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1993 (1) TMI 258
Issues Involved:
1. Justification of the Tribunal's decision regarding the requirement for reasons in the rejection of tax remission applications under Section 55 of the Gujarat Sales Tax Act, 1969, read with Rule 49 of the Gujarat Sales Tax Rules, 1970.
2. Appealability of the Sales Tax Commissioner's order under Section 55(2) of the Gujarat Sales Tax Act.
3. Nature of the Sales Tax Commissioner's powers under Section 55(2) as quasi-judicial.
Issue-Wise Detailed Analysis:
1. Justification of the Tribunal's Decision:
The main issue was whether the Tribunal was justified in law in upholding the contention that Section 55 of the Gujarat Sales Tax Act, 1969, read with Rule 49 of the Gujarat Sales Tax Rules, 1970, requires reasons to be given while disposing of an application for remission of tax. The Tribunal's decision was based on the fact that the applications for remission of sales tax filed by the opponents were rejected by the Commissioner of Sales Tax without recording any reasons. The High Court examined Section 55 and Rule 49, concluding that the Sales Tax Commissioner was required to assign reasons before rejecting the application under Section 55(2). This requirement is supported by the following points:
- Rule 49(1) empowers the Commissioner to remit tax if a registered dealer has suffered financially due to riot or natural calamity.
- Rule 49(2) mandates that the application must detail the riot or calamity, the exact amount of loss, the extent of relief prayed for, and the reasons therefor.
- Rule 49(3) explicitly states that the Commissioner must record reasons for remitting the tax.
- Rule 49(4) requires the Commissioner to obtain the State Government's sanction for remission exceeding ten thousand rupees, necessitating a report with reasons.
2. Appealability of the Sales Tax Commissioner's Order:
The Tribunal held that the order passed by the Sales Tax Commissioner under Section 55(2) was appealable. Section 65 of the Sales Tax Act provides that an appeal lies from every original order, except those mentioned in Section 66. At the relevant time, Section 66 did not list orders under Section 55 as non-appealable. The High Court affirmed this interpretation, noting that the amendment adding clause (5) to Section 66, which made orders of remission non-appealable, was not in effect at the relevant time. Therefore, the Commissioner was required to assign reasons for rejecting the application to enable the aggrieved party to challenge the decision effectively.
3. Nature of the Sales Tax Commissioner's Powers:
The High Court emphasized that the Sales Tax Commissioner was exercising quasi-judicial functions under Section 55 of the Act. It is well-settled law that quasi-judicial orders must be supported by reasons to prevent miscarriage of justice, minimize arbitrariness, and ensure conformity with principles of natural justice. The Court cited several precedents (e.g., Woolcombers of India Ltd. v. Woolcombers Workers' Union, Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, and Mukherjee v. Union of India) to support this requirement. Additionally, even administrative orders affecting parties' rights must record reasons unless expressly or impliedly excluded by statute.
Conclusion:
The High Court answered the reference in the negative, i.e., against the Revenue and in favor of the assessees, confirming that the Tribunal was justified in its decision. The judgment underscores the necessity for the Sales Tax Commissioner to provide reasons when rejecting applications for tax remission under Section 55(2) of the Gujarat Sales Tax Act, 1969, read with Rule 49 of the Gujarat Sales Tax Rules, 1970, to uphold principles of natural justice and ensure transparency and fairness in decision-making.
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1993 (1) TMI 257
Issues Involved:
1. Whether the value of groundnut seeds of Rs. 96,460 can be treated as purchases made by the opponent-firm from the partners.
2. Whether purchase tax levied on the groundnut seeds should be removed.
Issue-wise Detailed Analysis:
1. Treatment of Groundnut Seeds as Purchases:
The Tribunal initially held that the value of groundnut seeds of Rs. 96,460 could not be treated as purchases made by the opponent-firm from its partners. This was based on the partnership deed's provision that partners would invest capital as necessary for the business. The Tribunal relied on the Supreme Court's decision in Hind Construction Ltd., which stated that delivering goods to a firm as share capital does not constitute a sale.
The High Court, however, disagreed with the Tribunal's interpretation. It emphasized that under the Gujarat Sales Tax Act, 1969, a partnership firm is a distinct legal entity from its partners. The definitions of "dealer," "goods," "person," and "sale" in Section 2 of the Act support this distinction. The Court noted that a firm can be a dealer and a registered dealer, and transactions between a firm and its partners are contemplated under the Act. Therefore, the Court concluded that the partnership firm purchasing goods from its partners constitutes a purchase, and the value of the groundnut seeds should be treated as such.
2. Levy of Purchase Tax:
The Assistant Commissioner of Sales Tax levied purchase tax on the groundnut seeds, arguing that the firm purchased the seeds from unregistered dealers (the partners). The Tribunal had removed this tax, reasoning that the transaction was not a sale or purchase under the Sales of Goods Act.
The High Court rejected this reasoning, stating that under Section 15 of the Gujarat Sales Tax Act, a dealer (including a partnership firm) must pay purchase tax when purchasing goods from an unregistered dealer unless the goods are resold. The Court highlighted that there is no statutory provision barring a partnership firm from entering into purchase or sale transactions with its partners. It also noted that the purchase price was credited to the partners' personal accounts, indicating a commercial transaction rather than a mere contribution of capital.
Conclusion:
The High Court concluded that the Tribunal erred in its judgment. The value of groundnut seeds of Rs. 96,460 should be treated as purchases made by the opponent-firm from its partners, and the purchase tax levied thereon should not be removed. The reference was answered in the negative, against the assessee and in favor of the Revenue, with no order as to costs.
Reference Answered in the Negative.
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1993 (1) TMI 256
Issues:
Assessment of sales tax on supplies of calendars in Tamil Nadu by a liaison office, determination of taxable turnover for the assessment year 1973-74, whether the assessee is a dealer within the State of Tamil Nadu, and whether the supplies are exigible to tax under the Tamil Nadu General Sales Tax Act.
Analysis:
The High Court of Madras addressed the revision petition filed by the Revenue against the order of the Tamil Nadu Sales Tax Appellate Tribunal. The case involved Parle Products (P) Limited, a liaison office in Madras, and the assessment of sales tax on supplies of calendars in Tamil Nadu for the assessment year 1973-74. The Tribunal had set aside the assessment, concluding that the supplies were not sales. The Revenue challenged this finding, specifically disputing the characterization of the assessee as "not a dealer within the State of Tamil Nadu."
The Court analyzed whether the supplies of calendars constituted sales exigible to tax under the Tamil Nadu General Sales Tax Act. It was established that there was a contract for the sale of calendars by the assessee to its customers, as orders were placed specifying quantity and price per calendar, with payment made by customers directly to the assessee. The Court rejected the Tribunal's reasoning, emphasizing that the payment by customers, even if partial, constituted a sale transaction.
Furthermore, the Court determined that the assessee, as a liaison office of Parle Products (Private) Limited, was engaged in business activities, including the supply of calendars. It clarified that profit motive or actual profit accrual was not necessary for an activity to qualify as business. The Court also noted that the assessee's place of business in Madras, where it maintained records of calendar supplies, supported its classification as a dealer within the State.
The Court disagreed with the Tribunal's conclusion that the assessee was not a dealer, highlighting that even a local branch of a company situated outside the State could fall under the definition of a dealer. Consequently, the Court allowed the revision petition, setting aside the Tribunal's order for the assessment year 1973-74 and restoring the assessing authority's decision confirmed by the Appellate Assistant Commissioner.
In conclusion, the High Court of Madras upheld the assessment of sales tax on the supplies of calendars by the assessee, considering them as taxable turnover under the Tamil Nadu General Sales Tax Act. The Court clarified the business status of the assessee and its classification as a dealer within the State, ultimately ruling in favor of the Revenue and overturning the Tribunal's decision.
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1993 (1) TMI 255
Whether an authority enjoys immunity from disciplinary proceedings with respect to matters decided by him in exercise of quasi-judicial functions?
Whether the act or omission was committed by the appellant in the course of the discharge of his duties as servant of the Government?
Held that:- Appeal allowed. As for a mere technical violation or merely because the order is wrong and the action not falling under the above enumerated instances, disciplinary action is not warranted. Here, we may utter a word of caution. Each case will depend upon the facts and no absolute rule can be postulated. It is open to the respondent to put forth all defenses open to him in the departmental inquiry which will be considered on its merit.
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1993 (1) TMI 254
Issues Involved:
1. Deletion of Rs. 44,100 as capital gain.
2. Income classification of Allahabad property.
3. Weighted deduction under Section 35C.
4. Disallowance of provision for gratuity.
5. Disallowance of provision for doubtful debts.
6. Addition on account of liabilities written off.
7. Extra shift allowance on building and furniture.
8. Depreciation on tea bushes.
9. Deletion of addition of Rs. 29,748 under Section 43B.
10. Deletion of disallowance of Rs. 73,507 under Section 43B (Provident Fund).
11. Deletion of Rs. 1,62,588 as capital gains.
12. Allowance of Rs. 10,71,840 as short-term capital loss.
13. Deletion of disallowance of Rs. 50,203 on foreign tour expenses.
Detailed Analysis:
1. Deletion of Rs. 44,100 as Capital Gain:
The Revenue's appeal against the deletion of Rs. 44,100 as capital gain was dismissed. The Tribunal confirmed that the land in question was agricultural and not a capital asset under Section 2(14) of the Act. The compensation received for the acquisition of agricultural land could not be taxed as capital gain.
2. Income Classification of Allahabad Property:
The Tribunal upheld that the income derived from the Allahabad property should be assessed as "Income from business" and not as "Income from house property." The assessee was entitled to depreciation on the godown building, and the annual letting value was to be taken as Rs. 3,000.
3. Weighted Deduction under Section 35C:
The issue of weighted deduction under Section 35C for agricultural development expenses was decided in favor of the assessee, consistent with earlier Tribunal orders, as no fresh materials were brought to distinguish the facts.
4. Disallowance of Provision for Gratuity:
The Tribunal upheld the disallowance of the provision for gratuity amounting to Rs. 29,85,841 and Rs. 4,744. It was held that the deduction of the provision for gratuity was specifically prohibited under Section 40A(7) of the Act.
5. Disallowance of Provision for Doubtful Debts:
The Tribunal confirmed the disallowance of Rs. 4,70,830 for doubtful debts, loans, and advances. It was emphasized that making a provision for bad and doubtful debts does not equate to writing off bad debts.
6. Addition on Account of Liabilities Written Off:
The Tribunal reversed the CIT(A)'s confirmation of the addition of Rs. 7,062 for liabilities written off unilaterally by the assessee, consistent with earlier Tribunal orders.
7. Extra Shift Allowance on Building and Furniture:
The Tribunal allowed the extra shift allowance on building and furniture, consistent with earlier Tribunal orders.
8. Depreciation on Tea Bushes:
The Tribunal concluded that tea bushes qualify as "plant" under Section 43(3) of the Act and allowed depreciation at 15%. The Tribunal emphasized the functional and durable nature of tea bushes in the tea business.
9. Deletion of Addition of Rs. 29,748 under Section 43B:
The Tribunal remanded the issue back to the CIT(A) to determine the nature of the land (lease-hold or settled property) to decide the applicability of Section 43B.
10. Deletion of Disallowance of Rs. 73,507 under Section 43B (Provident Fund):
The Tribunal directed the CIT(A) to verify if the provident fund amount was deposited before the due date of filing the return under Section 139(1) and allowed the deduction accordingly.
11. Deletion of Rs. 1,62,588 as Capital Gains:
The Tribunal confirmed the deletion of Rs. 1,62,588 as capital gains, consistent with the decision for the assessment year 1983-84, recognizing the land as agricultural.
12. Allowance of Rs. 10,71,840 as Short-term Capital Loss:
The Tribunal upheld the CIT(A)'s decision to allow the short-term capital loss of Rs. 10,71,840 on the sale of shares, rejecting the Revenue's claim of a colorable device to avoid tax.
13. Deletion of Disallowance of Rs. 50,203 on Foreign Tour Expenses:
The Tribunal confirmed the deletion of the disallowance of Rs. 50,203 for foreign tour expenses undertaken by Shri R. L. Kanoria, recognizing it as a business expense.
Conclusion:
The Tribunal's judgment addressed multiple issues, predominantly favoring the assessee by confirming deletions and allowances, while upholding certain disallowances based on statutory provisions and lack of evidence from the Revenue.
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1993 (1) TMI 253
Issues Involved:
1. Validity and enforcement of the arbitration clause.
2. Appointment of an arbitrator by the Court versus the authority named in the contract.
3. Allegations of bias in the appointment of an arbitrator by the Engineer-in-Chief.
Detailed Analysis:
1. Validity and Enforcement of the Arbitration Clause:
The core issue revolves around the arbitration clause (Clause 70) of the General Conditions of Contract, which mandates that all disputes between the parties be referred to the sole arbitration of an engineer-officer appointed by the Engineer-in-Chief. The plaintiff-respondent argued that the defendant-appellant failed to appoint an arbitrator as required, thus necessitating court intervention. The court found that the arbitration clause was valid and binding on both parties. The plaintiff's move to court was justified due to the defendant's inaction in appointing an arbitrator. The court emphasized that the parties should honor their contractual obligations, including the arbitration agreement.
2. Appointment of an Arbitrator by the Court versus the Authority Named in the Contract:
The learned single Judge initially appointed an arbitrator, citing precedents that suggested the court could appoint an arbitrator if there was a reasonable apprehension of bias or if the named authority failed to act. However, the appellate court disagreed with this approach, highlighting that the court should not appoint an arbitrator contrary to the terms of the arbitration agreement unless there is substantial evidence of bias or other compelling reasons. The appellate court referred to previous judgments, including Union of India v. Prafulla Kumar Sanyal and M/s Ama Corporation, Madras v. Food Corporation of India, to support its stance that the arbitration agreement should be enforced as written, and the parties should first seek the appointment of an arbitrator through the agreed-upon mechanism.
3. Allegations of Bias in the Appointment of an Arbitrator by the Engineer-in-Chief:
The plaintiff-respondent contended that the Engineer-in-Chief and any arbitrator appointed by him would be biased. The appellate court examined the doctrine of bias, particularly the principle of "nemo judex in causa sua" (no person can be a judge in their own cause). The court noted that mere suspicion of bias is insufficient; there must be clear and positive evidence. The court found no such evidence in this case. It referenced the decision in M/s. Indian Oil Corporation Ltd. v. M/s. Poppat Jamal and Sons, which held that an arbitration clause referring disputes to an engineer of one party could not be disregarded merely on the ground of potential bias unless there was a reasonable probability of unfairness. The appellate court concluded that the plaintiff-respondent's apprehensions were speculative and did not justify bypassing the agreed arbitration mechanism.
Conclusion:
The appellate court allowed the appeal, directing the Engineer-in-Chief to appoint an arbitrator within two weeks. If the Engineer-in-Chief failed to do so, the arbitrator appointed by the learned single Judge would be deemed appointed. This decision underscores the importance of adhering to arbitration agreements and the high threshold required to prove bias sufficient to override such agreements. The court emphasized the principle that contractual obligations, including arbitration clauses, should be honored unless there is compelling evidence to the contrary.
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1993 (1) TMI 252
Issues:
Classification of products - cabinets and refrigeration appliances under Tariff Item 29A or Tariff Item 68. Time bar issue in relation to the demand raised.
Analysis:
The appeal was filed against Order-in-Original No. 7/CE/85 passed by the Collector of Customs & Central Excise, Chandigarh, concerning the classification of cabinets and refrigeration appliances. The dispute revolved around whether these products should be classified under Tariff Item 29A as per the Department's view or under Tariff Item 68 as claimed by the appellants. The key contention raised by the appellants was the time bar issue, asserting that the demand was beyond the six-month period as per the show cause notice dated 7-3-84. The appellants argued that there was no suppression of facts regarding the nature of the product or the lease of premises and machinery from M/s. Chandra Industries, Jallandhar, as these details were communicated to the Department in earlier correspondence.
The Revenue, represented by Shri M.S. Arora, contended that the predecessors of the appellants were paying duty under Tariff Item 29A, and the appellants knowingly misclassified their products under Tariff Item 68, constituting suppression. It was argued that the Department was justified in invoking the larger period for raising the demand since the misdeclaration was intentional and not disclosed during correspondence.
Upon careful consideration of the arguments from both sides, the Tribunal found merit in the appellants' argument regarding the time bar issue. The Tribunal held that non-disclosure of the predecessors' manufacturing activities did not amount to suppression, especially when the appellants had provided information about leasing premises and machinery from M/s. Chandra Industries in January 1982. The Tribunal emphasized that the Department should have conducted a proper inquiry based on the information provided and raised the demand within the stipulated time. Since the show cause notice was issued beyond the permissible time limit on 7-3-1984, the Tribunal concluded that the demand was time-barred. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the appellants.
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1993 (1) TMI 245
Issues Involved:
1. Whether the names of plaintiffs Nos. 1 and 2 are liable to be struck out and/or deleted from the cause title of the plaint under the provisions of Order 1, rule 10 of the Code of Civil Procedure, 1908.
2. Whether the portions of the pleadings in the plaint as more particularly set out in the schedule to the chamber summons are liable to be struck out under the provisions of Order 6, rule 16 of the Code of Civil Procedure, 1908.
3. Whether the plaint filed has been properly and validly signed on behalf of plaintiffs Nos. 1 and 2. If not, the effect thereof.
4. Whether the plaint filed has been properly and validly verified. If not, the effect thereof.
Summary:
Issue 1: Striking Out Names of Plaintiffs Nos. 1 and 2
The court considered whether plaintiffs Nos. 1 and 2, not being shareholders of the seventh defendant company, had the locus standi to file and maintain the suit. The court held that under Indian company law, only a person whose name is on the register of members of the company is considered a shareholder/member. Since plaintiffs Nos. 1 and 2 were not on the register, they had no right to the reliefs claimed in the suit and their names were struck out from the cause title under Order 1, rule 10(2) of the Civil Procedure Code, 1908.
Issue 2: Striking Out Portions of the Pleadings
The court examined whether certain portions of the pleadings were unnecessary, scandalous, frivolous, or vexatious under Order 6, rule 16 of the Civil Procedure Code, 1908. The court found that several statements in the plaint did not constitute the cause of action for the reliefs claimed and were irrelevant, unnecessary, and prejudicial. These portions were ordered to be struck out from the plaint.
Issue 3: Validity of Signing the Plaint
The court addressed whether the plaint was properly signed by the said R.A. Shah on behalf of plaintiffs Nos. 1 and 2. It was held that an advocate cannot act in a dual capacity as both an advocate and a constituted attorney. Since the vakalatnama and the plaint were signed by R.A. Shah, who also appeared as an advocate for the plaintiffs, the court found that the plaint was not properly signed.
Issue 4: Validity of Verification
The court considered whether the plaint was properly verified. It was found that the verification did not comply with the provisions of Order 6, rule 15 of the Civil Procedure Code, 1908. The court allowed the plaintiffs an opportunity to reverify the plaint in accordance with the law within two weeks, failing which the plaint would be returned as defective.
Conclusion:
The chamber summons was made absolute in terms of prayers (a) and (c). Plaintiffs were granted liberty to cure the defects by reverifying the plaint within two weeks, failing which the plaint would be returned as defective. There was no order as to costs of the chamber summons, and the application for a stay of operation of the order was rejected.
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1993 (1) TMI 244
Issues Involved:
1. Legality of the conviction and sentence under Section 209A(5) and (8) of the Companies Act, 1956.
2. Compliance with mandatory provisions of Section 209A.
3. Adequacy of the cause shown for non-production of account books.
4. Impact of the company's liquidation on the ability to produce account books.
Detailed Analysis:
1. Legality of the Conviction and Sentence under Section 209A(5) and (8) of the Companies Act, 1956:
The revision petitioner, the managing director of a private company, was convicted and sentenced to rigorous imprisonment till the rising of the court and fined Rs. 5,000, in default to suffer rigorous imprisonment for three more months. This conviction was confirmed by the Principal Sessions Judge, Madras, for failing to produce the account books for the years 1979-80 and 1980-81 during an inspection by the Registrar of Companies. The revision petitioner challenged the legality and correctness of this conviction and sentence.
2. Compliance with Mandatory Provisions of Section 209A:
The court examined Section 209A of the Companies Act, 1956, which mandates that the books of account and other papers of the company should be open to inspection by the Registrar or an authorized government officer without prior notice. Sub-section (2) of Section 209A specifically requires the inspecting officer to specify the time and place for the production of these documents. The court found that P.W.-2 issued a notice (Exhibit P-5) to the revision petitioner on February 17, 1986, which was served on February 20, 1986 (Exhibit P-6). The notice requested the revision petitioner to show cause within ten days for non-compliance, failing which prosecution would be launched.
3. Adequacy of the Cause Shown for Non-production of Account Books:
The revision petitioner responded to Exhibit P-5 with three letters (Exhibits D-3, D-4, and D-5), explaining that the director in charge of the documents had passed away and requested additional time to procure the documents. Despite this, P.W.-1 and P.W.-2 did not respond to these explanations or reject them. The court noted that the authorities did not act upon the cause shown by the revision petitioner, which was a violation of the principles of natural justice and the mandatory provisions of Section 209A(2).
4. Impact of the Company's Liquidation on the Ability to Produce Account Books:
The court also considered the fact that on February 20, 1986, the company was ordered to be wound up, and the official liquidator took charge of all the properties and records of the company. This meant that the revision petitioner was not in a position to produce the account books. The court found it unreasonable for P.W.-1 and P.W.-2 to expect compliance with Section 209A under these circumstances.
Conclusion:
The court concluded that both the trial court and the lower appellate court overlooked significant legal aspects, including the mandatory provisions of Section 209A and the principles of natural justice. The court held that the launching of the prosecution against the revision petitioner was improper and could not be sustained. Consequently, the conviction and sentence were set aside, and the revision petitioner was acquitted. The fine amount paid, if any, was ordered to be refunded immediately.
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1993 (1) TMI 243
Issues Involved:
1. Commercial Insolvency of the Company
2. Defective Goods and Entitlement to Discount
3. Losses and Damages Due to Non-Execution of Contracts
4. Limitation of the Petitioning Creditor's Claim
5. Violation of the Foreign Exchange Regulation Act (FERA)
6. Novation of Contract
7. Previous Legal Proceedings and Triable Issues
Issue-wise Detailed Analysis:
1. Commercial Insolvency of the Company:
The petitioning creditor filed for the winding up of the company on the grounds of commercial insolvency. The company had failed to make payments for goods received from the petitioning creditor despite several agreements and acknowledgments of debt.
2. Defective Goods and Entitlement to Discount:
The company claimed that the goods supplied were defective and not as per specification, entitling them to a 50% discount. The petitioning creditor allegedly admitted to the defects and agreed to a 25% discount. However, the court found serious doubts regarding the genuineness of the telexes relied upon by the company. The company had not taken any steps to assert its right to a discount or recover losses, and its unconditional acknowledgment of liability in subsequent documents falsified this defense.
3. Losses and Damages Due to Non-Execution of Contracts:
The company argued that the petitioning creditor failed to execute several contracts, resulting in losses amounting to USD 87,703. The court found this defense unsubstantiated, as the company had not taken any action to recover these alleged losses. The company's acknowledgment of debt in subsequent documents also contradicted this claim.
4. Limitation of the Petitioning Creditor's Claim:
The company contended that the claim was barred by limitation since the goods were received in 1986. However, the court held that the claim was kept alive by the company's repeated acknowledgments of liability in 1988 and 1989. Therefore, the winding-up petition filed in 1990 was within the limitation period.
5. Violation of the Foreign Exchange Regulation Act (FERA):
The company argued that the transaction was illegal under FERA and that payment to United Lubricants was violative of section 9 of FERA. The court rejected this defense, stating that the prohibition under section 9(1) of FERA was not absolute and payments could be made with the Reserve Bank's permission. The company had not made any bona fide attempts to obtain such permission. The court also noted that the winding-up proceedings were legal proceedings under section 47(3) of FERA and did not require prior permission for the petitioning creditor to recover its debt.
6. Novation of Contract:
The company claimed that there was a novation of the contract, making United Lubricants the party entitled to receive payments. The court found no merit in this defense, as the company itself had acknowledged that payments to United Lubricants were on behalf of the petitioning creditor. The document dated May 24, 1989, also clearly indicated that the debt was owed to the petitioning creditor.
7. Previous Legal Proceedings and Triable Issues:
The company argued that a previous court had allowed leave to defend to Pradip Saraf in a related suit, indicating a triable issue. The court rejected this argument, stating that the nature of consideration in summary proceedings under Order 37 is different from that in winding-up proceedings. The court is called upon to determine the actual bona fides of the defense in winding-up proceedings, which it found lacking in this case.
Conclusion:
The court found the company's defenses to be without substance and displayed a lack of bona fides. The presumption of insolvency under section 434 of the Companies Act was not rebutted. The winding-up petition was admitted, and the company was ordered to pay the petitioning creditor the amount of Rs. 13,17,554.50 with interest and costs. The petition was to be advertised in The Telegraph and The Statesman, and the matter was returnable in six weeks. The court granted a stay of the judgment for two weeks and continued the injunction restraining the petitioning creditor from filing any suit in respect of the subject matter of the claim.
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1993 (1) TMI 242
Auction sales at higher offer - Held that:- Appeal allowed. Keeping in view the interest of the company and the creditors and the' workmen to whom the sale proceeds would be applied, the company judge was right in exercising her discretion to reopen the auction and directing Mr. Shantilal Malik as well to make a higher offer than what was offered by the appellant. In every case it is not necessary that there should be fraud in conducting the sale, though on its proof the sale gets vitiated and it is one of the grounds to set aside the auction sale. Therefore, the discretion exercised by the learned single judge cannot be said to be unwarranted. Thus the Division Bench of the Calcutta High Court committed manifest illegality in interfering with the order of the learned single judge. The appeal is allowed. The order of the Division Bench is set aside.
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1993 (1) TMI 233
Issues Involved:
1. Commercial insolvency and indebtedness of the appellant-company.
2. Defence raised by the appellant-company regarding the ascertained sum, payments made, and interest agreement.
3. Applicability of section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, in staying winding up proceedings.
4. Jurisdiction of BIFR in relation to a company already directed to be wound up by a court.
Detailed Analysis:
1. Commercial Insolvency and Indebtedness of the Appellant-Company:
The petitioning creditor, Nester Pharmaceuticals (P) Ltd., applied under sections 433 and 434 of the Companies Act, 1956, for winding up Smith Stanistreet Pharmaceuticals Ltd., asserting the company was commercially insolvent. The appellant-company was alleged to owe Rs. 10,37,358.17 after accounting for payments. The statutory notice served on the appellant-company went unanswered.
2. Defence Raised by the Appellant-Company:
The appellant-company raised three defences:
- Unascertained Sum Due: The appellant argued that the exact sum due was not determined until the accounts were reconciled.
- Subsequent Payments: The appellant contended that payments made after the issuance of the statutory notice implied a waiver of the right to initiate winding up proceedings.
- Interest Agreement: The appellant claimed there was no agreement on the payment of interest.
The trial judge rejected the first two defences outright and construed the statutory notice dated December 4, 1990, as notice under the Interest Act, thereby validating the claim for interest. The presumption of insolvency under section 434 of the Companies Act was not rebutted by the appellant. Consequently, the petition was admitted for the amount of Rs. 10,37,358.27 with interest at 18% per annum from December 8, 1990, till the petition filing date, along with costs.
3. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985:
The appellant submitted that an enquiry under section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985, was initiated by BIFR, and under section 22(1), the court should stay the winding up proceedings. Section 22(1) mandates that no proceeding for winding up shall proceed without BIFR's consent when an enquiry or scheme under sections 16 or 17 is pending.
4. Jurisdiction of BIFR:
The petitioning creditor argued that BIFR lacks jurisdiction once a court orders the winding up of a company. The Karnataka High Court and Supreme Court precedents were cited to support that BIFR's jurisdiction pertains to existing companies, not those already ordered to be wound up by a court. The court concurred with this interpretation, stating that the proceedings for winding up conclude with the court's winding up order, and BIFR cannot entertain matters relating to a company already directed to be wound up.
Conclusion:
The court held that BIFR has no jurisdiction over a company once a winding up order is made. The appellant's application for stay was dismissed, and the appellant was directed to comply with the trial court's order, which included making payments by instalments. The appeal was dismissed for non-prosecution, affirming the trial court's judgment and order.
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1993 (1) TMI 217
Whether decisions taken at the extraordinary general meeting dated July 24, 1992, and the offer made by the appellant-company in pursuance thereof-are prejudicial to the interest of the shareholders including the financial institutions ?
Held that:- Grievance made by Sri Govinda Mukhoty, learned counsel for Sri Ashok Singh complained that this court should not pass orders even before his client had an opportunity of filing a counter to S.L.P. No. 148 of 1993 unable to see any substance in the said grievance. Firstly, the order under appeal was an ex parte order made without hearing the appellant-company. Secondly, we are not taking into account any other facts than those on record in the appeal (arising from S.L.P. No. 148 of 1993). We have also heard Sri Mukhoty at length who placed all the aspects before us. At the same time, we cannot but observe that Mr. Mukhoty's client chose to rush to the court even without approaching the financial institutions beforehand. It is not as if he first approached them and tried to convince them of the inadvisability of responding to the said offer. The presumption is that every person (including a public financial institution) knows his interest best and until the contrary is established, whether at interlocutory or final stage, orders of restraint may not be advisable.
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1993 (1) TMI 216
Issues Involved:
1. Proposal of amalgamation of two companies.
2. Objections raised by the official liquidator.
3. Compliance with statutory requirements and conditions for amalgamation.
4. Protection of shareholders' interests.
5. Legal implications of amalgamation and dissolution of companies.
Detailed Analysis:
1. Proposal of Amalgamation of Two Companies:
The judgment addresses two interlinked petitions under sections 391(1)(a), 392, and 394 of the Companies Act, 1956, concerning the proposed amalgamation of two companies. Notices were issued to the Registrar of Companies, and general meetings of the shareholders were directed to consider the proposal. The meetings were held, and the proposal was unanimously approved. The common scheme of amalgamation, exhibit C, was placed before the court, along with the respective memorandum and articles of association of the two companies, exhibit A. The managing directors filed affidavits supporting the scheme. The transferor company, Spring Steels Limited, and the transferee company, Gwalior Strips Limited, both have their registered offices in Gwalior and share common promoters.
2. Objections Raised by the Official Liquidator:
The official liquidator raised three main objections:
- Absence of clearance from the State Pollution Board, which could render the amalgamation order academic if the new venture cannot commence business.
- Possible violation of the lease terms with the Madhya Pradesh Audyogik Vikas Nigam (MPAKVN), risking the transferor company losing its tenancy.
- Alleged activities of the transferor company involving private placement of shares in 1986, which could lead to prosecution under section 68 of the Companies Act.
3. Compliance with Statutory Requirements and Conditions for Amalgamation:
The court considered the statutory requirements and the objections raised. The Central Government suggested conditions for the amalgamation, including:
- Keeping a specified amount in a separate bank account for refunding application money to non-allottees.
- Ensuring the transferor company is not dissolved without winding up for at least one year to allow for any necessary legal actions regarding alleged violations of sections 67 and 68 of the Companies Act.
The petitioners agreed to these conditions, and the court noted that the scheme incorporated modalities and conditionalities of amalgamation, ensuring compliance with all necessary approvals and declarations.
4. Protection of Shareholders' Interests:
The court emphasized the importance of protecting shareholders' interests. It noted that despite public notices and individual communications, no objections were raised by the shareholders against the scheme. The court found the terms and conditions of the proposed amalgamation reasonable and in the best interest of the shareholders of both companies.
5. Legal Implications of Amalgamation and Dissolution of Companies:
The court referred to precedents, including the Supreme Court's judgment in Saraswati Industrial Syndicate Ltd. v. CIT, which clarified that the transferor company's corporate entity ceases to exist upon amalgamation. The court also considered the legal position that the transferor company need not be dissolved immediately, allowing the Registrar of Companies or the Central Government to take necessary actions regarding alleged violations.
Conclusion:
The court concluded that a conditional order of amalgamation is warranted, considering the submissions and representations made. The proposed scheme of amalgamation was sanctioned with the following conditions:
- Obtaining requisite clearance from the State Pollution Board within three months.
- Renewal/transfer of the lease from MPAKVN within three months.
- Investing the required amount for refunding share money to non-allottees in a separate bank account within one month.
- Advertising for non-allottees of shares to apply for refunds and making refunds within three months.
- The transferor company shall not be dissolved for one year to allow for any necessary legal actions.
- The amalgamation shall be effective subject to these conditions being satisfied.
The court directed the Registry to issue the order in the statutory form incorporating these conditions.
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1993 (1) TMI 202
Issues Involved:
1. Whether the proceedings initiated against a director under section 543 of the Companies Act would come to an automatic termination on the death of the director, and whether the court has jurisdiction to continue the proceedings against the legal representatives of the deceased director.
2. Whether the court has inherent power to reject the application under section 543 of the Act in limine or it is bound to hold a regular enquiry on the application filed under section 543 of the Act.
3. Whether the official liquidator has made out a case to foist liability on respondents Nos. 1 to 9 for the alleged loss that may have been caused by the company in liquidation.
Issue-wise Detailed Analysis:
Point No. 1: The court addressed whether the misfeasance proceedings against a deceased director could continue against his legal representatives. It was established that respondent No. 1, a former director, died on March 23, 1987. The court noted that misfeasance proceedings are inherently personal and involve inquiry into personal conduct. The maxim "actio personalis moritur cum persona" (a personal action dies with the person) was applied, indicating that such proceedings cannot continue posthumously. The court referenced the decisions in *Official Liquidator v. Maganlal Hirachand Shah* and *Mrs. Joselin v. Official Liquidator, Alwaye Chit Funds (P.) Ltd.*, concluding that the proceedings against the deceased director abate upon his death. Consequently, the court ruled that the proceedings could not continue against the legal representatives of the deceased director.
Point No. 2: The court examined whether it has inherent power to reject an application under section 543 of the Companies Act in limine. It was argued that the court should conduct an inquiry by taking evidence as per rules 260 to 262. However, the court held that it has inherent powers under rule 9 of the Companies (Court) Rules to reject an application if the allegations, even if taken at face value, do not constitute misconduct. The court emphasized that misfeasance proceedings are quasi-criminal and serious, and thus, the court has discretion to decide whether to proceed with an inquiry based on the merits of the application.
Point No. 3: The court analyzed whether the official liquidator made out a case against respondents Nos. 1 to 9 for the alleged loss caused to the company. Section 543 of the Companies Act pertains to assessing damages against delinquent directors for misfeasance or breach of trust. The court noted that mere negligence does not constitute misfeasance unless it amounts to gross negligence resulting in loss to the company. The court referenced the decision in *Official Liquidator, Madras Oils and Fertilizers P. Ltd. v. G. Shanmugham*, which emphasized the need for prima facie proof of negligence bordering on misfeasance and breach of trust.
The court examined each allegation made by the official liquidator:
- Advances to Mysore Machinery Manufacturers Ltd.: The court found that the advances were commercial decisions approved by the board and shareholders, and there was no personal gain by the directors.
- Advances to A. J. George: The court noted that the advances were for liaison work, and the decision to write off the amount was approved by the board and shareholders.
- Transfer of Amounts to C. Appu Rao: The court found no specific allegations of misfeasance or personal gain by the directors.
- Write-off of Amounts Due from D. Kamesh: The court found that the decision to write off the amount was justified as D. Kamesh left no assets.
- Advance to C. P. Dhawan: The court held that the decision to write off the amount was a commercial decision approved by the board and shareholders.
- Advance to V. C. Khanna: The court found that the decision to write off the amount was due to the government's refusal to transfer the site and was approved by the board and shareholders.
- Land Registered in K. T. Cherian's Name: The court found that the land was used by the company and the advance was shown in the books of the company.
- Write-off of Amounts Due from S. V. Rajaratnam: The court found that the decision to write off the amount was justified due to premature termination of services and was approved by the board and shareholders.
- Shortage of Sulphur: The court found that the liquidator did not consider the clarifications provided by the directors, which indicated no shortage of sulphur.
The court concluded that the allegations did not constitute misfeasance or breach of trust by the directors. The court held that the directors were not liable for any misfeasance, misapplication, or breach of trust under section 543 of the Companies Act. Consequently, the judge's summons was dismissed, and the prayers (a), (b), (c), (d), (e), and (f) were rejected. No order as to costs was made.
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1993 (1) TMI 194
Issues Involved:
1. Classification of imported goods.
2. Validity of import licenses.
3. Allegations of mis-declaration.
4. Applicability of concessional duty under Notification No. 59/88.
5. Imposition of penalties on the importing parties.
Issue-wise Detailed Analysis:
1. Classification of Imported Goods:
The core issue was whether the imported goods were parts of cordless telephones or electronic push-button telephones. The adjudicating authority, supported by the examination report and samples, concluded that the goods were parts of cordless telephones. The imported items lacked provisions for connecting wires, essential for electronic push-button telephones, but included antennas required for cordless telephones. Thus, it was held that the goods were parts of cordless telephones and not electronic push-button telephones.
2. Validity of Import Licenses:
The import licenses held by the appellants were for parts of electronic push-button telephones, not cordless telephones. The Department of Electronics clarified that electronic push-button telephones do not cover cordless telephones, and the importers were not licensed to manufacture cordless telephones. Therefore, the import licenses did not cover the imported goods, rendering the import invalid.
3. Allegations of Mis-declaration:
The adjudicating authority found that the goods were misdeclared as parts of electronic push-button telephones when they were actually parts of cordless telephones. This misdeclaration was intended to evade higher duties applicable to cordless telephone parts. Consequently, the charge of misdeclaration under Sections 111(d), (m), and (l) of the Customs Act, 1962, was upheld.
4. Applicability of Concessional Duty under Notification No. 59/88:
The appellants claimed concessional duty under Notification No. 59/88, which applied to complete telephone instruments and cordless telephones, not parts thereof. Since the imported goods were parts of cordless telephones, they did not qualify for the concessional rate of duty. Therefore, the benefit of Notification No. 59/88 was denied.
5. Imposition of Penalties on the Importing Parties:
The adjudicating authority imposed penalties on Suneel Communications and J & K Bank. Suneel Communications was penalized for misdeclaration and unauthorized import. However, the penalty on J & K Bank was contested. The bank argued that it acted merely as a financier and filed the Bill of Entry due to hypothecation of goods. The tribunal agreed, finding no conscious act of commission or omission by the bank, and set aside the penalty imposed on J & K Bank.
Judgment Summary:
- The imported goods were confirmed as parts of cordless telephones, not electronic push-button telephones.
- The import licenses did not cover the imported goods, making the import unauthorized.
- The charge of misdeclaration was upheld.
- The benefit of Notification No. 59/88 was not applicable to the imported goods.
- The goods were confiscated with an option to redeem on payment of a fine of Rs. 5 lakhs.
- The personal penalty on Suneel Communications was reduced to Rs. 75,000.
- The penalty of Rs. 50,000 imposed on J & K Bank was set aside.
The appeals were disposed of in these terms.
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1993 (1) TMI 185
The Department appealed against the Order-in-Appeal allowing the Respondents' appeal regarding refund of duty on returned goods for repacking and pre-folding. The Tribunal upheld the Collector's decision, stating that repacking and pre-folding fall within the purview of Rule 173L for refund of duty to prevent double payment on the same goods. The appeal from the Revenue was rejected.
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1993 (1) TMI 184
Issues Involved:
1. Confiscation and fine of seized goods.
2. Imposition of penalty under Rule 173Q(1)(d) of the Central Excise Rules, 1944.
3. Classification of Soya Milk products.
4. Extension of the larger period under Section 11A of the Central Excises & Salt Act, 1944.
5. Justification for imposition of redemption fine and penalty.
Detailed Analysis:
1. Confiscation and Fine of Seized Goods:
The appellants were aggrieved by the order of confiscation of 3893 cartons of Soya products under Rule 173Q(1)(d) of the Central Excise Rules, 1944. The goods were released provisionally, and a fine of Rs. 50,000/- was imposed in lieu of confiscation. The products were seized because they were manufactured without obtaining a Central Excise license and were claimed to be exempt under Notification No. 20/89-C.E., dated 1-3-1989 at nil rate of duty. The Collector held that the products were Soya Beverages containing flavors and fruit pulp, thus not exempt under the said notification.
2. Imposition of Penalty under Rule 173Q(1)(d):
A penalty of Rs. 10,000/- was imposed under Rule 173Q(1)(d) of the Central Excise Rules, 1944. The appellants contended that they had filed a Classification List and were under the bona fide belief that their products were exempt from duty. They argued that the department was aware of their manufacturing activities and thus, no penalty should be levied.
3. Classification of Soya Milk Products:
The main dispute was whether the products manufactured by the appellants were Soya Milk or Soya Beverages. The Collector concluded that the products, including Golden Glow, Big Sipp, Mango, Rose, Pinakool, and Banana, were Soya Milk products and not Soya Milk, thus not covered under the exemption Notification No. 20/89-C.E. The Tribunal referred to a similar case (Noble Soya House Ltd. v. CCE) where it was held that such products were non-alcoholic beverages and not entitled to the exemption.
4. Extension of the Larger Period under Section 11A:
The Collector extended the period for demand under the proviso of Section 11A of the Act, alleging misdeclaration or suppression of facts by the appellants. The appellants argued that they had no intent to evade duty and their belief in the exemption was bona fide. They had filed a Classification List and informed the department about their products. The Tribunal found that the department had failed to make sufficient inquiries before returning the Classification List and informing the appellants that their product was exempted. Thus, the extension of the larger period was not justified.
5. Justification for Imposition of Redemption Fine and Penalty:
The Tribunal found that the imposition of redemption fine was not justified as the appellants had filed the Classification List and had no intent to evade duty. The penalty of Rs. 10,000/- was also not confirmed, as there was no mens rea on the part of the appellants to evade duty. The Tribunal relied on the Supreme Court's observation in Hindustan Steels Ltd. v. State of Orissa, stating that penalty should not be imposed for a mere technical or venial breach of legal provisions.
Conclusion:
The appeal was allowed in favor of the appellants. The Tribunal concluded that the products were not entitled to the exemption under Notification No. 20/89-C.E., but the extension of the larger period for demand and the imposition of redemption fine and penalty were not justified. The appellants' bona fide belief and the department's failure to make sufficient inquiries were crucial factors in the decision.
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1993 (1) TMI 183
The appeal was against the denial of modvat credit amounting to Rs. 9513 due to a gate pass not being endorsed in favor of the appellants. The Tribunal directed the appellants to get the gate pass endorsed or provide a certificate confirming transfer of the consignment to them. The Department was instructed to allow modvat credit if the gate pass was not used elsewhere for modvat benefit. Appeal allowed.
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1993 (1) TMI 182
Issues:
- Appeal against the order-in-appeal allowing refund of duty on glass vials under Rule 173L of Central Excise Rules.
- Dispute over the market value of the rejected goods affecting the refund claims.
- Permission granted under Rule 173L subject to specific conditions by the Collector.
- Interpretation of Rule 173L regarding the requirement of market value for sanctioning refunds.
Analysis:
The appeal before the Appellate Tribunal CEGAT, Bombay involved a dispute regarding the refund of duty paid on glass vials under Rule 173L of the Central Excise Rules. The respondents had claimed a refund, which was initially rejected due to the argument that the market value of the returned goods was less than the duty originally paid. The Collector (Appeals) had allowed the appeal of the respondents, leading to the revenue appealing against this decision. The key contention raised by the ld. SDR for the appellant was that the refund claim was not legally sustainable as the market value of the rejected goods was lower than the duty paid, as per Rule 173L(3)(v). The SDR emphasized the statutory requirement and cited a previous decision of the Bench for support.
On the other hand, the consultant for the respondents argued that the rejected goods had not entered the market stream due to issues with workers, necessitating the removal of the vials for inspection and testing outside the factory premises. The respondents had sought permission to operate under Rule 56B initially, but eventually, the Collector permitted operation under Rule 173L with specific conditions. The consultant highlighted the sequence of events and permissions granted by the Collector, indicating that the goods were intended for recycling and not for market circulation. The consultant contended that due to these circumstances, the question of determining market value for sanctioning the refund did not arise.
Upon considering the arguments presented, the Tribunal acknowledged the legal principle that the market value of returned goods should not be lower than the duty paid for refund under Rule 173L. However, in the specific context of the case where the rejected goods had not entered the market due to operational challenges within the factory, the Tribunal found that the Collector's permission under Rule 173L was granted with the understanding that the goods were meant for internal processing and not for commercial sale. Therefore, the Tribunal concluded that the objection raised regarding market value was not sustainable, given the unique circumstances of the case. Consequently, the Tribunal dismissed the appeal from the revenue, upholding the order of the Collector (Appeals) in favor of the respondents.
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