23 Rule 3 of the Code of Civil Procedure (CPC):
The Court concluded that a compromise requires mutual concessions and consensus. The plaintiff did not agree to treat the arbitrators' award as a compromise or adjustment of the dispute. Therefore, the Court is not bound to accept the award as a compromise under Order 23 Rule 3 of CPC without the consent of both parties. The compromise must be in writing and signed by the parties, and there must be a completed agreement between them. The Court emphasized that a compromise cannot be one-sided and requires the willingness of both sides.
2. The effect of an arbitration award obtained without the intervention of the Court in a pending suit:
The Court held that an arbitration award obtained without the intervention of the Court in a pending suit can only be treated as a compromise or adjustment of the suit if both parties agree to it. Such an award is not enforceable on its own and can only be considered for recording a settlement or compromise with the consent of all parties involved. The Court referred to Section 47 of the Arbitration Act, 1940, which states that an arbitration award obtained otherwise may be taken into consideration as a compromise or adjustment of a suit with the consent of all parties interested.
3. The requirements for a compromise or adjustment of a suit under Order 23 Rule 3 of CPC:
Order 23 Rule 3 of CPC requires that a compromise or adjustment of a suit must be in writing and signed by the parties. The Court must be satisfied that the suit has been adjusted wholly or in part by any lawful agreement or compromise. In this case, the plaintiff did not sign the consent terms, and therefore, the Court could not record the compromise or adjustment of the suit. The Court reiterated that the compromise must be bilateral and involve mutual concessions by both parties.
4. The applicability of Section 47 of the Arbitration Act, 1940 in relation to arbitration awards in pending suits:
The Court examined Section 47 of the Arbitration Act, 1940, which provides that an arbitration award obtained otherwise may be taken into consideration as a compromise or adjustment of a suit with the consent of all parties interested. The Court emphasized that such an award can only be considered for recording a settlement or compromise if both parties agree to it. If one party does not consent, the Court cannot enforce the award as a compromise or adjustment of the suit. The Court concluded that the trial Judge was justified in not recording the compromise based on the arbitrators' award since the plaintiff did not agree to it.
Conclusion:
The Court dismissed the revision application, upholding the trial court's decision not to record the compromise under Order 23 Rule 3 of CPC. The Court emphasized the necessity of mutual consent for a compromise or adjustment of a suit and clarified the limited effect of an arbitration award obtained without the Court's intervention in a pending suit. The proceedings before the trial court were stayed for one month to allow the petitioners to approach the Supreme Court. If no order is obtained from the Supreme Court, the trial court was directed to proceed with the suit and complete it by 31st December 2004.
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2004 (4) TMI 297
Whether the amount Respondent No. 2 is holding belongs to him or not?
Held that:- Appeal allowed. Considering the categorical admission by the Respondent No. 2 that he received money on behalf of Appellant, the Appellant is entitled to get back his money, because the Respondent No. 2 is holding the money in Trust. Even if the Respondent No. 2 blended the property/money with that of his own money under section 66 of the Indian Trusts Act, 1882 (the Trusts Act) the Appellant is entitled to a charge on the whole fund for the amount due. Therefore we cannot agree with the finding of the Special Court that burdened the Appellant to locate the particular account in which the money is credited so as to claim it back. Section 66 of the Trusts Act arms the Court to impose a charge on the whole property of the trustee to the extent of amount due.
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2004 (4) TMI 296
Winding up - Overriding preferential payments - Held that:- The effect of sections 529 and 529A is that the workmen of the company become secured creditors by operation of law to the extent of the workmen’s dues provided there exists secured creditor by contract. If there is no secured creditor then the workmen of the company become unsecured preferential creditors under section 529A to the extent of the workmen dues. Thus even section 529A will override all other claims of other creditors even where a decree has been passed by a court.
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2004 (4) TMI 295
Issues Involved:
1. Applicability of the Bombay Relief Undertakings (Special Provisions) Act (BRU Act) and the notification issued thereunder.
2. Whether depositing a cheque is an exercise of a right or an enforcement of a remedy.
3. Allegation of mala fide intention behind filing the suit to protect directors from criminal proceedings under sections 138 and 142 of the Negotiable Instruments Act.
4. Justification of the Trial Court in granting interim injunction based on prima facie case, balance of convenience, and irreparable loss or injury.
Detailed Analysis:
Issue 1: Applicability of the BRU Act and Notification
The main object of the BRU Act is to provide temporary relief to industrial undertakings to prevent unemployment. Section 4(1)(a)(iv) of the Act states that any right, privilege, obligation, or liability accrued before the undertaking was declared a relief undertaking, and any remedy for enforcement thereof shall be suspended. The Court noted that the provision only suspends the remedy for enforcement of rights, not the rights themselves. The act of presenting postdated cheques is an incident of the right and is not suspended by the notification.
Issue 2: Nature of Depositing a Cheque
The act of presenting a cheque for payment is akin to making a demand for repayment and does not amount to enforcing repayment. Enforcement of remedy implies actions like instituting a suit or attaching property, which is not the case with presenting a cheque. The Court held that presenting a cheque is an incident of the right and not an act of enforcement of remedy, thus not suspended by the BRU notification.
Issue 3: Allegation of Mala Fide Intention
The appellant argued that the suit was filed with the intention of protecting the directors from criminal proceedings under sections 138 and 142 of the Negotiable Instruments Act. The Court observed that the company is not restrained from making payments to its creditors and that the BRU notification does not protect directors from criminal liability. It inferred that the suit was filed with an oblique motive to shield the directors from criminal prosecution.
Issue 4: Justification of Interim Injunction
The Court examined the principles of prima facie case, balance of convenience, and irreparable loss or injury. It found no prima facie case in favor of the company, as the liability to pay was undisputed, and the presentation of postdated cheques would not harm the company. The balance of convenience was not in favor of the company, and preventing the appellant from exercising its legal right caused irreparable injury to the appellant. Thus, the Trial Court's decision to grant an injunction was unjustified.
Conclusion:
The impugned order dated 22-4-2003 passed by the Trial Court was quashed and set aside. The appeal was allowed, and the rule was made absolute in Civil Application No. 2961 of 2003. The stay granted by the Trial Court was extended till 30-4-2004 to allow the respondent company to challenge the judgment in a higher forum.
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2004 (4) TMI 294
Whether it is open to challenge the statute on the ground that it was not necessary to enact it in the prevailing background particularly when another statute was already in operation?
Whether provisions as contained under sections 13 and 17 of the Act provide adequate and efficacious mechanism to consider and decide the objections/disputes raised by a borrower against the recovery, particularly in view of bar to approach the civil court under section 34 of the Act?
Whether the remedy available under section 17 of the Act is illusory for the reason it is available only after the action is taken under section 13(4) of the Act and the appeal would be entertainable only on deposit of 75% of the claim raised in the notice of demand?
Whether the terms or existing rights under the contract entered into by two private parties could be amended by the provisions of law providing certain powers in one sided manner in favour of one of the parties to the contract?
Whether provision for sale of the properties without intervention of the Court under section 13 of the Act is akin to the English mortgage and its effect on the scope of the bar of the jurisdiction of the civil court?
Whether the provisions under sections 13 and 17(2) of the Act are unconstitutional on the basis of the parameters laid down in different decisions of this Court?
Whether the principle of lender’s liability has been absolutely ignored while enacting the Act and its effect?
Held that:- The borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debt Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the public interest.
Therefore uphold the validity of the Act and its provisions except that of sub-section (2) of section 17 of the Act, which is declared ultra vires of Article 14 of the Constitution of India.
Thus where a secured creditor has taken action under section 13(4) of the Act, in such cases it would be open to borrowers to file appeals under section 17 of the Act within the limitation as prescribed therefor, to be counted with effect from today. The transfer cases, appeals and the petitions thus stand partly allowed limited to the extent indicated above. For the rest of the reliefs, they stand dismissed.
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2004 (4) TMI 293
Issues:
1. Quashing of criminal proceedings under section 482 Cr. P.C.
2. Jurisdiction of the Court in a case of wrongful withholding of property under section 630 of the Companies Act.
3. Interpretation of section 630 in cases of terminated employment.
Analysis:
Issue 1: Quashing of criminal proceedings under section 482 Cr. P.C.
The petitioner sought quashing of criminal proceedings and an order passed by the Judicial Magistrate under section 630 of the Companies Act. The petitioner's service was terminated, and he was asked to vacate the residential quarter allotted by the company. The petitioner's counsel argued that the termination was illegal and referred the dispute to the Labour Court under the Industrial Disputes Act. The counsel contended that the criminal prosecution was an abuse of the court's process due to the ongoing dispute over the termination.
Issue 2: Jurisdiction of the Court in a case of wrongful withholding of property under section 630 of the Companies Act
Section 630 of the Companies Act penalizes the wrongful withholding of company property by an officer or employee. The court deliberated on whether an employee, whose services were terminated, could be prosecuted under this section. Citing the case of Baldev Krishna Sahi v. Shipping Corpn. of India Ltd., the court held that even terminated employees could be prosecuted under section 630 if they wrongfully withheld company property post-termination. The court emphasized that the provision applies to both present and past employees, and the offense is committed when possession is wrongfully retained after termination.
Issue 3: Interpretation of section 630 in cases of terminated employment
The court further referred to the case of Lalita Jalan v. Bombay Gas Co. Ltd., which reiterated that wrongful withholding involves a continuous act of not returning company property post-termination. In the present case, as the petitioner's service was terminated in 1999, his possession of the quarter became wrongful. The court clarified that until the termination is declared illegal and the employee reinstated, the possession remains unauthorized. Therefore, the initiation of criminal proceedings under section 630 was deemed valid and not without jurisdiction.
In conclusion, the court dismissed the application, finding no merit in quashing the criminal proceedings under section 482 Cr. P.C. The judgment reaffirmed the applicability of section 630 of the Companies Act to cases of terminated employment where company property is wrongfully withheld, emphasizing the continuous nature of the offense post-termination.
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2004 (4) TMI 292
Whether the State has power and competency to levy tax on paddy, purchased by the miller for sale of rice to the exporter, in view of section 5(3) read with section 15(ca) of the Central Sales Tax Act, 1956?
Held that:- Appeal dismissed. Clause (ca) contains a limited deeming fiction, which only applies to sale of rice by the exporter. This fiction is attached to the purchased commodity which is paddy from which rice is procured and not the exported commodity. Clause (ca) equates the two commodities only in cases where rice procured from paddy is exported and not to any other case. Accordingly, we hold that the purchase of paddy by the appellants in these cases is not exempt from the levy of a tax. Such purchases do not fall within section 5 of the 1956 Act. The sale by the exporter is however, exempt under section 5(1) and the purchase of paddy by the miller-cum-exporter is covered under section 5(3) of the 1956 Act.
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2004 (4) TMI 287
Applicability of Section 44AB of the Income-tax Act, 1961 - Interpretation of terms "total sales" "turnover," and "gross receipts" - Bona fide - Justification for the imposition of penalty u/s 271B - HELD THAT:- The words used in section 44AB of the Act "total sales", "turnover" or "gross receipt" have been used specifically and the scope of words "gross receipt" is quite wide, otherwise the legislature would have stopped after using the words "sales" or "turnover". The ld. counsel for the assessee has not been able to show as to how the amount of Rs. 2.20 crores received as advance from customers will not be included in the words "gross receipt". Further, these amounts were having element of profit in Income-tax Act, 1961. The amount of advance was to be adjusted towards the cost of the flat booked by each customer and the amount of advance must be having cost of construction as well as element of profit, which may subsequently be bigger in proportionate when whole of the amount fixed for sale of flat is realized, but it cannot be said that the amount of advance received by the assessee will not be included in the scope of words "gross receipt".
In case it is taken that assessee is following the system in which income is returned on completion of the project and in case project goes on for more than 5 years and assessee gets its books of account audited for last year in which project is completed, then from where Assessing Officer will be able to verify the figures of expenses and receipts etc. of earlier years. So, it is against the very principle of section 44AB that in project completion assessee would get the books of account audited in the last year and not in earlier years when he is debiting the expenses and showing sundry debits and different types of receipts are also there. Thus, I am of the view that assessee at the outset had not been able to bring before me the audit guideline and even if such guideline is there, the same is against the very provisions of section 44AB.
Thus, I am of the view that assessee was under obligation to get its accounts audited but the same has not been done and it is a case of levy of penalty.
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2004 (4) TMI 285
Issues:
Appeal against adjustments made by AO under s. 143(1)(a) - Validity of adjustments - Processing of revised return under s. 143(1)(a) - Jurisdiction of AO - Legal grounds for impugning adjustments - Merits of the case - Applicability of s. 43B - Prima facie adjustments - Notice under s. 143(2) - Authority to process return under s. 143(1)(a) after issuing notice under s. 143(2).
Analysis:
The appeal before the Appellate Tribunal ITAT Jodhpur involved the assessee contesting the adjustments made by the AO under s. 143(1)(a) of the Income Tax Act. The primary issue raised was the validity of the adjustments, specifically the addition of bonus, State sales-tax, and Central Sales-tax to the income during the processing of the return. The assessee contended that these adjustments were not justified as they were based on advance payments not charged to the Profit and Loss account. The AO had made these adjustments when processing the revised return under s. 143(1)(a) after issuing a notice under s. 143(2) in the previous year.
The Tribunal admitted an additional ground raised by the assessee challenging the validity of the adjustments, citing legal precedents and the judgment of the Hon'ble Rajasthan High Court. The Tribunal noted that the AO's actions in making the adjustments were not valid after issuing a notice under s. 143(2), as per various judicial decisions. The Tribunal also considered the merits of the case, emphasizing that no basis existed for the adjustments under s. 43B since the payments were not claimed as deductions in the Profit and Loss account. Consequently, the Tribunal set aside the CIT(A)'s order and canceled the impugned adjustments, allowing both grounds of appeal raised by the assessee.
In conclusion, the Tribunal held that the CIT(A) was not justified in sustaining the adjustments made by the AO under s. 143(1)(a) and ruled in favor of the assessee, allowing the appeal. The judgment highlighted the importance of legal grounds, jurisdictional issues, and the applicability of relevant provisions such as s. 43B in determining the validity of adjustments made during the processing of the return. The decision underscored the need for proper assessment procedures and adherence to legal principles in income tax matters.
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2004 (4) TMI 283
Issues:
Appeal against cancellation of penalty under section 271D of the Income Tax Act for violation of section 269SS.
Analysis:
The appeal was filed by the Revenue against the order of the CIT(A) canceling the penalty of Rs. 1,01,000 imposed under section 271D of the Income Tax Act for violating the provisions of section 269SS. The Revenue contended that the CIT(A) erred in canceling the penalty. The Dy. CIT concluded that the loans/deposits were accepted in cash without any reasonable cause, leading to the imposition of the penalty. The CIT(A) considered the reasons and case laws presented by the assessee but opined that no penalty can be imposed for a mere technical violation. The Departmental Representative argued that the penalty should not have been deleted without proper consideration of the reasons for accepting cash loans. The Departmental Representative relied on judgments from the Hon'ble Supreme Court and the Hon'ble Rajasthan High Court to support the contention that the penalty can only be canceled for a reasonable cause.
The Authorised Representative of the assessee argued that section 269SS regulates the mode of accepting loans and deposits to prevent tax evasion. Referring to case law, the Representative contended that if the deposit was not taken to evade income tax, penal action should be dropped. It was argued that in cases of technical breaches, the harsh provision of section 271D should not be invoked. The Representative also pointed out that no deposit exceeding Rs. 20,000 was accepted, indicating no guilty intention on the part of the assessee. The ignorance of the law was cited as the reason for accepting loans in cash.
The Tribunal noted that none of the cash transactions exceeded Rs. 20,000. Citing previous judgments, the Tribunal agreed that the case involved technical violation and venial breach, leading to the cancellation of the penalty by the CIT(A). The Tribunal declined to interfere with the CIT(A)'s order, ultimately dismissing the appeal of the Department.
In conclusion, the Tribunal upheld the CIT(A)'s decision to cancel the penalty under section 271D for the violation of section 269SS, emphasizing the technical nature of the breach and the absence of any substantial violation.
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2004 (4) TMI 281
Issues Involved:
1. Jurisdiction of the Assessing Officer under section 120 for levying penalty.
2. Applicability of Explanation-3 to section 271(1)(c) of the Income-tax Act.
3. Bona fide belief and intention behind non-filing of returns.
4. Distinction between deliberate concealment and bona fide mistakes.
5. Ignorance of law as a reasonable cause.
Issue-Wise Detailed Analysis:
1. Jurisdiction of the Assessing Officer under section 120 for levying penalty:
The assessees contended that the ITO who levied the penalty lacked jurisdiction under section 120 of the Act, as the jurisdiction to assess the directors was vested with the DCIT, 3(2), Aayakar Bhavan, Hyderabad. However, this objection was not raised at the time of assessment or during penalty proceedings. According to section 124(3) of the Act, the assessees lost their right to question the jurisdiction at this stage. The Tribunal held that the assessees had no right to raise the issue of jurisdiction before the Appellate Tribunal, and accordingly, the additional grounds were rejected.
2. Applicability of Explanation-3 to section 271(1)(c) of the Income-tax Act:
The Tribunal found merit in the assessees' contention that Explanation-3 to section 271(1)(c) of the Act, as it stood at the relevant point of time, applied only to those who had not been previously assessed to tax. Since the assessees were previously assessed to tax, the Assessing Officer wrongly invoked Explanation-3 to impose penalties. The amendment to Explanation-3 by the Finance Act, 2002, which extended the theory of 'deemed concealment' to those previously assessed, was prospective and not applicable to the assessment years in question.
3. Bona fide belief and intention behind non-filing of returns:
The Tribunal observed that the assessees had no intention to conceal their income but were under a bona fide impression that the firm's returns and tax payments would cover their liabilities. Some assessees had filed returns under the Voluntary Disclosure of Income Scheme, indicating that their income particulars were within the knowledge of the tax department. The Tribunal concluded that no prudent assessee would intentionally avoid filing returns to face the consequences of paying huge taxes and penalties, and thus, the assessees' explanation was bona fide.
4. Distinction between deliberate concealment and bona fide mistakes:
The Tribunal noted that the balance-sheet, Profit & Loss A/c, and Tax Audit reports of the firm contained details of the partners' income, which were already known to the department. Therefore, it was difficult to conceive that the assessees intentionally concealed income. In the case of lady partners, the property income was omitted by mistake but was corrected before any detection by the department. The Tribunal held that the assessees did not conceal income with any mala fide intention, and even in the case of Sri Narayana, the claim of depreciation on an imported car was due to wrong advice.
5. Ignorance of law as a reasonable cause:
The Tribunal referred to various judicial observations that ignorance of law does not excuse, but also noted that the tax laws are complex and often require specialized assistance. The Tribunal concluded that the assessees' actions were based on bona fide impressions and not deliberate concealment. The penalties levied by the Assessing Officer were canceled, and the appeals filed by the assessees were allowed.
Conclusion:
The Tribunal allowed the appeals, canceling the penalties levied by the Assessing Officer, based on the findings that the assessees' actions were bona fide and not intended to conceal income, and that the jurisdictional and statutory provisions were not appropriately invoked by the Assessing Officer.
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2004 (4) TMI 280
Advertisement expenditure - launching a new product - treatment of the expenditure in the books of account - HELD THAT:- In this case, the assessee had launched a new product and incurred heavy advertisement expenditure. The period for which the assessee can be said to have secured benefit by incurring this expenditure cannot be reasonably estimated. The undisputed fact is that the new product launched may fail to take off in the year of launch itself may have a long life as a product. There is no way in which it can definitely be estimated that the benefit of the expenditure would last for a particular period of time, and on this count, we agree with the arguments of the learned counsel for the assessee.
Reliance placed by the Revenue in the case of Shreyas Shipping Ltd.[2002 (5) TMI 203 - ITAT BOMBAY-H] does not come to its resuce, for in that case, dry dock and special survey expenses were incurred by the assessee and these expenses have to be incurred statutorily twice over a period of five years. That dry docking in the case of ships is mandatory. The benefit of the expenditure can be reasonably estimated over a period of 21/2 years. Moreover, there was a trade practice in that case and the assessee followed that trade practice and wrote off that expenditure over a period of 21/2 years. It is not the case here, as it is not a mandatory expenditure, nor can the period for which the benefit of the expenditure can be derived be estimated with a least reasonable accuracy.
Thus, we delete the disallowance made by the Assessing Officer on account of advertisement expenditure, and decide this issue in favour of the assessee.
In the result, appeal of the assessee is partly allowed.
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2004 (4) TMI 279
Issues Involved:
1. Limitation for communication of the order under section 263.
2. Applicability of section 115JA to the assessee.
3. Binding nature of CBDT Circulars.
4. Jurisdiction of the CIT under section 263.
5. Impact of the appellate order on the assessment order.
Issue-Wise Detailed Analysis:
1. Limitation for Communication of the Order under Section 263:
The assessee contended that the order dated 7-3-2002 under section 263 was served on 16-10-2002, beyond the limitation period, thus making it barred by limitation. Reliance was placed on the decision of the Hon'ble Kerala High Court in CIT v. Sree Narayana Chandrika Trust [1995] 212 ITR 456.
2. Applicability of Section 115JA to the Assessee:
The assessee argued that it is not a company for the purposes of section 115JA and thus should not be subject to Minimum Alternate Tax (MAT). It was emphasized that the accounts were maintained as per the Electricity (Supply) Act, 1948, and not as per the Companies Act, 1956. Reliance was placed on the Mumbai Bench Tribunal's decision in Maharashtra State Electricity Board v. Jt. CIT [2002] 82 ITD 422, which held that such entities are not subject to MAT. The Finance Minister's speech and the Board's Circular No. 762 dated 18-2-1998 were also cited, which exempted companies engaged in the generation and distribution of power from MAT.
3. Binding Nature of CBDT Circulars:
The assessee contended that the Assessing Officer's order was in compliance with CBDT Circular No. 762, which is binding on all Income-tax authorities under section 119 of the Act. The Supreme Court judgments in K.P. Verghese v. ITO [1981] 131 ITR 597 and others were cited to support the binding nature of such circulars. The Revenue argued that the circular should not be followed as it was contrary to the statutory provisions.
4. Jurisdiction of the CIT under Section 263:
The assessee argued that the CIT's invocation of section 263 was unjustified as the order of the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue. The Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 836 was cited, which held that both conditions must be satisfied for section 263 to be invoked. The CIT(A)'s order for the assessment year 1998-99, which was in favor of the assessee, was also part of the record and should have precluded the CIT from exercising jurisdiction under section 263.
5. Impact of the Appellate Order on the Assessment Order:
As the CIT's order under section 263 was cancelled, the subsequent assessment order dated 25-2-2003, which levied MAT, was also rendered void. Consequently, the appeal against the assessment order was allowed.
Conclusion:
The Tribunal held that the CIT's order under section 263 was not justified as the Assessing Officer's order was in line with the CBDT Circular No. 762, which exempted companies engaged in the generation and distribution of power from MAT. The Tribunal emphasized the binding nature of the CBDT circulars and the Supreme Court's stance on consistency and discipline in following such circulars. Consequently, the Tribunal cancelled the CIT's order under section 263 and the subsequent assessment order, allowing both appeals of the assessee.
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