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2007 (2) TMI 348
Nature Of Income - Applicability of section 28(iv) - Addition on account of remission of foreign currency loan - Term "Benefit" Or "Perquisite"- HELD THAT:- In the present case also the assessee has created capital reserve which itself is indicative of nature of this amount even at the time of such a write-off as being of capital nature. Here, no material has been brought on record to say that loan so received was in the nature of revenue grant or subsidy or assistance originally or it was convertible into such type of receipts in the situation of the assessee not being in position of paying back the same, hence, its character of loan at all points cannot be doubted. We would further like to mention that the income as such or by way of retained earning is capable of being distributed or used for the purpose of the business and in the present case, the loan taken earlier have been repaid, therefore it cannot be distributed as retained earnings directly or indirectly, hence, on this count also the address of capital reserve created by the assessee cannot be termed as income.
All the receipts mentioned in section 28 have inherently of income nature except in case or receipt under a Key Man Insurance Policy which is a recovery of expenditure already allowed as deduction. Hence, prima facie, the loan received by an assessee in the course of business is not envisaged an income. Now, coming to specific provisions of sub-section (iv) of section 28 it is also in connection with the value of any benefit or perquisite arising from business which means that such benefit or perquisite should be in the nature of income from the very beginning or it must have characteristics of income before it becomes chargeable at a later stage, if the original transaction is completed as designed. As stated that no material has been brought on record to show that the loan agreements provided for such waiver at subsequent stages, hence, this receipt cannot be construed as a benefit within the meaning of section 28(iv) of the Act.
In the present case, the assessee has not such special right or privilege. The only privilege which he enjoyed was regarding no liability to pay any interest as the funds were interest-free, hence, assessee derived benefit to this extent only and had it been a case of interest being payable by the assessee originally which was waived subsequently, in part or toto, the same would have been a benefit u/s 28(iv) surely. We are further of the opinion that provisions of section 28(iv) can be applied in a number of situations but the bottom-line or crucial fact would always be circumvention of income by taking or receiving income in other forms.
To conclude, we hold that the order of the CIT(A) is not correct in law and accordingly, we quash the same and direct the Assessing Officer not to charge the amount of loan waived by the lender as income of the assessee. Thus, this ground of the assessee stands accepted.
In the result, appeal filed by the assessee is allowed.
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2007 (2) TMI 347
Issues Involved:
1. Taxability of interest earned on nostro account balances under Section 5(2) of the Income-tax Act, 1961.
2. Applicability of tax rate under the Agreement for Avoidance of Double Taxation between India and France.
3. Deductibility of net interest paid for broken period after setting off interest received for broken period.
Issue-wise Detailed Analysis:
1. Taxability of Interest Earned on Nostro Account Balances:
The primary issue was whether the interest earned on nostro account balances is taxable in India under Section 5(2) of the Income-tax Act, 1961. The assessee, a non-resident company engaged in banking, argued that the interest earned on the nostro account balances should not be taxed in India as it neither accrued nor was received in India. The Assessing Officer (AO) contended that since the interest was credited in the books of the Indian branch, it should be taxed in India. The CIT(A) upheld the AO's decision, stating that the entire business operations, including those of the New York branch, were conducted as a composite unit, and thus, the interest income should be taxable in India. The Tribunal, however, found that the interest income did not accrue in India as the funds were raised and deposited outside India. It was concluded that the interest income earned on deposits with BTC did not fall within the scope of Section 5(2) of the Act.
2. Applicability of Tax Rate Under the Agreement for Avoidance of Double Taxation:
The second issue was whether the assessee's income should be taxed at the rate of 55% or 46% as per Article 26 of the Agreement for Avoidance of Double Taxation between India and France. The assessee argued that under the treaty, the permanent establishment of a French resident should not be less favorably treated than an enterprise carrying on the same activities in India. The CIT(A) and the Tribunal, however, upheld the higher tax rate of 55%, citing the explanation appended to Section 90 of the Income-tax Act, which clarifies that applying a higher rate to a non-domestic company is not discriminatory. The Tribunal emphasized that the power of Parliament to amend the law is not compromised by the DTAA, and the explanation to Section 90(2) clarifies that the higher rate for non-resident companies is not less favorable treatment.
3. Deductibility of Net Interest Paid for Broken Period:
The third issue was whether the net interest paid for the broken period, after setting off the interest received for the broken period, is an allowable deduction. The assessee contended that this method of accounting had been consistently followed and should be recognized. The Tribunal noted that this issue was covered in favor of the assessee by its previous decisions for earlier assessment years, where it was held that the interest paid for the broken period should be set off against the interest received for the broken period. Consequently, the Tribunal directed the AO to re-adjudicate this issue in light of its earlier decisions.
Conclusion:
The Tribunal partly allowed the appeal of the assessee, holding that the interest earned on nostro account balances was not taxable in India, upheld the higher tax rate of 55% as per the Income-tax Act, and directed the AO to re-adjudicate the issue of deductibility of net interest paid for the broken period in line with its previous decisions.
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2007 (2) TMI 346
Issues Involved:
1. Validity of the CIT's order u/s 263 of the Income-tax Act, 1961.
2. Whether the assessment order dated 6-2-2004 was erroneous and prejudicial to the interest of revenue.
3. Applicability of the principles laid down in Malabar Industrial Co. Ltd. v. CIT.
4. Disallowance of Rs. 17,38,106 under "Selling and Distribution Expenses" and deduction u/s 80HHC.
5. Legitimacy of the CIT's direction for de novo assessment.
Summary:
1. Validity of the CIT's order u/s 263 of the Income-tax Act, 1961:
The CIT initiated proceedings u/s 263, observing discrepancies in the assessee's closing stock, sundry debtors, exchange rate difference income, and insurance claims. The CIT concluded that the Assessing Officer (AO) did not conduct adequate third-party inquiries, resulting in a weak order. Consequently, the CIT set aside the AO's order dated 14-3-2005, directing a fresh de novo assessment.
2. Whether the assessment order dated 6-2-2004 was erroneous and prejudicial to the interest of revenue:
The Tribunal emphasized that for the CIT to exercise jurisdiction u/s 263, the order must be both erroneous and prejudicial to the interests of the revenue. The Tribunal found that the AO had disallowed the entire claim of deduction u/s 80HHC and other expenses after due inquiry and application of mind. The Tribunal noted that the AO's disallowances were based on the material available on record, and the CIT did not provide any specific findings of error causing prejudice to the revenue.
3. Applicability of the principles laid down in Malabar Industrial Co. Ltd. v. CIT:
The Tribunal reiterated the principles from Malabar Industrial Co. Ltd. v. CIT, stating that an order cannot be revised merely because the CIT holds a different view. The CIT must demonstrate that the AO's order is erroneous and has caused prejudice to the revenue. The Tribunal found that the AO's order was neither erroneous nor prejudicial to the revenue, as the AO had already disallowed significant claims after thorough examination.
4. Disallowance of Rs. 17,38,106 under "Selling and Distribution Expenses" and deduction u/s 80HHC:
The AO disallowed Rs. 17,38,106 claimed under "Selling and Distribution Expenses" due to lack of supporting documents and the entire deduction u/s 80HHC amounting to Rs. 32,25,486. The Tribunal found that the AO had made these disallowances after due inquiry and application of mind, and the CIT's direction for further inquiry was unwarranted.
5. Legitimacy of the CIT's direction for de novo assessment:
The Tribunal held that the CIT's direction for de novo assessment was not justified, as the AO had already disallowed the entire claim of deduction u/s 80HHC and other expenses after due inquiry. The Tribunal also noted that mere filing of an insurance claim does not accrue income, and such notional income cannot be brought to tax unless the claim is accepted by the insurance company.
Conclusion:
The Tribunal found no merit in the CIT's order passed u/s 263 and allowed the appeal of the assessee. The AO's order was held to be neither erroneous nor prejudicial to the interest of the revenue.
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2007 (2) TMI 345
Issues Involved:
1. Classification of shares as investment or stock-in-trade.
2. Applicability of Accounting Standards.
3. Determination of loss as business loss or capital loss.
4. Treatment of conversion of investment into stock-in-trade under section 2(47)(iv) and section 45(2).
Issue-wise Detailed Analysis:
1. Classification of Shares as Investment or Stock-in-Trade:
The primary issue was whether the shares held by the assessee-company were investments or stock-in-trade. The assessee claimed that the shares were initially misclassified as investments due to an error and were actually intended to be stock-in-trade. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, relying on the treatment given by the assessee in its books of account, where the shares were shown as investments. The Tribunal upheld the authorities' view, noting that the shares were treated as investments in the previous year and there was no evidence to suggest an error or misclassification. The Tribunal emphasized the statutory requirements for maintaining books of account and the process through which financial statements undergo, concluding that the shares were indeed investments up to 31-3-1995.
2. Applicability of Accounting Standards:
The assessee argued that the valuation of shares should be in accordance with Accounting Standard (AS) 13 issued by the Institute of Chartered Accountants of India (ICAI), which mandates that investments should be valued at cost or market price, whichever is lower. The AO and CIT(A) noted that AS-13 was not notified by the Government, and thus not mandatory. The Tribunal agreed with this view, stating that the change in accounting policy or rectification should have been disclosed in the financial statements, which was not done by the assessee.
3. Determination of Loss as Business Loss or Capital Loss:
The assessee claimed a loss of Rs. 56,65,082 due to the reduction in the market value of shares, treating it as a business loss. The AO and CIT(A) treated this as a short-term capital loss, arguing that the conversion of shares from investment to stock-in-trade constituted a transfer under section 2(47)(iv). The Tribunal upheld this view, stating that the loss from the conversion of shares should be treated as a capital loss and not a business loss. The Tribunal noted that the shares were held as investments and the conversion to stock-in-trade was an afterthought to claim the loss as a business loss.
4. Treatment of Conversion of Investment into Stock-in-Trade under Section 2(47)(iv) and Section 45(2):
The Tribunal held that the conversion of shares from investment to stock-in-trade constituted a transfer under section 2(47)(iv). The profits or gains arising from such conversion should be computed as per section 45(2), which states that the fair market value of the asset on the date of conversion should be considered as the full value of the consideration for computing capital gains. The AO did not determine the fair market value of the shares as on the date of conversion due to the assessee's failure to provide details. The Tribunal restored the matter to the AO to ascertain the fair market value of the shares as on 1-4-1995 and compute the capital gains and business profits accordingly.
Conclusion:
The Tribunal upheld the authorities' classification of shares as investments and the treatment of the resultant loss as a capital loss. It directed the AO to determine the fair market value of the shares as on the date of conversion and compute the capital gains and business profits accordingly. The appeal was partly allowed for statistical purposes.
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2007 (2) TMI 344
Issues Involved:
1. Rectification of mistakes under section 254(2) of the Income-tax Act.
2. Deletion of additions made on account of under-stated turnover and gross profit rate.
3. Restoration of addition made on account of discrepancy in closing stock valuation.
4. Consideration of factual errors and case law citations in Tribunal's order.
Detailed Analysis:
1. Rectification of Mistakes under Section 254(2):
The assessee filed a miscellaneous application under section 254(2) of the Income-tax Act, claiming that the Tribunal's order contained mistakes needing rectification. The scope of section 254(2) is limited to rectifying mistakes apparent from the record, and does not extend to reviewing the Tribunal's decision. The Tribunal emphasized that points on which there can be more than one opinion and errors of judgment cannot be rectified under this section.
2. Deletion of Additions:
The appeal before the Tribunal involved the Income-tax Department challenging the CIT (Appeals) order, which deleted the addition of Rs. 1,00,761 for under-stated turnover and Rs. 2,90,180 for under-stated gross profit rate. The Tribunal deleted these additions in its order.
3. Restoration of Addition for Discrepancy in Closing Stock:
The Tribunal restored the addition of Rs. 13,81,852, reversing the CIT (Appeals) decision that had reduced it to Rs. 5 lakhs. The assessee argued that the Tribunal overlooked vital factual aspects and committed factual mistakes. Specifically, the assessee contended that the stock inventory did not mention the rate, and the income-tax authorities did not furnish the basis of the rate adopted for stock valuation. However, the Tribunal noted that the inventory prepared during the survey mentioned the rate and that the assessee failed to provide evidence to dispute the valuation.
4. Consideration of Factual Errors and Case Law Citations:
The assessee argued that the Tribunal did not consider certain factual aspects and case law cited during the appeal. The Tribunal acknowledged that the assessee cited judgments/orders such as Smt. Amiya Bala Paul v. CIT, Goojar Mal Ganpat Rai v. CIT, and Bansal Strips Ltd. v. Asstt. CIT, which were not mentioned in the Tribunal's order. However, the Tribunal held that the omission of these citations did not constitute a mistake apparent from the record, as the Tribunal's decision was based on the lack of evidence from the assessee to dispute the stock valuation.
Tribunal's Findings:
The Tribunal found that:
- The addition was based on specific material gathered during the survey.
- The inventory of stock was countersigned by the assessee.
- The assessee did not provide any material to dispute the valuation.
- The assessee admitted that proper trading records were not maintained.
- There was no evidence to support the assessee's claims regarding the valuation.
Conclusion:
The Tribunal concluded that there was no mistake apparent from the record requiring rectification under section 254(2). The application for rectification was essentially an attempt to review the Tribunal's order, which is not permissible under the law. The Tribunal's order had substantially dealt with the contentions raised by the assessee, and the mere omission of some points or case law citations did not warrant rectification. The application for rectification was therefore rejected.
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2007 (2) TMI 343
Issues Involved:
1. Tax withholding liability from payments made to overseas cricket bodies.
2. Time-barred nature of proceedings under section 201.
3. Applicability of section 194E and section 115BBA.
4. Nature of 'guarantee money' and its taxability.
5. Impact of tax treaties on taxability.
6. Binding nature of CBDT clarification dated 17th May, 1996.
7. Validity of no objection certificates issued by the Assessing Officer.
8. Application of Article 7 and Article 22 of relevant tax treaties.
Detailed Analysis:
1. Tax Withholding Liability from Payments Made to Overseas Cricket Bodies:
The primary issue was whether the assessee had a tax withholding liability under section 194E read with section 115BBA for payments made to overseas cricket bodies. The Assessing Officer held that these payments were subject to tax deduction at source, as they constituted 'guarantee money' paid in relation to cricket sports played in India.
2. Time-Barred Nature of Proceedings Under Section 201:
The assessee contended that the action for failure to deduct tax at source was time-barred as it was initiated beyond four years from the end of the relevant previous year. The Assessing Officer rejected this contention, noting that the TDS returns were filed inordinately late, and thus, the proceedings were not time-barred.
3. Applicability of Section 194E and Section 115BBA:
The Assessing Officer asserted that sections 194E and 115BBA unambiguously covered 'guarantee money' payments to non-resident sports associations. The CIT(A) disagreed, referencing a CBDT clarification that no tax withholding was required for payments to cricket bodies of countries with which India had tax treaties.
4. Nature of 'Guarantee Money' and Its Taxability:
The assessee argued that 'guarantee money' was not of an income nature but was a reciprocal obligation for meeting expenses when Indian teams visited foreign countries. The Assessing Officer, however, considered it compensatory and taxable. The Tribunal noted the lack of concrete evidence from the assessee to substantiate the claim that the payments were not in consideration for playing cricket in India.
5. Impact of Tax Treaties on Taxability:
The assessee argued that under the relevant tax treaties, the payments were not taxable in India as the foreign cricket bodies had no permanent establishment in India. The Assessing Officer contended that under Article 22 of the tax treaties, the income was taxable in India as it arose in India. The Tribunal emphasized the need to examine the nature of payments to determine taxability under the treaties.
6. Binding Nature of CBDT Clarification Dated 17th May, 1996:
The CIT(A) held that the CBDT clarification was binding on the Assessing Officer. However, the Tribunal, referencing the PILCOM case, concluded that the clarification did not have binding force under section 119 of the Act and thus could not be relied upon to negate the tax withholding liability.
7. Validity of No Objection Certificates Issued by the Assessing Officer:
For certain payments, the assessee had obtained no objection certificates from the Assessing Officer, which were later rescinded by the Commissioner under section 263. The Tribunal noted that these certificates, once rescinded, could not be used to justify non-deduction of tax at source.
8. Application of Article 7 and Article 22 of Relevant Tax Treaties:
The Tribunal highlighted the need to determine whether the payments constituted business profits under Article 7 or were taxable under the residuary clause of Article 22. The Assessing Officer had rejected the application of Article 7, asserting that the activities of the cricket bodies did not constitute business.
Conclusion:
The Tribunal remitted the matter back to the Assessing Officer to ascertain the true nature of the payments and determine their taxability under the provisions of the Indian Income-tax Act and the relevant tax treaties. The Assessing Officer was directed to provide a detailed and reasoned order after giving the assessee an opportunity to present evidence. The appeals were allowed for statistical purposes.
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2007 (2) TMI 342
Succession to business otherwise than on death - Assessment in the hands of a non-existent company is a nullity and invalid or it is only an irregularity? - HELD THAT:- We find that the Delhi Bench of Tribunal in case of Impsat (P.) Ltd. [2004 (7) TMI 299 - ITAT DELHI-A] has held the assessment in the hands of the amalgamating company which is non-existent to be nullity and invalid. Similarly ITAT Delhi Bench in the case of Hewlett Packard India (P.) Ltd.[2006 (4) TMI 514 - ITAT DELHI] held such assessment to be invalid.
We have noticed that the decision of ITAT Delhi Bench in the case of Impsat (P.) Ltd. was available at the time when ITAT Mumbai Bench heard the appeal of Century Enka Ltd.[2006 (2) TMI 596 - ITAT MUMBAI] but, the same was not brought to the knowledge of ITAT Mumbai Bench. Therefore, they had no occasion to consider the same and took a decision contrary to the decision of ITAT Delhi Bench.
Thus, we respectfully following the decision of ITAT Delhi Bench in the case of Impsat (P.) Ltd. and Hewlett Packard India (P.) Ltd. and the decision of the Madras High Court in the case of Express Newspapers Ltd. [1960 (3) TMI 48 - MADRAS HIGH COURT] hold that the assessment made in the hands of non-existent company is nullity. Accordingly we quash the assessment made in the hands of Pampasar Distillery Ltd. for the assessment year under consideration, i.e., 1999-2000, 2000-01 and 2001-02, because assessment for these years were made on the date when it was not in existence.
Hence, we may mention that the Assessing Officer can make the assessment of the income prior to the period of amalgamation of Pampasar Distillery Ltd. in the hands of Successor Company that is amalgamated company which is Shaw Wallace Distilleries Ltd. as per provision of sub-section (2) of section 170 of the Income-tax Act. Now it is for the revenue to initiate appropriate proceedings against the right person i.e. Shaw Wallace Distilleries Ltd. in accordance with law. At present the assessment framed against Pampasar Distillery Ltd. is liable to be cancelled being invalid. Accordingly, we cancel the assessment made in the hands of Pampasar Distillery Ltd.
As we have cancelled the assessment made in the hands of Pampasar Distillery Ltd., the revenue’s appeal for assessment years 1999-2000 to 2001-02 which is against some relief allowed by CIT(A), does not survive, accordingly the same are rejected.
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2007 (2) TMI 341
Whether this is a matter to be adjudicated by the Central Administrative Tribunal - reward in connection with the detection and prosecution of customs cases - Assistant Solicitor General submit that this is not a service matter but a claim - respondents have no case that this matter shall be adjudicated by the Central Administrative Tribunal - respondents submit that the claim of the petitioner will be verified with relevant records and whatever amount is found due will be disbursed to him. The above submission is recorded and the writ petition is disposed of.
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2007 (2) TMI 339
Issues Involved:
1. Legality and validity of the respondent's action under Section 13(4) of the SARFAESI Act.
2. Applicability of the doctrine of election concerning the remedies under the SFC Act and the SARFAESI Act.
3. Impact of Section 22 of the SICA on the respondent's actions.
4. Whether the respondent represents 75% of the secured creditors to initiate action under the SARFAESI Act.
5. Whether the amendment to the SICA applies during the pendency of the reference before the BIFR.
Issue-wise Detailed Analysis:
1. Legality and Validity of the Respondent's Action under Section 13(4) of the SARFAESI Act:
The petitioner, Golden Weaving Mills (P.) Ltd., challenged the respondent, Tamil Nadu Industrial Investment Corporation Ltd., for taking action under Section 13(4) of the SARFAESI Act. The court held that the respondent is a financial institution within the meaning of Section 2(1)(m) of the SARFAESI Act and is entitled to take appropriate action under Section 13 thereof. The court found that the respondent's notice under Section 13(2) demanding repayment was valid and that the respondent could proceed further under Section 13(4) if the demand was not met.
2. Applicability of the Doctrine of Election:
The petitioner argued that the respondent could not bypass the provisions of the SFC Act and exploit the SARFAESI Act, invoking the doctrine of election. The court referred to the Supreme Court's decision in A.P. State Financial Corporation v. Gar Re-rolling Mills, which held that the doctrine of election does not apply when the ambit and scope of the two remedies are essentially different. The court also cited Transcore v. Union of India, which clarified that the SARFAESI Act is an additional remedy to the SFC Act, and the doctrine of election does not apply. Therefore, the respondent could choose to proceed under the SARFAESI Act without being barred by the doctrine of election.
3. Impact of Section 22 of the SICA:
The petitioner contended that Section 22 of the SICA barred the respondent from taking action under the SFC Act. However, the court noted that Section 37 of the SARFAESI Act states that its provisions are in addition to, and not in derogation of, other laws. The court found that the respondent's remedies under the SFC Act were not available due to the bar under Section 22 of the SICA, but this did not preclude the respondent from proceeding under the SARFAESI Act. The court concluded that there was no express or implied bar in the SFC Act against proceeding under the SARFAESI Act.
4. Whether the Respondent Represents 75% of the Secured Creditors:
The petitioner argued that the respondent did not represent 75% of the secured creditors, which is required to initiate action under the SARFAESI Act. The court found that both the respondent and the Indian Overseas Bank had taken measures under the SARFAESI Act, satisfying the requirement that secured creditors representing not less than three-fourths in value of the amount outstanding have taken measures to recover their secured debts. Therefore, the respondent was justified in initiating action under the SARFAESI Act.
5. Whether the Amendment to the SICA Applies During the Pendency of the Reference Before the BIFR:
The petitioner contended that the amendment to the SICA, introduced by the SARFAESI Act, would not apply since the BIFR had already declared the petitioner as a sick undertaking. The court rejected this argument, stating that the reference was still pending before the BIFR. According to the amended Section 15 of the SICA, the reference would abate if secured creditors representing not less than three-fourths in value of the amount outstanding have taken measures under Section 13(4) of the SARFAESI Act. Thus, the amendment applied, and the respondent's action was valid.
Conclusion:
The court found no substance in the writ petition and dismissed it. The respondent's actions under the SARFAESI Act were upheld as valid and lawful, and the doctrine of election did not bar the respondent from proceeding under the SARFAESI Act. The court also concluded that the amendment to the SICA applied during the pendency of the reference before the BIFR, and the respondent represented the requisite percentage of secured creditors to initiate action under the SARFAESI Act.
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2007 (2) TMI 338
Issues:
Claim disallowed by Official Liquidator, Compliance with rule 163 of Companies (Court) Rules, 1959, Entitlement to unpaid wages, Validity of settlement agreement, Binding nature of settlement, Payment of amount to the appellant.
Analysis:
1. The appeal was filed against the Official Liquidator's order disallowing a claim for unpaid wages. The appellant, a former employee, claimed Rs. 1,49,664 as unpaid wages from 1-7-1997 to 10-4-2001. The Official Liquidator allowed a payment of Rs. 23,509 but did not provide reasons for disallowing the rest of the claim.
2. The learned amicus curiae highlighted that the Official Liquidator did not comply with rule 163 of the Companies (Court) Rules, 1959, which mandates stating grounds for rejecting claims. The absence of reasons for rejection was noted. The Official Liquidator's affidavit stated the appellant was not entitled to salary beyond 9-7-1997, despite the claim period extending to 10-4-2001.
3. The appellant argued for entitlement based on previous court decisions. The Official Liquidator relied on a settlement agreement dated 9-4-2001, which deemed employees relieved from services on 9-7-1997. The settlement, unchallenged, bound all parties, including the appellant who received Rs. 11,397 as final settlement.
4. The settlement, reflecting the financial struggles of the company, was upheld as valid and binding. The appellant's receipt of Rs. 11,397 under the settlement was acknowledged. The Official Liquidator's payment of Rs. 23,509 was deemed separate from the appeal's subject matter and related to old dues reflected in the ex-directors' statement of affairs.
5. The judgment dismissed the appeal, directing the order copy to be served on the appellant in jail. The fees under the Legal Aid Scheme were to be paid to the learned advocate. The dismissal upheld the validity and binding nature of the settlement agreement, concluding the legal proceedings in the case.
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2007 (2) TMI 337
Issues Involved:
1. Admission of creditor's winding up petition.
2. Dispute raised by the Company regarding liability.
3. Assessment of the bona fides of the dispute or counter-claim.
4. Jurisdiction and discretion of the Company Court in winding up proceedings.
Detailed Analysis:
1. Admission of Creditor's Winding Up Petition:
The Company resisted the order of admission sought on a creditor's winding up petition based on a dispute it claimed to have raised and the propriety of the Company Court inquiring into the merits of the dispute, given that a suit founded on such dispute had been instituted by the Company. The Company argued that the mere pendency of a suit, regardless of whether it was instituted before or after the receipt of the statutory notice, was sufficient to ward off winding up proceedings.
2. Dispute Raised by the Company Regarding Liability:
The petitioner, a carrier of goods shipped by the Company, claimed that upon the cargo being discharged, one container was damaged, and others were overweight, leading to additional charges. The Company had initially accepted responsibility for these charges in a writing dated 18-11-1997. However, the Company later disputed its liability, asserting that the petitioner was responsible for delivering the goods in an undamaged condition and alleging coercion in agreeing to additional charges. The Company also claimed damages for delayed delivery and damage to the cargo.
3. Assessment of the Bona Fides of the Dispute or Counter-Claim:
The Court assessed whether the dispute raised by the Company was bona fide. The principles laid down in SRC Steel (P.) Ltd. v. Bharat Industrial Corpn. Ltd. were applied, which included determining whether the debt was indisputable and whether the Company's defence or counter-claim was genuine. The Court found that the Company's suit and counter-claim were not bona fide, describing them as "bogus." The Court emphasized that the Company's unequivocal acceptance of liability in the writing of 18-11-1997 and the subsequent failure to raise any dispute within a reasonable period indicated the lack of bona fides in the Company's later objections.
4. Jurisdiction and Discretion of the Company Court in Winding Up Proceedings:
The Court discussed its jurisdiction and discretion in winding up proceedings, referencing the principles from SRC Steel (P.) Ltd. and English cases like Re Bayoil SA and Montgomery v. Wanda Modes Ltd. The Court noted that while the Company Court could assess the merits of a counter-claim, it could also order the Company to furnish security if the claim was not bona fide. The Court concluded that the petitioner's claim was so clear that it would be harsh to require security and relegate the petitioner to a suit. The Company was given a chance to secure the petitioner's claim by furnishing a bank fixed deposit receipt, failing which the petition would be advertised.
Conclusion:
The petition was admitted for the principal claim of Rs. 7,34,526.40 with interest, and the Company was directed to furnish security within three weeks to avoid advertisement of the petition. The Court's order balanced the need to protect the petitioner's claim while allowing the Company an opportunity to secure its position. The judgment underscores the Company Court's authority to assess the bona fides of disputes and counter-claims in winding up proceedings and to exercise discretion in ordering security or proceeding with the petition.
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2007 (2) TMI 336
Issues involved: Territorial jurisdiction for filing an appeal under section 45 of the Arbitration and Conciliation Act, 1996 u/s 10F of the Companies Act.
Territorial Jurisdiction under Companies Act:
- Respondent argued appeal should be in Punjab and Haryana High Court u/s 10(1)(a) as company's registered office in Mohali.
- Cited Stridewell Leathers case where SC held jurisdiction based on registered office location.
- Appellant argued section 10F not applicable as arbitration not under Companies Act.
- Supported by Hind Samachar case from Punjab and Haryana High Court.
- Contention that appeal should be under section 50 of Arbitration Act against Company Law Board order.
Jurisdiction Determination:
- Court to decide jurisdiction based on Companies Act or Arbitration Act.
- Section 10(1)(a) requires appeal in High Court where company's registered office is situated.
- Section 10F sets time limit for filing appeal against Company Law Board order.
- Company Law Board's power under Companies Act challenged by respondent.
- Application under Arbitration Act ancillary to Companies Act disputes.
- Filing under Arbitration Act does not override Companies Act provisions.
- Dispute on shares and debentures falls under Companies Act jurisdiction.
- Section 50 of Arbitration Act applies to arbitrator appointment disputes only.
Judgment:
- Appellant filed appeal in wrong forum, should have approached Punjab and Haryana High Court.
- Appellant's remedy under section 10(1)(a) of Companies Act, not section 50 of Arbitration Act.
- Appeal dismissed for lack of territorial jurisdiction, not on merit.
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2007 (2) TMI 335
Issues:
Interpretation of relief sought in a company petition under section 433 of the Companies Act regarding restraining the company from selling property during pending proceedings before the Industrial Tribunal.
Analysis:
The judgment in question pertains to an appeal filed against an order passed by a learned Single Judge in a company petition. The petition sought to restrain the company from selling its property during the pendency of proceedings before the Industrial Tribunal. The appellant argued that the relief sought in the petition could not be granted, as the grounds specified in section 433 of the Companies Act for winding up a company cannot be the basis for seeking only an interim order. The respondent contended that the property needed to be protected to ensure that if the Tribunal ruled in favor of the workers, the orders could be implemented. The Court observed that the relief sought in the petition was to prevent the company from alienating its property while proceedings were ongoing before the Tribunal.
The Court analyzed the provisions of section 433 of the Companies Act, which outline the conditions under which a company can be wound up. It noted that the petition did not contain any averments or prayers for winding up the company on the grounds specified in section 433. The relief sought in the petition primarily focused on restraining the company from selling or alienating its property during the Tribunal proceedings. The Court emphasized that merely filing a petition under certain sub-clauses of section 433 does not automatically imply a prayer for winding up.
Based on the above analysis, the Court concluded that the interim relief granted by the Single Judge could not be sustained. The Court set aside the order passed by the Single Judge and allowed the appeal, with no order as to costs. The judgment clarifies the distinction between seeking winding up of a company under section 433 of the Companies Act and seeking interim relief to prevent alienation of company property during ongoing proceedings before another tribunal.
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2007 (2) TMI 334
Issues: Modification of court order under sections 392 and 394 of the Companies Act, 1956 regarding scheme of arrangement.
Analysis:
The High Court of Rajasthan addressed the applications filed by Vast Textiles Limited and Associated Stone Industries (Kota) Limited under sections 392 and 394 of the Companies Act, 1956, seeking modification of the court's order dated 19-12-2006 related to the scheme of arrangement. The court had previously approved the scheme but rejected objections regarding obtaining no objection from the stock exchange and allowed an objection concerning the omission of para 19(c) of section 4 of the scheme. The applicants argued that para 19(c) does not imply non-compliance with the Companies Act, asserting that the Act's provisions must be followed post-sanctioning of the scheme. Citing legal precedents like Juggilal Kamlapat Holding Ltd. and Hotline Hol Celdings (P.) Ltd., the applicants sought modification of the court's order.
The court referred to the case of Hotline Hol Celdings (P.) Ltd., which highlighted that in mergers where the transferor-companies' share capital became the authorized capital of the transferee company, no fees or stamp duty were payable. Additionally, in the case of Juggilal Kamlapat Holding Ltd., it was held that if the combined authorized capital of the transferee company did not exceed the total authorized capital of all companies involved, no further fees or stamp duty were required. Relying on these precedents, the court concluded that the previous order needed modification.
Consequently, the court found merit in the applicants' submissions and decided to modify the order. The Scheme of Arrangements was sanctioned, subject to the condition of enhancing the authorized capital following the procedure under the Companies Act. The court recalled and deleted the omission of para 19(c) of section 4 from its previous order dated 19-12-2006. It also directed the applicant companies to pay costs of Rs. 2,500 to the Official Liquidator within two weeks and instructed the filing of a certified copy of the order with the Registrar of Companies within 14 days.
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2007 (2) TMI 333
Issues:
Company petition for winding up under Companies Act, 1956.
Analysis:
The petitioner, a bank, filed a company petition seeking to wind up the respondent-company due to non-payment of dues under a hire purchase facility. The respondent failed to pay instalments totaling Rs. 1,51,92,944.96, despite repeated requests and demands. The petitioner served a legal notice and terminated the agreement, but the respondent did not respond or make any payment. The petitioner argued that the respondent's net worth was eroded, assets were disposed of without permission, and funds were diverted, indicating financial instability. The respondent opposed the petition, suggesting a settlement in instalments with interest waiver. However, the court found that the debt was not disputed, and the respondent had failed to make any payment or propose a viable settlement. The court noted the respondent's financial inability to pay even a portion of the debt, leading to the conclusion that the company had lost its financial substratum and was unfit to pay its creditors.
The respondent's argument that a civil suit was already filed and thus the company petition should not be entertained was dismissed. The court clarified that filing a civil suit did not preclude the petitioner from seeking winding up if all legal requirements were met. Reference to previous judgments highlighted that winding up proceedings are discretionary, but the mere existence of a civil suit does not bar a winding up petition. The court emphasized that the respondent's inability to pay the outstanding amount was the determining factor in ordering winding up. The court directed the winding up of the respondent-company and appointed the Official Liquidator to take possession of its assets, bank accounts, and records. The Official Liquidator was tasked with preparing inventories and submitting a report within three months.
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2007 (2) TMI 332
Issues:
1. Jurisdiction of the court to entertain the company petition for scheme approval.
2. Maintainability of the proposed scheme of arrangement/compromise.
3. Applicability of the order to convene meetings of shareholders and creditors.
Analysis:
1. The applicant, a secured creditor, sought to recall an order convening meetings for scheme approval. The court noted the respondent's status before the Board for Industrial and Financial Reconstruction. The court opined that objections should be raised in a future company petition for scheme approval, not at the current stage. The court refrained from considering jurisdiction or maintainability issues now, keeping them open for future proceedings. The court clarified that convening meetings did not imply current scheme approval.
2. The court emphasized that the order merely facilitated shareholder and creditor input without approving the scheme. It cited precedent indicating that scheme approval occurs post-shareholder and creditor endorsement. The court maintained that objections to the scheme's entertainability should be raised during a future company petition. The court's order was without prejudice to ongoing proceedings before the Board for Industrial and Financial Reconstruction.
3. Ultimately, the court disposed of the application without delving into the case's merits. It reiterated that objections regarding the company petition's entertainability could be raised during the petition's admission stage. The court ensured that all questions regarding jurisdiction and scheme maintainability remained open for future consideration, emphasizing that the order to convene meetings did not equate to immediate scheme approval.
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2007 (2) TMI 331
Issues Involved:
1. Sanctioning the scheme of compromise/arrangement under sections 391 and 393 of the Companies Act, 1956.
2. Objections raised by HUDCO regarding non-disclosure of material facts, discrimination between creditors, and unfair means to obtain a majority vote.
Issue-Wise Detailed Analysis:
1. Sanctioning the Scheme of Compromise/Arrangement:
The petitioner, TCI Infrastructure Ltd., submitted a petition under sections 391 and 393 of the Companies Act, 1956, seeking the court's sanction for a scheme of compromise/arrangement with its secured creditors. The petitioner company, originally incorporated as TCI Housing Finance Company Limited and later renamed, faced significant financial losses, leading to liquidity issues. To address these, the Board of Directors approved a scheme of compromise/arrangement on 10-5-2005, which was subsequently presented to the court for sanctioning.
2. Objections Raised by HUDCO:
HUDCO, one of the secured creditors, raised several objections against the proposed scheme:
(a) Non-disclosure of Important and Relevant Material Facts:
HUDCO argued that the petitioner company failed to disclose the status of all secured creditors and the preferential treatment given to State Bank of India (SBI), which was pre-paid in full, unlike other creditors who were offered only 47.50% of the outstanding principal amount. Additionally, the petitioner company did not disclose the pending recovery application filed by HUDCO and three criminal cases under section 138 of the Negotiable Instruments Act against its directors.
(b) Discrimination Between Secured Creditors:
HUDCO highlighted that the petitioner company discriminated between SBI, which was paid in full, and other creditors like IDBI and HUDCO, who were offered a significantly lower settlement amount. This preferential treatment was not justified or disclosed in the explanatory statement of the scheme.
(c) Unfair Means to Obtain a 3/4th Majority Vote:
HUDCO alleged that the petitioner company inducted Bhoruka Investment Ltd. (BIL) as a secured creditor to secure the required majority vote for the scheme. The loan from BIL was taken on 31-3-2006, the cut-off date for the scheme, and the charge was registered on the same date, indicating an attempt to manipulate the voting process.
(d) Non-disclosure of Personal Benefits to the Managing Director:
HUDCO pointed out that the scheme did not disclose the personal benefits accruing to Mr. Ashok Agarwal, the Managing Director, who stood to gain from the abatement of cases against him if the scheme was sanctioned.
(e) Non-mention of the Source of Funds for Settlement:
The scheme did not specify the source of funds or cash inflow for the payment of the settlement amounts, raising concerns about its feasibility.
(f) Oppressive Nature of the Scheme:
HUDCO argued that the scheme was oppressive as it required secured creditors to sacrifice 51.50% of the outstanding principal amount and forgo interest, costs, and expenses.
Court's Analysis:
The court examined the scheme and the objections raised by HUDCO, referring to the principles laid down by the Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. and Hindustan Lever v. State of Maharashtra. The court emphasized that its jurisdiction was supervisory and not appellate, focusing on ensuring compliance with statutory procedures and fairness in the scheme.
Upon reviewing the scheme, the court found several discrepancies:
- The petitioner company had accorded preferential treatment to SBI without disclosing this fact.
- The pending legal proceedings against the company and its directors were not disclosed.
- The induction of BIL as a secured creditor appeared to be a strategy to manipulate the voting process.
- The scheme compelled secured creditors to make significant sacrifices without adequate justification.
Conclusion:
The court concluded that the objections raised by HUDCO were substantial and undermined the fairness of the scheme. Consequently, the petition for sanctioning the scheme of compromise/arrangement was rejected.
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2007 (2) TMI 330
Issues Involved:
1. Maintainability of the company petition based on the power of attorney.
2. Perceived perversity and contradiction of facts, evidence, and the agreement dated 19-4-1999 in the Company Law Board's decision.
3. Alleged misplacement of the burden of proof by the Company Law Board.
Issue-wise Detailed Analysis:
1. Maintainability of the Company Petition Based on Power of Attorney:
The appellants questioned the validity of the company petition filed through an attorney, Mr. Kamal Kapoor. The Company Law Board noted the power of attorney was registered and authorized Mr. Kapoor to initiate and conduct legal proceedings against the appellants. Despite a blank date in the photocopy of the power of attorney, the original document was correctly dated and registered, rendering it valid. The respondent confirmed the authorization, and sections 196 to 200 of the Contract Act, 1872, allow retrospective authorizations. Therefore, the power of attorney was deemed valid, and the petition maintainable.
2. Perceived Perversity and Contradiction of Facts, Evidence, and Agreement Dated 19-4-1999:
The Company Law Board found that the respondent and her husband were the initial shareholders and directors of the hospital, which was incorporated on 13-5-1999. The appellants argued that an agreement dated 19-4-1999 stipulated a shareholding arrangement and that the respondent had agreed to disinvest 51% of her shares to the appellants. However, the agreement required disinvestment of shares, which did not occur. The Company Law Board found no evidence of meetings or resolutions for appointing additional directors or increasing share capital. The respondent and her husband were not in India on the alleged dates of these meetings. The appellants failed to produce necessary documents to support their claims. The Board concluded that the appointments and share allotments were invalid due to lack of proper notice to the respondent and her husband. The findings were based on preponderance of evidence, and the court held that the Board's decision was not perverse or unsupported by evidence.
3. Alleged Misplacement of the Burden of Proof by the Company Law Board:
The appellants contended that the burden of proof was wrongly placed on them regarding events prior to their alleged appointment as directors on 15-9-1999. The agreement dated 19-4-1999 indicated that Dr. Ashok Mohan Dwarkadas Motiwala had been involved in the hospital's operations since 1992-94. The appellants were responsible for producing records to support their claims of valid appointments and share allotments. The Supreme Court in Anil Rishi v. Gurbaksh Singh clarified that the burden of proof lies on the party asserting a fact, and shifts as evidence is presented. Given the fiduciary relationship and the appellants' involvement in the hospital's management, they were required to prove the legitimacy of the transactions. The Company Law Board's placement of the burden of proof was upheld as appropriate.
Conclusion:
The High Court dismissed the appeal, affirming the Company Law Board's findings and decisions. The petition was maintainable based on the valid power of attorney. The Board's findings were supported by evidence and not perverse. The burden of proof was correctly placed on the appellants. The appeal was dismissed with costs assessed at Rs. 10,000.
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2007 (2) TMI 329
Power to award compensation by MRTPC - Interest amount - Held that:- Appeal allowed. The grant to interest of 12 per cent per annum is appropriate in the facts of this particular case. However, we are also of the opinion that since interest was not granted to the appellant along with the principal amount the respondent should then in addition to the interest at the rate of 12 per cent per annum also pay to appellant interest at the same rate on the aforesaid interest from the date of payment of instalments by the appellant to the respondent till the date of refund on this amount, and the entire amount mentioned above must be paid to the appellant within two months from the date of this judgment.
There is misconception about interest. Interest is not a penalty or punishment at all, but it is the normal accretion on capital.
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2007 (2) TMI 328
Issues Involved:
1. Civil court's jurisdiction to try the suit.
2. Compliance with conditions of the revocation order by the plaintiff.
3. Territorial jurisdiction of the trial court.
4. Plaintiff's claim for enforcement of trading rights and damages.
Issue-wise Analysis:
1. Civil Court's Jurisdiction to Try the Suit:
The primary issue was whether the civil court had jurisdiction to try the suit filed by the plaintiff. The trial court decided against the petitioner-defendants, holding that the civil court has jurisdiction. The defendants argued that Section 22E read with Section 23L of the Securities Contracts (Regulation) Act, 1956, and Rule 19(5) of the Securities Contracts (Regulation) Rules, 1957, barred the civil court's jurisdiction. They contended that the plaintiff should have appealed under Section 23L if aggrieved by the BSE's actions. The plaintiff countered that they were not challenging any BSE order but were enforcing their civil rights under the listing agreement. The court noted that ouster of civil court jurisdiction cannot be readily inferred unless expressly or impliedly barred by statute. The court concluded that based on the plaint allegations, the suit was not barred by law, and the civil court had jurisdiction.
2. Compliance with Conditions of the Revocation Order by the Plaintiff:
The plaintiff claimed that they had complied with all conditions imposed by the BSE for revocation of the suspension order dated 17-8-2005. The BSE had set three conditions: payment of Rs. 2,40,000, locking-in of promoters' shares, and furnishing a declaration. The plaintiff asserted compliance, while the defendants disputed it, particularly the lock-in of all promoters' shares. The court observed that the defendants' claims about non-compliance were defenses that needed to be proved and could not be summarily accepted at the preliminary stage. The trial court's decision on this issue was based on pleadings and documents without evidence, which the High Court found inappropriate.
3. Territorial Jurisdiction of the Trial Court:
The trial court had framed several issues, including issue No. 7, which was assumed to relate to the territorial jurisdiction. The High Court noted that both parties proceeded on this assumption, and the trial court decided issue No. 7 accordingly. However, the High Court clarified that issue No. 5, which was about the jurisdiction of the civil court based on the defendants' pleas, should be decided after evidence. The trial court's order on issue No. 7 was set aside to avoid legal complications in deciding issue No. 5.
4. Plaintiff's Claim for Enforcement of Trading Rights and Damages:
The plaintiff sought a declaration that no legal proceedings were pending against them that would justify the BSE's refusal to allow trading of their shares. They also sought an injunction against the BSE and claimed damages. The plaintiff argued that the suspension was revoked, and they complied with all conditions, yet trading was not permitted. The defendants argued that the revocation order was itself revoked, but they failed to provide evidence. The court held that the plaintiff's suit was for enforcement of their civil rights under the agreement with the BSE and not a challenge to any BSE order. The trial court was directed to proceed with the trial and decide all issues after evidence.
Conclusion:
The High Court partially allowed the revision petition, setting aside the trial court's order dated 12-1-2007 to ensure that the trial court is not influenced while deciding issue No. 5 and other issues. The trial court was directed to proceed with the trial and decide all issues after evidence.
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