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1993 (2) TMI 286
Issues:
- Appeal dismissal as barred by time
- Interpretation of "sufficient cause" for condonation of delay
- Consideration of circumstances for filing appeal beyond the prescribed period
- Importance of stakes involved in the case
- Application of liberal approach in condonation of delay
Analysis:
The judgment pertains to a sales tax revision filed under section 11 of the U.P. Sales Tax Act, 1948 against an order passed by the Sales Tax Tribunal. The dispute arose regarding the assessment year 1984-85 when the assessee's appeal was dismissed as time-barred. The main issue was whether there existed sufficient cause to condone the delay in filing the appeal beyond the prescribed period of 30 days from the date of service of the assessment order.
The court analyzed the relevant provisions under section 9 of the Act, which allows for extension of the prescribed period under section 5 of the Limitation Act, 1963 if the appellant can prove sufficient cause for the delay. The court emphasized that the appellate authority must be satisfied about the existence of sufficient cause for not presenting the appeal within the specified time frame.
The assessee claimed that the delay was due to his illness between April 22, 1989, and May 17, 1989, which prevented him from filing the appeal in time. The medical certificate and personal affidavit submitted in this regard were not disputed. The court highlighted that the term "sufficient cause" is not rigidly defined and should be assessed based on the circumstances of each case. The court also considered the importance of the stakes involved in the case, emphasizing that the monetary implications and the gravity of the issue should be taken into account when deciding on condonation of delay.
Referring to previous judicial opinions, the court stressed the need for a liberal approach in condoning delays, especially in cases where substantial justice could be achieved by hearing the appeal on its merits. The court cited that the refusal to condone delay could lead to the denial of justice and the dismissal of a meritorious case without proper consideration.
After evaluating the facts and circumstances, the court concluded that the assessee had established sufficient cause for the delay in filing the appeal. The court found no lack of bona fide on the part of the assessee and deemed the delay justifiable. Therefore, the court allowed the revision, overturning the decision of the Sales Tax Tribunal and emphasizing the importance of considering substantial justice in such matters.
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1993 (2) TMI 285
Issues:
- Appeal against assessment order under U.P. Sales Tax Act
- Requirement of deposit for maintaining an appeal under section 9 of the Act
- Discretion of appellate authority to waive or relax deposit requirement
- Financial stringency as grounds for waiver/relaxation of deposit
- Judicial considerations for waiver/relaxation of deposit
- Lack of reasons in the Sales Tax Tribunal's order
- Exercise of discretion by appellate authority
- Setting aside the Sales Tax Tribunal's order for fresh consideration
Analysis:
The judgment pertains to three connected sales tax revisions filed by a partnership firm against a common order passed by the Sales Tax Tribunal. The revisions relate to the assessment years 1984-85, 1985-86, and 1986-87. The firm, engaged in the manufacture and sale of bricks, did not file any return of its turnover for the respective years, leading to ex parte assessments. The firm appealed these assessments, seeking waiver of the condition of pre-deposit of twenty percent of the assessed tax as required by section 9(1-B)(b) of the U.P. Sales Tax Act.
The appellate authority rejected the applications for waiver, prompting the firm to approach the Sales Tax Tribunal. The Tribunal, without providing reasons, dismissed the appeals, despite the firm's claim of financial hardship and lack of assets to make the required deposit. The Tribunal overlooked crucial details, such as the partners' financial state as per their affidavits, and made assumptions without proper investigation. The Tribunal's order lacked justification and failed to consider relevant factors, including the quantum of disputed tax and the assessee's capacity to pay.
Citing precedents, the High Court emphasized that the appellate authority's discretion to waive or relax the deposit requirement must be exercised judiciously and objectively. The Court noted that the Tribunal's decision lacked proper reasoning and directed a fresh consideration of the appeals. The Court highlighted the need for a fair and rational approach in dealing with waiver requests, ensuring that the matter is handled equitably and in accordance with the law.
Ultimately, the High Court set aside the Sales Tax Tribunal's order, instructing the Tribunal to re-examine the appeals in light of the observations made. The revisions were partially allowed, with no costs imposed. The judgment underscores the importance of a reasoned and fair assessment of waiver requests, emphasizing the need for a balanced and objective exercise of discretion by the appellate authority.
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1993 (2) TMI 284
Issues Involved:
1. Classification of "two-side open wooden industrial trolley" under the Gujarat Sales Tax Act, 1969.
2. Determination of whether the trolley qualifies as "machinery" under entry 16(1) of Schedule II, Part A.
3. Determination of whether the trolley qualifies as an "accessory" under entry 36 of the exemption notification issued under section 49(2) of the Act.
4. Applicability of residuary entry 13 of Schedule III to the trolley.
Issue-wise Detailed Analysis:
1. Classification of "two-side open wooden industrial trolley" under the Gujarat Sales Tax Act, 1969:
The primary question referred to the court was whether the sale of the "two-side open wooden industrial trolley" is covered under entry 13 of Schedule III, entry 16(1) of Schedule II, Part A, or entry 36 of the exemption notification under section 49(2) of the Act.
2. Determination of whether the trolley qualifies as "machinery" under entry 16(1) of Schedule II, Part A:
The applicant argued that the trolley should be classified as "machinery" under entry 16(1) of Schedule II, Part A, as it is used in the manufacturing process. The trolley has four wheels with shafts and ball-bearings and is used to transport unfinished textile fabric for various processes. However, the Tribunal and the Deputy Commissioner held that the trolley is not "machinery" as it lacks any mechanical contrivance and does not interact with the machinery in a manner that produces a specific and definite result. The court referred to several precedents, including the Privy Council's definition in Corporation of Calcutta v. Chairman of the Cossipore and Chitpore Municipality, and the Supreme Court's approval of this definition in Commissioner of Income-tax v. Mir Mohammad Ali. The court concluded that the trolley does not meet the criteria of "machinery" as it is merely a receptacle on wheels and does not generate power or modify natural forces.
3. Determination of whether the trolley qualifies as an "accessory" under entry 36 of the exemption notification issued under section 49(2) of the Act:
The applicant alternatively argued that the trolley should be considered an "accessory" of the processing machinery under entry 36 of the exemption notification. The Tribunal rejected this contention, stating that the trolley does not enhance the convenience or effectiveness of the processing machinery. The court referred to the Supreme Court's decision in Mehra Bros. v. Joint Commercial Tax Officer, which laid down the test for determining whether an item is an accessory. The court found that the trolley does not qualify as an accessory as it does not add to the comfort, beauty, or effectiveness of the processing machinery.
4. Applicability of residuary entry 13 of Schedule III to the trolley:
Given that the trolley does not qualify as "machinery" or an "accessory," the court held that it falls under the residuary entry 13 of Schedule III. This entry covers all goods not specified in other sections or schedules of the Act. The court agreed with the Tribunal's and Deputy Commissioner's determination that the trolley is covered under this residuary entry.
Conclusion:
The court answered the reference in the affirmative, holding that the Tribunal was justified in classifying the "two-side open wooden industrial trolley" under entry 13 of Schedule III and not under entry 16(1) of Schedule II, Part A, or entry 36 of the exemption notification. The reference was answered in favor of the Revenue, with no order as to costs.
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1993 (2) TMI 283
Issues:
1. Entitlement to claim concessional rate of tax for sales to registered dealers.
2. Rejection of revised return by the Tribunal.
3. Competency to entertain additional claim beyond the scope of remand order.
Analysis:
Issue 1:
The case involved the assessee's claim for a concessional rate of tax on sales to registered dealers during the assessment period. The claim was disallowed by the assessing authority, leading to an appeal before the Tribunal. The assessee argued that the delay in filing supporting "C" forms was due to the purchasing dealers' failure. The Tribunal partially allowed the revisions and remanded the cases for re-examining the claims. However, when the assessing officer examined the claims pursuant to the remand order, the assessee filed an additional claim beyond the scope of the remand order. The Tribunal rejected the additional claim, leading to the reconsideration of the matter by the High Court.
Issue 2:
The assessee contended that once a case is remanded to the assessing officer, it is the officer's duty to entertain a revised return and consider all claims made before him, regardless of the remand order's scope. The counsel relied on various decisions to support this argument. However, the Advocate-General cited a decision stating that if the appellate authority restricts the inquiry to a specific area, the assessing officer cannot redetermine the entire turnover of the assessee.
Issue 3:
The High Court analyzed Section 14(2) of the Act and Rule 9(2)(a) of the Bihar Rules, which allow for revised returns and submission of declarations before final assessment. The court noted that the assessing authority's jurisdiction is broad when dealing with assessment proceedings, either through reassessment or open remand. However, in this case, the assessing officer exceeded the jurisdiction conferred by the limited remand order. Citing relevant case law, the court held that the officer could not enlarge his jurisdiction beyond the specified scope of the remand order.
In conclusion, the High Court answered both questions in the affirmative, ruling against the assessee and imposing costs. The judgment was agreed upon by both Justices Gopichand Bharuka and Aftab Alam, with the reference being answered in the affirmative.
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1993 (2) TMI 282
The High Court of Andhra Pradesh upheld the decision of the Sales Tax Appellate Tribunal, finding the petitioner guilty of suppressing turnover of sales and purchases at M/s. New Dwaraka Lunch Home. The estimate was based on a spot inspection by the Commercial Tax Officer, leading to the levy of sales tax. The Court rejected the petitioner's argument and dismissed the petition. (Citation: 1993 (2) TMI 282 - ANDHRA PRADESH HIGH COURT)
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1993 (2) TMI 281
Issues Involved:
1. Liability to pay purchase tax under section 16(1) of the Gujarat Sales Tax Act, 1969.
2. Adjustment of sales tax paid by the vendor to avoid double taxation.
3. Imposition of penalty under section 45(6) of the Act.
Issue-wise Detailed Analysis:
1. Liability to Pay Purchase Tax Under Section 16(1):
The primary issue was whether the applicant was liable to pay purchase tax under section 16(1) of the Gujarat Sales Tax Act, 1969, despite having withdrawn declarations in form 17A after the breach was committed. The applicant, a registered dealer, purchased goods worth Rs. 91,51,487 from a vendor using form 17A declarations, certifying that the goods would be resold in inter-State trade. However, goods worth Rs. 60,44,927 were transferred to branches outside Gujarat, breaching the declarations. The Sales Tax Officer imposed purchase tax and penalty, which the applicant contested, arguing that the withdrawal of declarations before assessment should nullify the tax liability. The Tribunal held that the breach of declaration attracted purchase tax under section 16(1), as the withdrawal occurred after the breach. The court upheld this view, stating that the assessment proceedings had already started, making section 16(1) applicable.
2. Adjustment of Sales Tax Paid by the Vendor:
The second issue was whether the sales tax paid by the vendor, Suhrid Geigy Ltd., should be adjusted against the applicant's purchase tax liability to avoid double taxation. The vendor paid sales tax on the turnover in question, recovering it from the applicant. The court noted that the vendor had paid sales tax and interest for late payment before the applicant's assessment. The applicant argued that the amount paid by the vendor should be adjusted against its purchase tax liability. The court agreed, stating that the amount paid by the vendor should be regarded as paid on behalf of the applicant, and thus, should be adjusted against the applicant's liability under section 16. The vendor consented to this adjustment, ensuring no claim for a refund, which dispelled concerns of double taxation.
3. Imposition of Penalty Under Section 45(6):
The third issue concerned the imposition of a penalty under section 45(6) of the Act. The applicant was initially penalized for the breach of declarations. However, with the adjustment of the sales tax paid by the vendor against the applicant's liability, the court directed the Tribunal to determine the penalty amount, if any, after necessary calculations. The court clarified that the penalty imposition would depend on the final tax liability after adjustments.
Conclusion:
The court concluded that the applicant was liable to pay purchase tax under section 16(1) despite the withdrawal of declarations. However, the sales tax paid by the vendor should be adjusted against the applicant's liability to avoid double taxation. The penalty under section 45(6) would be recalculated based on the adjusted tax liability. The court reframed and answered the questions accordingly, ensuring a fair resolution while maintaining legal integrity.
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1993 (2) TMI 280
Issues Involved:
1. Legality of the penalty under section 10-A of the Central Sales Tax Act, 1956.
2. Interpretation of rule 3(2) of the Central Sales Tax (Registration and Turnover) Rules, 1957.
3. Interpretation of section 8(3)(b) of the Central Sales Tax Act.
4. Consideration of mens rea in the imposition of penalty.
5. Correct computation of the penalty amount.
Detailed Analysis:
1. Legality of the penalty under section 10-A of the Central Sales Tax Act, 1956:
The petitioners challenged the penalty levied under section 10-A of the Central Sales Tax Act by the assessing officer and the revisional order of the Commissioner of Sales Tax. The penalty was imposed on the grounds that the petitioner had failed to utilize the purchased goods for his own purpose and distributed them to different collieries, which were considered separate entities by the sales tax authorities. The court found that the penalty was levied without proper consideration of the explanations offered by the dealer, and thus, the levy of penalty was not in accordance with the law.
2. Interpretation of rule 3(2) of the Central Sales Tax (Registration and Turnover) Rules, 1957:
The petitioners argued that under rule 3(2), a dealer with more than one place of business within a state is required to make a single application for registration, naming one place as the principal place of business. They contended that the transfer of goods between different places of business should not be considered a transfer between separate entities. The court rejected this argument, stating that the rule does not prohibit a dealer from treating different places of business as independent entities and obtaining separate registration certificates for each. Thus, the different collieries, having obtained individual registration certificates, cannot be construed as a single unit.
3. Interpretation of section 8(3)(b) of the Central Sales Tax Act:
The court examined section 8(3)(b), which specifies that goods must be intended for use by the registered dealer in activities such as manufacturing, processing, or mining. The petitioners argued that the expression "in mining" should be read disjunctively, allowing goods to be used in mining by any entity, not necessarily the registered dealer. The court disagreed, stating that the expression "by him" controls the entire provision, and thus, goods must be used by the registered dealer who purchased them. The court concluded that transferring goods to another registered dealer for use in mining constituted a contravention of section 8(3)(b).
4. Consideration of mens rea in the imposition of penalty:
The court emphasized the importance of mens rea (guilty intention) in imposing penalties under section 10-A. It cited precedents indicating that penalties should not be imposed for technical or venial breaches or breaches stemming from a bona fide belief. The court found that the sales tax authorities did not properly consider whether the dealer's actions were in conscious disregard of the law or were based on a bona fide belief. The court concluded that the penalty was levied without proper consideration of the dealer's explanation and relevant facts, rendering the penalty unsustainable.
5. Correct computation of the penalty amount:
The court noted that even if the penalty was justified, it should only apply to the goods actually transferred to other collieries, not the entire amount of goods purchased. The court found the quantification of the penalty erroneous and agreed with the petitioners and the department's counsel that the matter required redetermination.
Conclusion:
The court quashed the orders of the Sales Tax Officer and the Commissioner of Sales Tax, remitting the matter to the assessing officer for reconsideration. The court directed the assessing officer to redetermine the penalty, considering the observations and conclusions made in the judgment, and to provide an opportunity for the petitioner-assessee to be heard. The writ application was allowed with no order as to costs. The assessee was directed to appear before the assessing officer on March 1, 1993, for further proceedings.
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1993 (2) TMI 279
Whether the legislature of a State is competent to make laws for the whole or any part of the State ?
Held that:- The Gujarat Legislature is not competent to regulate, modify or extinguish the obligations and liabilities incurred by a ’relief undertaking’ (declared as such under Section 3 of the Bombay Act) outside the State of Gujarat nor can it suspend or stay the suit or other proceedings relating to such obligations and liabilities. Section 4(1)(a)(iv) is not effective to suspend the plaintiff-appellant’s right to money nor can it operate to stay the proceedings in the present suit in the Bombay Court. If and when any execution is levied within the State of Gujarat and/or against the properties of the relief undertaking situated within the State of Gujarat, they can be interdicted by the said notification read with Section 4(i)(a)(iv) of the Act, as held by this Court in Binod mills [1987 (5) TMI 368 - SUPREME COURT]. Allow this appeal, set aside the Judgment of the Division Bench of the High Court
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1993 (2) TMI 278
The petitioner, a registered dealer under the Kerala General Sales Tax Act, objected to producing books of accounts for certain years, claiming to have opted for a different procedure. The court ruled that the assessing authority had jurisdiction to request the books of account for verification and tax determination, even if the dealer had chosen to file monthly returns. The petition to quash the orders was dismissed. The original petition was dismissed.
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1993 (2) TMI 277
Issues Involved:
1. Whether gypsum is considered a fertilizer within the meaning of entry No. 27 of Schedule 'B' of the Haryana General Sales Tax Act, 1973.
2. Whether the sale of gypsum by the Corporation should be exempted from sales tax.
Issue-wise Detailed Analysis:
Issue 1: Whether gypsum is considered a fertilizer within the meaning of entry No. 27 of Schedule 'B' of the Haryana General Sales Tax Act, 1973.
The court examined whether gypsum falls under the definition of "fertilizer" as per entry No. 27 of Schedule 'B' of the Haryana General Sales Tax Act, 1973. The Act itself does not define "fertilizer" or "gypsum," necessitating reliance on dictionary meanings and expert literature. Various dictionaries, including Webster's and Oxford, define "fertilizer" as a substance that enhances soil fertility, and "gypsum" as hydrous calcium sulfate used in soil amendment. Expert literature, such as "Commercial Fertilizers" by Gilbeart H. Collings, supports the use of gypsum as a fertilizer, noting its historical and practical applications in agriculture. The Punjab Agricultural University also recommends gypsum as a fertilizer, particularly in sulphur-deficient soils.
Issue 2: Whether the sale of gypsum by the Corporation should be exempted from sales tax.
The court scrutinized whether the gypsum sold by the Corporation to farmers qualifies for tax exemption under entry No. 27 of Schedule 'B.' The Assessing Authority, appellate authority, and Sales Tax Tribunal had previously ruled that gypsum is not a fertilizer and, therefore, not exempt from sales tax. However, the court found that gypsum, when sold to farmers, is used as a fertilizer containing essential plant nutrients like calcium and sulphate. The court emphasized that gypsum improves soil fertility and is used as a direct fertilizer when other chemical fertilizers are unavailable. The court concluded that gypsum sold to farmers or cooperative societies dealing in fertilizers should be tax-free under entry No. 27 of Schedule 'B.'
Conclusion:
The court answered the referred question in the affirmative, ruling in favor of the assessee. It was determined that gypsum sold by the Corporation to farmers is indeed a fertilizer under entry No. 27 of Schedule 'B' and should be exempt from sales tax. The parties were directed to bear their own costs as the question was not free from doubt.
Reference answered in the affirmative.
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1993 (2) TMI 276
Issues Involved:
1. Validity of the Deputy Commissioner's exercise of powers under section 57 of the Bombay Sales Tax Act, 1959.
2. Entitlement of the applicant to claim set-off under rule 41 or rule 43 of the Bombay Sales Tax Rules, 1959, for tax paid on cream converted into butter for sale.
Detailed Analysis:
Issue 1: Validity of the Deputy Commissioner's Exercise of Powers
The first issue concerns whether the Deputy Commissioner of Sales Tax was proper, legal, and valid in exercising powers under section 57 of the Bombay Sales Tax Act, 1959, to disallow the set-off allowed by the Sales Tax Officer.
The applicant, engaged in selling butter made from purchased cream, had initially been granted set-off by the Sales Tax Officer for the years 1967, 1968, and 1969. These orders were not challenged by the Revenue. However, the Deputy Commissioner later revised these assessment orders suo motu under section 57, completely disallowing the set-off. The applicant challenged these revisional orders, and the Tribunal set aside the Deputy Commissioner's orders, restoring the Sales Tax Officer's orders.
The Deputy Commissioner subsequently issued a new notice and again disallowed the set-off after hearing the parties. The applicant's revision applications were dismissed by the Tribunal, leading to the present reference.
The court found that the Deputy Commissioner could not exercise powers of revision under section 57 after a period of five years concerning the set-off allowed by the Sales Tax Officer in the years 1972 and 1973. However, for the additional amount of set-off allowed by the Sales Tax Officer in 1977, the Deputy Commissioner might have the power to revise, but the orders of set-off were confirmed on merits.
Issue 2: Entitlement to Claim Set-Off under Rule 41 or Rule 43
The second issue pertains to whether the applicant was entitled to claim set-off under rule 41 or rule 43 of the Bombay Sales Tax Rules, 1959, for tax paid on cream converted into butter for sale.
The court analyzed the definitions of "manufacture" and "resale" under the Act. The term "manufacture" excludes the preparation of butter from cream as per rule 3(xv). Thus, the preparation of butter from cream does not qualify as "manufacture," and the benefit of rule 41 is not available. However, the definition of "resale" under section 2(26) includes the sale of goods without doing anything that amounts to "manufacture." Therefore, the sale of butter, prepared from cream without a manufacturing process, qualifies as "resale."
The court concluded that the applicant was entitled to claim set-off under rule 43 because the preparation of butter from cream is not considered a manufacturing process, and thus, the sale of butter is treated as the resale of cream. This interpretation aligns with the legislative intent to avoid double taxation and ensure a single point levy of tax.
Conclusion:
The court answered question No. 1 partly in the negative, indicating that the Deputy Commissioner's exercise of revisional powers under section 57 was not valid concerning the set-off allowed in the years 1972 and 1973. Question No. 2 was answered in the negative and in favor of the assessee, confirming the applicant's entitlement to claim set-off under rule 43 for the tax paid on cream converted into butter. There was no order as to costs.
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1993 (2) TMI 275
Issues: Allegation of two partnership units being one entity; Benefit of exemption under Notifications 85/79 and 46/81; Allegations of dummy unit and insufficient machinery.
Analysis:
1. The case involved an appeal by the Revenue against the order passed by the Collector of Central Excise, Chandigarh, alleging that two partnership units, Panesar Bros. and Panesar Engineering Works, were one and the same entity. The Revenue contended that Panesar Bros. was a dummy unit of Panesar Engineering Works. The department also alleged that Panesar Bros. did not have sufficient machinery or space for manufacturing certain products.
2. The Collector, in the impugned order, held that Panesar Bros. was not covered by the definition of a factory under the Factories Act, 1948, as it only had six workers. Consequently, Panesar Bros. was entitled to full exemption under Notifications 85/79 and 46/81. The Collector also ruled that the value of clearances fully exempt under other notifications need not be computed for aggregate clearance purposes under relevant notifications.
3. During the hearing, the Revenue reiterated the facts from the CBEC order and cited tribunal decisions to support their argument that the two units should be considered one entity for clubbing workers and clearances. The Revenue sought to set aside the impugned order and sustain the demand of Rs. 1,00,371 against the units.
4. The advocates for Panesar Engineering Works and Panesar Bros. argued that even if the units were considered the same, Panesar Bros. was eligible for the exemption under Notifications 85/79 and 46/81 due to having less than 10 workers. They contended that there was no evidence to support the allegations of insufficient machinery or being a dummy unit. They highlighted that Panesar Bros. was an older establishment than Engineering Works and had been engaged in manufacturing before the latter's existence.
5. The tribunal agreed with the advocates for Panesar Engineering Works and Panesar Bros., holding that the benefit of the exemption notifications was correctly accorded by the adjudicating authority. The tribunal found no sufficient evidence to establish that the two units were one and the same or that Panesar Bros. was a dummy or shadow unit of Engineering Works. Consequently, the appeal by the Revenue was dismissed, and cross-objections were deemed non-maintainable as the respondents had been granted complete relief by the adjudicating authority.
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1993 (2) TMI 274
Whether the three year time prescribed under section 22 of the Act is directory and is intended to cover the overtaking of the jurisdiction by the concerned authority?
Held that:- Appeal dismissed. The application for rectification was made by the State Government on March 9, 1973. The application having been made beyond the period of three years the question of applicability of section 22 did not arise. The learned counsel for the State Government has, however, contended that the dates mentioned in the judgment of the High Court are not correct. According to the learned counsel the application for rectification was made on March 9, 1972 and not on March 9, 1973. We have no material before us to support the factual contention of the learned counsel for the appellant. Even otherwise the amount involved is very small and the assessment relates to the year 1964-65.
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1993 (2) TMI 269
Issues Involved:
1. Payability of interest to unsecured creditors under the scheme.
2. Impact of moratorium periods under the Karnataka Relief Undertakings (Special Provisions) Act, 1977, and the Industrial Reconstruction Bank of India Act, 1984, on the company's liabilities.
3. Court's power to modify or enforce the scheme under Section 392 of the Companies Act, 1956.
Issue-wise Detailed Analysis:
1. Payability of Interest to Unsecured Creditors under the Scheme:
The appellant-company contested the order directing it to pay interest at 6% per annum on the amount due to its creditors. The scheme sanctioned by the court on April 13, 1973, provided two alternatives for unsecured creditors: accept 50% of the amount due within three months of production commencement or receive the full amount in four equal instalments without interest. The company argued that the scheme, being a judicial pronouncement, did not provide for interest payment and should be enforced strictly according to its terms. However, the court held that the company's failure to make payments as per the scheme rendered the denial of interest irrelevant. The court emphasized that the scheme's silence on interest did not preclude the court from granting equitable relief to creditors under Section 392 of the Companies Act, 1956.
2. Impact of Moratorium Periods on the Company's Liabilities:
The company contended that its liabilities were suspended during the moratorium periods under the Karnataka Act and the Central Act. Specifically, the liability was claimed to be suspended from October 7, 1977, to October 6, 1987, and again from July 17, 1989, to March 5, 1991. The court rejected this contention, stating that Section 5 of the Karnataka Act only suspended liabilities temporarily. Once the notification ceased, the liabilities revived and were enforceable as if the notification had never been issued. Therefore, the liability existed all along, and its enforcement was merely postponed, not extinguished.
3. Court's Power to Modify or Enforce the Scheme under Section 392 of the Companies Act, 1956:
The court highlighted its wide supervisory powers under Section 392 of the Companies Act, 1956, which allows it to issue directions or make modifications necessary for the proper working of the scheme. The court cited several precedents, including S.K. Gupta v. K.P. Jain and Sudarsan Chits (I.) Ltd. v. G. Sukumaran Pillai, to emphasize that the purpose of a scheme is to avoid the civil death of a company and to ensure the rights of creditors are protected. The court concluded that it had the equitable power to direct the payment of interest to creditors who were deprived of their money due to the company's default. Consequently, the court upheld the order directing the company to pay interest from the date of the application at the rate of 6% per annum.
Conclusion:
The appeals were dismissed, affirming the lower court's order for the company to pay interest to its unsecured creditors. The court's decision underscored the broad supervisory powers under Section 392 of the Companies Act, 1956, and the equitable principles guiding the enforcement of schemes of arrangement.
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1993 (2) TMI 268
Issues:
1. Application filed under Order 14, rule 8 of the Original Side Rules read with rules 9 and 11 of the Companies (Court) Rules, 1959, to stay the company petition till the dispute is resolved through arbitration under section 34 of the Arbitration Act, 1940.
2. Company petition filed under sections 433(e), 434(1)(a) and (f ) and 439(1)(b) of the Companies Act, 1956, for winding up of the petitioner-company and other reliefs.
3. Interpretation of clause 22 of the agreement regarding arbitration for dispute resolution.
4. Whether the company petition should be stayed pending arbitration under the Arbitration Act.
Analysis:
The respondent filed a company petition seeking winding up of the petitioner-company due to alleged non-payment of debts. The petitioner sought a stay of the company petition, invoking clause 22 of the agreement that mandated arbitration for dispute resolution. The respondent contended that the company petition was not maintainable as there was no dispute regarding repayment of the balance of trade deposit. The court analyzed clause 22 of the agreement, which stipulated arbitration for settling disputes, and examined whether the company petition fell under the purview of the arbitration clause. The court noted that the allegations in the company petition were not contractual in nature but pertained to the admitted liability of the petitioner for a specific amount. The court emphasized that the right to apply for winding up is statutory and not contractual, and the relief sought did not arise directly from the agreement. The court clarified that for a proceeding to be stayed under the Arbitration Act, the matter must be agreed to be referred to arbitration, which was not the case here. As there was no dispute to be decided by an arbitrator, the court dismissed the application for stay, ruling that the company petition was not liable to be stayed pending arbitration. The court highlighted the distinction between matters agreed to be referred to arbitration and those falling under statutory provisions for winding up, ultimately denying the stay application and dismissing the case without costs.
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1993 (2) TMI 267
Issues Involved:
1. Winding up of companies on just and equitable grounds under section 433(f) of the Companies Act, 1956.
2. Relief under sections 397 and 398 of the Companies Act, 1956.
3. Validity of the transfer of shares and rectification of the register of members.
4. Implementation of the decision given by the designated person, M.L. Bhakta.
5. Compliance with principles of natural justice.
6. Judicial review of the decision given by M.L. Bhakta.
Detailed Analysis:
1. Winding up of Companies on Just and Equitable Grounds Under Section 433(f):
The petitioners filed Company Petition No. 663 of 1986 for winding up Nandlal Kilachand Investment Pvt. Ltd. (NKIPL), Dodsal Pvt. Ltd., and Indmag Pvt. Ltd. on just and equitable grounds under section 433(f) of the Companies Act, 1956. They alleged that Rajen Arvindkumar Kilachand, the second respondent, sought to divert and appropriate the profits and benefits of NKIPL and harassed the petitioners to coerce them into surrendering their shareholdings. The petitioners contended that the continuation of NKIPL would benefit only Rajen, perpetuating his acts of misfeasance.
2. Relief Under Sections 397 and 398 of the Companies Act, 1956:
In the alternative, the petitioners sought relief under sections 397 and 398 of the Companies Act, claiming oppression and mismanagement by Rajen. The petitioners alleged that Rajen illegally misappropriated Rs. 12 lakhs from Dodsal Pvt. Ltd. and fraudulently used it to acquire shares belonging to Ramesh Nandlal Kilachand's family. The court, in its order dated September 7, 1989, suggested that the petitioners get a fair value for their holdings in NKIPL, Dodsal Pvt. Ltd., and Indmag Pvt. Ltd., which was agreed upon by the parties.
3. Validity of the Transfer of Shares and Rectification of the Register of Members:
The petitioners filed Company Petition No. 664 of 1986 against NKIPL, Rajen, and Puthucode Subramaniam, seeking a declaration that the transfer of 1,936 shares of NKIPL held by Lilavati Nandlal Kilachand to Rajen was void and unauthorized. They sought rectification of the register of members to reflect the shares in the names of the executors of Nalinikant Nandlal Kilachand's estate or, alternatively, in the names of the petitioners. The court designated M.L. Bhakta to decide all questions referred to him, and Bhakta's decision on August 28, 1991, declared the petitioners entitled to 3,800 equity shares of NKIPL, including 484 shares from Lilavati's estate.
4. Implementation of the Decision Given by M.L. Bhakta:
The petitioners sought implementation of Bhakta's decision, which valued their 3,800 shares at Rs. 4 crores. Bhakta directed the petitioners to sell their shares to Rajen or his nominees for Rs. 4 crores, with specific payment schedules and interest terms. Rajen failed to comply with the payment schedule, leading the petitioners to seek court intervention for enforcement of Bhakta's decision. The court held that Bhakta's decision was valid, legal, and binding, and directed its implementation.
5. Compliance with Principles of Natural Justice:
Respondents Nos. 4, 5, and 6 contended that Bhakta's decision was null and void as they were not heard during the proceedings. The court found that respondents were aware of the proceedings and had the opportunity to participate. The court held that Bhakta was not required to follow principles of natural justice as he was not acting as an arbitrator but as a person designated by the court. The court rejected the respondents' claims of bias and violation of natural justice.
6. Judicial Review of the Decision Given by M.L. Bhakta:
The respondents argued that Bhakta's decision was beyond the scope of the court's order and was arbitrary and void. The court held that Bhakta acted within the scope of the order, and his decision was not subject to judicial review. The court emphasized that Bhakta's valuation of shares was binding and not open to challenge, as it was agreed upon by the parties. The court found no error of law or jurisdictional excess in Bhakta's decision and directed its enforcement.
Conclusion:
The court validated the decision of M.L. Bhakta, who was designated to value the shares and resolve disputes among the parties. The court found that Bhakta acted within his authority, and his decision was binding and enforceable. The respondents' objections regarding natural justice and judicial review were dismissed, and the court directed the implementation of Bhakta's decision, including the payment of Rs. 4 crores with interest to the petitioners.
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1993 (2) TMI 261
Issues:
1. Application under section 446 read with section 456 of the Companies Act, 1956, and rules 6 and 9 of the Companies (Court) Rules, 1959, read with section 151 of the Civil Procedure Code filed by RIICO.
2. Prayers for leave to remain outside winding-up proceedings by RIICO.
3. Dispute over possession and sale of assets by RIICO.
4. Preferential payments under sections 529A and 530 of the Companies Act.
5. Rights of secured creditors under the State Financial Corporations Act, 1951.
6. Jurisdiction of the court in asset sale proceedings.
7. Precedents regarding secured creditors' rights in winding-up proceedings.
Analysis:
The judgment by I.S. Israni, J. addresses an application by RIICO under the Companies Act seeking leave to stay outside winding-up proceedings. RIICO, a secured creditor, had taken over assets before the winding-up order, prompting objections from other parties. The court noted RIICO's statutory rights under the State Financial Corporations Act, allowing it to act independently. The court emphasized RIICO's adherence to statutory procedures for asset realization under section 29. The judgment highlighted RIICO's cooperation with the official liquidator for asset valuation and sale publicity, ensuring compliance with section 529A for workmen's claims.
The judgment discussed the applicability of preferential payment provisions under the Companies Act, emphasizing the need for proper distribution from asset sales. It rejected contentions of overreach by RIICO, affirming its right to act under the State Financial Corporations Act. The court clarified that RIICO's actions did not undermine the court's authority, given its statutory powers. The judgment cited precedents where secured creditors were allowed to sell assets independently during winding-up proceedings, subject to statutory obligations.
The court dismissed suggestions for joint asset sale with the bank, affirming RIICO's right to conduct sales independently. It highlighted the overriding effect of the State Financial Corporations Act over conflicting laws, safeguarding RIICO's rights. The judgment underscored the need for court intervention only in case of non-bona fide sales. It referenced past cases where secured creditors were permitted to sell assets during winding-up, reinforcing RIICO's position in the current matter.
In conclusion, the court granted RIICO's application to remain outside winding-up proceedings, subject to compliance with specified procedures. It vacated previous stay orders, allowing RIICO to proceed with asset sales while ensuring adherence to statutory requirements. The judgment upheld RIICO's rights as a secured creditor under the State Financial Corporations Act, emphasizing the importance of following legal procedures for asset realization and workmen's claims.
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1993 (2) TMI 260
The High Court of Rajasthan allowed the application under section 633(2) of the Companies Act, 1956, filed by directors and ex-directors of a company manufacturing wires and cables. The company had become sick and remained closed, with efforts made to revive it. The court relieved the directors from their duties for a period of two years due to the company's circumstances.
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1993 (2) TMI 259
Issues Involved:
1. Contravention of sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973.
2. Jurisdiction of the Enforcement Directorate to issue show-cause notices under the Foreign Exchange Regulation Act.
Issue-wise Detailed Analysis:
1. Contravention of Sections 18(2) and 18(3) of the Foreign Exchange Regulation Act, 1973:
The primary allegation against the appellant, Golden Machinery Corporation, was that it engaged in under-invoicing exports to Bangladesh, thereby failing to declare the true value of the goods on the GRI Forms and invoices. The appellant was accused of not realizing the full export value as required by sections 18(2) and 18(3) of the Act. The adjudicating authority found the appellant guilty and imposed penalties, which were later confirmed by the Foreign Exchange Regulation Appellate Board.
The court analyzed the requirements under section 18(1) of the Act, which mandates exporters to declare the full export value of goods. This declaration must be true and supported by evidence. The court referred to several precedents, including the Supreme Court decisions in Toolsidass Jewraj v. Additional Collector of Customs and Director, Enforcement Directorate, Ministry of Finance v. K.O. Krishnaswamy, which emphasized the necessity of true declarations.
The court noted that under section 18(2), an exporter must ensure prompt sale and repatriation of the full export value. The court found that the appellant had indeed realized the full declared value of the goods, as evidenced by the statements of account from the appellant's banker. The customs authorities did not initiate any proceedings for under-invoicing, indicating that the declared values were accepted.
2. Jurisdiction of the Enforcement Directorate to Issue Show-Cause Notices:
The appellant contended that the show-cause notices issued by the Enforcement Directorate were without jurisdiction. The court examined section 67 of the Foreign Exchange Regulation Act, 1973, which states that restrictions imposed under section 18(1) shall be deemed to have been imposed under section 11 of the Customs Act, 1962. Consequently, any contravention of section 18(1) should be dealt with by the customs authorities, not the Enforcement Directorate.
The court concluded that the allegations in the show-cause notices, even if true, could only constitute a contravention of section 18(1). Since the customs authorities did not take any action, the Enforcement Directorate had no jurisdiction to initiate proceedings. The court held that there was no contravention of sections 18(2) and 18(3) as the full export value was realized in the prescribed manner and within the prescribed period.
Conclusion:
The court quashed the orders of the Foreign Exchange Regulation Appellate Board and the adjudicating authority, ruling that the show-cause notices were without jurisdiction. The penalties imposed were to be refunded by the Enforcement Directorate within four weeks.
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1993 (2) TMI 258
Issues Involved:
1. Non-speaking order
2. Discretionary order for advertisement
3. Company's financial condition
4. Prima facie case for winding up
5. Postponement of advertisement
Detailed Analysis:
Non-speaking Order:
Mr. Raghavan, counsel for the appellants, contested the order on the grounds that it was a non-speaking order. The Supreme Court's decision in Vasudeo Vishwanath Saraf v. New Education Institute emphasized the need for a speaking order when subject to appeal. The court acknowledged this requirement but found that, given the admitted facts and the records, the order sufficiently indicated the reasons for advertisement. The court stated, "The nature of the order which should speak for itself depends upon the subject matter involved," and concluded that the order met the necessary standards.
Discretionary Order for Advertisement:
Mr. Raghavan also argued that the order directing advertisement was discretionary and unwarranted under the circumstances. The court held that a petition for winding up could be advertised if a prima facie case was made. The balance-sheet indicated the company's strained circumstances, and sufficient time had been granted to propose a settlement. The court found no error in the learned company judge's decision, stating, "In the instant case the balance-sheet of the company has been produced which itself indicates that the company is in strained circumstances."
Company's Financial Condition:
The petitioners asserted that the company was unable to pay its debts, with over 3,500 unsecured creditors and more than Rs. 4.50 crores borrowed. The company's balance-sheet and the director's affidavit supported these claims. The court noted, "The petitioners' assertions that the amounts matured have not been refunded and the cheques have bounced have also not been disputed by the company." The court emphasized that the capacity to pay debts should be tested in a commercial sense, not theoretically.
Prima Facie Case for Winding Up:
The court referred to the principles laid down in Madhusudan Gordharidas and Co. v. Madhu Woollen Industries Private Ltd., emphasizing that a prima facie case for winding up entitles a creditor to an order under section 433(e) of the Companies Act. The court stated, "If a prima facie case for winding up is made, normally, a creditor is entitled to an order of winding up under section 433(e) of the Companies Act, subject to other considerations governing the exercise of the discretion." The court found that the undisputed facts prima facie indicated the company's inability to pay its debts.
Postponement of Advertisement:
Mr. Raghavan requested a postponement of the advertisement, citing cases from the Punjab and Haryana High Court and the Bombay High Court. The court acknowledged its power to postpone the advertisement. Given the company's valuable immovable properties and the measures in place to protect creditors' interests, the court saw no immediate danger. The court concluded, "Having considered the matter in great depth, we are of the view that, the interest of all the parties would be served by upholding the order of the learned company judge, subject to the condition that the actual advertisement shall be effected during the first week of July, 1993, fixing the date of hearing as July 26, 1993."
Conclusion:
The appeal was dismissed, with the advertisement postponed to the first week of July 1993, and the date of hearing set for July 26, 1993. The court allowed parties to seek further arrangements from the learned company judge.
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