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2011 (6) TMI 683
Re-opening of Assessment by AO - AO reopened the assessment proceedings solely on the basis of statement made by director before the Central excise authorities in the context of levy of excise duty on unaccounted production - HELD THAT:- As held by the hon'ble High Court in the case of COMMISSIONER OF INCOME-TAX VERSUS KS BHATIA. [2001 (8) TMI 21 - PUNJAB AND HARYANA HIGH COURT], proceedings under the Central Excise Act have relevance only for formation of opinion of escapement of income and thereafter the income-tax authorities have to independently finalise the reassessment irrespective of the final view in excise proceedings. We find that the AO has reassessed the income and made the impugned additions solely on the basis of the information received by him from the Central Excise Department without bringing any material on record to justify or support the additions. Besides, the statement of said director has several gaps on material issues. Therefore, the impugned additions are liable to be cancelled and are accordingly cancelled.
Unexplained Expenditure for Purchase of Raw Material u/s 69C - AO estimated unexplained expenditure towards purchase of raw materials on the ground that it must have been utilised in producing 624 mts. of unaccounted goods - HELD THAT:- The Assessing Officer has made the impugned additions under section 69C. We have already deleted the addition made by the Assessing Officer with reference to unaccounted production and sale of 624 mts of steel ingots, In this view of the matter, the impugned additions cannot be sustained. The order of the Commissioner of Income-tax (Appeals) deleting the impugned addition is therefore confirmed.
Revisional Power of Commissioner u/s 263 - AO made the additions in the AY 2004-05 on the basis of the statement of director so as to maintain consistency in the stand of the Department in both assessment years - HELD THAT:- Pre-requisite to the exercise of jurisdiction by the learned Commissioner of Income-tax suo motu u/s 263 is that the order of the AO is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of both the conditions. It has been held in MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX [2000 (2) TMI 10 - SUPREME COURT], that section 263 cannot be invoked to correct each and every type of error committed by the AO. It is only when an order is erroneous in so far as it is prejudicial to the interests of the Revenue that section 263 will be attracted.
On the basis of facts of the case and on perusal of directions given by the Additional Commissioner of Income-tax shows that he has duly considered and dealt with all the relevant aspects of the case. In the directions issued by him. It cannot therefore be said that the directions given by the Additional Commissioner are without inquiries or application of mind. Thus, the order passed by the learned Commissioner of Income-tax under section 263 is cancelled.
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2011 (6) TMI 682
Most Appropriate Method for determining ALP for International Transaction u/s 92C - Data Required to be used for selecting Comparables u/s 10(4) - Selection of Comparable Assessees - Selection of Comparable Companies - Assessee used multiple years' data whereas the TPO is of the opinion that current year data is to be used for selecting comparables
HELD THAT:- Most Appropriate Method - In the present years, on an analysis of international transactions with the associate parties and data of comparables, the assessee has selected transactional net margin method (TNMM), using net profit margin based on cost as profit level indicator. In these three years this method was not disputed by the learned Transfer Pricing Officer. We can say that both sides are in agreement on the method.
For Selecting comparables - Section 10(4) is referred, the used the expression "shall" make it mandatory to first use the current year data. If certain other circumstances reveal an influence on the determination of transfer pricing in relation to the transaction being compared than other datas for period not more than two years prior to such financial year may be used. Thus, the view point of the Transfer Pricing Officer for using the current year data is upheld.
For finding out comparable Assessees who have uncontrolled international transactions of similar nature - We are in view that product produced by the assessee in itself is of a complex nature, which required skilled work force. We find certain comparables which were found acceptable by the assessee in the financial year 2004-05 all of a sudden become incomparable in the financial year 2005 06. It suggests that efforts of the financial analyst was to prepare the documentation in such a fashion which would give the result near to the result disclosed by the assessee. The TPO has considered this aspect elaborately - Thus Assessee is high end service provider.
Search Methodology for selecting Comparables - The approach of the TPO ought to be judicious. The comparability between a controlled transaction and uncontrolled transaction is a comparison of condition which is broader than a mere comparison of price or margin. Where it is found that the conditions imposed were differed from those which would be made between independent enterprises, transfer pricing adjustment are to be made. Thus, the TPO while evaluating the transfer pricing study made by the assessee arrived at a conclusion that the assessee has left over various angles in identifying the comparables - Decision Against Assessee.
Comparability Adjustment under Rule 10B - Selection of Comparable Companies - Assessee has eliminated certain comparables on the ground that some companies have related party transaction because more than 26 percent shareholding of subsidiary was held by the company abroad - TPO said that there may be transactions with associate enterprises but the transactions should not be more than 30 percent
HELD THAT:- TPO has applied the filter, quantitatively as well as qualitatively in eliminating the factors which effect the result of the alleged comparables so that the difference between the operations of the assessee as well as such comparables who worked in uncontrolled transactions can be neutralised - Thus, method adopted by TPO upheld.
Benefit of Proviso u/s 92C - Tolerance Band - Assessee contended that arithmetic mean of the comparable price should be reduced by 5 percent for determining the arm's length price
HELD THAT:- We are of the view that tolerance band provided in the proviso is not to be construed as a standard deduction. In the present case, TPO has adopted the arithmetic mean of several comparables for taking out a profit level indicator which would be tested with the profit level indicator of the assessee. If that arithmetic mean falls within the range of alleged tolerance band then there may not be any adjustment but if it exceeds then ultimate adjustment is not required to be computed after reducing the arithmetic mean by 5 percent The actual working is to be taken. The learned first appellate authority has considered this aspect elaborately, thus, we do not see any merit in the ground of appeal.
Software Expenses - Capital or Revenue in Nature? - Expenditure was incurred for acquiring the time based licence to use of software for a period of one year or less than two years - HELD THAT:- There is no such dispute regarding this matter in two years. It suggests that the learned Dispute Resolution Panel has considered this issue without making a proper analysis. On perusal of the assessment order, we find that the AO while considering the ratios laid down by the Special Bench of the Income-tax Appellate Tribunal has observed that the Special Bench was not correct in interpreting the law. In our opinion, it is not for the AO to comment upon the orders of the higher authorities rather she is bound to follow them.
Following the decision in the case of AMWAY INDIA ENTERPRISES. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1(1), NEW DELHI. [2008 (2) TMI 454 - ITAT DELHI-C]we held that, the assessee has not acquired any ownership in the alleged licence and the licences shelf life is less than two years. The nature of the assessee's business is such that it required computer software. Therefore, the expenses incurred by the assessee for obtaining the licence to use the software is to be treated as revenue expenditure - Decision in favour of Assessee.
Amount paid to Noida Development Authority - Capital or Revenue in Nature? - The name of the allottee has been got changed by the assessee - For which Assessee was directed to pay charges for change in ownership - HELD THAT:- The learned representative failed to bring the revenue laws of the UP State authorising the Noida Authority for charging such an amount, therefore, we restore the matter back to AO for fresh examination.
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2011 (6) TMI 681
Business income or capital gain - Temporary ceasement of business - Intention of assessee - Held that:- the refinery was to be managed and operated by the assessee and the assessee had the final say on the raw edible oil products that were to be used. Refined edible oils were to be marketed under the brand name of the assessee only. In other words, the assessee was intimately involved in the business though not directly doing it. Clause 4 of the above agreement also mentions that personnel employed by the assessee would automatically get deputed to the licencee. It is thus in our opinion exploitation of a commercial asset by the assessee as the licencee was not given a permanent right of use. It is clear that the validity of the licence was only up to December 31, 2009 and if any renewal was to be there, it had to be done on mutually acceptable terms - revival would be possible only if support was forthcoming from the lenders during the implementation of the rehabilitation plan. Nevertheless, it is also mentioned by the directors at paragraph 2 of their report that they were confident of succeeding in the appeal before the appellate authority for industrial and financial reconstruction, which would facilitate revival of assessee-company's business operations. The assessee had filed an appeal before the appellate authority for industrial and financial reconstruction, challenging the rejection of its reference before BIFR, on January 17, 2006. Hence, contemplation of the assessee was always to revive its business and not to let its premises out permanently. The accounts were also prepared by them on a going concern basis. The assessee also had current assets which included inventory of Rs. 174.57 lakhs as seen from schedule 7 of its audited accounts statement for the relevant previous year. Such inventory included raw materials of Rs. 53.75 lakhs, work in process of Rs. 26.34 lakhs, finished stock Rs. 64.35 lakhs. No doubt, these were held at the same value from the previous financial year ended on March 31, 2006. But, had the intention of the company been to discontinue its business, then it would not have held on to such inventory, without disposing of them. The intention, as seen in the holding of inventory, also was to resume its operation as soon as possible - asses-see had an intention to resume and it was not a case where business had never started. The assessee's brand names were used by the licencee, its personnel were used by the licencee and it had control over the quality of raw materials also. We cannot say that there was a stoppage of the bussiness as a whole, but the fact of the matter was that the business was being continued by the assessee in a different manner. Even if we presume that there was a temporary stoppage, there was a clear intention to resume - Following decision of Commissioner of Income-Tax, Lucknow Versus Vikram Cotton Mills Limited [1987 (12) TMI 1 - SUPREME Court] and Commissioner of Income-Tax Versus Podar Cement Pvt. Limited And Others [1997 (5) TMI 2 - SUPREME Court] - Decided against Revenue.
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2011 (6) TMI 680
Issues Involved: Appeal against rejection of exemption u/s 80G(5) of the Income-tax Act.
Summary:
The appellant, a Sanstha, sought exemption u/s 80G(5) after being granted registration u/s 12AA. The Commissioner rejected the application due to concerns about the genuineness of the Sansthan's activities. The appellant appealed to the Tribunal, arguing that all conditions for trust genuineness were met. The Tribunal found in favor of the appellant, noting that registration u/s 12AA was granted before the exemption application, and all conditions for exemption were satisfied. The Tribunal emphasized that the lack of complete address on donation receipts should not be a sole reason for denial, especially when donor details were provided separately. Citing relevant case law, the Tribunal directed the Assessing Officer to grant registration u/s 80G(5), as all prescribed conditions were fulfilled.
In conclusion, the appeal of the assessee-trust was allowed, and the registration u/s 80G(5) was directed to be granted.
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2011 (6) TMI 679
Issues:
1. Deduction of sale value from the opening written down value of cars
2. Non-consideration of depreciation for the purchase of new cars
3. Summary disallowance of expenses
Analysis:
Issue 1: Deduction of sale value from the opening written down value of cars
The appellant, engaged in cab operation, filed a return declaring income. During scrutiny, the Assessing Officer proposed estimating the sale price of four cars and deducting it from the opening written down value. The appellant claimed depreciation for new cars, but evidence was not produced. The Assessing Officer also proposed a 10% disallowance on various expenses. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's decision, stating the appellant failed to provide necessary documents during scrutiny. However, the ITAT Chennai found that the appellant was not given sufficient opportunity by the authorities to present its case. The ITAT set aside the previous decisions and remitted the issues back to the Assessing Officer for reconsideration.
Issue 2: Non-consideration of depreciation for the purchase of new cars
The Assessing Officer proposed disallowance of depreciation for new cars due to lack of evidence for the purchase. The Commissioner of Income-tax (Appeals) agreed with this decision. The ITAT Chennai noted discrepancies in the assessment process, where the appellant was not given proper opportunities to present evidence. The ITAT directed the Assessing Officer to reevaluate the issue and instructed the appellant to cooperate and provide necessary records for justifying its claims.
Issue 3: Summary disallowance of expenses
The Assessing Officer proposed a summary disallowance of 10% on various expenses claimed by the appellant. The Commissioner of Income-tax (Appeals) upheld this decision, stating the appellant did not utilize opportunities to furnish required documents. The ITAT Chennai, however, found that the appellant was not given adequate chances to present its case. As a result, the ITAT set aside the previous decisions and remanded the issues back to the Assessing Officer for fresh consideration. The appellant was instructed to cooperate and provide satisfactory records for the claims.
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2011 (6) TMI 678
Issues:
1. Whether the affairs of the G. K. Alloys Steel P. Ltd. (respondent No. 1) are being conducted in a manner oppressive to the petitioner and prejudicial to the interest of the company?
2. Whether the sale of 6.63 acres of the company's land is liable to be set aside?
3. Whether the joint development agreement dated May 23, 2008, is liable to be set aside?
4. Whether respondents Nos. 2 to 4 are liable to be surcharged?
Issue-wise Detailed Analysis:
Issue 1: Whether the affairs of the G. K. Alloys Steel P. Ltd. (respondent No. 1) are being conducted in a manner oppressive to the petitioner and prejudicial to the interest of the company?
The petitioner alleged that the respondents managed the company as a sole proprietary concern, excluding him from the management, and conducted affairs in a manner amounting to oppression and mismanagement. The petitioner claimed that the shares of their deceased parents had not been transmitted to the legal heirs, and there were irregularities in the composition of the board. The respondents countered that the petitioner was aware of the family arrangement and had not taken steps for proper transmission of shares. The court found that the petitioner's grievances were raised belatedly and without bona fides, noting that the petitioner had not shown interest in the company's affairs for over a decade. The court concluded that the petitioner's intent was to challenge the land sales rather than address genuine grievances, and thus, did not find oppression or mismanagement.
Issue 2: Whether the sale of 6.63 acres of the company's land is liable to be set aside?
The petitioner contended that the sale of 6.63 acres of land to respondents Nos. 5 and 6 was for a remarkably low price and was conducted without proper notice or approval. The respondents argued that the sale was necessary to discharge the company's liabilities and was conducted with the board's approval. The court found that the sale was a bona fide decision to salvage the company from financial distress and was in the best interest of the company. The court noted that the petitioner had not provided any alternative proposals or evidence of higher offers. The court concluded that the sale was genuine and not liable to be set aside.
Issue 3: Whether the joint development agreement dated May 23, 2008, is liable to be set aside?
The petitioner argued that the joint development agreement (JDA) was not in the company's interest and was entered into without proper notice. The respondents claimed that the JDA was necessary for the company's revival and was executed with the board's approval. The court found that the JDA was a strategic decision to generate cash flow and revive the company. The court noted that the petitioner had not challenged the JDA's benefits to the company and concluded that the JDA was genuine and not liable to be set aside.
Issue 4: Whether respondents Nos. 2 to 4 are liable to be surcharged?
The court found that there was a minor undervaluation in the sale of 3.29 acres of land in 2007, resulting in a loss to the company. The court held that respondents Nos. 2 to 4 were liable to be surcharged for the loss caused to the company. The court directed respondents Nos. 2 to 4 to deposit Rs. 20 lakhs into the company's account within six months, failing which they would be liable for simple interest at the rate of 6% per annum from the date of the order till the amount is deposited.
Conclusion:
The court declined to set aside the impugned sale deeds and the joint development agreement, finding no acts of oppression or mismanagement. The court surcharged respondents Nos. 2 to 4 for the undervaluation in the land sale and directed them to remit Rs. 20 lakhs to the company. The company petition was allowed to the limited extent of surcharging respondents Nos. 2 to 4 and dismissed in all other aspects.
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2011 (6) TMI 677
Issues:
Company amalgamation under sections 391 to 394 of the Companies Act, 1956; Objection by the Regional Director, Ministry of Corporate Affairs regarding the authorized share capital; Approval and adoption of the scheme of amalgamation by the board of directors of the transferor and transferee companies; No investigations pending against the transferor and transferee companies under relevant provisions of the Companies Act, 1956; Official liquidator's report on the affairs of the transferor company; Orders dispensing with the meeting of equity shareholders for both transferor and transferee companies.
Analysis:
The judgment by the Madras High Court pertains to two company petitions filed by M/s. Lifesize Communications India (P.) Ltd. and M/s. Logitech Engineering and Designs India (P.) Ltd. seeking the sanction of a scheme of amalgamation under sections 391 to 394 of the Companies Act, 1956. The transferor company, Lifesize Communications India (P.) Ltd., was incorporated in 2006 and later shifted its registered office to Chennai. The board of directors of both companies approved the scheme to merge the transferor with the transferee company.
The court had previously dispensed with the need for equity shareholders' meetings for both companies, allowing them to file petitions for the scheme's sanction. It was noted that there were no secured creditors for the transferor company, and no investigations were pending against either company under relevant sections of the Companies Act, 1956. The official liquidator's report found no prejudicial conduct in the affairs of the transferor company.
An objection raised by the Regional Director, Ministry of Corporate Affairs, regarding the authorized share capital was discussed. The objection was related to the transfer of filing fees for the increased authorized capital from the transferor to the transferee company. The court referred to a previous judgment to reject the objection, emphasizing the intent of section 391 to facilitate company reconstitution without the need for multiple applications for alterations.
Ultimately, the court approved the company petitions for amalgamation, stating that the scheme would benefit the equity shareholders of both the transferor and transferee companies. The judgment highlighted compliance with legal provisions, absence of prejudicial conduct, and the overall benefit to the stakeholders as reasons for the approval.
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2011 (6) TMI 676
Issues Involved:
1. Illegal allotment of shares.
2. Forfeiture and sale of petitioners' shares.
3. Non-compliance with previous consent orders.
4. Non-payment of dividends.
5. Irregular appointment of directors.
6. Alleged mismanagement and diversion of funds.
7. Validity of board meetings and resolutions.
8. Allegations of oppression and mismanagement.
9. Request for restoration of parity in shareholding.
10. Validity of annual general meeting notice.
Issue-wise Detailed Analysis:
1. Illegal Allotment of Shares:
The petitioners alleged illegal allotment of 1,137 shares to respondents Nos. 6 and 15 on February 14, 2004, and 20,737 shares on October 9, 2006. The respondents contended that these issues were settled in an earlier petition (C.P. No. 9 of 2005) and are barred by res judicata. The Company Law Board (CLB) found that the allotments were made to maintain parity among shareholders and were not illegal or oppressive.
2. Forfeiture and Sale of Petitioners' Shares:
The company forfeited the petitioners' shares due to unpaid dues and sold them to 31 shareholders on April 7, 2005, at Rs. 260 per share. The petitioners argued that the forfeited shares should have been sold to them to maintain parity. The CLB upheld the forfeiture and sale, noting that the petitioners had failed to discharge their liabilities and had agreed to the terms in the consent order.
3. Non-compliance with Previous Consent Orders:
The petitioners alleged non-compliance with the consent order dated September 8, 2006, which included allotment of 9,562 shares and 944 additional shares to restore parity. The CLB found that the petitioners had not paid the consideration for the 944 shares, and thus, the company was not in breach of the consent order.
4. Non-payment of Dividends:
The petitioners claimed non-payment of dividends for the years ending March 31, 2003, 2004, and 2005. The CLB noted that the petitioners were not shareholders after April 7, 2005, and thus were not entitled to dividends declared after that date. The dividends for the year 2003-2004 were duly paid.
5. Irregular Appointment of Directors:
The petitioners challenged the appointment of respondents Nos. 3 and 4 as managing director and joint managing director, arguing that they were not appointed by the company in a general meeting. The CLB found that the appointments were made in accordance with the articles of association and were not oppressive.
6. Alleged Mismanagement and Diversion of Funds:
The petitioners alleged mismanagement and diversion of funds by respondents Nos. 3 and 4. The CLB found no evidence of mismanagement or diversion of funds and noted that the company's performance had been steady.
7. Validity of Board Meetings and Resolutions:
The petitioners argued that no notice of board meetings was given to petitioner No. 1-director and that the resolutions were invalid. The CLB found that the petitioners were present in several board meetings and had not raised objections at the time.
8. Allegations of Oppression and Mismanagement:
The petitioners alleged oppression and mismanagement by the respondents. The CLB found that the petitioners had raised similar issues in the earlier petition (C.P. No. 9 of 2005) and were estopped from raising them again. The CLB also found no evidence of oppression or mismanagement.
9. Request for Restoration of Parity in Shareholding:
The petitioners sought restoration of parity in shareholding as it was before February 14, 2004. The CLB found that the consent order had already addressed the issue of parity, and the petitioners had failed to comply with the terms of the consent order.
10. Validity of Annual General Meeting Notice:
The petitioners challenged the notice for the annual general meeting held on November 19, 2008, arguing that it did not provide 21 clear days' notice. The CLB found no merit in this contention, noting that the petitioners had received the notice and had not raised objections at the time.
Conclusion:
The CLB dismissed the petition, finding that the petitioners were estopped from raising issues already settled in the earlier petition and had failed to establish any acts of oppression or mismanagement. The CLB also imposed a cost of Rs. 25,000 on the petitioners for filing a frivolous petition. The petitioners were given the liberty to approach the CLB for the valuation of their shares and seek appropriate orders for their exit from the company.
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2011 (6) TMI 675
Shifting of registered office from West Bengal to Maharastra - e-filing was refused by RoC, Maharashtra on ground that company's registration number with the RoC, Maharashtra, was not found on its records, thereby the petitioner was requested to submit its certificate of incorporation as because the registration No.24174 mentioned by the petitioner belongs to another company - petitioner kept on filing statutory records with the RoC, Maharashtra, in the belief that the registered office of the petitioner was shifted to the State of Maharashtra as it obtained receipts from 1985 to 1999 for all the records it filed with the RoC, Maharashtra – Held that:- petitioner-company placed no material before respective Registrars within the time stipulated in the statute, even if it is presumed as filed within time, if no certification is not given, then the remedy is elsewhere but not before a Tribunal which is vested with limited powers. Since almost 28 years lapsed after this Bench passed order confirming the resolution shifting its registered office from the jurisdiction of RoC, West Bengal, to the jurisdiction of RoC, Maharashtra, since the statute expressly bars from using discretion either in condoning delay or for passing any orders on the ground of equity, this Bench will not have any legal authority either to condone the delay under sub-section (4) of section 18 or revive it under proviso of section 19 of the Act
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2011 (6) TMI 674
Whether CLB can shut its eyes to the flagrant violation of the provisions of section 17 – Alteration of MOA – amendment of the object clause of a mainly cement manufacturing and trading company to deal in securities, instruments By group of shareholders controling 62.9 per cent voting rights, without information to other members - alleged that aforesaid is fraudulent scheme, a mischievous device conceived to defraud the company, its stakeholders and the public to make illicit gains - Held that:- CLB, a quasi judicial authority guided by the principles of natural justice may in exercise of its power and discretion grant leave to amend the pleadings provided the party approaching was not acting mala fide - mismanagement in the affairs of the company causing oppression to the minority shareholders, seeking amendment of the object clause of memorandum of association of the company for doing the business already being done, keeping the shareholders in the dark - such an act is sought to be got ratified now by seeking amendment to the object clause of the memorandum, an enquiry into the charges is very much within the scope of interim injunction in the instant matter
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2011 (6) TMI 673
Winding up - Interest on loan – secured debt - hypothecation. - creation / registration of charge - held that:- The interest accrued on two loans have been shown as a separate account called "the funded interest account". - No amount has been advanced afresh to the company in liquidation. - Therefore, there is no modification of the charge which is required to be informed to the Registrar as provided under section 135 of the Act. Since "the funded interest account" is nothing but interest due on two term loans for which charge has already been created and placed on record, no further charge is required to be placed on record with the Registrar of Companies.
The order passed by the official liquidator rejecting the claim of the appellant with regard to Rs. 33,12,717 as secured debt cannot be sustained.
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2011 (6) TMI 672
Issues Involved:
1. Entitlement of secured creditors to enforce their full claim under the certificate issued by the Debts Recovery Tribunal (DRT).
2. Competency of the Official Liquidator to restrict claims under the Company (Court) Rules.
3. Jurisdiction of the Company Court to entertain claims based on DRT certificates.
4. Jurisdiction of the Company Court to decide the validity of charges under the Companies Act.
5. Jurisdiction of the Company Court to decide if secured creditors have relinquished their securities.
Detailed Analysis:
Issue 1: Entitlement of Secured Creditors to Enforce Full Claim Under DRT Certificate
The secured creditors, having obtained certificates under section 19(22) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act), cannot enforce their full claims in the proceedings lodged under rule 163 of the Company (Court) Rules before the Official Liquidator. The Official Liquidator is bound by the provisions of the Companies Act and the Company (Court) Rules and can only partially accept claims up to the date of the winding-up order. Sections 25, 26, and 29 of the RDB Act provide the exclusive modes for executing such certificates, and the Official Liquidator is not empowered to enforce these certificates beyond the scope of the Company (Court) Rules.
Issue 2: Competency of the Official Liquidator to Restrict Claims
The Official Liquidator, acting under rule 163 of the Company (Court) Rules, is competent to restrict the claims of the secured creditors to the date of the winding-up order as per rule 154 and limit the interest to 4% per annum as per rules 156 and 179. The Official Liquidator must adhere to these rules while accepting or rejecting claims, and cannot deviate from them. The secured creditors' claims are thus restricted in accordance with these provisions.
Issue 3: Jurisdiction of the Company Court to Entertain Claims Based on DRT Certificates
The Company Court, under section 446 of the Companies Act, has limited jurisdiction to entertain and decide claims of secured creditors who have obtained DRT certificates, only to the extent that these claims are consistent with sections 529 and 529A of the Companies Act and rules 154, 156, and 179 of the Company (Court) Rules. For the full enforcement of claims based on DRT certificates, secured creditors must adopt the execution modes prescribed under the RDB Act. The Company Court cannot act in execution of these certificates, as this is not a mode prescribed under the RDB Act.
Issue 4: Jurisdiction of the Company Court to Decide the Validity of Charges
The Company Court does not have jurisdiction under section 446 of the Companies Act to determine whether the charges of the secured creditors are registered or to declare debts as unsecured due to non-compliance with section 125 of the Companies Act. The determination by the Debts Recovery Tribunal (DRT) regarding the registration of charges and the extent of secured claims is binding and cannot be re-opened by the Company Court.
Issue 5: Jurisdiction of the Company Court to Decide if Secured Creditors Have Relinquished Their Securities
The question of whether secured creditors have relinquished their securities is a mixed question of law and fact, which pertains to the executability of the DRT certificates. This question can only be raised and decided in the execution proceedings under the RDB Act and not by the Company Court under section 446 of the Companies Act. The Company Court's jurisdiction to deal with this question is ousted.
Conclusion:
1. The secured creditors cannot enforce their full claims under DRT certificates in the proceedings before the Official Liquidator.
2. The Official Liquidator is competent to restrict claims as per the Company (Court) Rules.
3. The Company Court has limited jurisdiction to entertain claims based on DRT certificates, consistent with sections 529 and 529A of the Companies Act.
4. The Company Court cannot determine the validity of charges under section 125 of the Companies Act.
5. The question of relinquishment of securities by secured creditors cannot be decided by the Company Court under section 446 of the Companies Act.
Orders:
1. The determination by the Official Liquidator on 12-2-2009 is confirmed.
2. Delay in filing Company Appeal Stamp No. 18418 of 2009 is condoned.
3. Company Appeals challenging the partial rejection of claims by the Official Liquidator are dismissed.
4. Company Applications seeking enforcement of DRT certificates are dismissed.
5. Secured creditors may adopt other proceedings for enforcement of their full claims under the RDB Act.
6. The contention of the Official Liquidator for reduction of claims under section 125 of the Companies Act is not entertained.
7. The question of relinquishment of securities cannot be decided under section 446 of the Companies Act.
8. The disbursement of dividend declared by the Official Liquidator shall be considered after the decision of the Apex Court.
9. Costs incurred by the Official Liquidator to be paid by the applicants/appellants.
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2011 (6) TMI 671
HUF - a special resolution to allot the premises No.3, Ratendone Road, New Delhi to Sh. Hansraj Gupta, Director and Chairman of the company or to any other officer, as the Board may determine from time to time free of costs Charges for residence purpose. The premises 3 Ratendone shall be maintained by the company at its cost and rent, House Tax, Electricity, water charges, Telephone facility, while washing, repairs, sanitary installation and fitting shall be borne by the company. The company shall also maintain the lawn and gardens at its cost - Disclosure of interest by - However, by a resolution dated 9-10-2000, appellant was removed from post of CEO - A resolution dated 12-1-2002 was passed by board of directors of respondent-company whereby a decision was taken to surrender tenancy of said property to its owner - Appellants filed suit in question challenging validity of above resolution - Appellants contended that respondents had interest in property being coparceners of HUF which was owner thereof and as directors of company and they failed to disclose their interest in terms of section 299.
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2011 (6) TMI 670
Regulation of foreign contribution and foreign hospitality - deemed permission - Petitioner-trust had been receiving foreign contributions/donations after obtaining prior permission from respondent No. 1-MHA - Petitioner filed two applications on 3-12-2009 and 16-6-2010 to respondent for prior permission to receive amounts from foreign donors but respondent before expiry of ninety days wrote letters, dated 25-3-2010 and 6-10-2010 to petitioner that permission of Central Government could not be granted at relevant time and that it should not receive any foreign contribution till prior permission was issued by ministry – Held that:- if there was a deemed permission that was already granted under the FCRA 1976 at the time of the FCRA 2010 coming into effect, such deemed permission should be taken to have been granted under the FCRA 2010. Viewed from the perspective of the FCRA 2010 as well, the deemed permission in respect of the two applications of the Petitioner dated 3-12-2009 and 16-6-2010 in terms of the Proviso to section 11(2) FCRA 1976 remains unaffected. Also, the proviso to section 11(2) FCRA 1976 regarding deemed permission in respect of applications for prior permission cannot be defeated by the Central Government by simply keeping applications pending beyond the outer limit within which such applications were required to be disposed of in terms of the FCRA 1976. Writ petition is allowed
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2011 (6) TMI 669
EGM - prayer that was sought for in the application and considered by the Company Law Board in the impugned order was to restrain holding of the EGM and to prevent Respondents 2 and 3 from removing the appellant from the Board of Directors of Respondent No. 1-Company under section 284(3) of the Companies Act – Held that:- no exceptional ground is made out and the Company Law Board has observed that convening of EGM and decision taken therein shall be subject to the outcome of the Company Petition. it is necessary to issue directions to the Company Law Board to expedite the decision of the petition. Learned Senior counsel appearing for the appellant submits that appellant has to file rejoinder in the main petition. Appeal disposed of
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2011 (6) TMI 668
Scheme of amalgamation - board of directors of the transferor and transferee companies approved and adopted the scheme of amalgamation to transfer and merge the transferor company with the transferee company – Held that:- there is no material to come to a conclusion that the affairs of the transferor company have been conducted in a manner prejudicial to the interests of its members or to public interest or there were any transactions to attract the provisions of sections 542 and 543 of the Companies Act. company petitions are ordered, as the scheme of amalgamation will be for the benefit and interest of equity shareholders of the transferor and transferee companies
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2011 (6) TMI 667
Issues Involved:
1. Locus standi of the minority group to file an application under sections 397 and 398 of the Companies Act, 1956.
2. Validity of share transfers and the consequent shareholding of the minority group.
3. Jurisdiction and procedure of the Company Law Board in determining share qualification under section 399 of the Companies Act, 1956.
4. The legal implications of alleged forgery and fraud in share transfers.
Issue-Wise Detailed Analysis:
1. Locus Standi of the Minority Group:
The core issue is whether the minority group had the requisite shareholding to maintain an application under sections 397 and 398 of the Companies Act, 1956. The majority group contended that the minority did not have more than 6% shareholding at the time of filing the application, as key members had sold significant shares in 2007. The minority group argued that they never signed the transfer deeds, and the transactions were managed by other family members who controlled their financial and corporate affairs. The Company Law Board dismissed the application challenging the locus standi, leading to the majority group's appeal.
2. Validity of Share Transfers and Consequent Shareholding:
The majority group presented income-tax returns and related documents to show that key members of the minority group had sold their shares, reducing their holding to 6%. The minority group countered that the transfers were unauthorized and the documents were signed blindly under the influence of the controlling family members. They argued that the share transfers were void as they did not sign the transfer deeds, and the company should not have registered these transfers without proper documentation as required by section 108 of the Companies Act, 1956.
3. Jurisdiction and Procedure of the Company Law Board:
The judgment emphasized that the Company Law Board must come to a positive finding on whether the petitioners have the requisite qualifying shares under section 399 before proceeding with a case under sections 397 and 398. The Board should not defer this determination until the conclusion of the trial to prevent misuse of the process by unqualified petitioners. The judgment cited several cases to support this view, including the English case of A Company (No. 001761 of 1986) and the Supreme Court cases of M. S. D. C. Radharamanan and Sangramsinh P. Gaekwad. The judgment clarified that private disputes between shareholders or between a shareholder and the company should not be entertained under sections 397 and 398 unless the company itself is involved in reducing the shareholding through illegal acts.
4. Legal Implications of Alleged Forgery and Fraud:
The minority group alleged that the share transfers were fraudulent and that the controlling family members had manipulated the documents. The judgment stated that in such cases, the Company Law Board should first examine the company's records for properly executed transfer deeds. If no such deeds exist, the Board should consider the minority's claim valid until a civil court rules otherwise. If the deeds are found, the Board should dismiss the petition with liberty for the minority to reapply after establishing their right in a civil forum. The judgment emphasized that substantial evidence of forgery or fraud should prompt the Board to relegate the parties to a civil court.
Conclusion:
The judgment concluded that the Company Law Board did not follow the appropriate approach in determining the share qualification issue. The case was remanded to the Board for reconsideration and a fresh order in accordance with the legal principles discussed. The appeal was partly allowed, and the stay application, if any, was disposed of with no order as to costs.
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2011 (6) TMI 666
Issues Involved:
- Applicability of Section 111A to a private company that became a public company under Section 43A.
- Effect of the 2000 amendment on the status of companies that acquired public status under Section 43A.
- Validity of pre-emption rights in the Articles of Association of a public company.
- Allegations of oppression and mismanagement by majority shareholders.
Detailed Analysis:
1. Applicability of Section 111A to a Private Company that Became a Public Company under Section 43A:
The Court examined whether Section 111A, which deals with the free transferability of shares, applies to a private company that became a public company under Section 43A. The Court noted that Section 111A does not apply to a private company that became a public company under Section 43A, as clarified by Section 111(14). However, with the 2000 amendment, Section 43A ceased to apply, and thus, the company in question, Gharda Chemicals Ltd. (GCL), was considered a public company, making its shares freely transferable under Section 111A.
2. Effect of the 2000 Amendment on the Status of Companies that Acquired Public Status under Section 43A:
The Court discussed the implications of the 2000 amendment, which rendered Section 43A inapplicable except for sub-section (2A). The amendment aimed to abolish the concept of deemed public companies. The Court concluded that after the 2000 amendment, GCL, which had become a public company under Section 43A, continued to be a public company and could not revert to being a private company. The defeat of the special resolution to amend the Articles of Association to include clause (d) confirmed GCL's status as a public company.
3. Validity of Pre-emption Rights in the Articles of Association of a Public Company:
The Court examined whether the pre-emption rights in Article 57 of GCL's Articles of Association, which restricted the transfer of shares, were valid for a public company. The Court held that the statutory provisions, specifically Section 111A, providing for the free transferability of shares, override any contrary provisions in the Articles of Association. Therefore, Article 57, which imposed pre-emption rights, was not applicable to GCL as a public company.
4. Allegations of Oppression and Mismanagement by Majority Shareholders:
The appellants alleged various acts of oppression and mismanagement by the majority shareholders, including dividend squeezing and unjust enrichment. The Court noted that these allegations were similar to those raised in a previous company petition (No. 77 of 1990), which had been dismissed. The Court found no substantial proof to support the allegations of oppression and mismanagement. The appellants' withdrawal from the previous petition without seeking liberty to raise the issues again further weakened their case. The Court concluded that the appellants failed to make out a case for oppression of minority shareholders.
Conclusion:
The Court dismissed the appeal, holding that GCL is a public company with freely transferable shares under Section 111A. The pre-emption rights in the Articles of Association were not applicable, and the allegations of oppression and mismanagement were not substantiated. The interim order was continued for six weeks to allow the appellants to seek further legal recourse.
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2011 (6) TMI 665
Whether Designated Authority has no power to issue corrigendum as it became functus officio in law immediately after the issuance of the final finding dated 17-2-2009 and only jurisdiction which the Designated Authority had thereafter was in terms of Rule 23 of the Anti Dumping Rules to make a mid term review – Held that:- corrigendum dated 17-4-2009 is concerned, obviously, the same was also issued within the period prescribed for the completion of the notification, even the final notification was issued on 15-5-2009. Being so, the issue regarding bar of limitation as such does not arise for consideration in the matter.
The corrigendum apparently discloses elaborate discussion of the objections raised on behalf of the appellants in this regard and the logical conclusion arrived at on analysis of those contentions. There is, therefore, absolutely no substance in this ground of challenge also.
Whether Designated Authority has no power to impose Anti-Dumping duty in terms of any foreign currency and anti dumping duty can be imposed only in Indian rupees – Held that:- Anti-dumping duty is fixed after a finding that foreign goods are sold at less than their normal value in the Indian market causing injury to domestic producers. The amount of dumping margin is worked out in dollar terms as all aspects of trade are in US$. Section 9A stipulates that anti-dumping duty shall not exceed dumping margin. anti-dumping duty should be fixed in dollar terms so that erosion of the quantum of protection does not take place on account of changes in the exchange rate”. appeals dismissed.
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2011 (6) TMI 664
Waiver of pre-deposit - Counsel submitted that the Appellant is nearly 69 years of age and has no subsisting business since the transaction in question related to the year 2003 – Held that:- opportunity should be granted to the Appellant to move the Tribunal afresh for reconsidering the issue of financial hardship on the basis of the material which is now placed on record, Tribunal directed to reconsider the question of financial hardship in the light of the material that may be produced by the Appellant, Petition is accordingly disposed of
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