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1984 (12) TMI 280
Issues Involved:
1. Entitlement to exemption from sales tax for a period of five years prior to the grant of registration by the Industries Department.
2. Interpretation of the notifications issued under section 4(3)(b) of the Bihar Sales Tax Act, 1959.
3. Validity of the earlier Division Bench judgment in Kailash Roller Flour Mills v. Assistant Commissioner of Commercial Taxes.
Detailed Analysis:
1. Entitlement to Exemption from Sales Tax for a Period of Five Years Prior to the Grant of Registration by the Industries Department:
The primary question referred to the court was whether the petitioner is entitled to exemption from sales tax for the period of five years prior to the grant of registration by the Industries Department. The industrial unit in question started production on January 5, 1971, but was registered as a small-scale industry on July 2, 1976. The dispute arose regarding the exemption period from July 1, 1972, to March 31, 1976. The court held that to claim exemption, the industrial unit must be registered by the Industries Department of the State Government. The court concluded that an industrial unit cannot claim exemption for the period during which it was not a registered small-scale industry.
2. Interpretation of the Notifications Issued Under Section 4(3)(b) of the Bihar Sales Tax Act, 1959:
The notifications in question were issued to grant exemption from general and special sales tax to newly set up small-scale industries for a period of five years from the date they started production. The court emphasized that the exemption is a concession granted by the State Government and not an inherent right. The notifications defined a "small-scale industry" as an industrial unit with an investment up to Rs. 7.5 lacs on plant and machinery, approved and registered by the Industries Department. The court held that the exemption is available only to industrial units that are newly set up and registered as small-scale industries within five years from the date of starting production. The period of exemption is not an inflexible five years but is determined by the date of registration and the date of starting production.
3. Validity of the Earlier Division Bench Judgment in Kailash Roller Flour Mills v. Assistant Commissioner of Commercial Taxes:
The court reviewed the earlier judgment in Kailash Roller Flour Mills, which held that the benefit of exemption is available even to industrial units registered a year or two after starting production. The court found that this view was not tenable, as it would lead to anomalous and discriminatory results. The court held that the exemption should be granted only from the date of registration and not retrospectively. The court overruled the observations in Kailash Roller Flour Mills and clarified that the exemption is available only to small-scale industries registered within five years from the date of starting production.
Conclusion:
The court concluded that to be eligible for exemption from sales tax under the notifications, an industrial unit must be approved and registered by the Industries Department as a small-scale industry and must be newly set up, i.e., not older than five years from the date of starting production. The exemption is not available retrospectively for the period prior to registration. The court answered both questions referred by the Tribunal in the negative, against the petitioner-assessee.
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1984 (12) TMI 279
Issues Involved:
1. Whether purchase tax is leviable under Section 14 of the Bombay Sales Tax Act, 1959, when goods purchased under a certificate in Form 16 are destroyed by fire and cannot be resold.
2. Whether purchase tax is leviable under Section 14 of the Bombay Sales Tax Act, 1959, when a small percentage of goods purchased under a certificate in Form 16 is lost during the process of resale or export.
Issue-Wise Detailed Analysis:
1. Destruction of Goods by Fire:
The respondent, a licensed dealer under the Bombay Sales Tax Act, 1959, purchased 1478 bales of cotton for resale against Form 16. These bales were destroyed by fire on 13th May 1974. The Sales Tax Officer levied purchase tax under Section 14, arguing that the respondent contravened the certificate by not reselling the cotton. The Tribunal held that there was no contravention. The question referred was whether the Tribunal was justified in holding that no purchase tax was leviable when the cotton was destroyed by fire.
The court examined the scheme of the Bombay Sales Tax Act, 1959, and the provisions of Section 14, which levies purchase tax when goods are not resold or despatched as certified. The court noted that the phrase "contrary to such certificates" covers various contraventions, including not reselling goods. The court rejected the argument that a contravention requires a voluntary change of intention by the dealer. The court held that once the goods are destroyed, the intention to resell comes to an end, and there is a contravention of the certificate. Thus, purchase tax is leviable.
2. Loss of Goods During Resale or Export:
The respondent, a licensed dealer in castor oil, purchased castor oil for resale or export against Form 16. During handling, a small percentage of the oil was lost due to spillage or sticking to containers. The Sales Tax Officer levied purchase tax on the lost quantity, arguing that the respondent contravened the certificate by not reselling this quantity. The Tribunal held that there was no contravention. The question referred was whether the Tribunal was justified in holding that no purchase tax was leviable on the lost quantity.
The court noted that the loss occurred while the respondent was carrying out the terms of the certificate. The loss was inevitable and less than 0.5% of the purchased quantity. The court held that the respondent substantially complied with the certificate and could not be held accountable for every drop of oil. Therefore, there was no contravention, and purchase tax was not leviable.
Conclusion:
- Reference No. 63 of 1979: The court answered the question in the negative and against the assessee, holding that purchase tax is leviable when goods are destroyed by fire.
- Sales Tax References Nos. 20 and 21 of 1980: The court answered the questions in the affirmative and in favor of the assessee, holding that purchase tax is not leviable on the small percentage of goods lost during resale or export.
In both cases, the court emphasized the interpretation of Section 14 and the nature of the contraventions of certificates under the Bombay Sales Tax Act, 1959.
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1984 (12) TMI 278
Issues:
Challenge to levy of surcharge under Jammu and Kashmir General Sales Tax Act, 1962 on various grounds including violation of constitutional provisions and double taxation.
Analysis:
The petitioner, a partner of a firm engaged in sales of electric appliances, sewing machines, and radios, challenged the levy of surcharge by the assessing authority for the accounting year 1976-77. The challenge was based on multiple grounds, including violation of article 14, 19(1)(f), 19(1)(g), and 276(2) of the Constitution of India, as well as double taxation and contravention of article 286(3) of the Constitution of India. The respondents contended that the challenge was not maintainable as there was an alternative remedy by way of appeal. The High Court referred to the Supreme Court judgment in S. Kodar v. State of Kerala, which held that the levy of surcharge is a tax on sales of goods, not on income, and is not violative of the Constitution. The Court rejected the first four grounds of attack based on this precedent.
Regarding the fifth ground of attack, which alleged violation of article 286(3) of the Constitution of India, the Court found that the petition lacked specific facts or figures to support the challenge. The petitioners failed to demonstrate how the levy of surcharge exceeded the prescribed limits under the State and Central Sales Tax Acts. The Court upheld the validity of section 4-A of the Jammu and Kashmir Sales Tax Act, 1962, stating that there was a presumption of constitutionality and insufficient evidence to prove the violation of relevant provisions.
The last ground of attack focused on the interpretation of section 4-A, which was amended in 1978 to replace "for every year" with "for any year." The Court analyzed the legislative intent behind this change and concluded that before the amendment, the dealer had to exceed the turnover limit every year to be liable for surcharge. However, post-amendment, exceeding the limit in any year made the dealer liable. As the assessing authority did not record a finding on the turnover exceeding the limit every year from 1974 to 1978, the Court held the levy of surcharge to be improper. The Court quashed the surcharge and remanded the case for a fresh determination by the assessing authority.
In conclusion, the writ petition was partially allowed, quashing the surcharge levy and remanding the case for a fresh assessment. Each party was directed to bear its own costs as the petition succeeded only in part.
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1984 (12) TMI 277
Issues Involved:
1. Applicability of amended penalty rates under Section 36(3) of the Bombay Sales Tax Act, 1959.
2. Nature of the penalty under Section 36(3) - whether compensatory or penal.
3. Continuous default vs. single completed default.
4. Retrospective application of penalty provisions.
5. Discrimination under Article 14 of the Constitution.
Detailed Analysis:
1. Applicability of Amended Penalty Rates:
The primary issue was whether the amended rates of penalty under Section 36(3) of the Bombay Sales Tax Act, 1959, effective from 11th May 1973, applied to the respondent's default, which occurred before this date but continued thereafter. The Tribunal held that the old rates should apply, as the default occurred before the amendment. The court agreed, stating that the penalty should be calculated based on the rates in effect at the time of the default, which was on 23rd April 1973.
2. Nature of the Penalty - Compensatory or Penal:
The Revenue argued that the penalty was compensatory, intended to make up for the loss of interest due to delayed payment, and thus should be calculated at the amended rates for the period after 11th May 1973. Conversely, the respondent contended that the penalty was penal in character, and the liability was fixed at the time of default. The court sided with the respondent, emphasizing that the penalty was indeed penal and should be calculated based on the rates at the time of default.
3. Continuous Default vs. Single Completed Default:
The Revenue's submission was that the default was continuous, and thus the amended rates should apply for the period after 11th May 1973. The court, however, determined that the default was a single completed act on 23rd April 1973. The continuous nature of the default only affected the calculation of the penalty duration, not the applicable rates.
4. Retrospective Application of Penalty Provisions:
The court referenced the Supreme Court's decision in Commissioner of Wealth-tax, Amritsar v. Suresh Seth, which established that penalties should be computed based on the law in force at the time of the default. The court found no indication in Section 36(3) that the amended penalty rates were intended to apply retrospectively. Therefore, the amended rates could not apply to defaults occurring before 11th May 1973.
5. Discrimination under Article 14:
The Revenue argued that applying different penalty rates based on the timing of the notice could lead to discrimination, violating Article 14 of the Constitution. The court dismissed this argument, noting that differences in timing do not constitute discrimination, as the circumstances of each case are inherently different.
Conclusion:
The court concluded that the penalty for the respondent's default should be calculated at the rates in effect on 23rd April 1973, before the amendment. The question was answered in the affirmative, favoring the dealer, and the Revenue was ordered to pay the costs of the reference to the respondent.
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1984 (12) TMI 276
Issues Involved:
1. Interpretation of section 8(2A) of the Central Sales Tax Act, 1956.
2. Applicability of exemption from Central Sales Tax for a small-scale industry under the Goa Sales Tax Act.
3. Jurisdiction of the High Court to entertain the writ petition without exhausting alternate remedies.
Issue-wise Detailed Analysis:
1. Interpretation of section 8(2A) of the Central Sales Tax Act, 1956:
The case revolves around the interpretation of section 8(2A) of the Central Sales Tax Act, particularly after its amendment in 1973. The petitioners argued that the exemption from local sales tax granted under entry 68 of the Second Schedule to the Goa Sales Tax Act should also apply to Central sales tax for inter-State sales. The amended section 8(2A) states that if under the state sales tax law, the sale or purchase of goods is exempt from tax generally, the tax payable under the Central Sales Tax Act shall be nil or calculated at a lower rate. The explanation to section 8(2A) clarifies that an exemption is not considered general if it is granted only under specified circumstances or conditions or if the tax is levied at specified stages or otherwise than with reference to the turnover of the goods.
The court reviewed various decisions, including those from the Madhya Pradesh High Court, Allahabad High Court, and the Supreme Court, which dealt with the interpretation of section 8(2A) before its amendment. The court noted that the amended section 8(2A) did not change the concept of general exemption but only restructured the section. Therefore, the exemption granted under entry 68 of the Second Schedule to the Goa Sales Tax Act was considered general and not under specified circumstances or conditions.
2. Applicability of exemption from Central Sales Tax for a small-scale industry under the Goa Sales Tax Act:
The petitioners, a registered small-scale industry, claimed exemption from Central sales tax for inter-State sales based on the exemption from local sales tax under entry 68 of the Second Schedule to the Goa Sales Tax Act. The court noted that entry 68 provided total exemption from local sales tax for sales by registered small-scale industries for five years from the date of the first sale. The court held that this exemption was general and not subject to specified circumstances or conditions, thus qualifying for exemption under section 8(2A) of the Central Sales Tax Act.
The court rejected the Government Pleader's contention that the exemption was not general because it was restricted to sales by registered small-scale industries. The court emphasized that the absence of the word "dealer" in the amended section 8(2A) did not change the concept of general exemption. The court concluded that the exemption granted to the petitioners under entry 68 of the Second Schedule to the Goa Sales Tax Act was general and applicable to Central sales tax.
3. Jurisdiction of the High Court to entertain the writ petition without exhausting alternate remedies:
The respondents argued that the petitioners' writ petition was not tenable because they had not exhausted all available remedies under the Central Sales Tax Act. However, the court noted that the matter involved a question of interpretation of section 8(2A) of the Central Sales Tax Act and a question of jurisdiction. Therefore, the court held that it could entertain the petition without requiring the petitioners to exhaust alternate remedies.
Conclusion:
The court concluded that the exemption from local sales tax granted to the petitioners under entry 68 of the Second Schedule to the Goa Sales Tax Act was general and not subject to specified circumstances or conditions. Therefore, the petitioners were entitled to exemption from Central sales tax under section 8(2A) of the Central Sales Tax Act for inter-State sales. The court quashed the assessment order dated 28th December 1983 and granted relief to the petitioners. The petition was allowed, and the rule was made absolute in terms of the prayers (a) and (b)(i), (ii), and (iii) of the petition. The court rejected the oral application for leave to appeal to the Supreme Court.
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1984 (12) TMI 275
Issues Involved:
1. Legality and constitutionality of SRO No. 118 of 1984.
2. Application of the principle of promissory estoppel.
3. Alleged discrimination against the petitioners.
4. Withdrawal of sales tax exemption.
Detailed Analysis:
1. Legality and Constitutionality of SRO No. 118 of 1984:
The petitioners challenged SRO No. 118 of 1984, which superseded SRO No. 671 of 1979 and withdrew the exemption from the payment of sales tax on the finished goods manufactured by their small-scale industrial units. The respondents contended that the impugned SRO is neither illegal nor unconstitutional. They argued that the exemption is a policy matter and a legislative function of the State, which can change the policy from time to time without violating Article 14 of the Constitution of India. The court upheld the SRO, stating that the power of exemption is derived by the Government in exercise of its legislative function under section 5 of the Jammu and Kashmir General Sales Tax Act, 1962, and thus, SRO No. 118 of 1984 is intra vires the powers of the State Government and is neither unconstitutional nor illegal.
2. Application of the Principle of Promissory Estoppel:
The petitioners argued that the respondents are estopped on the principles of promissory estoppel from superseding SRO No. 671 of 1979, which initially granted a ten-year exemption from sales tax. They claimed that the withdrawal of the exemption is illegal, unconstitutional, discriminatory, and opposed to the principles of promissory estoppel. The court, however, held that the principle of estoppel is not applicable against law, especially in matters of taxation. It cited the Supreme Court's decision in Jit Ram Shiv Kumar v. State of Haryana, which stated that the plea of promissory estoppel is not available against the Government in the exercise of its legislative, sovereign, or executive powers or the statutory functions of the State. The court concluded that the doctrine of promissory estoppel is not applicable to the case of the petitioners' units.
3. Alleged Discrimination Against the Petitioners:
The petitioners contended that the action of the respondents in withdrawing the exemption for their industry while continuing it for others is discriminatory and hence ultra vires the provisions of Article 14 of the Constitution of India. The respondents argued that the Government has classified the units and dealt with the periods differently in the notifications, and thus, the action is not discriminatory. The court found no merit in the petitioners' argument, stating that the Government is fully empowered to legislate upon the subject and the withdrawal of the exemption is within its legislative function.
4. Withdrawal of Sales Tax Exemption:
The petitioners claimed that the withdrawal of the sales tax exemption would financially ruin them and force them to close down their units. They argued that the statutory power under the Jammu and Kashmir General Sales Tax Act, 1962, cannot be arbitrarily used by the State to deprive them of rights already vested in them. The respondents contended that the exemption is a policy matter and can be changed by the Government. The court held that the Government is not estopped from withdrawing the exemption and that the words "No unit shall be entitled to exemption for a period exceeding 10 years" in SRO No. 671 of 1979 are wide enough to empower the Government to withdraw the notification relating to the grant of sales tax even before the period of 10 years expires.
Conclusion:
The court dismissed all the writ petitions, upholding SRO No. 118 of 1984 as intra vires the powers of the State Government and neither unconstitutional nor illegal. The petitions were dismissed with no order as to costs, and the connected C.M.Ps. were also accordingly disposed of.
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1984 (12) TMI 274
Issues Involved:
1. Validity of the West Bengal Taxation Laws (Second Amendment) Act, 1979.
2. Inclusion of non-taxable sales in gross turnover.
3. Validity of Departmental Circulars issued by the Commissioner, Commercial Taxes, West Bengal.
4. Interim order for payment of turnover tax and provision of bank guarantees.
5. Applicability of Supreme Court judgments in similar cases.
Issue-wise Detailed Analysis:
1. Validity of the West Bengal Taxation Laws (Second Amendment) Act, 1979:
The court examined the imposition of turnover tax introduced by the West Bengal Taxation Laws (Second Amendment) Act, 1979. The Act introduced section 6B in the Bengal Finance (Sales Tax) Act, 1941, and section 4AAA in the West Bengal Sales Tax Act, 1954. The court upheld the validity of these provisions, stating they are a valid piece of legislation. The court noted that the provisions of section 6B and section 4AAA cannot be declared invalid or beyond legislative competency.
2. Inclusion of Non-taxable Sales in Gross Turnover:
The court referred to a previous judgment by B.C. Basak, J., which held that in the calculation of gross turnover, non-taxable sales (sales referred to in section 27 of the Act and article 286 of the Constitution) are not to be considered. The appellants moved a Special Leave Petition before the Supreme Court, which resulted in an interim order confirming the stay on the condition that the appellants would pay the entire amount with interest if they failed in the appeal.
3. Validity of Departmental Circulars Issued by the Commissioner, Commercial Taxes, West Bengal:
The court examined the Departmental Circular No. 523 dated 6th April 1983, and its addendum dated 3rd September 1983, issued by the Commissioner, Commercial Taxes, West Bengal. The circular directed assessing authorities to assess and levy turnover tax in accordance with the observations made in the judgment in Associated Pigments case and the Supreme Court's decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar. The court noted that these circulars were issued based on the determinations of higher courts and thus were not irregular or unauthorized.
4. Interim Order for Payment of Turnover Tax and Provision of Bank Guarantees:
The court reviewed the interim order issued by the trial judge, which restrained the respondents from including any turnover in respect of sales outside West Bengal for determining liability of turnover tax. The petitioners were directed to pay 50% of the turnover tax in cash and furnish a bank guarantee for the remaining 50%. The court modified this order, directing the petitioners to deposit 50% of the turnover tax in cash and secure the remaining 50% by bank guarantee within six weeks from the date of demand.
5. Applicability of Supreme Court Judgments in Similar Cases:
The court referred to the Supreme Court's decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar, which upheld the constitutional validity of provisions similar to those in the West Bengal Act. The Supreme Court held that the state legislature could include transactions covered by article 286 of the Constitution for purposes of dealer registration and submission of returns. The court also referred to the Supreme Court's decision in Dunlop India Ltd., emphasizing that interim orders should not jeopardize public revenue and that governments require liquid cash for smooth functioning.
Conclusion:
The court allowed the application to the extent of modifying the interim order, directing the petitioners to deposit 50% of the turnover tax in cash and secure the remaining 50% by bank guarantee. The court emphasized the importance of balance of convenience and public interest in making such determinations. The applications in related cases were disposed of similarly, with no order as to costs.
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1984 (12) TMI 273
Issues Involved
1. Legality and validity of the show cause notice issued under the A.P.G.S.T. Act.
2. Power of seizure and confiscation under section 28(6) of the A.P.G.S.T. Act.
3. Detention and confiscation of goods under section 29 of the A.P.G.S.T. Act.
4. Jurisdiction of the High Court under Article 226 of the Constitution to quash a show cause notice.
5. Allegations of tax evasion and the role of transport companies as agents of non-resident principals.
Detailed Analysis
1. Legality and Validity of the Show Cause Notice
In W.P. No. 5560 of 1984, the petitioner, a transport corporation, challenged the show cause notice issued by the Commercial Tax Officer for alleged violations of the A.P.G.S.T. Act. The notice called upon the petitioner to explain why penal action should not be taken for not registering as a dealer and for acting as an agent of non-resident principals. The court held that the allegations in the show cause notice raised mixed questions of fact and law, which required a detailed enquiry. Therefore, the writ petition was not the proper remedy to challenge the show cause notice, and the petitioner was advised to submit an explanation to the concerned authorities.
2. Power of Seizure and Confiscation under Section 28(6) of the A.P.G.S.T. Act
The court examined the validity of section 28(6) of the A.P.G.S.T. Act, which empowers officers to seize and confiscate goods not accounted for in the dealer's accounts. The court referred to earlier decisions in Papanna v. Deputy Commercial Tax Officer and Kalangi Krishna Murty & Co. v. Commercial Tax Officer, which upheld the constitutionality of section 28(6). The court distinguished this provision from section 42(3) of the Madras General Sales Tax Act, which was struck down by the Supreme Court in Check Post Officer v. K.P. Abdulla & Bros. The court concluded that section 28(6) is a regulatory measure designed to prevent tax evasion and is within the legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule of the Constitution.
3. Detention and Confiscation of Goods under Section 29 of the A.P.G.S.T. Act
In W.P. Nos. 6460, 14063, 14086, 6623, and 14069 of 1984, the petitioners, who were tyre manufacturing companies, challenged the detention orders issued by the authorities under section 29 of the A.P.G.S.T. Act. The court held that the power of detention under section 29 is limited to ensuring the payment of tax on goods in transit and does not extend to seizing goods for alleged past tax evasion. The court reiterated that the power to seize and confiscate goods under section 28(6) is valid, but such power should be exercised following the prescribed procedures, including giving the affected parties an opportunity to be heard.
4. Jurisdiction of the High Court Under Article 226 of the Constitution
The court emphasized that the jurisdiction of the High Court under Article 226 of the Constitution should not be used to obstruct or interdict an enquiry into allegations of tax evasion. The court noted that the show cause notice in W.P. No. 5560 of 1984 raised several factual issues that needed to be investigated by the tax authorities. Therefore, the court dismissed the writ petition, allowing the authorities to proceed with their enquiry.
5. Allegations of Tax Evasion and the Role of Transport Companies as Agents of Non-Resident Principals
The court examined the allegations that tyre manufacturing companies were using their branches in Silvaasa, a tax-free zone, to evade sales tax by routing their goods through transport companies. The court noted that the tyre companies were allegedly selling goods in Andhra Pradesh without paying the applicable sales tax. The court held that the transport companies, acting as agents of non-resident principals, were liable to be treated as dealers under the A.P.G.S.T. Act and were subject to the same tax obligations.
Conclusion
The court upheld the show cause notice issued under the A.P.G.S.T. Act and validated the powers of seizure and confiscation under section 28(6) of the Act. The court dismissed the writ petitions challenging the detention orders, emphasizing the need for a detailed enquiry into the allegations of tax evasion. The court also clarified the jurisdictional limits of the High Court under Article 226 of the Constitution, advising the petitioners to seek alternative remedies available under the law.
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1984 (12) TMI 272
Issues Involved:
1. Whether sales tax can be imposed on the sale or purchase of declared goods at more than one stage.
2. Whether the stage of taxation is the first point of sale or the last point.
3. Applicability of Section 15(a) of the Central Sales Tax Act, 1956 regarding single-point taxation.
4. Validity of the assessment orders and demand notices issued by the assessing authorities.
5. Availability and appropriateness of alternative remedies through appeals.
Detailed Analysis:
1. Imposition of Sales Tax at More Than One Stage:
The central issue in these writ petitions is whether sales tax can be imposed on the sale or purchase of declared goods, specifically steel tubes, at more than one stage. The petitioners argue that the tax on declared goods can only be levied at one point as per Section 15(a) of the Central Sales Tax Act, 1956, which states, "the tax shall not be levied at more than one stage." The assessing authorities, however, imposed tax at both the first and subsequent points of sale, leading to a double taxation scenario.
2. Stage of Taxation - First Point or Last Point:
The petitioners contend that the tax should be levied at the last point in the series of sales to successive dealers, as supported by various notifications issued by the State Government. The notification dated April 11, 1958, explicitly states that the tax on iron and steel should be payable at the last point in the series of sales by successive dealers. Subsequent notifications revised the tax rates but did not alter the point of taxation. The respondents argue that the tax on steel tubes/pipes was leviable at the first point by virtue of Rule 15 of the Rajasthan Sales Tax Rules, which was applicable during the assessment years in question.
3. Applicability of Section 15(a) of the Central Sales Tax Act, 1956:
Section 15(a) of the Central Sales Tax Act, 1956, restricts the imposition of tax on declared goods to a single point. The petitioners argue that the imposition of tax at both the first and subsequent points violates this provision. The respondents, however, contend that the notifications referred to by the petitioners were not applicable to the facts of these writ petitions and that the tax was rightly levied at the first point.
4. Validity of the Assessment Orders and Demand Notices:
The petitioners challenge the validity of the assessment orders and demand notices issued by the assessing authorities for the years 1977-78 and 1978-79. They argue that the assessing authorities acted illegally and in gross violation of the provisions of the Act and the notifications by levying tax at both points. The respondents counter that the assessment orders are valid and that the petitioners have an alternative remedy by way of appeals, which they have already availed.
5. Availability and Appropriateness of Alternative Remedies:
The respondents argue that the writ petitions should be dismissed on the ground that the petitioners have an alternative remedy by way of appeals, which are pending before the appellate authority. The Supreme Court in Titaghur Paper Mills Co. Ltd. v. State of Orissa [1983] 53 STC 315 (SC) held that where a right or liability is created by a statute that provides a special remedy for enforcing it, the remedy provided by that statute must be availed of. The petitioners, however, argue that the assessment orders can be directly challenged by writ petitions, especially when the orders are without jurisdiction or violate principles of natural justice.
Conclusion:
The High Court dismissed the writ petitions on the preliminary objection raised by the Department, directing the petitioners to pursue their remedy before the appellate authority. The Court noted that the assessing authority had given contradictory orders, which need to be adjudicated upon by the appellate authority. The Court also directed the appellate authority to decide the appeals on merits before February 28, 1985, and not to enforce the realization of the demand raised until the disposal of the appeals.
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1984 (12) TMI 271
Issues Involved:
1. Interpretation of the phrase "the total amount of tax paid by the dealer for any year" in the explanation to section 36(2)(c) of the Bombay Sales Tax Act, 1959.
2. Whether the amount paid by an assessee after filing of the returns but before passing of the assessment order should be included in the total amount of tax paid for the purpose of penalty imposition under section 36(2)(c).
Issue-wise Detailed Analysis:
1. Interpretation of the phrase "the total amount of tax paid by the dealer for any year" in the explanation to section 36(2)(c) of the Bombay Sales Tax Act, 1959:
The primary issue revolves around the interpretation of the phrase "the total amount of tax paid by the dealer for any year" used in the explanation to section 36(2)(c). The applicant-firm contended that the amount of Rs. 5,934.25 paid on 4th July, 1973, before the assessment order on 17th July, 1973, should be included in the total tax paid. This would mean that the tax paid by the dealer would not be less than eighty percent of the assessed tax, thus avoiding the penalty under section 36(2)(c).
The court examined the relevant provisions of the Bombay Sales Tax Act, 1959, including sections 32, 33, 36, and 38, and rules 22 and 29 of the Bombay Sales Tax Rules, 1959. It was noted that section 36 deals with the imposition of penalties and the explanation to section 36(2)(c) raises a presumption of concealment if the tax paid is less than eighty percent of the assessed tax.
The court emphasized that in a taxing statute, the language used must be interpreted plainly and grammatically. Referring to the dictum of Rowlatt, J., in Cape Brandy Syndicate v. Inland Revenue Commissioners, the court stated, "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
The court also referred to the Supreme Court's observation in Commissioner of Income-tax, West Bengal v. Vegetable Products Ltd., which stated that if two reasonable constructions of a taxing provision are possible, the one that favors the assessee should be adopted, especially in penalty provisions.
2. Whether the amount paid by an assessee after filing of the returns but before passing of the assessment order should be included in the total amount of tax paid for the purpose of penalty imposition under section 36(2)(c):
The court examined whether the amount paid after filing the returns but before the assessment order should be included in the total tax paid. The State contended that the phrase "the total amount of tax paid" should mean the amount paid within the time provided by the Act, and allowing payments made before the assessment order would render the explanation meaningless.
However, the court rejected this contention, stating that the plain language of the explanation indicates that "the total amount of tax paid" should include any payments made up to the date of the assessment order. The court held, "The phrase must then mean the total amount of tax paid till that time." The court further noted that stretching the plain words of the explanation to include only payments made within the prescribed time was not permissible.
The court concluded that interpreting the phrase as suggested by the applicant does not render the explanation meaningless. The presumption of concealment would still be raised if the tax paid up to the date of assessment is less than eighty percent of the assessed tax. The court emphasized that the department could still prove concealment or inaccurate particulars to impose a penalty, even if the presumption is not raised.
The court also referred to Commissioner of Sales Tax v. Empico Traders, where it was held that "tax paid" includes set-off amounts, suggesting that the phrase cannot be restricted to amounts paid within the prescribed time.
Conclusion:
The court answered the reference in the negative and in favor of the dealer, stating that the amount paid by the assessee after filing the returns but before the assessment order should be included in the total amount of tax paid for the purpose of section 36(2)(c). The respondent was ordered to pay the costs of the reference, and the amount of Rs. 100 deposited by the applicant with the Sales Tax Tribunal was to be refunded to the applicant.
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1984 (12) TMI 270
Issues:
1. Validity of the order requiring the petitioners to furnish security in the sum representing forty per cent of the value of the seized goods.
2. Interpretation of penalty provisions under section 15-A(1) of the Uttar Pradesh Sales Tax Act.
3. Applicability of clauses under section 15-A(1) to the breach committed by the petitioners.
4. Determination of the maximum penalty imposable on the petitioners.
5. Quashing and direction for fresh determination of security by the Assistant Commissioner.
Analysis:
The judgment of the Court addressed the issue of the validity of an order requiring petitioners to furnish security in the sum representing forty per cent of the value of goods seized during transportation. The petitioners had applied for release of the goods under section 13-A(6) of the Act. The Court noted that the breach involved the petitioners not correctly entering goods details in their books of account. The Assistant Commissioner imposed a penalty of forty per cent of the value of the goods seized, citing section 15-A(1) of the Act. However, the Court found that the penalty was erroneously imposed as the breach fell under clause (d) of section 15-A(1), not clause (o) or (q) as contended by the Standing Counsel.
Regarding the interpretation of penalty provisions, the Court highlighted that the penalty for the breach of not maintaining proper accounts, as in this case, should be determined under clause (ii) of section 15-A(1). The penalty should range from not less than fifty per cent to a maximum of one and a half times the amount of tax avoided. The purpose of security under section 13-A(6) is to safeguard the recovery of the potential penalty. The Court emphasized that the maximum penalty imposable on the petitioners, if the breach is proven, should be one and a half times the amount of tax, to be determined by the Assistant Commissioner.
The Court ultimately allowed the writ petition, quashing the order of the Assistant Commissioner requiring the petitioners to furnish security in the sum representing forty per cent of the seized goods' value. The Court directed the Assistant Commissioner to determine afresh the amount of security to be furnished by the petitioners for the release of the remaining seized goods. The judgment highlighted the importance of correctly applying penalty provisions and determining the appropriate penalty based on the specific breach committed by the petitioners, as per the provisions of the Act.
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1984 (12) TMI 269
Termination of service of the Headmaster of the School Shri Manmohan Singh Jaitla and the drawing teacher Amir Singh as no longer required - Held that:- Petition allowed - order terminating the service of Headmaster Manmohan Singh Jaitla is quashed and set aside as also the decisions of the Deputy Commissioner and the Commissioner and the Judgment of the High Court are quashed and set aside & reinstated in service with continuity in service and full backwages subject to the fact that if backwages have been paid under the orders of this Court, credit may be given for the same. Rule is made absolute in the writ petition filed by Drawing Teacher Amir Singh and the order terminating his service is quashed and set aside as also the orders of the Deputy Commissioner and Commissioner and he is reinstated in service with continuity in service with back-wages.
The respondent-School management shall pay the costs to both the employees separately quantified in each case at Rs 1, 500.
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1984 (12) TMI 268
Issues: Interpretation of "owns or holds" in section 9 of the Foreign Exchange Regulation Act, 1947; Alleged contravention of sections 9, 10, and 5 of FERA; Validity of penalties imposed by the Appellate Board; Application of section 9 to the case based on credit notes; Interpretation of credit notes as contingent debts.
In this judgment delivered by Bharucha, J., the primary issue revolves around the interpretation of the phrase "owns or holds" in section 9 of the Foreign Exchange Regulation Act, 1947. The case involves a petition seeking to quash an order by the Foreign Exchange Regulation Appellate Board, where the petitioners were alleged to have contravened sections 9, 10, and 5 of FERA. The petitioners, acting as indenting agents for foreign manufacturers, received commission payments which were subject to scrutiny. The Appellate Board found the petitioners guilty of not surrendering foreign exchange earned as commission within the specified time, leading to penalties being imposed. The petitioners challenged the penalties, specifically focusing on the interpretation of "owns or holds" in section 9 regarding the commission amounts received. The Appellate Board's decision was based on the understanding that the petitioners had full control and ownership over the commission amounts credited to them, as evidenced by credit notes received from foreign manufacturers.
Regarding the application of section 9 to the case based on credit notes, the Appellate Board concluded that the petitioners effectively owned and held the commission amounts mentioned in the credit notes, thus failing to comply with the surrender requirements under FERA. The judgment delves into the nature of credit notes, defining them as documents indicating entitlement to a certain amount credited by the issuer. However, the court disagreed with the Board's interpretation, stating that the petitioners did not have actual control or ownership over the foreign exchange mentioned in the credit notes. The court emphasized that the petitioners merely had a right to receive the funds, which did not amount to ownership or holding as required by section 9.
Furthermore, the judgment addresses the argument regarding credit notes as contingent debts due to potential deductions by foreign manufacturers in case of non-payment by Indian buyers. Ultimately, the court ruled in favor of the petitioners, quashing the Appellate Board's decision upholding the contravention of section 9 and the penalties imposed. The court held that section 9 did not apply to the case based on the nature of credit notes and lack of actual ownership or control by the petitioners over the foreign exchange. As a result, the penalties of Rs. 50,000 and Rs. 4,000 imposed on the first and second petitioners, respectively, were set aside.
In conclusion, the court ordered the quashing of the Appellate Board's decision regarding the contravention of section 9 and the associated penalties. Additionally, the court directed the respondents to return any excess amount deposited by the petitioners within a specified period and discharged the bank guarantee provided by the petitioners. The judgment concluded with no order as to costs, bringing an end to the legal proceedings in this matter.
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1984 (12) TMI 267
Issues Involved:
1. Liability of the sureties post-nationalisation.
2. Effect of the Nationalisation Act on the principal debtor's liability.
3. Rights and remedies of the creditor under the Nationalisation Act.
4. The impact of the dismissal of the suit against the principal debtor on the sureties.
Detailed Analysis:
1. Liability of the Sureties Post-Nationalisation:
The court examined whether the liability of the sureties (defendants Nos. 2 and 3) was extinguished by the Nationalisation Act. It was argued that the sureties' liability, being accessory or secondary, should be extinguished if the principal debtor's liability was extinguished. However, the court held that the Nationalisation Act did not extinguish the obligations of the principal debtor or the sureties. The court noted that the liability of the sureties remains unaffected if the creditor reserves remedies against them, even if the principal debtor is released.
2. Effect of the Nationalisation Act on the Principal Debtor's Liability:
The court discussed the provisions of the Nationalisation Act, which resulted in the transfer of the undertaking and its assets to the Central Government and subsequently to the National Textile Corporation. The Act provided for the discharge of the owner's liability only to the extent of the admitted claims under the Act. The court concluded that the Nationalisation Act did not extinguish the entire liability of the principal debtor but only discharged it to the extent of the compensation awarded and claims admitted under the Act.
3. Rights and Remedies of the Creditor Under the Nationalisation Act:
The court analyzed the creditor's rights under the Nationalisation Act, particularly the provisions for filing claims and the priority of claims. The court emphasized that the creditor's remedy under the Act is without prejudice to the contractual rights and obligations of the parties. The creditor is entitled to file a claim before the Commissioner and receive payment from the compensation awarded to the owner. However, for any balance amount not covered by the compensation, the creditor retains the right to proceed against the principal debtor and the sureties.
4. Impact of the Dismissal of the Suit Against the Principal Debtor on the Sureties:
The court addressed the appellant's contention that the dismissal of the suit against the principal debtor constituted res judicata and exonerated the sureties. The court clarified that the dismissal was based on the availability of an alternative remedy under the Nationalisation Act and not on the merits of the claim. Therefore, the dismissal did not bar the creditor from enforcing its claim against the sureties. The court also noted that mere forbearance to sue the principal debtor does not discharge the sureties unless there is an express stipulation in the guarantee to that effect.
Conclusion:
The court concluded that the liability of the sureties remains intact despite the nationalisation of the principal debtor's undertaking. The creditor retains the right to enforce the claim against the sureties for any balance amount not covered by the compensation awarded under the Nationalisation Act. The decree was modified to ensure that any amount realized by the creditor under the Nationalisation Act would be credited to the sureties, and the execution of the decree was postponed until the final disposal of the creditor's claim under the Act. The appeal was dismissed with no order as to costs.
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1984 (12) TMI 258
Issues Involved:
1. Validity of ad interim mandatory injunction
2. Suppression of material facts by the plaintiff
3. Compliance with the provisions of the Companies Act
4. Jurisdiction and procedural errors by the trial court
5. Prima facie case for mandatory injunction
Issue-wise Detailed Analysis:
1. Validity of Ad Interim Mandatory Injunction:
The revision petition challenges an ad interim mandatory injunction that divested the petitioners of ownership of 12,387 shares. The trial court's order was passed mechanically without proper application of mind. The learned judge granted the injunction without considering the necessary legal provisions and implications, rendering the order unsustainable.
2. Suppression of Material Facts by the Plaintiff:
The plaintiff failed to disclose critical facts to the trial court, including the existence of an order by a learned single judge of the High Court, which held that the three defendants continued to be directors of the company. This suppression of facts was deemed significant enough to deprive the plaintiff of the right to an injunction.
3. Compliance with the Provisions of the Companies Act:
The trial court did not consider the provisions of the Companies Act, specifically sections 82, 84, and 108, which regulate the transfer of shares and the issuance of duplicate shares. The mandatory injunction ordered the issuance of duplicate shares and their immediate transfer to the plaintiff, bypassing the statutory requirements. The court failed to recognize that the right to transfer shares is contingent on compliance with these statutory provisions.
4. Jurisdiction and Procedural Errors by the Trial Court:
The trial court issued an ad interim mandatory injunction against Messrs Century Flour Mills Limited, which was not a party to the suit. This procedural error demonstrated a lack of proper judicial consideration. Additionally, the petition for the injunction was incorrectly filed under Order 39, rule 7 of the Civil Procedure Code, which was not applicable to the relief sought.
5. Prima Facie Case for Mandatory Injunction:
The plaintiff's claim to the ownership of the shares was based on an alleged compromise, which was itself disputed and subject to an application under Order 23, rule 3 of the Civil Procedure Code before the company court. The plaintiff had not established a prima facie case for a mandatory injunction, as the facts and legal rights were still in dispute and required thorough examination during the trial.
Conclusion:
The High Court set aside the trial court's order of mandatory injunction, emphasizing that injunctions should not be granted as a matter of course and must be based on well-established legal principles. The case was transferred to the Principal Judge, City Civil Court, Madras, pending a decision on the transfer application by the company court. The revision petition was allowed with costs, and the trial court was advised to exercise extreme caution and care in future injunction matters.
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1984 (12) TMI 250
Issues Involved:
1. Validity of transactions under Section 536(2) of the Companies Act, 1956.
2. Financial assistance and revival of the company.
3. Interests of creditors and employees.
4. Court's discretion in winding-up proceedings.
Issue-Wise Detailed Analysis:
1. Validity of Transactions under Section 536(2) of the Companies Act, 1956:
The applicant company, Prasad Mills Ltd., sought the court's permission under Section 536(2) of the Companies Act, 1956, to enter into transactions by creating charges over its properties for obtaining financial assistance from the State Bank of India (SBI) and the Industrial Development Bank of India (IDBI). Section 536(2) states that any disposition of the property of the company made after the commencement of winding-up shall be void unless the court orders otherwise. The court referred to previous judgments, particularly in the cases of Navjivan Mills Ltd. and Commercial Ahmedabad Mills Co. Ltd., which established that the court could validate transactions before a winding-up order is made. Given this settled position, the court focused on whether the transactions were beneficial under the present circumstances.
2. Financial Assistance and Revival of the Company:
The applicant company had closed its textile unit due to financial difficulties, leading to wage-related legal actions and attachment of its properties. The company approached SBI and IDBI for financial assistance to restart operations. The Government of Gujarat also supported the revival by declaring the textile unit a relief undertaking and suspending certain liabilities and proceedings. The court had previously allowed an advance of Rs. 20 lakhs from SBI, which helped the company restart some production activities. The company now sought further permission to execute necessary documents to secure additional financial facilities worth Rs. 115.03 lakhs from SBI and IDBI. The court found that the company's revival efforts, supported by government resolutions and financial assistance, warranted approval of the transactions.
3. Interests of Creditors and Employees:
The court emphasized that reviving the company would benefit unsecured creditors and employees. The company had significant assets and liabilities, and the financial assistance would help it resume full operations, thereby safeguarding employment for about 1,200 workers. The court noted that allowing the company to enter into transactions with SBI and IDBI would not only regenerate employment prospects but also be in the better interest of unsecured creditors, who might receive better returns if the company revived successfully. The court highlighted the importance of promoting the company's revival over liquidation, considering the potential for economic recovery and job preservation.
4. Court's Discretion in Winding-Up Proceedings:
The court discussed its discretion under the Companies Act to decide on winding-up orders. It recognized that a company facing temporary financial adversity might recover with appropriate support and changing circumstances. The court stressed the need for a judicious approach, considering the overall circumstances and the potential benefits of revival over liquidation. In this case, the court found that permitting the company to enter into transactions for financial assistance was in the best interest of all concerned parties, including creditors and employees. Therefore, the court granted the application under Section 536(2), declaring the transactions with SBI and IDBI as authorized, valid, and binding on the company and creditors.
Conclusion:
The court allowed the application, declaring the transactions with SBI and IDBI as bona fide and binding, provided they were used for the company's operational needs and not for settling past dues. The court also clarified that the Rs. 20 lakhs advanced earlier would be part of the sanctioned amount. Consequently, Company Application No. 148 of 1984 was allowed, and Company Application No. 225 of 1984 was disposed of with no further orders.
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1984 (12) TMI 249
Issues:
Applications under section 446(2)(b) of the Companies Act, 1956 for possession of hypothecated goods by secured creditors in liquidation proceedings.
Analysis:
The judgment addresses two applications under section 446(2)(b) of the Companies Act, 1956, involving secured creditors seeking possession of hypothecated goods in companies under liquidation. The first application involves a bank claiming to be a secured creditor of a company in liquidation, seeking possession of machinery and stock-in-trade hypothecated under four deeds. The second application pertains to an individual seeking custody of machinery hypothecated by another company in liquidation. Both applicants express their intention to stay outside the winding-up proceedings.
The main issue is whether the official liquidator is obligated to hand over the hypothecated goods to secured creditors or if such creditors can move the court under section 446(2)(b) of the Act. The court examines the maintainability of the applications, emphasizing that secured creditors must enforce their security through appropriate legal procedures outside the winding-up proceedings. The judgment clarifies that the official liquidator's role is to settle claims of all creditors in accordance with insolvency laws.
The court distinguishes between possession and the right to seek possession of hypothecated goods, highlighting that enforcement of security must follow legal procedures. It emphasizes that claims under section 446(2)(b) are not equivalent to civil suits and that the company court's jurisdiction is limited to matters within the winding-up proceedings. The judgment cites legal precedents and provisions of the Provincial Insolvency Act to support its decision.
Furthermore, the court rejects the alternative prayer for sale of hypothecated goods in the applications, stating that such actions should be pursued through civil court proceedings. It also notes the English court practice in similar situations but emphasizes the need to align decisions with local legal conditions. Ultimately, the court dismisses the applications, advising the applicants to realize their security through appropriate civil court actions and directs that proceeds from any sale by the official liquidator be kept intact until the applicants obtain a decree from the civil court.
In conclusion, the judgment clarifies the limitations of the company court's jurisdiction in matters of secured creditors seeking possession of hypothecated goods in liquidation proceedings, emphasizing the need for adherence to established legal procedures outside the winding-up process.
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1984 (12) TMI 248
Issues Involved:
1. Competency of Mr. S. K. Kalia to file the suit.
2. Registration of the petitioner's charges with the Registrar of Companies under section 125 of the Companies Act.
3. Advancement of loans by the plaintiff to defendant No. 1.
4. Liability of guarantors for the amount advanced to defendant No. 1.
5. Cause of action disclosed by the plaint.
6. Suit barred by limitation.
7. Non-joinder and misjoinder of necessary parties.
8. Misjoinder of causes of action.
9. Entitlement to future interest.
10. Relief.
Issue-wise Detailed Analysis:
Issue No. 1: Competency of Mr. S. K. Kalia to file the suit
The court held that Mr. S. K. Kalia, as the branch manager of the State Bank of India, was competent to file the suit. Sub-section (3) of section 50 of the State Bank of India Act, 1955, and the State Bank of India General Regulations, 1955, empower branch managers to sign and verify plaints and other legal documents. This was supported by a precedent in State Bank of India v. Kashmir Art Printing Press, where it was affirmed that branch managers have the authority to file suits.
Issue No. 2: Registration of charges with the Registrar of Companies
The court found that the charge for the medium-term loan of Rs. 4,50,000 was registered, but the charges for the other two loans were not. However, the plaintiff had filed the particulars in Form 8 within the prescribed time. The Registrar's failure to register the charges did not absolve the bank of its responsibility once the particulars were filed. This was consistent with the precedent in Haryana Financial Corporation v. Depro Foods P. Ltd., where the filing of particulars was deemed sufficient.
Issue No. 3: Advancement of loans by the plaintiff to defendant No. 1
The plaintiff advanced loans to the company as detailed in the statements of account. The balances as of December 31, 1978, were confirmed by the company. The total outstanding amount as of October 26, 1979, was Rs. 21,34,247.83, with Rs. 93,600 received from the company, leaving Rs. 20,40,647.83 due. The interest from October 27, 1979, to September 12, 1980, was Rs. 2,56,742.12, making the total amount due Rs. 22,97,389.95.
Issue No. 4: Liability of guarantors
The court held that the guarantors, including the legal representatives of deceased guarantors, were liable for the amounts advanced to the company. This was based on the demand promissory notes and deeds of guarantee executed by the guarantors. The court noted that the non-service of notice of dishonour did not discharge the guarantors from liability, as they did not plead any loss due to non-receipt of notice.
Issue No. 5: Cause of action disclosed by the plaint
The court found that the plaint disclosed a valid cause of action. The defendants at serial No. 6, who raised this objection, did not provide any evidence or arguments to support their claim.
Issue No. 6: Suit barred by limitation
The court held that the suit was not barred by limitation. The balances were acknowledged by the company on December 31, 1978, and the suit was filed on September 13, 1980, within the limitation period.
Issue Nos. 7 and 8: Non-joinder and misjoinder of necessary parties and causes of action
The court found no merit in the objections regarding non-joinder and misjoinder of parties or causes of action. The defendants who raised these objections did not appear to provide evidence or arguments.
Issue No. 9: Entitlement to future interest
The court awarded future interest at the rate of 14% per annum, as the plaintiff had charged the company this rate on all accounts. The plaintiff's claim for 18% per annum was not supported by evidence of the State Bank advance rate.
Issue No. 10: Relief
The court passed a decree for recovery of the amounts due, with costs and future interest at 14% per annum. The mortgaged property was ordered to be sold to recover the amounts, and the proceeds were to be applied towards the payment of the plaintiff's dues. The balance, if any, was to be paid to the official liquidator. The court noted that the plaint was not properly drafted, as admitted by the plaintiff's counsel.
Final Decree:
The court decreed the recovery of:
- Rs. 6,79,087.11 against defendant No. 1 along with defendants Nos. 2, 3, and 4.
- Rs. 1,68,095.98 against defendant No. 1 along with defendants Nos. 2, 3, 5, 6, and 7.
- Rs. 1,10,044.08 against defendant No. 1.
- Rs. 12,02,611.46 against defendant No. 1 along with defendants Nos. 2, 3, and 4.
- Rs. 1,37,551.32 against defendant No. 1 along with defendants Nos. 2, 3, and 4.
The mortgaged property was ordered to be sold to recover the amounts, and the proceeds were to be applied towards the payment of the plaintiff's dues, with the balance, if any, to be paid to the official liquidator.
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1984 (12) TMI 247
Issues Involved:
1. Jurisdiction under Section 536(2) of the Companies Act, 1956.
2. Effect of the Bombay Relief Undertakings (Special Provisions) Act, 1958.
3. Merits of the financial transactions and objections raised.
Issue-wise Detailed Analysis:
1. Jurisdiction under Section 536(2) of the Companies Act, 1956:
The applicant company sought clearance from the court under Section 536(2) of the Companies Act, 1956, for borrowings and financial facilities from various financial institutions. The court noted that despite the stay of the winding-up petition due to the notification under the Bombay Relief Undertakings (Special Provisions) Act, 1958, the court still had jurisdiction to entertain and decide the application on merits. The precedent cited was the Division Bench decision in Company Application No. 95 of 1984 in Company Petition No. 105 of 1983, which supported the view that the court could grant necessary clearance to the applicant company facing a winding-up petition.
2. Effect of the Bombay Relief Undertakings (Special Provisions) Act, 1958:
The notification under the Bombay Relief Undertakings Act suspended all rights, privileges, obligations, and liabilities (except those of banks) and stayed all proceedings related to the applicant company. However, the court clarified that the present application was not for the enforcement of any pre-existing rights or obligations but was a request for clearance of financial transactions to restart the company's operations. Thus, the notification did not bar the court from entertaining the application under Section 536(2) of the Companies Act.
3. Merits of the financial transactions and objections raised:
The applicant company had approached financial institutions like the State Bank of India (SBI) and the Industrial Development Bank of India (IDBI) for financial assistance to restart its textile unit. The SBI agreed to grant Rs. 98 lakhs at a concessional interest rate of 13.5% and other financial facilities. The IDBI sanctioned term loans for labor rationalization and modernization schemes. The court noted that the financial assistance was part of a package deal involving consensus among workers' representatives, the State of Gujarat, and financial institutions.
Objections were raised by some creditors, arguing that the application was not maintainable under Section 536(2) and that the promoters were financially sound enough to secure finance from other sources. The court overruled these objections, stating that the financial assistance sought was for bona fide commercial purposes to restart the mills, which would benefit all stakeholders, including unsecured creditors. The court also addressed procedural objections, confirming that necessary documentation and guarantees were either already provided or in process.
Conclusion:
The court granted the application, declaring that the financial transactions with SBI, IDBI, and other financial institutions were bona fide and in the normal course of business. The transactions were authorized, valid, and binding on the company and its creditors. The court clarified that the funds provided should not be used to satisfy past dues of other creditors and that any disposal of assets pursuant to the order would be void if a winding-up order was eventually made. The request for a stay of the order was denied, as more finance would make the debtor company healthier, benefiting all creditors.
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1984 (12) TMI 223
Title: High Court Judgment - Limitation Issue
Summary: The petitioner, a limited company engaged in food manufacturing, sought recovery of dues from ex-managing director. The court found the petition barred by limitation as it was filed after the prescribed period. The petition was dismissed accordingly.
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